As Filed with the Securities and Exchange Commission on February 14, 1997
Registration Nos. 333-14495; 333-14495-01; 333-14495-02
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Panda Funding Corporation
(Exact name of registrant as specified in its charter)
Delaware 4900 75-2660911
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification No.)
incorporation or
organization)
Panda Interfunding Corporation
(Exact name of registrant as specified in its charter)
Delaware 4900 75-2660915
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification No.)
incorporation or
organization)
Panda Interholding Corporation
(Exact name of registrant as specified in its charter)
Delaware 4900 75-2660917
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification No.)
William C. Nordlund William C. Nordlund William C. Nordlund
Senior Vice President Senior Vice President Senior Vice President
and General Counsel and General Counsel and General Counsel
Panda Funding Panda Interfunding Panda Interholding
Corporation Corporation Corporation
4100 Spring Valley Road, 4100 Spring Valley Road, 4100 Spring Valley Road,
Suite 1001 Suite 1001 Suite 1001
Dallas, Texas 75244 Dallas, Texas 75244 Dallas, Texas 75244
(972) 980-7159 (972) 980-7159 (972) 980-7159
(Name, address, including (Name, address, including (Name, address, including
zip code, and telephone zip code, and telephone zip code, and telephone
number, including area number, including area number, including area
code, of registrant's code, of guarantor's code, of guarantor's
principal executive principal executive offices principal executive
offices and agent for offices and agent for offices and agent for
service) service) service)
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration Statement
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering.
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box.
The Registrant and the Co-Registrant hereby amend this Registration Statement
on such date or dates as may be necessary to delay its effective date until the
Registrant and the Co-Registrant shall file a further amendment which
specifically states that this Registration Statement shall thereafter become
effective in accordance with Section 8(a) of the Securities Act of 1933 or
until the Registration Statement shall become effective on such date as the
Commission, acting pursuant to said Section 8(a), may determine.
PANDA FUNDING CORPORATION
PANDA INTERFUNDING CORPORATION
PANDA INTERHOLDING CORPORATION,
Cross Reference Sheet
Pursuant to Item 501(b) of Regulation S-K
1. Forepart of the Registration
Statement and Outside Front Cover
Page of Prospectus Outside Front Cover Page of Prospectus;
Facing Pages
2. Inside Front and Outside Back Cover
Pages of Prospectus Inside Front and Outside Back Cover
Pages of Prospectus
3. Summary Information, Risk Factors
and Ratio of Earnings to Fixed
Charges Prospectus Summary; Risk Factors;
Unaudited Pro Forma Financial Data;
Selected Financial Data
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price *
6. Dilution *
7. Selling Security Holders *
8. Plan of Distribution Outside Front Cover Page of Prospectus;
Prospectus Summary; The Exchange Offer;
Plan of Distribution
9. Description of Securities to be
Registered Prospectus Summary; Description of the
Exchange Bonds
10. Interests of Named Experts and
Counsel Legal Matters; Experts
11. Information with Respect to the
Registrant Outside Front Cover Page of Prospectus;
Available Information; Prospectus
Summary; Risk Factors; The Company, the
Issuer, Panda Interholding and Panda
International; Use of Proceeds;
Capitalization; Unaudited Pro Forma
Financial Data; Selected Financial
Data; Management's Discussion
and Analysis of Financial
Condition and Results of Operations;
The Exchange Offer; Certain U.S.
Federal Income Tax Considerations of
the Exchange Offer; Business;
Description of the Projects; Legal
Proceedings; Regulation; Management;
Description of Outstanding Project-
Level Debt; Description of the Exchange
Bonds; Old Bonds Registration Rights;
Plan of Distribution; Legal Matters;
Experts; Financial Statements; Defined
Terms; Consolidated Pro Forma Report;
Rosemary Engineering Report; Rosemary
Fuel Consultant's Report; Brandywine
Pro Forma Report; Brandywine
Engineering Report; Brandywine Fuel
Consultant's Report
12. Disclosure of Commission Position
on Indemnification for Securities
Act Liabilities *
* Not applicable
PROSPECTUS
OFFER TO EXCHANGE
11-5/8% Pooled Project Bonds, Series A-1 due 2012
which have been registered under the Securities Act
for any and all outstanding
11-5/8% Pooled Project Bonds, Series A due 2012
of
PANDA FUNDING CORPORATION
Fully and Unconditionally Guaranteed by
PANDA INTERFUNDING CORPORATION
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON MARCH 19, 1997, UNLESS EXTENDED.
Panda Funding Corporation, a Delaware corporation (the "Issuer"), a
special purpose finance subsidiary of Panda Interfunding Corporation, a
Delaware corporation (the "Company"), hereby offers, upon the terms and subject
to the conditions set forth in this Prospectus and in the accompanying Letter
of Transmittal (the "Letter of Transmittal," which together with this
Prospectus constitute the "Exchange Offer"), to exchange up to $105,525,000 in
aggregate principal amount of its 11-5/8% Pooled Project Bonds, Series A-1 due
2012 (the "Exchange Bonds") for a like principal amount of its issued and
outstanding 11-5/8% Pooled Project Bonds, Series A due 2012 (the "Old Bonds")
that were issued and sold in a transaction exempt from registration under the
Securities Act of 1933, as amended (the "Securities Act"). The terms of the
Exchange Bonds are substantially identical to the terms of the Old Bonds,
except that the Exchange Bonds (i) have been registered under the Securities
Act, and (ii) holders of the Exchange Bonds will not be entitled to certain
rights of holders of the Old Bonds under the Registration Rights Agreement (as
defined herein), which rights will terminate upon the consummation of the
Exchange Offer. Such rights will also terminate as to holders of Old Bonds who
are eligible to tender their Old Bonds for exchange in the Exchange Offer and
fail to do so. See "The Exchange Offer - Termination of Certain Rights." The
Exchange Bonds will evidence the same debt as the Old Bonds which they replace
and will be issued under, and be entitled to the benefits of, the indenture
governing the Old Bonds dated July 31, 1996 (the "Indenture"). As of the date
of this Prospectus, $105,525,000 principal amount of Old Bonds is outstanding.
The Old Bonds and the Exchange Bonds are sometimes referred to herein
collectively as the "Existing Bonds."
The Exchange Bonds will bear interest from the date of issuance, at the
rate per annum set forth above, payable semiannually in cash in arrears on
February 20 and August 20 of each year, commencing February 20, 1997. Interest
on the Old Bonds accepted for exchange will accrue thereon to, but not
including, the date of issuance of the Exchange Bonds and will be paid together
with the first interest payment on the Exchange Bonds issued in exchange
therefor. The principal of the Exchange Bonds is payable semiannually in
installments as described herein commencing February 20, 1997. The Exchange
Bonds will mature on August 20, 2012, and will be redeemable at the option of
the Issuer, in whole or in part, from time to time on or after August 20, 2001,
at the redemption prices set forth herein, plus accrued and unpaid interest to
the redemption date. In addition, the Issuer is required to redeem the Exchange
Bonds, in whole or in part, upon the occurrence of certain events as set forth
herein. Payment of principal of, and premium, if any, and interest on the
Exchange Bonds is fully and unconditionally guaranteed by the Company (the
"Company Guaranty"). The obligations under the Company Guaranty and Exchange
Bonds are also guaranteed in a limited amount (the "PIHC Guaranty") by Panda
Interholding Corporation, a Delware corporation and a wholly-owned subsidiary
of the Company ("Panda Interholding"). The Exchange Bonds are payable from
amounts received by the Issuer from the repayment of the note issued by the
Company (the "Initial Company Note") to the Issuer in connection with the loan
to the Company of the proceeds from the issuance of the Old Bonds and from
payments, if any, under the Company Guaranty and the PIHC Guaranty. The
payments on the Initial Company Note are identical to payments of principal of,
and premium, if any, and interest on the Existing Bonds. See "Description of
the Exchange Bonds."
Subject to the terms and conditions of the Exchange Offer, the Issuer will
accept for exchange any and all Old Bonds validly tendered and not withdrawn
prior to 5:00 p.m., New York City time, on March 19, 1997, unless extended by
the Issuer in its sole discretion (the "Expiration Date"). Tenders of Old Bonds
may be withdrawn at any time prior to the Expiration Date. The Exchange Offer
is not conditioned upon any minimum aggregate principal amount of Old Bonds
being tendered or accepted for exchange. However, the Exchange Offer is
subject to certain customary conditions. The Old Bonds may be tendered only in
integral multiples of $1,000. See "The Exchange Offer - Conditions of the
Exchange Offer."
Prior to the consummation of the Exchange Offer, there has been no public
market for the Exchange Bonds. The Issuer does not intend to apply for the
listing of the Exchange Bonds on any securities exchange or to seek approval
for quotation through any automated quotation system, and no active public
market for the Exchange Bonds is currently anticipated. There can be no
assurance that an active public market for the Exchange Bonds will develop.
(continued on next page)
See "Risk Factors" beginning on page 27 for a discussion of certain matters
that should be considered in connection with the Exchange Offer and an
investment in the Exchange Bonds offered hereby.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is February 14, 1997.
(cover page continued)
The Issuer, the Company and Panda Interholding were recently formed
by Panda Energy International, Inc., a Texas corporation and the ultimate
parent entity of the Company ("Panda International"), as vehicles for
financing power project development through the transfer of projects to
the Company and the issuance of Bonds (as defined herein) by the Issuer.
Panda International has initially transferred to a subsidiary of the
Company its 100% indirect equity interests in two operating electric
power generation projects in the United States. The Exchange Bonds are
secured by, among other collateral, pledges of, or grants of security
interests in, (i) all distributions the Company receives from its
subsidiaries that own interests in U.S. projects, (ii) all capital stock
of the Company, the Issuer and such subsidiaries, (iii) certain Company
accounts established to capture distributions from such subsidiaries and
(iv) the Initial Company Note. The Exchange Bonds are not secured by any
direct equity interests in, or assets of, any projects or by any interest
in distributions from subsidiaries of the Company that may own interests
in non-U.S. projects, if any, or by any accounts established in respect
of such non-U.S. project distributions; however, such non-U.S. accounts
and distributions will be pledged to the Company to secure loans from the
Company to such subsidiaries of the proceeds of any future series of
Bonds issued to finance non-U.S. projects.
The Old Bonds were originally issued and sold on July 31, 1996 in a
transaction not registered under the Securities Act in reliance upon the
exemptions provided in Section 4(2) of the Securities Act and Rule 144A
promulgated under the Securities Act ("Rule 144A"). Accordingly, the Old
Bonds may not be offered or sold, except pursuant to an exemption from,
or in a transaction not subject to, the registration requirements of the
Securities Act. Based upon its view of interpretations provided to third
parties by the staff of the Securities and Exchange Commission (the
"Commission"), the Company believes that the Exchange Bonds issued
pursuant to the Exchange Offer may be offered for resale, resold and
otherwise transferred by holders thereof (other than any holder which is
(i) an "affiliate" of the Company, the Issuer or Panda Interholding
within the meaning of Rule 405 promulgated under the Securities Act (an
"Affiliate"), (ii) a broker-dealer who acquired Old Bonds directly from
the Issuer or (iii) a broker-dealer who acquired Old Bonds as a result of
market making or other trading activities) without registration under the
Securities Act, provided that such Exchange Bonds are acquired in the
ordinary course of such holders' business and such holders are not
engaged in, and do not intend to engage in, and have no arrangement or
understanding with any person to participate in, a distribution of such
Exchange Bonds. Each broker-dealer that receives Exchange Bonds for its
own account pursuant to the Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any resale of such Exchange
Bonds. The Letter of Transmittal states that by so acknowledging and by
delivering a prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act. This
Prospectus, as it may be amended or supplemented from time to time, may
be used by a broker-dealer in connection with resales of Exchange Bonds
received for its own account in exchange for Old Bonds where such Old
Bonds were acquired by such broker-dealer as a result of market making
activities or other trading activities. The Company and the Issuer have
agreed to make available for a period of up to six months a prospectus
meeting the requirements of the Securities Act to any such broker-dealer
for use in connection with any such resale. A broker-dealer that
delivers such a prospectus to a purchaser in connection with such resales
will be subject to certain of the civil liability provisions under the
Securities Act and will be bound by the provisions of the Registration
Rights Agreement (including certain indemnification provisions). Any
holder who tenders in the Exchange Offer for the purpose of participating
in a distribution of the Exchange Bonds, and any other holder that cannot
rely upon such interpretations, must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with
a secondary resale transaction. In addition, to comply with the
securities laws of certain jurisdictions, if applicable, the Exchange
Bonds may not be offered or sold unless they have been registered or
qualified for sale in such jurisdictions or an exemption from
registration or qualification is available and the conditions thereto
have been met.
The Exchange Bonds issued pursuant to the Exchange Offer will be
issued in the form of a fully registered global bond which will be
deposited with, or on behalf of, The Depository Trust Company ("DTC") and
registered in the name of its nominee. Beneficial interest in the global
bond representing the Exchange Bonds will be shown on, and transfers
thereof will be effected only through, records maintained by DTC and its
participants. After the initial issuance of such global bond, Exchange
Bonds in certificated form will be issued in exchange for the global bond
only as set forth in the Indenture. See "Description of the Exchange
Bonds - Book Entry; Delivery and Form."
NO PERSON HAS BEEN AUTHORIZED TO MAKE ANY RECOMMENDATION AS TO
WHETHER ANY HOLDER OF OLD BONDS SHOULD TENDER OLD BONDS PURSUANT TO THE
EXCHANGE OFFER. NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR
TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS OR IN THE LETTER OF TRANSMITTAL. IF GIVEN OR MADE, SUCH
RECOMMENDATIONS, INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE ISSUER, THE COMPANY OR PANDA
INTERHOLDING. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
DISTRIBUTION OF SECURITIES HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE
ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE
IN THE INFORMATION SET FORTH HEREIN OR IN THE AFFAIRS OF THE ISSUER, THE
COMPANY OR PANDA INTERHOLDING SINCE THE DATE HEREOF. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY
ANY SECURITIES OTHER THAN THE SECURITIES COVERED BY THIS PROSPECTUS, NOR
DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY
ANY SUCH SECURITIES BY ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER
OR SOLICITATION WOULD BE UNLAWFUL.
DEFINED TERMS
All capitalized terms used in this Prospectus and not otherwise
defined herein have the meanings assigned in Part I of Appendix A hereto.
See also "Certain Technical Terms Commonly Used in the Utility Industry"
set forth in Part II of Appendix A hereto.
PRESENTATION OF FINANCIAL INFORMATION
Included in this Prospectus are certain historical financial
statements and pro forma financial information which reflect the
financial data of the entities that hold interests in the Panda-
Brandywine Partnership and the Panda-Rosemary Partnership, or their
predecessors, during the periods presented. The Company and Panda
Interholding were incorporated on July 1, 1996 and were not in existence
during the majority of these historical periods. The entities that own
the partnership interests in the Panda-Brandywine Partnership and the
Panda-Rosemary Partnership became wholly-owned subsidiaries of the
Company and Panda Interholding upon the closing of the sale of the Old
Bonds on July 31, 1996. Thus, references in this Prospectus to certain
historical and pro forma financial data of the "Company" and historical
financial data of "Panda Interholding" are for convenience of reference,
and it should be understood that all such references are to the
historical and pro forma financial information of the entities that held
such interests during the periods presented.
AVAILABLE INFORMATION
The Company, the Issuer and Panda Interholding have filed with the
Commission a Registration Statement on Form S-1 (the "Registration
Statement") under the Securities Act with respect to the Exchange Bonds
offered hereby, the Company Guaranty and the PIHC Guaranty. This
Prospectus constitutes a part of the Registration Statement and does not
contain all of the information set forth in the Registration Statement or
the exhibits thereto, certain parts of which have been omitted in
accordance with the rules and regulations of the Commission. For further
information pertaining to the Company, the Issuer, Panda Interholding,
the Exchange Bonds, the Company Guaranty, and the PIHC Guaranty,
reference is made to the Registration Statement, including the exhibits
thereto. Statements made in this Prospectus concerning the provisions of
any documents to which reference is made are not necessarily complete
and, in the case of documents filed as exhibits to the Registration
Statement, reference is made to the copy of the documents so filed for a
more complete description of the matter involved, and each such statement
shall be deemed qualified in its entirety by such reference.
As a result of this offering, the Company, the Issuer and Panda
Interholding will be subject to periodic reporting and other
informational requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). The Registration Statement and the
exhibits thereto, as well as the periodic reports and other information
filed by the Company, the Issuer and Panda Interholding with the
Commission, may be inspected and copied at the public reference facility
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the regional offices of the
Commission located at Seven World Trade Center, Suite 1300, New York, New
York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such material may also be obtained at
prescribed rates from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549.
The Company's, the Issuer's and Panda Interholding's obligation to
file periodic reports with the Commission pursuant to the Exchange Act
may be suspended if the Exchange Bonds are held of record by fewer than
300 holders at the beginning of any fiscal year of the Company, the
Issuer and Panda Interholding, other than the fiscal year in which the
Registration Statement becomes effective. Pursuant to the Indenture, the
Company and the Issuer have agreed that, so long as the Company is not
subject to the reporting requirements of either Section 13 or 15(d) of
the Exchange Act, they will furnish to the Trustee copies of annual,
quarterly and current reports that the Company would be required to file
under the Exchange Act if it were subject to such reporting requirements.
In addition, subject to the limitations set forth in the Indenture, upon
the written request of a holder of Bonds, the Issuer or the Company will
provide without charge to such holder or prospective investor, a copy of
such information as is required by Rule 144A to enable resales of Bonds
to be made pursuant to Rule 144A, unless at the time of such request the
Company or the Issuer is subject to the reporting requirements of Section
13 or 15(d) of the Exchange Act. Any such request will be subject to the
confidentiality provisions set forth below. Written requests for such
information should be addressed to Panda Funding Corporation, c/o Panda
Energy International, Inc., 4100 Spring Valley Road, Suite 1001, Dallas,
Texas 75244, Attention: Chief Financial Officer.
By requesting additional information relating to the offering of
Bonds at a time when neither the Company nor the Issuer is subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, each
holder and prospective investor agrees to keep confidential the various
documents and all written information which from time to time have been
or will be disclosed to it concerning the Issuer, the Company or any of
their affiliates which is not publicly available, and agrees not to
disclose any portion of the same to any person other than to its own
consultants, except as may be required by applicable law or in a legal
proceeding involving the Company or the Issuer.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus includes "forward-looking statements" within the
meaning of Section 27A of the Securities Act and Section 21E of the
Exchange Act. All statements other than statements of historical fact
included in this Prospectus, including, without limitation, statements
regarding financial position, projects under development, construction or
other budgets, information contained in the Independent Engineers' and
the Consultants' Reports and plans and objectives for future operations,
are forward-looking statements. Although the Issuer, the Company and
Panda Interholding believe that the expectations reflected in such
forward-looking statements are reasonable, they can give no assurance
that such expectations will prove to have been correct. Important factors
that could cause actual results to differ materially from the Issuer's,
the Company's and Panda Interholding's expectations ("Cautionary
Statements") are disclosed under "Risk Factors," in the assumptions made
by the Independent Engineers and the Consultants and contained in their
reports, and elsewhere in this Prospectus. All subsequent written and
oral forward-looking statements attributable to the Issuer, the Company,
Panda Interfunding or persons acting on their behalf are expressly
qualified in their entirety by the Cautionary Statements.
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
Neither the Issuer, the Company, Panda Interholding nor any of their
representatives makes any recommendation to any holder of Old Bonds as to
whether to tender or refrain from tendering Old Bonds pursuant to the
Exchange Offer. Neither the Issuer, the Company, Panda Interholding nor
any of their representatives makes any representation to any offeree of
the Exchange Bonds offered hereby regarding the legality of any
investment by such offeree or purchaser under applicable legal investment
or similar laws. Each holder of Old Bonds should consult with his or her
own advisors as to legal, tax, business, financial and related aspects of
participation in the Exchange Offer and must make his or her own decision
with respect to the Exchange Offer.
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and the Company's financial
statements, including the notes thereto, appearing elsewhere in this
Prospectus. Investors should carefully consider the information set forth under
"Risk Factors" prior to making any decision to invest in the Exchange Bonds.
For definitions of certain terms used herein, see the glossary included as
Appendix A to this Prospectus.
The Company, the Issuer, Panda Interholding and Panda International
General
Panda Interfunding Corporation (the "Company") is an indirect wholly-owned
Delaware subsidiary of Panda Energy International, Inc., a Texas corporation
("Panda International"). Panda Funding Corporation (the "Issuer") is a wholly-
owned Delaware subsidiary of the Company organized for the sole purpose of
issuing the Existing Bonds and additional series of Pooled Project Bonds (the
Existing Bonds and all additional series, if any, are collectively referred to
herein as the "Bonds"). Panda International is an independent (i.e., non-
utility) power company that is engaged principally in the development,
acquisition, ownership and operation of electric power generation facilities,
both in the United States and internationally. The Company, the Issuer and
Panda Interholding Corporation, a Delaware corporation and wholly-owned
subsidiary of the Company ("Panda Interholding"), were formed by Panda
International in 1996 as vehicles for financing Project development, including
the making of equity and debt investments in Projects. Panda International has
transferred, and intends to continue to transfer, to subsidiaries of the
Company, including Panda Interholding, a portfolio of Projects (the "Project
Portfolio") developed and to be developed by Panda International. Future
transfers will be made at the time that such Projects reach Financial Closing
or achieve Commercial Operations, thereby reducing development risk to the
Company. Distributions (including payments of principal and interest on loans)
received by the Company from its subsidiaries that own, directly or indirectly,
interests in Projects in the Project Portfolio ("Project Entities") will be
used to make payments on the Existing Bonds and on any additional series of
Bonds issued in connection with the inclusion of additional Projects in the
Project Portfolio. Panda Interholding was organized for the sole purpose of
holding interests in Project Entities owning U.S. Projects.
As of the date of this Prospectus, the Project Portfolio consists of
indirect 100% equity interests in Project Entities that own (i) a 180 megawatt
("MW") natural gas-fired, combined-cycle cogeneration facility located in
Roanoke Rapids, North Carolina (the "Panda-Rosemary Facility"), which commenced
commercial operations in December 1990, and (ii) a 230 MW natural gas-fired,
combined-cycle cogeneration facility located in Brandywine, Maryland (the
"Panda-Brandywine Facility"), which commenced commercial operations in October
1996. The Project Entities that own the Panda-Rosemary Facility and the Panda-
Brandywine Facility were transferred to Panda Interholding and became part of
the Project Portfolio in July 1996. The transfer to the Company of any
additional Projects in the future, will be made pursuant to an agreement (the
"Additional Projects Contract") among Panda International, its principal
development subsidiary and the Company. See "Additional Projects Contract"
below.
Initial Project Portfolio
Panda-Rosemary Facility
The Panda-Rosemary Facility is owned by Panda-Rosemary, L.P., a Delaware
limited partnership (the "Panda-Rosemary Partnership"). The only partners of
the Panda-Rosemary Partnership are indirect wholly-owned subsidiaries of the
Company. The Panda-Rosemary Facility uses natural gas as its primary fuel to
produce electricity and thermal energy in the form of steam. The electric
capacity of and electric energy produced by the Panda-Rosemary Facility is sold
to Virginia Electric and Power Company ("VEPCO"). Steam and chilled water
produced by the Panda-Rosemary Facility are sold to The Bibb Company ("Bibb"),
which operates a textile mill adjacent to the Panda-Rosemary Facility. The
Panda-Rosemary Partnership has entered into agreements with Natural Gas
Clearinghouse ("NGC") for natural gas supply and fuel management services, with
Transcontinental Gas Pipe Line Corporation ("Transco"), Texas Gas Transmission
Corporation ("Texas Gas") and CNG Transmission Corporation ("CNG") for firm
transportation of natural gas and with certain other parties to provide
pipeline operation, gas balancing and interruptible transportation services.
The Panda-Rosemary Partnership recently entered into an operations and
maintenance agreement with Panda Global Services, Inc. ("Panda Global
Services"), an indirect wholly-owned subsidiary of Panda International that was
recently organized to provide operations and maintenance services to Projects
such as the Panda-Rosemary Facility. Such agreement is on substantially
similar terms as the Panda-Rosemary Partnership's previous operations and
maintenance agreement with University Technical Services, Inc. ("U-Tech"), a
subsidiary of EMCOR Group, Inc., which was obtained through a competitive bid
process and expired in December 1996.
Concurrently with the offering of the Old Bonds (the "Prior Offering"),
Panda-Rosemary Funding Corporation, a wholly-owned Delaware special purpose
finance subsidiary of the Panda-Rosemary Partnership, consummated the offering
and sale of $111.4 million in aggregate principal amount of its 8-5/8% First
Mortgage Bonds due 2016 (the "Rosemary Bonds"). The Rosemary Bonds were issued
pursuant to an indenture among the Panda-Rosemary Partnership, Panda-Rosemary
Funding Corporation and Fleet National Bank, as trustee (the "Rosemary
Indenture"). The Rosemary Indenture contains various affirmative and negative
covenants, including limitations on the ability of the Panda-Rosemary
Partnership to make distributions to its partners. Subject to certain other
conditions, the Panda-Rosemary Partnership may make distributions to its
partners only if: (i) amounts deposited in certain funds established pursuant
to the Rosemary Indenture are equal to or greater than the amounts required to
be deposited therein, including debt service and debt service reserve funds;
(ii) no default or event of default under the Rosemary Indenture has occurred
and is continuing; (iii) certain gas supply and transportation contracts that
expire in November 2005 and October 2006 have been extended or replaced prior
to November 30, 2005; and (iv) the Panda-Rosemary Facility meets certain
historical and projected debt service coverage requirements. If the Panda-
Rosemary Partnership is unable to make distributions to its partners, the
ability of the Issuer to make payments on the Exchange Bonds would be
materially and adversely affected. See "Risk Factors - Financial Risks" and "-
Project Risks." An unaffiliated third party holds a cash flow participation in
distributions from the Panda-Rosemary Partnership (which the Company believes
is 0.433% and would increase to 1.732% after 2008 based on projected
distributions, but which percentages are the subject of a dispute). All
references in this Prospectus to distributions from U.S. Projects shall mean
distributions after giving effect to such cash flow participation. See
"Description of the Projects - The Panda-Rosemary Facility - Cash Flow
Participation" and "Legal Proceedings - NNW, Inc. Proceeding."
For more detailed information regarding the Panda-Rosemary Facility,
including the various contracts and financing arrangements referred to above
and regulatory matters affecting the Panda-Rosemary Facility, see "Description
of the Projects - The Panda-Rosemary Facility," "Regulation" and "Description
of Outstanding Project-Level Debt - The Panda-Rosemary Financing."
Panda-Brandywine Facility
The Panda-Brandywine Facility is leased by Panda-Brandywine, L.P., a
Delaware limited partnership (the "Panda-Brandywine Partnership"). The Panda-
Brandywine Partnership has two partners, each of which is an indirect wholly-
owned subsidiary of the Company. The Panda-Brandywine Facility utilizes natural
gas as its primary fuel. The electric capacity of and electric energy produced
by the Panda-Brandywine Facility is sold to Potomac Electric Power Company
("PEPCO") pursuant to a power purchase agreement (the "Brandywine Power
Purchase Agreement"). The Panda-Brandywine Facility commenced commercial
operations under the Brandywine Power Purchase Agreement in October 1996. The
thermal energy produced by the Panda-Brandywine Facility is sold to a distilled
water production facility which is owned by an indirect wholly-owned subsidiary
of the Company. The Panda-Brandywine Partnership purchases firm and
interruptible natural gas supplies from Cogen Development Company, which are
transported to the Panda-Brandywine Facility on either a firm or interruptible
basis through the interstate pipeline facilities of Columbia Gas Transmission
Corporation and Cove Point LNG Limited Partnership and the local gas
distribution facilities of Washington Gas Light Company. The Panda-Brandywine
Partnership has contracted with Ogden Brandywine Operations, Inc. ("Ogden
Brandywine"), a subsidiary of Ogden Power Corporation, to operate and maintain
the Panda-Brandywine Facility.
Raytheon Engineers and Constructors, Inc. ("Raytheon") constructed the
Panda-Brandywine Facility pursuant to a fixed-price, turnkey engineering,
procurement and construction contract (the "Brandywine EPC Agreement") with the
Panda-Brandywine Partnership. Raytheon completed the start-up of the Panda-
Brandywine Facility and has met the requirements for commercial operations and
substantial completion under the Brandywine EPC Agreement, although the date on
which commercial operations were achieved and the amount of the early
completion bonus to which Raytheon is entitled under the Brandywine EPC
Agreement are the subject of a dispute between the Panda-Brandywine Partnership
and Raytheon. The Company estimates that the amount in dispute is less than
$1.0 million and believes that the resolution of this dispute will not have a
material adverse effect on the Panda-Brandywine Facility or the Panda-
Brandywine Partnership. See "Description of the Projects - The Panda-
Brandywine Facility - Construction Contract."
General Electric Capital Corporation ("GE Capital") provided a $215
million construction loan to finance construction of the Panda-Brandywine
Facility, which construction loan was converted in December 1996 to long-term
financing in the form of a leveraged lease (together with the construction
loan, the "Panda-Brandywine Financing"). To effect the lease financing, title
to the Panda-Brandywine Facility was transferred to a third party trustee and
leased back to the Panda-Brandywine Partnership. The Brandywine Facility Lease
is a net lease and its initial term is 20 years. The documents governing the
Panda-Brandywine Financing (the "Brandywine Financing Documents") contain
various affirmative and negative covenants, including limitations on the
ability of the Panda-Brandywine Partnership to make distributions to its
partners. Subject to certain other conditions, the Panda-Brandywine Partnership
may make distributions to its partners only if: (i) all amounts then required
to be deposited in certain reserve accounts established pursuant to the
Brandywine Financing Documents have been deposited, including rent reserve and
operation and maintenance reserve accounts; (ii) all rent payments then due
under the Brandywine Facility Lease have been paid; (iii) the Panda-Brandywine
Facility meets an operating cash flow to debt service ratio of 1.2:1; and (iv)
at the time of such distribution, and after giving effect thereto, no default
or event of default has occurred and is continuing under the Brandywine
Financing Documents. If the Panda-Brandywine Partnership is unable to make
distributions to its partners, the ability of the Issuer to make payments on
the Exchange Bonds would be materially and adversely affected. See "Risk
Factors - Financial Risks" and "- Project Risks."
In August 1996, the Panda-Brandywine Partnership and PEPCO commenced
discussions concerning commercial operational requirements of the Panda-
Brandywine Facility and conversion of the construction loan to long-term
financing. During these discussions, disagreements arose between the Panda-
Brandywine Partnership and PEPCO with respect to certain provisions of the
Brandywine Power Purchase Agreement, one of which relates to the determination
of the interest rate that is the basis for reduction in capacity payments
thereunder (the "PEPCO Interest Rate Dispute"). PEPCO and the Panda-Brandywine
Partnership are presently attempting to resolve these disagreements but there
are no assurances that such efforts will be successful. If the PEPCO Interest
Rate Dispute is determined adversely to the Panda-Brandywine Partnership, the
capacity payments paid by PEPCO under the Brandywine Power Purchase Agreement
will be less than originally anticipated, thereby adversely affecting the
revenues realized by the Panda-Brandywine Partnership, and consequently,
reducing the amount of funds that would be available for distribution to the
Company and ultimately repayment of the Exchange Bonds. In addition, the
ability of the Company to raise debt for Projects in the future would be
impaired. See "Risk Factors - Dependence on Distributions from Project
Entities" and "- Dispute With PEPCO Over Calculation of Capacity Payments,"
"Description of the Projects - The Panda-Brandywine Facility - Dispute With
PEPCO Over Calculation of Capacity Payments," "Offering Circular Summary -
Independent Engineers' and Consultants' Reports - Consolidating Engineer's Pro
Forma Report" and "- Independent Pro Forma Analysis - Brandywine," and
"Description of the Exchange Bonds - Certain Covenants - Limitations on Debt."
For more detailed information regarding the Panda-Brandywine Facility,
including the current disputes with Raytheon and PEPCO, the various contracts
and financing arrangements referred to above and regulatory matters affecting
the Panda-Brandywine Facility, see "Description of the Projects - The Panda-
Brandywine Facility," "Regulation" and "Description of Outstanding Project-
Level Debt - The Panda-Brandywine Financing."
Additional Projects Contract
Subject to certain conditions, including those set forth below, the
Additional Projects Contract requires Panda International and its affiliates to
transfer to the Company, or to certain wholly-owned direct subsidiaries thereof
(the "PIC Entities"), their interests in each Project for which a power
purchase agreement is entered into prior to July 31, 2001 and which has reached
Financial Closing or achieved Commercial Operations prior to July 31, 2006.
Panda International and its affiliates will be required to transfer their
interests in a Project to the Project Portfolio only if the principal amount of
additional series of Bonds that can be issued after giving effect to the
inclusion of the Project in the Project Portfolio equals or exceeds the amount
of Anticipated Additional Debt. For a description of how the amount of
Anticipated Additional Debt is calculated, see "The Company, the Issuer, Panda
Interholding and Panda International - The Additional Projects Contract."
Interests in a Project will not be transferred if the Project has not reached
Financial Closing or achieved Commercial Operations. Additionally, except for
the Panda-Kathleen Project described below, which must be transferred to the
Project Portfolio if it reaches Financial Closing, interests in a Project will
not be transferred if: (i) Panda International does not own a controlling
interest in the Project; (ii) the transfer would be prohibited under any
Project-level financing, power purchase or related agreement; or (iii) after
giving effect to the issuance of the additional series of Bonds in connection
with the inclusion of the Project in the Project Portfolio (a) the rating of
previously issued Bonds is not Reaffirmed by at least two rating agencies at a
rating equal to or higher than that in effect immediately prior to the issuance
of such additional series or (b) the projected Company Debt Service Coverage
Ratio or the projected Consolidated Debt Service Coverage Ratio (if then
applicable) would be less than 1.7:1 or 1.25:1, respectively, for (1) the
period beginning with the date of determination through December 31 of that
calendar year, (2) each period consisting of a calendar year thereafter through
the calendar year immediately prior to the calendar year in which the Final
Stated Maturity occurs and (3) the period thereafter beginning with January 1
and ending with such Final Stated Maturity (each such period, a "Future Ratio
Determination Period"). The Additional Projects Contract requires Panda
International to use commercially reasonable efforts to cause each Project to
meet the conditions for transfer to the Project Portfolio as of the date a
Project reaches Financial Closing or achieves Commercial Operations, whichever
occurs first, or within a 90-day period thereafter. If, however, the conditions
for such a transfer cannot be satisfied using commercially reasonable efforts,
Panda International will have no further obligation to the Company in respect
of such Project and may retain its interest in such Project or sell it to third
parties.
The Company believes that Panda International will continue to actively
develop Projects; however, Panda International is under no obligation to do so,
or to use any proceeds from the Prior Offering or future distributions from the
Company to fund such future development. In addition, there can be no assurance
that the Projects currently under development by Panda International will reach
Financial Closing, achieve Commercial Operations or satisfy the other
conditions for transfer to the Project Portfolio pursuant to the Additional
Projects Contract. See "Risk Factors - Financial Risks," "- Project Risks" and
"- Risks Relating to Future Non-U.S. Projects" and "The Company, the Issuer and
Panda International - The Additional Projects Contract."
Panda International
Panda International is an independent power company engaged principally in
the development, acquisition, ownership and operation of electric power
generation facilities, both in the United States and internationally. It also
owns a subsidiary engaged in oil and gas exploration and development. Panda
International's principal business strategy is to use its experience in
developing, constructing, financing and managing electric power generation
facilities to provide low cost electricity and electric generating capacity.
Panda International is seeking to expand its presence in the electric power
industry by implementing this strategy in the United States and certain other
countries. Panda International has placed into commercial operations
facilities with electric generating capacity of approximately 410 MW. In
addition, Panda International has executed power purchase agreements or entered
into other development arrangements relating to four potential Projects with a
combined electric generating capacity of approximately 750 MW. Panda
International is continually engaged in the evaluation of various opportunities
for the development and acquisition of additional electric power generation
facilities, both in the United States and internationally. The Company believes
that there is and will continue to be significant demand for new generating
capacity worldwide and that much of this new capacity will be provided by
independent power developers such as Panda International. See "Risk Factors -
Project Risks" and "- Risks Relating to Future Non-U.S. Projects," "The
Company, the Issuer and Panda International" and "Business - The Independent
Power Industry."
Panda International was formed as part of a corporate reorganization that
took place in October 1995 in which all of the issued and outstanding capital
stock of Panda Energy Corporation, a Texas corporation ("PEC"), was exchanged
for shares of capital stock of Panda International, with the result that PEC
became a wholly-owned subsidiary of Panda International. PEC was organized in
1982 by Robert and Janice Carter, who are the Chairman of the Board, President
and Chief Executive Officer, and the Executive Vice President, Treasurer and
Secretary, respectively, of Panda International, PEC, the Company, the Issuer
and Panda Interholding. See "Management." Robert and Janice Carter and members
of their family and family trusts together own approximately 38.8% of the
outstanding shares of capital stock of Panda International. See "Risk Factors -
Control by Principal Stockholders."
The principal executive offices of the Issuer, the Company, Panda
Interholding, PEC and Panda International are located at 4100 Spring Valley
Road, Suite 1001, Dallas, Texas 75244. The telephone number at such offices is
(972) 980-7159.
Projects under Development by Panda International
The following are Projects that Panda International and its affiliates are
developing. There are substantial risks associated with the development of
Projects, and increased risks associated with the development of Projects
outside the United States. There can be no assurance that any Project under
development will reach Financial Closing, achieve Commercial Operations or
satisfy the other conditions for transfer to the Project Portfolio pursuant to
the Additional Projects Contract. See "Risk Factors - Project Risks" and "-
Risks Relating to Future Non-U.S. Projects."
Panda-Luannan (China)
The Company expects that, during the first quarter of 1997, a 2 x 50 MW
coal-fired cogeneration facility (the "Panda-Luannan Facility") to be located
in Luannan County, Tangshan Municipality, Hebei Province, People's Republic of
China ("PRC" or "China") will reach Financial Closing and will be eligible for
transfer to the Project Portfolio if the other conditions to such transfer
contained in the Additional Projects Contract can be satisfied. Subject to
output limitations during certain periods, all of the electric output of the
Panda-Luannan Facility will be sold to North China Power Group Company, the
business arm of North China Power Group ("NCPG"), which is one of the five
interprovincial power groups in China under the supervision of the Ministry of
Electric Power of the PRC. The Panda-Luannan Facility is to be connected to one
of the largest power grids in China, which is operated by NCPG and serves the
region which includes the Beijing-Tianjin-Tangshan area. It is anticipated that
the steam generated will be sold to industrial and possibly to governmental
purchasers.
Panda of Nepal
Panda International has formed a joint venture company with a major
international hydroelectric engineering company and a local Nepalese party to
build a 36 MW hydroelectric facility on the upper Bhote Koshi River in Nepal. A
power purchase agreement with the Nepal Electricity Authority ("NEA"), and a
project agreement with the Government of Nepal obligating the Government of
Nepal to guarantee NEA's obligations and to provide certain other support and
incentives, were signed in July 1996. An engineering, procurement and
construction contract for the facility was entered into in October 1996 with
China Gezhouba Construction Group Corporation for Water Resources and
Hydropower, a Chinese engineering and construction firm. The construction
contract provides that the contractor will construct the facility on a fixed-
price turnkey basis. Panda International has received commitment letters from
two multilateral agencies to provide debt financing for this Project, subject
to their satisfaction with due diligence reviews and other matters. The Company
expects that this Project will reach Financial Closing during the first quarter
of 1997 and will be eligible for transfer to the Project Portfolio if the other
conditions to such transfer contained in the Additional Projects Contract can
be satisfied.
Panda-Lapanga (India)
In August 1994, Panda International acquired from another independent
power developer a 90% interest in a company that has executed a power purchase
agreement with the Orissa State Electricity Board for a proposed 500 MW coal-
fired electric generating facility to be located in the State of Orissa, India.
Certain of the central government approvals for this facility have been
obtained. Although Panda International believes this power purchase agreement
is valid and enforceable, the State of Orissa has given a notice of
cancellation of such agreement to Panda International, as well as to several
other third parties with respect to power purchase agreements relating to their
projects. Panda International has objected to such notice. Development efforts
have been delayed pending resolution of this dispute.
Panda-Kathleen (United States)
Panda International owns an indirect 100% equity interest in Panda-
Kathleen, L.P., a Delaware limited partnership (the "Panda-Kathleen
Partnership"), which in 1991 entered into a power purchase agreement with
Florida Power Corporation ("Florida Power") for the sale of capacity and all
energy made available from a natural gas-fired, combined-cycle cogeneration
facility (the "Panda-Kathleen Facility"). Construction of the Panda-Kathleen
Facility was originally scheduled to begin in 1995, but has been delayed
because of litigation with Florida Power and may never commence. The Brandywine
Financing Documents require the Panda-Kathleen Project to be transferred to the
Project Portfolio if it reaches Financial Closing, whether or not the other
conditions to transfer contained in the Additional Projects Contract are
satisfied. See "Legal Proceedings - Florida Power Proceedings."
Guaranty and Collateral; Effective Subordination
The Existing Bonds are, and all additional series of Bonds will be issued
pursuant to an indenture (the "Indenture") among the Issuer, the Company and
Bankers Trust Company, as trustee (the "Trustee"). The Bonds will be paid from
payments by the Company to the Issuer on promissory notes (including the
Initial Company Note, the "Company Notes") evidencing loans by the Issuer to
the Company. The aggregate outstanding principal amount of the Company Notes
will at all times equal the aggregate outstanding principal amount of the
Bonds. Upon completion of the Exchange Offer, the Existing Bonds will be the
only Bonds issued and outstanding under the Indenture.
The Existing Bonds are, and all additional series of Bonds will be, fully
and unconditionally guaranteed (such guaranty, the "Company Guaranty") by the
Company. In addition, the Existing Bonds are, and all additional series of
Bonds will be, secured by pledges, or grants of security interests, to the
Trustee for the benefit of the holders of the Bonds: (i) by PEC of and in all
of the capital stock of the Company; (ii) by the Company, of and in all of the
capital stock of the Issuer and the PIC Entities (the "PIC U.S. Entities") that
indirectly own Projects located in the United States and certain international
Projects for which no U.S. tax deferral will be sought (the "U.S. Projects")
and 60% of the capital stock of the PIC Entities (the "PIC International
Entities") that indirectly own Projects not located in the United States and
for which U.S. tax deferral will be sought (the "Non-U.S. Projects"); (iii) by
the Issuer, of and in the Company Notes; (iv) by the Company, of and in its
interest in the Additional Projects Contract; and (v) by the Company, of and in
its interest in all distributions from the PIC U.S. Entities and its interest
in accounts, established in the Company's name with the Trustee, into which
such distributions are deposited (all of the foregoing collateral so pledged,
the "Collateral"). Currently, there exists one PIC U.S. Entity, Panda
Interholding, and one PIC International Entity, Panda Cayman Interfunding
Company, a Cayman Islands corporation ("Panda Cayman"). Individually, the
pledges of the capital stock of each of the Issuer, Panda Interholding and
Panda Cayman do not constitute a "substantial portion" (as defined in Rule 3-10
of Regulation S-X promulgated under the Securities Act) of the Collateral
securing the Existing Bonds. Except as discussed in the following paragraph,
separate financial statements of each of the Issuer, Panda Interholding and
Panda Cayman are not presented in this Prospectus because the Company believes
that such disclosure is not material to a prospective purchaser of the Exchange
Bonds. The financial statements of the Company contained in this Prospectus
present the financial position and results of operations of the Company and all
of its subsidiaries on a consolidated basis.
The obligations under the Company Guaranty and Bonds are also guaranteed
in a limited amount by Panda Interholding and will be guaranteed in a limited
amount by future PIC U.S. Entities, if any, which will be wholly-owned
subsidiaries of the Company (the "PIC Entity Guaranties"). The consolidated
financial statements of the Company as of December 31, 1994 and December 31,
1995 and for each of the three years in the period ended December 31, 1995 are
also the consolidated financial statements of Panda Interholding as of such
dates and for such periods. The unaudited condensed consolidated financial
statements of Panda Interholding as of September 30, 1996 and for the nine
months then ended are included separately in Appendix F to this Prospecus.
The Bonds will not be secured by any direct equity interest in, or by a
mortgage on, or other security interest in the assets of, any Project nor will
the Bonds be directly secured by any interest in any distributions to PIC
International Entities, if any, or any accounts into which such distributions
are deposited. Each PIC International Entity, however, will be required to
pledge to the Company, as security for the repayment of certain loans by the
Company to such PIC International Entity (the "PIC International Entity
Loans"), such PIC International Entity's interest in all distributions received
by it in respect of Non-U.S. Projects, if any, and all accounts, established in
the name of such PIC International Entity with the Trustee, acting in its
capacity as the International Collateral Agent for the benefit of the Company
(the "International Collateral Agent"), into which such distributions are
deposited. See "Description of the Exchange Bonds - Collateral for the Exchange
Bonds."
The Exchange Bonds will be exclusively the obligations of the Issuer and,
to the extent of the Company Guaranty and the PIC Entity Guaranties (the
"Guaranties"), the Company and PIC U.S. Entities, and not of any of their
affiliates. Because the operations of the Company are conducted by Project
Entities, the Company's cash flow and its ability to service its debt,
including its ability to make payments on the Company Notes, and consequently
the Issuer's ability to make payments on the Bonds (including the Exchange
Bonds), are almost entirely dependent upon the earnings of the Project Entities
and the distribution of those earnings to the Company through the PIC Entities.
The Project-level financing arrangements for the Projects generally restrict
the ability of the Project Entities to pay dividends, make distributions or
otherwise transfer funds to equity owners of such Projects, including the PIC
Entities and, indirectly, the Company. These restrictions generally require
that, prior to the payment of dividends or distributions or the making of other
transfers of funds, the Project Entity proposing to make the dividend,
distribution or transfer must provide for the payment of other obligations of
the Project, including operating expenses and debt service, fund a debt service
reserve and other reserves and meet certain debt service coverage ratios and
other tests. Additionally, the indebtedness incurred by a Project Entity to
finance a Project would generally be secured by a mortgage on the applicable
Project and a security interest in substantially all of the assets of, and the
equity interests in, the Project Entity.
As a result of the foregoing, the Bonds (including the Exchange Bonds) and
the Guaranties will be effectively subordinated, both in terms of security and
in priority of rights to receive distributions, to creditors of the Project
Entities and the PIC Entities. As of September 30, 1996, the Project Entities
had outstanding $314.6 million of indebtedness and other liabilities, which are
effectively senior to the Existing Bonds and the Guaranties. See "Risk Factors
- - Financial Risks" and "Description of the Outstanding Project-Level Debt."
PRIOR OFFERING
On July 31, 1996 (the "Issue Date"), the Issuer issued $105,525,000
aggregate principal amount of its 11-5/8% Pooled Project Bonds, Series A due
2012 in a private placement under Section 4(2) of the Securities Act and Rule
144A. The Old Bonds were sold to Jefferies & Company, Inc. (the "Initial
Purchaser") pursuant to the Purchase Agreement and were placed by the Initial
Purchaser with Qualified Institutional Buyers and Institutional Accredited
Investors (as defined in Section 501(a) (1), (2), (3) or (7) under the
Securities Act). Pursuant to the Registration Rights Agreement entered into
between the Company, the Issuer and the Initial Purchaser in connection with
the Prior Offering, the Issuer and the Company agreed to file a shelf
registration statement covering the Old Bonds (a "Shelf Registration
Statement") or to effect a registered exchange offer for the Old Bonds pursuant
to which the holders of the Old Bonds would be offered the opportunity to
exchange their Old Bonds for registered Exchange Bonds. The Registration
Rights Agreement provides that if such an exchange offer registration statement
(an "Exchange Offer Registration Statement") or a Shelf Registration Statement
is not declared effective within 180 days after the Issue Date, the interest
rate on the Old Bonds will increase by 50 basis points effective on the 181st
day following the Issue Date until such a registration statement is declared
effective. If such a registration statement is not declared effective within
two years following the Issue Date, such increase in interest rate would become
permanent. The Registration Statement with respect to the Exchange Offer was
declared effective by the Commission on February 14, 1997, and accordingly,
Additional Interest on the Old Bonds accrued commencing on January 28, 1997
through February 13, 1997 and is payable on February 20, 1997, the next
Interest Payment Date, in the aggregate amount of $24,916.
THE EXCHANGE OFFER
The Issuer is making the following Exchange Offer to holders of all Old
Bonds presently outstanding:
The Exchange Offer For each $1,000 principal amount of Old Bonds
tendered, a holder will be entitled to receive $1,000
principal amount of Exchange Bonds. As of the date of
this Prospectus, $105,525,000 principal amount of Old
Bonds is outstanding. The terms of the Exchange
Bonds are substantially identical to the terms of the
Old Bonds, except that the Exchange Bonds (i) will
have been registered under the Securities Act, and
(ii) holders of the Exchange Bonds will not be
entitled to certain rights of holders of the Old
Bonds under the Registration Rights Agreement, which
rights will terminate upon the consummation of the
Exchange Offer. Such rights will also terminate as
to holders of Old Bonds who are eligible to tender
their Old Bonds for exchange in the Exchange Offer
and fail to do so. See "The Exchange Offer -
Termination of Certain Rights" and "Old Bonds
Registration Rights."
Expiration Date The Exchange Offer will expire at 5:00 p.m., New
York City time, on March 19, 1997, unless extended in
the Issuer's sole discretion. See "The Exchange
Offer - Expiration Date; Extensions; Termination;
Amendments."
Withdrawal of Tenders Tenders of Old Bonds may be withdrawn at any
time prior to the Expiration Date. Thereafter, such
tenders are irrevocable. See "The Exchange Offer -
Withdrawal of Tenders."
Interest on the Exchange
Bonds and Accrued
Interest on the Old
Bonds The Exchange Bonds will bear interest from the
date of their issuance. Interest on the Old Bonds
accepted for exchange will accrue thereon to, but not
including, the date of issuance of the Exchange Bonds
and will be paid together with the first interest
payment on the Exchange Bonds issued in exchange
therefor.
Conditions of the
Exchange Offer The Exchange Offer is subject to certain
customary conditions. The Exchange Offer is not
conditioned upon any minimum aggregate principal
amount of Old Bonds being tendered or accepted for
exchange. Old Bonds may be tendered only in integral
multiples of $1,000. See "The Exchange Offer -
Conditions of the Exchange Offer."
Procedures for Tendering
Old Bonds Each holder of Old Bonds wishing to accept the
Exchange Offer must, prior to the Expiration Date,
either (i) complete and sign the Letter of
Transmittal, in accordance with the instructions
contained herein and therein, and deliver such Letter
of Transmittal, together with any signature
guarantees and any other documents required by the
Letter of Transmittal, to the Exchange Agent at its
address set forth on the back cover page of this
Prospectus and the tendered Old Bonds must either be
(a) physically delivered to the Exchange Agent or (b)
transferred pursuant to the procedures for book-entry
transfer described herein and a confirmation of such
book-entry transfer must be received by the Exchange
Agent prior to the Expiration Date, or (ii) comply
with the guaranteed delivery procedures set forth
herein. By executing the Letter of Transmittal, each
holder will represent that, among other things, the
Exchange Bonds acquired pursuant to the Exchange
Offer are being acquired in the ordinary course of
business of the person receiving such Exchange Bonds
(whether or not such person is the registered holder
of such Exchange Bonds), that neither the holder of
such Exchange Bonds nor any such other person has an
arrangement with any person to participate in the
distribution (within the meaning of the Exchange Act)
of such Exchange Bonds and that neither the holder of
such Exchange Bonds or any such other person is an
Affiliate of the Issuer, the Company or Panda
Interholding, or if it is an Affiliate, it will
comply with the registration and prospectus delivery
requirements of the Securities Act to the extent
applicable. See "The Exchange Offer - Procedures for
Tendering."
Special Procedures for
Beneficial Owners Any beneficial owner whose Old Bonds are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee and
who wishes to tender Old Bonds in the Exchange Offer
should contact such registered holder promptly and
instruct such registered holder to tender on such
beneficial owner's behalf. See "The Exchange Offer -
Procedures for Tendering."
Guaranteed Delivery
Procedures Holders of Old Bonds who wish to tender their
Old Bonds and whose Old Bonds are not immediately
available or who cannot deliver their Old Bonds, the
Letter of Transmittal or any other documents required
by the Letter of Transmittal to the Exchange Agent
prior to the Expiration Date, may tender their Old
Bonds according to the guaranteed delivery procedures
set forth in "The Exchange Offer - Guaranteed
Delivery Procedures."
Acceptance of the Old
Bonds and Delivery of
the Exchange Bonds Upon satisfaction or waiver of the conditions of
the Exchange Offer, the Issuer will accept for
exchange any and all Old Bonds which are properly
tendered and not withdrawn prior to the Expiration
Date. The Exchange Bonds issued pursuant to the
Exchange Offer will be delivered on the earliest
practicable date following the Expiration Date. See
"The Exchange Offer - Acceptance of Old Bonds for
Exchange; Delivery of Exchange Bonds."
Certain Federal Income
Tax Considerations Generally, there should not be federal income
tax consequences to holders as a result of the
exchange of the Old Bonds for the Exchange Bonds
pursuant to the Exchange Offer. If, however, the
exchange of the Old Bonds for the Exchange Bonds were
treated as an "exchange" for federal income tax
purposes, such exchange should constitute a
recapitalization for federal income tax purposes.
Holders exchanging the Old Bonds pursuant to such
recapitalization should not recognize any gain or
loss upon the exchange. The foregoing discussion of
certain federal income tax consequences is for
general information only and is not tax advice.
Federal income tax consequences may vary depending
upon individual circumstances. See "Certain U.S.
Federal Income Tax Considerations of the Exchange
Offer."
Effect on Holders of
Old Bonds Holders of the Old Bonds who do not tender their
Old Bonds in the Exchange Offer will continue to hold
such Old Bonds and will be entitled to all the rights
and benefits, and will be subject to all limitations
applicable thereto, under the Indenture. All Old
Bonds not exchanged in the Exchange Offer will
continue to be subject to the restrictions on
transfer provided for in the Old Bonds and the
Indenture. To the extent that Old Bonds are tendered
and accepted in the Exchange Offer, the trading
market, if any, for the Old Bonds not so tendered
could be adversely affected. See "Risk Factors -
Consequences of Failure to Exchange Old Bonds."
Rights of Dissenting
Holders Holders of Old Bonds do not have any appraisal
or dissenters' rights under the Delaware General
Corporation Law or the Indenture in connection with
the Exchange Offer.
Exchange Agent Bankers Trust Company. See "The Exchange Offer
- The Exchange Agent."
TERMS OF THE EXCHANGE BONDS
The Exchange Offer applies to $105,525,000 aggregate principal amount of
Old Bonds. The form and terms of the Exchange Bonds are substantially identical
to the terms of the Old Bonds, except that the Exchange Bonds (i) have been
registered under the Securities Act, and therefore, will not bear legends
restricting their transfer pursuant to the Securities Act, and (ii) holders of
the Exchange Bonds will not be entitled to certain rights of holders of the Old
Bonds under the Registration Rights Agreement, which rights will terminate upon
the consummation of the Exchange Offer. Such rights will also terminate as to
holders of Old Bonds who are eligible to tender their Old Bonds for exchange in
the Exchange Offer and fail to do so. See "The Exchange Offer - Termination of
Certain Rights." The Exchange Bonds will evidence the same debt as the Old
Bonds which they replace and will be issued under, and be entitled to the
benefits of, the Indenture. Upon completion of the Exchange Offer, the Existing
Bonds will be the only Bonds issued and outstanding under the Indenture.
Securities Offered $105,525,000 11-5/8% Pooled Project Bonds,
Series A-1 due 2012.
Final Maturity Date August 20, 2012.
Interest Payment Dates February 20 and August 20, commencing February
20, 1997.
Ratings In October 1996, the Exchange Bonds were rated
Ba3 by Moody's Investors Service, Inc. and BB- by
Duff & Phelps Credit Rating Co.
Initial Average Life The initial average life to maturity of the
Exchange Bonds is 11.7 years.
Scheduled Principal
Payments Semiannually commencing February 20, 1997, as
follows:
Percentage of
Original
Payment Date Principal
Amount Payable
February 20, 1997 0.2045%
August 20, 1997 0.0000%
February 20, 1998 0.0000%
August 20, 1998 0.0000%
February 20, 1999 0.0000%
August 20, 1999 0.5933%
February 20, 2000 0.6129%
August 20, 2000 0.0000%
February 20, 2001 0.0000%
August 20, 2001 1.3753%
February 20, 2002 1.4691%
August 20, 2002 2.2184%
February 20, 2003 2.3565%
August 20, 2003 2.9328%
February 20, 2004 3.1031%
August 20, 2004 3.2796%
February 20, 2005 3.4687%
August 20, 2005 3.5977%
February 20, 2006 3.7820%
August 20, 2006 2.8098%
February 20, 2007 3.0076%
August 20, 2007 4.8415%
February 20, 2008 5.1145%
August 20, 2008 5.0057%
February 20, 2009 5.2945%
August 20, 2009 5.5185%
February 20, 2010 5.8300%
August 20, 2010 5.7248%
February 20, 2011 6.0590%
August 20, 2011 6.4800%
February 20, 2012 6.8808%
August 20, 2012 8.4390%
Denominations and Form The Exchange Bonds will be issuable in
denominations of any integral multiple of $1,000 in
exchange for a like principal amount of Old Bonds.
The Exchange Bonds will be issuable in book-entry
form through the facilities of The Depository Trust
Company ("DTC"), which will act as depositary for
the Exchange Bonds. One fully-registered certificate
will be issued and will be deposited with DTC, and
interests therein will be shown on, and transfers
will be effected through, records maintained by DTC
and its participants. See "Description of the
Exchange Bonds - Book Entry; Delivery and Form."
Mandatory Redemption The Existing Bonds and all additional series of
Bonds, if any, then outstanding will be subject to
mandatory redemption, in whole or in part, to the
extent that, at any time (after giving effect to
transfers required to be made to other Accounts and
Funds on such date), the aggregate amount of monies
on deposit in the U.S. and International Mandatory
Redemption Accounts is in excess of $2.0 million. In
the event of a sale or other disposition of any
Collateral or any interest in a Project or any event
of casualty, loss or condemnation with respect to a
Project (each, a "Mandatory Redemption Event"), all
proceeds of any distributions resulting from such
Mandatory Redemption Event in excess of $2.0 million
in the aggregate in any calendar year that may be
legally distributed or paid to the Company or any
PIC Entity without contravention of any Project debt
agreement shall be deposited into the appropriate
Mandatory Redemption Account, unless (i) the Company
provides a certificate to the Trustee (supported by
a certificate to the Trustee from the Consolidating
Engineer) stating that such Mandatory Redemption
Event would not result in either the projected
Company Debt Service Coverage Ratio being less than
1.7:1 or the projected Consolidated Debt Service
Coverage Ratio (if then applicable) being less than
1.25:1, for each Future Ratio Determination Period;
and (ii) the rating of the Bonds is Reaffirmed by at
least two rating agencies at a rating equal to or
higher than that in effect immediately prior to such
Mandatory Redemption Event. Mandatory redemptions
will be made at a redemption price equal to 100% of
the principal amount of the Bonds to be redeemed
plus interest thereon accrued to the date of such
redemption, plus a premium, if any, provided in the
supplemental indenture for each series of Bonds to
be redeemed. For the Exchange Bonds, such premium is
equal to that payable were the Exchange Bonds to be
redeemed at the Issuer's option on such date to the
extent that the mandatory redemption results from a
sale or other voluntary disposition of any
Collateral or any interest in a Project (or if no
optional redemption is then available, a premium
determined as the excess, if any, of the present
value of the remaining payments due on the Exchange
Bonds, discounted at a rate which is equal to the
Applicable Treasury Rate plus one-half of one
percent over the par value of such Exchange Bonds).
Notwithstanding the foregoing, the amount of Bonds
required to be redeemed shall not exceed the amount
necessary to cause (after giving effect to such
redemption) the coverage ratio requirements set
forth above to be met and to achieve a Reaffirmation
of the rating on the Bonds by at least two rating
agencies. See "Description of the Exchange Bonds -
Redemption - Mandatory Redemption." The applicable
Consolidated Debt Service Coverage Ratio, for
purposes of determining whether amounts are to be
deposited in the Mandatory Redemption Accounts or
for any other purposes under the Indenture, need not
be satisfied on and after the time that more than
four Projects have been transferred to the Project
Portfolio.
There can be no assurance that the Issuer will have
available funds sufficient to fund the redemption of
Bonds upon the occurrence of a Mandatory Redemption
Event. In the event a Mandatory Redemption Event
occurs at a time when the Issuer does not have
available funds sufficient to redeem all of the
Bonds subject to such redemption, an Event of
Default would occur under the Indenture. See "Risk
Factors - Mandatory Redemption and Repurchase of
Bonds Upon a Change in Control."
Optional Redemption The Exchange Bonds will be subject to
redemption, in whole or in part, at the option of
the Issuer at any time on or after August 20, 2001,
at the following redemption prices (expressed as a
percentage of principal amount) plus interest
accrued to the date of redemption, if redeemed
during the 12-month period commencing on or after
August 20 of the year set forth below:
Year Redemption
Price
2001 105.8125%
2002 104.3594%
2003 102.9063%
2004 101.4532%
2005 100.0000%
and thereafter
The Exchange Bonds are also subject to redemption,
in whole or in part, at the option of the Issuer at
a redemption price equal to 100% of the principal
amount of the Bonds to be redeemed plus interest
thereon accrued to the date of such redemption if an
Extraordinary Financial Distribution in excess of
$2.0 million is applied to prepay the Company Notes.
"Extraordinary Financial Distributions" are
distributions and other amounts received by the
Company or any PIC Entity without contravention of
any Project debt agreement in respect of
settlements, judgments and other payments received
in respect of a Project in connection with legal
proceedings, monies released from certain escrows
relating to Projects, buy-outs or settlements of
Project contracts and certain other transactions
resulting in the receipt of cash or other property
upon the sale, transfer or other disposition of
contractual rights relating to a Project (in each
case, other than in respect of a Mandatory
Redemption Event). See "Description of the Exchange
Bonds - Redemption - Optional Redemption."
Change of Control Upon the occurrence of a Change of Control,
each holder of Existing Bonds and all additional
series of Bonds, if any, will have the right to
require the Issuer to purchase all or a portion of
such holder's Bonds at a price equal to 101% of the
aggregate principal amount thereof, together with
accrued and unpaid interest to the date of purchase.
See "Description of the Exchange Bonds - Certain
Covenants - Change of Control."
There can be no assurance that the Issuer will have
available funds sufficient to fund the purchase of
the Bonds upon a Change of Control. In the event a
Change of Control occurs at a time when the Issuer
does not have available funds sufficient to pay for
all of the Bonds delivered by holders seeking to
accept the Issuer's repurchase offer, an Event of
Default would occur under the Indenture. See "Risk
Factors - Mandatory Redemption and Repurchase of
Bonds Upon a Change in Control."
Certain Covenants The Indenture contains affirmative and negative
covenants that restrict the activities of the
Issuer, the Company and the PIC Entities, including
limitations on: (i) distributions to the Company and
the PIC International Entities out of the Accounts
and Funds described below under "Flow of Funds";
(ii) the ability of Project Entities to incur new
debt or amend Project agreements if such actions
could reasonably be expected to reduce Cash
Available for Distribution by 10% for any Future
Ratio Determination Period; (iii) how the proceeds
of the Prior Offering may be used; (iv) the
incurrence of indebtedness or lease obligations, or
the provision of guaranties (see "Additional Debt"
below); (v) the payment of dividends on and
redemptions of capital stock; (vi) the use of
proceeds from the sale of assets and certain other
events; (vii) transactions with affiliates and
(viii) the creation of liens. The Indenture will
also (a) require the Company to maintain at least a
50% (direct or indirect) ownership interest in each
Project, or a 25% (direct or indirect) ownership
interest in each Project and controlling influence
over the management and policies with respect to
such Project, provided that no other entity has
greater control than the Company over such
management and policies (except in certain
circumstances, including the sale by the Company of
its entire interest in a Project), (b) restrict the
ability of the Company, the Issuer and the PIC
Entities to consolidate with or merge into, or to
transfer all or substantially all of their
respective assets to, another person, (c) require
the Issuer to pledge additional collateral in
certain instances and (d) require the Issuer to
offer to redeem the Bonds upon the occurrence of a
Change of Control. See "Description of the Exchange
Bonds - Certain Covenants."
Noncompliance with the covenants contained in the
Indenture would constitute an Event of Default under
the Indenture after any applicable time periods or
notice and cure periods. If an Event of Default due
to the bankruptcy, insolvency or reorganization of
the Company, the Issuer or any PIC Entity occurs,
all unpaid principal, premium, if any, and interest
under all Existing Bonds and all additional series
of Bonds, if any, then outstanding will immediately
become due and payable. In other cases of an Event
of Default, the Trustee may, and upon the request of
the holders of at least one-third or one-half
(depending on the circumstances) in aggregate
principal amount of all Existing Bonds and all
additional series of Bonds, if any, then outstanding
shall, declare all unpaid principal, premium, if
any, and interest thereunder to immediately become
due and payable. If any Event of Default is not
cured or waived, the Trustee may, and upon the
request of a majority in aggregate principal amount
of the Existing Bonds and all additional series of
Bonds, if any, then outstanding, and the offering to
it of any indemnity required under the Indenture
shall (unless the Trustee in good faith shall
determine that such exercise would involve it in
personal liability or expense), enforce every right
available to it under the Indenture and under the
Security Documents. See "Description of the
Exchange Bonds - Defaults and Remedies."
Additional Debt...... The Indenture permits the Issuer to incur
additional debt only in the form of additional
series of Bonds for the purpose of loaning the
proceeds thereof to the Company, which the Company
may use either to make investments in Projects in
connection with their transfer to the Project
Portfolio or for distribution or loan to Panda
International and its affiliates. Panda
International and its affiliates may, but are under
no obligation to, use such funds for future project
development. Additional series of Bonds may be
issued only if, at the time of such issuance, (i)
the Company provides a certificate to the Trustee
(supported by a certificate to the Trustee from the
Consolidating Engineer) stating that, after giving
effect to the issuance of such additional series of
Bonds and the application of the proceeds therefrom,
the projected Company Debt Service Coverage Ratio
and the projected Consolidated Debt Service Coverage
Ratio (if then applicable) equal or exceed 1.7:1 and
1.25:1, respectively, for each Future Ratio
Determination Period and (ii) the rating of the
Bonds is Reaffirmed by at least two rating agencies
at a rating equal to or higher than that in effect
immediately prior to the issuance of such additional
series; provided, however, that such Reaffirmation
of the rating shall not be required if (a) neither
the Company nor any PIC Entity has, since the last
date upon which the Bonds were rated or a
Reaffirmation of rating was given in respect
thereof, acquired (or is acquiring in connection
with the issuance of such additional series), sold
or otherwise disposed of direct or indirect
interests in one or more Projects in an aggregate
amount in excess of the lesser of the amounts set
forth in subclauses (1) and (2) of clause (b) below
and (b) the principal amount of such additional
series to be issued is less than the lesser of (1)
$50 million and (2) 25% of the aggregate principal
amount of all series of Bonds then outstanding. The
Company and the PIC Entities will be prohibited from
incurring any debt, other than (i) in the case of
the Company, the Company Guaranty and the Company
Notes, (ii) in the case of the PIC International
Entities, the PIC International Entity Notes,
certain subordinated debt (including Other
International Notes) payable to the Company or any
PIC Entity, (iii) in the case of the PIC U.S.
Entities, the PIC Entity Guaranties and certain
subordinated debt payable to the Company or any PIC
Entity and (iv) in the case of Project Entities,
Project debt and certain guaranties. See
"Description of the Exchange Bonds - Certain
Covenants."
Guaranty and Ranking. The Exchange Bonds
will rank pari passu with all other series of Bonds
(including the Old Bonds). The Existing Bonds are,
and all other series of Bonds will be, fully and
unconditionally guaranteed by the Company. The
obligations under the Company Guaranty and Bonds are
also guaranteed in a limited amount by Panda
Interholding and will be guaranteed in a limited
amount by future PIC U.S. Entities, if any, which
will be wholly-owned subsidiaries of the Company.
The Existing Bonds are, and all other series of
Bonds will be, secured indebtedness of the Issuer;
however, payments on the Bonds, and payments under
the Guaranties, will be effectively subordinated to
all liabilities of the Project Entities incurred in
respect of the Projects, including Project-level
debt financing and trade payables. As of September
30, 1996, the Project Entities had outstanding
$314.6 million of indebtedness and other
liabilities, which are effectively senior to the
Existing Bonds and the Guaranties. The consolidated
financial statements of the Company as of December
31, 1994 and December 31, 1995 and for each of the
three years in the period ended December 31, 1995
are also the consolidated financial statements of
Panda Interholding as of such dates and for such
periods..The unaudited condensed consolidated
finanical statements of Panda Interholding as of
September 30, 1996 and for the nine months then
ended are included separately in Appendix F to this
Prospectus. See "Risk Factors - Financial Risks,"
"Description of the Outstanding Project-Level Debt"
and "Description of the Exchange Bonds - Ranking."
Flow of Funds All distributions
in respect of U.S. Projects received by or on behalf
of the Company or any PIC U.S. Entity, including
Panda Interholding (other than Extraordinary
Financial Distributions and distributions received
as a result of Mandatory Redemption Events that are
required to be deposited in the U.S. Mandatory
Redemption Account), all regularly scheduled
interest and principal payments on the PIC
International Entity Notes and any payments
resulting from the redemption or partial redemption
of any Other International Notes shall be deposited
directly into the U.S. Project Account. All
distributions in respect of Non-U.S. Projects
received by or on behalf of any PIC International
Entity (other than Extraordinary Financial
Distributions and distributions received as a result
of Mandatory Redemption Events that are required to
be deposited in the International Mandatory
Redemption Account) shall be deposited directly into
the International Project Account.
The Trustee shall, on the first Business Day of each
month (a "Monthly Distribution Date"), transfer
amounts on deposit in the U.S. Project Account in
the following order of priority:
(i) to the Debt Service Fund (for application to
payments on the Bonds), an amount equal to the
excess, if any, of (a) the aggregate amount of
interest (less any amount on deposit in the
Capitalized Interest Fund in respect of such
payment) and, if applicable, principal, in
each case due and payable on the Company Notes
(including any past due amounts) on the
Payment Date for each series of Bonds then
outstanding next following the day immediately
preceding such Monthly Distribution Date
(other than in connection with a call for
redemption) over (b) the amount then on
deposit in the Debt Service Fund;
(ii) to the Capitalized Interest Fund, an amount
equal to the excess, if any, of the
Capitalized Interest Requirement over the
amount then on deposit in the Capitalized
Interest Fund;
(iii) to the Debt Service Reserve Fund, an amount
equal to the excess, if any, of the Debt
Service Reserve Requirement over the sum of
(a) the amount then on deposit in the Debt
Service Reserve Fund plus (b) the aggregate
amount, if any, available to be drawn under
a Letter of Credit;
(iv) to the Company Expense Fund, an amount equal
to the excess, if any, of (a) the sum of (1)
the Company Expenses Amount for the applicable
calendar year plus (2) the Annual Letter of
Credit Fee over (b) the aggregate amount
deposited to the Company Expense Fund since
the beginning of such calendar year; and
(v) to the U.S. Distribution Suspense Fund, the
remaining balance, if any, on deposit in the
U.S. Project Account.
On each Monthly Distribution Date, the International
Collateral Agent shall transfer monies from the
International Project Account (i) first to the
payment of interest then due on any PIC
International Entity Note and (ii) then to the
International Distribution Suspense Fund, the
remaining balance, if any, on deposit in the
International Project Account. Extraordinary
Financial Distributions will be initially deposited
in the appropriate Extraordinary Distribution
Account (U.S. or International) and, if required
pursuant to the Indenture, proceeds received by the
Company or any PIC Entity as a result of Mandatory
Redemption Events will be initially deposited in the
appropriate Mandatory Redemption Account (U.S. or
International). All amounts held in the foregoing
Accounts and Funds (other than the International
Accounts and Funds) will be in the sole control of
the Trustee, acting in its capacity as agent for the
Collateral Agent, and will be pledged to secure the
obligations of the Issuer under the Bonds. The
International Accounts and Funds will be in the sole
control of the International Collateral Agent,
acting in its capacity as agent for the PIC
International Entities, and will be pledged to the
Company to secure the PIC International Entity Notes
and the Other International Notes. In addition to
the foregoing Accounts and Funds, a U.S.
Distribution Fund and an International Distribution
Fund will be established in the name and be in the
control of the Company and the PIC International
Entities, respectively. See "Description of the
Exchange Bonds - The Accounts and Funds."
Debt Service Fund Amounts on deposit in the Debt Service Fund
shall be used to pay interest and principal, if
applicable, due and payable on the Company Notes, as
and when provided in the Company Notes. Payments on
the Company Notes shall be applied by the Trustee to
the payment of interest and principal on the Bonds.
If, on any Payment Date the amounts on deposit in
the Debt Service Fund, after giving effect to all
transfers to the Debt Service Fund on such date, are
insufficient for the payment in full of the interest
and, if applicable, principal on the Company Notes
then due and payable, including any past due amounts
(such deficiency hereinafter referred to as a "Debt
Service Deficiency"), an amount equal to such Debt
Service Deficiency shall be withdrawn and
transferred to the Debt Service Fund, first from the
U.S. Distribution Suspense Fund, then from the U.S.
Extraordinary Distribution Account (using Available
Amounts only), then from the Company Expense Fund,
then from the Debt Service Reserve Fund, then from
the Capitalized Interest Fund and then from the U.S.
Mandatory Redemption Account (using Available
Amounts only); provided, however, that if there are
not sufficient funds in the U.S. Accounts and Funds
to eliminate a Debt Service Deficiency, monies will
be transferred from the International Accounts and
Funds by the International Collateral Agent to
effect a redemption of the Other International Notes
in an amount equal to the lesser of (a) the amounts
on deposit in the International Accounts and Funds,
(b) the outstanding principal amount of the Other
International Notes and (c) the amount of such Debt
Service Deficiency. The amounts realized from the
redemption of any Other International Notes for
purposes of eliminating a Debt Service Deficiency
will be transferred to the U.S. Project Account and
then from the U.S. Project Account to the Debt
Service Reserve Fund. PEC has agreed to cause the
Company (and, if necessary, to make capital
contributions to the Company) to loan $6.4 million
to a PIC International Entity evidenced by an Other
International Note, on or prior to the earlier of
(A) the first date on which Commercial Operations
have been achieved by any Non-U.S. Project in the
Project Portfolio and (B) the date of transfer to
the Project Portfolio of any Non-U.S. Project that
has already achieved Commercial Operations. The
Company may, but is under no obligation to, lend
additional amounts to the PIC International Entities
to create additional Other International Notes.
Capitalized Interest Fund Upon the issuance of the Old Bonds, the Company
deposited approximately $9,834,000 into the
Capitalized Interest Fund out of the loan by the
Issuer to the Company of the proceeds from the
issuance of the Old Bonds. Monies held on deposit in
the Capitalized Interest Fund shall be transferred
to the Debt Service Fund on the Interest Payment
Dates on February 20, 1997, August 20, 1997,
February 20, 1998, August 20, 1998, February 20,
1999, August 20, 2000, and February 20, 2001 in the
amounts of approximately $618,000, $1,188,000,
$1,233,000, $3,385,000, $3,304,000, $71,000 and
$35,000 respectively. See "Description of the
Exchange Bonds - The Accounts and Funds -
Capitalized Interest Fund."
Debt Service Reserve Fund Upon the issuance of the Old Bonds, the Company
deposited into the Debt Service Reserve Fund $6.4
million, which is equal to the amount of interest
due on the Existing Bonds on the first Payment Date
less the amount deposited upon the issuance of the
Old Bonds in the Capitalized Interest Fund in
respect of such interest payment. The Company funded
this deposit with a portion of the loan by the
Issuer to the Company of the proceeds from the
issuance of the Old Bonds. Except as may be
provided in any Series Supplemental Indenture with
respect to any particular series of Bonds, until the
amount on deposit in the Debt Service Reserve Fund
on any Monthly Distribution Date equals the amount
of principal and interest payments on all Bonds
outstanding due for the immediately succeeding 12
months (less the amount on deposit in the
Capitalized Interest Fund in respect of interest
payments scheduled to be made during such 12-month
period), all funds deposited in the U.S. Project
Account not required to be transferred into the Debt
Service Fund or the Capitalized Interest Fund shall
be deposited into the Debt Service Reserve Fund.
Thereafter, so long as any Bonds remain outstanding,
the Company will be required (unless otherwise
provided in a Series Supplemental Indenture with
respect to a particular series of Bonds) to maintain
in the Debt Service Reserve Fund an amount equal to
the amount of debt service due in respect of all
Bonds then outstanding for the next 12-month period,
except that, if less than 12 months remain before
the Final Stated Maturity for any series of Bonds,
then an amount equal to the scheduled principal and
interest payments for such series for such period
will constitute the amount required to be on deposit
in the Debt Service Reserve Fund with respect to
such series of Bonds. The Debt Service Reserve Fund
may be drawn upon to pay the principal of, and
premium, if any, and interest on all series of the
Bonds, to the extent of funds allocated within the
Debt Service Reserve Fund to each series of Bonds,
if funds otherwise available to the Trustee for such
payments are insufficient. At any time when the
Capitalized Interest Requirement for any series of
the Bonds equals zero, Panda International or PEC
may arrange for a Letter of Credit to be provided in
lieu of cash for all or a part of the amount in
respect of such series required to be maintained in
the Debt Service Reserve Fund. See "Description of
the Exchange Bonds - The Accounts and Funds - Debt
Service Reserve Fund."
Distributions Subject to certain limited exceptions,
distributions may be made to the Company and the PIC
International Entities only from, and to the extent
of, monies then on deposit in the U.S. Distribution
Fund and the International Distribution Fund,
respectively. Transfers into the Distribution Funds
may be made on any Monthly Distribution Date subject
to the prior satisfaction of the following
conditions: (i) the amount on deposit in the Debt
Service Fund is equal to or greater than the amount
of interest (less amounts on deposit in the
Capitalized Interest Fund in respect of such
interest payment) and, if applicable, principal due
on all series of the Bonds (including all past due
amounts) on the Payment Date for each series of
Bonds outstanding next following the day immediately
preceding such Monthly Distribution Date (other than
in connection with a call for redemption); (ii) the
amount on deposit in each of the Capitalized
Interest Fund, the Debt Service Reserve Fund
(together with the aggregate amount of any Letters
of Credit provided in respect of the Debt Service
Reserve Requirement), the Company Expense Fund, the
Mandatory Redemption Accounts and the Extraordinary
Distribution Accounts is equal to or greater than
the amount then required to be deposited therein
under the Indenture; (iii) no Default or Event of
Default under the Indenture shall have occurred and
be continuing; and (iv) with certain exceptions, the
Company can certify that (a) the historical Company
Debt Service Coverage Ratio is equal to or greater
than 1.4:1 for the 12 months immediately preceding
the month in which such Monthly Distribution Date is
to occur (or for such shorter period as the Bonds
have been outstanding) and (b) the projected Company
Debt Service Coverage Ratio is equal to or greater
than 1.4:1 for the 12 months immediately succeeding
the month in which such Monthly Distribution Date is
to occur (or for such shorter period as the series
of Bonds with the latest Final Stated Maturity is
scheduled to be outstanding). See "Description of
the Exchange Bonds - Certain Covenants - Limitations
on Distributions."
Registration Rights This Exchange Offer is intended to satisfy
certain rights under the Registration Rights
Agreement, which rights terminate upon the
consummation of the Exchange Offer. Therefore, the
holders of Exchange Bonds are not entitled to any
exchange or registration rights with respect to the
Exchange Bonds. In addition, such exchange and
registration rights will terminate as to holders of
Old Bonds who are eligible to tender their Old Bonds
for exchange in the Exchange Offer and fail to do
so. See "The Exchange Offer - Termination of
Certain Rights" and "Old Bonds Registration Rights."
Transfer of Exchange Bonds
Based upon its view of interpretations provided to
third parties by the staff of the Commission, the
Company believes that the Exchange Bonds issued
pursuant to the Exchange Offer may be offered for
resale, resold and otherwise transferred by holders
thereof (other than any holder which is (i) an
Affiliate of the Company, the Issuer or Panda
Interholding, (ii) a broker-dealer who acquired Old
Bonds directly from the Issuer or (iii) a broker-
dealer who acquired Old Bonds as a result of market
making or other trading activities) without
registration under the Securities Act, provided that
such Exchange Bonds are acquired in the ordinary
course of such holders' business and such holders
are not engaged in, and do not intend to engage in,
and have no arrangement or understanding with any
person to participate in, a distribution (within the
meaning of the Securities Act) of such Exchange
Bonds. Each broker-dealer that receives Exchange
Bonds for its own account pursuant to the Exchange
Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such
Exchange Bonds. The Letter of Transmittal states
that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to
admit that it is an "underwriter" within the meaning
of the Securities Act. This Prospectus, as it may
be amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales
of Exchange Bonds received in exchange for Old Bonds
where such Old Bonds were acquired by such broker-
dealer as a result of market making activities or
other trading activities. The Company and the Issuer
have agreed, for a period of 180 days after the
consummation of the Exchange Offer, to make
available a prospectus meeting the requirements of
the Securities Act to any such broker-dealer for use
in connection with any such resale. A broker-dealer
that delivers such a prospectus to a purchaser in
connection with such resales will be subject to
certain of the civil liability provisions under the
Securities Act and will be bound by the provisions
of the Registration Rights Agreement (including
certain indemnification provisions). Any holder who
tenders in the Exchange Offer for the purpose of
participating in a distribution of the Exchange
Bonds and any other holder that cannot rely upon
such interpretations must comply with the
registration and prospectus delivery requirements of
the Securities Act in connection with a secondary
resale transaction. In addition, to comply with the
securities laws of certain jurisdictions, if
applicable, the Exchange Bonds may not be offered or
sold unless they have been registered or qualified
for sale in such jurisdictions or an exemption from
registration or qualification is available and the
conditions thereto have been met. See "The Exchange
Offer - Purpose and Effects of the Exchange Offer"
and "Plan of Distribution."
Use of Proceeds There will be no cash proceeds to the Issuer,
the Company or Panda Interholding from the exchange
of Exchange Bonds for Old Bonds pursuant to the
Exchange Offer.
Risk Factors
Investment in the Exchange Bonds involves substantial risks. See "Risk
Factors."
Summary Historical and Pro Forma Financial Data
Presented below is summary historical financial data for the Company as of
and for each of the years in the three-year period ended December 31, 1995 and
as of and for the nine months ended September 30, 1995 and 1996, which have
been derived from the Company's financial statements and pro forma financial
data for the year ended December 31, 1995 and the nine months ended September
30, 1996. The pro forma financial data give effect to (i) the issuance of
$111.4 million in the aggregate principal amount of Rosemary Bonds and the
application of the net proceeds thereof to refinance Panda-Rosemary Project
debt and to fund a portion of the acquisition of Ford Credit's limited partner
interest in the Panda-Rosemary Partnership, (ii) the issuance of the Existing
Bonds and the application of the net proceeds thereof (a) to fund the
Capitalized Interest Fund, the Debt Service Reserve Fund and the Company
Expense Fund, (b) to fund the remaining portion of the acquisition of Ford
Credit's limited partner interest in the Panda-Rosemary Partnership and (c) to
make a distribution to the Company's parent. Pro forma balance sheet data as
of September 30,1996 are not required because the transactions are reflected in
the historical balance sheet data as of September 30, 1996. The pro forma
statement of operations data reflect such adjustments as if the transactions
had occurred as of January 1, 1995. As required by the Securities and Exchange
Commission, the pro forma statement of operations data do not reflect the
extraordinary loss on early extinguishment of debt. Such extraordinary loss is
reflected in the historical statement of operations data for the nine months
ended September 30, 1996. The unaudited pro forma financial data do not
purport to be indicative of the results of operations which would actually have
occurred if the transactions described had occurred as presented in such
statements or which may be obtained in the future. Results for the nine months
ended September 30, 1996 are not necessarily indicative of the results that may
be expected for the full fiscal year. The information in this table should be
read in conjunction with the information contained under the captions
"Capitalization," "Unaudited Pro Forma Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
with the financial statements of the Company, including the notes thereto,
included elsewhere herein.
<TABLE>
<CAPTION>
Year Ended December 31, Nine Months Ended September 30,
Pro forma Pro forma
1993 1994 1995 1995 1995 1996 1996
(in thousands, except ratios)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Electric capacity and energy
sales $29,856 $30,664 $29,859 $29,859 $22,139 $21,496 $21,496
Steam and chilled water sales 618 650 473 473 376 388 388
Interest income 365 603 895 895 696 611 611
Total revenue 30,839 31,917 31,227 31,227 23,211 22,495 22,495
Plant operating expenses 7,676 8,940 9,348 9,348 6,751 7,814 7,814
Development and
administrative expenses 2,278 1,376 1,821 1,821 1,183 1,261 1,261
Interest expense 11,066 11,018 11,716 21,875 8,525 11,096 16,406
Depreciation 4,282 4,208 4,210 4,020 3,157 3,159 3,016
Amortization - Debt issue
costs 502 600 554 312 409 395 251
Amortization - Partnership
formation costs 533 533 533 533 400 400 400
Total expenses 26,337 26,675 28,182 37,909 20,425 24,125 29,148
Income (loss) before
minority interest 4,502 5,242 3,045 (6,682) 2,786 (1,630) (6,653)
Minority interest (5,474) (5,700) (5,048) - (3,736) (2,405) -
Net loss before
extraordinary item (972) (458) (2,003) (6,682) (950) (4,035) $(6,653)
Extraordinary loss on early
extinguishment of debt - - - - (21,336)
Net loss $(972) $(458) $(2,003) $(950) $(25,371)
Other Data:
Ratio of earnings to
fixed charges (1) 1.39 1.36 (1) (1) (1) (1) (1)
</TABLE>
<TABLE>
<CAPTION>
December 31, September 30,
1993 1994 1995 1995 1996
(in thousands) (in thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and other current assets $14,084 $ 15,538 $ 11,333 $ 20,928 $ 17,125
Power plant and equipment (net) 93,815 94,893 216,794 190,572 263,995
Reserves and escrow deposits,
and other assets 14,901 14,728 14,722 14,378 36,109
Total assets $122,800 $125,159 $242,849 $225,878 $317,229
Current liabilities $ 11,252 $ 12,531 $ 18,457 $ 15,590 $ 16,589
Long-term debt, less current
portion 98,454 106,343 234,608 208,111 404,950
Minority interest 34,479 35,588 36,836 36,316 -
Shareholder's deficit (21,385) (29,303) (47,052) (34,139) (104,310)
Total liabilities and
shareholder's deficit $122,800 $125,159 $242,849 $225,878 $317,229
</TABLE>
Note (in thousands):
(1) For purposes of computing the ratio of earnings to fixed charges, earnings
represent income (loss) before minority interest, taxes and extraordinary
items, plus fixed charges. Fixed charges consist of interest expense,
capitalized interest and amortization of debt issuance costs. Earnings were
insufficient to cover fixed charges in 1995 by $2,748, in pro forma 1995 by
$12,475, in the nine months ended September 30, 1995 by $472, in the nine
months ended September 30, 1996 by $11,309 and in the pro forma nine months
ended September 30, 1996 by $16,332. In 1994 and 1995 and for the nine
months ended September 30, 1995 and 1996, fixed charges included capitalized
interest of $803, $5,793, $3,258 and $9,679, respectively, related to the
Panda-Brandywine Facility. This capitalized interest is funded by additional
borrowings under the Brandywine Construction Loan Facility.
Independent Engineers' and Consultants' Reports
The Independent Engineers' and Consultants' Reports, and the following
summaries thereof, contained in this Prospectus contain forward-looking
statements, including projections, that involve risks and uncertainties.
Actual results may differ materially from those discussed in the forward-
looking statements. In providing its conclusions set forth in the Independent
Engineers' or Consultants' Reports, each Independent Engineer or Consultant
made certain assumptions. Although the author of each Report believes that the
use of these assumptions in its Report is reasonable, assumptions are
inherently subject to significant uncertainties and, if actual conditions
differ from those assumed, actual results will differ from those projected,
perhaps materially. Accordingly, the conclusions and projections contained in
the Independent Engineers' and Consultants' Reports may not be indicative of
future events. Therefore, no representations are made, nor should any be
inferred, with respect to the likely existence of any particular future set of
facts or circumstances. If actual results are less favorable than the
conclusions presented in the Independent Engineers' or Consultants' Reports or
if the assumptions used in formulating the conclusions presented prove to be
incorrect, the ability of a Project Entity to make distributions to its equity
holders and thus ultimately to the Company, the Company's ability to make
payments on the Company Notes and consequently the Issuer's ability to make
payments on the Exchange Bonds, may be materially and adversely affected. See
"Risk Factors - Reliance upon Projections and Underlying Assumptions Contained
in Independent Engineers' and Consultants' Reports."
Any projections of future operations and economic results thereof
contained in the Independent Engineers' and Consultants' Reports have not been
prepared in accordance with published guidelines of the Commission, the
American Institute of Certified Public Accountants, any regulatory or
professional agency or body or generally accepted accounting principles.
Deloitte & Touche LLP, the Company's independent accountants, has neither
examined nor compiled the projections and, accordingly, does not express an
opinion or any other form of assurance with respect thereto. See "Risk Factors
- - Reliance upon Projections and Underlying Assumptions Contained in Independent
Engineers' and Consultants' Reports."
Consolidating Engineer's Pro Forma Report
ICF Resources, Incorporated ("ICF") has prepared a report dated January
10, 1997 (the "Consolidated Pro Forma Report") that contains a summary
consolidation of the pro forma financial projections (the "Consolidated Pro
Forma") for the Panda-Brandywine Facility and the Panda-Rosemary Facility
contained in the Rosemary Engineering Report and the Panda-Brandywine Pro Forma
Report, both summarized below. The Consolidated Pro Forma Report summarizes and
describes the Consolidated Pro Forma and explains how it was derived, and
discusses the methodology used in its preparation. The Consolidated Pro Forma
Report is attached hereto as Appendix B and should be read in its entirety by
all prospective investors.
In preparing the Consolidated Pro Forma, ICF relied on the pro forma
financial projections (the "Rosemary Pro Forma") prepared by Burns & McDonnell
Engineering Company, Inc. ("Burns & McDonnell"), which are contained in the
Rosemary Engineering Report, and the pro forma financial projections (the
"Brandywine Pro Forma") that ICF prepared for the Panda-Brandywine Facility,
which are contained in the Brandywine Pro Forma Report. The Rosemary
Engineering Report and the Brandywine Pro Forma Report contain the primary
assumptions underlying, and the conclusions drawn from, the Rosemary Pro Forma
and the Brandywine Pro Forma, respectively. In its capacity as Consolidating
Engineer, ICF reviewed the Rosemary Engineering Report and the Brandywine Pro
Forma Report only to the extent necessary to incorporate the results of the
Rosemary Pro Forma and the Brandywine Pro Forma in the Consolidated Pro Forma
and made no independent investigation of the Rosemary Pro Forma or the
Brandywine Pro Forma, their accuracy, or the assumptions made in the
preparation thereof. The Rosemary Engineering Report and the Brandywine Pro
Forma Report are attached hereto as Appendix C and Appendix E, respectively,
and should be read in their entirety by all prospective investors.
The Consolidated Pro Forma Report presents two measures of debt service
coverage for the Company. The first, the "Company Coverage Ratio," reflects the
relationship between the total cash flow available for Company debt service
(i.e., cash flow from the Panda-Rosemary Facility and the Panda-Brandywine
Facility after paying Project-level operating expenses and debt service, making
additions to Project-level reserves, providing distributions to third-party
equity interest-holders and providing for certain Company-level items) and
Company debt service (i.e., the debt service on the Existing Bonds). The
second, the "Consolidated Coverage Ratio," reflects the relationship between
the total consolidated operating cash flow of the Panda-Rosemary Facility and
the Panda-Brandywine Facility (i.e., cash flow from the Panda-Rosemary
Facility and the Panda-Brandywine Facility before paying Project-level debt
service and Company-level debt service and after making additions to Project-
level reserves and providing for certain Company-level items) and the sum of
the consolidated debt service for such facilities plus the debt service on the
Existing Bonds. The Company Coverage Ratio and the Consolidated Coverage Ratio
have been prepared under two scenarios. Under one scenario, it has been assumed
that the PEPCO Interest Rate Dispute relating to the determination of the
interest rate that is the basis for reduction in capacity payments under the
Brandywine Power Purchase Agreement, as described under the caption
"Description of the Projects - The Panda-Brandywine Facility - Dispute With
PEPCO Over Calculation of Capacity Payments," is resolved in a manner
consistent with the Panda-Brandywine Partnership's current position (the
"Brandywine Scenario"). Under the other scenario, it has been assumed that the
PEPCO Interest Rate Dispute is resolved in a manner consistent with PEPCO's
current position (the "PEPCO Scenario"). Over the 16-year term of the Existing
Bonds, under the Brandywine Scenario, the Company Coverage Ratio is projected
to be at least 1.3:1 and on average is 2.0:1 and, under the PEPCO Scenario, the
Company Coverage Ratio is projected to be at least 1.3:1 (except for 1997 in
which it is projected to be 0.8:1) and on average is 1.6:1. Under the
Brandywine Scenario, the Consolidated Coverage Ratio is projected to be at
least 1.09:1 and on average is 1.27:1. The Consolidated Coverage Ratio under
the PEPCO Scenario is projected to be at least 1.1:1 (except for 1997 in which
it is projected to be 0.96:1) and on average is 1.17:1.
Under the PEPCO Scenario, distributions the Company expects to receive
from its Project Entities that own the Panda-Brandywine Partnership and the
Panda-Rosemary Partnership would be sufficient to service the Existing Bonds
(except in 1997); however, such distributions may not be sufficient to enable
the Company to meet the minimum Company Debt Service Coverage Ratio of 1.7:1
and the minimum Consolidated Debt Service Coverage Ratio (if then applicable)
of 1.25:1 required under the Indenture to permit the Company to incur
additional debt. Accordingly, the ability of the Company to raise debt for
Projects in the future would be impaired. In addition, the projected coverage
ratios under the PEPCO Scenario indicate that distributions the Company expects
to receive from its Project Entities would be insufficient to service the
Existing Bonds in 1997 (under the Company Coverage Ratio, such deficiency is
projected to be $1.6 million and under the Consolidated Coverage Ratio, such
deficiency is projected to be $1.5 million). In such case, monies held in the
Accounts and Funds, if any, may be applied toward any debt service deficiency
as set forth in the Indenture. The current balances in the Accounts and Funds
are as follows: Debt Service Fund, $6.4 million; Capitalized Interest Fund,
$9.8 million; Debt Service Reserve Fund, $6.4 million; Company Expense Fund,
$300,000; U.S. Distribution Suspense Fund, $680,000. See "Risk Factors -
Dispute With PEPCO Over Calculation of Capacity Payments," "Description of the
Projects - The Panda-Brandywine Facility - Dispute With PEPCO Over Calculation
of Capacity Payments" and "Description of the Exchange Bonds - The Accounts and
Funds" and "- Certain Covenants - Limitations on Debt."
Another dispute with PEPCO exists concerning the determination of PEPCO's
system peak load under a provision in the Brandywine Power Purchase Agreement
that provides for reduction of capacity payments commencing in 2006 if such
peak load is less than 5,697 MW during certain periods. The Consolidated Pro
Forma and the Brandywine Pro Forma are prepared under the assumption that
PEPCO's system peak load exceeds 5,697 MW during the relevant period, and
accordingly, there is no reduction in capacity payments under this provision.
ICF believes that such assumption is reasonable in light of recent peak day
demand on PEPCO's system and is not dependent upon the outcome of the dispute
between Panda-Brandywine Partnership and PEPCO. See "- Independent Pro Forma
Analysis - Brandywine" below and "Description of the Projects - The Panda-
Brandywine Facility - Dispute With PEPCO Over Calculation of Capacity
Payments."
Independent Engineer's Report - Rosemary
Burns & McDonnell has prepared a report, dated July 26, 1996, and an
update report, dated January 10, 1997 (as updated, the "Rosemary Engineering
Report"), concerning certain technical, environmental and economic aspects of
the Panda-Rosemary Facility. The update report discusses certain recent
developments, including the hurricane damage sustained by the Panda-Rosemary
Facility in September 1996, an approximate 14% reduction in the level of
dispatch projected in the July 26, 1996 report and changes in anticipated fuel
costs and operation and maintenance expenses. The Rosemary Engineering Report
is attached hereto as Appendix C and should be read in its entirety by all
prospective investors. Burns & McDonnell provides a variety of professional and
technical services in the fields of engineering, architecture, planning,
economics and environmental sciences. Burns & McDonnell's project work includes
studies, design, planning and construction management for electric power
generation and transmission facilities, as well as for waste management, water
treatment, airport and other transportation infrastructure facilities. Burns &
McDonnell has been involved with the Panda-Rosemary Facility since 1989. The
Rosemary Engineering Report includes, among other things, a review and
assessment of the Panda-Rosemary Facility's equipment and operating condition,
a review of its operating history, a review of the significant Project
agreements and projections of revenues, expenses and debt service coverage for
the facility during the period that the Rosemary Bonds are scheduled to be
outstanding (i.e., through 2016).
Burns & McDonnell has relied upon projections of the Panda-Rosemary
Facility's dispatch profile and fuel costs over the term of the Rosemary Power
Purchase Agreement prepared by ICF. Based on ICF's experience in undertaking
similar analyses, Burns & McDonnell believes that the use of ICF's dispatch
profile and fuel cost projections is reasonable for the purposes of the
Rosemary Engineering Report. Burns & McDonnell also has relied upon certain
other information provided to it by sources it believes to be reliable. Burns &
McDonnell believes that the use of such information is reasonable for the
purposes of the Rosemary Engineering Report.
In preparing the Rosemary Engineering Report, Burns and McDonnell made
various assumptions regarding the validity and performance of contracts, the
operation and maintenance of the Panda-Rosemary Facility, the effectiveness of
permits and the benefits to be derived from a recent conversion of a firm gas
transportation arrangement. Some of the other principal assumptions made by
Burns & McDonnell in developing the pro forma operating projections contained
in the Rosemary Engineering Report are as follows:
(i) Fuel costs will be as set forth in the updated projections by ICF
(which projections have been determined by Benjamin Schlesinger and
Associates, Inc., the independent fuel consultant for the Panda-
Rosemary Facility, to employ reasonably conservative assumptions).
(ii) The Panda-Rosemary Facility will be dispatched as set forth in the
updated projections by ICF, except that ICF's dispatch projections
have been increased by 400 hours per year in 1996 and 1997, 500 hours
per year in 1998 through 2002 and 600 hours per year in 2003 through
2015 to reflect hours that the Panda-Rosemary Facility will be
dispatched using gas supplied by VEPCO, which increases ICF has
determined to be reasonable.
(iii) Thermal energy in the form of steam and chilled water will be
exported from the Panda-Rosemary Facility, operating in the
cogeneration mode, to Bibb's facility such that the production and
sale of useful thermal energy, as defined under the Public Utility
Regulatory Policies Act of 1978, as amended ("PURPA"), and the
regulations promulgated thereunder, will be sufficient to maintain
the Panda-Rosemary Facility's QF status. The Panda-Rosemary
Partnership will continue to absorb an annual operating loss on the
sale of steam and chilled water over the life of the Panda-Rosemary
Facility.
(iv) Steam and chilled water sales to Bibb will remain constant at 50,000
pounds per hour for 7,800 hours per year and 1,010 tons per hour for
4,000 hours per year, respectively.
(v) Operating costs, including fuel transportation, operating and
maintenance and other administrative costs, will equal those
estimated by the Panda-Rosemary Partnership, most of which are
assumed to increase at a rate of 3% per year.
(vi) The debt service reserve fund maintained pursuant to the Rosemary
Indenture will be maintained at adequate levels throughout the
Rosemary Bonds' repayment period, and such fund will earn interest at
a rate of 5.0% per year.
As previously mentioned, these assumptions and the other assumptions
contained in the Rosemary Engineering Report are inherently subject to
significant uncertainties and, if actual conditions differ from those assumed,
actual results will differ from those projected, perhaps materially.
Subject to the studies, analyses and investigations of the Panda-Rosemary
Facility they performed and the assumptions made in the Rosemary Engineering
Report, Burns & McDonnell offered the following conclusions:
(i) The technology incorporated in the Panda-Rosemary Facility is a
sound, proven method of generating electric and thermal energy and
incorporates commercially proven technology. The design, operation
and maintenance of the Panda-Rosemary Facility implemented by the
Panda-Rosemary Partnership and U-Tech were developed and have been
implemented in accordance with good engineering practices and
generally accepted industry practices and have taken into
consideration existing and proposed environmental and permit
requirements applicable to the Panda-Rosemary Facility. Panda Global
Services currently provides operations and maintenance services to
the Panda-Rosemary Facility on substantially the same basis as
previously provided by U-Tech pursuant to an agreement that was
obtained through a competitive bid process. Burns & McDonnell knows
of no significant technical problems relating to the Panda-Rosemary
Facility that should be of concern to potential investors.
(ii) The Panda-Rosemary Facility is in good condition and its long-term
maintenance program is consistent with the manufacturers'
recommendations and generally accepted practices within the electric
power generation industry.
(iii) The Panda-Rosemary Facility will have an expected operating service
life well beyond the term of the Rosemary Power Purchase Agreement if
properly operated and maintained consistent with current practices.
(iv) The Panda-Rosemary Partnership has obtained and maintained in full
force and effect the key environmental permits and approvals required
from the various federal, state and local agencies that are currently
necessary to operate the Panda-Rosemary Facility.
(v) The basis for the Panda-Rosemary Partnership's estimates of the cost
of operating and maintaining the Panda-Rosemary Facility is
reasonable. The expense projections prepared by the Panda-Rosemary
Partnership and based on projected levels of dispatch appear adequate
to account for the variable operation and maintenance expenses of the
Panda-Rosemary Facility.
(vi) Projected revenues from the sale of electric generating capacity,
electricity and thermal energy and other income are adequate to pay
annual operation and maintenance expenses (including provisions for
major maintenance), fuel costs and other operating expenses and
provide a minimum annual debt service coverage on the Rosemary Bonds
of 1.38:1, as shown on Table C in the update report.
These conclusions are confirmed or contained in the update report dated
January 10, 1997. In addition, the update report contains updated dispatch
projections, fuel cost assumptions, projected debt coverage ratios and
financial forecasts that differ from those contained in the July 26, 1996
report.
Fuel Consultant's Report - Rosemary
Benjamin Schlesinger and Associates, Inc. ("Schlesinger") has prepared a
report, dated September 20, 1996, and an update certificate, dated January 10,
1997 (as updated, the "Rosemary Fuel Consultant's Report"), concerning the
sufficiency of the fuel supply and transportation arrangements entered into by
the Panda-Rosemary Partnership with respect to the Panda-Rosemary Facility.
The Rosemary Fuel Consultant's Report is attached hereto as Appendix D and
should be read in its entirety by all prospective investors. Schlesinger is a
Bethesda, Maryland-based management consulting firm that specializes in the
natural gas industry, including economic and regulatory analysis, market
research, energy supply and demand forecasting, gas rate development and
related economic, technical and environmental analyses. The Rosemary Fuel
Consultant's Report includes among other things a review and assessment of the
fuel supply and delivery arrangements for the Panda-Rosemary Facility, with
respect to both natural gas and fuel oil, focusing on the appropriateness of
the existing fuel arrangements and the historic reliability of fuel supplies to
the Panda-Rosemary Facility. Schlesinger has used and relied upon certain
information provided to it by sources it believes to be reliable. Schlesinger
believes that the use of such information is reasonable for the purposes of the
Rosemary Fuel Consultant's Report.
In providing its conclusions set forth in the Rosemary Fuel Consultant's
Report, Schlesinger made certain assumptions. Although Schlesinger believes
that the use of these assumptions in the Rosemary Fuel Consultant's Report is
reasonable, assumptions are inherently subject to significant uncertainties
and, if actual conditions differ from those assumed, actual results will differ
from those projected, perhaps materially.
Subject to the information contained and the assumptions made in the
Rosemary Fuel Consultant's Report, Schlesinger offered the following
conclusions:
(i) The Panda-Rosemary Partnership's existing gas supply and delivery
arrangements provide the Panda-Rosemary Partnership with an
appropriate degree of gas reliability for a summer peaking facility.
Additionally, the Panda-Rosemary Facility's on-site fuel oil storage,
ready access to oil terminals at four locations and fuel oil resupply
procedures with NGC have provided an appropriate degree of back-up
fuel oil supply. However, the Panda-Rosemary Facility may not be
able to sustain a 90% gas reliability level in the future if
significantly higher levels of dispatch were to occur in November,
December, or March and the Panda-Rosemary Partnership should continue
to monitor its dispatch and fuel prices in those months.
(ii) While the energy price in the Rosemary Power Purchase Agreement
closely parallels the actual seasonal availability to the Panda-
Rosemary Facility of gas and fuel oil, the calculation of the energy
price is not directly linked to the Panda-Rosemary Facility's actual
fuel costs. Therefore, the Panda-Rosemary Facility is subject to the
risk that the fuel compensation component of the energy price under
the Rosemary Power Purchase Agreement will not match the Panda-
Rosemary Facility's fuel costs to produce the electricity. This risk
is greatest in the months of November, December and March, when the
energy price under the Rosemary Power Purchase Agreement is based
upon an index of spot gas prices but when the Panda-Rosemary Facility
may be required to burn more expensive fuel oil upon dispatch due to
potential curtailment in gas supply and transportation during winter
months. This risk, however, is largely mitigated by a start-up fee
VEPCO pays the Panda-Rosemary Partnership for each start-up in such
months. See "Risk Factors - Project Risks - Fuel-Related Pricing" and
"- Fuel Supply Risks."
(iii) The Panda-Rosemary Partnership's overall fuel supply plan is
reasonable and appropriate given the Panda-Rosemary Facility's
operating history and energy payment structure. Thus, so long as
VEPCO continues to dispatch the Panda-Rosemary Facility principally
as a summer peaking facility, the additional fixed costs that the
Panda-Rosemary Partnership would be required to incur to increase gas
supply or delivery reliability, and further mitigate the risk
discussed in clause (ii) above, are not warranted from an economic or
fuel reliability standpoint.
(iv) The projections developed by Burns & McDonnell in the Rosemary
Engineering Report (including the update report) employ reasonably
conservative assumptions with respect to the Panda-Rosemary
Partnership's fixed gas transportation costs and the relationship of
the Panda-Rosemary Partnership's variable fuel costs to the energy
price under the Rosemary Power Purchase Agreement, and the Rosemary
Engineering Report contains reasonable assumptions concerning the
revenue that the Panda-Rosemary Partnership may receive by reselling
transportation capacity that is excess to the Panda-Rosemary
Facility's average daily capacity utilization and/or reselling gas
using its excess transportation capacity.
(v) The Panda-Rosemary Partnership recently converted its firm gas
transportation service to a type of transportation service that
enhances the Panda-Rosemary Facility's operational flexibility by
permitting it to switch receipt and delivery points for the gas and
to resell its capacity to third parties when it is not needed.
(vi) The Panda-Rosemary Partnership should have little difficulty
extending its existing fuel supply and transportation contracts or,
if necessary, replacing the current fuel arrangements with
alternative service agreements that offer comparable price, credit
supply and reliability provisions as necessary to match the
contractual duration of its fuel supply arrangements with the
maturity date of the Rosemary Bonds.
Independent Pro Forma Analysis - Brandywine
ICF has prepared a report, dated July 26, 1996, and an update report dated
January 10, 1997 (as updated, the "Brandywine Pro Forma Report"), presenting
its independent pro forma operating projections (the "Brandywine Pro Forma")
for the Panda-Brandywine Facility under both the Brandywine Scenario and the
PEPCO Scenario. The Brandywine Pro Forma Report is attached hereto as Appendix
E and should be read in its entirety by all prospective investors. In
developing its projections, ICF reviewed the Panda-Brandywine Facility's fuel
supply and transportation contracts and the Brandywine Power Purchase
Agreement, as well as the Brandywine Engineering Report and the Brandywine Fuel
Consultant's Report. Based on the experience of Pacific Energy Systems, Inc.
("PES") and C.C. Pace Resources, Inc. ("C.C. Pace") in undertaking similar
analyses, ICF believes that the use of the Brandywine Engineering Report and
the Brandywine Fuel Consultant's Report is reasonable for the purposes of the
Brandywine Pro Forma. In preparing the Brandywine Pro Forma, ICF used and
relied on certain other information provided to it by sources it believes to be
reliable, including a report by ICF providing its dispatch projections for the
Panda-Brandywine Facility. ICF believes that the use of such information is
reasonable for the purposes of the Brandywine Pro Forma.
In preparing the Brandywine Pro Forma and the conclusions contained
therein, ICF made assumptions with respect to the validity and performance of
contracts, the operation and maintenance of the Panda-Brandywine Facility, the
effectiveness of permits and the maintenance of QF status. Other principal
assumptions made by ICF in developing the Brandywine Pro Forma include the
following:
(i) Raytheon has constructed and Ogden Brandywine will operate the Panda-
Brandywine Facility as required under their respective contracts with
the Panda-Brandywine Partnership, which contracts have been reviewed
by PES. ICF further assumes that PES's conclusions as to those
agreements are accurate.
(ii) The Panda-Brandywine Facility's design will enable it to perform at a
level consistent with that anticipated in the Brandywine Pro Forma.
(iii)The fuel supply arrangements entered into by the Panda-Brandywine
Partnership fulfill the contractual requirements of the Brandywine
Power Purchase Agreement, and variable fuel-related costs will be less
than the energy payments to be received from PEPCO, as confirmed by
C.C. Pace in the Brandywine Fuel Consultant's Report.
(iv) Commercial operations under the Brandywine EPC Agreement occurred on
September 30, 1996.
(v) PEPCO's system peak load will exceed 5,697 MW during 1997.
Although ICF believes that the use of these assumptions and the others
contained in the Brandywine Pro Forma Report in developing the Brandywine Pro
Forma is reasonable, assumptions are inherently subject to significant
uncertainties and, if actual conditions differ from those assumed, actual
results will differ from those projected, perhaps materially. ICF has made
certain assumptions as set forth above concerning the level of PEPCO's system
peak load which ICF believes are reasonable in light of recent peak day demand
on PEPCO's system and are not dependent upon the outcome of the current dispute
between Panda-Brandywine Partnership and PEPCO regarding the basis for the
determination of PEPCO's system peak load. In addition, ICF has made certain
assumptions as set forth above concerning the commercial operations date under
the Brandywine EPC Agreement, which is the subject of a dispute between the
Panda-Brandywine Partnership and Raytheon. Under the assumptions made by ICF,
Raytheon would not be entitled to the entire early completion bonus that it
claims. See "Description of the Projects - The Panda-Brandywine Facility -
Dispute With PEPCO Over Calculation of Capacity Payments" and "- Construction
Contract."
Subject to the studies, analyses and investigations of the Panda-
Brandywine Facility performed by ICF, and the assumptions made in the
Brandywine Pro Forma, ICF offered the following conclusions:
(i) The financial projections in the Brandywine Pro Forma provide a
reasonable reflection of the Panda-Brandywine Facility's expected
costs, revenues and cash flows.
(ii) The energy and capacity revenue calculations contained in the
Brandywine Pro Forma are appropriate and consistent with the
Brandywine Power Purchase Agreement, and are not dependent upon the
outcome of the current dispute between the Panda-Brandywine
Partnership and PEPCO regarding the basis for the determination of
PEPCO's system peak load.
(iii) Under the Brandywine Scenario, the Panda-Brandywine Facility's net
cash flow will average approximately $24.4 million per year through
2016, ranging from $6.6 million in 1998 to $43.0 million in 2016.
Under the PEPCO Scenario, the Panda-Brandywine Facility's net cash
flow will average approximately $19.6 million per year through 2016,
ranging from $1.7 in 1997 to $40.5 million in 2016.
(iv) During the 20-year term of the Brandywine Facility Lease, under the
Brandywine Scenario, the Panda-Brandywine Facility's lease coverage
(i.e., the ratio of earnings before income taxes to lease payments)
will range from 2.23:1 in 1998 to 1.88:1 in 2015, and the Panda-
Brandywine Facility's average lease coverage through 2016 will be
1.95:1. Under the PEPCO Scenario, lease coverage will range from
1.76:1 in 1997 to 2.08:1 in 2016 and the average lease coverage will
be 1.77:1.
Independent Engineer's Report - Brandywine
PES has prepared a report, dated July 22, 1996, and an update report dated
January 10, 1997 (as updated, the "Brandywine Engineering Report"), evaluating
the design, construction and expected operation of the Panda-Brandywine
Facility. The Brandywine Engineering Report is attached hereto as Appendix G
and should be read in its entirety by all prospective investors. PES has
provided engineering services to approximately 50 power plants within the last
seven years. Such services include technical review, construction monitoring,
performance testing and certification, and operation and maintenance audits.
Approximately half of these plants utilize combined-cycle combustion turbine
technology with cogeneration as does the Panda-Brandywine Facility. PES has
been involved with the Panda-Brandywine Facility since it performed a due
diligence review for GE Capital in connection with the closing of the Panda-
Brandywine Facility's construction loan in March 1995, and PES has monitored
construction of the Panda-Brandywine Facility since that date.
PES's review and assessment is based, among other things, on due diligence
work previously completed, construction monitoring of the Panda-Brandywine
Facility and a review of significant project agreements. In providing its
conclusions set forth in the Brandywine Engineering Report, PES made certain
assumptions. As previously mentioned, the assumptions are inherently subject to
significant uncertainties and, if actual conditions differ from those assumed,
actual results will differ from those projected, perhaps materially.
PES has independently reviewed the project engineering, cost, construction
schedule, permits, contracts, operations and maintenance, and performance
estimates for completeness, risk, variation from practices typical in the
industry, and the ability of the Panda-Brandywine Facility to perform as
intended. Its principal conclusions include the following:
(i) The Panda-Brandywine Facility is substantially complete and is
capable of meeting all commercial operating requirements under the
Brandywine Power Purchase Agreement and the Brandywine Steam
Agreement.
(ii) The Panda-Brandywine Facility has received or is expected to receive
all necessary operating permits. There is no reason to believe that
any necessary operating permit not yet received will not be obtained.
(iii) The Panda-Brandywine Facility meets or exceeds all guarantees or
design conditions based on the final information supplied during
testing by Raytheon and others.
(iv) If future operation and maintenance is performed within standard
industry practices, PES finds no technical constraints to prevent the
Panda-Brandywine Facility from being able to perform at a level
consistent with that anticipated in ICF's pro forma projections.
Independent Fuel Consultant's Report - Brandywine
C.C. Pace has prepared a report, dated July 2, 1996, and a supplemental
letter update dated January 10, 1997 (as updated, the "Brandywine Fuel
Consultant's Report"), reviewing the sufficiency of the fuel supply and
transportation arrangements for the Panda-Brandywine Facility. The Brandywine
Fuel Consultant's Report is attached hereto as Appendix H and should be read in
its entirety by all prospective investors. C.C. Pace is an energy consulting
firm based in Fairfax, Virginia, that specializes in analyzing fuel supply and
transportation arrangements for independent power projects.
The Brandywine Fuel Consultant's Report reviews whether the Panda-
Brandywine Partnership has contracted for adequate fuel supply and
transportation services to meet its obligations under the Brandywine Power
Purchase Agreement and the relationship between the energy payments under the
Brandywine Power Purchase Agreement and the fuel and transportation costs the
Panda-Brandywine Partnership is likely to incur.
The Brandywine Fuel Consultant's Report is based upon certain assumptions
regarding the availability and future pricing of fuel. The assumptions are
inherently subject to significant uncertainties and, if actual conditions
differ from those assumed, actual results will differ from those projected,
perhaps materially.
Subject to the information contained and the assumptions made in the
Brandywine Fuel Consultant's Report, C.C. Pace offers the following key
characteristics concerning the fuel supply and transportation arrangements for
the Panda-Brandywine Facility:
(i) Cogen Development Company ("CDC"), the natural gas supplier for the
Panda-Brandywine Facility, has sufficient natural gas reserves and
gas marketing operations to support its obligations under the
Brandywine Gas Agreement. CDC is required annually to ensure its
reserves continue to be adequate to meet its fixed price obligations
to the Panda-Brandywine Facility, and CDC's parent has substantial
assets backing its corporate warranty of CDC's gas supply
obligations.
(ii) The market-based pricing provided under the Brandywine Power Purchase
Agreement corresponds to the pricing at which gas supplies are
generally available, and is similar to the pricing at which gas
supplies are available from CDC.
(iii) The Panda-Brandywine Partnership has contracted for adequate firm
transportation arrangements for its natural gas supplies. Regulatory
approvals are in place and construction of necessary pipeline
facilities is completed for these arrangements.
(iv) There is a strong match between changes in the Panda-Brandywine
Facility's expected fuel-related costs and changes in the revenues it
will receive from energy payments under the Brandywine Power Purchase
Agreement. The risk of a mismatch between changes in fuel costs and
changes in project revenues is mitigated by significant initial
positive margins in energy payment components.
(v) PEPCO has found that the fuel supply and transportation arrangements
for the Panda-Brandywine Facility fulfill, and should continue to
fulfill, the requirement in the Brandywine Power Purchase Agreement
that the Panda-Brandywine Partnership maintain a reliable supply of
fuel, and can reasonably be expected to result in variable fuel-
related costs that are less than the energy payments under the
Brandywine Power Purchase Agreement. Under reasonable assumptions,
the fuel supply arrangements should continue to fulfill the
contractual requirements of the Brandywine Power Purchase Agreement.
(vi) The fuel supply and transportation arrangements for the Panda-
Brandywine Facility are flexible enough to meet the dispatch
requirements under the Brandywine Power Purchase Agreement. CDC,
which also provides fuel management services for the Panda-Brandywine
Partnership, has the experience necessary to manage these
arrangements and CDC's fuel management performance is backed by a
corporate warranty of its parent.
(vii) The fuel oil supply plan for the Panda-Brandywine Facility provides
the Panda-Brandywine Partnership with the capability to meet dispatch
requirements under the Brandywine Power Purchase Agreement, assuming
fuel oil supply and transportation contracts with local fuel oil
suppliers and trucking companies are in place before each heating
season. The Panda-Brandywine Partnership has executed sufficient fuel
oil supply and transportation contracts for the 1996-1997 winter
heating season.
(viii)The pro forma modeling of the Panda-Brandywine Facility contained in
the Brandywine Pro Forma reflects the Panda-Brandywine Facility's
fuel supply arrangements, using the gas and oil price projections of
ICF. ICF is a recognized forecaster of gas and oil prices. As a
consequence of the expected dispatch of the Panda-Brandywine Facility
also projected by ICF, such pro forma modeling reflects significant
benefits of certain pipeline balancing provisions under the
assumption that these provisions will continue over the term of the
Brandywine Power Purchase Agreement. Although C.C. Pace has found
these assumptions to be reasonable as modeled, there can be no
guaranty that these provisions will continue over the entire pro
forma modeling term. Additionally, the PEPCO payment invoice for
the initial month of commercial operation of the Panda-Brandywine
Facility uses certain fuel rate calculations which, if correct, could
have an adverse material effect on the financial results in
comparison to the pro forma model. The Panda-Brandywine Partnership
has informed C. C. Pace that it does not agree with aspects of the
PEPCO invoice and is currently investigating the discrepancy. C.C.
Pace believes the pro forma assumptions are reasonable, based on
information available at this time.
RISK FACTORS
In addition to the other information contained in this Prospectus, before
tendering Old Bonds for the Exchange Bonds offered hereby, holders of Old Bonds
should consider carefully the following factors as well as the other matters
described in this Prospectus. The terms of the Exchange Bonds are
substantially identical to the terms of the Exchange Bonds, and the Exchange
Bonds will evidence the same debt as the Old Bonds which they replace.
Accordingly, the following factors may be generally applicable to the Old Bonds
as well as to the Exchange Bonds.
Consequences of Failure to Exchange Old Bonds
Holders of Old Bonds who do not exchange their Old Bonds for Exchange
Bonds pursuant to the Exchange Offer will continue to be subject to the
restrictions on transfer of such Old Bonds, as described in the legend thereon,
as a consequence of the issuance of the Old Bonds pursuant to exemptions from,
or in transactions not subject to, the registration requirements of the
Securities Act and applicable state securities laws. In general, the Old Bonds
may not be offered or sold unless registered under the Securities Act and
applicable state securities laws, or pursuant to an exemption therefrom.
Except under certain limited circumstances contained in the Registration Rights
Agreement, the Issuer does not intend to register the Old Bonds under the
Securities Act. Upon consummation of the Exchange Offer, certain rights of
holders of Old Bonds who are eligible to tender their Old Bonds for exchange in
the Exchange Offer and fail to do so will terminate. To the extent Old Bonds
are tendered and accepted in the Exchange Offer, the trading market, if any,
for the Old Bonds not so tendered could be adversely affected. See "The
Exchange Offer - Termination of Certain Rights" and "Old Bonds Registration
Rights."
Dependence on Distributions from Project Entities
The ability of the Company to make payments on the Exchange Bonds will
depend almost entirely upon the financial performance of the Projects in the
Project Portfolio and the ability of the Project Entities that own such
Projects to make distributions through the PIC Entities to the Company. The
failure of a Project in the Project Portfolio to perform as expected or the
inability of one or more of the Project Entities to make distributions through
the PIC Entities to the Company could have a material and adverse effect on the
ability of the Company to make payments on the Company Notes and, consequently,
on the ability of the Issuer to make payments on the Exchange Bonds. The
Projects in the Project Portfolio are subject to a number of financial,
operating and regulatory risks that could materially and adversely affect their
performance, and the ability of the Project Entities to make distributions is
subject to a number of contractual and legal restrictions. Prospective
investors should read the remaining risk factors set forth below for a more
complete discussion of certain factors that could materially and adversely
affect the performance of the Projects in the Project Portfolio and the ability
of the Project Entities to make distributions.
Currently, the Project Portfolio contains two Projects that are in
operation, the Panda-Rosemary Facility and the Panda-Brandywine Facility. The
determination of the interest rate that is the basis for reduction in capacity
payments under the Brandywine Power Purchase Agreement is the subject of a
dispute between PEPCO and the Panda-Brandywine Partnership. If this PEPCO
Interest Rate Dispute is determined adversely to the Panda-Brandywine
Partnership, the capacity payments paid by PEPCO will be less than originally
anticipated, thereby adversely affecting the revenues realized by the Panda-
Brandywine Partnership, and consequently, reducing the amount of funds that
would be available for distribution to the Company and ultimately repayment of
the Exchange Bonds. In addition, the distributions the Company expects to
receive in respect of these two Projects may not be sufficient to enable the
Company to meet the minimum Company Debt Service Coverage Ratio and the minimum
Consolidated Debt Service Coverage Ratio (if then applicable) required under
the Indenture in order for the Company to incur additional debt. Accordingly,
the ability of the Company to raise debt for Projects in the future would be
impaired. See "- Dispute With PEPCO Over Calculation of Capacity Payments"
below.
Financial Risks
Substantial Leverage
The Company and its Project Entities are and will continue to be highly
leveraged, primarily as a result of the non-recourse Project-level indebtedness
incurred to finance the development and construction of the Projects. As of
September 30, 1996, the Company's total consolidated long-term indebtedness was
$405.0 million, its total consolidated assets were $317.2 million and its
consolidated shareholder's deficit was $104.3 million. The Company's Project-
level indebtedness related to the Panda-Rosemary Facility and the Panda-
Brandywine Facility is collateralized by the assets of the underlying Projects,
as well as, in the case of the Panda-Rosemary Facility and the Panda-Brandywine
Facility, a pledge of the equity interests in the Project Entity. If a lender
forecloses on a Project's assets (or, in the case of a Project financed through
a sale and leaseback arrangement, if the lessor terminates the lease), there
can be no assurance that the related Project Entities will maintain any
interest in the Project or receive any compensation upon a sale of the
foreclosed assets by such lender. Additionally, if a lender forecloses on its
security interest in the equity interests of a Project Entity, the value of the
capital stock of the Company and certain of its subsidiaries that own U.S.
Projects which are pledged to secure the Bonds may be materially impaired. In
addition to the foreclosure and lease termination risk, high leverage and the
lack of unencumbered collateral could adversely affect the ability of a Project
Entity, and the Company, to obtain additional financing in the future for
working capital, capital expenditures or other purposes. Such adverse
consequences could materially and adversely affect the financial performance of
the Company and its ability to make payments on the Company Notes and,
consequently, on the Issuer's ability to make payments on the Exchange Bonds.
See "Capitalization," "Unaudited Pro Forma Financial Data" and "Description of
Outstanding Project-Level Debt."
Additional Project-level Debt
While the Indenture imposes limitations on the ability of the Company, the
Issuer and any other PIC Entity to incur additional indebtedness, the Indenture
does not limit the amount of debt that the Project Entities may incur, except
that such Project-level debt (other than such debt created or in existence on
the date a Project is transferred to the Project Portfolio or the date the
Company or a PIC Entity makes its initial investment in a Project) cannot be
incurred or refinanced if, as a result thereof, Cash Available for Distribution
from all Projects combined would be reduced by 10% in the aggregate for all
Future Ratio Determination Periods, in which event, the Company would have to
meet certain debt coverage ratios and the rating of the Bonds would have to be
Reaffirmed by at least two rating agencies prior to the incurrence or
refinancing of such Project-level debt. In addition, the issuance of
additional indebtedness by the Project Entities would create additional
potential claims against the Project Entities, including the Panda-Rosemary
Partnership or the Panda-Brandywine Partnership, and could result in a
reduction in the cash available for distribution by such Project Entities
upstream, thus reducing the cash available to make payments on the principal
of, and premium, if any, and interest on the Exchange Bonds. See "Description
of the Bonds - Certain Covenants - Limitations on Debt" and "Description of
Outstanding Project-Level Debt."
Effective Subordination of Exchange Bonds and Guaranties
The Exchange Bonds and the Guaranties will be the exclusive obligations of
the Issuer, and the Company and PIC U.S. Entities, respectively, and not of any
of the Project Entities or any other affiliate of the Company. The Project
Entities are highly leveraged and their debt agreements restrict their ability
to pay dividends, make distributions or otherwise transfer funds to the Company
through the PIC Entities. The restrictions in such agreements generally require
that, prior to the payment of dividends, distributions or other transfers, the
Project Entity provide for the payment of other obligations, including
operating expenses, debt service and the funding of reserves. The Project
Entities are separate and distinct legal entities and have no obligation to pay
any amounts due pursuant to the Exchange Bonds or to make any funds available
therefor, whether by dividends, loans or other payments, and do not guarantee
the payment of the Exchange Bonds. Thus, payments on the Exchange Bonds and
under the Guaranties are effectively subordinated to the payment of all
obligations of the Project Entities. In addition, the Company's right to
receive any assets of the Project Entities upon their liquidation or
reorganization will be effectively subordinated to the claims of such Project
Entities' creditors (including trade creditors and holders of other debt issued
by such Project Entity). As of September 30, 1996, the Project Entities had
outstanding $314.6 million of indebtedness and other liabilities, which are
effectively senior to the Existing Bonds and the Guaranties. See "Description
of Outstanding Project-Level Debt."
Default on Project-level Debt; Enforcement of Rights and Realization of
Collateral
If a Project Entity fails to generate cash flows sufficient to service its
debt, such Project Entity could default on its indebtedness or breach another
covenant governing such indebtedness. If a Project Entity were to default in
the payment of any such indebtedness or in the performance of any such
covenant, then, subject to the terms of such indebtedness, the obligees
thereunder would be permitted to accelerate the maturity of such indebtedness,
which could terminate distributions to the Company and cause a default under
the Exchange Bonds. In such circumstances, holders of the Exchange Bonds may be
forced to accelerate the maturity of the Exchange Bonds to protect their
interests at a time when it would not otherwise have been in their interests to
do so. Furthermore, such defaults could delay or preclude payments on the
Exchange Bonds or result in the loss of a Project or the Company's entire
indirect ownership interest in a Project. See "Financial Risks - Substantial
Leverage" and "- Effective Subordination of Exchange Bonds and Guaranties"
above and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
All series of the Bonds will be secured by pledges of, or grants of
security interests in, the Collateral to the Trustee for the benefit of the
holders of the Bonds. If a Project Entity is in default on an obligation with
respect to Project-level debt, the acceleration of such debt and foreclosure on
the related security will not enable the Trustee to foreclose upon the
Collateral unless such default also resulted in a default with respect to the
Bonds. Therefore, all or a portion of the assets constituting or underlying the
Collateral could be lost to foreclosure without the Trustee having any
foreclosure rights of its own with respect to such Collateral. Even if the
Trustee were able to foreclose on the Collateral securing the Bonds, the
foreclosure on the security for the Project-level debt could substantially
diminish the value of such Collateral. Furthermore, because the Trustee will
not have a security interest in accounts established under the Indenture into
which distributions from the PIC International Entities will be deposited, in
order to realize upon those accounts, the Trustee would have to foreclose first
against the capital stock of the Company and then realize on the Company's
security interest in those accounts. See "Description of the Exchange Bonds -
Collateral for the Exchange Bonds."
Addition of Projects to Project Portfolio
Pursuant to the Additional Projects Contract, additional Projects
developed by Panda International, if any, will be transferred to the Project
Portfolio if certain conditions are satisfied, and it is likely that additional
series of Bonds will be issued to finance debt or equity investments in such
Projects, which additional series will rank pari passu with the Existing
Bonds. If the Panda-Rosemary Facility or the Panda-Brandywine Facility (which
already have been transferred to the Project Portfolio), or additional
Projects, if any, to be transferred to the Project Portfolio in the future do
not perform up to expectations, their inclusion in the Project Portfolio could
weaken the overall performance of the Project Portfolio and impair the ability
of the Company to make payments on the Company Notes and, consequently, the
ability of the Issuer to make payments on the Bonds (including the Exchange
Bonds). While it is the Company's belief that diversification of the Project
Portfolio will reduce the risks associated with poor performance by any one
Project or a small portion of the Project Portfolio, there can be no assurance
that this will be the case.
Mandatory Redemption and Repurchase of Bonds Upon a Change of Control
The Existing Bonds and all additional series of Bonds, if any, then
outstanding will be subject to mandatory redemption, in whole or in part, under
certain circumstances in the event of a sale or other disposition of any
Collateral or any interest in a Project or any event of casualty, loss or
condemnation with respect to a Project involving over $2.0 million. Mandatory
redemptions will be made at a redemption price equal to 100% of the principal
amount of the Bonds to be redeemed plus interest thereon accrued to the date of
such redemption, plus a premium, if any, provided for in the supplemental
indenture for each series of Bonds to be redeemed. In addition, upon the
occurrence of a Change of Control, the Issuer must offer to purchase all
Existing Bonds and all additional series of Bonds, if any, then outstanding at
a purchase price equal to 101% of the principal amount thereof plus accrued and
unpaid interest to the date of purchase. See "Description of the Exchange Bonds
- - Redemption - Mandatory Redemption" and "- Certain Covenants - Change of
Control."
There can be no assurance that the Issuer will have available funds
sufficient to fund the redemption of Bonds upon the occurrence of a Mandatory
Redemption Event or purchase of the Bonds upon a Change of Control. It is
likely that, in the event of a casualty, loss or condemnation of a Project, a
Project agreement or other instrument governing the indebtedness incurred by
the Project Entity to finance such Project will require that the proceeds of
any insurance or condemnation award be applied to the redemption of such
indebtedness or for other specified purposes. Accordingly, there is no
assurance that the Company, any PIC Entity, or any person or entity on behalf
of the Company or any PIC Entity, will receive any distribution of proceeds
resulting from a Mandatory Redemption Event. In the event a Mandatory
Redemption Event or a Change of Control occurs at a time when the Issuer does
not have available funds sufficient to redeem all of the Bonds subject to such
redemption or pay for all of the Bonds delivered by holders seeking to accept
the Issuer's repurchase offer, respectively, an Event of Default would occur
under the Indenture.
Reliance upon Projections and Underlying Assumptions
Contained in Independent Engineers' and Consultants' Reports
Included as Appendices C, D, E, G and H are reports of independent
engineers and consultants concerning the Panda-Rosemary Facility and the Panda-
Brandywine Facility. Included as Appendix B is a summary consolidation of the
projections contained in the Rosemary Engineering Report and the Brandywine Pro
Forma Report. The terms of the Existing Bonds have been structured on the basis
of the projections contained in such reports. For the purpose of preparing the
projections contained in such reports, of necessity, certain assumptions have
been made with respect to general business, financial and economic conditions,
the prices that will be paid for electric generating capacity of and electric
energy produced by the Panda-Rosemary Facility and the Panda-Brandywine
Facility, the costs of obtaining fuel for such facilities, the number of hours
that such facilities will be dispatched and other matters and contingencies
that are not within the control of the Company or its affiliates and the
outcome of which are difficult to predict. The independent engineers' and
consultants' reports contain discussions of the assumptions used in preparing
the projections and potential investors should review the reports carefully.
Projections are inherently inaccurate and actual results are likely to
vary from such projections, sometimes materially. Accordingly, the assumptions
made and the projections prepared by such engineering and consulting firms are
not necessarily indicative of future performance. No representation is made or
intended, nor should any be inferred, with respect to the likely existence of
any particular set of facts or circumstances. If actual results are less
favorable than those projected, or if the assumptions used in formulating the
projections contained in such reports prove to be incorrect, the Company's
ability to make payments on the Company Notes and, consequently, the ability of
the Issuer to make payments on the Exchange Bonds, could be materially and
adversely affected.
All projections of future operations and the economic results thereof
included in the independent engineers' and consultants' reports have been
reviewed and accepted by the Issuer, the Company and Panda Interholding on the
basis of present knowledge and assumptions that the Issuer, the Company and
Panda Interholding believe to be reasonable. These projections have not been
prepared in accordance with published guidelines of the Commission, the
American Institute of Certified Public Accountants, any regulatory or
professional agency or body or generally accepted accounting principles.
Deloitte & Touche LLP, the Company's independent accountants, has neither
examined nor compiled any projections and, accordingly, does not express an
opinion or any other form of assurance with respect thereto. After the issuance
of the Exchange Bonds, no independent engineer or other consultant will provide
the holders of the Bonds with revised projections or report any difference
between the projections and the actual operating results achieved by the
Projects.
Dispute With PEPCO Over Calculation of Capacity Payments
In late August 1996, the Panda-Brandywine Partnership and PEPCO commenced
discussions concerning commercial operation requirements relating to the Panda-
Brandywine Facility and conversion of the construction loan to long-term
financing. During these discussions, disagreements arose between the Panda-
Brandywine Partnership and PEPCO with respect to certain provisions of the
Brandywine Power Purchase Agreement, one of which relates to the determination
of the interest rate that is the basis for reduction in capacity payments
thereunder. PEPCO and the Panda-Brandywine Partnership are presently
attempting to resolve these disagreements but there are no assurances that such
efforts will be successful. If the PEPCO Interest Rate Dispute is determined
adversely to the Panda-Brandywine Partnership, the capacity payments paid by
PEPCO under the Brandywine Power Purchase Agreement would be less than
originally anticipated, thereby adversely affecting the revenues realized by
the Panda-Brandywine Partnership, and consequently, reducing the amount of
funds that would be available for distribution to the Company and ultimately
repayment of the Exchange Bonds.
The Consolidated Pro Forma Report sets forth certain prospective financial
data of the Panda-Brandywine Partnership for the 16-year term of the Existing
Bonds under both the PEPCO Scenario (where it is assumed that the PEPCO
Interest Rate Dispute is resolved in a manner consistent with PEPCO's position)
and the Brandywine Scenario (where it is assumed that the PEPCO Interest Rate
Dispute is resolved in a manner consistent with the Panda-Brandywine
Partnership's position). Under the PEPCO Scenario, the Consolidated Pro Forma
Report indicates that the projected minimum Company Debt Service Coverage Ratio
would be 1.3:1 and the projected minimum Consolidated Debt Service Coverage
Ratio would be 1.1:1 (except during 1997 in which the projected Company Debt
Service Coverage Ratio is 0.8:1 and the projected Consolidated Debt Service
Coverage Ratio is 0.96:1). The Indenture requires a minimum Company Debt
Service Coverage Ratio of 1.7:1 and minimum Consolidated Debt Service Coverage
Ratio (if then applicable) of 1.25:1 (after giving effect to the issuance of
the new debt) to permit the incurrence of additional debt. Accordingly, the
ability of the Company to raise debt for Projects in the future would be
impaired. In addition, the projected coverage ratios under the PEPCO Scenario
indicate that distributions the Company expects to receive from its Project
Entities would be insufficient to service the Existing Bonds in 1997 (under the
Company Coverage Ratio, such deficiency is projected to be $1.6 million and
under the Consolidated Coverage Ratio, such deficiency is projected to be $1.5
million). In such case, monies held in the Accounts and Funds, if any, may be
applied toward any debt service deficiency as set forth in the Indenture. The
current balances in the Accounts and Funds are as follows: Debt Service Fund,
$6.4 million; Capitalized Interest Fund, $9.8 million; Debt Service Reserve
Fund, $6.4 million; Company Expense Fund, $300,000; U.S. Distribution Suspense
Fund, $680,000. See "Description of the Projects - The Panda-Brandywine
Facility - Dispute With PEPCO Over Calculation of Capacity Payments," "Offering
Circular Summary - Independent Engineers' and Consultants' Reports -
Consolidating Engineer's Pro Forma Report" and "- Independent Pro Forma
Analysis - Brandywine," and "Description of the Exchange Bonds - The Accounts
and Funds" and "- Certain Covenants - Limitations on Debt."
Project Risks
Construction Risk
Additional Projects may be transferred to the Company prior to the
commencement of, or during, their construction. The construction of a Project
involves many risks, including shortages of equipment, material and labor, work
stoppages, labor disputes, weather interferences, unforeseen engineering,
environmental and geological problems and unanticipated cost increases, any of
which could give rise to delays or cost overruns. Difficulties in obtaining any
requisite licenses or permits could adversely affect the design or increase the
cost of a Project, or delay or prevent the completion of construction or the
commencement of commercial operations of a Project. Construction-related risks
can be mitigated through fixed-price "turnkey" construction contracts; however,
there can be no assurance that a contractor will honor its commitments or have
the financial resources to satisfy its obligations under any liquidated damages
provisions, or that any affected Project would continue to operate at its
design specifications after the expiration of the contractors' and equipment
suppliers' warranties. There is also a risk that construction delays will be
caused by events, such as events of force majeure, not covered by liquidated
damages or insurance. See "Dependence on Distributions from Project Entities"
and "Financial Risks - Default on Project-level Debt; Enforcement of Rights and
Realization of Collateral" above.
Start-up Risks
The commencement of commercial operations of a newly constructed Project
involves many risks, including start-up problems, the breakdown or failure of
equipment or processes and performance below expected levels of output or
efficiency. Generally, insurance is maintained to protect against certain of
these risks, warranties are obtained relating to the construction of a Project
and the equipment associated therewith, and construction contractors and
equipment suppliers are obligated to meet certain performance levels. Such
insurance, warranties or performance guaranties, however, may not be adequate
to cover lost revenues or increased expenses. As a result, a Project may be
unable to fund principal and interest payments under its financing obligations.
A default under such a financing obligation could result in the Company losing
its ownership interest in a Project. In addition, power purchase agreements,
which are typically entered into with a utility early in the development phase
of a Project, often enable the utility to terminate such agreement, or to
retain security posted by the developer as liquidated damages if a Project
fails to commence commercial operations or certain operating levels by
specified dates or fails to make certain specified payments. If such a
termination right is exercised, a Project may not produce revenues, the default
provisions in a financing agreement would likely be triggered (rendering the
Project-level debt immediately due and payable) and the Project would likely be
rendered insolvent as a result. See "Financial Risks - Default on Project-
level Debt; Enforcement of Rights and Realization of Collateral" above.
Operating Risks
The operation of power generation facilities involves many risks,
including the breakdown or failure of power generation equipment, transmission
lines, pipelines or other equipment or processes, the inability to obtain
adequate fuel supplies and performance below expected levels of output or
efficiency (whether due to misuse, unexpected degradation or design or
manufacturing defects), failure to keep on hand adequate supplies of spare
parts, operation error, labor disputes, catastrophic events such as fires,
floods, earthquakes, and other similar events and the need to comply with the
directions of the relevant government authority or utility. Although the Panda-
Rosemary Facility and the Panda-Brandywine Facility contain certain
redundancies and back-up mechanisms, there can be no assurance that any such
breakdown or failure would not prevent the affected facility from performing
under applicable power and steam purchase agreements. The Rosemary Power
Purchase Agreement and the Brandywine Power Purchase Agreement provide for a
reduction in capacity payments in the event of an outage or unavailability.
The occurrence or continuance of any of the events described above could
increase the cost of operating the Panda-Rosemary Facility or the Panda-
Brandywine Facility, reduce the payments due from the purchaser under the
relevant power purchase agreement or otherwise adversely affect any of such
Projects.
Although insurance is maintained to protect against certain of these
operating risks, the proceeds of such insurance may not be adequate to cover
lost revenues or increased expenses and, as a result, the Project Entities
owning such Project might be unable to service the Project-level debt. A
default under such Project-level debt could result in the Company losing its
indirect ownership interest in such Project. Furthermore, in the event of a
major casualty or loss involving a Project, casualty insurance proceeds, to the
extent not applied to repair such Project, would be applied first to satisfy
redemption or other obligations under Project-level debt, and it is unlikely
(until such Project-level debt is less than the maximum insurance proceeds
payable) that any such insurance proceeds would be available for mandatory
redemption of the Bonds. See "Financial Risks - Default on Project-level Debt;
Enforcement of Rights and Realization of Collateral" above.
Construction of the Panda-Brandywine Facility was substantially complete
in October 1996, and the Panda-Brandywine Facility has no significant operating
history. The Panda-Brandywine Partnership has obtained warranties in limited
amounts and for limited periods relating to the Panda-Brandywine Facility and
its major equipment from Raytheon and suppliers of such equipment. However,
there can be no assurance that any of such warranties will be sufficient or
effective under all circumstances or that the issuer of the warranty will have
adequate capital resources to meet its warranty obligations. In addition, the
warranties generally are limited to an obligation to repair or replace
defective equipment and do not cover revenues lost while the equipment is out
of service.
Dispatchability Risk
The power purchase agreements for the Projects may provide substantial
leeway to the power purchaser in determining when, and to what extent, a
facility is dispatched. For example, the Rosemary Power Purchase Agreement
provides VEPCO the contractual right to schedule the Panda-Rosemary Facility
for dispatch on a daily basis at full capacity, partial capacity or off-line.
The Panda-Rosemary Facility has been used by VEPCO primarily as a peaking plant
and, as a result, the number of hours for which the facility has been
dispatched and the quantity of electricity produced by the facility have
fluctuated throughout the facility's operating history. Similarly, the
Brandywine Power Purchase Agreement permits PEPCO to dispatch at its sole
discretion a substantial portion of the Panda-Brandywine Facility's capacity.
While availability-based capacity payments and other fixed payments under the
power purchase agreements relating to the Panda-Rosemary Facility and the Panda-
Brandywine Facility are unaffected by levels of dispatch, revenues would be
adversely affected (due to a reduction in energy payments thereunder) if these
facilities were dispatched at levels materially below the recent operating
experience, in the case of the Panda-Rosemary Facility, or the anticipated
level, in the case of the Panda-Brandywine Facility. See "Description of the
Projects - The Panda-Rosemary Facility - Sale of Capacity and Electricity" and
"- The Panda-Brandywine Facility - Sale of Capacity, Electricity and Steam."
Adjustments to Fixed Payments
The Panda-Rosemary Facility and the Panda-Brandywine Facility are
dependent on capacity payments due from VEPCO and PEPCO, respectively, under
their respective power purchase agreements to meet their fixed obligations. In
the case of the Panda-Rosemary Facility, capacity payments are payable by VEPCO
whether or not the facility is dispatched, provided that the facility satisfies
certain seasonal capacity tests which may be required by VEPCO in its sole
discretion and meets certain minimum availability standards. If these minimum
availability standards are not met, then capacity payments otherwise due to the
Panda-Rosemary Partnership are subject to rebate or reduction and, in certain
circumstances, the Panda-Rosemary Partnership may be required to pay liquidated
damages to VEPCO. See "Description of the Projects - The Panda-Rosemary
Facility - Sale of Capacity and Electricity." In the case of the Panda-
Brandywine Facility, capacity payments are payable by PEPCO whether or not the
facility is dispatched, provided that the capacity payments will be reduced if
the facility cannot maintain 88% equivalent availability and may be reduced
starting in 2006 depending on when and whether PEPCO's system peak load exceeds
5,697 MW during 1997, 1998 or 1999. The determination of PEPCO's system peak
load under the Brandywine Power Purchase Agreement is the subject of a dispute
between the Panda-Brandywine Partnership and PEPCO. See "Description of the
Projects - The Panda-Brandywine Facility - Sale of Capacity, Electricity and
Steam" and "- Dispute With PEPCO Over Calculation of Capacity Payments."
Fuel Related Pricing
Payments related to electric energy purchases by VEPCO and PEPCO under the
Rosemary Power Purchase Agreement and the Brandywine Power Purchase Agreement,
respectively, generally adjust upon the same or substantially equivalent fuel
indices or pricing mechanisms that govern adjustments to the base commodity
charges for natural gas under, respectively, the Rosemary Gas Agreement and the
Brandywine Gas Agreement. Nevertheless, the Panda-Rosemary Facility and the
Panda-Brandywine Facility are subject to the risk that the fuel compensation
components of electric energy prices paid under their respective power purchase
agreements and their respective actual fuel costs may differ. Accordingly,
increases in fuel supply costs which are not matched by increases in electric
energy prices could have an adverse effect on the performance of these two
Projects. See "Description of the Projects - The Panda-Rosemary Facility - Sale
of Capacity and Electricity" and "- Gas Supply and Fuel Management" and "- The
Panda-Brandywine Facility - Sale of Capacity, Electricity and Steam" and "- Gas
Supply and Fuel Management," Appendix D, Rosemary Fuel Consultant's Report and
Appendix G, Brandywine Fuel Consultant's Report.
Regulatory Disallowance
The Rosemary Power Purchase Agreement contains a clause known as a
"regulatory disallowance" provision, which requires the Panda-Rosemary Facility
to repay to VEPCO or reduce any capacity charges in excess of $5.62 per
kilowatt per month (as adjusted by the Gross National Product Implicit Price
Deflator ("GNPIPD") from 1987 dollars) that are disallowed by any regulatory
authority from recovery by VEPCO in its rate base (except where such
disallowance is due to VEPCO's failure to seek recovery or comply with
procedural requirements governing recovery of such costs). VEPCO cannot
initiate such a disallowance and must appeal such a disallowance, if
practicable. If a disallowance occurs, the cash flow of the Panda-Rosemary
Partnership could be materially and adversely affected and the Company's
ability to make payments on the Company Notes and, consequently, the Issuer's
ability to make payments on the Exchange Bonds, could be materially and
adversely affected. See "Description of the Projects - The Panda-Rosemary
Facility - Sale of Capacity and Electricity" and "Regulation."
Fuel Supply Risks
The Panda-Rosemary Partnership has contracted for most of its natural gas
supplies and transportation services on an interruptible basis because the
Panda-Rosemary Partnership has assumed that the Panda-Rosemary Facility will be
dispatched by VEPCO as a peaking plant, with the bulk of the facility's
dispatch hours occurring during the summer months when operational experience
suggests that gas typically will be available for purchase. The Panda-
Brandywine Partnership has similarly contracted for approximately one-half of
its natural gas supply and transportation on an interruptible basis.
Interruptible gas supply and transportation arrangements are subject to
interruption or curtailment during periods of peak demand for gas. Although
independent consultants have found the fuel supply and delivery arrangements
for the Panda-Rosemary Facility and the Panda-Brandywine Facility to be
reasonable, if a power purchaser were to significantly increase its dispatch of
a facility, the risk of potential curtailment in natural gas supply and
transportation, and thus that a facility would be unavailable for dispatch,
would be increased. See "Dispatchability Risk" above, "Description of the
Projects - The Panda-Rosemary Facility - Gas Supply and Fuel Management" and "-
Gas Transportation," "- The Panda-Brandywine Facility - Gas Supply and Fuel
Management" and "- Gas Transportation," Appendix D, Rosemary Fuel Consultant's
Report, and Appendix H, Brandywine Fuel Consultant's Report.
If natural gas supply or transportation is not available to the Panda-
Rosemary Facility or the Panda-Brandywine Facility, each such facility can
operate utilizing No. 2 fuel oil. The Panda-Rosemary Facility has the capacity
to store two million gallons of fuel oil on site, which is enough fuel oil to
operate the facility at full load for approximately seven days. The Panda-
Brandywine Facility has on-site storage for approximately two million gallons
of fuel oil, which is enough fuel oil to operate the facility at full load for
approximately six days. As a result of current market conditions, the Panda-
Rosemary Partnership purchases its fuel oil supply on a spot market basis.
Under its fuel management plan, the Panda-Brandywine Partnership will endeavor
to enter into fuel oil supply and transportation agreements by October 10 of
each year that will provide it with access to adequate fuel oil supplies for
the immediately succeeding winter season (November through March). Future
changes in market conditions or governmental policy, however, could adversely
affect the ability of a facility to obtain economical fuel oil supply when
needed and, consequently, adversely affect the availability of the facility for
dispatch. See "Dispatchability Risk" above, "Description of the Projects - The
Panda-Rosemary Facility - Fuel Oil" and "- The Panda-Brandywine Facility - Fuel
Oil."
The Rosemary Gas Supply Agreement and the Rosemary Fuel Management
Agreement expire on November 30, 2005, approximately seven years prior to the
maturity date of the Exchange Bonds. The firm transportation contracts the
Panda-Rosemary Partnership has entered into with Transco, Texas Gas and CNG
expire on November 1, 2006, approximately six years prior to the maturity date
of the Exchange Bonds. Certain other contracts providing for interruptible
transmission services for the Panda-Rosemary Facility are on a month-to-month
basis. There can be no assurance that the terms of any of such contracts can be
extended or, if they expire, that the Panda-Rosemary Partnership will be able
to enter into replacement contracts or fuel transportation arrangements on
terms no less favorable to the Panda-Rosemary Partnership than those contained
in the current agreements. The failure to extend such terms or to enter into
replacement contracts or fuel transportation arrangements is an event of
default under the Rosemary Indenture. See "Description of the Projects - The
Panda-Rosemary Facility - Gas Supply and Fuel Management" and "- Gas
Transportation" and "Description of Outstanding Project-Level Debt - The Panda-
Rosemary Financing."
Dependence on Third Parties and Concentration of Customers
The nature of the Company's Projects is such that each facility generally
relies on one power purchase agreement with a single electric utility customer
for substantially all, if not all, of such facility's revenues over the life of
the Project. Furthermore, each power generation facility may depend on a single
or limited number of entities to purchase thermal energy, to supply or
transport natural gas to such facility or to supply other goods and services
which constitute the principal inputs to such facility's operations. Any
material breach by any of these parties of its obligations under its respective
agreement with a facility, or any event or circumstance that reduces or
suspends the payment obligation of the other party to an agreement or affects
such party's ability or willingness to meet its obligations, could adversely
affect the Company's ability to make payments on the Company Notes and,
consequently, the Issuer's ability to make payments on the Exchange Bonds. The
other parties to each Project agreement have the right to terminate or withhold
payments or performance under such agreement upon the occurrence of certain
events of default specified therein, which include the failure of any Project
Entity that is a party to such agreement to materially perform its obligations
thereunder. Additionally, if a party to a Project agreement were to undergo
bankruptcy, the trustee in the bankruptcy proceeding could disaffirm such
agreement. If a Project agreement were terminated due to nonperformance by a
Project Entity, disaffirmation in a bankruptcy proceeding or for any other
reason, there is no assurance that the Project Entity would be able to enter
into a substitute agreement having terms and conditions substantially
equivalent to those contained in such terminated agreement.
Dependence on Panda International; Ability of Panda International to Develop
Additional Projects
All development activities in respect of Projects will be undertaken by
Panda International and certain of its affiliates. The Company and the PIC
Entities have no employees of their own (other than officers) and, in any
event, do not engage in development efforts. Thus, the Company is entirely
dependent on Panda International for the development of Projects which may be
transferred to the Project Portfolio. See "No Restrictions on Panda
International's Business" below.
The development of electric power generation facilities is subject to
substantial risks. In developing a power generation facility that may become
eligible for transfer to the Project Portfolio, Panda International must
generally obtain power and thermal energy purchase agreements, governmental
permits and approvals, fuel supply and transportation agreements, electricity
transmission agreements, site agreements and construction contracts, as well as
long-term non-recourse debt financing. There can be no assurance that Panda
International will be successful in doing so. In addition, Project development
is subject to environmental, engineering and construction risks relating to
cost-overruns, delays and performance. In developing Projects in emerging
markets such as China, Nepal and India, these risks may be increased by
political and regulatory uncertainties, the nature and evolution of legal
systems, the lack of developed infrastructure and other factors. Although Panda
International and its subsidiaries attempt to minimize the financial risk in
the development of a Project by securing a favorable long-term power purchase
agreement, obtaining all required governmental permits and approvals and
arranging adequate financing prior to the commencement of construction, the
development of a Project may require Panda International or its subsidiaries to
expend significant sums for preliminary engineering, permitting and legal and
other expenses before it can be determined that a Project is feasible,
economically attractive or capable of being financed. If Panda International
were unable to complete a Project, it would generally not be able to recover
its investment in such Project, thus impairing its ability to develop future
Projects that could become eligible for transfer to the Project Portfolio
pursuant to the Additional Projects Contract. No assurance can be given that
Panda International or its affiliates will successfully develop and arrange
financing for any additional Projects or that Projects currently under
development or to be developed in the future will become eligible for transfer
to the Project Portfolio pursuant to the Additional Projects Contract. In
addition, although Panda International has indicated that it intends to
continue the development of electric generation projects as its primary
business, it is under no obligation to do so and may use distributions from the
Company available to it for other purposes. See "The Company, the Issuer and
Panda International - The Additional Projects Contract."
Competition
The electric power generation industry is characterized by intense
competition and, in the United States, the Company encounters competition from
utilities, industrial companies and other independent power producers. In
recent years, there has been increasing competition for new power purchase
agreements and this competition has often contributed to a reduction in
electricity tariffs in power purchase agreements. In this regard, many
utilities often engage in competitive bid solicitations to satisfy demand for
additional capacity. This competition adversely affects the ability of the
Company to obtain power purchase agreements and reduces the price paid for
electricity. Internationally, the competitive characteristics of Project
development are less developed, although there is a growing trend toward
competitive bidding in the privatization of government-owned electric utility
systems and the entry of foreign developers into these markets has increased.
Industry Conditions; Restructuring Initiatives; Utility Responses
The Federal Energy Regulatory Commission (the "FERC") and many state
utility commissions, including the Virginia State Corporation Commission (the
"SCC"), are currently studying a number of proposals to restructure the
electric utility industry in the United States to permit utility customers to
choose their supplier in a competitive electric energy market. In April 1996,
the FERC issued a rule requiring utilities to offer wholesale customers and
suppliers open access on their transmission lines on a basis that is comparable
to the utilities' own use of the lines. In addition, a number of bills have
been introduced in the United States Congress to promote electric utility
restructuring and deregulation of electric rates.
Many utilities fear that current captive customers may leave their system
to procure electricity from other electric power suppliers and that the
utilities may thereafter be unable to recover their fixed costs from their
remaining customers. These potential "stranded" or "transition" costs include
the cost of maintaining electric generating capacity under many QF contracts.
The restructuring proposals being considered by regulatory agencies and
Congress differ as to how, and to what extent, utilities' "stranded" or
"transition" costs would be recoverable if current captive customers leave the
utilities' systems. To minimize the risk that "stranded" or "transition" costs
may not be recovered by utilities if such restructuring proposals are enacted,
many utilities have implemented certain cost control strategies. Such
strategies include attempts to renegotiate, buy out or terminate existing power
purchase agreements containing prices that utilities believe will not be
competitive in a short-term marginal cost electric energy market. In addition,
some utilities have sought to rigorously enforce the terms of such agreements
and to exercise their contractual termination rights if the agreements'
provisions are not strictly observed. Some utilities have engaged in litigation
against Qualifying Facilities to achieve these ends.
On November 12, 1996, the SCC issued an order that requires VEPCO to file
reports on its efforts to renegotiate its contracts with non-utility
generators, including the Panda-Rosemary Facility. The first such report must
be filed on or before June 1, 1997 and reports must be filed quarterly
thereafter. VEPCO has not yet filed the first report required by the order but
previously has filed comments with the SCC indicating that it will aggressively
pursue initiatives to restructure contracts with Qualifying Facilities to
minimize its costs. VEPCO has filed a request with the SCC for permission to
institute a formal QF monitoring program under which certain facilities
(including the Panda-Rosemary Facility) would be required to furnish certain
operational data to VEPCO on an annual basis. Under the proposed monitoring
program, if VEPCO believed, based on data provided by a facility and any
additional information, that a facility no longer satisfied the QF criteria,
VEPCO could institute proceedings with the FERC to revoke such facility's QF
status. On October 10, 1996, the SCC staff, pursuant to the SCC's directive,
filed a legal memorandum with the SCC discussing VEPCO's proposal in which the
staff argued that the SCC has the legal authority to implement a QF monitoring
program. On December 18, 1996, the SCC staff filed a report recommending that
the SCC adopt a QF monitoring program for all QFs that have a power purchase
agreement with VEPCO. The program would direct VEPCO to collect, audit and
analyze calendar year operating information, including actual annual operating
results and a copy of meter calibration results, to be submitted by all such
QFs by May 1 of the following year. VEPCO would report annually to the SCC the
results of its compliance evaluation. On December 30, 1996, VEPCO filed a
response in support of the Staff Report. See "Maintaining Qualifying Facility
Status" below.
VEPCO is currently involved in several proceedings with parties with whom
it has entered into power purchase agreements, including several in which the
interpretation of the power purchase agreements is being disputed. Although
there is currently no dispute between the Panda-Rosemary Partnership and VEPCO,
the Panda-Rosemary Partnership anticipates that VEPCO will closely monitor the
Panda-Rosemary Partnership's compliance with the Rosemary Power Purchase
Agreement and vigorously enforce its rights thereunder. Because the capacity
and energy payments that the Panda-Rosemary Partnership receives from VEPCO
under the Rosemary Power Purchase Agreement constitutes major sources of
revenue for the Panda-Rosemary Partnership, a termination of the Rosemary Power
Purchase Agreement would, in the absence of another source of funds, terminate
the Panda-Rosemary Partnership's ability to service its Project-level debt and
to make distributions to the Company. In this event, the Company may not be
able to perform its obligations under the Company Notes and, consequently, the
Issuer may not be able to make payments on the Exchange Bonds. See "Regulation
- - Federal Energy Regulation."
Maintaining Qualifying Facility Status
PURPA and the regulations promulgated thereunder provide Qualifying
Facilities such as the Panda-Rosemary Facility and the Panda-Brandywine
Facility with certain exemptions from federal and state legislation and
regulation, including regulation of rates at which electricity can be sold. For
a cogeneration facility to maintain QF status, no more than 50% of the facility
may be owned by an electric utility, electric utility holding company or
combination thereof and the facility must produce both electricity and a
related quantity of useful thermal energy and satisfy certain operational and
efficiency criteria. If for any reason a Project failed to maintain its status
as a Qualifying Facility, or if there were a change in law or regulation that
eliminated the Project's status as a Qualifying Facility (or exemption from
regulation granted to Qualifying Facilities), the Project would be subject to
additional regulation and the revenues of the Panda-Rosemary Partnership and
the Panda-Brandywine Partnership could be materially and adversely affected.
For discussions of the steam sales arrangements that permit the Panda-Rosemary
Facility and the Panda-Brandywine Facility to maintain their QF status, see
"Description of the Projects - The Panda-Rosemary Facility - Steam and Chilled
Water Sales" and "- The Panda-Brandywine Facility - Sale of Capacity,
Electricity and Steam."
On July 3, 1996, Bibb, the steam host and lessor of the Panda-Rosemary
Facility site, filed a voluntary petition under Chapter 11 of the Bankruptcy
Code with the United States Bankruptcy Court in Delaware. In connection
therewith, a reorganization was effected on September 27, 1996, which did not
affect the Rosemary Steam Agreement or the Rosemary Site Lease. However, there
can be no assurance that Bibb will be able to meet its needs for capital on an
ongoing basis or meet its future obligations under the Rosemary Steam
Agreement. If Bibb were to fail to purchase and use the minimum quantity of
steam necessary for the Panda-Rosemary Facility to satisfy the Qualifying
Facility criteria, the Panda-Rosemary Facility could continue to satisfy the
Qualifying Facility criteria if a distilled water facility or other thermal
operation were installed at the Panda-Rosemary Facility. The Rosemary Indenture
permits the borrowing of funds to make enhancements or improvements which are
necessary to maintain the facility's Qualifying Facility status. There can be
no assurance, however, that the Panda-Rosemary Partnership would have or be
able to obtain the funds necessary to install such a facility.
Certain Other Regulatory Risks Relating to U.S. Projects
Regulatory Approvals
The Company's U.S. Projects are subject to stringent energy and
environmental regulation by federal, state and local authorities. Power plants
in the United States are required to comply with numerous federal, state and
local statutory and regulatory requirements and the Projects are required to
obtain and maintain in effect numerous approvals relating to energy and
environmental laws. There can be no assurance that existing regulations will
not be revised, that new laws and regulations will not be adopted or become
applicable to the Projects or that the Company's business and financial
condition will not be materially and adversely affected by such future changes
in laws and regulations (including the possible loss of exemptions from
regulations). See "Regulation."
Gas Transportation Regulation
The various gas transportation agreements for the U.S. Projects
contemplate the use of interstate natural gas pipelines and services. These gas
transportation arrangements, including pipeline facilities and the rates
charged for transportation services, are subject to the jurisdiction of the
FERC. In exercising such jurisdiction, the FERC maintains or may maintain
authority to modify aspects of the rates, terms and conditions that govern the
gas transportation services provided. It is possible that such a modification
could materially increase the gas transportation costs of each U.S. Project. In
addition, certain provisions of the gas transportation agreements and the
approved tariffs allow the transporter to terminate, suspend performance under
or reduce the amount of gas transported upon the occurrence of certain
conditions, such as the taking of an adverse action by a regulatory authority,
if the transporter, in its judgment, deems it necessary to make modifications
or repairs to its pipeline facilities or upon the occurrence of an event of
force majeure. Any failure by a transporter to provide gas transportation
services could have a material adverse effect on a Project's operations. See
"Description of the Projects - The Panda-Rosemary Facility - Gas
Transportation," "- The Panda-Brandywine Facility - Gas Transportation" and
"Regulation - Natural Gas Regulation."
Environmental and Other Matters
In operating any Project, the owner is generally required to comply with a
number of statutes and regulations relating to the safety and health of
personnel and the public, including the identification, generation, storage,
handling, transportation, disposal, recordkeeping, labeling, reporting of and
emergency response in connection with hazardous and toxic materials or
substances associated with the facility, limits on noise emissions from the
facility, safety and health standards, practices and procedures applicable to
construction and operation of the facility and environmental protection
requirements including standards and limitations relating to the discharge of
air and water pollutants and disposal of solid waste. Failure to comply with
any of such statutes and regulations could have adverse effects on a Project,
including the imposition of criminal or civil liability by regulatory agencies
or as a result of litigation by private parties, imposition of clean-up fines
or liens and the mandatory expenditure of funds to bring the Project into
compliance. Pursuant to the various financing, lease, construction, easement
and encroachment agreements, and as is common practice in the independent power
industry, the Panda-Rosemary Partnership and the Panda-Brandywine Partnership
have indemnified third parties against the consequences of each Project's
storage or emission of hazardous and toxic materials. While the Company
believes that the Panda-Rosemary Facility's and the Panda-Brandywine Facility's
use of natural gas as the primary fuel source provides comparative
environmental advantages over other fossil fuel-fired power production
technologies, there can be no assurance that environmental laws and
regulations, whether now existing or adopted in the future, will not impose
significant constraints and increased costs on such Facilities' operations. The
1990 Amendments to the Federal Clean Air Act require the State of North
Carolina, the State of Maryland and the federal government, at various times,
to take regulatory actions that may affect the U.S. Projects. There can be no
assurance that each U.S. Project will or can satisfy all requirements that may
result from actions in response to the 1990 Amendments to the Federal Clean Air
Act. See "Regulation - Environmental Regulations."
Permitting Risk
Each Project Entity is responsible for obtaining various permits and other
regulatory approvals required for the operation of its facility. Some of the
permits and other approvals that are obtained for a particular facility may
contain certain continuing conditions, including the obligation to renew or
extend the permit or approval by a certain date. Failure to satisfy any such
condition could prevent the operation of the Project or result in fines or
other additional costs. The Company believes that all Projects developed by
Panda International have been or will be designed and constructed in order to
substantially comply, insofar as can be reasonably controlled, with their
respective permit and approval conditions. All material permits and other
regulatory approvals currently required to operate the Panda-Rosemary Facility
and the Panda-Brandywine Facility have been obtained. If future levels of
dispatch of the Panda-Rosemary Facility exceed the levels allowed under the
facility's existing operating permits (which is projected to be the case; see
Appendix C, Rosemary Engineering Report), additional equipment designed to
control air emissions would have to be installed in order for the facility to
maintain compliance with such permits. While the Panda-Rosemary Partnership has
set aside certain reserves which it believes are sufficient to fund the cost of
such equipment, there can be no assurance that such reserves will be sufficient
to pay the actual cost of such equipment if and when required to be installed.
There can be no assurance that in the future the Projects will operate within
the limits established by current or future permits or other approvals. Any
particular Project could be adversely affected if regulatory changes or new
permit conditions were implemented which impose more comprehensive or stringent
requirements resulting in increased compliance costs or which reduce certain
benefits expected by the Company.
Risks Relating to Future Non-U.S. Projects
The Company does not hold an interest in any Non-U.S. Project. The Company
anticipates that one or more of the Non-U.S. Projects under development by
Panda International may reach Financial Closing or commence Commercial
Operations and thus be eligible for transfer to the Project Portfolio pursuant
to the Additional Projects Contract, provided that the conditions contained
therein for such a transfer can be satisfied. See "The Company, the Issuer and
Panda International - The Additional Projects Contract" and "Description of the
Projects - Other Projects under Development by Panda International." For any
Non-U.S. Project transferred to the Project Portfolio upon Financial Closing,
there will remain significant risks relating to the completion of construction
and commencement of commercial operations. Such risks include political and
economic uncertainties, including risks of war, expropriation, nationalization,
renegotiation or nullification of existing contracts, changes in rates and
methods of taxation and international exchange controls or governmental
restrictions on the repatriation of currency. The Company expects that Non-U.S.
Project Entities may receive a substantial part of their revenues in
international currencies, which will need to be converted into other currencies
to meet international currency obligations or to pay dividends or make
distributions, thus exposing the Company to convertibility, remittance and
exchange risks. Certain countries in which Projects may be developed may not
have well-developed legal systems with a consolidated body of laws governing
international investment enterprises. The uncertainty of the legal environment
in these countries could make it difficult for the Company or a Project Entity
to enforce its rights under its Project agreements.
No Restrictions on Panda International's Business
Panda International has informed the Company that it presently intends to
continue to focus on the development, acquisition and ownership of electric
power generation projects as its principal business; however, the Indenture
contains no restrictions on Panda International's business or on its ability
to use proceeds from the issuance of Bonds or distributions from the Company to
pursue other businesses.
Control by Principal Stockholders
Robert and Janice Carter, members of their family and Carter family trusts
collectively own approximately 38.8% of the outstanding shares of capital stock
of Panda International. In addition, W.M. Huffman (who is related to Mr. Carter
by marriage), members of Mr. Huffman's family and family trusts and
partnerships own approximately 18.7% of such capital stock. See "The Company,
the Issuer, Panda Interholding and Panda International - General." By virtue of
their ownership share, the Carters are in a position to influence the
management and direction of Panda International and, through Panda
International, its subsidiaries, including the Issuer and the Company.
Moreover, the Carters and the Huffmans, if they were to agree to act together
in voting their shares, could control the vote for election of directors, and
consequently the management and direction, of Panda International and its
subsidiaries, including the Issuer, the Company and Panda Interholding.
Lack of Profitable Operations
The Company recorded net losses for 1993, 1994, 1995 and the nine months
ended September 30, 1996. Although these losses are primarily attributable to
the substantial costs incurred in developing Projects and the absence of
significant revenues during the development phase, the Company's ability to
continue in business and maintain its financing arrangements may be adversely
affected by a continued lack of profitability.
Absence of Market for the Exchange Bonds
The Exchange Bonds are being offered to the holders of the Old Bonds. The
Old Bonds were offered and sold in July 1996 to a small number of investors and
are eligible for trading in the Private Offerings, Resale and Trading through
Automatic Linkages ("PORTAL") Market, although an active trading market for the
Old Bonds has not developed to date.
There is currently no established market for the Exchange Bonds, and the
Exchange Bonds will not be eligible for trading in the PORTAL Market. The
Issuer does not intend to list the Exchange Bonds or the Old Bonds on a
securities exchange or seek approval for quotation through any automated dealer
quotation system. There can be no assurance that a market for the Exchange
Bonds will develop or as to the ability of holders of the Exchange Bonds to
sell their Exchange Bonds or the price at which such holders would be able to
sell their Exchange Bonds. If a market for the Exchange Bonds does not
develop, purchasers may be unable to resell the Exchange Bonds for an extended
period of time, if at all. Consequently, a purchaser may not be able to
liquidate the investment readily, and the Exchange Bonds may not be readily
accepted as collateral for loans. If a market for the Exchange Bonds were to
develop, the Exchange Bonds could trade at prices that may be lower than the
initial market values or at a discount from their face amount depending on many
factors, including prevailing interest rates, the markets for similar
securities, and the financial performance of the Company and its subsidiaries.
The liquidity of, and trading market for, the Exchange Bonds also may be
adversely affected by general declines in the market for similar securities and
other factors that are independent of the financial performance of, and
prospects for, the Company.
THE COMPANY, THE ISSUER, PANDA INTERHOLDING AND PANDA INTERNATIONAL
General
The Company is an indirect wholly-owned Delaware subsidiary of Panda
International, an independent power company that is engaged principally in the
development, acquisition, ownership and operation of electric power generation
facilities, both in the United States and internationally. Panda International
also owns a subsidiary engaged in oil and gas exploration and development. The
Issuer is a wholly-owned Delaware subsidiary of the Company organized for the
sole purpose of issuing the Existing Bonds and any additional series of Bonds.
Panda Interholding is a wholly-owned Delaware subsidiary of the Company
organized for the sole purpose of holding interests in Project Entities owning
U.S. Projects. The Issuer, the Company and Panda Interholding were formed by
Panda International in July 1996 as vehicles for financing project development,
including the making of equity and debt investments in electric power
generation projects. Subject to the terms of the Additional Projects Contract,
Panda International intends to transfer, to the Project Portfolio, Projects
developed and to be developed by Panda International, at the point in time when
such Projects have reached Financial Closing or achieved Commercial Operations,
thereby reducing development risk to the Company. See "Additional Projects
Contract" below.
Panda International's principal business strategy is to use its experience
in developing, constructing, financing and managing electric power generation
facilities to provide low cost electricity and electric generating capacity.
Panda International will seek to expand its presence in the electric power
industry by implementing this strategy in the United States and certain other
countries. Panda International has placed into commercial operations
facilities with a combined electric generating capacity of approximately 410
MW. In addition, Panda International has executed power purchase agreements or
entered into other development arrangements relating to four potential Projects
with a combined electric generating capacity of approximately 750 MW. See
"Description of the Projects - Other Projects under Development by Panda
International." Panda International is continually engaged in the evaluation of
various opportunities for the development and acquisition of additional
electric power generation facilities, both in the United States and
internationally. See "Risk Factors - Project Risks" and "- Risks Relating to
Future Non-U.S. Projects" and "Business - General."
With 51 employees, Panda International has assembled a team of
professionals with expertise in business development, marketing, engineering,
design, construction management, fuel supply, transportation and exploration,
equipment procurement, utility practices, contract management, regulatory
policy and procedures, environmental matters, law and finance and accounting.
Panda International believes that this team's scope of expertise allows Panda
International to compete effectively for cogeneration and private power
development opportunities.
Panda International was formed as part of a corporate reorganization that
took place in October 1995 in which all of the capital stock of PEC was
exchanged for shares of Panda International, with the result that PEC became a
wholly-owned subsidiary of Panda International. PEC was organized in 1982 by
Robert and Janice Carter, who are the Chairman of the Board, President and
Chief Executive Officer, and the Executive Vice President, Treasurer and
Secretary, respectively, of Panda International, PEC, the Company, the Issuer
and Panda Interholding. See "Management."
Company Structure
Panda International is the parent company of PEC and through PEC and its
subsidiaries holds controlling interests in U.S. and non-U.S. entities that
hold interests in Projects that are in operation or under development. Panda
International generally holds its interests in Projects that are being
developed outside of the United States through entities organized in tax
favorable jurisdictions (such as the Cayman Islands), which in turn hold
interests in entities organized in the country where Panda International's
Projects will be located (e.g., China and Nepal). Panda International's U.S.
Projects are generally held in limited partnerships, with general and limited
partners organized as Delaware subsidiaries of PEC.
There are currently two PIC Entities, Panda Interholding (a PIC U.S.
Entity), and Panda Cayman (a PIC International Entity). Under the terms of the
Indenture, PIC Entities, with certain exceptions, cannot incur debt, become
liable in connection with guaranties (other than the PIC Entity Guaranties) or
enter into Project Agreements, and are subject to certain other restrictions,
all for the purpose of assuring that the PIC Entities' primary purpose is to
hold Project Entities and receive, and distribute to the Company, distributions
from Project Entities. Other PIC Entities may be established in the future, and
each will be directly wholly-owned by the Company. Project Entities, on the
other hand, are those entities that are owned by PIC Entities and directly or
indirectly own Projects or are obligated under Project Agreements. Under the
terms of the Indenture, Project Entities are permitted to incur Project Debt,
become liable in connection with guaranties created, required or expressly
permitted to exist under Project Agreements and enter into and amend Project
Agreements, in each case subject to certain restrictions.
The PIC U.S. Entity referred to above, Panda Interholding, owns the
Project Entities that are the general and limited partners of the Panda-
Rosemary Partnership and the Panda-Brandywine Partnership and a related
distilled water subsidiary (which serves as the QF steam host for the Panda-
Brandywine Facility). The Company expects that Project Entities owning future
U.S. Projects, if any, will generally be transferred to and held by a PIC U.S.
Entity in a manner similar to the ownership structure of the Panda-Rosemary
Project and the Panda-Brandywine Project described above. The PIC International
Entity referred to above, Panda Cayman, does not currently hold any significant
assets or conduct significant operations. In the future, if Project Entities
owning a Non-U.S. Project are to be transferred to the Project Portfolio
pursuant to the Additional Projects Contract, Panda International, PEC or their
affiliates will transfer them to a PIC International Entity. The Company
expects that Project Entities owning future Non-U.S. Projects, if any, will be
transferred to the Project Portfolio pursuant to the Additional Projects
Contract to Panda Cayman or to another PIC International Entity (unless U.S.
tax deferral arrangements are not being sought). Such transfers will generally
be made by a transfer to a PIC International Entity of the capital stock of the
off-shore Project Entities that hold the in-country Project Entities. Methods
of transfer may, however, vary depending upon, among other considerations, U.S.
and foreign tax treatment and Project-level restrictions.
The following diagram shows the ownership structure of Panda International
and certain of its subsidiaries as of the date of this Prospectus.
[PANDA DIAGRAM SHOWING OWNERSHIP STRUCTURE INSERTED HERE]
(1) Pursuant to the Additional Projects Contract, interests in Projects
developed by Panda International and its affiliates will be available for
transfer to the Project Portfolio only if Financial Closing is reached or
Commercial Operations is achieved and if certain other conditions
contained in the Additional Projects Contract are satisfied (except that
the Panda-Kathleen Project must be transferred if Financial Closing is
achieved, regardless of whether such other conditions are satisfied).
"Risk Factors - Project Risks" and "- Risks Relating to Non-U.S.
Projects" and "The Additional Projects Contract" below.
(2) In the case of other U.S. Project Entities and non-U.S. Project Entities,
the percentage ownership interest of Panda International is expected to
vary depending on the Project in question.
(3) Includes Panda Interholding.
(4) Includes Panda Cayman.
(5) NNW, Inc. holds a cash flow participation in the distributions from the
Panda-Rosemary Partnership, (which the Company believes is 0.433% and
would increase to 1.732% after 2008 based on projected distributions, but
which percentages are the subject of dispute). See "Description of the
Projects - The Panda-Rosemary Facility - Cash Flow Participation" and
"Legal Proceedings - NNW, Inc. Proceeding."
The common stock or other equity interests of Panda International's
subsidiaries are subject to the following liens:
(i) all of the outstanding capital stock of the Company and the Issuer
has been pledged to secure the payment of the Bonds;
(ii) all of the outstanding capital stock of Panda Interholding, the
existing PIC U.S. Entity, has been pledged to secure the payment of
the Bonds;
(iii) 60% of the outstanding capital stock of Panda Cayman, the existing
PIC International Entity, has been pledged to secure the payment of
the Bonds;
(iv) all of the capital stock of Panda-Rosemary Corporation and PRC II
Corporation, as well as the general partner and limited partner
interests in Panda-Rosemary, L.P., have been pledged to secure the
payment of the Rosemary Bonds; and
(v) all of the capital stock of Panda Brandywine Corporation, Panda
Energy Corporation (Delaware), and Brandywine Water Company, as well
as the general and limited partner interests in the Panda-Brandywine
Partnership, have been pledged to secure the obligations of the Panda-
Brandywine Partnership under the Brandywine Financing Documents.
Individually, the pledges of the capital stock of each of the Issuer,
Panda Interholding and Panda Cayman do not constitute a "substantial portion"
(as defined in Rule 3-10 of Regulation S-X promulgated under the Securities
Act) of the Collateral securing the Existing Bonds. Except as discussed below,
separate financial statements of each of the Issuer, Panda Interholding and
Panda Cayman are not presented in this Prospectus because the Company believes
that such disclosure is not material to a prospective purchaser of the Exchange
Bonds. The financial statements of the Company contained in this Prospectus
present the financial position and results of operations of the Company and all
of its subsidiaries on a consolidated basis. In addition, the consolidated
financial statements of the Company as of December 31, 1994 and December 31,
1995 and for each of the three years in the period ended December 31, 1995 are
also the consolidated financial statements of Panda Interholding as of such
dates and for such periods. The unaudited condensed consolidated financial
statements of Panda Interholding as of September 30, 1996 and for the nine
months then ended are included separately in Appendix F to this Prospecus.
There were 11,401,212 shares of Common Stock of Panda International
outstanding at January 31, 1997. Of this amount, 4,418,957 shares (38.8%) are
owned by Robert and Janice Carter and members of their family and family
trusts. See "Management." W.M. Huffman and members of his family and family
trusts and a family partnership own 2,134,443 of the outstanding shares
(18.7%). Other directors, officers and employees of Panda International own
less than 1% of the outstanding shares of Common Stock. At January 31, 1997:
(i) there were outstanding options to acquire 1,209,000 shares of Common Stock
of Panda International (options for 1,050,000 shares being fully vested and for
159,000 shares vesting over a six-year period) held by directors, officers and
employees of Panda International, and of this amount options for 250,000 shares
are held by Robert Carter and options for 25,000 shares are held by W.M.
Huffman; (ii) Trust Company of the West held warrants to purchase 1,004,000
shares of Common Stock of Panda International; and (iii) NNW, Inc. held rights
to acquire up to 181,500 shares of Common Stock of Panda International. See
"Description of the Projects - The Panda-Rosemary Facility - Cash Flow
Participation."
Executive Offices
The principal executive offices of the Issuer, the Company, PEC and Panda
International are located at 4100 Spring Valley Road, Suite 1001, Dallas, Texas
75244. The telephone number at such offices is (972) 980-7159.
The Additional Projects Contract
Subject to certain conditions, including those set forth below, the
Additional Projects Contract requires Panda International and its affiliates to
transfer to the Company, or to one or more PIC Entities, each additional
Project for which a power purchase agreement is entered into prior to July 31,
2001 and which has reached Financial Closing or achieved Commercial Operations
prior to July 31, 2006. Panda International and its affiliates are required to
transfer a Project to the Project Portfolio only if the principal amount of
additional series of Bonds that can be issued after giving effect to the
inclusion of the Project in the Project Portfolio equals or exceeds the amount
of "Anticipated Additional Debt." A Project will not be transferred if: (i) the
Project has not reached Financial Closing or achieved Commercial Operations;
(ii) Panda International does not own a controlling interest in the Project;
(iii) the transfer would be prohibited under any Project-level financing, power
purchase or related agreement; or (iv) after giving effect to the issuance of
the additional series of Bonds in connection with the inclusion of the Project
in the Project Portfolio (a) the rating of the previously issued Bonds is not
Reaffirmed by at least two rating agencies at a rating equal to or higher than
that in effect immediately prior to the issuance of such additional series or
(b) the projected Company Debt Service Coverage Ratio or the projected
Consolidated Debt Service Coverage Ratio (if then applicable) would be less
than 1.7:1 or 1.25:1, respectively, for any Future Ratio Determination Period.
The Additional Projects Contract requires Panda International to use
commercially reasonable efforts to cause each Project to meet the conditions
for transfer to the Project Portfolio as of the date a Project reaches
Financial Closing or achieves Commercial Operations, whichever occurs first, or
within a 90-day period thereafter. If, however, the conditions for such a
transfer cannot be satisfied using commercially reasonable efforts, Panda
International will have no further obligation to the Company in respect of such
Project and may retain such Project or sell it to third parties.
The Additional Projects Contract provides that in the case of a Project
being developed in phases, Panda International will use all commercially
reasonable efforts to separate the ownership of the phases so that each phase
will be owned and developed by a different Project Entity. In that case, when
each phase reaches Financial Closing or achieves Commercial Operations, it will
be required to be transferred to a PIC Entity if it meets the other conditions
for transfer described above. If the ownership of a Project that is being
developed in phases cannot be separated into different ownership arrangements
for each phase, then the Project will not be required to be transferred to a
PIC Entity until all phases have reached Financial Closing or achieved
Commercial Operations if the conditions for transfer are satisfied at that
time. If Panda International determines to discontinue development of a
subsequent phase of a Project, the earlier phase or phases of such Project
shall be required to be transferred to a PIC Entity once they have reached
Financial Closing or achieved Commercial Operations if the other conditions for
transfer are satisfied.
"Anticipated Additional Debt," as that term is used in the Additional
Projects Contract, means the original principal amount of an additional series
of Bonds proposed to be issued by the Issuer which is equal to the largest
principal amount of such series that will provide a projected Company Debt
Service Coverage Ratio and a projected Consolidated Debt Service Coverage Ratio
(if then applicable) of at least 1.7:1 and 1.25:1, respectively, for each
Future Ratio Determination Period, as confirmed by the Consolidating Engineer,
assuming, in respect of the additional series of Bonds proposed to be issued:
(i) a maximum maturity and average life generally available in the marketplace
for debt of a similar nature and (ii) a coupon rate then prevailing in the
market for debt of a similar nature, and taking into account (a) in the case of
the Company Debt Service Coverage Ratio, Cash Available for Distribution from
the Project Portfolio and (b) in the case of the Consolidated Debt Service
Coverage Ratio, Cash Available from Operations (net of any reserve requirements
at both the Project and the Company debt levels) from the Project Portfolio
(giving effect, in each case, to the transfer to the Project Portfolio of any
Project in respect of which such additional series of Bonds is proposed to be
issued). In making this analysis, the Consolidating Engineer is required to
use generally accepted financial analysis methods and generally follow the
methods used to calculate the amount of the offering of the Old Bonds,
including the methods used in the Consolidated Pro Forma Report.
The Company believes that Panda International will continue to actively
develop Projects; however, Panda International is under no obligation to do so,
or to use any proceeds from the Prior Offering or future distributions from the
Company to fund such development. In addition, there can be no assurance that
the Projects currently under development by Panda International will reach
Financial Closing or achieve Commercial Operations or will meet the other
conditions for transfer to the Project Portfolio pursuant to the Additional
Projects Contract. See "Risk Factors - Financial Risks," "- Project Risks," "-
Risks Relating to Future Non-U.S. Projects" and "- No Restrictions on Panda
International's Business."
USE OF PROCEEDS
There will be no cash proceeds to the Issuer, the Company or Panda
Interholding resulting from the Exchange Offer.
The proceeds from the sale of the Old Bonds was loaned to the Company and
is evidenced by the Initial Company Note. The net proceeds of such loan of
approximately $103.4 million (after deducting underwriter discounts and
commissions) was and will be used by the Company for the following purposes:
(i) to fund the Capitalized Interest Fund in the amount of $9.8 million; (ii)
to fund the Debt Service Reserve Fund in the amount of approximately $6.4
million; (iii) to fund the Company Expense Fund in the amount of approximately
$300,000; (iv) to pay transaction expenses incurred in connection with the
Prior Offering, estimated at approximately $900,000; (v) to fund in the amount
of approximately $25.1 million a portion of the acquisition of the limited
partner interest in the Panda-Rosemary Partnership held by Ford Credit and (vi)
to distribute approximately $60.9 million to Panda International, of which
approximately $26.4 million was used to prepay senior indebtedness held by
Trust Company of the West, and the balance of which Panda International intends
to use for the development of Projects and for general corporate purposes.
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1996. The Exchange Offer, if consummated, would not affect the
capitalization of the Company as set forth below.
September 30, 1996
(in thousands)
Short-term debt
Bonds due 2012 $ 216
Current portion of long-term
non-recourse project financing 5,503
Total short-term debt 5,719
Long-term debt
Bonds due 2012 105,309
Long-term non-recourse project
financing, less current portion 299,641
Total long-term debt 404,950
Shareholder's deficit (104,310)
Total Capitalization $ 306,359
==========
UNAUDITED PRO FORMA FINANCIAL DATA
The following unaudited pro forma financial data are derived from the
historical financial statements of the Company set forth elsewhere herein. The
unaudited pro forma financial data give effect to the issuance of $111.4
million in aggregate principal amount of the Rosemary Bonds and the application
of the net proceeds thereof to refinance the Panda-Rosemary Partnership's
Project debt and to fund a portion of the acquisition of Ford Credit's limited
partner interest in the Panda-Rosemary Partnership. In addition, the unaudited
pro forma financial data give effect to the Prior Offering and the application
of the net proceeds thereof to (a) fund the Debt Service Reserve Fund, the
Capitalized Interest Fund and the Company Expense Fund, (b) to fund the
remaining portion of the acquisition of Ford Credit's limited partner interest
in the Panda-Rosemary Partnership and (c) to make a distribution to the
Company's parent. As a result of the acquisition of Ford Credit's limited
partner interest, the Company owns 100% of the Panda-Rosemary Partnership and
accordingly, the acquisition was accounted for using the purchase method of
accounting. The excess of minority interest over the amount paid to Ford Credit
was allocated to plant and equipment.
Pro forma balance sheet data as of September 30, 1996 are not required
because the transactions are reflected in the historical balance sheet as of
September 30, 1996 presented elsewhere herein. The unaudited pro forma
statement of operations data reflect such adjustments as if such transactions
had occurred as of January 1, 1995. As required by the Securities and Exchange
Commission, the pro forma statement of operations data do not reflect the
extraordinary loss on early extinguishment of debt. Such extraordinary loss is
reflected in the historical statement of operations for the nine months ended
September 30, 1996 presented elsewhere herein. The unaudited pro forma
financial data should be read in conjunction with the notes thereto and the
historical financial statements of the Company, and the notes thereto, included
elsewhere herein.
The unaudited pro forma financial data do not purport to be indicative of
the results of operations which would actually have occurred if the
transactions described had occurred as presented in such statements or which
may be obtained in the future.
<TABLE>
<CAPTION>
PANDA INTERFUNDING CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the Nine Months Ended September 30, 1996
(in thousands)
Rosemary Prior Pro
Historical Offering Offering Forma
<S> <C> <C> <C> <C>
Revenue:
Electric capacity and energy
sales $21,496 $ - $ - $21,496
Steam and chilled water sales 388 - - 388
Interest income 611 - - 611
Total revenue 22,495 - - 22,495
Expenses:
Plant Operating expenses 7,814 - - 7,814
Development and
administrative expenses 1,261 - - 1,261
Interest expense 11,096 (21)(A) 5,331(C) 16,406
Depreciation 3,159 - (143)(E) 3,016
Amortization - Debt issue
costs 395 (196)(B) 52(D) 251
Amortization - Partnership
formation costs 400 - - 400
Total expenses 24,125 (217) 5,240 29,148
Income (loss) before minority
interest (1,630) 217 (5,240) (6,653)
Minority interest (2,405) - 2,405(F) -
Net loss before extraordinary
item $(4,035) $ 217 $(2,835) $(6,653)
</TABLE>
<TABLE>
<CAPTION>
PANDA INTERFUNDING CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended December 31, 1995
(in thousands)
Rosemary Prior Pro
Historical Offering Offering Forma
<S> <C> <C> <C> <C>
Revenue:
Electric capacity and energy
sales $29,859 $ - $ - $29,859
Steam and chilled water sales 473 - - 473
Interest income 895 - - 895
Total revenue 31,227 - - 31,227
Expenses:
Plant operating expenses 9,348 - - 9,348
Development and administrative
expenses 1,821 - - 1,821
Interest expense 11,716 (611)(G) 10,770(I) 21,875
Depreciation 4,210 - (190)(E) 4,020
Amortization - Debt issue costs 554 (346)(H) 104(J) 312
Amortization - Partnership
formation costs 533 - - 533
Total expenses 28,182 (957) 10,684 37,909
Income (loss) before minority
interest 3,045 957 (10,684) (6,682)
Minority interest (5,048) - 5,048(F) -
Net loss before extraordinary
item $ (2,003) $ 957 $ (5,636) $(6,682)
</TABLE>
See accompanying notes to unaudited pro forma financial statements.
PANDA INTERFUNDING CORPORATION
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
(in thousands)
(A) The adjustment represents the net effect of (i) the inclusion of $7,206
of interest expense related to the Rosemary Bonds at an interest rate of
8-5/8% and (ii) the elimination of actual interest expense of $7,227
related to the Panda-Rosemary Partnership's project debt which was
refinanced with the Rosemary Bonds.
(B) The adjustment represents the net effect of (i) the inclusion of $112 of
amortization of debt issue costs related to the Rosemary Offering and
(ii) the elimination of $308 of actual amortization of debt issue costs
related to the Panda-Rosemary Partnership's project debt which was
refinanced with the Rosemary Bonds.
(C) The adjustment represents the net effect of (i) the inclusion of $9,200
of interest expense related to the Prior Offering at an interest rate of
11-5/8%, and (ii) the elimination of actual interest expense of $3,869
related to the TCW indebtedness which was repaid with a portion of the
proceeds from the Prior Offering.
(D) The adjustment represents the net effect of (i) the inclusion of $140 of
amortization of debt issue costs related to the Prior Offering and (ii)
the elimination of $88 of actual amortization of debt issue costs related
to the TCW indebtedness which was repaid with a portion of the proceeds
from the Prior Offering.
(E) The adjustment represents the reduction in depreciation expense resulting
from the acquisition of Ford Credit's limited partnership interest in the
Panda-Rosemary Partnership. The acquisition was accounted for using the
purchase method of accounting. The excess of minority interest over the
purchase price (approximately $3.8 million) was allocated to plant and
equipment. Depreciation is recorded on a straight line basis and assumes
a remaining useful life of 20 years.
(F) The adjustment represents the removal of minority interest resulting from
the acquisition of Ford Credit's limited partnership interest in the
Panda-Rosemary Partnership.
(G) The adjustment represents the net effect of (i) the inclusion of $9,608
of interest expense related to the Rosemary Bonds at an interest rate of
8-5/8% and (ii) the elimination of actual interest expense of $10,219
related to the Panda-Rosemary Partnership's project debt which was
refinanced with the Rosemary Bonds.
(H) The adjustment represents the net effect of (i) the inclusion of $150 of
amortization of debt issue costs related to the Rosemary Offering and
(ii) the elimination of $496 of actual amortization of debt issue costs
related to the Panda-Rosemary Partnership's project debt which was
refinanced with the Rosemary Bonds.
(I) The adjustment represents the net effect of (i) the inclusion of $12,267
of interest expense related to the Prior Offering at an interest rate of
11-5/8%, and (ii) the elimination of actual interest expense of $1,497
related to the TCW indebtedness which was repaid with a portion of the
proceeds from the Prior Offering.
(J) The adjustment represents the net effect of (i) the inclusion of $187 of
amortization of debt issue costs related to the Prior Offering and (ii)
the elimination of $83 of actual amortization of debt issue costs related
to the TCW indebtedness which was repaid with a portion of the proceeds
from the Prior Offering.
SELECTED FINANCIAL DATA
(in thousands, except ratios)
Presented below is selected financial data for the Company as of and for
each of the years in the five-year period ended December 31, 1995 and as of and
for the nine months ended September 30, 1995 and 1996, which have been derived
from the Company's financial statements. Results for the nine months ended
September 30, 1996 are not necessarily indicative of the results that may be
expected for the full fiscal year. The selected financial data should be read
in conjunction with the information contained under the captions
"Capitalization," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the financial statements of the Company,
including the notes thereto, included elsewhere herein.
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31,
September 30,
1991 1992 1993 1994 1995 1995 1996
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Electric capacity and energy sales $31,396 $29,537 $29,856 $30,664 $29,859 $22,139 $21,496
Steam and chilled water sales 409 624 618 650 473 376 388
Interest income 797 562 365 603 895 696 611
Total revenue 32,602 30,723 30,839 31,917 31,227 23,211 22,495
Expenses:
Plant operating expenses 7,795 7,534 7,676 8,940 9,348 6,751 7,814
Development and administrative
expenses 1,196 1,608 2,278 1,376 1,821 1,183 1,261
Interest expense 15,414 11,478 11,066 11,018 11,716 8,525 11,096
Depreciation 4,131 4,177 4,282 4,208 4,210 3,157 3,159
Amortization - Debt issue
costs 493 436 502 600 554 409 395
Amortization - Partnership
formation costs -- 533 533 533 533 400 400
Total expenses 29,029 25,766 26,337 26,675 28,182 20,425 24,125
Income (loss) before taxes
and minority interest 3,573 4,957 4,502 5,242 3,045 2,786 (1,630)
Minority interest - (5,249) (5,474) (5,700) (5,048) (3,736) (2,405)
Provision for income
taxes 1,930 - - - - - -
Income (loss) before
extraordinary items 1,643 (292) (972) (458) (2,003) (950) (4,035)
Extraordinary loss, net(1) (6,640) - - - - - (21,336)
Net loss $(4,997) $ (292) $ (972) $ (458) $(2,003) $ (950) $(25,371)
Other Data:
Ratio of earnings to
fixed charges(2) 1.22 1.42 1.39 1.36 (2) (2) (2)
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
September 30,
1991 1992 1993 1994 1995 1995 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and other current
assets $ 5,642 $15,167 $14,084 $15,538 $ 11,333 $ 20,928 $ 17,125
Power plant and equipment
(net) 99,125 96,529 93,815 94,893 216,794 190,572 263,995
Reserves and escrow
deposits, and other assets 21,562 15,029 14,901 14,728 14,722 14,378 36,109
Total assets $126,329 $126,725 $122,800 $125,159 $242,849 $225,878 $317,229
Current liabilities $ 32,625 $ 9,735 $ 11,252 $ 12,531 $ 18,457 $ 15,590 $ 16,589
Long-term debt, less
current portion 107,600 103,200 98,454 106,343 234,608 208,111 404,950
Minority Interest - 33,346 34,479 35,588 36,836 36,316 -
Shareholder's deficit (13,896) (19,556) (21,385) (29,303) (47,052) (34,139) (104,310)
Total liabilities and
shareholder's deficit $126,329 $126,725 $122,800 $125,159 $242,849 $225,878 $317,229
</TABLE>
Notes (in thousands):
(1) In 1991, there was an extraordinary loss from early extinguishment
of debt of $8,435, and an extraordinary gain from utilization
of net operating loss carry forwards of $1,795. In 1996, there
was an extraordinary loss from early extinguishment of debt of
$21,336.
(2) For purposes of computing the ratio of earnings to fixed charges,
earnings represent income (loss) before minority interest, taxes and
extraordinary items plus fixed charges. Fixed charges consist of interest
expense, capitalized interest and amortization of debt issuance costs.
Earnings were insufficient to cover fixed charges in 1995 by $2,748, for
the nine months ended September 30, 1995 by $472, and for the nine months
ended September 30, 1996 by $11,309. In 1994 and 1995, and for the nine
months ended September 30, 1995 and 1996, fixed charges included
capitalized interest of $803, $5,793, $3,258 and $9,679, respectively,
related to the Panda-Brandywine Facility. This capitalized interest is
funded by additional borrowings under the Brandywine Construction Loan
Facility.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The historical and pro forma financial statements included in this
Prospectus reflect the financial data of the entities that held interests in
the Panda-Rosemary Partnership and the Panda-Brandywine Partnership, or their
predecessors, during the periods presented. The Company was recently created
to hold these partnership interests, which were transferred to the Company by
its parent and recorded at the parent's historical cost. The Company was
incorporated on July 1, 1996 and was not in existence during the majority of
these historical periods; however, the entities that currently own such
partnership interests are wholly-owned subsidiaries of the Company. Thus,
references herein to historical and pro forma financial data of the Company are
for convenience of reference, and it should be understood that all such
references are to the historical and pro forma information of the entities that
held such interests during the periods presented.
The Company owns indirect equity interests in two electric power
generation facilities in the United States, the Panda-Rosemary Facility, which
began commercial operations in December 1990, and the Panda-Brandywine
Facility, which began commercial operations in October 1996. The historical
operating results of the Company primarily represent the revenue and expenses
of the Panda-Rosemary Facility. Certain development expenses for the Panda-
Rosemary Facility and the Panda-Brandywine Facility have been included in the
operating results of the Company and are discussed below as having arisen from
development activities of the Company. However, development expenses in respect
of Projects which may be transferred to the Project Portfolio in the future
will not be included in the results of operations of the Company because future
development activities will be undertaken by Panda International and its
affiliates. Such Projects, if any, will be transferred to the Project Portfolio
(at Panda International's historical cost) only upon reaching Financial Closing
or achieving Commercial Operations and meeting the other conditions for
transfer to the Project Portfolio pursuant to the Additional Projects Contract.
See "Description of the Projects," "Regulation" and "Description of
Outstanding Project-Level Debt" for a description of the Panda-Rosemary
Facility and the Panda-Brandywine Facility, including various contracts,
regulatory matters and financing arrangements relating thereto.
Results of Operations
The Company's revenues from electric power generation are derived from
long-term contracts which include both a fixed capacity payment and a variable
energy payment. The capacity payments, which are based upon the specified
power generating capacity of a project, are designed to cover fixed costs and
to provide an acceptable return on equity. The energy payments, which are
based on actual electricity output, are designed to cover variable costs
including fuel costs and variable operating expenses incurred in connection
with electricity output. Accordingly, the impact of price fluctuations on the
results of operations is generally not material. The extent to which a
facility is dispatched (i.e., required to deliver electricity), and therefore
the actual electricity output for a given period, are subject to the discretion
of the power purchaser, with certain limitations. The capacity payments are
the predominant source of revenue for the Company. The Company believes that
it can meet its liquidity requirements solely from the capacity payments in the
unlikely event that its facilities are not dispatched at all. See "Liquidity
and Capital Resources."
First nine months of 1996 compared to 1995
The Company recorded a net loss before taxes, minority interest and
extraordinary item of $1,630,000 in the first nine months of 1996 on revenues
of $22,495,000 compared to net income before taxes and minority interest of
$2,786,000 on revenues of $23,211,000 during the same period in 1995. This 3%
decrease in revenues was primarily a result of the decrease in dispatch hours
at the Panda-Rosemary Facility. During the first nine months of 1996, the
Panda-Rosemary Facility was dispatched 490 hours as compared to 1,768 hours in
the 1995 period, resulting in a decrease in recorded energy revenues of
$642,000. (The number of dispatched hours in 1995 was unusually high, as
explained below.) For the first nine months of 1996 and 1995, capacity
revenues were $19,785,000 in both periods and energy revenues were $1,711,000
and $2,353,000, respectively. Plant operating expenses, which included fuel
cost, operation and maintenance expense, insurance and property taxes related
to the Panda-Rosemary Facility, increased from $6,751,000 (29% of revenues) in
the first nine months of 1995 to $7,814,000 (35% of revenues) during the same
period in 1996, primarily due to the insurance deductible and other non-covered
costs of approximately $552,000 relating to hurricane damage sustained in
September 1996 as discussed below. Other factors contributing to the increase
in plant operating expenses included additional scheduled maintenance costs
incurred at the end of March 1996 and the fuel cost increases relating to
increased operation of the auxiliary boiler for steam and chilled water
production.
Project development and administrative expenses were $1,183,000 (5% of
revenues) and $1,261,000 (6% of revenues) for the nine months ended September
30, 1995 and 1996, respectively.
Interest expense increased from $8,525,000 (37% of revenues) in the first
nine months of 1995 to $11,096,000 (49% of revenues) in the first nine months
of 1996 as a result of the increase in outstanding indebtedness under the TCW
term loan which was partially offset by the scheduled reduction in outstanding
indebtedness under the taxable revenue bonds issued in 1989 for the Panda-
Rosemary Facility, and as a result of the increase in outstanding indebtedness
from the issuance of the Rosemary Bonds and the Old Bonds on July 31, 1996.
The impact of such new indebtedness was partially offset by the refinancing of
the taxable revenue bonds issued in 1989 for the Panda-Rosemary Facility and
the repayment of the TCW term loan on July 31, 1996.
Depreciation, amortization of debt issue costs and amortization of
partnership formation costs were stable and collectively amounted to 17% of
revenues for the first nine months of 1996 and 1995.
On September 6, 1996, a transformer and two switches at the Panda-Rosemary
Facility sustained damage from a hurricane. A substitute transformer has been
temporarily installed pending repair of the damaged transformer, which is
expected to be completed during the first quarter of 1997. The Company
estimates the total cost to repair the Panda-Rosemary Facility (including
substitute transformer rental costs) at approximately $2,450,000, all of which
is covered by insurance except for deductible and certain non-covered items in
the amount of approximately $552,000. The impact on revenues was not material.
Management believes that this event will not have a material adverse effect on
the Company's financial condition or results of operations.
For the first nine months of 1996 and 1995, minority interest in net
income was $2,405,000 and $3,736,000, respectively. The decrease in 1996 was
due to lower net income (before minority interest and extraordinary item) in
the Panda-Rosemary Partnership and the acquisition on July 31, 1996 of the
minority interest holder's limited partnership interest as discussed below.
In connection with the issuance of the Rosemary Bonds and the Old Bonds,
the Company refinanced the taxable revenue bonds issued in 1989 for the Panda-
Rosemary Facility and repaid the TCW term loan. The Company incurred an
extraordinary loss of $21,336,000 on the early extinguishment of these
obligations. Additionally, the Company acquired the minority interest holder's
limited partnership interest in the Panda-Rosemary Partnership for a purchase
price of approximately $34.3 million. As a result of this acquisition, the
Company owns 100% of the Panda-Rosemary Partnership. The acquisition was
accounted for using the purchase method of accounting. The excess of minority
interest over the purchase price (approximately $3.8 million) was allocated to
plant and equipment. Additionally, the Company advanced approximately $34.8
million to Panda International for project development and general corporate
purposes.
As a result of the various factors discussed above, the Company recorded
net losses of $25,371,000 and $950,000 for the first nine months of 1996 and
1995 respectively.
1995 compared to 1994
The Company recorded income before taxes and minority interest of
$3,045,000 on revenues of $31,227,000 in 1995 compared to $5,242,000 on
revenues of $31,917,000 in 1994. The decrease in revenues was primarily the
result of a scheduled contractual decrease in capacity payments of $1,526,000,
which was partially offset by additional income generated due to an increase in
the number of hours the Panda-Rosemary Facility was dispatched by VEPCO and an
increase in interest income. The Panda-Rosemary Facility was dispatched 2,224
hours in 1995 versus 764 hours in 1994, due primarily to forced outages at two
VEPCO generating plants that are not likely to be repeated. For 1995 and 1994,
capacity revenues were $27,204,000 and $28,730,000 and energy revenues were
$2,655,000 and $1,934,000, respectively. For approximately 1,200 of the
dispatch hours in 1995, the Panda-Rosemary Facility used natural gas provided
directly by VEPCO under a special fueling arrangement provided for in the
Rosemary Power Purchase Agreement. The Panda-Rosemary Facility's margin on
energy sales is lower when VEPCO supplies natural gas for the Panda-Rosemary
Facility than when the Panda-Rosemary Facility is dispatched under normal
energy pricing terms. However, overall margins at the Panda-Rosemary Facility
are increased in such circumstances (relative to not operating at all) by the
ability to provide steam and chilled water to Bibb from the steam turbine
offtake, which reduces the operating costs of the auxiliary boilers.
Plant operating expenses, which included fuel cost, operations and
maintenance expense, insurance and property taxes related to the Panda-Rosemary
Facility, were $9,348,000 (30% of revenues) in 1995 as compared to $8,940,000
(28% of revenues) in 1994, primarily due to additional maintenance expenses and
fuel related costs incurred due to the increase in the number of hours the
Panda-Rosemary Facility was dispatched by VEPCO. Project development and
administrative expense increased from $1,376,000 (4% of revenues) in 1994 to
$1,821,000 (6% of revenues) in 1995 primarily due to additional administrative
expenses relating to construction of the Panda-Brandywine Facility.
Interest expense was $11,716,000 (38% of revenues) in 1995 compared to
$11,017,000 (35% of revenues) in 1994. The increase in 1995 was attributable
to additional borrowings. Depreciation, amortization of debt issue costs and
amortization of partnership formation costs were stable and collectively
amounted to 17% of revenues in 1995 and 1994.
In 1995, the Company recorded a net loss of $2,003,000 as compared to a
net loss of $458,000 in 1994. An allocation of $5,048,000 was made in 1995 for
minority interest, a decrease of $652,000 from 1994 as a result of the overall
decrease in net income of the Panda-Rosemary Partnership.
1994 compared to 1993
The Company's 1994 income before taxes and minority interest was
$5,242,000 on revenues of $31,917,000, compared to $4,502,000 on revenues of
$30,839,000 in 1993. The increase in revenues was primarily due to increased
energy sales in 1994, as compared to 1993, as a result of the Panda-Rosemary
Facility being dispatched approximately 764 hours in 1994 compared to 324 hours
in 1993. For 1994 and 1993, capacity revenues were $28,730,000 and $28,888,000
and energy revenues were $1,934,000 and $968,000, respectively. In addition,
interest income increased slightly in 1994 as short-term interest rates were
higher than 1993 levels.
Plant operating expenses, which included fuel cost, operation and
maintenance expense, insurance and property taxes related to the Panda-Rosemary
Facility, increased to $8,940,000 (28% of revenues) in 1994 from $7,676,000
(25% of revenues) in 1993. The increase was primarily a result of increased
fuel and maintenance costs related to the increase in the number of hours the
Panda-Rosemary Facility was dispatched by VEPCO and a $257,000 increase in
tariff rates for firm transportation on the Transco pipeline through which gas
is transported to the Panda-Rosemary Facility. The dispatch hours for 1994 were
substantially greater than in 1993 due primarily to the second amendment to the
Rosemary Power Purchase Agreement entered into in 1993, under which the formula
used to calculate the energy purchase price was amended to more closely match
the fuel and variable operation and maintenance costs of the Panda-Rosemary
Facility. The amendment to the formula resulted in lower energy margins in the
spring, summer and fall periods, when the Panda-Rosemary Facility primarily
runs on natural gas, and better cost recovery during the winter period when it
runs primarily on fuel oil. The reduction in the energy margin during the
summer months, when most of the dispatch hours were incurred, caused the
increase in run hours to have little overall impact on net income.
Project development and administrative expenses decreased from $2,278,000
(7% of revenues) in 1993 to $1,376,000 (4% of revenues) in 1994. The higher
level of such expenses in 1993 was primarily due to preliminary development
costs incurred in connection with the Panda-Brandywine Facility.
Interest expense was $11,017,000 (35% of revenues) in 1994 compared to
$11,066,000 (36% of revenues) in 1993. Depreciation, amortization of debt
issue costs and amortization of partnership formation costs were stable and
collectively amounted to 17% of revenues in 1994 and 1993.
The Company recorded a net loss of $458,000 in 1994 as compared to net
loss of $972,000 in 1993. The allocation for minority interest was $5,700,000,
an increase of $226,000 from 1993 as the Panda-Rosemary Partnership's net
income increased slightly.
Liquidity and Capital Resources
To date, the Company has obtained cash from operations of the Panda-
Rosemary Facility, borrowings under non-recourse project debt of the Panda-
Rosemary Partnership and the Panda-Brandywine Partnership, an equity
contribution by Ford Credit (a former minority interest partner in the Panda-
Rosemary Partnership), senior indebtedness issued to Trust Company of the West,
and the Initial Company Note issued in connection with the sale of the Old
Bonds. The Company utilized this cash to refinance and acquire a 100% interest
in the Panda-Rosemary Facility, fund development and construction of the Panda-
Brandywine Facility, service its debt obligations, make distributions to its
parent to fund project development efforts, and for general and administrative
expenses. On July 31, 1996, the Company repaid all outstanding senior
indebtedness to Trust Company of the West and purchased Ford Credit's remaining
limited partnership interest in the Panda-Rosemary Partnership.
The principal future cash requirements of the Company will be the payment
of its obligations under the Company Notes, thus enabling the Issuer to satisfy
its obligations under the Existing Bonds. Semi-annual principal and interest
payments on the Initial Company Note that was issued in connection with the
issuance of the Old Bonds are expected to total $6.4 million on February 20,
1997 and $6.1 million on each of August 20 and February 20 through February 20,
1999, after which time scheduled payments will increase as more significant
principal amortization begins. The amount of principal payments generally
increases over time. See "Description of the Exchange Bonds - Payment of
Principal and Interest."
Because substantially all of the Company's operations are conducted
through its Project Entities, management believes that the Company should have
no direct operating or administrative expenses other than those to be paid out
of the Company Expense Fund established under the Indenture. The Company is
required to fund the Company Expense Fund annually in an amount established
under the Indenture, which is currently set at $300,000. This amount is
adjusted upward each year for inflation. See "Description of the Exchange
Bonds - The Accounts and Funds." Panda International performs certain
accounting, legal, insurance and consulting services for the Company. The cost
of these services is allocated to the Company through an intercompany charge.
The Company is not required to settle such intercompany charges on a current
basis.
The Company will rely almost exclusively on distributions from its Project
Entities to meet its cash requirements. The Project Entities' ability to make
such distributions will depend upon the financial performance of the Projects
in the Project Portfolio and will be subject to a number of limitations on
distributions contained in the Project-level debt agreements. See "Risk Factors
- - Dependence on Distributions from Project Entities" and "Description of
Outstanding Project-Level Debt." The Consolidated Pro Forma Report which is
attached hereto as Appendix B presents two measures of debt service coverage
for the Company over the 16-year term of the Existing Bonds. Under the
Brandywine Scenario, the Company Debt Service Coverage Ratio is projected to be
at least 1.3:1 and on average is 2.0:1, and the Consolidated Debt Service
Coverage Ratio is projected to be at least 1.09:1 and on average is 1.27:1.
Under the PEPCO Scenario, the Company Debt Service Coverage Ratio is projected
to be at least 1.3:1 (except for 1997 in which it is projected to be 0.8:1) and
on average is 1.6:1, and the Consolidated Debt Service Coverage Ratio is
projected to be at least 1.1:1 (except for 1997 in which it is projected to be
0.96:1) and on average is 1.17:1. In preparing the coverage ratios presented in
the Consolidated Pro Forma Report, ICF made certain assumptions as more fully
described therein. Although ICF believes that the use of these assumptions is
reasonable, assumptions are inherently subject to significant uncertainties
and, if actual conditions differ from those assumed, actual results will differ
from those projected, perhaps materially.
Under such prospective financial data, distributions the Company expects
to receive from its Project Entities that own the Panda-Brandywine Partnership
and the Panda-Rosemary Partnership would be sufficient to service the Existing
Bonds, except in 1997 under the PEPCO Scenario where a deficiency of $1.6
million is projected under the Company Coverage Ratio and a deficiency of $1.5
million is projected under the Consolidated Coverage Ratio. In such case,
monies held in the Accounts and Funds, if any, may be applied toward any debt
service deficiency as set forth in the Indenture. The current balances in the
Accounts and Funds are as follows: Debt Service Fund, $6.4 million; Capitalized
Interest Fund, $9.8 million; Debt Service Reserve Fund, $6.4 million; Company
Expense Fund, $300,000; U.S. Distribution Suspense Fund, $680,000. See
"Description of the Exchange Bonds - Accounts and Funds." Accordingly, the
Company believes that it will have sufficient liquidity from the cash flows
available for distribution from the Panda-Rosemary Partnership and the Panda-
Brandywine Partnership, together with the amounts held in the Accounts and
Funds, to satisfy all obligations under the Initial Company Note, thus enabling
the Issuer to meet its obligations under the Existing Bonds. However, there can
be no assurance that any one or more of the factors described below, or those
described under "Risk Factors," will not adversely affect the cash flows
available for distribution to the Company. Additionally, under the PEPCO
Scenario, the distributions that the Company expects to receive from its
Project Entities may not be sufficient to enable the Company to meet the
minimum Company Debt Service Coverage Ratio of 1.7:1 and minimum Consolidated
Debt Service Coverage Ratio (if then applicable) of 1.25:1 required under the
Indenture to permit the incurrence of additional debt. Accordingly, the
ability of the Company to raise debt for Projects in the future would be
impaired. For a discussion of this and certain other restrictive covenants
under the Indenture, see "Description of the Exchange Bonds - Certain
Covenants."
The Panda-Rosemary Partnership and the Panda-Brandywine Partnership are
dependent on capacity payments under their respective power purchase agreements
to meet their fixed obligations, including the payment of Project-level debt
service, and make distributions to the Company's Project Entities. Capacity
payments can be adversely affected by a major equipment failure, resulting in a
facility being unavailable for dispatch for an extended period of time.
Capacity payments can also be subject to reduction pursuant to regulatory
disallowance and, under contractual provisions, as a result of events outside
the Company's control. In 1997, 1999 and 2006, the capacity payments for the
Panda-Rosemary Facility are scheduled to decrease by approximately $1.8 million
(6.7%), $1.8 million (7.1%) and $5.4 million (23.1%), respectively, based on
the facility's current capacity rating. The capacity payments for the Panda-
Brandywine Facility, which commenced commercial operations in October 1996, are
subject to specified contractual downward adjustments in 1997, 1998 and 2000,
and upward adjustments in 2001 and 2007 through 2021. The Company expects to
be able to continue to meet its obligations during the periods such reductions
are applicable. For more information regarding the projected capacity payments
to be received by the Panda-Rosemary Partnership and the Panda-Brandywine
Partnership, see the Rosemary Engineering Report attached hereto as Appendix C
and the Brandywine Pro Forma Report attached hereto as Appendix E,
respectively. See also "Risk Factors - Project Risks - Operating Risks" and "-
Project Risks - Adjustments to Fixed Payments."
Each of the electric energy purchasers under the power purchase agreements
for the Panda-Rosemary Facility and the Panda-Brandywine Facility has a
contractual right to schedule the facility for dispatch largely at such
purchaser's discretion. Thus, revenues from energy payments will vary depending
on the hours these facilities are dispatched by such purchasers. The Company
believes that it can meet its liquidity requirements solely from the capacity
payments in the unlikely event that these facilities are not dispatched at all.
See "Risk Factors - Project Risks - Dispatchability Risk." In addition, the
sustained failure of a fuel supplier to deliver natural gas at the specified
contract price could have a material adverse effect on the operating results of
the affected facility. See "Risk Factors - Project Risks - Fuel Supply Risks."
Change in Independent Accountant
On January 8, 1997, the Company, the Issuer and Panda Interholding
dismissed Price Waterhouse LLP as their independent accountants. Each of the
Company's, the Issuer's and Panda Interholding's Board of Directors
participated in and approved the decision to change independent accountants.
The reports of Price Waterhouse LLP on the combined financial statements
of the Company for the past two fiscal years contained no adverse opinion or
disclaimer of opinion and were not qualified or modified as to uncertainty,
audit scope or accounting principle. In connection with the audits of the
Company for the two most recent fiscal years and through January 8, 1997, there
have been no disagreements with Price Waterhouse LLP on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure, which if not resolved to the satisfaction of Price
Waterhouse LLP would have caused them to make reference thereto in their report
on the combined financial statements for such years.
The Company, the Issuer and Panda Interholding have requested that Price
Waterhouse LLP furnish them with a letter addressed to the Commission stating
whether or not it agrees with the foregoing statements. A copy of such letter
which states that Price Waterhouse LLP agrees with the foregoing statements is
filed as an exhibit to the Registration Statement of which this Prospectus
constitutes a part.
The Company engaged Deloitte & Touche LLP on December 3, 1996 to audit the
Company's 1993, 1994 and 1995 financial statements. On January 8, 1997,
Deloitte & Touche LLP became the Company's and the Issuer's principal
independent accountants.
New Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of" (SFAS 121). SFAS
121 is effective for financial statements for fiscal years beginning after
December 15, 1995 and requires the write-down to market value of certain long-
lived assets. The Company adopted SFAS 121 in 1996 and such adoption did not
have a material impact on its financial position or results of operations.
Impact of Inflation
Inflationary increases in the Company's costs, primarily project
development costs, energy costs, and capital costs, may be offset by increases
in revenue as provided in the various power purchase agreements, although
competition may limit the Company's ability to fully recover all such
increases. The Company attempts, where possible, to obtain provisions in its
power purchase agreements whereby certain revenue components, such as energy
and operations and maintenance, may be adjusted with inflationary increases. In
management's opinion, inflation will not have a material adverse effect on the
Company's financial position, results of operations or cash flows in the
foreseeable future.
THE EXCHANGE OFFER
Purpose and Effects of the Exchange Offer
The Old Bonds were issued and sold by the Issuer on July 31, 1996 to the
Initial Purchaser pursuant to the Purchase Agreement. The Initial Purchaser
subsequently placed the Old Bonds with Qualified Institution Buyers and
Institutional Accredited Investors in transactions exempt from the registration
requirements of the Securities Act. As a condition of the Purchase Agreement,
the Company, the Issuer and the Initial Purchaser entered into the Registration
Rights Agreement, pursuant to which the Company and the Issuer agreed (i) to
file with the Commission a registration statement under the Securities Act
relating to the Exchange Offer within 90 days after the Issue Date, (ii) to use
their best efforts to cause such registration statement to become effective no
later than 180 days after the Issue Date and (iii) upon effectiveness of such
registration statement to commence the Exchange Offer and offer to the holders
of Old Bonds the opportunity to exchange their Old Bonds for a like principal
amount of Exchange Bonds. This Registration Statement is intended to satisfy
the foregoing obligations of the Company and the Issuer under the Registration
Rights Agreement. See "Old Bonds Registration Rights."
Upon the effectiveness of the Registration Statement and consummation of
the Exchange Offer within the aforementioned periods of time, continuation of
payment of additional interest on the Old Bonds provided for in the Series A
Supplemental Indenture will not be required. Following the consummation of the
Exchange Offer, any holder of Old Bonds (other than one not permitted by law or
any policy of the Commission to participate in the Exchange Offer) which has
not exchanged its Old Bonds pursuant to the Exchange Offer will not have any
further registration rights under the Registration Rights Agreement and its Old
Bonds will continue to be subject to certain restrictions on transfer. See
"Termination of Certain Rights" and "Transfer Restrictions on Old Bonds" below
and "Risk Factors - Consequences of Failure to Exchange Old Bonds."
Accordingly, the liquidity of the market, if any, for any Old Bonds which
remain outstanding could be materially adversely affected.
Based on an interpretation by the staff of the Commission set forth in no-
action letters issued to third parties, the Company believes that Exchange
Bonds issued in exchange for Old Bonds pursuant to the Exchange Offer may be
offered for resale, resold and otherwise transferred by any holders thereof
(other than any such holder which is an Affiliate of the Company, the Issuer or
Panda Interholding) without compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that such Exchange Bonds
are acquired in the ordinary course of such holders' business and such holders
have no arrangements with any person to participate in the distribution of such
Exchange Bonds. To comply with the securities laws of certain jurisdictions, if
applicable, the Exchange Bonds may not be offered or sold unless they have been
registered or qualified for sale in such jurisdictions or an exemption from
registration or qualification is available and the conditions thereto have been
met. In addition, each broker-dealer that received Exchange Bonds for its own
account in exchange for Old Bonds, where such Old Bonds were acquired by such
broker-dealer as a result of market making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Bonds. See "Plan of Distribution."
Terms of the Exchange Offer
The Issuer hereby offers, upon the terms and subject to the conditions set
forth herein and in the accompanying Letter of Transmittal, to exchange $1,000
principal amount of Exchange Bonds for each $1,000 principal amount of
outstanding Old Bonds. As of the date of this Prospectus, $105,525,000
principal amount of the Old Bonds is outstanding. The Exchange Bonds will bear
interest from the date of their issuance. Interest on the Old Bonds accepted
for exchange will accrue thereon to, but not including, the date of issuance of
the Exchange Bonds and will be paid together with the first interest payment on
the Exchange Bonds issued in exchange therefor.
The form and terms of the Exchange Bonds will be identical to the form and
terms of the Old Bonds, except that (i) the Exchange Bonds will have been
registered under the Securities Act, and therefore, will not bear legends
restricting their transfer pursuant to the Securities Act, and (ii) the holders
of the Exchange Bonds will not be entitled to certain rights of the holders of
Old Bonds under the Registration Rights Agreement, which will terminate as to
Old Bonds tendered pursuant to the Exchange Offer upon the consummation of the
Exchange Offer. Such rights will also terminate as to holders of Old Bonds who
are eligible to tender their Old Bonds for exchange in the Exchange Offer but
fail to do so. See "Termination of Certain Rights" below and "Old Bonds
Registration Rights." The Exchange Bonds will evidence the same debt as the
Old Bonds which they replace and will be issued under, and be entitled to the
same benefits as the Old Bonds pursuant to, the Indenture. See "Description of
the Exchange Bonds."
The Exchange Offer will expire at 5:00 p.m. New York City time, on March
19, 1997, unless extended in the Issuer's sole discretion. Tendered Old Bonds
may be withdrawn at any time prior to the Expiration Date. For a description
of the Issuer's right to extend the period of time during which the Exchange
Offer is open, and to delay, terminate or amend the Exchange Offer, and of
tendering holders' withdrawal rights, see "Expiration Date; Extensions;
Termination; Amendments" and "Withdrawal of Tenders" below.
The Issuer shall be deemed to have accepted validly tendered Old Bonds in
the Exchange Offer when, as and if the Issuer has given oral or written notice
thereof to the Exchange Agent. The Exchange Agent will act as agent for the
tendering holders of Old Bonds for the purposes of receiving the Exchange Bonds
from the Issuer. The Exchange Bonds will be delivered as soon as practicable
after acceptance of the Old Bonds, which is expected to occur on the Expiration
Date.
This Prospectus, together with the Letter of Transmittal and other
relevant materials, will be mailed by the Issuer to record holders of Old Bonds
and will be furnished to brokers, banks and similar persons whose names, or the
names of whose nominees, appear on the lists of holders for subsequent
transmittal to beneficial owners of Old Bonds. Holders of Old Bonds who tender
in theExchange Offer will not be required to pay brokerage commissions or fees
or, subject to the instructions in the Letter of Transmittal, transfer taxes
with respect to the exchange of Old Bonds pursuant to the Exchange Offer. The
Company and the Issuer will pay all charges and expenses, other than certain
applicable taxes, in connection with the Exchange Offer.
Although the Issuer has no plan or intention to do so, it reserves the
right in its sole discretion to purchase or make offers for any Old Bonds that
remain outstanding subsequent to the Expiration Date, and to the extent
permitted by applicable law, purchase Old Bonds in the open market, in
privately negotiated transactions or otherwise. The terms of any such
purchases or offers could differ from the terms of the Exchange Offer.
Holders of Old Bonds do not have any appraisal or dissenters' rights under
the Delaware General Corporation Law or the Indenture in connection with the
Exchange Offer.
Expiration Date; Extensions; Termination; Amendments
The Exchange Offer expires on the Expiration Date. The term "Expiration
Date" means 5:00 p.m., New York City time, on March 19, 1997, unless the Issuer
in its sole discretion extends the period during which the Exchange Offer is
open, in which event the term "Expiration Date" means the latest time and date
on which the Exchange Offer, as so extended by the Issuer, expires. The Issuer
reserves the right to extend the Exchange Offer at any time and from time to
time prior to the Expiration Date. The Issuer shall notify the Exchange Agent
of any extension by oral or written notice and shall make a public announcement
thereof prior to 5:00 p.m., New York City time, on the next Business Day fter
the previously scheduled Expiration Date. Such announcement may state that the
Issuer is extending the Exchange Offer for a specified period or on a daily
basis. Without limiting the manner by which the Issuer may choose to make such
public announcement thereof, the Issuer currently intends to make such
announcements, if any, by issuing a release to the Dow Jones News Service.
During any extension of the Exchange Offer, all Old Bonds previously tendered
pursuant to the Exchange Offer will remain subject to the Exchange Offer.
The Issuer reserves the right (i) to extend the Exchange Offer, (ii) to
delay accepting any tendered Old Bonds, (iii) if any of the events set forth
below under "Conditions of the Exchange Offer" shall have occurred and shall
not have been waived by the Issuer, terminate the Exchange Offer and not accept
any Old Bonds, by giving oral or written notice of such delay, extension or
termination to the Exchange Agent, and (iv) to amend at any time, or from time
to time, the terms of the Exchange Offer in any manner, whether before or after
any tender of the Old Bonds. Any amendment applicable to the Exchange Offer
will apply to all Old Bonds tendered in the Exchange Offer, regardless of when
or in what order the Old Bonds were tendered. Any delay in acceptance,
extension, termination or amendment will be followed as promptly as practicable
by public announcement thereof in a manner set forth above. If the Exchange
Offer is amended (including by waiver of a condition to the Exchange Offer) in
a manner determined by the Issuer to constitute a material change, the Issuer
will promptly disclose such amendment in a manner reasonably calculated to
inform the holders of Old Bonds of such amendment, and if the Exchange Offer
would otherwise expire during such period, the Issuer will extend the Exchange
Offer for a period which the Issuer in its discretion deems appropriate,
depending upon the significance of the amendment and the manner of disclosure
to the holders of Old Bonds. All of the conditions to the Exchange Offer set
forth below under the caption "Conditions of the Exchange Offer" must be
satisfied or waived prior to the consummation of the Exchange Offer. The
rights reserved by the Issuer in this paragraph are in addition to the Issuer's
rights set forth below under the caption "Conditions of the Exchange Offer."
Conditions of the Exchange Offer
Notwithstanding any other term of the Exchange Offer, the Issuer shall not
be required to accept for exchange, or exchange the Exchange Bonds for, any Old
Bonds, and may terminate the Exchange Offer as provided herein before the
acceptance of such Old Bonds, if:
(i) any action or proceeding is instituted or threatened in any court or
by or before any governmental agency with respect to the Exchange
Offer which, in the sole judgment of the Issuer, may materially
impair the ability of the Issuer to proceed with the Exchange Offer
in accordance with the terms contained herein and in the Letter of
Transmittal or materially impair the contemplated benefits of the
Exchange Offer to the Issuer, or any material adverse development
has occurred in any existing action or proceeding with respect to
the Company or any of its subsidiaries or affiliates;
(ii) any change, or any development involving a prospective change in
the business or financial affairs of the Company or any of its
subsidiaries has occurred which, in the sole judgment of the Issuer,
may materially impair the ability of the Issuer to proceed with the
Exchange Offer or materially impair the contemplated benefits of the
Exchange Offer to the Issuer;
(iii) any law, statute, rule or regulation is proposed, adopted or
enacted, which, in the sole judgment of the Issuer, may materially
impair the ability of the Issuer to proceed with the Exchange Offer
or materially impair the contemplated benefits of the Exchange Offer
to the Issuer;
(iv) any governmental approval has not been obtained, which approval the
Issuer shall, in its sole discretion, deem necessary for the
consummation of the Exchange Offer as contemplated hereby;
(v) any stop order shall be threatened or in effect with respect to the
Registration Statement of which this Prospectus constitutes a part
or qualification of the Indenture under the Trust Indenture Act of
1939, as amended; or
(vi) the Trustee shall have objected in any respect to, or taken any
action that could, in the sole judgment of the Issuer, adversely
affect the consummation of the Exchange Offer, or shall have taken
any action that challenges the validity or effectiveness of the
procedures used by the Issuer in making the Exchange Offer or the
acceptance of Old Bonds in exchange for Exchange Bonds.
The foregoing conditions to the Exchange Offer are for the sole benefit of
the Issuer and may be asserted by the Issuer in its sole discretion regardless
of the circumstances giving rise to any such condition (including any action or
inaction by the Company or the Issuer) and may be waived by the Issuer, in
whole or in part, at any time and from time to time in its sole discretion. All
of the foregoing conditions must be satisfied or waived prior to the
consummation of the Exchange Offer. The failure by the Issuer at any time to
exercise any of the foregoing rights shall not be deemed a waiver of any such
right and each such right shall be deemed an ongoing right which may be
asserted at any time and from time to time. Any determination by the Issuer
concerning the events described in this section or the fulfillment or
nonfulfillment of any conditions shall be final and binding upon all persons.
The Exchange Offer is not conditioned upon any minimum principal amount of
Old Bonds being tendered.
Procedures for Tendering
Only a registered holder of the Old Bonds may tender such Old Bonds in the
Exchange Offer. To tender in the Exchange Offer, a holder must, prior to the
Expiration Date, either (i) complete and sign the Letter of Transmittal (or a
facsimile thereof), in accordance with the instructions contained herein and
therein, and deliver such Letter of Transmittal, together with any signature
guarantees and any other documents required by the Letter of Transmittal, to
the Exchange Agent at its address set forth on the back cover page of this
Prospectus and the tendered Old Bonds must either be (a) physically delivered
to the Exchange Agent or (b) transferred pursuant to the procedures for book-
entry transfer described herein and a confirmation of such book-entry transfer
must be received by the Exchange Agent prior to the Expiration Date, or (ii)
comply with the guaranteed delivery procedures set forth herein. To be validly
tendered, the Old Bonds, together with a properly completed Letter of
Transmittal (or facsimile thereof), executed by the holder of record thereof,
and any other documents required by the Letter of Transmittal, must be received
by the Exchange Agent at the address set forth on the back cover page of this
Prospectus prior to 5:00 p.m., New York City time, on the Expiration Date,
except as otherwise provided below under the caption "Guaranteed Delivery
Procedures."
The tender by a holder will constitute an agreement between such holder
and the Issuer in accordance with the terms and subject to the conditions set
forth herein and in the Letter of Transmittal.
THE METHOD OF DELIVERY OF THE OLD BONDS AND THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK
OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE
AN OVERNIGHT OR HAND DELIVERY SERVICE. IF DELIVERY IS TO BE MADE BY MAIL, IT
IS SUGGESTED THAT THE HOLDER USE PROPERLY INSURED, REGISTERED MAIL WITH RETURN
RECEIPT REQUESTED, AND THAT THE MAILING BE MADE SUFFICIENTLY IN ADVANCE OF THE
EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR THE OLD BONDS SHOULD BE SENT TO
THE ISSUER, THE COMPANY OR PANDA INTERHOLDING.
Any beneficial owner whose Old Bonds are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruc such
registered holder to tender on such beneficial owner's behalf. See
"Instructions to Registered Holder from Beneficial Owner" included wit the
Letter of Transmittal.
Signatures on a Letter of Transmittal must be guaranteed unless the Old
Bonds tendered pursuant thereto are (i) tendered by a registered holder of the
Old Bonds who has not completed the box entitled "Special Delivery
Instructions" on the Letter of Transmittal or (ii) tendered for the account of
an Eligible Institution (as defined below). In the event that signatures on a
Letter of Transmittal are required to be guaranteed, such guarantee must be by
a firm that is a member of a registered national securities exchange or a
member of the National Association of Securities Dealers, Inc. or by a
commercial bank or trust company having an office or correspondent in the
United States, or by an entity that is otherwise an "eligible guarantor
institution" within the meaning of Rule 17Ad-15 under the Exchange Act (an
"Eligible Institution").
If the Letter of Transmittal is signed by a person other than the
registered holder of any Old Bonds listed therein, such Old Bonds must be
endorsed by the registered holder or accompanied by a properly completed bond
power or other written instrument of transfer in form satisfactory to the
Issuer in its sole discretion, signed by such registered holder as such
registered holder's name appears on such Old Bonds. If the Letter of
Transmittal is signed by the registered holder and (a) the entire principal
amount of the holder's Old Bonds is tendered or (b) untendered Old Bonds are to
be issued to the registered holder, then the registered holder need not endorse
any certificates for tendered Old Bonds or provide a separate bond power. In
any other case, the registered holder must transmit a separate bond power with
the Letter of Transmittal.
If the Letter of Transmittal or any Old Bonds or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and proper evidence satisfactory to
the Issuer of their authority to so act must be submitted.
The Exchange Agent will establish accounts with respect to the Old Bonds
at DTC for the purpose of the Exchange Offer, and any financial institution
that is a participant in DTC may make book-entry transfer of the Old Bonds by
causing DTC to transfer such Old Bonds into the Exchange Agent's account at
DTC. Although delivery of Old Bonds may be effected through book-entry transfer
in the Exchange Agent's account at DTC, the Letter of Transmittal (or facsimile
thereof), with any required signature guarantees and any other required
documents, must, in any case, be transmitted to and received by the Exchange
Agent at its address set forth on the back cover of this Prospectus prior to
5:00 p.m., New York City time, on the Expiration Date, except as otherwise
provided under the caption "Guaranteed Delivery Procedures" below. DELIVERY OF
DOCUMENTS TO DTC IN ACCORDANCE WITH ITS PROCEDURES DOES NOT CONSTITUTE DELIVERY
TO THE EXCHANGE AGENT. NOTWITHSTANDING COMPLIANCE WITH BOOK-ENTRY TENDER
DELIVERY PROCEDURES, FAILURE TO DELIVER TO THE EXCHANGE AGENT AN EXECUTED
LETTER OF TRANSMITTAL AND ANY OTHER REQUIRED DOCUMENTS PRIOR TO 5:00 P.M., NEW
YORK CITY TIME, ON THE EXPIRATION DATE MAY RESULT IN THE TENDERED OLD BONDS NOT
BEING ACCEPTED FOR EXCHANGE.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Old Bonds tendered for exchange will be determined
by the Issuer in its sole discretion, whose determination will be final and
binding. The Issuer reserves the absolute right to reject any or all tenders
that are not in proper form or the acceptance of which would, in the opinion of
the Issuer or counsel for the Issuer, be unlawful. The Issuer also reserves
the right to waive certain of the conditions to the Exchange Offer or any
irregularities or defects in the tender of Old Bonds. The Issuer's
interpretation of the terms and conditions of the Exchange Offer (including the
instructions in the Letter of Transmittal) will be final and binding on all
persons. Unless waived, any irregularities in connection with tenders of Old
Bonds must be cured within such time as the Issuer shall determine. Neither
the Company, the Issuer, the Exchange Agent nor any other person shall be under
any duty to give notifications of defects or irregularities in such tenders or
shall incur any liability for failure to give such notification. Tenders of
Old Bonds will not be deemed to have been made until any defects with respect
to such tenders have been cured or waived.
By tendering, each registered holder of Old Bonds will represent to the
Issuer that, among other things, (i) the Exchange Bonds to be acquired by the
holder and any beneficial owner(s) of such Old Bonds ("Beneficial Owner(s)") in
connection with the Exchange Offer are being acquired by the holder and such
Beneficial Owner(s) in the ordinary course of business of the holder and any
Beneficial Owner(s), (ii) the holder (other than a broker-dealer referred to in
the last sentence of this paragraph) and each Beneficial Owner are not
participating and do not intend to participate in the distribution (within the
meaning of the Securities Act) of the Exchange Bonds, (iii) the holder and each
Beneficial Owner have no arrangement or understanding with any person to
participate in the distribution (within the meaning of the Securities Act) of
the Exchange Bonds, (iv) the holder and each Beneficial Owner acknowledge and
agree that any person participating in the Exchange Offer for the purpose of
distributing the Exchange Bonds must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with a
secondary resale transaction of the Exchange Bonds acquired by such person and
cannot rely on the position of the staff of the Commission set forth in no-
action letters that are discussed herein under "Resale of Exchange Bonds,"
below, (v) the holder and each Beneficial Owner understand that a secondary
resale transaction described in clause (iv) above should be covered by an
effective registration statement containing the selling security holder
information required by Item 507 of Regulation S-K of the Commission and (vi)
neither the holder nor any Beneficial Owner is an Affiliate of the Company, the
Issuer or Panda Interholding, or if it is an Affiliate, it will comply with the
registration and prospectus delivery requirements of the Securities Act to the
extent applicable. In addition, each broker-dealer that receives Exchange
Bonds for its own account in exchange for Old Bonds, where such Old Bonds were
acquired by such broker-dealer as a result of market making activities or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Bonds. See "Plan of Distribution."
Unless an exemption applies under the applicable law and regulations
concerning "backup withholding" of United States federal income tax, the
Exchange Agent will be required to withhold, and will withhold, 31% of the
gross proceeds otherwise payable to a holder pursuant to the Exchange Offer if
the holder does not provide its taxpayer identification number (social security
number or employer identification number, as applicable) and certify that such
number is correct. Each tendering holder should complete and sign the main
signature form and the Substitute Form W-9 included as part of the Letter of
Transmittal, so as to provide the information and certification necessary to
avoid backup withholding, unless an applicable exemption exists and is proved
in a manner satisfactory to the Issuer and the Exchange Agent.
Guaranteed Delivery Procedures
If a holder of Old Bonds desires to tender such Old Bonds and if the Old
Bonds are not immediately available, or time will not permit such holder's Old
Bonds or any other required documents to reach the Exchange Agent before 5:00
p.m., New York City time, on the Expiration Date, a tender for exchange may be
effected if:
(i) the tender for exchange is made by or through an Eligible
Institution;
(ii) prior to 5:00 p.m., New York City time, on the Expiration Date, the
Exchange Agent has received from such Eligible Institution a
properly completed and duly executed Notice of Guaranteed Delivery
(by facsimile transmission, mail or hand delivery) setting forth the
name and address of the holder of the Old Bonds and the principal
amount of Old Bonds tendered for exchange, stating that tender is
being made thereby and guaranteeing that, within five Business Days
after the Expiration Date, the duly executed Letter of Transmittal
(or facsimile thereof), properly completed and validly executed,
together with the Old Bonds in proper form for transfer (or
confirmation of book-entry transfer of such Old Bonds into the
Exchange Agent's account with DTC), and any other documents required
by the Letter of Transmittal and the instructions thereto, will be
deposited by the Eligible Institution with the Exchange Agent; and
(iii) such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as the certificate(s) representing all
tendered Old Bonds in proper form for transfer (or confirmation of
book-entry transfer of such Old Bonds into the Exchange Agent's
account with DTC) and all other documents required by the Letter of
Transmittal, are received by the Exchange Agent within five Business
Days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will
be sent to holders who wish to tender their Old Bonds according to the
guaranteed delivery procedures set forth above.
Acceptance of Old Bonds for Exchange; Delivery of Exchange Bonds
Upon the terms and subject to the conditions of the Exchange Offer, the
Issuer will accept on the Expiration Date all Old Bonds properly tendered in
the Exchange Offer and not withdrawn and will issue the Exchange Bonds as soon
as practicable after the acceptance of the Old Bonds. The Exchange Bonds will
be issued in the form of a fully registered global bond which will be deposited
with, or on behalf of, DTC and registered in the name of its nominee. Holders
tendering Old Bonds represented by a certificate must provide the Exchange
Agent with a DTC account number for delivery of the Exchange Bonds issued in
exchange therefor. For purposes of the Exchange Offer, the Issuer shall be
deemed to have accepted properly tendered Old Bonds when, as and if the Issuer
has given oral or written notice thereof to the Exchange Agent. The Exchange
Agent will act as agent for the tendering holders of Old Bonds for the purpose
of receiving the Exchange Bonds from the Issuer and transmitting the Exchange
Bonds to each holder exchanging Old Bonds.
If any tendered Old Bonds are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein, the
withdrawal of tendered Old Bonds under circumstances permitting such withdrawal
as described herein or otherwise, or if Old Bonds are submitted for a greater
principal amount than the holder thereof desires to exchange, any such
unaccepted or non-exchanged Old Bonds will be returned, without expense, to the
tendering holder thereof (or, in the case of the Old Bonds tendered by book-
entry transfer, to an account maintained at DTC), as soon as practicable after
the expiration or termination of the Exchange Offer.
Withdrawal of Tenders
Tenders of Old Bonds may be withdrawn at any time prior to the Expiration
Date. Thereafter, such tenders are irrevocable. To withdraw a tender of Old
Bonds in the Exchange Offer, a written notice of withdrawal, delivered by hand,
mail or facsimile transmission, must (i) be received by the Exchange Agent
prior to 5:00 p.m., New York City time, on the Expiration Date at the address
set forth on the back cover hereof, (ii) specify the name of and be signed by
the registered holder of such Old Bonds in the same manner as the applicable
Letter of Transmittal (including any required signature guarantees) as set
forth above under "Procedures for Tendering," (iii) specify the name of the
person identified in the Letter of Transmittal as having tendered the Old Bonds
to be withdrawn and (iv) specify the aggregate principal amount represented by
such withdrawn Old Bonds. If Old Bonds have been tendered pursuant to the
procedures for book-entry transfer as set forth herein, any notice of
withdrawal must also specify the name and number of the account at DTC to be
credited with the withdrawn Old Bonds. Withdrawals of tenders of Old Bonds may
not be rescinded, and any Old Bonds withdrawn will thereafter be deemed not
validly tendered for purposes of the Exchange Offer; provided, however, that
withdrawn Old Bonds may be re-tendered by again complying with the procedures
for tendering Old Bonds described herein at any time prior to 5:00 p.m., New
York City time, on the Expiration Date.
All questions as to the validity, form and eligibility (including time of
receipt) of notices of withdrawal will be determined by the Issuer, such
determination to be final and binding. None of the Company, the Issuer, the
Exchange Agent or any other person will be under any duty to give notification
of any defects or irregularities in any notice of withdrawal of Old Bonds or
incur any liability for failure to give any such notification.
Lost or Missing Certificates
If a holder of Old Bonds desires to tender Old Bonds pursuant to the
Exchange Offer, but such Old Bonds have been mutilated, lost, stolen or
destroyed, such holder should telephone the Trustee at (800) 735-7777 for
information concerning the procedures for obtaining replacement certificates
for such Old Bonds, arranging for indemnification or any other matter that
requires handling by the Trustee.
Termination of Certain Rights
Holders of Old Bonds have certain rights under the Registration Rights
Agreement that will terminate as a result of the consummation of the Exchange
Offer. The Exchange Offer shall be deemed to be "consummated" upon the issuance
and delivery of Exchange Bonds in exchange for Old Bonds validly tendered and
not withdrawn in the Exchange Offer in accordance with the terms of the
Registration Rights Agreement. Such rights will terminate for all holders
exchanging Old Bonds in the Exchange Offer and all holders who are eligible to
participate in the Exchange Offer and fail to do so. The rights of holders of
Old Bonds provided for in the Registration Rights Agreement which will
terminate upon the consummation of the Exchange Offer are discussed in "Old
Bonds Registration Rights" below.
The Exchange Agent
The Exchange Agent for the Exchange Offer is Bankers Trust Company. All
deliveries, correspondence and questions sent or presented to the Exchange
Agent relating to the Exchange Offer should be directed to the following
address or telephone number (which are also set forth on the back cover of this
Prospectus):
Facsimile Transmission:
(615) 835-3701
Confirm by Telephone:
(615) 835-3572
By Overnight Courier
By Mail: By Hand Delivery: or Certified Mail:
BT Services Bankers Trust Company BT Services Tennessee,
Tennessee, Inc. Inc.
Reorganization Unit Corporate Trust & Agency Corporate Trust & Agency
Group Group
P.O. Box 292737 Receipt & Delivery Window Reorganization Unit
Nashville, TN 37229- 123 Washington Street, 1st 648 Grassmere Park Road
2737 Floor
New York, NY 10006 Nashville, TN 37211
For Information Call:
(800) 735-7777
Delivery to an address other than as set forth herein, or transmissions of
instructions via a facsimile number other than the one set forth herein, will
not constitute a valid delivery.
Fees and Expenses
The expenses of soliciting tenders will be borne by the Company and the
Issuer. The principal solicitation is being made by mail; however, additional
solicitation may be made by facsimile, telephone or in person by officers and
representatives of the Issuer and its affiliates. The Issuer has not retained
any dealer-manager in connection with the Exchange Offer and will not make any
payments to brokers, dealers or others soliciting acceptance of the Exchange
Offer. The Issuer, however, will pay the Exchange Agent reasonable and
customary fees for its services and will reimburse it for reasonable out-of-
pocket expenses incurred in connection therewith. The expenses to be incurred
in connection with the Exchange Offer will be paid by the Issuer and the
Company and are estimated in the aggregate to be approximately $250,000. Such
expenses include fees and expenses of the Exchange Agent and Trustee,
accounting and legal fees and independent engineers' and fuel consultants'
fees.
The Issuer will pay all transfer taxes, if any applicable, to the transfer
of Old Bonds to it pursuant to the Exchange Offer. If, however, a transfer tax
is imposed for any reason other than the transfer of Old Bonds to the Issuer
pursuant to the Exchange Offer (including, without limitation, any transfer
taxes imposed as a result of the Exchange Bonds or Old Bonds not exchanged
being delivered to, or issued in the name of, any person other than the record
holder, or certificates being tendered that are recorded in the name of a
person other than the person signing the Letter of Transmittal), then the
amount of any such transfer taxes (whether imposed on the registered holder or
any other person) will be payable by the tendering holder. If satisfactory
evidence of payment of such taxes or exemption therefrom is not submitted with
the Letter of Transmittal, the amount of such transfer taxes will be billed
directly to such tending holder.
Accounting Treatment
The Exchange Bonds will be recorded at the carrying value of the Old
Bonds, as reflected in the Issuer's accounting records on the date of the
exchange. Accordingly, no gain or loss for accounting purposes will be
recognized.
Transfer Restrictions on Old Bonds
The Old Bonds that are not exchanged for Exchange Bonds pursuant to the
Exchange Offer will remain "restricted securities" (within the meaning of the
Securities Act). Accordingly, prior to the date that is three years after the
later of the Issue Date and the last date on which the Issuer or any Affiliate
of the Issuer was the owner thereof, such Old Bonds may be resold only (i) to
the Issuer (upon redemption thereof or otherwise), (ii) so long as the Old
Bonds are eligible for resale pursuant to Rule 144A, to a person whom the
seller reasonably believes is a Qualified Institutional Buyer, purchasing for
its own account or for the account of a Qualified Institutional Buyer to whom
notice is given that the resale, pledge or other transfer is being made in
reliance on Rule 144A, (iii) to an Institutional Accredited Investor that is
purchasing for its own account or the account of an Institutional Accredited
Investor, (iv) in an offshore transaction in accordance with Regulation S under
the Securities Act, (v) pursuant to another available exemption from
registration under the Securities Act, or (vi) pursuant to an effective
registration statement under the Securities Act, subject in each of the
foregoing cases to compliance with applicable state securities laws.
Resales of Exchange Bonds
With respect to resales of the Exchange Bonds, based on an interpretation
by the staff of the Commission set forth in no-action letters issued to third
parties, the Company believes that a holder (other than a person that is an
Affiliate of the Company, the Issuer or Panda Interholding) who exchanges Old
Bonds for Exchange Bonds will be allowed to resell the Exchange Bonds acquired
in the Exchange Offer to the public without further registration under the
Securities Act and without delivering to the purchasers of the Exchange Bonds a
prospectus that satisfies the requirements of Section 10 thereof; provided that
(i) the Exchange Bonds are acquired in the ordinary course of the holder's
business, (ii) the holder (other than a broker-dealer referred to in the next
sentence) is not participating and does not intend to participate in the
distribution (within the meaning of the Securities Act) of the Exchange Bonds
and (iii) the holder has no arrangement or understanding with any person to
participate in the distribution (within the meaning of the Securities Act) of
the Exchange Bonds. In addition, each broker-dealer that receives Exchange
Bonds for its own account in exchange for Old Bonds, where such Old Bonds were
acquired by such broker-dealer as a result of market making activities or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Bonds. However, if any holder
acquires Exchange Bonds in the Exchange Offer for the purpose of distributing
or participating in a distribution of the Exchange Bonds, such holder cannot
rely on the position of the staff of the Commission enunciated in such no-
action letters and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction, unless an exemption from registration is otherwise available. In
addition, to comply with the securities laws of certain jurisdictions, if
applicable, the Exchange Bonds may not be offered or sold unless they have been
registered or qualified for sale in such jurisdictions or an exemption from
registration or qualification is available and the conditions thereto have been
met. See "Plan of Distribution."
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS OF THE EXCHANGE OFFER
The following discussion is based upon current provisions of the Internal
Revenue Code of 1986, as amended, applicable Treasury regulations, judicial
authority and administrative rulings and practice. There can be no assurance
that the Internal Revenue Service will not take a contrary view, and no ruling
from the Internal Revenue Service has been or will be sought. Legislative,
judicial or administrative changes or interpretations may be forthcoming that
could alter or modify the statements and conclusions set forth herein. Any
such changes or interpretations may or may not be retroactive and could affect
the tax consequences to holders of the Old Bonds. Certain holders (including
insurance companies, tax-exempt organizations, financial institutions, broker-
dealers, foreign corporations and persons who are not citizens or residents of
the United States) may be subject to special rules not discussed below.
The exchange of the Exchange Bonds for the Old Bonds pursuant to the
Exchange Offer should not be treated as an "exchange" for United States federal
income tax purposes because the Exchange Bonds should not be considered to
differ materially in kind or extent from the Old Bonds. The Exchange Bonds
received by a holder should be treated as a continuation of the Old Bonds in
the hands of such holder. As a result, there should be no federal income tax
consequences to holders as a result of the exchange of the Old Bonds for the
Exchange Bonds pursuant to the Exchange Offer. If, however, the exchange of
the Old Bonds for the Exchange Bonds were treated as an "exchange" for federal
income tax purposes, such exchange should constitute a recapitalization for
federal income tax purposes. Holders exchanging the Old Bonds pursuant to such
recapitalization should not recognize any gain or loss upon the exchange.
THE FOREGOING DISCUSSION OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES IS FOR
GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. EACH HOLDER OF OLD BONDS
SHOULD CONSULT ITS OWN TAX ADVISOR AS TO PARTICULAR TAX CONSEQUENCES OF
HOLDING, EXCHANGING OR SELLING THE OLD BONDS, INCLUDING THE APPLICATION AND
EFFECT OF ANY FEDERAL, STATE, LOCAL OR FOREIGN TAX LAWS, AND OF ANY CHANGES IN
APPLICABLE TAX LAWS.
BUSINESS
General
The Company is an indirect wholly-owned subsidiary of Panda International,
an independent (i.e., non-utility) power company that is engaged primarily in
the development, acquisition, ownership and operation of electric power
generation facilities. As of the date of this Prospectus, the Company
indirectly owns 100% interests in two operating electric power generation
facilities with an aggregate electric generating capacity of approximately 410
MW: the Panda-Rosemary Facility located in Roanoke Rapids, North Carolina,
which has been operational since December 1990; and the Panda-Brandywine
Facility, Brandywine, Maryland, which has been operational since October 1996.
Each of these facilities produces electricity for sale to a utility. Thermal
energy produced by these facilities is sold to an industrial user (which, in
the case of the Panda-Brandywine Facility, is a subsidiary of the Company).
The Company believes that there is and will continue to be significant
demand for new generating capacity worldwide and that much of this new capacity
will be provided by independent power developers such as Panda International.
Panda International is continually engaged in the evaluation of various
opportunities for the development and acquisition of additional electric power
generation facilities. The Company has been informed by Panda International
that it intends to focus primarily on development and acquisition opportunities
where it is able to capitalize on its management and technical expertise to
implement an innovative and fully integrated approach to project development in
which Panda International controls the entire development process, including
design, engineering, procurement, construction management, fuel and resource
acquisition and finance. Panda International has informed the Company that it
believes that it is able to minimize the financial risks associated with
project development primarily by utilizing this fully integrated approach, by
carefully controlling development expenses and by securing project financing
and power purchase agreements prior to making significant capital investments.
Pursuant to the Additional Projects Contract, if a power purchase agreement for
a Project is executed prior to July 31, 2001 and the Project reaches Financial
Closing or achieves Commercial Operations prior to July 31, 2006, such Project
will be eligible for transfer to the Company or to a PIC Entity if certain
other conditions contained in the Additional Projects Contract are satisfied.
See "The Company, the Issuer and Panda International - The Additional Projects
Contract."
The Independent Power Industry
The United States independent power industry expanded rapidly in the 1980s
following the enactment of PURPA in 1978. Prior to PURPA, the demand for power
in the United States had traditionally been met by utilities constructing large-
scale electric generating plants under cost-of-service based regulation. PURPA
removed most regulatory constraints on the production and sale of electric
energy by certain non-utility generators known as "Qualifying Facilities" or
"QFs" and required electric utilities to buy electricity from QFs at the
utilities' avoided costs, thereby encouraging companies other than electric
utilities to enter the electric power production market. Concurrently, due in
part to regulatory disallowance of many large utility construction project
costs, there was a general decline in the construction of generating plants by
electric utilities. As a result, a significant market for electric power
produced by independent power producers has developed in the United States
since the enactment of PURPA.
The future market for independently produced power in the United States
will be determined primarily by the need for new electric generation capacity.
According to the North American Electricity Reliability Council's 1995-2004
Electricity Supply and Demand Report, electric utilities forecast that they
will need approximately 78,000 MW of new generating capacity from 1995 through
2004. Many published forecasts reflect expectations for the continued growth of
independent power producers. According to RCG/Hagler Bailly, based on a review
of the capacity of the top 125 U.S. electric utilities, it is probable that,
from 1994 to 2003, independent power producers will supply from 45-50% of total
electric generating capacity additions. In February 1993, the Utility Data
Institute projected that, of the total amount of generating capacity projected
to be added through the year 2000, the amount of new independent power capacity
expected to become operational in the United States will be approximately
45,000 MW. For a discussion of the movement to restructure the electric utility
industry, see "Regulation - Federal Energy Regulation."
The Company believes that there is and will continue to be significant
demand for new generating capacity worldwide and that much of this new capacity
will be provided by independent power developers such as Panda International.
Natural gas-fired power generation has become the predominant power
generation technology utilized by new power plants in the United States,
accounting for 60% or more of the annual increase in independent power
generation capacity during each of the last three years. Industry analysts
predict that natural gas will continue to be the dominant fuel for new power
generation facilities in the United States for the foreseeable future. Natural
gas-fired power plants offer significant advantages over other power generation
technologies, such as coal, oil or nuclear energy, including favorable resource
prices, significant environmental benefits, the availability of high efficiency
turbines and shorter construction periods. Internationally, Panda International
believes that private power projects will continue to rely on indigenous fuel
supplies that are the least expensive and most abundant for the region needing
the electric power. Those fuels and technologies will most likely emphasize
coal, hydroelectric and natural gas.
Competition
The Company competes both in the United States and internationally with
other independent power producers, including affiliates of utilities, in
obtaining long-term contracts to sell electric power to utilities. In addition,
utilities may elect to expand or create generating capacity through their own
direct investments in new plants. Over the past decade, obtaining a power
purchase agreement with a utility has become a progressively more difficult,
expensive and competitive process. In recent years, more contracts have been
awarded through competitive bidding. Increased competition also has lowered
profit margins of successful projects.
The demand for power in the United States traditionally has been met by
utilities constructing large-scale electric generating plants under rate-based
regulation. The enactment of PURPA in 1978 spawned the growth of the
independent power industry, which expanded rapidly in the 1980s. The initial
independent power producers were cogenerators and small power producers who
recognized the potential business opportunities offered by PURPA. This initial
group was joined by larger, better capitalized companies, such as subsidiaries
of fuel supply companies, engineering companies, equipment manufacturers and
affiliates of other industrial companies. In addition, a number of regulated
utilities have created subsidiaries (known as "utility affiliates") that
compete with independent power producers. Some independent power producers
operate in market niches by utilizing a specific technology or fuel (for
example, geothermal, gas-fired cogeneration, hydroelectric, refuse-to-energy,
wind, solar, coal or wood) or by operating in a specific region of the United
States where they believe they have a market advantage.
Recent amendments to the Public Utility Holding Company Act of 1935
("PUHCA") made by the Energy Policy Act are likely to increase the number of
competitors in the independent power industry in the United States by reducing
certain restrictions currently applicable to certain facilities that are not
QFs under PURPA. However, these amendments also should make it simpler for the
Company to develop new Projects, by enabling the Company to develop large gas-
fired electrical generation Projects without the necessity of locating them in
the vicinity of a steam purchaser or otherwise finding a steam purchaser to
accept the useful thermal output required of a cogeneration QF under PURPA.
The FERC is currently studying a number of proposals to restructure the
electric utility industry to permit utility customers to choose their utility
supplier in a competitive electric energy market. The FERC has recently issued
a rule (Order 888) requiring utilities to offer wholesale customers and
suppliers open access on their transmission lines, on a basis which is
comparable to the utilities' own use of the lines. In addition, a number of
bills have been introduced in the United States Congress to promote electric
utility restructuring and deregulation of electric rates. See "Regulation."
Due to the movement toward privatization of generation capacity in many
foreign countries and the burgeoning need for new capacity in developing
countries significant new markets now exist outside the United States. Panda
International has informed the Company that it believes that its knowledge
gained from developing and operating power plants in the United States can be
utilized to take advantage of opportunities in these new markets. Development
of new power generation projects in foreign markets is, however, difficult and
expensive, and many competitors in these foreign markets have significantly
larger capital resources and greater local market expertise than Panda
International. In addition, due to increased competition in the United States,
there has been an increasing number of entrants into these foreign markets.
Typical Project Structure
In many cases, a Project's economic structure will include long-term
contracts under which customers pay the Project:
(i) a fixed capacity payment based upon a specified power generating
capacity of the Project; capacity payments are designed to cover
fixed costs (including debt service, local taxes and insurance) and
to provide an acceptable return on equity; and
(ii) a variable energy payment based on actual energy output; energy
payments are designed to cover variable costs including fuel costs
and variable operating expenses incurred in connection with energy
output.
In many cases, the capacity payments are the predominant source of revenue
for a Project. Thus, the resulting earnings stream is more predictable than
that of a business that encounters market fluctuations in supply or demand for
its product. As a result, Project lenders are often more willing to make long-
term loans to a Project that has been structured to cover debt service from
capacity payments. Because Panda International usually seeks long-term loans
with limited recourse to the Project owners, the lenders generally must rely on
the more predictable Project revenues to ensure loan repayment. Moreover,
Project lenders expect Project cash flow, after operating costs and local
taxes, to cover debt service by an acceptable margin, and these lenders review
Project contracts, equipment specifications, operator qualifications, permits,
warranties, performance testing procedures and sensitivities carefully before
providing limited recourse funds. Thus, each new Project is evaluated not only
by Panda International but also by the Project lenders, Panda International's
financial partners, if any, in that Project and certain of the Project's
vendors including independent engineers, construction service providers and
other contractors, such as fuel suppliers.
Project Development
The development of electric power generation projects is a complex
endeavor, which requires expertise in several areas, including evaluation of
development opportunities, project design and engineering, negotiation of power
and steam sales agreements, acquisition of necessary land rights, permits and
fuel resources, law, finance and construction management. Panda International
has informed the Company that it intends to continue to focus primarily on
development opportunities where it is able to capitalize on its expertise in
implementing an integrated approach to Project development in which it controls
the entire development process. Utilizing this approach, the Company believes
that Panda International is able to enhance the value of its Projects through
each stage of development and to minimize the financial risks associated with
Project development by securing project financing and power purchase agreements
prior to making significant capital investments.
Panda International initially evaluates and selects potential development
Projects based on a variety of factors, including location, the likelihood of
obtaining a power purchase agreement containing acceptable pricing terms, the
availability of rights to a favorable geographic site, in emerging markets the
ability to denominate tariffs and re-patriate profits in U.S. dollars and the
probability of obtaining required licenses and permits. For coal and gas-fired
power Projects, Panda International also evaluates the access to and likely
cost of potential fuel supplies and transportation and, in the case of
cogeneration plants, considers the proximity to industrial or commercial users
of the plant's thermal energy. Following the initial selection of an
opportunity, Panda International analyzes the technical and commercial
requirements of the Project and formulates a conceptual design. The design
becomes the foundation for selecting the equipment configuration for the
Project, developing the Project structure and developing a financial plan.
Panda International also prepares financial feasibility studies and analyzes
various structural alternatives to determine a financial plan for the Project.
As part of the development process, Panda International identifies and
obtains the land rights necessary to install and operate the proposed Project.
A particular site may also require the installation of a new electrical
transmission line to deliver energy to the existing grid.
Beginning early in the development process, Panda International also seeks
to obtain all permits, licenses and other approvals required for the
construction and operation of the Project, including siting, construction and
environmental permits, rights-of-way and planning approvals.
Power Purchase and Steam Sales Agreements
The power generated by Panda International's Projects is or will be sold
pursuant to power purchase agreements at pricing formulas generally consisting
of separate payments for energy and capacity but in certain cases consisting
only of payments for energy actually produced. Panda International's objective
is to negotiate or obtain power purchase agreements that result in adequate
cash flow to fund the Project's non-recourse debt and provide income to Panda
International. Panda International also seeks opportunities to achieve revenue
growth through a schedule of increasing prices for electrical energy and
capacity sold in future years. As part of Panda International's effort to
minimize the financial risks in the development of new Projects, Panda
International does not incur significant capital expenditures until a power
purchase agreement has been executed.
A portion of the thermal energy produced by cogeneration Projects may be
sold to industrial or other users pursuant to a steam sales agreement. Steam
sales agreements may require a purchaser to take at least the minimum amount of
steam necessary for the Project to retain its QF status under PURPA if the
Project is a U.S. facility.
Project Financing
Panda International has informed the Company that its electric power
generation projects are and will continue to be financed using a variety of
leveraged financing structures, primarily consisting of limited recourse debt
and lease obligations. Each such obligation is structured to be fully paid out
of cash flow provided by the Project. In the case of U.S. Projects, the
Project assets (together with the stock or partnership interests in the Project
Entities owning or leasing the Project) are pledged to secure such obligations,
without recourse to the general corporate assets of Panda International or its
subsidiaries (other than the Project Entities) or the other Projects in which
Panda International has an interest. The security for Non-U.S. Projects will
depend on the laws of the applicable jurisdiction. Panda International's
existing Projects are financed using a high proportion of debt to equity, and
Panda International has informed the Company that it intends to continue using
such high leverage.
Construction
Panda International manages the construction of its Projects usually by
entering into a fixed-price turnkey contract with a construction company. Under
such a turnkey contract, the contractor generally assumes the risks of cost
overruns, other than costs for changes to the Project requested by the owners
and specified events beyond the control of the contractor. The contractor
manages construction through various subcontractors and retains ultimate
responsibility for the timely completion of the Project and for achieving
specified performance levels.
Operating and Maintenance Contracts
Panda International currently contracts with third parties for operations
and maintenance ("O&M") services for power generation facilities in which Panda
International has an interest. These services are performed under the terms of
an O&M agreement pursuant to which Panda International generally reimburses the
O&M provider for certain costs, pays an annual operating fee and pays an
incentive fee based on the performance of the facility. Panda International
has recently established an indirect wholly-owned subsidiary, Panda Global
Services, Inc., a Delaware corporation ("Panda Global Services"), to provide
O&M services to independent power plants. Panda Global Services has entered
into a contract with the Panda-Rosemary Partnership under which Panda Global
Services provides O&M services to the Panda-Rosemary Facility. See "Description
of the Projects - The Panda-Rosemary Facility - Operations and Maintenance."
Fuel Supply
Panda International acquires fuel reserves (usually coal or natural gas)
from third parties under supply agreements, and transportation services for
those supplies are also acquired from third parties. Panda International
endeavors to structure a Project's fuel supply agreement so that the payments
received for electricity generated exceed fuel costs.
DESCRIPTION OF THE PROJECTS
The following summary table presents selected information concerning the
two power generation Projects, both of which are operational, that constitute
the initial Projects in the Project Portfolio. In addition, information is
provided regarding certain other Projects which are under development by Panda
International and could become eligible for transfer to the Project Portfolio
if the conditions for transfer set forth in the Additional Projects Contract
are satisfied. Following the table are more detailed descriptions of the Panda-
Rosemary Facility, the Panda-Brandywine Facility and certain other Projects
being developed by Panda International. The descriptions of selected
provisions of certain principal agreements related to these projects should not
be considered to be a full statement of the terms and provisions of such
agreements.
The Company believes the information presented in the table below with
respect to the Projects under development to be accurate; however, because
these Projects remain in the development stage, there can be no assurance as to
how long the information presented will remain accurate. In addition, there can
be no assurance that any of the Projects under development will reach Financial
Closing or achieve Commercial Operations or meet the other conditions making
them eligible for inclusion in the Project Portfolio. See "Risk Factors -
Financial Risks" and "- Project Risks - Operating Risks" and "The Company, the
Issuer and Panda International - The Additional Projects Contract."
<TABLE>
<CAPTION>
Facilities in the Project Portfolio
Construc- Com-
tion mercial
Commence- Opera- Fuel
PPA ment tions Techno- Electric Contract
Facility Signed Date Date logy Output Term
<S> <C> <C> <C> <S> <C> <C>
Panda-Rosemary 1Q 1989 3Q 1989 4Q 1990 Gas-fired 180 MW Through
Roanoke Rapids, NC Combined December
Cycle 2015
Panda-Brandywine 3Q 1991 2Q 1995 4Q 1996 Gas-fired 230 MW Through
Brandywine, MD Combined October 2021
Cycle
Total 410 MW
</TABLE>
<TABLE>
<CAPTION>
Facilities Under Contract
Construc- Com-
tion mercial
Commence- Opera- Fuel
PPA ment tions Techno- Electric Contract
Facility Signed Date Date logy Output Term
<S> <C> <C> <C> <C> <C> <C>
Panda-Luannan 3Q 1995 1Q 1997 1Q 1999 Coal 100 MW 20 yrs
Luannan County
Tangshan Municipality
Hebei Province, China
Panda of Nepal 3Q 1996 1Q 1997 4Q 1999 Hydro- 36 MW 25 yrs
electric
Nepal
Panda-Lapanga (3 3Q 1994 (3) (3) Coal 500 MW 25 yrs
State of Orissa,
India
Panda-Kathleen(4) 3Q 1992 (4) (4) Gas-fired 115 MW 30 yrs
Lakeland, FL Combined
Cycle
Total 751 MW
</TABLE>
(1) Estimated.
(2) A merger of PEPCO and Baltimore Gas & Electric Company ("BG&E") has been
publicly announced and is anticipated to close in 1997. BG&E's bond
credit rating is A- -.
(3) The future of this Project is uncertain due to a cancellation notice
received from the State of Orissa. See "Description of the Projects -
Other Projects Under Development by Panda International - The Panda-
Lapanga Project."
(4) The future of this Project is uncertain due to pending litigation. See
"Legal Proceedings - Florida Power Proceedings."
(5) This percentage may be reduced to 78% if a second shareholder in an
intermediate holding company is successful in developing Non-U.S.
Projects. The cash flow interest of a PIC International Entity in this
Project may be larger than the stated percentage, however, because it is
intended that such PIC International Entity would satisfy its obligations
to fund the Project Entity's equity investment requirements through a
loan to, or a preferred stock equity investment in, the Project Entity.
See "The Company, the Issuer and Panda International - Company
Structure."
(6) Final equity interests may vary depending on financing arrangements for
these Projects.
<TABLE>
<CAPTION>
Facilities in the Project Portfolio
Customer/ Panda
Credit Rating Fuel Supplier Project Cost Financing Ownership Status
<S> <C> <C> <C> <C> <C> <C>
VEPCO/A2 Natural Gas
Clearinghouse $125 M Funded 100% Operational
PEPCO/A1 (2) Cogen Development $215 M(1) Funded 100%
Operational Company ______
$340 M(1)
</TABLE>
<TABLE>
<CAPTION>
Facilities Under Contract
Panda
Customer/ Project Owner-
Credit Rating Fuel Supplier Cost Financing ship Status
<S> <C> <C> <C> <C> <C>
North China Power Kailuan Coal $118 M To be funded 85% In
Group Company/ Administration (5)(6) Financing
Not Applicable and certain
other coal
mines
Nepal Electricity Not Applicable $100 M To be funded 75%(6) Multi-
Authority/Not lateral
Applicable lenders
have
provided
commitment
letters
for
providing
debt
require-
ments
Orissa State
Electricity Dedicated coal
Board/Not mine to be $600 M To be funded 90% (6) Certain
Applicable developed by required
Project Project clearances
received.
Delayed
pending
resolution
dispute
regarding
notice of
cancella-
tion
of
power
purchase
agreement
given by
State
garding
notice of
cancella-
tion of
power
purchase
agreement
given by
State
of Orissa
Florida Power/ Not Selected $100 M To be funded 100% Litigation
AA with
Florida
Power
$918 M
</TABLE>
The Panda-Rosemary Facility
The Panda-Rosemary Facility is a combined-cycle cogeneration facility
located in Roanoke Rapids, North Carolina, with a total electric generating
capacity of approximately 180 MW. A cogeneration facility produces electric
energy and forms of useful thermal energy (such as heat or steam), used for
industrial, commercial, heating or cooling purposes through the sequential use
of one or more energy inputs. A properly designed and constructed cogeneration
facility is able to convert the energy contained in the input fuel source to
useful energy outputs more efficiently than plants employing what was,
historically, conventional utility electrical generation technology. The Panda-
Rosemary Facility uses natural gas as its primary fuel input to produce
electric energy for sale to VEPCO and to produce useful thermal energy in the
form of steam and chilled water for sale to Bibb. The Panda-Rosemary Facility
uses No. 2 fuel oil as an alternate fuel in the event gas supplies or
transportation are curtailed. The Panda-Rosemary Facility was designed and
constructed by Hawker Siddeley Power Engineering.
The Panda-Rosemary Facility began commercial operations in December 1990.
The Panda-Rosemary Facility is certified as a Qualifying Facility under PURPA
and thus is exempt from rate regulation as an electric utility under federal
and state law, provided that it continues to meet the applicable requirements
of PURPA. See "Regulation - Federal Energy Regulation - PURPA."
The Panda-Rosemary Facility is designed to be operated in a combined-cycle
mode. It uses natural gas or fuel oil to power two General Electric combustion
turbine generators, a GE Frame 6 and a GE Frame 7, each fitted with a heat
recovery steam generator ("HRSG"). The HRSGs use the reject heat from the
combustion turbines that might otherwise dissipate to produce steam which
drives a steam turbine generator. The combustion and steam turbines generate
electric energy for sale to VEPCO. When the Panda-Rosemary Facility is being
dispatched, some of the steam produced by the HRSGs is sold to Bibb and some is
used in two absorption chillers to supply chilled water for Bibb. The
combustion turbines use natural gas as their primary fuel and can use No. 2
fuel oil as an alternate fuel. When the facility is not being dispatched, two
auxiliary boilers are available to be used to produce steam for direct use by
Bibb and to produce chilled water for use by Bibb. The design of the Panda-
Rosemary Facility permits flexible operation, including the production of both
electricity and a sufficient amount of thermal energy to meet QF requirements,
using either one or both of the combustion turbine generators.
Recent Hurricane Damage Sustained
On September 6, 1996, a transformer and two switches at the Panda-Rosemary
Facility sustained damage from a hurricane. A substitute transformer has been
temporarily installed pending repair of the damaged transformer, which is
expected to be completed during the first quarter of 1997. The Company
estimates the total cost to repair the Panda-Rosemary Facility (including
substitute transformer rental costs) at approximately $2,450,000, all of which
is covered by insurance except for a deductible and certain non-covered items
in the amount of approximately $552,000. The Company believes that this event
will not have a material adverse effect on the financial condition or operating
results of the Panda-Rosemary Partnership or its ability to make distributions
to the Company through the PIC Entities.
Sale of Capacity and Electricity
The Panda-Rosemary Partnership sells electric capacity and energy to VEPCO
pursuant to a Power Purchase and Operating Agreement (the "Rosemary Power
Purchase Agreement"). The Rosemary Power Purchase Agreement has an initial term
ending December 26, 2015, and may be extended for periods of up to five years
if the parties so agree.
VEPCO has the right to dispatch the Panda-Rosemary Facility (i.e.,
require the Panda-Rosemary Facility to deliver electricity) on a daily basis
within certain guidelines and the design limits (which specify load levels,
start-up and shutdown times and minimum run times consistent with prudent
utility practice). VEPCO must dispatch all facilities obligated to deliver
electricity to VEPCO based upon economic factors and without regard to the
facilities' ownership.
The Rosemary Power Purchase Agreement provides for two types of payments:
a capacity payment and an energy payment. The capacity payment is a fixed
charge required to be paid regardless of whether the Panda-Rosemary Facility is
dispatched, subject to reductions under certain circumstances as described
below. Energy payments are calculated based on the actual electrical output
transmitted to VEPCO and are designed to compensate the Panda-Rosemary
Partnership for its cost of fuel and its variable operations and maintenance
expense.
Monthly capacity payments throughout the term of the Rosemary Power
Purchase Agreement are calculated by multiplying the Panda-Rosemary Facility's
"Dependable Capacity" by the following rates: $12.488 per kilowatt per month
through December 1996; $11.654 per kilowatt per month through December 1998;
$10.821 per kilowatt per month through December 2005; and $8.321 per kilowatt
per month through December 2015. The Panda-Rosemary Facility's Dependable
Capacity is currently 165 MW for the summer period and 198 MW for the winter
period, which are the maximum Dependable Capacity levels for which capacity
payments must be made under the Rosemary Power Purchase Agreement. Dependable
Capacity is determined by semi-annual tests which may be requested by VEPCO.
Capacity payments may be reduced if any of the following events or
circumstances occur:
(i) if the Panda-Rosemary Facility fails to meet required dispatch
levels within a tolerance of 5%, the operating level (as adjusted
for ambient weather conditions) does not exceed Dependable Capacity
and such failure is not the result of a forced outage, then VEPCO
has the right to decrease the capacity payment in respect of the
then-current billing month by 10% per occurrence;
(ii) if, as a result of a performance test, the Panda-Rosemary Facility's
Dependable Capacity is set at less than 90% of the initial
Dependable Capacity as set forth in the Rosemary Power Purchase
Agreement (150 MW for the first summer period and 180 MW for the
first winter period), then the Panda-Rosemary Partnership is
obligated to pay VEPCO liquidated damages for the deficiency in an
amount equal to the product of $21.60 per kilowatt, in 1987 dollars
as escalated annually by the GNPIPD, multiplied by the Dependable
Capacity shortfall;
(iii) if a forced outage is designated by the Panda-Rosemary Partnership
as having resulted from an event of force majeure, then beginning
the day after the Panda-Rosemary Partnership makes such designation,
capacity payments are suspended and prorated daily until the Panda-
Rosemary Partnership notifies VEPCO that the condition of force
majeure has ended; and
(iv) if the number of forced outage days in a given capacity test period
exceeds the number of permitted forced outage days, then within 60
days after the end of the capacity test period, the Panda-Rosemary
Partnership is obligated to reimburse VEPCO an amount equal to 4% of
the capacity payments paid during the capacity test period for each
forced outage day in excess of the permitted number; the Panda-
Rosemary Partnership is entitled to the greater of 25 forced outage
days per capacity test period (the period from December 1 through
November 30) and 10% of the number of days that the Panda-Rosemary
Facility is dispatched during such period, without any loss of
capacity payments for such period.
Energy payments are calculated based on the actual electrical output
transmitted to VEPCO and are designed to compensate the Panda-Rosemary
Partnership for its cost of fuel and its variable operations and maintenance
expense. During the period December 1, 1995 through November 30, 1996, the
number of forced outage days was 16, including 15 forced outage days
attributable to the damage caused by the hurricane in September 1996.
The Panda-Rosemary Partnership is required to maintain the Panda-Rosemary
Facility as a QF. VEPCO may terminate the Rosemary Power Purchase Agreement
within one year after the loss of QF certification if the Panda-Rosemary
Partnership has not obtained all necessary governmental or regulatory approvals
for the Rosemary Power Purchase Agreement to remain in effect and for
electricity to continue to be sold to VEPCO.
The Rosemary Power Purchase Agreement also contains a provision known as a
"regulatory disallowance" provision, which requires the Panda-Rosemary
Partnership to repay or reduce any capacity charges in excess of $5.62 per
kilowatt per month, as adjusted by the GNPIPD from 1987 dollars, that are
disallowed by any regulatory authority from recovery by VEPCO in its rate base
(except where such disallowance is due to VEPCO's failure to properly seek such
recovery). VEPCO cannot initiate such a disallowance, and must appeal such a
disallowance, if practicable. If such a disallowance were to occur prior to
December 27, 2006, beginning on such date up to 75% of the capacity payments
could be withheld by VEPCO to make up for any disallowance, plus interest,
until the sooner of December 27, 2007 or the date on which such disallowance,
plus interest, was recouped by VEPCO. If such disallowance, plus interest, were
not fully recouped by December 27, 2007, the Partnership would be obligated to
pay the remaining balance, plus interest, by January 24, 2008. If any
disallowance were to occur for capacity payments after December 27, 2006,
future capacity payments would be reduced to the amount of the capacity payment
unaffected by the disallowance. In addition, the Panda-Rosemary Partnership
would be required to repay the amount of previously received capacity payments
which are affected by the disallowance, plus interest, by the later of one year
from the date of the disallowance or December 27, 2007. The amount upon which a
possible reduction in, or repayment of, capacity charges by the Panda-Rosemary
Partnership would be calculated if a disallowance occurred was $7.24 per
kilowatt per month as of December 1995. Assuming a GNPIPD of 3.0% per year
throughout the initial term of the Rosemary Power Purchase Agreement, this
amount would increase to $10.02 per kilowatt per month in 2006 and $13.07 per
kilowatt per month upon the expiration of the initial term. The monthly
capacity payments due from VEPCO under the Rosemary Power Purchase Agreement
are calculated based on Dependable Capacity at the following rates: $12.488 per
kilowatt per month through December 1996; $11.654 per kilowatt per month
through December 1998; $10.821 per kilowatt per month through December 2005;
and $8.321 per kilowatt per month through December 2015. Thus, assuming a
GNPIPD of 3.0% per year from 1996 through 2015, the risk that the Panda-
Rosemary Partnership may be required to reduce or repay capacity charges under
the "regulatory disallowance" provision would exist through 2005. See
"Regulation - Federal Energy Regulation - PURPA."
Steam and Chilled Water Sales
The Panda-Rosemary Partnership sells steam and chilled water to Bibb for
use in its textile manufacturing facility, located adjacent to the Panda-
Rosemary Facility, pursuant to a Cogeneration Energy Supply Agreement (the
"Rosemary Steam Agreement"). The Rosemary Steam Agreement has an initial term
that expires on December 26, 2015. Upon expiration of the initial term, Bibb
has the option to (i) negotiate a 10-year extension of the Rosemary Steam
Agreement, (ii) purchase the Panda-Rosemary Facility with VEPCO's consent or
(iii) terminate the Rosemary Steam Agreement.
Bibb is obligated to pay $1.00 per 1,000 pounds of steam for the first
45,000 pounds of steam delivered in an hour and $2.50 per 1,000 pounds of steam
for any additional quantities of steam delivered in an hour. Bibb is obligated
to pay the following fixed prices for chilled water: $0.035/ton/hour through
December 27, 2000; $0.04/ton/hour thereafter through December 27, 2005;
$0.045/ton/hour thereafter through December 27, 2010; and $0.05/ton/hour
thereafter through December 27, 2015.
Although Bibb is not required to purchase a minimum quantity of steam or
chilled water, Bibb has an irrevocable obligation to purchase all of its steam
and chilled water requirements from the Panda-Rosemary Facility to the extent
that the Panda-Rosemary Facility is able to supply such requirements. The
Rosemary Steam Agreement requires that the Panda-Rosemary Facility have the
capacity to produce an annual average of 65,000 pounds of steam per hour at 150
psi and 2,000 tons of 45 degrees F chilled water for up to 8,000 hours per
year. This requirement is not currently met because the Panda-Rosemary
Facility's actual capacity to produce chilled water does not exceed 1,600
tons per year of
chilled water. However, because Bibb's chilled water requirements have never
exceeded 1,500 tons per year and, in most cases, have been approximately 1,200
tons per year, the Panda-Rosemary Facility has never failed to satisfy Bibb's
chilled water requirements. Furthermore, the Rosemary Steam Agreement allows
the Panda-Rosemary Partnership to utilize, at its own expense, back-up electric
chillers located at Bibb's textile mill to supply chilled water to meet Bibb's
demands. Finally, if Bibb's requirements were to exceed the facility's current
capacity to produce chilled water, the Panda-Rosemary Partnership could expand
the capacity of its absorption chillers to reach the required level by
purchasing a new chiller at a cost currently estimated at approximately
$770,000. For these reasons, the Company does not believe that the current
capacity limitations of the absorption chillers will adversely affect the Panda-
Rosemary Partnership's rights under the Rosemary Steam Agreement.
Site Lease
The 4.83 acre site on which the Panda-Rosemary Facility is located is
leased to the Panda-Rosemary Partnership by Bibb pursuant to a Real Property
Lease and Easement Agreement (the "Rosemary Site Lease") in exchange for a
nominal yearly rental payment. The initial term of the Rosemary Site Lease
expires on December 31, 2015 and is automatically extended on the same terms
and conditions for 10 years if the Rosemary Steam Agreement is extended for an
additional 10-year period. At the Panda-Rosemary Partnership's option, the
initial term of the Rosemary Site Lease may also be extended on the same terms
and conditions for a 10-year term if the Panda-Rosemary Partnership gives Bibb
two years' notice prior to December 31, 2015 and for an additional 10-year term
if the Panda-Rosemary Partnership gives Bibb two years' notice prior to
December 31, 2025, regardless of whether the Rosemary Steam Agreement is
extended or terminated.
The public records of the City of Roanoke Rapids and Halifax County, North
Carolina indicate that Bibb, which has recently emerged from Chapter 11
bankruptcy proceeding, failed to pay when due all of its 1994 and 1995 property
taxes relating to its parcel of real property, which includes the site on which
the Panda-Rosemary Facility is located (the "Rosemary Facility Site"). The
local taxing authorities had a lien against Bibb's property, including the
Rosemary Facility Site, to secure the payment by Bibb of delinquent property
taxes owed by Bibb with respect to such property. In May 1996, Bibb reached an
agreement with the City of Roanoke Rapids and Halifax County regarding payment
of the delinquent 1994 and 1995 taxes, and subsequently paid all of such taxes,
including interest and penalties (as reflected in the public records). In
addition, Bibb has paid all of its property taxes attributable to 1996 (as
reflected in the public records). Accordingly, the tax lien has been removed.
In the event that Bibb should fail to pay its property taxes when due in the
future, the local taxing authorities could foreclose upon Bibb's property and
title to such property (including the Rosemary Facility Site) would pass to the
taxing authorities, or to a purchaser at a foreclosure sale, and would not be
subject to the leasehold interest in the Rosemary Facility Site held by the
Panda-Rosemary Partnership under the Rosemary Site Lease. Therefore, unless the
Panda-Rosemary Partnership or another person paid Bibb's past due taxes upon
such foreclosure, the taxing authorities, or a purchaser at a foreclosure sale,
could terminate the Rosemary Site Lease and (i) cause the Panda-Rosemary
Partnership to remove the Panda-Rosemary Facility from the Rosemary Facility
Site or (ii) negotiate a new lease for the Rosemary Facility Site which could
be on terms that are much less favorable to the Panda-Rosemary Partnership than
the terms contained in the Rosemary Site Lease.
Concurrently with the Prior Offering, Panda-Rosemary Funding Corporation
(the "Rosemary Issuer"), a wholly-owned subsidiary of the Panda-Rosemary
Partnership, issued $111.4 million in aggregate principal amount of the
Rosemary Bonds. The payment of the Rosemary Bonds is secured by, among other
things, a lien on the Panda-Rosemary Partnership's leasehold interest in the
Rosemary Facility Site. See "Financing" below and "Description of Outstanding
Project-Level Debt - The Panda-Rosemary Financing." A title insurance policy
exists for the benefit of the holders of the Rosemary Bonds which insures such
holders' security interest in the Panda-Rosemary Partnership's leasehold
interest in the Rosemary Facility Site against losses which may be sustained as
a result of the tax lien on the Rosemary Facility Site. An agreement entered
into by the Panda-Rosemary Partnership at the time of issuance of the Rosemary
Bonds provides for the escrow of sums to pay the current year's property taxes
assessed against the Bibb property, including the Rosemary Facility Site. In
accordance with this requirement, each month, the Panda-Rosemary Partnership
has been paying into a property tax escrow fund an amount equal to one-twelfth
of the current year's property taxes. Upon the payment by Bibb to the taxing
authorities of such property taxes, the Panda-Rosemary Partnership is entitled
to have the corresponding amounts released from the property tax escrow fund.
Gas Supply and Fuel Management
The Panda-Rosemary Partnership purchases certain quantities of natural gas
on a firm basis from Natural Gas Clearinghouse ("NGC") pursuant to a Gas
Purchase Contract (the "Rosemary Gas Supply Agreement"). The Rosemary Gas
Supply Agreement is effective through November 30, 2005, and thereafter from
month-to-month until terminated by either NGC or the Panda-Rosemary
Partnership. The Rosemary Indenture provides that with certain limited
exceptions the Panda-Rosemary Partnership will not be permitted to make
distributions to its partners if the Rosemary Gas Supply Agreement is not
extended or replaced on or before the end of its term. See "Description of
Outstanding Project-Level Debt - The Panda-Rosemary Financing - Partnership
Distributions." NGC has agreed to deliver natural gas on a firm basis to the
Panda-Rosemary Partnership, at pipeline points near the Gulf of Mexico or (at
the Panda-Rosemary Partnership's request and using the Panda-Rosemary
Partnership's firm transportation arrangements) to the Panda-Rosemary Pipeline,
up to the total contract quantity under the Firm Gas Transportation Agreements
(as defined below), which is currently the thermal equivalent of 3,075 Mcf of
natural gas per day. The firm natural gas supplied under the Rosemary Gas
Supply Agreement enables the Panda-Rosemary Partnership to have adequate
natural gas supplies available to meet its estimate of Bibb's requirements for
steam and chilled water.
The price paid by the Panda-Rosemary Partnership for gas delivered by NGC
is generally equal to an indexed price (based upon monthly market-price indices
determined by reference to the receipt points where NGC delivers gas to the
Panda-Rosemary Partnership) plus $0.04 per MMBtu. If gas is required in daily
volumes that are greater than those included in monthly estimates delivered to
NGC, the price for the excess volume required is equal to NGC's actual cost
incurred in acquiring such excess plus $0.04 per MMBtu. If the Panda-Rosemary
Partnership fails to purchase the amount included in monthly estimates
delivered to NGC, and such failure is not excused by force majeure, the Panda-
Rosemary Partnership must pay NGC, as liquidated damages for such failure,
$0.14 for each MMBtu of gas not purchased below the monthly estimates
delivered.
The Panda-Rosemary Partnership receives certain fuel supply management
services from NGC pursuant to a Fuel Supply Management Agreement, (the
"Rosemary Fuel Management Agreement"). The Rosemary Fuel Management Agreement
is effective through the expiration date of the Rosemary Gas Supply Agreement,
which is November 30, 2005, unless extended.
NGC's responsibilities under the Fuel Supply Management Agreement include
advising the Panda-Rosemary Partnership with respect to the negotiation of
natural gas and fuel oil purchase and transportation arrangements, arranging
for the delivery to the Panda-Rosemary Facility of natural gas or fuel oil,
endeavoring to make such arrangements on a "best cost" basis, managing the
communications among the Panda-Rosemary Facility and the Panda-Rosemary
Partnership's pipeline transporters and natural gas and fuel oil suppliers and
advising and assisting the Panda-Rosemary Partnership with respect to fuel oil
inventory hedging arrangements.
The Panda-Rosemary Partnership pays NGC a management fee based on fuel
supply arranged by NGC. The management fee is composed as follows: (i) $0.04
per MMBtu of natural gas purchased and transported to the Panda-Rosemary
Facility pursuant to arrangements made by NGC; (ii) $0.03 per MMBtu of natural
gas reserves owned by the Panda-Rosemary Partnership and transported to the
Panda-Rosemary Facility pursuant to arrangements made by NGC; (iii) $0.01 per
MMBtu of natural gas purchased from North Carolina Natural Gas Corporation
("NCNG") and transported to the Panda-Rosemary Facility pursuant to
arrangements made by NGC; (iv) $0.002 per gallon of fuel oil purchased and
delivered to the Panda-Rosemary Facility pursuant to arrangements made by NGC;
and (v) $0.005 per MMBtu of natural gas and $0.05 per barrel of No. 2 fuel oil
as a transaction fee for fuel hedging transactions executed by NGC as approved
by the Panda-Rosemary Partnership. The Panda-Rosemary Partnership must also
reimburse NGC for the cost of any letter of credit NGC must provide to purchase
gas pursuant to the Rosemary Fuel Management Agreement. If in a given month NGC
arranges for natural gas supplies at a delivered price less than the benchmark
delivered price for such month, the Panda-Rosemary Partnership pays NGC an
additional amount equal to 60% of the difference in such prices.
Gas Transportation
The Rosemary Indenture provides that with certain limited exceptions the
Panda-Rosemary Partnership will not be permitted to make distributions to its
partners if the Firm Gas Transportation Agreements are not extended or replaced
on or before the end of their terms. See "Description of Outstanding Project-
Level Debt - The Panda-Rosemary Financing - Partnership Distributions."
The Panda-Rosemary Partnership receives firm transportation service that
provides for delivery to the Panda-Rosemary Pipeline of up to the thermal
equivalent of 3,075 Mcf of natural gas per day. The Panda-Rosemary Partnership
has recently converted this firm transportation service from service provided
pursuant to an individual certificate of public convenience and necessity
issued by FERC pursuant to section 7 of the Natural Gas Act ("NGA") to service
provided pursuant Part 284 of the FERC's rules and regulations. To effectuate
this conversion, the Panda-Rosemary Partnership and Transco executed the
Transco 284 Agreement, which expires on November 1, 2006, and the Panda-
Rosemary Partnership executed similar firm transportation agreements with Texas
Gas and CNG. The Transco 284 Agreement, together with the firm transportation
agreements the Panda-Rosemary Partnership entered into with Texas Gas and CNG
(collectively, the "Firm Gas Transportation Agreements"), replicate the firm
transportation service previously provided by Transco under a separate
agreement.
The Panda-Rosemary Partnership also has the right to receive interruptible
gas transportation service from Columbia Gas Transmission Company and Columbia
Gulf Transmission Company under the Columbia Gas IT Agreement and the Columbia
Gulf IT Agreement, respectively. Under the Columbia Gas IT Agreement, the Panda-
Rosemary Partnership may request up to 36,000 Dth per day of interruptible
transportation service from an interconnection between the facilities of
Columbia Gas and Columbia Gulf near Leach, Kentucky to an interconnection
between Columbia Gas's facilities and the Panda-Rosemary Pipeline. Under the
Columbia Gulf IT Agreement, the Panda-Rosemary Partnership may request up to
39,000 Dth per day of interruptible transportation service from various
available receipt points on Columbia Gulf's system to an interconnection
between the facilities of Columbia Gas and Columbia Gulf near Leach, Kentucky.
The terms of both the Columbia Gas IT Agreement and the Columbia Gulf IT
Agreement are month-to-month until terminated by either party to the respective
agreements.
The rates and most of the significant terms and conditions of service
under the Firm Gas Transportation Agreements, the Columbia Gas IT Agreement and
the Columbia Gulf IT Agreement are set forth in the respective pipeline's
effective FERC gas tariff. These rates, terms and conditions are subject to
review, approval and modification by FERC.
Panda-Rosemary Pipeline
The Panda-Rosemary Partnership owns, and NCNG operates and maintains for
the Panda-Rosemary Partnership, the Panda-Rosemary Pipeline, which runs for
10.26 miles through portions of Halifax and Northampton Counties, North
Carolina. The Panda-Rosemary Pipeline is located under, over and upon
properties owned, in certain instances, by private landowners and, in others,
by the State of North Carolina or the City of Roanoke Rapids, pursuant to
easement agreements or encroachment agreements. The Panda-Rosemary Pipeline
terminates on a 1.26-acre parcel in Pleasant Hill Township, Northampton County,
North Carolina, which is owned by the Panda-Rosemary Partnership. The meter
stations and certain appurtenant facilities interconnecting the Panda-Rosemary
Pipeline and the interstate pipeline facilities of Columbia Gas and Transco are
located on this parcel.
The Partnership has entered into a Pipeline Operating Agreement with NCNG
(the "Pipeline Operating Agreement"), pursuant to which NCNG has agreed to
operate the Panda-Rosemary Pipeline and provide certain natural gas balancing
services for the Panda-Rosemary Partnership's gas supplies. The term of the
Pipeline Operating Agreement continues until December 27, 2005, and may be
extended for two additional periods of five years each upon the agreement of
the parties.
NCNG is obligated to manage the day-to-day operations of the Panda-
Rosemary Pipeline, including the interconnection facilities between the Panda-
Rosemary Pipeline and the pipeline facilities of Columbia Gas and Transco,
using the same degree of care and diligence with which it operates its own gas
distribution system. NCNG's management activities include the right to suggest
and make repairs to the Panda-Rosemary Pipeline under certain circumstances.
The Panda-Rosemary Partnership is responsible for all costs of such repairs.
The Pipeline Operating Agreement provides NCNG with an option to purchase
the Panda-Rosemary Pipeline at its fair market value if certain specified
events occur. NCNG's purchase option is subject to a right of first refusal of
VEPCO to purchase the pipeline and the Panda-Rosemary Facility. NCNG's option
to purchase the Panda-Rosemary Pipeline survives VEPCO's exercise of its right
of first refusal or the sale of the pipeline to a third party, and parties
taking an interest in the Panda-Rosemary Pipeline take such rights subject to
NCNG's option.
The Panda-Rosemary Partnership is required to pay NCNG an operator fee
equal to $20,000 per month until December 27, 1999. Thereafter, the operator
fee will be at least $240,000 per year, adjusted by the percentage increase, if
any, in the U.S. Bureau of Labor Statistics Consumer Price Index from December
27, 1990 to December 27, 1999, which yearly sums will be payable in equal
monthly installments.
Several of the easements and encroachment agreements, pursuant to which
the Panda-Rosemary Partnership is granted the right to locate the Panda-
Rosemary Pipeline, contain provisions allowing the underlying interest owner to
cause the Panda-Rosemary Pipeline to be removed from its current location. Most
of such easements and encroachment agreements require the underlying interest
owner to provide an alternate location for the pipeline, and in some cases the
underlying interest owner must share the cost of relocating the pipeline.
However, two such easements allow the underlying interest owner to cause the
Panda-Rosemary Pipeline to be removed, but do not require such owner to provide
an alternate location or share the cost of relocating the pipeline. The Company
does not expect that the Panda-Rosemary Pipeline will be required to be removed
pursuant to these easements or, if it were required to be removed, that
relocating the Panda-Rosemary Pipeline from these two easement tracts would
significantly interfere with the supply of natural gas to the Panda-Rosemary
Facility for an extended period of time or, given the ability of the Panda-
Rosemary Facility to operate utilizing fuel oil, significantly limit the
availability of the Panda-Rosemary Facility for dispatch by VEPCO. However,
there can be no assurance that the Panda-Rosemary Partnership could relocate
the Panda-Rosemary Pipeline, if required to do so, without incurring
significant expenses or, if the pipeline could not be relocated, that the Panda-
Rosemary Partnership could make alternate arrangements for the delivery of a
supply of fuel which would be adequate to assure the availability of the Panda-
Rosemary Facility for dispatch by VEPCO.
In addition, the Panda-Rosemary Partnership has entered into agreements
with Transco and Columbia Gas, pursuant to which the Panda-Rosemary Partnership
has agreed to pay for the maintenance and repair expenses relating to the
interconnection facilities between the Panda-Rosemary Pipeline and the
facilities of Transco and Columbia Gas, respectively.
Fuel Oil
The Panda-Rosemary Facility was constructed with the capability to operate
on No. 2 fuel oil and is designed to change fuel sources from natural gas to
fuel oil and back without interrupting the generation of electricity. The Panda-
Rosemary Facility currently has on-site storage for approximately 2.0 million
gallons of fuel oil, a supply sufficient to operate the Panda-Rosemary Facility
at full load for approximately 168 hours. The Panda-Rosemary Partnership
purchases fuel oil on a spot-market basis. Since the fuel oil suppliers either
own their own trucks or have contracts with local trucking firms for regional
truck delivery and the purchase price includes delivery to the Panda-Rosemary
Facility, the Panda-Rosemary Partnership does not independently arrange
trucking service from the terminals to the Panda-Rosemary Facility. The Panda-
Rosemary Partnership has entered into an agreement with New Dixie Oil
Corporation pursuant to which such corporation assists the Panda-Rosemary
Partnership with spot market fuel oil purchases.
Operations and Maintenance
The Panda-Rosemary Partnership purchases operations and maintenance
services for the Panda-Rosemary Facility from Panda Global Services pursuant to
an Operation and Maintenance Agreement (the "Rosemary O&M Agreement") which
expires on December 31, 2003. Under the Rosemary O&M Agreement, Panda Global
Services is paid a fixed monthly fee of $130,000 per month during 1997, with
annual adjustments based on changes in the consumer price index for subsequent
years. In addition, the agreement includes bonus and penalty provisions based
on maintenance of dependable capacity levels, availability of the Panda-
Rosemary Facility for dispatch and the achievement of certain safety and
training goals established by the Panda-Rosemary Partnership. The Rosemary O&M
Agreement is on substantially similar terms as the Panda-Rosemary Partnership's
previous operations and maintenance agreement with University Technical
Services, Inc., a subsidiary of EMCOR Group, Inc., which was obtained through a
competitive bid process and expired on December 31, 1996.
Operating History
The following table contains a summary of certain levels of operating
performance achieved by the Panda-Rosemary Facility since the beginning of
1991:
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C> <C>
Summer Dependable Capacity (MW) 161 161 165 165 165 165
Winter Dependable Capacity (MW) 192 198 198 198 198 198
Hours Under VEPCO Dispatch 1,174 377 324 764 2,224 635
Electric Energy Production 129.0 44.8 31.9 76.7 234.9 64.5
(GWH)
Steam Production (MM Lbs) 330.8 377.9 429.9 364.8 291.2 294.6
Chilled Water Production N/A 4.0 3.7 4.1 4.1 3.3
(MH Ton-hours)
Forced Outage Days (1) 12 1 16 12 18 16
</TABLE>
(1) Data for forced outage days is for the 12-month period starting on
December 1 of the prior year and ending on November 30 of the year
indicated.
The Panda-Rosemary Facility was dispatched for 1,174 hours in 1991.
Dispatch was reduced to 377 hours in 1992 and 324 hours in 1993 due to several
new coal-fired, non-utility generation plants becoming available for dispatch
by VEPCO. The increases in dispatch hours to 764 in 1994 and 2,224 in 1995 were
partially due to the effect of the second amendment to the Rosemary Power
Purchase Agreement entered into in 1993, under which the formula used to
calculate the energy payment was amended to more closely match the fuel and
variable operation and maintenance costs incurred by the Panda-Rosemary
Partnership.
During 1995, the Panda-Rosemary Facility was dispatched for 2,224 hours. The
significant increase in dispatch hours from 1994 to 1995 was primarily due to
the fact that, during much of the 1995 summer months, two of VEPCO's gas-fired
plants suffered forced outages that are not likely to be repeated and, under
the terms of the Rosemary Power Purchase Agreement, VEPCO was allowed to
redirect to the Panda-Rosemary Facility the gas that would otherwise have been
transported to these unavailable plants. For approximately 1,200 of the 2,224
hours, the Panda-Rosemary Facility used natural gas provided directly by VEPCO
under this fueling arrangement. The Panda-Rosemary Partnership's profit margin
on the energy payment from VEPCO is lower for this type of dispatch compared to
its energy margins under normal dispatch conditions under which the Panda-
Rosemary Partnership provides the fuel.
During 1996, the Panda-Rosemary Facility was dispatched a total of 635 hours.
This number reflects a more normal level of operation than the unusually high
1995 number. The number of dispatch hours for 1996 also reflects the
unavailability of the Panda-Rosemary Facility for 15 forced outage days during
September 1996 due to hurricane damage and cooler-than-normal weather in the
VEPCO service territory during the summer of 1996.
Cash Flow Participation
NNW, Inc., formerly known as Nova Northwest, Inc., an Oregon corporation
("NNW"), has a cash flow participation (the "NNW Cash Flow Participation") in
the Panda-Rosemary Partnership arising out of a Credit, Term Loan and Security
Agreement (the "Credit Agreement") entered into by PEC, PR Corp., PRC II
(collectively, the "Rosemary Borrowers") and NNW in August 1993, under which
NNW made a loan to the Rosemary Borrowers which has since been repaid. The
Credit Agreement provides that NNW, in addition to repayment of debt, is to
receive a cash flow participation equal to 4.33% of certain distributions from
the Panda-Rosemary Partnership to the Rosemary Borrowers. At the time the
Credit Agreement was entered into the aggregate equity interest in the Panda-
Rosemary Partnership held by PR Corp. and PRC II was 10%. After the redemption
of Ford Credit's 90% limited partner interest in the Panda-Rosemary Partnership
from a portion of the proceeds of the Rosemary Offering and the Prior Offering,
PR Corp. and PRC II, collectively, own 100% of the equity interest in the Panda-
Rosemary Partnership.
The Credit Agreement states that the parties intend that any financial
restructuring of the Panda-Rosemary Facility shall not materially affect the
NNW Cash Flow Participation, positively or negatively. The Credit Agreement
also provides that, in the case of any such financial restructuring, the
calculation of the amount of distributions to be paid to NNW shall continue to
be based on the scheduled principal and interest amounts of the then existing
indebtedness of the Panda-Rosemary Partnership under the Second Amended and
Restated Letter of Credit and Reimbursement Agreement dated as of January 6,
1992 among the Panda-Rosemary Partnership, The Fuji Bank, Limited, and certain
other banks party thereto (the "Reimbursement Agreement"). Accordingly, it is
the position of Panda International and the Company that the NNW Cash Flow
Participation remained the same following the closing of the Rosemary Offering
(as if the Reimbursement Agreement had remained in place with the letter of
credit and bonds relating thereto and as if the redemption of Ford Credit's 90%
limited partner interest and the issuance of the Rosemary Bonds had never
occurred). Based on the position of Panda International and the Company, the
NNW Cash Flow Participation is equal to 0.433% of distributions to the Rosemary
Borrowers and would increase to 1.732% after 2008 based on projected
distributions. NNW has disputed the position of Panda International and the
Company with respect to the redemption of Ford Credit's 90% limited partner
interest. NNW claims that it is entitled to receive 4.33% of distributions to
the Rosemary Borrowers following redemption of Ford Credit's interest. PEC has,
as a result, filed a petition against NNW to have the amount of the NNW Cash
Flow Partnership determined. See "Legal Proceedings - NNW, Inc. Proceeding."
Because the debt structure existing prior to the issuance of the Rosemary Bonds
would have resulted in cash flow distributions during the early years after
such date that are lower than the cash flow distribution under the new debt
structure, a NNW Cash Flow Participation at the percentage claimed by NNW, if
NNW were to prevail in this dispute, would not have a material adverse impact
on the Company or its financial condition. If NNW prevails in this dispute and
the NNW Cash Flow Participation is not converted into Panda International
common stock or cash (as described below), the reduction in total cash flows to
be received by the Company through 2012 would be approximately $1.9 million on
a net present value basis and the reduction in annual cash flows to be received
by the Company would be (i) approximately $81,000 during the balance of 1996
and increase to approximately $255,000 in 2004; (ii) in the range of
approximately $525,000 to $550,000 per year during the years 2005 to 2008; and
(iii) approximately $333,000 in 2009 and decline thereafter to approximately
$310,000 in 2012. See Appendix B, Consolidated Pro Forma Report.
The Credit Agreement gives NNW a right to convert the NNW Cash Flow
Participation into common stock of Panda International under certain
circumstances. It also gives Panda International the right to convert the NNW
Cash Flow Participation into Panda International common stock or cash under
certain circumstances. Panda International has informed the Company that it
does not have any current intention of exercising such right, and accordingly,
holders of the Exchange Bonds should assume that the NNW Cash Flow
Participation will continue indefinitely.
The Panda-Brandywine Facility
The Panda-Brandywine Facility is a combined-cycle cogeneration facility
located in Brandywine, Maryland (near Washington, D.C.), with a total electric
generating capacity of 230 MW. The Panda-Brandywine Facility uses natural gas
as its primary fuel input and No. 2 fuel oil as an alternative fuel in the
event that gas supplies or transportation are curtailed. The Panda-Brandywine
Facility was constructed by Raytheon Engineers and Constructors, Inc.
("Raytheon") pursuant to the Amended and Restated Turnkey Cogeneration Facility
Agreement between the Panda-Brandywine Partnership and Raytheon (the
"Brandywine EPC Agreement"). Raytheon has met its performance guarantees and
the requirements for commercial operations and substantial completion under the
Brandywine EPC Agreement although the date on which commercial operations was
achieved is the subject of a dispute between the Panda-Brandywine Partnership
and Raytheon as discussed below. Pursuant to a power purchase agreement
entered into in 1991 and amended in 1994, the Panda-Brandywine Partnership
sells the capacity of, and energy produced by, the Panda-Brandywine Facility to
Potomac Electric Power Company ("PEPCO"), a utility that serves the District of
Columbia and parts of Maryland. The Panda-Brandywine Facility commenced
commercial operations under the Brandywine Power Purchase Agreement on October
31, 1996. A merger of PEPCO and Baltimore Gas & Electric Company ("BG&E"), a
utility that serves other parts of Maryland, has been publicly announced and is
anticipated to close in 1997. The term of the Brandywine Power Purchase
Agreement will expire on October 30, 2021.
The Panda-Brandywine Facility is currently leased by the Panda-Brandywine
Partnership pursuant to the Brandywine Facility Lease. The initial term of the
Brandywine Facility Lease is 20 years. At the end of the initial lease term, so
long as no default or event of default shall have occurred and be continuing
under the Brandywine Facility Lease, the Panda-Brandywine Partnership may renew
the Brandywine Facility Lease for two consecutive five-year terms.
Alternatively, the Panda-Brandywine Partnership may purchase the Panda-
Brandywine Facility at fair sales market value at the end of the initial lease
term or any renewal term. If the Panda-Brandywine Partnership does not renew
the Brandywine Facility Lease or purchase the Panda-Brandywine Facility, it
must surrender possession of the Panda-Brandywine Facility. See "Description
of Outstanding Project-Level Debt - The Panda-Brandywine Financing - Brandywine
Facility Lease."
The Panda-Brandywine Facility is certified as a Qualifying Facility under
PURPA and thus is exempt from rate regulation as an electric utility under
federal and state law, provided that, upon and during commercial operations, it
continues to meet the applicable requirements of PURPA. See "Regulation -
Federal Energy Regulation - PURPA."
Construction Contract
Pursuant to the Brandywine EPC Agreement, Raytheon agreed to construct the
Panda-Brandywine Facility (including the distilled water plant) for
approximately $122 million (including change orders). Because Raytheon
provided a letter of credit, initially equal to 10% of the contract price, no
retainage is withheld. The amount of this letter of credit was reduced as of
the commencement of commercial operations to 5% of the aggregate amount paid by
the Panda-Brandywine Partnership to Raytheon through that date, and thereafter
the letter of credit must be maintained at a level which is twice the cost of
completing punch list items remaining at final acceptance of the Panda-
Brandywine Facility. Raytheon Company, a Delaware corporation and the parent
corporation of Raytheon, has provided a guaranty covering all obligations of
Raytheon under the Brandywine EPC Agreement.
Raytheon warrants and guarantees in the Brandywine EPC Agreement (i) that
the Panda-Brandywine Facility will commence commercial operations on or before
October 31, 1996 and (ii) that it will meet certain performance criteria,
including (a) that the net power output of the Panda-Brandywine Facility will
be 230,000 kW at commercial operations and (b) that the net plant heat rate of
the Panda-Brandywine Facility will not exceed 7,124 Btu/kWh LHV, plus 2%. The
Brandywine EPC Agreement provides that Raytheon will be paid bonuses by
exceeding the timing and/or performance guarantees contained in the Brandywine
EPC Agreement, including (i) $16,600 per day for each day that commercial
operations occur after September 30, 1996 but on or before October 31, 1996,
and $40,000 per day for each day that commercial operations occur on or after
August 1, 1996 but on or before September 30, 1996; (ii) $300 per kW by which
the net power output is greater than 230,000 kW up to 233,000 kW; and (iii)
$22,500 per Btu/kWh by which the plant heat rate is less than the net plant
heat rate guarantee, less 2%. Raytheon also guarantees that the Panda-
Brandywine Facility will not exceed certain air contaminant emission and noise
level limitations.
Raytheon conducted initial acceptance testing of the Panda-Brandywine
Facility and has met the requirements for commercial operations and substantial
completion under the Brandywine EPC Agreement. Raytheon has also met its
performance guarantees. A dispute exists between the Panda-Brandywine
Partnership and Raytheon as to the specific date on which commercial operations
under the Brandywine EPC Agreement occurred and the amount of the early
completion bonus to which Raytheon is entitled. Raytheon sent the Panda-
Brandywine Partnership a notice claiming September 12, 1996 as the date on
which commercial operations under the Brandywine EPC Agreement occurred.
However, the testing mechanism utilized proved faulty and the Panda-Brandywine
Facility initially did not pass certain emissions tests. The facility was
subsequently re-tested and it then met the required emissions levels. The
Panda-Brandywine Partnership is currently evaluating the situation. Pending
the outcome of its investigation, the Panda-Brandywine Partnership believes
that commercial operations under the Brandywine EPC Agreement occurred no
earlier than September 30, 1996, and may have occurred on a later date. The
amount of bonus payments at issue for the period between the commercial
operations date claimed by Raytheon and the earliest date which the Panda-
Brandywine Partnership believes that commercial operations occurred is $720,000
($40,000 per day x 18 days).
In addition, the Panda-Brandywine Partnership and Raytheon disagree as to
the number of force majeure days to which Raytheon is entitled as a result of a
January 1996 snowstorm during which construction work could not be carried on,
and as to the validity and number of owner-caused delay days. Raytheon claims
that it is entitled to seven force majeure days as a result of the snowstorm
and four owner-caused delay days. The Panda-Brandywine Partnership believes
that Raytheon is entitled to at most three force majeure days as a result of
the snowstorm and is currently evaluating Raytheon's claims regarding owner-
caused delays. However, even in the event that an agreement on the number of
such days is reached, the Panda-Brandywine Partnership and Raytheon further
disagree as to the affect, if any, such delays would have on the amount of the
bonus payable under the Brandywine EPC Agreement for early completion of the
facility. Raytheon takes the position that for purposes of determining the
amount of the early completion bonus under the Brandywine EPC Agreement, the
date on which commercial operations was achieved should be moved back in time
by the number of force majeure and owner-caused delay days. The Panda-
Brandywine Partnership believes that the purpose of force majeure and owner-
caused delay days under the Brandywine EPC Agreement is to excuse performance
under specified conditions and was not intended to affect bonus payments. The
Panda-Brandywine Partnership takes the position that no adjustment should be
made with respect to any claimed force majeure days; however, the Panda-
Brandywine Partnership is willing to consider a possible adjustment with
respect to owner-caused delays pending the outcome of its investigation of
Raytheon's claims. It is anticipated that adjustments, if any, would be made
at the rate equivalent to the bonus payment of $40,000 per day for the number
of agreed-upon days.
Taking into account all of the foregoing issues with Raytheon, the Panda-
Brandywine Partnership believes that the total amount in dispute between the
Panda-Brandywine Partnership and Raytheon is less than $1.0 million.
Representatives of the Panda-Brandywine Partnership and Raytheon have agreed to
meet in the near future in an attempt to resolve the difference of opinion as
to when the commercial operations date under the Brandywine EPC Agreement
occurred and the other matters in dispute. The bonus for early achievement of
the commercial operations date discussed above, if ultimately determined to be
owed, would be payable over time and funded from cash flows from the operation
of the Panda-Brandywine Facility which may otherwise have been available for
distributions.
Operations and Maintenance
The Panda-Brandywine Partnership purchases operations and maintenance
services from Ogden Brandywine Operations, Inc. ("Ogden Brandywine") pursuant
to an Operation and Maintenance Agreement, (the "Brandywine O&M Agreement").
The Brandywine O&M Agreement is effective until October 31, 1999, and may be
extended thereafter by agreement of the parties. In exchange for such services,
Ogden Brandywine paid a fixed fee of $117,750 per month, with bonus and penalty
provisions based on maintenance of dependable capacity levels and availability
of the Panda-Brandywine Facility for dispatch.
Sale of Capacity, Electricity and Steam
The Panda-Brandywine Partnership sells electric capacity and energy to
PEPCO pursuant to a Power Purchase Agreement (as amended by a first amendment
("First Amendment") thereto, the "Brandywine Power Purchase Agreement"). The
Brandywine Power Purchase Agreement has an initial term that expires in October
2021, 25 years from the commercial operations date, and may be extended by
agreement of the parties. The Maryland Public Service Commission has approved
the Brandywine Power Purchase Agreement (including the First Amendment). The
District of Columbia Public Service Commission has issued orders indicating its
approval of the Brandywine Power Purchase Agreement as in the public interest
and the First Amendment as a reasonable modification thereof. The District of
Columbia Public Service Commission also has made certain findings of fact and
conclusions of law that were conditions precedent to the effectiveness of the
First Amendment according to its terms.
PEPCO has the right to dispatch the Panda-Brandywine Facility on a daily
basis within certain guidelines and design limits. The design limits specify
load levels, start-up and shutdown times and minimum run times, specifically
adhering to Prudent Utility Practices. The guidelines require PEPCO to dispatch
all facilities obligated to deliver electricity to PEPCO based on economic
factors and without regard to the ownership of such facilities. PEPCO is
required to dispatch 99 MW of the Panda Brandywine Facility's dependable
capacity for no fewer than 60 hours per week (Monday through Friday). The
remaining portion of the Panda-Brandywine Facility can be dispatched by PEPCO
under the guidelines described above.
The Brandywine Power Purchase Agreement provides for two payments: a
capacity payment and an energy payment. The capacity payment is a fixed charge
to be paid regardless of whether the Panda-Brandywine Facility is dispatched,
subject to reduction in certain circumstances described below. Monthly capacity
payments throughout the term of the Brandywine Power Purchase Agreement are
based on the Panda-Brandywine Facility's dependable capacity, the capacity rate
and other factors. Under the Brandywine Power Purchase Agreement, the Panda-
Brandywine Facility is required to establish a dependable capacity of 230 MW in
summer ambient conditions (defined as 92 degrees F and 50% humidity). The
dependable capacity will be determined by semi-annual tests and PEPCO has
the right to
require the Panda-Brandywine Partnership to revalidate the dependable capacity.
The capacity rate, stated in $/kW/month, is a fixed schedule of payments for
each of the 25 years of the initial term of the Brandywine Power Purchase
Agreement, ranging from $13.74 in 1997 to $23.63 in 2014. The capacity payment
is subject to specified downward adjustments in contract years one, two and
four, and to specified upward adjustments in the fifth and 11th through the
25th contract years. Capacity payments will be reduced if the Panda-Brandywine
Facility cannot maintain 88% equivalent availability, and will be increased if
it exceeds 92% equivalent availability. Capacity payments may also be decreased
commencing in 2006 depending on whether PEPCO's system peak load exceeds 5,697
MW during 1997, 1998 or 1999 or later. Calculation of capacity payments
pursuant to these provisions of the Brandywine Power Purchase Agreement is the
subject of a dispute between the Panda-Brandywine Partnership and PEPCO, as
discussed below.
The energy payment is determined in accordance with a series of formulas
that reflect specified heat rates, hours of synchronization and operation and a
combination of fixed and market prices for natural gas. The Brandywine Power
Purchase Agreement provides that the energy price will be increased to
compensate the Panda-Brandywine Partnership for its variable costs of fuel oil
if the gas supply is interrupted. In such event, the Brandywine Power Purchase
Agreement specifies a base cost of oil, which is escalated at the annual rate
of change according to an oil index described therein.
The Panda-Brandywine Partnership has constructed a seven-mile long
electric transmission line to connect the Panda-Brandywine Facility and the
transmission facilities of PEPCO. Consolidated Rail Corporation entered into
an agreement with the Panda-Brandywine partnership to provide transmission line
easements for a portion of the transmission line. The Panda-Brandywine
Partnership transferred ownership of the transmission line to PEPCO on October
30, 1996.
The Panda-Brandywine Partnership sells steam to the Brandywine Water
Company pursuant to a Steam Sales Agreement dated March 30, 1995 (the
"Brandywine Steam Agreement"). Brandywine Water Company, which is an indirect
wholly-owned subsidiary of the Company, uses the steam to generate distilled
water which is sold locally. This production and sale of thermal energy allows
the Panda-Brandywine Facility to achieve QF status. The Brandywine Steam
Agreement continues until October 31, 2021 and may be extended by agreement of
the parties for additional terms of five years. Brandywine Water Company
unconditionally agrees to purchase all of the thermal energy produced by the
Panda-Brandywine Facility and has entered into a contract with the United
States Navy to sell it distilled water for heating and other industrial uses in
a naval facility. The contract is for a one-year term that commenced on October
1, 1996. Prior to the expiration of the term of the Navy contract, Brandywine
Water Company will have to extend the contract or find one or more other
customers to purchase the distilled water. If Brandywine Water Company is
unable to extend its contract to sell distilled water to the United States Navy
or to find one or more replacement contracts for the sale of such water, there
is no assurance that the Panda-Brandywine Facility will be able to remain a
Qualifying Facility. PEPCO may terminate the Brandywine Power Purchase
Agreement under certain circumstances if the Panda-Brandywine Facility ceases
to be a QF, unless the Panda-Brandywine Partnership receives all governmental
and regulatory approvals necessary to continue operating the Panda-Brandywine
Facility without QF certification. See "Risk Factors - Maintaining Qualifying
Facility Status."
Dispute With PEPCO Over Calculation of Capacity Payments
In late August 1996, the Panda-Brandywine Partnership and PEPCO commenced
discussions concerning commercial operation requirements of the Panda-
Brandywine Facility and conversion of the construction loan to long-term
financing. During these discussions, two disagreements arose between the Panda-
Brandywine Partnership and PEPCO as to how capacity payments should be
calculated under the Brandywine Power Purchase Agreement. PEPCO and the Panda-
Brandywine Partnership are presently attempting to resolve this dispute but
there are no assurances that such efforts will be successful.
The Panda-Brandywine Partnership and PEPCO disagree as to the date on
which the yield to maturity on United States Treasury Bonds with a maturity of
12 years ("12 year T-Bonds") should be determined under a provision in the
Brandywine Power Purchase Agreement that requires capacity payments to be
reduced if such interest rate is less than 8%. Such provision states that the
interest rate of 12 year T-Bonds is to be determined, and adjustments to
capacity payments made, as of the date that the interest rate for permanent
financing for the Panda-Brandywine Facility is designated pursuant to an
executed commitment for such financing. On October 6, 1994, the Panda-
Brandywine Partnership entered into a written commitment with GE Capital with
respect to permanent financing for the Panda-Brandywine Facility, which
commitment designated an interest rate for such financing. Accordingly, the
Panda-Brandywine Partnership takes the position that October 6, 1994 should be
the date used to determine the interest rate of 12 year T-Bonds under the
Brandywine Power Purchase Agreement. The interest rate for 12 year T-Bonds on
such date was 7.94% per annum. PEPCO, on the other hand, takes the position
that since the interest rate designated in such commitment was a floating rate,
the date to be used for determining the interest rate of 12 year T-Bonds is the
closing date of the conversion of the Brandywine Construction Loan Facility to
long-term financing in the form of a leveraged lease, which occurred on
December 30, 1996. The interest rate for 12 year T-Bonds on such date was
6.40%.
If the foregoing PEPCO Interest Rate Dispute is determined adversely to
the Panda-Brandywine Partnership, the capacity payments paid by PEPCO under the
Brandywine Power Purchase Agreement will be less than originally anticipated,
thereby adversely affecting the revenues realized by the Panda-Brandywine
Partnership, and consequently, reducing the amount of funds that would be
available for distribution to the Company and ultimately repayment of the
Exchange Bonds. The Consolidated Pro Forma Report sets forth certain
prospective financial data of the Panda-Brandywine Partnership for the 16-year
term of the Existing Bonds under both the PEPCO Scenario (where it is assumed
that the PEPCO Interest Rate Dispute is resolved in a manner consistent with
PEPCO's position) and the Brandywine Scenario (where it is assumed that the
PEPCO Interest Rate Dispute is resolved in a manner consistent with the Panda-
Brandywine Partnership's position). Under the PEPCO Scenario, the Consolidated
Pro Forma Report indicates that the projected minimum Company Debt Service
Coverage Ratio would be 1.3:1 and the projected minimum Consolidated Debt
Service Coverage Ratio would be 1.1:1 (except during 1997 in which the
projected Company Debt Service Coverage Ratio is 0.8:1 and the projected
Consolidated Debt Service Coverage Ratio is 0.96:1). In such case, the
distributions that the Company expects to receive from its Project Entities
that own the Panda-Brandywine Partnership and the Panda-Rosemary Partnership
will be sufficient to service the Existing Bonds (except in 1997); however,
such distributions may not be sufficient to enable the Company to meet the
minimum Company Debt Service Coverage Ratio of 1.7:1 and the minimum
Consolidated Debt Service Coverage Ratio (if then applicable) of 1.25:1 (after
giving effect to the issuance of the new debt) required under the Indenture to
permit the Company to incur additional debt. Accordingly, the ability of the
Company to raise debt for Projects in the future would be impaired. In
addition, the projected coverage ratios under the PEPCO Scenario indicate that
distributions the Company expects to receive from its Project Entities would be
insufficient to service the Existing Bonds in 1997 (under the Company Coverage
Ratio, such deficiency is projected to be $1.6 million and under the
Consolidated Coverage Ratio, such deficiency is projected to be $1.5 million).
In such case, monies held in the Accounts and Funds, if any, may be applied
toward any debt service deficiency as set forth in the Indenture. The current
balances in the Accounts and Funds are as follows: Debt Service Fund, $6.4
million; Capitalized Interest Fund, $9.8 million; Debt Service Reserve Fund,
$6.4 million; Company Expense Fund, $300,000; U.S. Distribution Suspense Fund,
$680,000. See "Offering Circular Summary - Independent Engineers' and
Consultants' Reports - Consolidating Engineer's Pro Forma Report" and "-
Independent Pro Forma Analysis - Brandywine" and "Description of the Exchange
Bonds - The Accounts and Funds" and "- Certain Covenants - Limitations on
Debt."
To the extent that PEPCO's position with respect to the PEPCO Interest
Rate Dispute does not prevail, PEPCO claims that it is entitled to a reduction
in capacity payments under another provision of the Brandywine Power Purchase
Agreement that requires PEPCO to share equally in any "refinancing or new or
revised lease arrangements" savings. The Panda-Brandywine Partnership takes
the position that all transactions to be entered into at or near closing of the
Brandywine Financing Conversion were provided for under the Brandywine
Financing Documents and do not constitute a refinancing or new or revised lease
arrangements. In the event that the capacity payments were reduced pursuant to
this provision, the reduction would be significantly less than the reduction
claimed by PEPCO in connection with the PEPCO Interest Rate Dispute.
PEPCO and the Panda-Brandywine Partnership also disagree as to the
determination of PEPCO's system peak load which is the basis for reductions in
capacity payments under the Brandywine Power Purchase Agreement. Under such
provision, capacity payments are to be reduced, commencing in 2006, if PEPCO's
system peak load does not exceed 5,697 MW prior to 1998, and are reduced by a
greater amount if PEPCO's system peak load does not exceed such amount prior to
1999. PEPCO and BG&E have announced their intention to merge during 1997 into
a new entity to be known as Constellation Energy Corporation ("Constellation"),
and PEPCO has asked the Panda-Brandywine Partnership to agree that peak load
under the Brandywine Power Purchase Agreement would be calculated on the basis
of the pre-merger PEPCO system and not the post-merger Constellation system.
Peak load based on the Constellation system would greatly exceed 5,679 MW
during 1997. However, PEPCO's position is that the parties intended to use the
current PEPCO system in calculating peak load and that the merger with BG&E
should be disregarded for such purpose. The Panda-Brandywine Partnership
disagrees with such position. The Brandywine Power Purchase Agreement does not
contain any provision requiring adjustments due to mergers or reorganizations.
It is the Panda-Brandywine's position that Constellation, as the successor of
PEPCO, would be substituted for PEPCO under the Brandywine Power Purchase
Agreement and the Constellation system should be used to calculate peak load.
The Brandywine Pro Forma and the Consolidated Pro Forma are prepared under
the assumption that PEPCO's system peak load (based on the pre-merger PEPCO
system) exceeds 5,697 MW during 1997, and accordingly, there is no reduction in
capacity payments under this provision. ICF believes that such assumption is
reasonable in light of recent peak day demand on PEPCO's system and is not
dependent upon the outcome of the current dispute between Panda-Brandywine
Partnership and PEPCO regarding the basis for the determination of PEPCO's
system peak load. See "Offering Circular Summary - Independent Engineers' and
Consultants' Reports - Consolidating Engineer's Pro Forma Report" and "-
Independent Pro Forma Analysis - Brandywine."
Gas Supply and Fuel Management
The Panda-Brandywine Partnership purchases both firm and interruptible
natural gas supply from Cogen Development Company ("CDC") pursuant to the Gas
Sales Agreement, dated March 30, 1995, between the Panda-Brandywine Partnership
and CDC (the "Brandywine Gas Agreement"). MCN Corporation, the parent
corporation of CDC, has unconditionally guaranteed the payment and performance
obligations of CDC under the Brandywine Gas Agreement. The Brandywine Gas
Agreement commenced October 31, 1996 and continues until October 31, 2011, and
thereafter is automatically renewed for an additional two-year term unless
terminated by either party upon nine months' written notice.
CDC is obligated to sell and deliver to the Panda-Brandywine Partnership,
at receipt points along the pipeline system of Columbia Gas, up to 24,240 MMBtu
of gas per day on a firm basis and up to 24,240 MMBtu of gas per day on an
interruptible basis. Gas delivered by CDC within the firm basis limit falls
within one of the three following categories: "Limited Dispatch Gas,"
"Scheduled Dispatch Gas" or "Dispatchable Gas" (each as defined in the
Brandywine Gas Agreement).
The price for the gas delivered by CDC is dependent upon the category of
the gas delivered. The price for Limited Dispatch Gas consists of a monthly
demand charge, a commodity charge and a charge relating to costs incurred by
CDC for gas storage service CDC receives from ANR Pipeline Company. The
commodity charge escalates annually while the demand charge and the ANR-related
charge increase after the fifth year of the initial term of the Brandywine Gas
Agreement. The price for Scheduled Dispatch Gas consists of a commodity charge
based on the monthly NYMEX settlement price for natural gas futures contracts
plus a margin which increases after year five of the Brandywine Gas Agreement.
The price for Scheduled Dispatch Gas is capped based on three monthly natural
gas price indices. The price for Dispatchable Gas is a negotiated price or, if
a negotiated price cannot be reached, is based on a daily natural gas price
index. In addition, the Panda-Brandywine Partnership receives a price credit
from CDC for each MMBtu of gas delivered by CDC during a month not to exceed
the demand charge for Limited Dispatch Gas.
The Panda-Brandywine Partnership must annually take or pay for no less
than 2,299,500 MMBtu (or 2,305,800 MMBtu during a leap year) of Limited
Dispatch Gas, which amount is reduced by 7,000 MMBtu for each day of regularly
scheduled outage at the Panda-Brandywine Facility. In addition, the Panda-
Brandywine Partnership must take or pay for a quantity of Scheduled Dispatch
Gas each month that is no less than 80% of the Scheduled Dispatch Gas that was
scheduled for delivery during such month. If the Panda-Brandywine Partnership
pays for but fails to take the minimum quantities of Limited Dispatch Gas or
Scheduled Dispatch Gas, the Panda-Brandywine Partnership has the opportunity
later to receive the quantities of gas paid for but not taken.
Each year, CDC must deliver a report to the Panda-Brandywine Partnership
demonstrating that the expected production from the proven gas reserves owned
by CDC or an affiliate will be greater than CDC's total firm gas supply
commitments over the next five years. If the total firm commitments exceed the
gas reserves, CDC must take action to ensure that its gas reserves will equal
or exceed the total firm commitments within six months, or CDC must dedicate
adequate reserves to meet its obligation to provide Limited Dispatch Gas to the
Panda-Brandywine Partnership through the end of the term of the Brandywine Gas
Agreement. The dedicated gas reserves can be released from dedication if CDC
submits reports for three consecutive years demonstrating that CDC's gas
reserves exceed total firm commitments or CDC submits a report demonstrating
that CDC's gas reserves are greater than or equal to 125% of total firm
commitments.
The Panda-Brandywine Partnership also purchases fuel management services
from CDC pursuant to the Fuel Supply Management Agreement between CDC and the
Panda-Brandywine Partnership (the "Brandywine Fuel Management Agreement"). MCN
Investment Corporation has unconditionally guaranteed CDC's payment and
performance obligations under the Brandywine Fuel Management Agreement. The
Brandywine Fuel Management Agreement is effective for an initial term that is
the greater of 15 years from the date the Panda-Brandywine Facility commenced
commercial operations and the initial term of the Brandywine Gas Agreement, and
will be extended for an additional two-year term unless terminated by either
party upon nine months' written notice. The Brandywine Fuel Management
Agreement will immediately terminate at either party's option if (i) the
Brandywine Gas Agreement terminates; (ii) the MCN Investment Corporation
guaranty is terminated; or (iii) the Panda-Brandywine Facility ceases
operations for twelve consecutive months.
CDC's fuel management responsibilities under the Brandywine Fuel
Management Agreement include advising the Panda-Brandywine Partnership with
respect to the negotiation of natural gas and fuel oil supply and
transportation arrangements, arranging for the delivery to the Panda-Brandywine
Facility of natural gas or fuel oil, endeavoring to make such arrangements on
"best efforts" and "best competitive offer" basis and advising the Panda-
Rosemary Partnership with respect to fuel hedging arrangements.
Gas Transportation
The Panda-Brandywine Partnership and Columbia Gas have entered into a
Precedent Agreement (the "Columbia Precedent Agreement"), pursuant to which
Columbia Gas constructed new pipeline facilities to expand its existing
interstate pipeline and provide the Panda-Brandywine Partnership with firm gas
transportation service. The Panda-Brandywine Partnership has contributed
$6,772,590, plus applicable tax gross-up, toward the construction of Columbia
Gas' pipeline facilities.
The Panda-Brandywine Partnership purchases firm gas transportation service
from Columbia Gas pursuant to an Amended and Restated FTS Service Agreement
(the "Columbia Gas FT Agreement"). Service under the Columbia Gas FT Agreement
commenced on November 1, 1996 and continues until October 31, 2021, and year-to-
year thereafter unless terminated by either party upon six months' notice.
Columbia Gas is obligated to provide the Panda-Brandywine Partnership with
up to 24,240 Dth per day of firm gas transportation service from a receipt
point near Monclova, Ohio to an interconnection between the facilities of
Columbia Gas and Cove Point LNG Limited Partnership ("Cove Point") in Loudoun
County, Virginia. Columbia Gas provides the firm transportation service
pursuant to the terms of the Columbia Gas FT Agreement Rate Schedule and the
general terms and conditions of Columbia Gas's effective FERC gas tariff.
The Panda-Brandywine Partnership purchases from Cove Point firm gas
transportation service to transport gas delivered by Columbia Gas to the
facilities of Cove Point pursuant to a FTS Service Agreement (the "Cove Point
FT Agreement"). The Cove Point FT Agreement continues until October 31, 2021.
Cove Point is obligated to provide the Panda-Brandywine Partnership with
up to 24,000 Dth per day of firm gas transportation service from an
interconnection between the facilities of Cove Point and Columbia Gas in
Loudoun, Virginia to an interconnection between the facilities of Cove Point
and Washington Gas Light Company ("WGL") in Charles County, Maryland. Cove
Point provides the firm transportation service pursuant to the Cove Point FT
Agreement, the Rate Schedule FTS and the general terms and conditions of its
effective FERC gas tariff.
The Panda-Brandywine Partnership and Cove Point have also entered into the
Service Agreement Under Rate Schedule ITS, dated June 20, 1996, whereby Cove
Point provides the Panda-Brandywine Partnership with 30,000 Dth per day of
interruptible transportation service on a month-to-month basis over the same
pipeline path Cove Point utilizes to provide firm transportation service to the
Panda-Brandywine Partnership.
The Panda-Brandywine Partnership purchases from WGL gas transportation,
gas sales and gas balancing service pursuant to a Gas Transportation and Supply
Agreement (the "WGL Agreement"). The WGL Agreement continues until October 31,
2021, and thereafter will continue year-to-year unless terminated by either
party upon six months' written notice.
WGL is obligated to provide the Panda-Brandywine Partnership with firm
transportation service, up to the quantity of gas nominated for such service on
a given day, from an interconnection between the facilities of Cove Point and
WGL in Charles County, Maryland to the interconnection between the WGL
facilities and the Panda-Brandywine Facility, provided that WGL only must use
its best efforts to deliver transportation gas to the Panda-Brandywine Facility
when the pressure on the Cove Point pipeline is less than 500 psig. During the
months of January, February and December of any calendar year, WGL may, under
certain circumstances, request that the Panda-Brandywine Partnership release to
WGL for its system use a quantity of gas purchased by the Panda-Brandywine
Partnership under the Brandywine Gas Agreement and transported to the WGL
system.
Additionally, WGL sells and delivers gas to the Panda-Brandywine Facility
on an as-available basis from November through March and on a best efforts
basis from April through October, at a price to be agreed by the parties. WGL
also provides the Panda-Brandywine Partnership with both a daily and monthly
balancing service with respect to gas that it transports on behalf of the Panda-
Brandywine Partnership.
WGL constructed, at its expense, the necessary pipeline and appurtenant
facilities necessary to deliver gas from the Cove Point pipeline to the Panda-
Brandywine Facility.
Fuel Oil
The Panda-Brandywine Facility was constructed with the capability to
operate on No. 2 fuel oil and has the ability to change fuel sources from
natural gas to fuel oil and back without interrupting the generation of
electricity. The Panda-Brandywine Facility has on-site storage for
approximately two million gallons of fuel oil, a supply sufficient to operate
the Panda-Brandywine Facility at full load for approximately six days. In
accordance with the fuel management plan for the Panda-Brandywine Facility,
which the Panda-Brandywine Partnership developed with the assistance of its
fuel manager (CDC) and which was approved by PEPCO, the Panda-Brandywine
Partnership will endeavor to enter into fuel oil supply and transportation
contracts by October 10 of each year that will have a duration through the
immediately succeeding winter season (November through March). For the winter
season of November 1996 through March 1997, the Panda-Brandywine Partnership
has entered into three contracts relating to fuel oil supply and
transportation. The Panda-Brandywine Partnership has entered into a Fuel Oil
Coordinator Agreement with ERK Energy, Inc. ("ERK") pursuant to which ERK
manages the purchase, storage and transportation of fuel oil on behalf of the
Panda-Brandywine Partnership on a best efforts basis, and assists with spot
market fuel oil purchases. The Panda-Brandywine Partnership pays a fixed
monthly fee to ERK plus certain performance-incentive payments. The term of
this Fuel Oil Coordinator Agreement continues until July 31, 1997 and may be
extended for additional one-year periods upon mutual agreement.
The Panda-Brandywine Partnership has entered into a Sales and Storage
Agreement with Koch Refining Company, L.P. ("Koch") pursuant to which the Panda-
Brandywine Partnership purchased and maintains one million gallons of No. 2
fuel oil in storage tanks located near Baltimore, Maryland. The term of this
Sales and Storage Agreement commenced December 1, 1996 and terminates February
28, 1997; however, the Panda-Brandywine Partnership has until March 31, 1997 to
take delivery of the stored fuel oil. The Panda-Brandywine Partnership has
access to the stored fuel oil at all times. Upon request of the Panda-
Brandywine Partnership, Koch will use its best efforts to replenish any fuel
oil removed from the storage tank at market-based prices plus additional
storage charges. If Koch is not able to purchase the requested fuel oil within
a specified time period, the Panda-Brandywine Partnership may purchase such
fuel oil from another supplier.
The Panda-Brandywine Partnership has also entered into an agreement (the
"Hardesty Transportation Agreement") with Hardesty & Son, Inc. ("Hardesty")
pursuant to which the Panda-Brandywine Partnership has rights to firm
transportation of a minimum of 20 truckloads of fuel oil per day during the
months of December through February and ten truckloads of fuel oil per day
during the months of March through November. Hardesty will use its best
efforts to provide additional transportation upon the request of the Panda-
Brandywine Partnership. If Hardesty is unable to provide such additional
transportation when requested, the Panda-Brandywine Partnership may use other
means of delivery. The Hardesty Transportation Agreement continues until
October 1, 1997 and will automatically be renewed for successive one-year terms
unless terminated by either party.
Water
The Panda-Brandywine Partnership has entered into a 25-year Treated
Effluent Water Purchase Agreement ("Water Supply Agreement") with the County
Commissioners of Charles County, Maryland to purchase up to 2.7 million gallons
per day of treated effluent from a local sewage treatment plant. Treated
effluent is a byproduct of the sewage treatment process and is used as the
primary cooling water source for the Panda-Brandywine Facility's cooling
towers. The treated effluent is transported from the sewage treatment plant to
the Panda-Brandywine Facility by a buried transmission pipeline that has the
capacity to supply up to 3.0 million gallons per day. The Panda-Brandywine
Partnership received approval to use well water for boiler and potable water.
Other Projects under Development by Panda International
The following are additional Projects that Panda International and its
affiliates are developing. There are substantial risks associated with the
development of Projects, and increased risks associated with the development of
Projects outside the United States. There can be no assurance that any Project
under development will reach Financial Closing, achieve Commercial Operations
or satisfy the other conditions for transfer to the Project Portfolio pursuant
to the Additional Projects Contract. See "Risk Factors - Project Risks" and "-
Risks Relating to Future Non-U.S. Projects."
The Panda-Luannan Project
The Panda-Luannan Facility will be comprised of two 50 MW coal-fired
electric generating units and a steam and hot water distribution system and
will be located in Luannan County near Tangshan City in Tangshan Municipality,
Hebei Province, PRC. Luannan County is located in northeastern Hebei Province
in the area that is frequently referred to as the Beijing-Tianjin-Tangshan
Triangle, an important economic and political center in the PRC.
PEC has formed four equity joint ventures with PRC registered companies
for purposes of developing, constructing and operating the Panda-Luannan
Facility (collectively, the "Joint Venture Companies").
The Panda Luannan Facility will sell power to North China Power Group
Company ("NCPGC") pursuant to an Electric Energy Purchase and Sales Agreement
and a General Interconnection Agreement (collectively, the "Luannan Power
Purchase Agreement"), among NCPGC and two of the Joint Venture Companies. Gross
generation amounts vary among three eight-hour periods per day, designated as
peak hours, non-peak hours and trough hours, as determined under the Luannan
Power Purchase Agreement. The Company understands that, subject to output
limitations during non-peak hours and trough hours, NCPGC has agreed to
purchase and take all electric energy delivered to NCPGC from the Panda-Luannan
Facility, as dispatched by the grid. The Joint Venture Companies may not sell
any electric energy directly to third parties without the consent of NCPGC.
Steam generated by the Panda-Luannan Facility will be sold to industrial
purchasers, and possibly to governmental purchasers, located in Luannan County
under various heat and supply agreements.
Panda International, through two of the Joint Venture Companies, has
selected Harbin Power Engineering Company Limited as the engineering,
procurement and construction contractor ("Harbin"). Harbin has extensive
engineering, procurement and construction experience in the power industry in
the PRC. A bank guaranty is expected to be provided by The Export-Import Bank
of China in respect of Harbin's obligations under the construction contract in
a maximum amount of 35% of the construction contract price. The two Joint
Venture Companies also will reserve as retainage 10% of the payments for
construction costs, as made, and a guaranty of all of Harbin's liabilities and
obligations under the construction contract will be provided by Harbin's parent
company, Harbin Power Equipment Group Company.
Two of the Joint Venture Companies and NCPGC entered into a transmission
line construction agreement on February 10, 1996 for the construction of
transmission lines and associated facilities to connect the Panda-Luannan
Facility to the grid. These two Joint Venture Companies subsequently
transferred their interests in the transmission line construction agreement to
another Joint Venture Company. NCPGC will own the transmission lines and
perform all operation, maintenance and repair of the transmission lines during
the term of the Luannan Power Purchase Agreement. The Joint Venture Company
which was transferred the interest in the transmission line construction
agreement will make funds available through a financial intermediary to cover
the cost of constructing the transmission lines and associated facilities.
The Panda-Luannan Facility's largest coal supplier will be the Kailuan
Coal Mining Administration ("Kailuan"), a central government coal mining
bureau. Kailuan has committed by contract to supply 300,000 metric tons of coal
per year to the Panda-Luannan Facility for ten years. Additional coal supplies
totaling 310,000 metric tons per year are available under contracts with five
other coal mines. All coal will be delivered to the Panda-Luannan Facility by
truck. The commitments under these six coal supply agreements are equivalent to
150% of the Panda-Luannan Facility's projected annual requirements, but the
Joint Venture Companies are not required to purchase that entire amount. A
contract for the provision of operation and maintenance services has been
signed with Duke/Fluor Daniel International Services, Inc.
The formation of a Sino-foreign equity joint venture, including both the
joint venture contract and the articles of association, requires the approval
of the Ministry of Foreign Trade and Economic Cooperation (MOFTEC) or, if the
amount of the total investment in the joint venture falls below the applicable
approval threshold, the applicable provincial or, in some cases, local
commission of foreign trade and economic cooperation (COFTEC). All businesses
in China require business licenses issued by the local branch of the State
Administration of Industry and Commerce (SAIC). The Panda-Luannan Facility also
requires certain other approvals with respect to such items as grid
interconnection, legal and financial structure, transmission systems, land use,
zoning, pricing, international exchange, water usage, environmental protection,
ash transportation and ash disposal. These various approvals have been
obtained.
The Panda of Nepal Project
Panda International has formed a joint venture with a major hydroelectric
engineering company and a local Nepalese party to build a 36 MW hydroelectric
facility on the upper Bhote Koshi River in Nepal. Approval of the joint
venture was received from the Government of Nepal in June 1996. A power
purchase agreement with the Nepal Electricity Authority ("NEA") and a project
agreement with the Government of Nepal obligating the Government of Nepal to
guarantee NEA's payment obligations and provide certain other support and
incentives were signed in July 1996. A fixed price turnkey engineering,
procurement and construction contract for the project was signed with China
Gezhouba Construction in October 1996. Panda International has received
commitment letters from two multilateral agencies to provide debt financing for
this Project, subject to their satisfaction with due diligence reviews and
other matters.
The Panda-Lapanga Project
In August 1994, Panda International acquired from another independent
power developer a 90% interest in a Project company that had entered into a
power purchase agreement with the Orissa State Electricity Board for a proposed
500 MW coal-fired power project to be located in the State of Orissa, India.
Certain of the central governmental approvals for the Project have been
obtained. Although Panda International believes its power purchase agreement is
valid and enforceable, the State of Orissa has given a notice of cancellation
of such agreement to Panda International, as well as to several other third
parties with respect to their respective power purchase agreements. Panda
International has objected to such notice. Development efforts have been
delayed pending resolution of this dispute.
The Panda-Kathleen Project
The Panda-Kathleen Facility is planned to be a combined-cycle, natural gas-
fired, intermediate-load, cogeneration facility to be located on a 7.5-acre
site owned by the Panda-Kathleen Partnership in an industrial park near
Lakeland, Florida. The Panda-Kathleen Partnership entered into a power purchase
agreement with Florida Power Corporation ("Florida Power") in 1991.
The Panda-Kathleen Partnership and Florida Power are engaged in litigation
before various state and federal forums in Florida over the interpretation of
the Panda-Kathleen power purchase agreement. See "Legal Proceedings - Florida
Power Proceedings." The outcome of this litigation may determine whether
construction of the Panda-Kathleen Facility is initiated and completed. The
entities which are partners of the Panda-Kathleen Partnership will be required
to be transferred to a PIC U.S. Entity and become part of the Project Portfolio
if, and within 180 days after, the Panda-Kathleen Facility reaches the earlier
of Financial Closing or Commercial Operations.
LEGAL PROCEEDINGS
The Company, the Issuer and certain of their affiliates are claimants or
defendants in various legal proceedings which have arisen in the ordinary
course of business. The Company believes such claims and legal actions,
individually or in the aggregate, will not have a material adverse effect on
the business or financial condition, results of operations or cash flows of the
Company.
NNW, Inc. Proceeding
On July 12, 1996, PEC filed an action against NNW captioned Panda Energy
Corporation v. NNW, Inc. f/k/a Nova Northwest Inc. (No. 96-07151-C), in the
District Court of Dallas County, Texas (68th Judicial District). PEC's petition
seeks a declaratory judgment that the NNW Cash Flow Participation remains at
0.433% after the restructuring of the Panda-Rosemary Partnership interest
pursuant to the terms of the Credit Agreement. See "Description of the Projects
- - The Panda-Rosemary Facility - Cash Flow Participation." Pursuant to the
Credit Agreement, NNW received a cash flow participation interest in
distributions from the Panda-Rosemary Partnership in the amount of 4.33% of
PEC's own participation interest. At the time the Credit Agreement was entered
into, the aggregate equity interest in the Panda-Rosemary Partnership held by
PEC was 10%, making the NNW Cash Flow Participation equal to 0.433%. As a
result of the redemption of Ford Credit's 90% limited partner interest in the
Panda-Rosemary Partnership in July 1996. PEC (through the Company) owns an
indirect 100% interest in the Panda-Rosemary Partnership.
Pursuant to the Credit Agreement, the NNW Cash Flow Participation is not
to be affected either positively or negatively by "any financial
restructuring." It is the opinion of Panda International and the Company that
the redemption of Ford Credit's limited partner interest constituted a
"financial restructuring" within the meaning of that term in the Credit
Agreement and that, as a result, the NNW Cash Flow Participation remains equal
to 0.433% of total cash flow distributions by the Panda-Rosemary Partnership
(based on the prior debt structure). NNW is disputing this position and asserts
that upon the redemption, it became entitled to 4.33% of PEC's distributions
from the Panda-Rosemary Partnership. The declaratory judgment petition seeks a
determination that the NNW Cash Flow Participation is equal to 0.433%.
Management believes that a resolution of this dispute and the declaratory
judgment proceeding adverse to PEC and the Company would not have a material
adverse effect on the Company. See "'Description of the Projects - The Panda-
Rosemary Facility - Cash Flow Participation."
Heard Proceedings
PEC is a party to a lawsuit captioned Panda Energy Corporation, Plaintiff
v. Heard Energy Corporation, CLF Energia Y Electricidad, S.A., Robert A. Wolf,
Armin Alexander Budzinsky, Edward R. Gwynn, Donald L. Kinney, Morgan Stanley &
Co., Inc., Allstate Insurance Company, Allstate Life Insurance Company, Entergy
Corporation, Entergy Enterprises, Inc., Entergy Power, Inc., Entergy Power
Development Corporation, Anil Desai, Drs. IR. Poerwanto P., and PT Panca
Serodja Pradhana, Defendants, (No. 94-0672-J), District Court of Dallas
County, Texas (191st Judicial District). PEC initiated this litigation in April
1994 and alleges that defendants Wolf, Gwynn and Kinney, former PEC employees,
formed a competing company (Heard Energy Corporation) and misappropriated
certain of PEC's international power project opportunities. PEC alleges that
the other defendants knowingly participated, collaborated and/or conspired in
the misappropriation. PEC alleges causes of action for misappropriation,
conspiracy, fraud, breach of contract, breach of fiduciary duty and legal
malpractice against one or more of the defendants and alleges damages in an
unspecified amount.
Defendant Morgan Stanley filed a counterclaim on September 14, 1995
against PEC, alleging that it had performed services for PEC pursuant to an
engagement agreement relating to the Panda-Brandywine Project. PEC terminated
the engagement agreement on May 4, 1993. Morgan Stanley alleges that the
services it performed prior to such termination included assisting PEC in
obtaining certain regulatory approvals, preparing a draft solicitation booklet
and identifying potential project financing sources, including GE Capital.
Morgan Stanley further alleges that PEC obtained financing from GE Capital
after Morgan Stanley was terminated, and that Morgan Stanley is entitled to a
"transaction fee," either pursuant to the engagement agreement or based on the
value of the services it allegedly performed, in an amount of not less than
$4.3 million, plus attorneys' fees and interest.
Defendants Heard Energy Corporation, Wolf, Gwynn, Kinney and Budzinsky
(the "Heard Defendants") also filed a counterclaim during November 1994 against
PEC and a third-party claim against Robert Carter and Janice Carter, alleging
that PEC, Robert Carter and Janice Carter negligently made misrepresentations
of PEC's lack of a continued interest in developing international power
projects. The Heard Defendants allege that they would not have engaged in
allegedly competing international power project transactions but for these
misrepresentations and that they incurred damages in the amount of
approximately $5.0 million as a result of these misrepresentations, such
damages allegedly consisting of expenses incurred by Heard Energy Corporation,
certain portions of which allegedly are guaranteed by the individual Heard
Defendants. In both the counterclaim and the third-party claim, the Heard
Defendants further allege that PEC, Robert Carter and Janice Carter violated a
confidentiality order relating to certain documents produced by the Heard
Defendants during the discovery phase of this action by misappropriating
confidential information in these documents for the purpose of gaining a
competitive advantage over Heard Energy Corporation. The Heard Defendants seek
$5.0 million in damages as well as unspecified "exemplary" damages based on
this alleged violation. PEC believes that the Heard Defendants' discovery order
claim is not actionable as a claim for damages.
On March 15, 1996, all of the defendants filed motions for summary
judgment, and PEC filed motions for summary judgment with respect to Morgan
Stanley's counterclaim and the Heard Defendants' counterclaim and third-party
claim. By letter dated April 30, 1996, the court advised all counsel that it
intended to grant the defendants' motions for summary judgment, indicating that
PEC could not show legally sufficient evidence of damages to sustain its
claims. This order was entered on June 19, 1996.
PEC has appealed the court's ruling. In light of the court's ruling and
pending the appeal, Morgan Stanley and the Heard Defendants have dismissed
without prejudice their counterclaims and third-party claims, and PEC has
agreed that any applicable statutes of limitations or other time-based defenses
will be tolled during the pendency of the appeal.
The Company has been informed by PEC that PEC does not believe that either
the Morgan Stanley counterclaim or the Heard Defendants' counterclaims and
third-party claims will be refiled unless and until the judgment dismissing
PEC's claims against those parties is reversed and remanded to the trial court
by the appellate court. In any event, PEC does not believe that these
counterclaims or third-party claims, if reasserted, have any merit, nor does
PEC believe that these claims, if eventually decided adversely to PEC, would
have a material effect on the business of PEC.
Brandywine Proceedings
On June 26, 1996, certain plaintiffs commenced a proceeding against the
Panda-Brandywine Partnership and one of its contractors captioned Jeannine
McConnell, McConnell Pool Service, Inc. and McConnell Fuel Oil, Inc. v. Panda-
Brandywine, L.P. and Flippo Construction (Case No. CV 96-1344) in the Circuit
Court for Charles County, Maryland. In this proceeding, plaintiffs allege that
in connection with the construction of an effluent water pipeline, a contractor
for the Panda-Brandywine Partnership, Flippo Construction ("Flippo") and the
Panda-Brandywine Partnership left their easement and inadvertently trespassed
on to plaintiffs' property. While on plaintiffs' property, Flippo and the Panda-
Brandywine Partnership allegedly dug a deep and wide hole and laid pipe in it.
Plaintiffs allege that this trespass damaged the property, decreased its fair
market value and resulted in loss of use thereof. Plaintiffs' claim damages in
numerous counts that aggregate to $3,250,000 in actual damages against each
defendant plus punitive damages aggregating $3,000,000 against each defendant.
The Panda-Brandywine Partnership intends to vigorously contest this
proceeding. Panda International and the Company do not believe that the outcome
of this proceeding will have any material adverse effect on the financial
condition, results of operations or cash flows of the Company or the Panda-
Brandywine Partnership. Immediately following the inadvertent digging of the
hole on plaintiffs' property, Flippo went onto such property, filled in and
compacted the hole and moved the pipeline route off of plaintiffs' property.
Panda International and the Company believe that this action should be
sufficient to eliminate any substantial damage to this property. Flippo has
offered to go on to plaintiffs' property and fix any remaining damage (if any)
to plaintiffs' property but plaintiffs have refused this offer.
In the opinion of Panda International and the Company, the contract
between the Panda-Brandywine Partnership and Flippo requires Flippo to hold the
Panda-Brandywine Partnership harmless for any activities relating to the
plaintiffs' property.
Florida Power Proceedings
In January 1995, Florida Power commenced a proceeding before the Florida
PSC against the Panda-Kathleen Partnership captioned In re: Petition for
Declaratory Statement Regarding Eligibility for Standard Offer Contract and
Payment Thereunder by Florida Power Corporation, Case No. 950110-EI. Florida
Power's petition seeks a declaratory statement that the Kathleen Power Purchase
Agreement is not "available" to the Panda-Kathleen Partnership because the
Panda-Kathleen Partnership's proposed cogeneration facility allegedly is not in
compliance with the Florida PSC's rules (because it may be capable of exceeding
75 MW in electric generating capacity). Additionally, if the contract is
"available" to the Panda-Kathleen Partnership, Florida Power seeks a
declaratory statement that it is only obligated to pay capacity payments under
the Kathleen Power Purchase Agreement for a term of 20 years rather than for
the entire 30-year term of the Kathleen Power Purchase Agreement. The Panda-
Kathleen Partnership filed a cross-petition seeking a declaratory statement
that the milestone dates in the Kathleen Power Purchase Agreement must be
extended due to Florida Power's improper actions and as a result of the delays
in developing the Panda-Kathleen Facility caused by Florida Power's petition
and the ensuing proceeding before the Florida PSC. The Panda-Kathleen
Partnership filed a motion to dismiss the proceeding based on lack of
jurisdiction, but that motion was denied by the Florida PSC. In February of
1996, the Florida PSC held a one-day hearing.
On May 20, 1996, the Florida PSC issued a decision granting Florida
Power's petition, and holding that the Kathleen Power Purchase Agreement is not
available to the Panda-Kathleen Facility as proposed because it has an electric
generating capacity in excess of 75 MW and that Florida Power is only obligated
to make capacity payments under the Panda-Kathleen Power Purchase Agreement for
20 years. The Florida PSC's decision also grants the Panda-Kathleen
Partnership's cross-petition insofar as it grants the Panda-Kathleen
Partnership a 18-month extension to meet the construction commencement
milestone date and an 18-month extension to meet the commercial operation
milestone date. The Panda-Kathleen Partnership has appealed the Florida PSC's
order to the Florida Supreme Court.
There is one action related to this matter pending before the United
States District Court for the Middle District of Florida pertaining to
jurisdictional issues.
UNITED STATES REGULATION
Project subsidiaries of the Company located in the United States are
subject to complex and stringent energy, environmental and other governmental
laws and regulations at the federal, state and local levels in connection with
the development, ownership and operation of its electricity generation
facilities. Federal laws and regulations govern transactions by electric and
gas utility companies, the types of fuel that may be utilized by an electric
generating facility, the type of energy that may be produced by such a facility
and the ownership of the facility. State utility regulatory commissions must
approve the rates and terms and conditions under which public utilities sell
electric power at retail and, under certain circumstances, purchase electric
power from independent producers. Under certain circumstances where specific
exemptions are otherwise unavailable, state utility regulatory commissions may
have broad jurisdiction over non-utility electric power generation facilities.
Energy producing projects located in the United States also are subject to
federal, state and local laws and administrative regulations governing the
emissions and other substances produced, discharged or disposed of by a
facility and the geographical location, zoning, land use and operation of a
facility. Applicable federal environmental laws typically have state and local
enforcement and implementation provisions. These environmental laws and
regulations generally require that a variety of permits and other approvals be
obtained before the commencement of construction or operation of an energy-
producing facility and that the facility then operate in compliance with those
permits and approvals.
Federal Energy Regulation
PURPA
The Public Utility Regulatory Policies Act of 1978 ("PURPA") and the
regulations promulgated thereunder provide certain rate and regulatory
incentives to an electric generating facility that is a qualifying cogeneration
or small power production facility ("QF"). The Panda-Rosemary Facility and the
Panda-Brandywine Facility are QFs. If built, the Panda-Kathleen Facility also
would be a QF. A cogeneration facility is a QF if it (i) sequentially produces
both electricity and useful thermal energy that is used for industrial,
commercial, heating or cooling purposes, (ii) meets certain energy efficiency
and operating standards when oil or natural gas is used as a fuel source and
(iii) is not more than 50%-owned by an electric utility, electric utility
holding company or an entity or person owned by either or any combination
thereof.
Under PURPA and the regulations promulgated thereunder, QFs receive two
primary benefits. First, a QF is exempt from most provisions of the Public
Utility Holding Company Act of 1935, as amended ("PUHCA"), from most provisions
of the Federal Power Act, as amended (the "FPA"), and from certain state laws
relating to organizational, rate and financial regulation. Second, regulations
promulgated by the Federal Energy Regulatory Commission (the "FERC") under
PURPA require that (i) electric utilities purchase electricity generated by
QFs, construction of which commenced on or after November 9, 1978, at a price
based on the purchasing utility's full "avoided costs" and (ii) the utilities
sell supplementary, back-up, maintenance and interruptible power to the QFs on
a just and reasonable and non-discriminatory basis. See "PUHCA" and "FPA"
below. PURPA and the regulations promulgated thereunder define "avoided costs"
as the "incremental costs to an electric utility of electric energy or capacity
or both which, but for the purchase from the qualifying facility or qualifying
facilities, such utility would generate itself or purchase from another
source." Utilities may also purchase power from QFs at prices other than
"avoided costs" pursuant to negotiations as provided by FERC regulations.
The FERC's regulations also provide that if energy or capacity is provided
pursuant to a legally enforceable obligation over a specified term, avoided
costs may be determined, at the option of the QF, either at the time the energy
or capacity is delivered or as calculated at the time the obligation is
incurred. The FERC's regulations further provide that, in the case of rates
based on estimates of avoided costs over the term of a contract, the rates do
not violate the FERC's rules if the rules for such purchases differ from
avoided costs at the time of delivery.
In certain instances, payments based upon avoided costs estimated at the
time a contract is entered into have proven to be greater than a utility's
avoided costs at the time of delivery. Many utilities have attempted to
minimize the disparity by implementing strategies designed to reduce avoided
cost payments under such contracts to levels that the utilities believe will be
more competitive in a short-term marginal cost electric energy market. See
"Industry Restructuring Proposals" below. Such strategies include attempts to
renegotiate or buy out power purchase contracts with QFs. Some utilities have
sought rigorously to enforce the terms of such contracts and to exercise their
contractual termination rights if the contracts are not strictly observed. In
addition, some utilities have engaged in litigation and regulatory action
against QFs to achieve these ends.
The FERC has refused to disturb QF contract rates on two operating
projects where estimates of a utility's avoided costs, calculated at the time
the contracts were signed, were higher than the actual avoided costs at the
time of delivery and the contract rates were not challenged at the time the
contracts were signed and were not the subject of an ongoing challenge to the
state's avoided cost determination. New York State Electric & Gas Corporation,
71 FERC 61,027, reconsideration denied, 72 FERC 61,067 (1995). This
decision is currently the subject of a petition for review in the United States
Court of Appeals for the D.C. Circuit.
Relying in part on the FERC's regulations, a federal court of appeals has
held that once a state commission has approved (by final and nonappealable
order) a QF contract rate as being consistent with avoided costs, just,
reasonable and prudently incurred, any action or order by the state commission
to reconsider its approval or deny the pass-through of the QF's charges to the
utility's retail customers under purported state authority is preempted by
PURPA. Freehold Cogeneration Associates, L.P. v. Board of Regulatory Comm'rs of
New Jersey, 44 F.3d 1178 (3rd Cir.), cert. denied sub nom., Jersey Central
Power & Light Co. v. Freehold Cogeneration Associates, L.P., 116 S. Ct. 68
(1995).
In Independent Energy Producers Assoc. v. California Public Utilities
Comm'n, 36 F.3d 848 (9th Cir. 1994), the U.S. Court of Appeals for the Ninth
Circuit held that states are not preempted by PURPA from instituting a program
that requires QFs to submit operating data, to purchasing utilities for
monitoring compliance with QF status requirements, as long as the monitoring
requirements do not impose an undue burden on the QFs. However, the same court
determined that states and utilities are preempted by federal law from taking
action on their determination that a QF is no longer in compliance with QF
status requirements, other than requesting that the FERC revoke the facility's
QF status, either by filing a request for revocation or by filing a petition
for a declaratory order that the facility is no longer a QF.
On May 29, 1996, VEPCO filed with the State Corporation Commission of the
Commonwealth of Virginia ("SCC") a request for authorization to institute a
formal QF status monitoring program. The request states that the proposed
monitoring program would apply to all QFs that have entered into power purchase
agreements with VEPCO. Under the proposed program, QFs would submit to VEPCO by
March 1 of each year certain operational data from the previous year. If VEPCO
believes, on the basis of such data, that a QF does not comply with QF
requirements, the request indicates that VEPCO would first inform the QF and,
if the QF agreed with or failed to respond to VEPCO's findings, VEPCO would
file a petition seeking a declaration from the FERC that such a facility is not
a QF.
The North Carolina Utilities Commission ("NCUC") has disallowed the pass-
through to VEPCO's North Carolina retail rates of a portion of capacity
payments VEPCO had been making to several non-utility generation plants. The
capacity payment rates for the plants had been determined by an arbitrator and
approved by the SCC. The NCUC found that bids from a 1988 solicitation (the
"1988 VEPCO Solicitation") were available at the time the contract was approved
and should have been used, instead of arbitration, to determine VEPCO's avoided
costs. The NCUC ruled that rates in excess of the rates derived from bids
received in the 1988 VEPCO Solicitation were therefore disallowed in VEPCO's
North Carolina retail rates. The North Carolina Supreme Court upheld the NCUC's
decision, saying that the NCUC had simply disallowed rates above avoided costs.
North Carolina Utilities Comm'n v. North Carolina Power, 338 N.C 412, 450
S.E.2d 896 (1994). The United States Supreme Court declined to review that
decision.
While the Rosemary Power Purchase Agreement with VEPCO was not
specifically approved by the SCC, the SCC did approve the 1988 VEPCO
Solicitation that resulted in the Rosemary Power Purchase Agreement. Although
the NCUC used the 1988 VEPCO Solicitation to determine the avoided costs in the
North Carolina decision discussed above, there can be no assurance that it
would not disallow the pass-through of the Rosemary Power Purchase Agreement
rates, which arose from the 1988 VEPCO Solicitation. If the NCUC were to
disallow such pass-through, and if the courts were to allow the decision to
stand, the Company believes that any such disallowance would affect only that
portion of VEPCO's rates allocated to its North Carolina retail customers. The
Brandywine Power Purchase Agreement has been approved by both the Maryland and
District of Columbia Public Service Commissions.
The Company endeavors to develop its U.S. Projects, monitor compliance by
the U.S. Projects with applicable regulations and choose its customers in a
manner which minimizes the risks of losing their QF status. Certain factors
necessary to maintain QF status are, however, subject to the risk of events
outside the Company's control. For example, loss of a thermal energy customer
or failure of a thermal energy customer to take required amounts of thermal
energy from a cogeneration facility that is a QF could cause the facility to
fail to satisfy the criteria required for QF status regarding the level of
useful thermal energy output. Upon the occurrence of such an event, the Company
would seek to replace the thermal energy customer or find another use for the
thermal energy that meets PURPA's requirements, but no assurance can be given
that this would be possible.
If one of the U.S. Projects in which the Company has an interest should
lose its status as a QF, the Project would no longer be entitled to the
exemptions from PUHCA and the FPA. This could subject the U.S. Project to rate
regulation as a public utility under the FPA and state law and could result in
the Company inadvertently becoming a public utility holding company by owning
more than 10% of the voting securities of, or controlling, a facility that
would no longer be exempt from PUHCA. This could cause all of the Company's
remaining U.S. Projects to lose their QF status, because QFs may not be
controlled, or more than 50% owned, by public utility holding companies. Loss
of QF status may also trigger defaults under covenants to maintain QF status in
the Projects' power purchase agreements, steam sales agreements and financing
agreements and result in termination, penalties or acceleration of indebtedness
under such agreements. A facility may lose its QF status on a retroactive or a
prospective basis.
If a U.S. Project were to lose its QF status (because, for example, it
lost its steam customer), the Company could attempt to avoid holding company
status (and thereby protect the QF status of its other Projects) on a
prospective basis by restructuring its interests in the U.S. Project. For
instance, the Company could change its voting interest in the entity owning the
nonqualifying Project to nonvoting or limited partnership interests and sell
the voting interest to an individual or company which could tolerate the lack
of exemption from PUHCA, or by otherwise restructuring ownership of the Project
so as not to become a holding company. These actions, however, would require
approval of the Commission or a no-action letter from the Commission, and would
result in a loss of control over the nonqualifying Project, could result in a
reduced financial interest therein and might result in a modification of the
Company's operation and maintenance agreement relating to such Project. A
reduced financial interest could result in a gain or loss on the sale of the
interest in such Project, the removal of the affiliate through which the
ownership interest is held from the consolidated income tax group or the
consolidated financial statements of the Company, or a change in the results of
operations of the Company. Loss of QF status on a retroactive basis could lead
to, among other things, fines and penalties being levied against the Company
and its subsidiaries and claims by utilities for refund of payments previously
made.
Under the Energy Policy Act of 1992 ("Energy Policy Act"), a company
engaged exclusively in the business of owning and/or operating a facility used
for the generation of electric energy exclusively for sale at wholesale may be
exempted from PUHCA as an "exempt wholesale generator." An exempt wholesale
generator may not make retail sales of electricity. If a Project can be
qualified as an exempt wholesale generator ("EWG") under Section 32 of PUHCA it
will be exempt from PUHCA even if it does not qualify as a QF. Therefore, if a
QF in the Company's Project Portfolio were to lose its QF status, the Company
could apply to have the Project qualified as an EWG. However, assuming this
changed status would be permissible under the terms of the applicable power
purchase agreement, rate approval from FERC would be required. See "FPA" below.
In addition, the Project would be required to cease selling electricity to any
retail customers (such as the thermal energy customer) and could become subject
to state regulation of sales of thermal energy. See "PUHCA" below.
PUHCA
PUHCA provides that any corporation, partnership or other entity or
organized group that owns, controls or holds power to vote 10% or more of the
outstanding voting securities of a "public utility company" or a company that
is a "holding company" of a public utility company is subject to regulation
under PUHCA, unless an exemption is established or a FERC order declaring it
not to be a holding company is granted. Registered holding companies under
PUHCA are required to limit their utility operations to a single integrated
utility system and to divest any other operations not functionally related to
the operation of the utility system. In addition, a public utility company that
is a subsidiary of a registered holding company under PUHCA is subject to
financial and organizational regulation, including approval by the Commission
of certain of its financing transactions.
As discussed above, a QF is exempt from most of the provisions of PUHCA. A
foreign utility company is also exempt from most of the provisions of PUHCA if
certain notice and other requirements are satisfied.
FPA
Under the FPA, the FERC has exclusive rate-making jurisdiction over
wholesale sales of electricity and transmission in interstate commerce. These
rates may be determined on either a cost-of-service basis or a market-based
approach. If a QF in the Company's Project Portfolio were to lose its
Qualifying Facility status, the rates set forth in the applicable power
purchase agreement would have to be filed with the FERC and would be subject to
initial and potentially subsequent reviews by the FERC under the FPA, which
could result in reductions to the rates.
Industry Restructuring Proposals
The United States Congress is currently considering legislation to repeal
PURPA entirely, or at least to repeal the obligation of utilities to purchase
from Qualifying Facilities. There is strong Congressional support for
grandfathering existing Qualifying Facilities contracts if such legislation is
passed, and also support for requiring utilities to conduct competitive bidding
for new electric generation if the PURPA purchase obligation is eliminated.
The FERC and many state utility commissions are currently studying a
number of proposals to restructure the electric utility industry in the United
States to permit utility customers to choose their utility supplier in a
competitive electric energy market. The FERC has recently issued a final rule
requiring utilities to offer wholesale customers and suppliers open access on
their transmission lines, on a basis comparable to the utilities' own use of
the lines. Although the rule (Order No. 888) may be appealed, many utilities
have already filed "open access" tariffs. The utilities contend that they
should recover from departing customers their fixed costs that will be
"stranded" if their wholesale customers choose new electric power suppliers.
These stranded costs include the capacity costs utilities are required to pay
under many QF contracts, which the utilities view as excessive when compared
with current market prices for capacity. Many utilities are therefore seeking
ways to lower these contract prices or terminate the contracts altogether, out
of fear that their shareholders will have to bear all or part of such
"stranded" costs. Some utilities have engaged in litigation against QFs to
achieve these ends. See "PURPA" above. The FERC's rule allows full recovery of
"legitimate and verifiable" prudently incurred stranded costs at the wholesale
level. However, the FERC has jurisdiction over only a small percentage of
electric rates, and there is likely to be litigation over whether wholesale
stranded costs are "legitimate and verifiable."
In addition to restructuring proposals being considered by regulatory
agencies, a number of bills have been introduced in the U.S. Congress to
promote electric utility restructuring and deregulation of electric rates.
These bills differ as to how and to what extent a utility's "stranded" or
"transition" costs would be recoverable if current captive customers left the
utility's system. The existence of this legislation may increase the desire of
utilities to renegotiate, buy out or attempt to terminate existing power
purchase agreements containing prices that the utilities believe will not be
competitive in a short-term marginal cost electric energy market. In addition,
if electric energy prices are deregulated, electric energy producers will have
to sell electric energy at competitive market prices.
State Regulations
State public utility commissions ("PUCs") have broad authority to regulate
both the rates charged by and financial activities of electric utilities, and
to promulgate regulations implementing PURPA. Since a power purchase agreement
will become a part of a utility's cost structure (and therefore generally is
reflected in its retail rates), power purchase agreements from independent
power producers are potentially subject to the regulatory purview of PUCs,
particularly the process by which the utility has entered into the power
purchase agreements. If a PUC has approved the process by which a utility
secures its power supply, a PUC generally will be inclined to allow a utility
to "pass through" the expenses associated with an independent power contract to
the utility's retail customers. Moreover, a PUC may not disallow the full
reimbursement to a utility for the purchase of electricity from a QF once the
PUC has approved the rates as consistent with the requirements of PURPA. In
addition, retail sales of electricity or thermal energy by an independent power
producer may be subject to PUC regulation, depending on state law.
Independent power producers that are not QFs under PURPA are considered to
be public utilities in many states and are subject to broad regulation by PUCs
ranging from the requirement that certificates of public convenience and
necessity be obtained to regulation of organizational, accounting, financial
and other corporate matters. However, sales of electricity at wholesale are
subject to the exclusive regulatory jurisdiction of the FERC. In addition,
states may assert jurisdiction over the siting and construction of facilities,
and over the issuance of securities and the sale or other transfer of assets by
these facilities that are not QFs.
State PUCs also have jurisdiction over the transportation and retail sale
of natural gas by local distribution companies. Each state's regulatory laws
are somewhat different; however, all generally require a local distribution
company to obtain approval from the PUC to provide services and construct
facilities. The rates of local distribution companies are usually subject to
continuing oversight by the PUC.
In the case of the Panda-Rosemary Facility, the Panda-Rosemary Partnership
is subject to a number of conditions imposed by the NCUC pursuant to a
Certificate of Public Convenience and Necessity ("CPCN"), including that the
Panda-Rosemary Facility and the Panda-Rosemary Pipeline both be owned by the
Panda-Rosemary Partnership, that the Panda-Rosemary Partnership not transport
gas for or sell or deliver gas to any other entity, that all electricity
generated at the Panda-Rosemary Facility be sold to an electric utility and
that all thermal energy produced at the Panda-Rosemary Facility be sold only to
Bibb. If Bibb were no longer the steam purchaser, the Panda-Rosemary
Partnership would be obligated to notify the NCUC and VEPCO and the NCUC could
order such further proceedings as it deemed appropriate, which proceedings
could result in revocation of the CPCN or the imposition of other conditions.
See "Risk Factors - Maintaining Qualifying Facility Status."
Natural Gas Regulation
The Company has an ownership interest in and operates two natural gas-
fired cogeneration projects in the United States. The cost of natural gas
(other than debt costs) is ordinarily the largest expense of a gas-fired power
project and is critical to the project's economics. The risks associated with
using natural gas can include the need to arrange transportation of the gas
across great distances, including obtaining removal, export and import
authority if the gas is transported from Canada, the possibility of
interruption of the gas supply or transportation (depending on the quality of
the gas reserves purchased or dedicated to the Project, the financial and
operating strength of the gas supplier and whether firm or non-firm
transportation is purchased), and obligations to take a minimum quantity of gas
or pay for it (take-or-pay obligations).
Pursuant to the Natural Gas Act, the FERC has jurisdiction over the
transportation and storage of natural gas in interstate commerce. With respect
to most transactions that do not involve the construction of pipeline
facilities, regulatory authorization can be obtained on a self-implementing
basis. However, pipeline rates for such services are subject to continuing FERC
oversight. Order No. 636, issued by the FERC in April 1992, mandated the
restructuring of interstate natural gas pipeline sales and transportation
services. The restructuring required by the rule includes (i) the separation
("unbundling") of a pipeline's sales and transportation services, (ii) the
implementation of a straight fixed-variable rate design methodology under which
all of a pipeline's fixed costs are recovered through its reservation charge,
(iii) the implementation of a capacity release mechanism under which holders of
firm transportation capacity on pipelines can release that capacity for resale
by the pipeline, and (iv) the opportunity for pipelines to recover 100% of
their prudently incurred costs ("transition costs") associated with
implementing the restructuring mandated by the rule. On July 16, 1996, the
United States Court of Appeals for the District of Columbia Circuit issued an
order following appeals of Order No. 636 by various interested parties (United
Distribution Companies v. FERC, No. 92-1485). The court approved most of
Order No. 636. However, the court remanded some issues to the FERC for further
consideration. The remanded issues include: (i) the FERC's requirement that an
existing firm transportation customer bid up to a 20-year term to retain its
rights to firm transportation capacity at the end of its contract term; (ii)
certain aspects of the FERC's efforts to mitigate the economic effect of
Straight Fixed-Variable ("SFV") transportation rates on certain transportation
customers; (iii) the FERC's limitation on the obligation of the pipelines to
provide "no-notice" transportation service; and (iv) the FERC's determination
that pipelines can recover 100% of their prudently-incurred Gas Supply
Realignment ("GSR") costs from their transportation customers and can recover
10% of these costs from their interruptible transportation customers. The
FERC's order on remand of these issues should not have an adverse effect on the
Partnership's gas transportation arrangements.
Environmental Regulations
The development, construction and operation of power projects in the
United States is subject to extensive federal, state and local laws and
regulations adopted for the protection of the environment and to regulate land
use. The laws and regulations applicable to the Company and its domestic
subsidiaries primarily involve the discharge of emissions into the water and
air and the use of water, but can also include wetlands preservation,
endangered species, waste disposal and noise regulations. These laws and
regulations in many cases require a lengthy and complex process of obtaining
licenses, permits and approvals from federal, state and local agencies.
Noncompliance with environmental laws and regulations can result in the
imposition of civil or criminal fines or penalties. In some instances,
environmental laws also may impose clean-up or other remedial obligations in
the event of a release of pollutants or contaminants into the environment. The
following federal laws are among the more significant environmental laws that
may apply to the Company and its domestic subsidiaries. In most cases,
analogous state laws also exist that may impose similar, and in some cases more
stringent, requirements on the Company and its domestic subsidiaries.
Clean Air Act
The Federal Clean Air Act, as amended (the "Clean Air Act"), provides for
the regulation, largely through state implementation of federal requirements,
of ambient air quality and emissions of air pollutants from certain facilities
and operations. As originally enacted, the Clean Air Act set guidelines for
emissions standards for major pollutants (e.g., sulfur dioxide and nitrogen
oxide) from new sources. The 1990 Clean Air Act Amendments tightened
regulations on emissions from existing sources, particularly previously
exempted older power plants. The Company believes that the Panda-Rosemary
Facility and the Panda-Brandywine Facility are in compliance with federal
performance standards mandated for such plants under the Clean Air Act.
Clean Water Act
The Federal Clean Water Act, as amended (the "Clean Water Act"), also
provides for the regulation, largely through state implementation of federal
requirements, of the quality of surface waters and imposes limitations on
discharges to those waters from point sources, including certain facilities and
operations. The water quality standards established under the Clean Water Act
are used as the basis for developing specific pollutant discharge limitations
from point sources. The discharge limitations are incorporated into permits
called National Pollutant Discharge Elimination System ("NPDES") permits. The
Company believes that the Panda-Rosemary Facility is in compliance with the
federal and state requirements applicable through its NPDES wastewater
discharge permit under the Clean Water Act. The Company believes that the
Panda-Brandywine Facility does not make any discharges of wastewater for which
the Panda-Brandywine Facility is required to have an NPDES permit. The Clean
Water Act also imposes requirements with respect to the discharge of stormwater
runoff from industrial sites. Those requirements are implemented through state
stormwater discharge permits, which have been obtained for the Panda-Rosemary
Facility and the Panda-Brandywine Facility. The Company believes that the
operation of the Panda-Rosemary Facility and the Panda-Brandywine Facility
complies with the requirements of their respective stormwater discharge permit.
The Clean Water Act also restricts discharges of fill materials to wetlands.
The Panda-Rosemary Facility obtained approval for discharges in connection with
its construction.
Resource Conservation and Recovery Act
The Resource Conservation and Recovery Act of 1976 ("RCRA") regulates the
generation, treatment, storage, handling, transportation and disposal of solid
and hazardous waste. The Company believes that it and its subsidiaries are in
material compliance with solid and hazardous waste requirements under RCRA.
Comprehensive Environmental Response, Compensation, and Liability Act
The Comprehensive Environmental Response, Compensation, and Liability Act
of 1980, as amended ("CERCLA" or "Superfund"), requires the remediation of
sites from which there has been a release or threatened release of hazardous
substances and authorizes the United States Environmental Protection Agency to
take any necessary response action at Superfund sites, including ordering
potentially responsible parties liable for the release to take or pay for such
actions. Potentially Responsible Parties are broadly defined under CERCLA to
include past and present owners and operators of such sites, as well as
generators, arrangers and transporters of wastes sent to a site.
MANAGEMENT
Director, Independent Director and Officers of the Issuer, the Company and
Panda Interholding
The number of members of the Board of Directors of each of the Issuer, the
Company and Panda Interholding has been set at one, but the number may be
increased or decreased by the Board of Directors or the stockholders. Directors
of each of the Issuer, the Company and Panda Interholding are elected annually
and each elected director holds office until a successor is elected. Robert W.
Carter is the current director of each of the Issuer, the Company and Panda
Interholding and has served in such capacity since July 1996.
The Certificate of Incorporation of each of the Issuer, the Company and
Panda Interholding provides that the corporation shall always have an
individual serving as an "Independent Director" who shall have the right to
vote or consent only on, and whose affirmative vote or consent shall be
required with respect to, any decision by the corporation or the Board of
Directors to (i) file a bankruptcy petition, make an assignment for the benefit
of creditors, apply for the appointment of a custodian, receiver or trustee for
the corporation or its property, consent to the filing of such proceeding or
admit in writing to the corporation's inability to pay its debts generally as
they become due; (ii) commence the dissolution, liquidation, consolidation,
merger or sale of all or substantially all of the assets of the corporation;
(iii) amend the Certificate of Incorporation to broaden the purposes of the
corporation and in other respects; or (iv) authorize the corporation to engage
in any activity other than those set forth in the Certificate of Incorporation.
The Certificate of Incorporation of each of the Issuer, the Company and Panda
Interholding provides that the Independent Director shall be a person who is
not and has not been, for the five years preceding his election, (i) a direct
or indirect legal or beneficial owner of the corporation or its affiliates (or
a member of the immediate family of such owner), (ii) a creditor, supplier,
officer, director, promoter, underwriter, manager or contractor of the
corporation or any of its affiliates (or a member of the immediate family of
any such officer or director) or (iii) a person (or a member of the immediate
family of a person) employed by the corporation or any of its affiliates or by
any creditor, supplier, employee, stockholder, officer, director, promoter,
underwriter, manager or contractor thereof. The Independent Director may,
however, serve in such capacity for other special purpose subsidiaries of Panda
International. In July 1996, Brian G. Trueblood was elected as the Independent
Director of each of the Issuer, the Company and Panda Interholding. Mr.
Trueblood also serves as the Independent Director for PRC II, PR Corp. and
Panda-Rosemary Funding Corporation.
The following table sets forth the names and ages of the directors and the
executive officers of each of the Issuer, the Company and Panda Interholding
and their positions with the Issuer, the Company and Panda Interholding. Since
the formation of the Issuer, the Company and Panda Interholding, each executive
officer of the Issuer, the Company and Panda Interholding has held the same
office(s) with the Issuer, the Company and Panda Interholding that he or she
has held with Panda International, PEC and each other corporation that is
currently a direct or indirect subsidiary of the Company.
Name Age Position with the Issuer and the Company
Robert W. Carter 58 Director, Chairman of the Board, President and Chief
Executive Officer
Janice Carter 55 Executive Vice President, Secretary and Treasurer
William C. Nordlund 42 Senior Vice President and General Counsel
Marjean Henderson 46 Senior Vice President and Chief Financial Officer
James D. (Pete) Wright 43 Senior Vice President, Project Finance and
Acquisitions
Brian G. Trueblood 35 Independent Director
Robert W. Carter has been the Chairman of the Board and Chief Executive
Officer of Panda International since January 1995. Mr. Carter has held similar
chief executive positions with PEC and its subsidiaries since he founded PEC in
1982. Mr. Carter also is President of Robert Carter Oil & Gas, Inc. (an oil and
gas exploration company), which he founded in 1980. From 1978 to 1980, Mr.
Carter was Vice President of oil and gas lease sales for Reserve Energy
Corporation (an oil and gas exploration company). From 1974 to 1978, he served
as a marketing consultant to Forward Products, Inc. (a petrochemical company).
Mr. Carter was Executive Vice President of Blasco Industries (a chemical and
textile manufacturer) from 1970 to 1974. He served as a sales representative
and sales manager for Olin Mathieson Chemical Corporation (a petrochemical,
pulp and paper company) from 1965 to 1970. From 1960 to 1965, he was a sales
representative for Inland, Mead Paper Company in Atlanta. Mr. Carter attended
the University of Georgia.
Janice Carter has been the Executive Vice President, Secretary, Treasurer
and a Director of Panda International since January 1995 and has served as a
Director of PEC from its organization in 1982 to October 1995. Mrs. Carter has
also served as an officer of PEC in the capacities described above since its
inception in 1982. From 1975 to 1980, Mrs. Carter was office manager of Reserve
Energy Corporation. From 1969 to 1972, Mrs. Carter worked for University
Computing, and from 1962 to 1968 she directed administration for the
engineering department of Otis Engineering, a division of Halliburton
International. Mrs. Carter also serves as Vice President and
Secretary/Treasurer of Robert Carter Oil & Gas, Inc. Mrs. Carter attended Texas
Tech University. Mrs. Carter is married to Robert W. Carter.
William C. Nordlund has served as Senior Vice President and General
Counsel of Panda International and PEC since August 1996. Prior thereto, he
served as Vice President and General Counsel of Panda International since
January 1995 and of PEC since January 1994. Mr. Nordlund was General Counsel of
PEC from April 1993 to January 1994. He was Senior Vice President and General
Counsel from August 1992 to April 1993 and Vice President and General Counsel
from September 1991 to August 1992 for The Oxford Energy Company (a developer
of independent power facilities). From July 1990 to September 1991, Mr.
Nordlund was an attorney with Constellation Holdings, Inc., an affiliate of
Baltimore Gas & Electric Company which developed independent power facilities.
Prior to July 1990, he was a partner in the law firm of Winston & Strawn in
Chicago. Mr. Nordlund earned a Bachelor of Arts degree from Vanderbilt
University, a Juris Doctor degree from Duke University and a Master of
Management degree from the J.L. Kellogg Graduate School of Business at
Northwestern University.
Marjean Henderson has been Senior Vice President and Chief Financial
Officer of Panda International since August 1996 and a Director of Panda
International, since January 1995. Ms. Henderson served as a Director of PEC
from January 1993 to October 1995. Prior to joining Panda International Ms.
Henderson was the Senior Vice President, Chief Financial Officer, Treasurer and
Secretary for Nest Entertainment, a producer and distributor of children's
animated home videos and movies. From 1987 to 1993, Ms. Henderson was the Vice
President, Chief Financial Officer, Treasurer and Secretary at RCL Enterprises,
the holding company for the Lyons Group/Lyrick Studios, the creator, producer
and distributor of the home video television series, "Barney, the Purple
Dinosaur." Ms. Henderson was previously with Arthur Andersen and Co. for twelve
years, specializing in the energy and distribution industries, with significant
initial public offering responsibilities. Ms. Henderson earned a BBA with a
concentration in accounting from the University of Texas at Austin and she is a
Certified Public Accountant.
James D. (Pete) Wright has served as Senior Vice President, Project
Finance and Acquisitions of Panda International and PEC since August 1996.
Prior thereto, he served as Vice President and Chief Financial Officer of Panda
International since January 1995 and of PEC since January 1994. Mr. Wright
served as Chief Financial Officer of PEC from February 1993 to January 1994.
Prior to joining PEC in February 1993, he served as Vice President of Banc One
Capital Corporation (a merchant banking group) from May 1986 to December 1992.
Mr. Wright previously held the position of Vice President with the investment
banking firms of Schneider, Bernet & Hickman, Inc. in Dallas and Wheat, First
Securities, Inc. in Richmond, Virginia. Mr. Wright earned a Bachelor of Science
degree from Vanderbilt University and a Master of Business Administration
degree from the Colgate Darden Graduate School of Business Administration of
the University of Virginia.
Brian G. Trueblood became the Independent Director of the Issuer and the
Company in July 1996. He has served as Vice President of TNS Partners, Inc. (a
Dallas-based retained executive search firm) since August 1994. From September
1989 to August 1994, Mr. Trueblood served as a senior partner in the Dallas
office of Lucas Associates (an Atlanta-based executive search firm). Mr.
Trueblood received a Bachelor of Science degree in general engineering from the
United States Military Academy.
Executive and Board Compensation and Benefits
No cash or non-cash compensation was paid in any prior year or is proposed
to be paid in the current calendar year to any of the officers and directors
listed under "Management" for their services to the Issuer, the Company or
Panda Interholding. Mr. Trueblood will be paid $1,000 per year by each of the
Issuer, the Company and Panda Interholding for serving as an Independent
Director thereof.
DESCRIPTION OF OUTSTANDING PROJECT-LEVEL DEBT
The Panda-Rosemary Financing
Concurrently with the Prior Offering, Panda-Rosemary Funding Corporation
(the "Rosemary Issuer"), a wholly-owned subsidiary of the Panda-Rosemary
Partnership, consummated the offering and sale (the "Rosemary Offering") of
$111.4 million in aggregate principal amount of its 8-5/8% First Mortgage Bonds
due 2016 (the "Rosemary Bonds"). The Rosemary Bonds were issued pursuant to an
indenture (the "Rosemary Indenture") among the Panda-Rosemary Partnership, the
Rosemary Issuer and Fleet National Bank, as trustee. The following description
of the Rosemary Bonds and certain provisions of the Rosemary Indenture does not
purport to be complete and is subject to, and is qualified in its entirety by
reference to, the Rosemary Indenture, a copy of which is attached as an exhibit
to the Registration Statement of which this Prospectus constitutes a part.
Interest and Principal Payments
The Rosemary Bonds bear interest at the rate of 8-5/8% per year from July
31, 1996, the date of original issuance, or from the most recent interest
payment date to which interest has been paid or provided for, payable quarterly
on February 15, May 15, August 15 and November 15, commencing November 15,
1996. Principal of the Rosemary Bonds is payable in quarterly installments as
follows:
<TABLE>
<CAPTION>
Percentage Percentage
of Original of Original
Principal Principal
Payment Date Amount Payable Payment Date Amount Payable
<C> <C> <C> <C>
November 15, 1996 1.2356% August 15, 2006 0.9632%
February 15, 1997 1.2356% November 15, 2006 0.9632%
May 15, 1997 1.2344% February 15, 2007 0.9632%
August 15, 1997 1.2344% May 15, 2007 1.0081%
November 15, 1997 1.2344% August 15, 2007 1.0081%
February 15, 1998 1.2344% November 15, 2007 1.0081%
May 15, 1998 1.3291% February 15, 2008 1.0081%
August 15, 1998 1.3291% May 15, 2008 1.0558%
November 15, 1998 1.3291% August 15, 2008 1.0558%
February 15, 1999 1.3291% November 15, 2008 1.0558%
May 15, 1999 1.1429% February 15, 2009 1.0558%
August 15, 1999 1.1429% May 15, 2009 1.1039%
November 15, 1999 1.1429% August 15, 2009 1.1039%
February 15, 2000 1.1429% November 15, 2009 1.1039%
May 15, 2000 1.2282% February 15, 2010 1.1039%
August 15, 2000 1.2282% May 15, 2010 1.1541%
November 15, 2000 1.2282% August 15, 2010 1.1541%
February 15, 2001 1.2282% November 15, 2010 1.1541%
May 15, 2001 1.3196% February 15, 2011 1.1541%
August 15, 2001 1.3196% May 15, 2011 1.2168%
November 15, 2001 1.3196% August 15, 2011 1.2168%
February 15, 2002 1.3196% November 15, 2011 1.2168%
May 15, 2002 1.4124% February 15, 2012 1.2168%
August 15, 2002 1.4124% May 15, 2012 1.2772%
November 15, 2002 1.4124% August 15, 2012 1.2772%
February 15, 2003 1.4124% November 15, 2012 1.2772%
May 15, 2003 1.5119% February 15, 2013 1.2772%
August 15, 2003 1.5119% May 15, 2013 1.3359%
November 15, 2003 1.5119% August 15, 2013 1.3359%
February 15, 2004 1.5119% November 15, 2013 1.3359%
May 15, 2004 1.6192% February 15, 2014 1.3359%
August 15, 2004 1.6192% May 15, 2014 1.3888%
November 15, 2004 1.6192% August 15, 2014 1.3888%
February 15, 2005 1.6192% November 15, 2014 1.3888%
May 15, 2005 1.7273% February 15, 2015 1.3888%
August 15, 2005 1.7273% May 15, 2015 1.3534%
November 15, 2005 1.7273% August 15, 2015 1.3534%
February 15, 2006 1.7273% November 15, 2015 1.3534%
May 15, 2006 0.9632% February 15, 2016 1.3534%
</TABLE>
Collateral
All obligations of the Rosemary Issuer with respect to the Rosemary Bonds
are unconditionally guaranteed by the Panda-Rosemary Partnership. The
obligations of the Panda-Rosemary Partnership under the guaranty, as well as
certain other obligations, are secured by (i) liens on, and security interests
in, substantially all of the assets of the Panda-Rosemary Partnership,
including the Panda-Rosemary Facility, (ii) pledges by each of PR Corp. and PRC
II, which are wholly-owned indirect subsidiaries of the Company, of their
respective interests in the Panda-Rosemary Partnership and (iii) pledges of all
of the capital stock of the Rosemary Issuer and each of PR Corp. and PRC II.
Partnership Distributions
Subject to certain limited exceptions, distributions may be made by the
Panda-Rosemary Partnership to its partners only from, and to the extent of,
amounts then on deposit in the Panda-Rosemary Partnership distribution fund
established pursuant to the Rosemary Indenture. Such distributions may only be
made upon the satisfaction of the following conditions: (i) amounts deposited
in certain funds established pursuant to the Rosemary Indenture shall be equal
to or greater than the amount then required to be deposited therein, including
the debt service and debt service reserve funds; (ii) no event or condition has
occurred and is continuing that constitutes a default or an event of default
under the Rosemary Indenture; and (iii) if there has been a loss of QF status,
the Panda-Rosemary Facility has achieved a permitted alternative utility
status. In addition, except for certain limited exceptions, the Panda-Rosemary
Partnership may not make distributions unless (i) the average of the debt
service coverage ratios for the two semi-annual payment periods on the Rosemary
Bonds immediately preceding the distribution date is at least 1.2:1 and (ii)
after giving effect to such distributions, the average of the projected debt
service coverage ratios for the current semi-annual payment period and the next
succeeding semi-annual payment period on the Rosemary Bonds is at least 1.2:1.
Notwithstanding the requirements of the immediately preceding sentence, the
Panda-Rosemary Partnership may make distributions to its partners solely for
the purpose of enabling the partners to pay their income tax liabilities if a
lower debt service coverage ratio (1.1:1) and projected debt service coverage
ratio (1.1:1) for certain periods exist. Except for certain limited exceptions
set forth in the Rosemary Indenture, the Panda-Rosemary Partnership will not be
permitted to make any distributions to its partners after November 30, 2005
unless (i) the Rosemary Gas Supply Agreement and the Firm Gas Transportation
Agreements have been extended on substantially the same terms to have a
termination date no earlier than the longest stated maturity of the Rosemary
Bonds, (ii) the Rosemary Gas Supply Agreement and the Firm Gas Transportation
Agreements, if not so extended on substantially the same terms, have been
otherwise extended to have a termination date no earlier than the longest
stated maturity of the Rosemary Bonds and the rating agencies confirm that the
then current rating of the Rosemary Bonds will not be reduced as a result of
such extension or (iii) the Rosemary Gas Supply Agreement and the Firm Gas
Transportation Agreements, if not extended as described in clause (i) or (ii),
are replaced with a new gas supply agreement or gas transportation agreement
(or with respect to a transportation agreement, a gas transportation plan),
provided that the effect of the replacement agreement or plan would not reduce
the average of the annual projected debt service coverage ratios for the
remaining term of the Rosemary Bonds below 1.2:1 and the rating agencies
confirm that the then current ratings of the Rosemary Bonds will not be reduced
as a result of such replacement.
Certain Other Covenants
The Rosemary Indenture contains numerous other affirmative and negative
covenants which restrict the activities of the Rosemary Issuer and the Panda-
Rosemary Partnership, including, but not limited to, the following:
(i) prohibition against incurring debt (including guaranties of debt)
except as described below, and a prohibition against other
guaranties except certain permitted guaranties;
(ii) a prohibition against creating or suffering to exist liens on any of
their respective properties other than certain permitted liens;
(iii) a prohibition against selling, leasing or otherwise disposing
of any property or assets except worn-out equipment and certain
property with a fair market value not in excess of $3.0 million in
the aggregate in any one year and, with respect to any single item
of property, a fair market value in excess of $1.0 million, and
certain other exceptions;
(iv) a limitation on the Panda-Rosemary Partnership's ability to enter
into new project agreements or to terminate, amend or modify certain
project agreements unless certain tests are satisfied;
(v) a limitation on the ability of the Panda-Rosemary Partnership and
the Rosemary Issuer to merge or consolidate with or into any person,
or acquire all or any substantial part of the assets or business of
any person, or form subsidiaries; and
(vi) covenants regarding compliance with laws and governmental
regulations, maintenance of government approvals, employee benefit
plans, affiliate transactions, payment of taxes, the preparation of
various budgets and reports, the maintenance of specified insurance
coverages and other matters.
The debt that the Rosemary Issuer is permitted to incur is limited to the
Rosemary Bonds, other series of bonds permitted to be issued under the Rosemary
Indenture and certain other indebtedness ranking pari passu or subordinate to
the Rosemary Bonds and such other series of bonds, the proceeds of which are
loaned to the Panda-Rosemary Partnership. The debt permitted by the Rosemary
Indenture to be incurred by the Rosemary Issuer or the Panda-Rosemary
Partnership includes: (i) purchase money or capitalized lease obligations not
exceeding $1.0 million in the aggregate outstanding at any time; (ii) trade
accounts payable; (iii) working capital loans or letter of credit reimbursement
obligations if the minimum annual projected debt service coverage ratios for
the remaining term of the Rosemary Bonds and the average of the annual
projected debt service coverage ratios for the remaining term of the Rosemary
Bonds equal or exceed 1.5:1 and 1.75:1, respectively; (iv) debt incurred to
finance enhancements to or modifications of the Panda-Rosemary Facility if,
after giving effect to such debt, the same minimum and average annual projected
debt service coverage ratios are satisfied (or, if the enhancement is required
to maintain QF status, each of such debt service coverage ratios described
above is at least 1.2:1); (v) certain interest rate protection agreements; (vi)
guaranties arising in the ordinary course of business not exceeding $1.0
million in the aggregate; and (vii) various indemnities with respect to
mechanics and other liens, obligations to governmental authorities, surety
bonds and guaranties, indemnities or similar obligations provided under or
required by a Panda-Rosemary Project agreement.
Events of Default
Events of default under the Rosemary Indenture include: (i) a default in
the payment of principal of, interest on or premium, if any, on any Rosemary
Bonds; (ii) any misrepresentation made by the Panda-Rosemary Partnership or the
Rosemary Issuer under the Rosemary Indenture which has resulted in a material
adverse change; (iii) the breach by the Panda-Rosemary Partnership or the
Rosemary Issuer of any covenant under the Rosemary Indenture or related
collateral documents; (iv) the bankruptcy or insolvency of the Panda-Rosemary
Partnership or the Rosemary Issuer; (v) a final judgment or judgments for the
payment of money in excess of $1.0 million rendered against either of the Panda-
Rosemary Partnership or the Rosemary Issuer unless covered by indemnity or
insurance; (vi) a default on certain other debt of the Panda-Rosemary
Partnership or the Rosemary Issuer; (vii) the termination or expiration of
certain Project agreements to which the Panda-Rosemary Partnership is a party
(some of which are currently scheduled to expire prior to the maturity date of
the Rosemary Bonds; see "Partnership Distributions" above); (viii) the
cessation of liens or certain collateral; (ix) a modification of certain
Project agreements which results in a material adverse change; (x) Panda
International shall cease to own directly or indirectly 51% of the capital
stock of PR Corp. or PRC II; and (xi) PR Corp. shall withdraw or be removed as
general partner of the Panda-Rosemary Partnership. Upon the occurrence of an
event of default and after the lapse of certain applicable cure periods, the
trustee under the Rosemary Indenture has the right, among other things, to
accelerate the maturity of the Rosemary Bonds and to direct a collateral agent
to foreclose the mortgage on the Panda-Rosemary Facility and otherwise realize
upon the collateral securing the repayment of the Rosemary Bonds and other
secured obligations, including the capital stock of PR Corp. and PRC II
(through which the Company holds an indirect equity interest in the Panda-
Rosemary Partnership).
The Funds
The Rosemary Indenture establishes the following funds: (a) a project
reserve fund, (b) an operating fund, (c) a debt service fund, (d) a property
tax fund, (e) a debt service reserve fund, (f) an overhaul fund, (g) a
pollution control finance fund, (h) a restoration fund, (i) a partnership
distribution fund and (j) an additional permitted debt fund. All revenues
received by the Panda-Rosemary Partnership are to be deposited into the project
revenue fund. Amounts in the project revenue fund are used to pay operating
expenses related to the Panda-Rosemary Facility and then are distributed to the
other funds established pursuant to the Rosemary Indenture in the priority
listed above.
Upon the issuance of the Rosemary Bonds, the Panda-Rosemary Partnership
deposited approximately $8.1 million into the debt service reserve fund
established under the Rosemary Indenture. The balances that must be maintained
in the debt service reserve fund generally decline over the life of the
Rosemary Bonds. In addition, the Panda-Rosemary Partnership is required to
maintain in the debt service reserve fund an amount equal to the maximum amount
of debt service due in respect of certain other debt permitted under the
Rosemary Indenture for any six-month period during the succeeding three-year
period. The debt service reserve fund may be drawn upon to pay principal of,
premium, if any, and interest on the Rosemary Bonds, any additional series of
bonds issued under the Rosemary Indenture and certain debt permitted under the
Rosemary Indenture, to the extent of funds allocated within the debt service
reserve fund to such obligations, if funds otherwise available for such
payments are insufficient.
Rating
In July 1996, the Rosemary Bonds were rated Baa3 by Moody's Investors
Service, Inc. and BBB- by Duff & Phelps Rating Co. Inc. Each such rating
reflects only the view of the applicable Rating Agency at the time the rating
is issued, and any explanation of the significance of such rating may only be
obtained from such Rating Agency. There is no assurance that any such credit
rating will remain in effect for any given period of time or that such rating
will not be lowered, suspended or withdrawn entirely by the applicable Rating
Agency if, in such Rating Agency's judgment, circumstances so warrant.
The Panda-Brandywine Financing
The Panda-Brandywine Partnership, PBC and GE Capital entered into the
Construction Loan Agreement and Lease Commitment dated as of March 30, 1995
(the "Brandywine Loan Agreement"), pursuant to which GE Capital agreed, either
directly or indirectly through an owner trustee, to (i) provide construction
financing for the Panda-Brandywine Facility, (ii) issue letters of credit as
security for certain obligations of the Panda-Brandywine Partnership under the
Brandywine Power Purchase Agreement, (iii) lease the Panda-Brandywine Facility
site from, and immediately thereafter sublease the site to, the Panda-
Brandywine Partnership, (iv) upon substantial completion of the construction of
the Panda-Brandywine Facility, purchase the Panda-Brandywine Facility from the
Panda-Brandywine Partnership and lease the Panda-Brandywine Facility back to
the Panda-Brandywine Partnership and (v) upon completion of the construction of
the Panda-Brandywine Facility, make certain equity loans to the Panda-
Brandywine Partnership or its partners. The following description of the
Brandywine Loan Agreement and the other Brandywine Financing Documents does not
purport to be complete and is subject to, and is qualified in its entirety by
reference to, the Brandywine Financing Documents, including definitions therein
not contained in this Prospectus, copies of which are attached as exhibits to
the Registration Statement of which this Prospectus constitutes a part.
Construction Loans
Pursuant to the Brandywine Loan Agreement, GE Capital committed to make
construction loans to the Panda-Brandywine Partnership (the "Brandywine
Construction Loan Facility"), the proceeds of which were required to be used to
pay costs incurred by the Panda-Brandywine Partnership in connection with the
development and construction of the Panda-Brandywine Facility. Construction of
the Panda-Brandywine Facility is substantially complete. On December 30, 1996,
the Brandywine Construction Loan Facility was converted to long-term financing
in the form of a leveraged lease (the "Brandywine Financing Conversion"). In
connection therewith, all amounts outstanding under the Brandywine Construction
Loan Facility were repaid in full. At such time, the Panda-Brandywine
Partnership funded the completion account described below in the amount of $5.3
million. Funds from such account will be used to complete construction of the
Panda-Brandywine Facility.
Long-Term Financing
Pursuant to the Brandywine Financing Conversion, the Brandywine Loan
Agreement was terminated and various agreements were entered into in order to
provide long-term financing for the Panda-Brandywine Facility. In connection
therewith, the Panda-Brandywine Partnership sold the Panda-Brandywine Facility
and leased the facility site to Fleet National Bank, as Owner Trustee (the
"Owner Trustee"), for the purchase price of approximately $217.5 million. The
Owner Trustee financed the purchase of the Panda-Brandywine Facility through an
equity investment of $45.5 million from GE Capital and loans aggregating $172
million from Loan Participants under the Participation Agreement described
below. The Owner Trustee then leased the Panda-Brandywine Facility and sub-
leased the facility site back to the Panda-Brandywine Partnership pursuant to
the Brandywine Facility Lease and a site sublease, respectively. The proceeds
from the sale of the Panda-Brandywine Facility were used to repay the
outstanding balance under the Brandywine Construction Loan Facility, fund the
reserve accounts described below and pay a success fee to the partners of the
Panda-Brandywine Partnership in the amount of approximately $6.7 million. Such
funds were deposited by the partners into the U.S. Project Account under the
Indenture.
In addition, GE Capital has committed to provide certain letters of credit
for the account of the Panda-Brandywine Partnership and to make equity loans to
the partners of the Panda-Brandywine Partnership, as more fully described
below. All of the assets of the Panda-Brandywine Partnership and all of the
ownership interests in the Panda-Brandywine Partnership, as well as certain
other collateral, are pledged to secure the obligations of the Panda-Brandywine
Partnership under the Brandywine Financing Documents.
Participation Agreement
The Panda-Brandywine Partnership, PBC, GE Capital as Owner Participant,
Fleet National Bank as Owner Trustee and Security Agent, First Security Bank,
National Association, as Indenture Trustee, Credit Suisse as Administrative
Agent and certain other entities listed therein (Credit Suisse and such other
entities are referred to herein as the "Loan Participants") entered into a
Participation Agreement, dated as of December 18, 1996 (the "Participation
Agreement"). Under the Participation Agreement, each Loan Participant loaned a
specified amount to the Owner Trustee who used the proceeds thereof to purchase
the Panda-Brandywine Facility. The Owner Trustee will use funds received
under the Brandywine Facility Lease to repay the loans under the Participation
Agreement. The Owner Trustee's obligation to repay the loans is secured by a
pledge of all of the collateral pledged to the Owner Trustee to secure the
obligations of the Panda-Brandywine Partnership under the Brandywine Financing
Documents. However, a default by the Owner Trustee under the Participation
Agreement does not entitle the Loan Participants to cause a foreclosure upon
such collateral or a termination of the Brandywine Facility Lease unless a
default or an event of default shall have occurred and be continuing under the
Brandywine Financing Documents which would entitle the Owner Trustee to
foreclose upon the collateral thereunder or terminate the Brandywine Facility
Lease. The Participation Agreement contains substantially the same
representations, warranties, conditions precedent, covenants and defaults as
were contained in the Brandywine Loan Agreement.
Brandywine Facility Lease
The Panda-Brandywine Partnership entered into a Facility Lease, dated as of
December 18, 1996, with the Owner Trustee (the "Brandywine Facility Lease")
pursuant to which it leases the Panda-Brandywine Facility from the Owner
Trustee. The Brandywine Facility Lease is a net lease and its initial term
ends on December 30, 2016. Basic rent is payable quarterly on January 31,
April 30, July 31 and October 31, commencing January 31, 1997, as follows:
Basic Rent Payment Basic Rent ($)
1 0
2-5 2,610,509
6-9 2,602,976
10-13 4,993,980
14-17 5,165,114
18-21 6,816,268
22-25 6,984,563
26-29 6,976,747
30-37 6,864,048
38-41 7,047,103
42-45 7,517,816
46-49 7,632,159
50-53 7,821,232
54-57 8,303,090
58-61 8,980,537
62-65 10,109,363
66-69 10,463,802
70-73 10,684,854
74-77 10,292,055
78-80 9,429,196
In addition, and from time to time, the Owner Trustee may require the Panda-
Brandywine Partnership to pay, as supplemental rent, (i) certain agreed-upon
amounts required to be paid to the Owner Trustee following a specified event of
loss or event of regulation, after payment of which the Brandywine Facility
Lease would terminate and the Panda-Brandywine Partnership would receive title
to the Panda-Brandywine Facility; (ii) amounts owed pursuant to certain tax
change indemnity obligations; (iii) certain lender swap breakage costs arising
as a result of an event of default, loss or regulation; (iv) interest on
overdue rent payments; and (v) amounts owed as a result of certain other
obligations arising pursuant to the Brandywine Financing Documents. Basic rent
may also be reduced if GE Capital elects to consummate a refinancing under the
Participation Agreement.
At the end of the initial lease term, so long as no default or event of
default shall have occurred and be continuing under the Brandywine Facility
Lease, the Panda-Brandywine Partnership may renew the Brandywine Facility Lease
for two consecutive five-year terms. Upon renewal, the basic rent will be 50%
of the average basic rent payment during the initial term. Alternatively, the
Panda-Brandywine Partnership may purchase the Panda-Brandywine Facility in
exchange for its fair market sales value at the end of the initial lease term
or any renewal term. If the Panda-Brandywine Partnership does not renew the
Brandywine Facility Lease or purchase the Panda-Brandywine Facility, it must
surrender possession of the Panda-Brandywine Facility.
Reserve Accounts
In connection with the obligations of the Panda-Brandywine Partnership
under the Brandywine Financing Documents, various accounts were established for
the benefit of the Owner Trustee, GE Capital and others. All revenues of the
Panda-Brandywine Partnership are to be deposited into a project revenue
account. Amounts in the project revenue account are used to pay operating
expenses related to the Panda-Brandywine Facility, including letter of credit
fees and basic rent, and then are distributed quarterly to lease reserve
accounts in the following priority: (i) operation and maintenance reserve
account; (ii) rent reserve account; (iii) distribution reserve account (in the
event the conditions for distributions to the partners of the Panda-Brandywine
Partnership contained in the Participation Agreement are not met); and (iv)
partnership security account (in the event the conditions for distributions to
the partners of the Panda-Brandywine Partnership contained in the Participation
Agreement are met). In addition, a warranty reserve account and completion
account were funded upon closing of the Brandywine Financing Conversion, which
accounts terminate upon the occurrence of specified events as described below.
A special payment account may also be established in the event of unreliable
fuel supply to the Panda-Brandywine Facility as described below.
The Panda-Brandywine Partnership funded the operation and maintenance
reserve account upon the closing of the Brandywine Financing Conversion in the
amount of $1.0 million. Until the balance of such reserve account reaches $5.0
million (which amount is adjusted upward annually for inflation after December
30, 2001), quarterly contributions of $125,000 in each of the first eight
calendar quarters and $375,000 for each of the next eight calendar quarters are
made to this reserve account out of funds available from the project revenue
account. Thereafter, contributions will be made out of funds available in the
project revenue account as necessary to maintain the required balance. Subject
to specified conditions, funds held in this reserve account will be used to
replenish a drawing under the O&M Letter of Credit described below. After any
withdrawal from the operation and maintenance reserve account, 50% of cash flow
remaining after payment of project operating expenses, rent, letter of credit
fees and debt service ("Brandywine Available Cash Flow") will be contributed to
such reserve account, in addition to any required contribution in the event of
a balance deficiency, until the reserve account has been replenished in the
amount of the withdrawal.
The Panda-Brandywine Partnership funded the rent reserve account upon the
closing of the Brandywine Financing Conversion in the amount of $2.4 million.
The balance in the rent reserve account must be maintained at the greater of
(i) $2.4 million and (ii) the sum of the next two payments of basic rent.
Until the required balance is reached, 50% of the excess, if any, of
Brandywine Available Cash Flow over required contributions to the operation and
maintenance reserve account ("Brandywine Distributable Cash Flow") will be
contributed to such reserve account. In the event that funds available in the
project revenue account, the distribution reserve account and the partnership
security account are insufficient to pay basic rent, funds in the rent reserve
account will be applied toward such deficiency. After any withdrawal from the
rent reserve account, 100% of Brandywine Distributable Cash Flow will be
contributed to such reserve account, in addition to any required contribution
in the event of a balance deficiency, until the reserve account has been
replenished in the amount of the withdrawal.
The Panda-Brandywine Partnership funded the warranty maintenance reserve
account upon the closing of the Brandywine Financing Conversion in the amount
of $750,000. Subject to specified conditions, funds in this reserve account
will be used to satisfy warranty obligations to the manufacturer of the Panda-
Brandywine Facility's combustion and steam turbine generators. This reserve
account will be terminated on the earlier of (i) the date the turbine warranty
expires or (ii) the second anniversary of the date of final completion of the
Panda-Brandywine Facility, and the balance of the account will be transferred
to the project revenue account, so long as no default or event of default has
occurred and is continuing under the Brandywine Facility Lease.
The Panda-Brandywine Partnership funded the completion account upon the
closing of the Brandywine Financing Conversion in the amount of $5.3 million.
Subject to specified conditions, funds held in the completion account will be
used to pay costs and expenses incurred in connection with the construction and
completion of the Panda-Brandywine Facility. After the date of final
acceptance of the Panda-Brandywine Facility under the Brandywine EPC Agreement,
funds will be distributed out of the completion account to the Panda-Brandywine
Partnership from time to time upon satisfaction of the conditions specified
therefor.
If the Panda-Brandywine Partnership receives a notice from PEPCO that PEPCO
has determined that the Panda-Brandywine Partnership has failed to comply with
its obligation under the Brandywine Power Purchase Agreement to have a reliable
supply of fuel for the Panda-Brandywine Facility, then the Panda-Brandywine
Partnership is required to establish and fund a special payment account with
100% of the excess, if any, of Brandywine Distributable Cash Flow over required
contributions to the rent reserve account until such notice is rescinded or the
fuel default is cured. Subject to specified conditions, funds held in the
special payment account will be used to cure the fuel default. Any funds
remaining in the special payment account after the cure of the fuel default
will be transferred to the partnership security account, so long as no default
or event of default has occurred and is continuing under the Brandywine
Facility Lease.
In the event that funds in the project revenue account are insufficient to
pay letter of credit fees and rent, and to make the required contributions to
the reserve accounts, such payments and transfers may be made out of the
partnership security account and distribution reserve account. Subject to
specified conditions, funds held in the partnership security account may from
time-to-time be distributed to the partners of the Panda-Brandywine Partnership
and funds held in the distribution reserve account may from time-to-time be
transferred to the project revenue account.
Equity Loans
Pursuant to an Equity Loan Facility Letter Agreement and subject to certain
conditions, GE Capital has agreed to make available to PBC and/or Panda Energy
Delaware, a multiple draw credit facility (the "Brandywine Equity Loan
Facility") of up to approximately $17.5 million. The Brandywine Equity Loan
Facility may be drawn against for four years from the date of final completion
of the Panda-Brandywine Facility in a minimum amount of $4.0 million per draw.
Interest will be payable on amounts drawn against the Brandywine Equity Loan
Facility at a rate per annum equal to 515 basis points over the applicable
treasury rate in effect at the time of each draw. The loans borrowed under the
Equity Loan Facility will mature on December 30, 2011. The loans made
thereunder will be secured by a pledge by PBC and Panda Energy Delaware of
their respective partnership interests in the Panda-Brandywine Partnership. The
documentation relating to the Brandywine Equity Loan Facility shall include
substantially the same representations, warranties, conditions precedent,
covenants and defaults as contained in the Participation Agreement.
Letters of Credit
GE Capital has agreed to issue and maintain outstanding stand-by letters of
credit for the account of the Panda-Brandywine Partnership in favor of PEPCO to
secure certain obligations of the Panda-Brandywine Partnership under the
Brandywine Power Purchase Agreement. The Interconnection Letter of Credit was
initially issued under the Brandywine Loan Agreement in the amount of $2.0
million, was reduced to $330,000 on July 1, 1996 and will expire in April 1997.
The Performance Letter of Credit, in the stated amount of $2.0 million, was
issued on October 31, 1996 and will expire on December 31, 1997, unless earlier
terminated or extended. The Company anticipates that the Performance Letter of
Credit will be renewed annually. PEPCO may draw on the Performance Letter of
Credit to pay any monetary damages awarded to it as a result of the termination
of the Brandywine Power Purchase Agreement. Subject to specified conditions,
the O&M Letter of Credit will be issued in the stated amount of $1.0 million on
December 31, 1998 and will expire on December 31, 1999, unless earlier
terminated or renewed. The Company anticipates that the O&M Letter of Credit
will be renewed annually. Subject to specified conditions, the stated amount
of the O&M Letter of Credit will be increased to $2.0 million on December 31,
1999 and to $5.0 million on December 31, 2000. PEPCO may draw on the O&M
Letter of Credit to pay certain maintenance expenses relating to the Panda-
Brandywine Facility.
The aggregate stated amount of all letters of credit outstanding at any one
time in connection with the Brandywine Facility Lease cannot exceed a specified
aggregate amount, currently $7,330,000. The Panda-Brandywine Partnership is
required to reimburse GE Capital for any disbursement under any letter of
credit on the day that GE Capital makes any payment to a beneficiary thereof.
If the Panda-Brandywine Partnership does not reimburse GE Capital on such day,
it must pay interest on the amount not reimbursed at a rate per annum equal to
2.5% plus a base rate of the higher of (i) the base commercial lending rate of
Credit Suisse, New York or (ii) the overnight federal funds rate plus 0.5%.
The Panda-Brandywine Partnership is obligated to pay to GE Capital an issuance
fee of 1.75% of the stated amount of each letter of credit upon initial
issuance, a letter of credit fee of 1.5% per annum on the aggregate stated
amounts of all outstanding letters of credit and a commitment fee of 1.25% per
annum on the unused balance of the letter of credit commitment.
Partnership Distributions
The Participation Agreement places limitations on the ability of the Panda-
Brandywine Partnership to make distributions to its partners. Subject to
certain other conditions, the Panda-Brandywine Partnership may make
distributions to its partners only if: (i) all amounts then required to be
deposited in certain reserve accounts, including the reserve accounts described
above, have been deposited; (ii) all rent payments then due to the Owner
Trustee under the Brandywine Facility Lease have been paid; (iii) the Panda-
Brandywine Facility meets an operating cash flow to basic rent ratio of 1.2:1;
and (iv) at the time of such distribution, and after giving effect thereto, no
default or event of default has occurred and is continuing under the Brandywine
Financing Documents.
Certain Other Covenants
The Brandywine Financing Documents also contain certain affirmative and
negative covenants which restrict the ability of the Panda-Brandywine
Partnership and PBC to take certain actions including, but not limited to, the
following:
(i) a requirement that the Panda-Brandywine Partnership pay all of
its indebtedness and obligations under the Brandywine Financing
Documents and perform its obligations under the related project
documents;
(ii) a requirement that the Panda-Brandywine Partnership and
PBC maintain their current respective form of organization, that PBC
remain the general partner of the Panda-Brandywine Partnership and
that the Panda-Brandywine Facility be maintained as a QF;
(iii) a prohibition against mergers, sales of assets other than
electric power and steam, and certain acquisitions;
(iv) a prohibition against indebtedness other than under the
Brandywine Financing Documents;
(v) a prohibition against amending certain contracts without the
consent of a majority of the Loan Participants and GE Capital;
(vi) a prohibition against entering into leases other than
those specifically contemplated by the Brandywine Financing
Documents; and
(vii) a requirement (set forth in a stock pledge agreement entered
into by Panda Interholding) that all subsidiaries of Panda
Interholding (either existing or subsequently acquired or formed)
which are engaged in the financing, development, construction or
operation of independent power projects or energy transmission
projects located in the United States (other than the Panda-Kathleen
Partnership and the partners of that partnership) remain as
subsidiaries of Panda Interholding; provided, that the Panda-
Kathleen Partnership and the partners thereof shall continue to be
subsidiaries of PEC and shall be transferred to Panda Interholding
within 180 days after the earlier of financial closing or the date
of commercial operations with respect to such Project, and provided,
further, that, subject to certain restrictions in the Participation
Agreement, Panda Interholding may sell all or any of the stock of
any subsidiary that is subject to this requirement to any person who
is not an affiliate of Panda Interholding.
Events of Default
The Brandywine Facility Lease contains certain events of default, including
but not limited to: (i) default in the payment of any rental amount payable
under the Brandywine Facility Lease; (ii) a misrepresentation contained in any
document furnished by or on behalf of the Panda-Brandywine Partnership or any
partner; (iii) a failure of the Panda-Brandywine Partnership or any affiliate
to perform or observe any covenants or obligations contained in the Brandywine
Financing Documents to which it is a party; (iv) a default in payment under any
indebtedness of the Panda-Brandywine Partnership or PBC or certain affiliates
or in the observance or performance of any covenant relating to such
indebtedness; (v) bankruptcy or insolvency of any party to or participant under
any of the Brandywine Financing Documents or other project agreements related
to the operation of the Panda-Brandywine Facility; (vi) a judgment or judgments
in excess of $150,000 being rendered against the Panda-Brandywine Partnership,
Brandywine Water Company or PBC and remaining in effect and unstayed for more
than 30 days; (vii) if PEC and Panda Interholding shall cease to own, directly
or indirectly, 51% of PBC, Panda Energy Delaware and Brandywine Water Company;
and (viii) the Panda-Brandywine Facility ceases to be a QF. Upon an event of
default under the Brandywine Financing Documents, the Owner Trustee may, in
addition to other remedies, foreclose upon or terminate the Brandywine Facility
Lease.
Collateral
All obligations of the Panda-Brandywine Partnership under the Brandywine
Financing Documents to GE Capital and the Owner Trustee, and in turn, all
obligations of the Owner Trustee to the Loan Participants under the
Participation Agreement, are secured by (i) a pledge of, and a security
interest in, substantially all of the assets of the Panda-Brandywine
Partnership, (ii) pledges by PBC and Panda Energy Delaware, which are indirect
wholly-owned subsidiaries of the Company, of their respective interests in the
Panda-Brandywine Partnership and (iii) pledges of all the capital stock of PBC
and Panda Energy Delaware, and all of the stock and all of the assets of
Brandywine Water Company, which is an indirect wholly-owned subsidiary of the
Company that operates the distilled water facility serving as the steam host
for the Panda-Brandywine Facility. In addition, the Panda-Brandywine
Partnership has assigned its interest in the Brandywine Power Purchase
Agreement to the Owner Trustee, to take effect if the Brandywine Facility Lease
terminates and the Panda-Brandywine Partnership elects not to repurchase the
Panda-Brandywine Facility.
DESCRIPTION OF THE EXCHANGE BONDS
The Exchange Bonds will be issued under the Indenture, including the
Series A Supplemental Indenture which forms a part thereof. In issuing the
Exchange Bonds and performing its obligations under the Indenture, the Issuer
is acting both as principal and as agent for the Company. The following
summaries of certain provisions of the Exchange Bonds, the Company Guaranty,
the Indenture and the Security Documents do not purport to be complete or
definitive and are qualified in their entirety by reference to the full terms
of the Exchange Bonds, the Guaranties, the Indenture and the Security
Documents, including the definitions therein of certain terms that are not
otherwise defined in this Prospectus, copies of which are attached as exhibits
to the Registration Statement of which this Prospectus constitutes a part.
General
The Exchange Bonds constitute one series of the Bonds that may be issued
under the Indenture. The title of the Exchange Bonds is "11-5/8% Pooled Project
Bonds, Series A-1 due 2012." The source of payment for the Exchange Bonds and
all additional series of Bonds, if any, will be the payments by the Company to
the Issuer of principal, premium, if any, and interest due under the Company
Notes and payments, if any, under the Guaranties. The principal source of
payments under the Company Notes is distributions to the Company through the
PIC Entities from the Project Entities that own Projects that are part of the
Project Portfolio. Thus, while the Exchange Bondholders have recourse against
the Issuer and, through the Guaranties, the Company and the PIC U.S. Entities,
and the Collateral for payment should the Issuer be unable to make payments on
the Exchange Bonds, the ability of the Issuer to make such payments depends
primarily upon the performance of the Projects and the ability of the Project
Entities to make distributions to the PIC Entities and ultimately to the
Company. See "Collateral for the Exchange Bonds - General" below.
Ranking
The indebtedness evidenced by the Existing Bonds and all additional series
of Bonds, if any, will constitute senior secured indebtedness of the Issuer. In
order for the Company to receive distributions or payments on a PIC
International Entity Note and for the Issuer then to receive payments from the
Company on the Company Notes, Projects must generate sufficient operating cash
flow to pay all operating expenses, all debt service, debt service and other
reserve requirements and other payment obligations to lenders and other Project
creditors. Therefore, although the Issuer, the Company and Panda Interfunding
have no other secured indebtedness, the Existing Bonds and the Guaranties are
effectively subordinated to all liabilities of the Project Entities incurred in
respect of the Projects. As of September 30, 1996, the Project Entities had
outstanding $314.6 million of indebtedness and other liabilities, which are
effectively senior to the Existing Bonds and the Guaranties. See "Risk Factors
- - Financial Risks - Substantial Leverage; Effective Subordination of Exchange
Bonds and Guaranties" and "Description of Outstanding Project-Level Debt."
Company Guaranty
The obligations of the Issuer under the Existing Bonds are, and all
additional series of Bonds, if any, will be fully and unconditionally
guaranteed on a senior secured basis by the Company. Rights of subrogation
under the Company Guaranty will be subordinated to the prior right of the
holders of the Bonds to be paid in full.
PIC Entity Guaranties
The obligations of the Company under the Company Guaranty and the
obligations of the Issuer under the Existing Bonds are, and all additional
series of Bonds, if any, will be guaranteed on a unsecured basis by each PIC
U.S. Entity up to a maximum amount equal to the greater of (i) the
consideration received by such PIC U.S. Entity in exchange for its guaranty
within the meaning of applicable fraudulent conveyance or transfer laws or (ii)
the lesser of (a) the maximum amount that will not render such PIC U.S. Entity
insolvent or (b) the maximum amount that will not leave such PIC U.S. Entity
(after giving effect to the guaranty) with an unreasonably small capital.
Because the determination of the maximum amount of each PIC Entity Guaranty is
dependent upon the determination under applicable law of matters which have no
precise established definition, there may be uncertainty as to the actual
maximum amount of the guaranty. Any such uncertainty may adversely affect the
enforceability of the PIC Entity Guaranties. Rights of subrogation under the
PIC Entity Guaranties will be subordinated to the prior right of the holders of
the Bonds to be paid in full.
Currently, there exists one PIC U.S. Entity, Panda Interholding, which has
executed a PIC Entity Guaranty. Panda Interholding received $25.1 million of
the proceeds from the sale of the Old Bonds which were used to fund a portion
of the acquisition of Ford Credit's limited partner interest in the Panda-
Rosemary Partnership. Panda Interholding has no significant assets other than
its interests in the Project Entities related to the Panda-Rosemary Facility
and the Panda-Brandywine Facility. The consolidated financial statements of
the Company as of December 31, 1994 and December 31, 1995 and for each of the
three years in the period ended December 31, 1995 are also the consolidated
financial statements of Panda Interholding as of such dates and for such
periods. The unaudited condensed consolidated financial statements of Panda
Interholding as of September 30, 1996 and for the nine months then ended are
included separately in Appendix F to this Prospectus.
The Company shall cause each PIC U.S. Entity that is created, acquired or
purchased after the Issue Date to execute and deliver to the Trustee a PIC
Entity Guaranty, substantially in the form attached to the Indenture, at the
time such PIC U.S. Entity is so created, purchased or acquired.
Transfer, Exchange and Replacement
The Exchange Bonds will have been registered under the Securities Act.
Based upon its view of interpretations provided to third parties by the staff
of the Commission, the Company believes that the Exchange Bonds issued
pursuant to the Exchange Offer may be offered for resale, resold and otherwise
transferred by holders thereof (other than any holder which is (i) an Affiliate
of the Company, the Issuer or Panda Interholding, (ii) a broker-dealer who
acquired Old Bonds directly from the Issuer or (iii) a broker-dealer who
acquired Old Bonds as a result of market making or other trading activities)
without registration under the Securities Act provided that such Exchange Bonds
are acquired in the ordinary course of such holders' business and such holders
are not engaged in, and do not intend to engage in, and have no arrangement or
understanding with any person to participate in, a distribution (within the
meaning of the Securities Act) of such Exchange Bonds. Each broker-dealer that
receives Exchange Bonds for its own account pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Bonds. The Letter of Transmittal states that by so acknowledging
and by delivering a prospectus, a broker-dealer will not be deemed to admit
that it is an "underwriter" within the meaning of the Securities Act. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Bonds received in
exchange for Old Bonds where such Old Bonds were acquired by such broker-dealer
as a result of market making activities or other trading activities. The
Company and the Issuer have agreed, for a period of 180 days after the
consummation of the Exchange Offer, to make available a prospectus meeting the
requirements of the Securities Act to any such broker-dealer for use in
connection with any such resale. A broker-dealer that delivers such a
prospectus to a purchaser in connection with such resales will be subject to
certain of the civil liability provisions under the Securities Act and will be
bound by the provisions of the Registration Rights Agreement (including certain
indemnification rights and obligations). Any holder who tenders in the Exchange
Offer for the purpose of participating in a distribution of the Exchange Bonds
and any other holder that cannot rely upon such interpretations must comply
with the registration and prospectus delivery requirements of the Securities
Act in connection with a secondary resale transaction. In addition, to comply
with the securities laws of certain jurisdictions, if applicable, the Exchange
Bonds may not be offered or sold unless they have been registered or qualified
for sale in such jurisdictions or an exemption from registration or
qualification is available and the conditions thereto have been met.
Subject to any restrictions under applicable federal and state securities
laws, upon registration of transfer of an Exchange Bond and surrender of the
old Exchange Bond, a new Exchange Bond will be executed and delivered in the
name of the new beneficial owner or the record holder for the new beneficial
owner. The security registrar is not required (i) to issue, register the
transfer of or exchange any physical Exchange Bonds during a period (a)
beginning at the opening of business 15 days before the day of the mailing of
notice of redemption of Exchange Bonds and ending at the close of business on
the day of such mailing and (b) beginning on the regular record date for the
payment of any installment of principal of or interest on the Exchange Bonds
and ending on the date of payment of such installment of principal or interest
or (ii) to issue, register the transfer of or exchange any physical Exchange
Bonds selected for redemption in whole or in part except the unredeemed portion
of any such Exchange Bonds selected for redemption in part. Subject to the
terms of the Indenture, the Exchange Bonds will be exchangeable at any time
into an equal aggregate amount of Exchange Bonds of different authorized
denominations. The Issuer will maintain an office or agency of the Security
Registrar where Exchange Bonds may be presented for registration of transfer or
exchange, which shall initially be the corporate trust office of the Trustee in
New York, New York. No service charge shall be made for any transfer or
exchange, but the Issuer or the Trustee may require payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed in relation
thereto.
Exchange Bonds that become mutilated, destroyed, stolen or lost will be
replaced upon delivery to the Trustee, or delivery to the Issuer and the
Trustee of evidence of the loss, theft or destruction thereof satisfactory to
the Issuer and the Trustee. An indemnity satisfactory to the Trustee and the
Issuer may be required at the expense of the holder of such Exchange Bond
before a replacement Exchange Bond will, at the Bondholder's cost, be issued.
Payment of Principal and Interest
Interest on the Exchange Bonds will be paid semiannually on each February
20 and August 20, commencing February 20, 1997 (each, an "Interest Payment
Date"), at the Issuer's option, at the corporate office of the Trustee or by
check mailed on such Interest Payment Date to the registered owners thereof at
the close of business on the February 6 or August 6, as the case may be,
immediately preceding such Interest Payment Date or, if a Bondholder owning
$2.0 million or more in aggregate principal amount (or such lesser principal
amount as results from all payments of principal and redemptions in respect of
Existing Bonds or any additional series of Bonds in the original principal
amount of $2.0 million) requests in writing, by wire transfer. Interest shall
be calculated on the basis of a 360-day year consisting of twelve 30-day
months. Principal of the Exchange Bonds is payable semiannually in
installments on each February 20 and August 20, commencing on February 20, 1997
(each, a "Principal Payment Date"), in the amounts set forth below, at the
Issuer's option, at the corporate office of the Trustee or by check mailed on
such Principal Payment Date to the registered owners thereof on the close of
business on the February 6 or August 6, as the case may be, immediately
preceding such Principal Payment Date or, if a Bondholder owning $2.0 million
or more in aggregate principal amount (or such lesser principal amount as
results from all payments of principal and redemptions in respect of Existing
Bonds or any additional series of Bonds in the original principal amount of
$2.0 million) requests in writing, by wire transfer.
Percentage of
Original Principal
Payment Date Amount Payable
February 20, 1997 0.2045%
August 20, 1997 0.0000%
February 20, 1998 0.0000%
August 20, 1998 0.0000%
February 20, 1999 0.0000%
August 20, 1999 0.5933%
February 20, 2000 0.6129%
August 20, 2000 0.0000%
February 20, 2001 0.0000%
August 20, 2001 1.3753%
February 20, 2002 1.4691%
August 20, 2002 2.2184%
February 20, 2003 2.3565%
August 20, 2003 2.9328%
February 20, 2004 3.1031%
August 20, 2004 3.2796%
February 20, 2005 3.4687%
August 20, 2005 3.5977%
February 20, 2006 3.7820%
August 20, 2006 2.8098%
February 20, 2007 3.0076%
August 20, 2007 4.8415%
February 20, 2008 5.1145%
August 20, 2008 5.0057%
February 20, 2009 5.2949%
August 20, 2009 5.5185%
February 20, 2010 5.8300%
August 20, 2010 5.7248%
February 20, 2011 6.0590%
August 20, 2011 6.4800%
February 20, 2012 6.8808%
August 20, 2012 8.4390%
Redemption
Mandatory Redemption
In the event of (i) the sale or disposition of any of the Collateral, any
Project or portion thereof or any direct or indirect interest of the Company,
any PIC Entity or any Project Entity in any Project or (ii) an event of
casualty, loss or condemnation with respect to any Project (each, a "Mandatory
Redemption Event") then there shall be deposited in the U.S. Mandatory
Redemption Account if such Mandatory Redemption Event relates to a U.S. Project
or in the International Mandatory Redemption Account if such Mandatory
Redemption Event relates to a Non-U.S. Project, all proceeds of any
distributions resulting from or arising out of such Mandatory Redemption Event
received by the Company, any PIC Entity, or any person on behalf of the Company
or any PIC Entity in excess of $2.0 million in the aggregate (net of related
unreimbursed reasonable costs and expenses) in any calendar year that may be
legally distributed or paid to the Company or any PIC Entity, or to any person
or entity on behalf of the Company or any PIC Entity, without contravention of
any Project agreement, unless (a) the Company provides a certificate to the
Trustee (supported by a certificate to the Trustee from the Consolidating
Engineer) stating that such Mandatory Redemption Event (without giving effect
to any required redemption that would otherwise be required in respect thereof)
would not result in either the projected Company Debt Service Coverage Ratio
being less than 1.7:1 or the projected Consolidated Debt Service Coverage Ratio
(if then applicable) being less than 1.25:1, in each case for each Future Ratio
Determination Period and (b) the rating of the Bonds in effect immediately
prior to the Mandatory Redemption Event is Reaffirmed. Notwithstanding the
foregoing, the applicable Consolidated Debt Service Coverage Ratio, for
purposes of determining whether amounts are to be deposited in the Mandatory
Redemption Accounts or for any other purposes under the Indenture, need not be
satisfied on and after the time that more than four Projects have been
transferred to the Project Portfolio. It is likely that, in the event of a
casualty, loss or condemnation of a Project, a Project agreement or other
instrument governing the indebtedness incurred by the Project Entity to finance
such Project will require that the proceeds of any insurance or condemnation
award be applied to the redemption of such indebtedness or for other specified
purposes. Accordingly, there is no assurance that the Company, any PIC Entity,
or any person or entity on behalf of the Company or any PIC Entity, will
receive any distribution from the proceeds of such a Mandatory Redemption
Event.
The Existing Bonds, and all additional series of Bonds, if any, shall be
subject to mandatory redemption, in whole or in part, to the extent that at any
time (after giving effect to transfers required to be made to the other
Accounts and Funds on such date pursuant to the Indenture), the aggregate
amount of monies on deposit in the U.S. and International Mandatory Redemption
Accounts is in excess of $2.0 million. The amount of Bonds required to be so
redeemed pursuant to the mandatory redemption provisions of the Indenture shall
not exceed the amount necessary (after giving effect to such mandatory
redemption) to satisfy the coverage ratio requirements described above as are
then applicable to be met and the rating on the Bonds in effect immediately
prior to the Mandatory Redemption Event to be Reaffirmed.
Mandatory redemptions shall be made at a redemption price equal to 100% of
the principal amount of the Bonds to be redeemed plus interest thereon accrued
to the date of such redemption, plus a premium, if any, provided for in the
supplemental indenture for each series of Bonds to be redeemed. For the
Exchange Bonds, such premium is equal to that payable were the Exchange Bonds
to be redeemed at the Issuer's option on such date to the extent that the
mandatory redemption results from a sale or other voluntary disposition of any
Collateral or any interest in a Project (or if no optional redemption is
available, a premium determined as the excess, if any, of the present value of
the remaining payments due on the Exchange Bonds, discounted at a rate which is
equal to the then current treasury rate (the "Applicable Treasury Rate") on the
most actively traded security having a maturity approximately equal to the
remaining average life of the Exchange Bonds, plus one-half of one percent over
the par value of such Exchange Bonds).
Interest earned on amounts (i) on deposit in the U.S. Mandatory Redemption
Account will be transferred to the U.S. Project Account and (ii) on deposit in
the International Mandatory Redemption Account will be transferred to the
International Project Account on each Monthly Distribution Date. Any
determination of mandatory redemption shall be made within 60 days following
the applicable Payment Date. The Trustee will select the Bonds to be redeemed
pro rata as provided in the Indenture. The Bonds may be redeemed in multiples
of $1,000 only. Notice of redemption will be mailed not less than 30 nor more
than 60 days before the redemption date to each holder whose Bonds are to be
redeemed at such holder's address of record. On and after the redemption date,
interest shall cease to accrue on the portion of the Bonds called for
redemption.
If, on any Monthly Distribution Date, after giving effect to any transfers
required to be made to the other Accounts and Funds and after deducting any
amounts required to effect a mandatory redemption on such Monthly Distribution
Date, the aggregate balance in the Mandatory Redemption Accounts is equal to or
less than $2.0 million (or exceeds $2.0 million due only to funds on deposit
therein not needed to effect a mandatory redemption because the debt service
coverage ratio requirements described above are otherwise met and the rating of
the Bonds has been Reaffirmed) and (i) transfers to the Distribution Funds
would be permitted under the Indenture, such monies on deposit in the U.S. and
International Mandatory Redemption Accounts may be transferred to the U.S. and
International Distribution Suspense Funds, respectively, or (ii) transfers to
the Distribution Funds would not be permitted under the Indenture, such monies
on deposit in the U.S. and International Mandatory Redemption Accounts shall be
held in such accounts until the next Monthly Distribution Date on which
transfers to the Distribution Funds would be permitted under the Indenture, at
which time such amounts may be transferred to the applicable Distribution
Suspense Funds.
Optional Redemption.
The Exchange Bonds will be redeemable, at the Issuer's option in whole or
in part, at any time on or after August 20, 2001, and prior to maturity, upon
not less than 30 nor more than 60 days prior notice at the following redemption
prices (expressed as a percentage of principal amount), plus accrued interest
to the date of redemption, if redeemed during the 12-month period commencing on
or after August 20 of the years set forth below:
Redemption
Year Price
2001 105.8125%
2002 104.3594%
2003 102.9063%
2004 101.4532%
2005 and thereafter 100.0000%
In addition, all distributions and other amounts received by the Company,
any PIC Entity, or any other person on behalf of the Company or any PIC Entity
(net of related unreimbursed costs and expenses), that may be legally
distributed or paid to the Company or any PIC Entity without contravention of
any Project agreement, resulting from or arising out of (i) settlements,
judgments or other payments received in respect of a Project in connection with
any litigation, arbitration or similar proceeding at law or in equity or any
administrative proceeding, except to the extent that any such proceeding is in
connection with a Mandatory Redemption Event, (ii) any monies released from an
escrow or similar account established by or on behalf of a Project in
connection with the financing or contractual arrangements of such Project
(other than (a) monies held in an escrow or similar account established under
the Project's financing arrangements for the purpose of governing the
disbursement of such Project's revenue, either before or subsequent to a
default by a Project under any of such Project's contractual obligations, (b)
moneys held in operating or similar reserve accounts established for Project
operating contingencies and funded out of the Project's operating cash flow and
(c) monies held in an escrow or similar account as a construction contingency
or for the payment of development or similar fees), (iii) any buy-out or
settlement of a contract to which a Project is a party or (iv) any transaction
which results in the receipt of cash or other property upon the sale, transfer
or other disposition (other than as set forth in clause (iii) hereof) of any
contractual rights of a Project except to the extent that such transaction is
in connection with a Mandatory Redemption Event (each of clauses (i) through
(iv) being an "Extraordinary Financial Distribution") will be deposited in the
U.S. Extraordinary Distribution Account if such Extraordinary Distribution
relates to a U.S. Project and in the International Extraordinary Distribution
Account if it relates to a Non-U.S. Project.
If, on any Monthly Distribution Date, after giving effect to any transfers
required to be made to the other Accounts and Funds on such Monthly
Distribution Date, any amounts remain on deposit in either Extraordinary
Distribution Account and transfers to the Distribution Funds would be permitted
under the Indenture, the Company may request the Trustee to transfer 100% of
the monies in the U.S. Extraordinary Distributions Account to the U.S.
Distribution Suspense Fund and the Company, on behalf of any PIC International
Entity, may request the International Collateral Agent to transfer 100% of the
monies in the International Extraordinary Distribution Account to the
International Distribution Suspense Fund, provided that the Company provides a
certificate (with supporting calculations attached to such certificate) to the
Trustee or the International Collateral Agent, as the case may be, stating that
as of such Monthly Distribution Date after giving effect to such proposed
transfer the following is true: (i) the conditions for transfers to the
Distribution Funds, as described under "Certain Covenants - Limitations or
Distributions," have been satisfied; and (ii) the projected Company Debt
Service Coverage Ratio and the projected Consolidated Debt Service Coverage
Ratio (if then applicable) equal or exceed 1.7:1 and 1.25:1, respectively, for
each Future Ratio Determination Period. In addition, if the amount on deposit
in either Extraordinary Distribution Account is equal to or greater than $5.0
million on any Monthly Distribution Date, after giving effect to any transfer
required to be made to the other Accounts and Funds on such Monthly
Distribution Date, in order for transfers to the appropriate Distribution
Suspense Fund to be made from such Extraordinary Distribution Account, the
Consolidating Engineer must provide a certificate to the Trustee or the
International Collateral Agent, as the case may be, stating that (i) it has
reviewed and confirmed the reasonableness of (in accordance with the guidelines
set forth in the Indenture) the projections prepared by the Company of Cash
Available for Distribution and Cash Available from Operations (if the projected
Consolidated Debt Service Coverage Ratio is then applicable) after giving
effect to the event or events which caused such Extraordinary Financial
Distribution and (ii) based on such review it confirms the reasonableness of
the calculations supporting the Company's certification described above.
If any balance in excess of $2.0 million remains on deposit in either
Extraordinary Distribution Account for more than 35 days, then prior to the
next Monthly Distribution Date the Company shall deliver to the Trustee a
certificate setting forth its election either (i)(a) in the case of a balance
in the U.S. Extraordinary Distribution Account, to apply any such amount to
redeem or partially redeem the Existing Bonds and additional series of Bonds,
if any, which redemption shall be deemed a prepayment or partial prepayment of
the Company Notes; and (b) in the case of a balance in the International
Extraordinary Distribution Account, to instruct one or more PIC International
Entities to apply any such amount to redeem or partially redeem any PIC
International Entity Notes, which amounts will then be used by the Company to
redeem or partially redeem the Bonds (which redemption shall be deemed a
prepayment or partial prepayment of the Company Notes) or (ii) to have the
amount of any such balance segregated and held in the U.S. or International
Extraordinary Distribution Account, as the case may be, until the next Monthly
Distribution Date, if any, with respect to which the certificates described in
the immediately preceding paragraph, are delivered, whereupon on such Monthly
Distribution Date such balance shall be transferred to the appropriate
Distribution Suspense Fund.
If, on any Monthly Distribution Date, after giving effect to any transfers
required to be made to other Accounts and Funds, the balance in either
Extraordinary Distribution Account is equal to or less than $2.0 million and
transfers to the Distribution Funds would not be permitted under the Indenture,
such balance shall be held in such Extraordinary Distribution Account until the
next Monthly Distribution Date, if any, with respect to which transfers to the
Distribution Funds would be permitted under the Indenture, whereupon such
balance shall be transferred to the appropriate Distribution Suspense Fund.
If the Company elects to redeem the Bonds, the Trustee will select the
Bonds to be redeemed pro rata as provided in the Indenture. The Bonds may be
redeemed in multiples of $1,000 only. Notice of redemption will be mailed to
holders not less than 30 nor more than 60 days before the redemption date to
each holder whose Bonds are to be redeemed at such holder's address of record.
On any date after the redemption date, interest shall cease to accrue on the
portion of the Bonds called for redemption.
Offer to Purchase
As described below, upon the occurrence of a Change of Control, the Issuer
will be obligated to make an offer to purchase all Existing Bonds and all
additional series of Bonds, if any, then outstanding at a purchase price equal
to 101% of the principal amount thereof, together with accrued and unpaid
interest, if any, to the date of purchase. See "Certain Covenants - Change of
Control."
Ratings
Moody's Investors Service, Inc., and Duff & Phelps Credit Rating Co.
assigned the Exchange Bonds ratings of Ba3 and BB-, respectively, in October
1996. Each such rating reflects only the view of the applicable Rating Agency
at the time the rating is issued, and any explanation of the significance of
such rating may only be obtained from such Rating Agency. There is no assurance
that any such credit rating will remain in effect for any given period of time
or that such rating will not be lowered, suspended or withdrawn entirely by the
applicable Rating Agency if, in such Rating Agency's judgment, circumstances so
warrant. Any such lowering, suspension or withdrawal of any rating may have an
adverse effect on the market price or marketability of the Exchange Bonds.
Collateral for the Exchange Bonds
General
To secure the payment of the Existing Bonds and all additional series of
Bonds, if any, PEC, the Company and the Issuer have granted the security
interests described below pursuant to the PEC Stock Pledge Agreement, the
Issuer Security Agreement, the Company Security Agreement and the Company Stock
Pledge Agreement (each as defined below) (collectively, the "Security
Documents"). Pursuant to the PEC Stock Pledge Agreement, PEC has pledged to
Bankers Trust Company, as collateral agent (the "Collateral Agent") for the
benefit of the Secured Parties (as defined below), all of the issued and
outstanding capital stock of the Company. Pursuant to the Issuer Security
Agreement, the Issuer has collaterally assigned to the Collateral Agent for the
benefit of the Secured Parties (i) the Company Notes, including, without
limitation, the Initial Company Note representing the loan of the proceeds of
the issuance of the Old Bonds, (ii) its interest under the Company Loan
Agreement and (iii) other personal property of the Issuer. Pursuant to the
Company Security Agreement, to secure the Company Guaranty and the payment of
the Bonds, the Company has pledged to the Collateral Agent for the benefit of
the Secured Parties (i) all of its rights with respect to each Account and Fund
(excluding the International Accounts and Funds and the Distribution Funds),
including all funds and investments in securities and other instruments from
time to time therein and all letters of credit or other instruments
substituting for funds in any such Accounts or Funds (collectively, the "U.S.
Account Rights"), (ii) all of the Company's interest in distributions from PIC
U.S. Entities and (iii) all of the Company's interest in and under the
Additional Projects Contract. Pursuant to the Company Stock Pledge Agreement,
to secure the Company Guaranty and the payment of the Bonds, the Company
pledged to the Collateral Agent for the benefit of the Secured Parties (i) all
of the issued and outstanding capital stock of the Issuer, (ii) all of the
issued and outstanding capital stock of each PIC U.S. Entity and (iii) 60% of
the issued and outstanding capital stock of each PIC International Entity. The
aforesaid interests and rights so pledged are referred to herein, collectively,
as the "Collateral." Although the Bondholders have recourse against the Issuer
(whose sole assets are the Company Notes and the Company Loan Agreement) and,
through the Guaranties, against the Company and the PIC U.S. Entities, and
against the Collateral for payment of the Bonds, the ability of the Company to
make payments under the Company Notes, and consequently the ability of the
Issuer to make payments on the Bonds, depends entirely upon the performance of
the Projects and their ability to make distributions through the PIC U.S.
Entities to the Company. See "Risk Factors - Financial Risks." Each of PEC, the
Company and the Issuer may have available to it certain defenses against
enforcement of the Security Documents if the Collateral Agent proceeds against
the Collateral under the applicable Security Documents. See "Risk Factors -
Default on Project-level Debt; Enforcement of Rights and Realization of
Collateral."
All of the Collateral is held by the Collateral Agent for the benefit of
the Secured Parties as collateral and security for the Bonds, the Company
Guaranty and, on a subordinated basis, the obligations of Panda International
or any affiliate thereof under any Letter of Credit reimbursement agreement.
Individually, the pledges of the capital stock of each of the Issuer,
Panda Interholding and Panda Cayman do not constitute a "substantial portion"
(as defined in Rule 3-10 of Regulation S-X promulgated under the Securities
Act) of the Collateral securing the Existing Bonds. Except as discussed in the
following paragraph, separate financial statements of each of the Issuer, Panda
Interholding and Panda Cayman are not presented in this Prospectus because the
Company believes that such disclosure is not material to a prospective
purchaser of the Exchange Bonds. The financial statements of the Company
contained in this Prospectus present the financial position and results of
operations of the Company and all of its subsidiaries on a consolidated basis.
The consolidated financial statements of the Company as of December 31, 1994
and December 31, 1995 and for each of the three years in the period ended
December 31, 1995 are also the consolidated financial statements of Panda
Interholding as of such dates and for such periods. The unaudited condensed
consolidated financial statements of Panda Interholding as of September 30,
1996 and for the nine months then ended are included separately in Appendix F
to this Prospectus.
PEC Stock Pledge Agreement
PEC has executed and delivered a Stock Pledge Agreement to the Collateral
Agent (the "PEC Stock Pledge Agreement") for the benefit of the Secured Parties
pledging all of the issued and outstanding capital stock of the Company.
Issuer Security Agreement
The Issuer has entered into a Security Agreement with the Collateral Agent
(the "Issuer Security Agreement") for the benefit of the Secured Parties
providing for the collateral assignment of all of the Issuer's personal
property, including, without limitation, (i) the Company Notes, (ii) the
Issuer's rights under the Company Notes, (iii) all of the Issuer's other
contract rights, receivables and insurance proceeds, (iv) all of the Issuer's
interest in and under the Company Loan Agreement, (v) all of the Issuer's other
assets and (vi) all proceeds of the foregoing.
Company Security Agreement
The Company has entered into a Security Agreement with the Collateral
Agent (the "Company Security Agreement") for the benefit of the Secured Parties
providing for the collateral assignment of (i) all of the Company's interests
in and rights to receive distributions from PIC Entities in respect of U.S.
Projects, (ii) the U.S. Account Rights, (iii) all of the Company's interest in
and rights under the Additional Projects Contract and (iv) all proceeds of the
foregoing.
Company Stock Pledge Agreement
The Company has entered into a Stock Pledge Agreement with the Collateral
Agent (the "Company Stock Pledge Agreement") for the benefit of the Secured
Parties providing for the pledge of (i) all the issued and outstanding capital
stock of the Issuer and each PIC U.S. Entity and (ii) 60% of the issued and
outstanding capital stock of each PIC International Entity. Currently, there
exists one PIC U.S. Entity, Panda Interholding, and one PIC International
Entity, Panda. Individually, the pledges of the capital stock of each of the
Issuer, Panda Interholding and Panda Cayman do not constitute a "substantial
portion" (as defined in Rule 3-10 of Regulation S-X promulgated under the
Securities Act) of the Collateral securing the Existing Bonds. Except as
discussed in the following paragraph, separate financial statements of each of
the Issuer, Panda Interholding and Panda Cayman are not presented in this
Prospectus because the Company believes that such disclosure is not material to
a prospective purchaser of the Exchange Bonds. The financial statements of the
Company contained in this Prospectus present the financial position and results
of operations of the Company and all of its subsidiaries on a consolidated
basis. The consolidated financial statements of the Company as of December 31,
1994 and December 31, 1995 and for each of the three years in the period ended
December 31, 1995 are also the consolidated financial statements of Panda
Interholding as of such dates and for such periods. The unaudited condensed
consolidated financial statements of Panda Interholding as of September 30,
1996 and for the nine months then ended are included separately in Appendix F
to this Prospecus.
Sharing of Collateral
The Bondholders (represented by the Trustee), the Letter of Credit
Provider (when and if a Letter of Credit is provided as permitted by the
Indenture), the Trustee (collectively, the "Secured Parties") and the
Collateral Agent have entered into a Collateral Agency Agreement with the
Issuer and the Company, pursuant to which the Collateral Agent has been
appointed as agent for the Secured Parties and acts as such under the Security
Documents. Accordingly, the rights of the Secured Parties with respect to the
Collateral are shared among the Secured Parties in accordance with the terms of
the Collateral Agency Agreement as described in more detail below.
Collateral Agency Agreement
The Collateral Agency Agreement provides that, upon an Event of Default,
the Collateral Agent shall, on behalf of the Secured Parties, take such action
to exercise its remedies under the Security Documents as directed by the
Trustee acting pursuant to a request of the holders of a majority in aggregate
principal amount of all outstanding Bonds in accordance with and subject to the
terms and conditions set forth in the Indenture.
The proceeds of any sale or other realization upon the Collateral pursuant
to the Collateral Agent's exercise of remedies under the Security Documents are
to be distributed as follows:
First, to the Collateral Agent and the Trustee, ratably, in an amount
equal to any fees, costs, expenses and other amounts then due to them;
Second, to the Trustee for distribution in accordance with the Indenture,
an amount equal to the principal of and premium, if any, and interest on the
Existing Bonds and all additional series of Bonds, if any, and all other
amounts owed to the Bondholders pursuant to the Indenture;
Third, to the Letter of Credit Provider, in an amount equal to the unpaid
amount of all reimbursement obligations, interest and other obligations owed to
the Letter of Credit Provider; and
Fourth, to the applicable grantors and pledgors of the Collateral under
the Security Documents.
Remedies Under the Security Documents
If an Event of Default shall have occurred and be continuing and the
conditions contained in the Indenture have been satisfied, the Trustee may take
any or all of the following actions: (i) declare all or any portion of the
Issuer's obligations under the Indenture (or the Company's obligations under
the Company Notes) to be immediately due and payable; (ii) to the extent not
already in its possession, direct the Collateral Agent to take possession of
all or any portion of the Collateral; (iii) to the extent it has not already
done so, instruct all obligors on any of the Collateral to make payment
directly to the Collateral Agent; (iv) direct the Collateral Agent to take all
cash or cash proceeds in respect of the Collateral; (v) direct the Collateral
Agent to take actions necessary to protect the first priority perfected
security interest in the Collateral; (vi) direct the Collateral Agent to
foreclose or otherwise realize (as permitted by law) upon the Collateral; (vii)
direct the Collateral Agent to exercise all voting and other rights associated
with the capital stock included in the Collateral; (viii) direct the Collateral
Agent to receive all distributions made by the U.S. Projects with respect to
the Collateral; and (ix) direct the Collateral Agent to exercise any additional
rights afforded a secured party under the Uniform Commercial Code.
Nonetheless, there is no assurance that a foreclosure or other realization
upon the Collateral will produce proceeds in an amount that would be sufficient
to pay the principal of and accrued and unpaid interest on the Secured
Obligations (as defined in the Collateral Agency Agreement), including, without
limitation, the Existing Bonds. Furthermore, the ability of the Collateral
Agent (on behalf of the Secured Parties, including the Bondholders) to
foreclose or otherwise realize upon the Collateral following the occurrence of
an Event of Default under the Security Documents will be subject in certain
instances to perfection and priority issues and to practical problems
associated with the realization of security interests in collateral of a type
such as the Collateral. There can be no assurance that procedural impediments
or delays will not affect the prompt execution of foreclosure or other
realization upon the Collateral.
Certain Bankruptcy Limitations
The right of the Collateral Agent to repossess and dispose of the
Collateral upon the occurrence of an Event of Default is likely to be
significantly impaired by applicable law, if a bankruptcy, insolvency or
similar proceeding were to be commenced by or against the Issuer, the Company
or PEC or if a receiver were appointed with respect to PEC, the Company or the
Issuer, prior to the Collateral Agent having repossessed the Collateral. Under
bankruptcy law, a secured creditor such as the Collateral Agent is prohibited
from repossessing its security from a debtor in a bankruptcy case, or from
disposing of security repossessed from such debtor, without bankruptcy court
approval. Moreover, the bankruptcy law permits the debtor to continue to retain
and use collateral even though the debtor is in default under applicable debt
instruments, provided that the secured creditor is given "adequate protection."
The meaning of the term "adequate protection" may vary according to the
circumstances, but it is intended in general to protect the value of the
secured creditor's interest in the collateral and may include cash payments or
the granting of additional security, if and at such times as the court in its
discretion determines, for any diminution in the value of the collateral as a
result of the stay of repossession or disposition or any use of the collateral
by the debtor during the pendency of the bankruptcy case. Generally, adequate
protection payments, in the form of interest or otherwise, are not required to
be paid by the debtor to a secured creditor unless the bankruptcy court
determines that the value of the secured creditor's interest in the collateral
is declining during the pendency of the bankruptcy case. In view of the lack of
a precise definition of the term "adequate protection" and the broad
discretionary powers of a bankruptcy court, it is impossible to predict how
long payments on the Bonds, including the Exchange Bonds, could be delayed
following commencement of a bankruptcy case, whether or when the Collateral
Agent could repossess or dispose of the Collateral or whether or to what extent
holders of the Bonds, including the Exchange Bonds, would be compensated for
any delay in payment or loss of value of the Collateral through the requirement
of "adequate protection."
The Accounts and Funds
The Company has established and maintains with and in the name of the
Trustee, acting as agent for the Collateral Agent for the benefit of the
Secured Parties, the U.S. Project Account, the Debt Service Fund, the Debt
Service Reserve Fund, the Company Expense Fund, the Capitalized Interest Fund,
the U.S. Mandatory Redemption Account, the U.S. Extraordinary Distribution
Account, and the U.S. Distribution Suspense Fund (collectively, the "U.S.
Accounts"). The Company, on behalf of the PIC International Entities, will
establish and maintain with and in the name of the Trustee acting as agent for
the PIC International Entities for the benefit of the Company (referred to in
this capacity as the "International Collateral Agent") the International
Project Account, the International Mandatory Redemption Account, the
International Extraordinary Distribution Account, and the International
Distribution Suspense Fund.
In addition, the Company has established a U.S. Distribution Fund, and it
will establish on behalf of the PIC International Entities, an International
Distribution Fund. The U.S. Distribution Fund is in the name and sole control
of the Company, and the International Distribution Fund will be in the name and
sole control of the PIC International Entities.
Project Accounts
All (i) distributions and other amounts received by the Company, any PIC
U.S. Entity or any person on behalf of the Company or any PIC U.S. Entity,
from, or in connection with, the U.S. Projects that may be legally distributed
or paid to the Company or any PIC U.S. Entity without contravention of any
Project agreement (other than in each case Extraordinary Financial
Distributions (which shall be applied as set forth in "Redemption - Optional
Redemption" above) and distributions received that are required to be deposited
in the Mandatory Redemption Account (which shall be applied as set forth in
"Redemption - Mandatory Redemption" above), (ii) interest earned and received
on amounts on deposit in the U.S. Accounts and Funds, (iii) payments of
regularly scheduled interest and, if applicable, principal on the PIC
International Entity Notes (other than in connection with any redemption or
partial redemption thereof) and (iv) payments resulting from the redemption or
partial redemption of the outstanding Other International Notes upon the
occurrence of an International Redemption Event, are required to be deposited
in the U.S. Project Account. All (i) distributions and other amounts received
by any PIC International Entity or any person on behalf of any PIC
International Entity, from or in connection with, the Non-U.S. Projects that
may be legally distributed or paid to any PIC International Entity without
contravention of any Project Agreement and (ii) interest earned and received on
amounts on deposit in the International Accounts and Funds are required to be
deposited in the International Project Account.
The Trustee shall, on the first Business Day of each calendar month (each
a "Monthly Distribution Date"), transfer monies from the U.S. Project Account
(to the extent then available therein after giving effect to any transfers to
be made to the U.S. Project Account on such Monthly Distribution Date and after
withdrawing an amount equal to the agreed-upon fees and reasonable expenses of
the Trustee and its agents and counsel due under the Indenture), in the
respective amounts and in the order of priority as follows:
(i) to the Debt Service Fund (the "Debt Service Fund"), for application
to the payment of principal and interest on the Bonds, an amount
equal to the excess, if any, of (a) the aggregate amount of
interest (less any amount on deposit in the Capitalized Interest
Fund in respect of such payment) and, if applicable, principal due
and payable on the Company Notes (including any past due amounts)
on the Payment Date for each series of Bonds then outstanding next
following the day immediately preceding such Monthly Distribution
Date (other than in connection with a call for redemption) over (b)
the amount then on deposit in the Debt Service Fund.
(ii) to the Capitalized Interest Fund (the "Capitalized Interest Fund"),
an amount equal to the excess, if any, of (a) the Capitalized
Interest Requirement then in effect over (b) the amount then on
deposit in the Capitalized Interest Fund, after giving effect to
any withdrawals from such Fund on such date;
(iii) to the Debt Service Reserve Fund (the "Debt Service Reserve Fund"),
an amount equal to the excess, if any, of (a) the Debt Service
Reserve Requirement then in effect over (b) the sum of (1) the
amount then on deposit in the Debt Service Reserve Fund, after
giving effect to any withdrawals from such Fund on such date, and
(2) the amount available to be drawn under any Letter of Credit,
after giving effect to any drawings under any Letter of Credit on
such date;
(iv) to the Company Expense Fund (the "Company Expense Fund"), an amount
equal to the excess, if any, of (a) the sum of (1) the Company
Expenses Amount for the applicable calendar year plus (2) the
Annual Letter of Credit Fee, if any, for such calendar year over
(b) the aggregate amount deposited in the Company Expense Fund
since the beginning of such calendar year; and
(v) to the U.S. Distribution Suspense Fund (the "U.S. Distribution
Suspense Fund"), the remaining balance, if any, on deposit in the
U.S. Project Account.
On each Monthly Distribution Date, the International Collateral Agent
shall transfer monies from the International Project Account (to the extent
then available therein after giving effect to any transfers to be made to the
International Project Account on such Monthly Distribution Date and after
withdrawing an amount equal to the agreed upon fees and reasonable expenses of
the International Collateral Agent and its agents and counsel due under the
Indenture) (i) first to the payment of any amount then due on any PIC
International Entity Note and (ii) then to the International Distribution
Suspense Fund, the remaining balance, if any on deposit in the International
Project Account.
Debt Service Fund
Amounts on deposit in the Debt Service Fund shall be applied by the
Trustee solely to pay interest and principal (whether at stated maturity or by
acceleration or otherwise, other than in connection with a call for
redemption), due and payable on the Company Notes, as and when provided under
the Company Notes (for application by the Trustee to the payment of interest
and principal on the Bonds). Currently, the balance in the Debt Service Fund
is approximately $6.4 million. If, on any Payment Date the amounts on deposit
in the Debt Service Fund (after giving effect to all transfers to the Debt
Service Fund on such date) are insufficient for the payment in full of the
interest and, if applicable, principal on the Company Notes scheduled to be
paid on such date, including any past due amounts (such deficiency hereinafter
referred to as a "Debt Service Deficiency"), an amount equal to such Debt
Service Deficiency shall be withdrawn and transferred to the Debt Service Fund
first, from the U.S. Distribution Suspense Fund, then, from the U.S.
Extraordinary Distribution Account (using Available Amounts only), then, from
the Company Expense Fund, then, from the Debt Service Reserve Fund, the monies
on deposit therein, then, from the Debt Service Reserve Fund, the proceeds
received by the Trustee after making a drawing on the Letter of Credit, if any,
then, from the Capitalized Interest Fund and then, from the U.S. Mandatory
Redemption Account (using Available Amounts only); provided, however, that if
there are not sufficient funds in the U.S. Accounts and Funds to eliminate a
Debt Service Deficiency, monies will be transferred from the International
Accounts and Funds by the International Collateral Agent to effect a redemption
or partial redemption of the Other International Notes in an amount equal to
the lesser of (A) the amount necessary to cure the remaining Debt Service
Deficiency, (B) the entire outstanding principal amount of the Other
International Notes and (C) the amount then on deposit in the International
Accounts and Funds. The amount of any Other International Note that is redeemed
or partially redeemed for purposes of eliminating a Debt Service Deficiency
will be transferred to the U.S. Project Account and then from the U.S. Project
Account to the Debt Service Fund. PEC has agreed to cause the Company (and, if
necessary, to make contributions to the Company) to loan $6.4 million to a PIC
International Entity evidenced by an Other International Note, on or prior to
the earlier of (i) the first date on which Commercial Operations have been
achieved by any Non-U.S. Project in the Project Portfolio and (ii) the date of
transfer to the Project Portfolio of any Non-U.S. Project that has already
achieved Commercial Operations. The Company may, but is under no obligation to,
lend additional amounts to the PIC International Entities to create additional
Other International Notes.
Capitalized Interest Fund
Upon issuance of the Old Bonds, the Company delivered to the Trustee for
deposit in the Capitalized Interest Fund approximately $9.8 million out of the
loan by the Issuer to the Company of the proceeds from the issuance of the Old
Bonds, which is the current balance in the Capitalized Interest Fund. Monies
from time to time held on deposit in the Capitalized Interest Fund shall be
transferred to the Debt Service Fund on the Interest Payment Dates and in the
amounts set forth in each Series Supplemental Indenture. On any Monthly
Distribution Date on which the Company provides a certificate to the Trustee
(supported by a certificate to the Trustee from the Consolidating Engineer)
stating that (i) the Company Debt Service Coverage Ratio and the Consolidated
Debt Service Coverage Ratio (if then applicable) for the 12 months immediately
preceding the month in which such Monthly Distribution Date occurs equal or
exceed 1.7:1 and 1.25:1, respectively, and (ii) the projected Company Debt
Service Coverage Ratio and the projected Consolidated Debt Service Coverage
Ratio (if then applicable) will (after giving effect to any distribution from
the Capitalized Interest Fund to the U.S. Distribution Suspense Fund proposed
to be made on such Monthly Distribution Date), equal or exceed 1.7:1 and
1.25:1, respectively, for each Future Ratio Determination Period, then all
amounts in the Capitalized Interest Fund may be transferred to the U.S.
Distribution Suspense Fund. Upon any such transfer, the Capitalized Interest
Requirement shall be zero unless and until a new Capitalized Interest
Requirement is established by a subsequent Series Supplemental Indenture. If,
on any Monthly Distribution Date, the amount on deposit in the Capitalized
Interest Fund (after giving effect to all transfers to the Capitalized Interest
Fund to be made on such Monthly Distribution Date) is less than the Capitalized
Interest Requirement in effect on such date (each such deficiency, a
"Capitalized Interest Deficiency"), an amount equal to such Capitalized
Interest Deficiency shall be withdrawn and transferred to the Capitalized
Interest Fund first, from the U.S. Distribution Suspense Fund, then from the
U.S. Extraordinary Distribution Account (using Available Amounts only), then
from the Company Expense Fund, then from the Debt Service Reserve Fund, the
monies on deposit therein, then from the Debt Service Reserve Fund, the
proceeds received by the Trustee after making a drawing on the Letter of
Credit, if any, and then from the U.S. Mandatory Redemption Account (using
Available Amounts only); provided, however, that if there are not sufficient
funds in the U.S. Accounts and Funds to eliminate a Capitalized Interest
Deficiency, monies will be transferred from the International Accounts and
Funds (after giving effect to any transfers therefrom in respect of a Debt
Service Deficiency) by the International Collateral Agent to effect a
redemption or partial redemption of the Other International Notes in an amount
equal to the lesser of (A) the amounts on deposit in the International Accounts
and Funds, (B) the outstanding principal amount of the Other International
Notes and (C) the amount of such Capitalized Interest Deficiency. The amounts
realized from the redemption or partial redemption of any Other International
Notes for purposes of eliminating a Capitalized Interest Deficiency will be
transferred to the U.S. Project Account and then from the U.S. Project Account
to the Capitalized Interest Fund. PEC has agreed to cause the Company (and, if
necessary, to make contributions to the Company) to loan $6.4 million to a PIC
International Entity evidenced by an Other International Note, on or prior to
the earlier of (i) the first date on which Commercial Operations have been
achieved by any Non-U.S. Project in the Project Portfolio and (ii) the date of
transfer to the Project Portfolio of any Non-U.S. Project that has already
achieved Commercial Operations. The Company may, but is under no obligation to,
lend additional amounts to the PIC International Entities to create additional
Other International Notes.
Debt Service Reserve Fund
Upon the issuance of the Old Bonds, the Company delivered to the Trustee
for deposit in the Debt Service Reserve Fund $6.4 million out of the loan by
the Issuer to the Company of the proceeds from the issuance of the Old Bonds,
which is the current balance in the Debt Service Reserve Fund. The Trustee
shall apply amounts held in the Debt Service Reserve Fund solely to eliminate
any Debt Service Deficiency or Capitalized Interest Deficiency.
At any time when the Capitalized Interest Requirement for any series of
Bonds is zero, in lieu of maintaining monies in the Debt Service Reserve Fund,
all or a portion of the Debt Service Reserve Requirement in respect of such
series may be satisfied by the delivery to the Trustee of one or more Letters
of Credit.
On any Payment Date on which a Debt Service Deficiency exists, an amount
equal to any Debt Service Deficiency, subject to the order of priority
established under "Debt Service Fund" above, will be withdrawn from the Debt
Service Reserve Fund, with any Letter of Credit being drawn upon only after all
monies on deposit in the Debt Service Reserve Fund have been exhausted.
If thirty days prior to the expiration of any Letter of Credit delivered
in respect of the Debt Service Reserve Requirement, such Letter of Credit has
not been renewed, extended or replaced, the Trustee shall make a drawing
thereunder in an amount equal to the lesser of (i) the excess, if any, of (a)
the Debt Service Reserve Requirement then in effect over (b) the sum of the
undrawn face amount of all other Letters of Credit, if any, and the amount of
monies held in the Debt Service Reserve Fund and (ii) the maximum amount
available to be drawn under such Letter of Credit. The proceeds of any such
drawing shall be deposited in the Debt Service Reserve Fund to be applied in
accordance with the Indenture. If, on any Monthly Distribution Date, the amount
on deposit in the Debt Service Reserve Fund (after giving effect to all
transfers to the Debt Service Reserve Fund to be made on such Monthly
Distribution Date) is less than the Debt Service Reserve Requirement in effect
on such date (each such deficiency, a "Debt Service Reserve Deficiency"), an
amount equal to such Debt Service Reserve Deficiency shall be withdrawn and
transferred to the Debt Service Reserve Fund first, from the U.S. Distribution
Suspense Fund, then from the U.S. Extraordinary Distribution Account (using
Available Amounts only), then from the Company Expense Fund and then from the
U.S. Mandatory Redemption Account (using Available Amounts only); provided,
however, that if there are not sufficient funds in the U.S. Accounts and Funds
to eliminate a Debt Service Reserve Deficiency, monies will be transferred from
the International Accounts and Funds (after giving effect to any transfers
therefrom in respect of a Debt Service Deficiency or a Capitalized Interest
Deficiency) by the International Collateral Agent to effect a redemption or
partial redemption of the Other International Notes in an amount equal to the
lesser of (A) the amounts on deposit in the International Accounts and Funds,
(B) the outstanding principal amount of the Other International Notes and (C)
the amount of such Debt Service Reserve Deficiency. The amounts realized from
the redemption or partial redemption of any Other International Notes for
purposes of eliminating a Debt Service Reserve Deficiency will be transferred
to the U.S. Project Account and then from the U.S. Project Account to the Debt
Service Reserve Fund. PEC has agreed to cause the Company (and, if necessary,
to make capital contributions to the Company) to loan $6.4 million to a PIC
International Entity evidenced by an Other International Note, on or prior to
the earlier of (i) the first date on which Commercial Operations have been
achieved by any Non-U.S. Project in the Project Portfolio and (ii) the date of
transfer to the Project Portfolio of any Non-U.S. Project that has already
achieved Commercial Operations. The Company may, but is under no obligation to,
lend additional amounts to the PIC International Entities to create additional
Other International Notes.
Company Expense Fund
Except as otherwise provided in the Indenture, on each Monthly
Distribution Date monies held on deposit in the Company Expense Fund shall be
applied solely to pay all reasonable accrued and unpaid costs and expenses
incurred by or on behalf of the Issuer, the Company or any PIC Entity in
connection with the management of, and the general and administrative expenses
of, the Issuer, the Company or the PIC Entities through such Monthly
Distribution Date plus any portion of the Annual Letter of Credit Fee that is
due and payable or past due on such Monthly Distribution Date. Upon the
issuance of the Old Bonds, the Company delivered to the Trustee for deposit in
the Company Expense Fund $300,000, which is the current Company Expenses
Amount. The Company Expenses Amount is adjusted upward each year for inflation
and may be increased from time to time at the request of the Company, subject
to the limitations set forth in the Indenture. The current balance in the
Company Expense Fund is approximately $300,000.
Distribution Suspense Funds and Distribution Funds
On each Monthly Distribution Date, upon receipt of the appropriate
required Distribution Certificate from the Company, the Trustee shall transfer
from the U.S. Distribution Suspense Fund to the U.S. Distribution Fund and the
International Collateral Agent shall transfer from the International
Distribution Suspense Fund to the International Distribution Fund monies then
on deposit in such Distribution Suspense Funds, in the amount set forth in such
Distribution Certificate as being available for distribution to such
Distribution Fund (see "Certain Covenants - Limitations on Distributions"
below). The U.S. Distribution Fund is in the name and sole control of the
Company, the International Distribution Fund shall be in the name and sole
control of the PIC International Entities, and none of the Issuer, the Trustee,
the International Collateral Agent or the Bondholders will have any interest in
the Distribution Funds.
Mandatory Redemption Accounts
Promptly after receipt by the Company or any PIC Entity, monies received
in respect of Mandatory Redemption Events (subject to certain exceptions
described in "Redemption - Mandatory Redemption" above), shall be deposited in
the U.S. Mandatory Redemption Account if such Mandatory Redemption Event
relates to a U.S. Project and in the International Mandatory Redemption Account
if such Mandatory Redemption Event relates to a Non-U.S. Project, and all such
amounts deposited in the Mandatory Redemption Accounts shall remain therein
until they are used in the manner described in the Indenture for the mandatory
redemption of the Bonds or otherwise are transferred or distributed as provided
in the Indenture. See "Redemption - Mandatory Redemption" above.
Extraordinary Distribution Accounts
Promptly after receipt by the Company or any PIC Entity, all Extraordinary
Financial Distributions shall be deposited in the U.S. Extraordinary
Distribution Account if such Extraordinary Financial Distribution relates to a
U.S. Project and in the International Extraordinary Distribution Account if it
relates to a Non-U.S. Project, and all such amounts deposited in the
Extraordinary Distribution Accounts shall remain therein until they are used in
the manner described in the Indenture for the optional redemption of Bonds or
otherwise are transferred or distributed as provided in the Indenture. See
"Redemption - Optional Redemption" above.
Investment of Accounts and Funds
If directed by the Company or any PIC International Entity, the Trustee
and the International Collateral Agent, as the case may be, shall invest the
monies on deposit in the Accounts and Funds in Permitted Investments, provided
that if an Event of Default has occurred and is continuing, the Trustee or the
International Collateral Agent, as the case may be, may only invest monies in
the Accounts and Funds in Permitted Investments of a maturity of 30 days or
less. Neither the Trustee nor the International Collateral Agent shall be
liable for any losses incurred on such investments. Any earnings received from
and losses on Permitted Investments using monies in the U.S. Accounts and Funds
shall be deposited in the U.S. Project Account, and any earnings received from
and losses on Permitted Investments using monies in the International Accounts
and Funds shall be deposited in the International Project Account.
Identity and Role of Consolidating Engineer
ICF currently serves as the Consolidating Engineer in accordance with the
Indenture. Pursuant to the Indenture, the Consolidating Engineer is responsible
for providing certificates to the Trustee with respect to the calculations made
by the Company in certificates delivered to the Trustee in connection with (i)
any issuance of additional series of Bonds, (ii) Mandatory Redemption Events
and (iii) requests for distributions in respect of Extraordinary Financial
Distributions in excess of $5.0 million. In providing such certificates, the
Consolidating Engineer is entitled to rely on reports or certificates of
qualified Independent Engineers or other independent consultants. See
"Consolidating Engineer."
Certain Covenants
Limitations on Distributions
Transfers from the Distribution Suspense Funds to the corresponding
Distribution Funds are subject to the satisfaction of the following conditions
on the applicable Monthly Distribution Date and the Trustee shall have received
a certificate (with supporting calculations attached to such certificate) at
least two Business Days prior to such Monthly Distribution Date to the effect
that, after giving effect to such proposed transfer: (i) the amount on deposit
in the Debt Service Fund is equal to or greater than the aggregate amount of
interest (less amounts on deposit in the Capitalized Interest Fund in respect
of such interest payment) and, if applicable, principal due and payable on the
Bonds (including any past due amounts) on the Payment Date for each series of
Bonds then outstanding next following the day immediately preceding such
Monthly Distribution Date (other than in connection with a call for
redemption); (ii) the amount on deposit in each of the Capitalized Interest
Fund, the Debt Service Reserve Fund, the Company Expense Fund, the Mandatory
Redemption Accounts and the Extraordinary Distribution Accounts is equal to or
greater than the amount then required to be on deposit in each such Fund or
Account as of such date; (iii) no Default (to the knowledge of any officer of
the Company) or Event of Default under the Indenture has occurred and is
continuing; (iv) with certain exceptions, the Company Debt Service Coverage
Ratio is equal to or greater than 1.4:1 for the 12 months immediately preceding
the month in which such Monthly Distribution Date is to occur (or for such
shorter period as the Bonds have been outstanding); and (v) the projected
Company Debt Service Coverage Ratio is equal to or greater than 1.4:1 for the
12 months immediately succeeding the month in which such Monthly Distribution
Date is to occur (or for such shorter period as the series of Bonds with the
latest Final Stated Maturity is scheduled to be outstanding). Notwithstanding
the foregoing, on the Monthly Distribution Date immediately succeeding the
delivery to the Trustee of any Letter of Credit, any amounts on deposit in the
Debt Service Reserve Fund in excess of the Debt Service Reserve Requirement
minus the undrawn stated amount of all such Letters of Credit shall be
transferred by the Trustee to the U.S. Distribution Suspense Fund.
Neither the Company nor any PIC Entity shall make payments or
distributions to PEC or any other affiliate of the Company or payments to any
subordinated lender with respect to any subordinated loan and the Issuer shall
not distribute any dividends to the Company (such payments, distributions and
dividends being herein referred to as "Distributions") out of Project
Distributions or any Collateral except from, and to the extent of, in the case
of the Company or any PIC U.S. Entity, monies on deposit in the U.S.
Distribution Fund and, in the case of any PIC International Entity, monies on
deposit in the International Distribution Fund.
Limitations on Debt
Neither the Issuer nor the Company shall, nor shall the Company permit any
PIC Entity or Project Entity to, create or incur or suffer to exist any debt,
except:
(i) in the case of the Issuer, (a) the Existing Bonds and (b) additional
series of Bonds, if any, provided that at the time of the creation
of each additional series of Bonds (other than any series issued
solely in exchange for an equivalent aggregate principal amount of
outstanding Bonds of another series) (1) the Company provides a
certificate to the Trustee (supported by a certificate to the
Trustee from the Consolidating Engineer) stating that, after giving
effect to the issuance of such additional series of Bonds and the
application of the proceeds therefrom, the projected Company Debt
Service Coverage Ratio and the projected Consolidated Debt Service
Coverage Ratio (if then applicable) equal or exceed 1.7:1 and
1.25:1, respectively, for each Future Ratio Determination Period,
and (2) the rating (in effect immediately prior to the issuance of
such additional series) of the Bonds is Reaffirmed after giving
effect to the issuance of such additional series, provided, further,
that such Reaffirmation shall not be required if (A) neither the
Company nor any PIC Entity has acquired (or is acquiring in
connection with the issuance of such additional series of Bonds),
sold or otherwise disposed of, since the last date upon which the
Bonds were rated or a Reaffirmation of rating was given in respect
thereof, any amount of direct or indirect interests in one or more
Projects with respect to which the sum of (w) the aggregate purchase
prices of all such acquisitions and (x) the aggregate sales prices
and proceeds received in connection with any such disposition of all
such sales or other disposition, exceeds the greater of (y) $50
million and (z) 25% of the aggregate principal amount of the Bonds
then outstanding and (B) the aggregate principal amount of the
additional series of Bonds to be issued is less than the lesser of
(x) $50 million and (y) 25% of the then outstanding aggregate
principal amount of the Bonds then outstanding;
(ii) in the case of the Company, the Company Notes, the Company Guaranty
and allocations among the Company and affiliates of the Company of
overhead expenses not in excess at any one time of the Company
Expenses Amount;
(iii) in the case of the PIC International Entities, (a) the PIC
International Entity Notes and (b) subordinated debt (including
Other International Notes) payable to the Company or any PIC Entity
which shall not have independent rights of acceleration or remedies
without the occurrence of rights of acceleration or remedies on the
Company Notes;
(iv) in the case of the PIC U.S. Entities, (a) the PIC U.S. Entity
Guaranties and (b) subordinated debt payable to the Company or any
PIC Entity which shall not have independent rights of acceleration
or remedies without the occurrence of rights of acceleration or
remedies on the Company Notes; and
(v) in the case of Project Entities, Project debt and debt arising under
guaranties permitted pursuant to the Indenture.
Limitations on Guaranties
Neither the Issuer nor the Company shall, and the Company shall not permit
any PIC Entity or Project Entity to, contingently or otherwise, be or become
liable, directly or indirectly, in connection with any guaranty except (i)
guaranties by endorsement of negotiable instruments for deposit or collection
in the ordinary course of business; (ii) in the case of the Company, the
Company Guaranty; (iii) in the case of any PIC U.S. Entity, the PIC U.S. Entity
guaranties; and (iv) in the case of any Project Entity, guaranties of Project
Debt permitted by the Indenture and guaranties of payment or performance
created, required or expressly permitted to exist under any Project agreement.
Limitations on Liens
The Issuer and the Company shall not, and the Company shall not permit any
PIC Entity to, create or suffer to exist or permit any Lien upon or with
respect to any of their respective property or any Project Distributions,
except (i) Liens created or otherwise expressly permitted or required to exist
by the Indenture or any Transaction Document, (ii) Liens for taxes,
assessments, charges, levies, claims or obligations which are either not yet
due, are due but payable without penalty or are the subject of a good faith
contest by the Issuer, the Company, or any PIC Entity, as the case may be,
(iii) legal or equitable encumbrances deemed to exist by reason of the
existence of any litigation or other legal proceeding if the same are the
subject of a good faith contest, (iv) with respect to property of, or Project
Distributions to, any PIC Entity, Liens required or permitted to exist by the
Project agreements if such Liens were required to exist or existed (a) on the
date the Existing Bonds are issued or (b), with respect to Liens upon or with
respect to property or Project Distributions relating to a particular Project,
at the time the Company or any PIC Entity makes its initial capital
contribution or purchase price payment with respect to such Project or receives
interests in such Project acquired subsequent to such initial contribution or
payment, or any replacement or successor Lien created in connection with the
refinancing of any Project, provided such replacement or successor Lien shall
not secure any monetary obligation materially greater than the Lien it replaces
or succeeds or encumber any Property not subject to the Lien it replaces or
succeeds unless (and only to the extent that) the provisions for incurring or
refinancing Project Debt (as provided in "Limitations on Project Debt and
Project Agreements" below) have been satisfied, (v) Liens in connection with
worker's compensation, unemployment insurance or other social security or
pension obligations and (vi) with respect to property of, or Project
Distributions to, any PIC Entity, Liens other than to secure debt, provided
such Lien could not reasonably be expected to (A) result in a Material Adverse
Change or (B) in the case of any Lien on the Collateral, materially diminish
the value of, or the security offered by, the Property subject to such Lien.
Limitations on Activities of the Issuer and the Company
The Company shall not engage in any business other than (i) the direct or
indirect ownership of PIC Entities, Project Entities and Projects, (ii) the
making of loans to its controlling affiliates, PIC Entities and Project
Entities, (iii) the issuance of the Company Notes and the Company Guaranty,
(iv) distributions and investments permitted by the Indenture and (v)
activities reasonably necessary, in the judgment of the Company, to preserve,
protect or enhance the value of the Company's investments in the Projects.
The Issuer shall not have any Subsidiaries. The Company shall not create,
acquire or purchase (i) any direct Subsidiary other than the PIC Entities or
(ii) any indirect Subsidiary other than the Project Entities, in each case for
the purposes contemplated above or in connection with the acquisition of
interests in Project Entities permitted by the Indenture.
The Issuer shall not engage in any business other than (i) the issuance of
the Existing Bonds and the additional series of Bonds, if any, (ii) the
performance of its obligations under the Transaction Documents, (iii)
enforcement of its rights under the Security Documents and the Company Notes
and (iv) activities reasonably related to the foregoing.
Ownership of Projects
The Company shall maintain (i) at least a 50% (direct or indirect)
ownership or equivalent interest in each Project or (ii)(a) at least a 25%
(direct or indirect) ownership or equivalent interest in each Project not
meeting the requirements of clause (i) above and (b) a controlling influence
over the management and policies with respect to each Project, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise, provided that no other entity has greater control than the Company
over the management and policies of such Project. Notwithstanding the
foregoing, this covenant shall not prohibit the sale, lease, transfer or other
disposition of all interests in a Project, or a reduction in the ownership or
equivalent interest of, or control over, a Project occurring pursuant to the
terms of a build-operate-transfer arrangement at least ten years after the
entering into of such arrangement. See "Prohibition on Fundamental Changes and
Dispositions of Assets" below.
Limitations on Project Debt and Project Agreements
The Company shall not, nor shall it permit any PIC Entity to, incur or
refinance any Project Debt or enter into any Project agreement (other than in
connection with Liens permitted under the Indenture), and the Company shall not
permit any Project Entity to, (i) incur any Project Debt other than that
existing or created on the date that the Project to which such Project Debt
relates is transferred to the Project Portfolio or on the date that the Company
or any PIC Entity makes its initial investment in the Project to which such
Project Debt relates, (ii) refinance any Project Debt, (iii) enter into any
Project agreements other than any Project agreement existing or created on the
date that the Project to which such Project Debt relates is transferred to the
Project Portfolio or on the date that the Company or any PIC Entity makes its
initial contribution with respect to the Project to which such Project
agreement relates or (iv) amend or modify any Project agreement, if in the case
of clause (i), (ii), (iii) or (iv) such action could reasonably be expected to
reduce Cash Available for Distribution (including any such action that could
(a) decrease the amount of, or postpone the receipt of, any revenues,
distributions or other amounts to be received by or on behalf of the Company, a
PIC Entity or such Project Entity, (b) increase the amount of, or accelerate
the date for payment of, any fees, prepayments, costs, expenses, liabilities or
other amounts payable by or on behalf of the Company, a PIC Entity or such
Project Entity or (c) create additional conditions precedent to, or modify
existing conditions if such modification could impair, the right of the Company
or a PIC Entity to receive distributions or other amounts directly or
indirectly from any PIC Entity or Project Entity) by 10% or more in the
aggregate during any Future Ratio Determination Period unless at the time of
such action (1) the Company provides a certificate to the Trustee (supported by
a certificate to the Trustee from the Consolidating Engineer) stating that,
after giving effect to such action, the projected Company Debt Service Coverage
Ratio and the projected Consolidated Debt Service Coverage Ratio (if then
applicable) equal or exceed 1.7:1 and 1.25:1, respectively, for each Future
Ratio Determination Period and (2) the rating of the outstanding Bonds, after
giving effect to such action, has been Reaffirmed.
Distributions by Projects
Subject to reasonable working capital and capital improvement requirements
(taking into account reasonable currency exchange and tax planning
requirements), the Company shall cause each Project Entity to distribute to the
PIC Entities all distributions and other amounts received, directly or
indirectly, by such Project Entity or by any other person on behalf of such
Project Entity from, or in connection with, the Project Portfolio that may be
legally distributed or paid to any PIC Entity without contravention of any
Project agreement.
Prohibition on Fundamental Changes and Disposition of Assets
None of the Issuer, the Company and any PIC Entity shall enter into any
transaction of merger, consolidation, sale, lease, transfer or other
disposition of all or substantially all of its assets (including the Project
Portfolio), change its form of organization or its business, or liquidate or
dissolve itself (or suffer any liquidation or dissolution); provided, however,
that the Issuer, the Company or any PIC Entity may merge or consolidate or
sell, lease, transfer or otherwise dispose of all or substantially all of its
assets, if: (i) (a) in the case of the Issuer, the successor or transferee
entity is a wholly-owned Subsidiary of the Company and such successor or
transferee entity expressly assumes, by an instrument in form and substance
reasonably satisfactory to the Trustee, all of the Issuer's obligations under
the Indenture, the Bonds and the other Transaction Documents to which the
Issuer is a party; (b) in the case of the Company, the successor or transferee
entity shall be an entity organized and existing under the laws of any state of
the United States or the District of Columbia and shall expressly assume, by an
instrument in form and substance satisfactory to the Trustee, all of the
obligations of the Company under the Indenture, the Company Guaranty, the
Company Notes and the other Transaction Documents to which the Company is a
party; and (c) in the case of any PIC Entity, the successor or transferee
entity shall be organized under the laws of any state of the United States or
the District of Columbia, or, in the case of a PIC International Entity, an
appropriate foreign tax jurisdiction, and shall expressly assume, by an
instrument in form and substance satisfactory to the Trustee all of the
obligations of such PIC Entity, if any, under the Transaction Documents to
which such PIC Entity is a party; (ii) immediately before and immediately after
giving effect to such transaction on a pro forma basis (and after giving
effect to any modifications made to the terms of the Indenture in order to
reflect the particular characteristics of the purchasing or surviving entity,
provided that the rating in effect immediately prior to such modification of
the Existing Bonds and any additional series of Bonds, then outstanding, is
Reaffirmed), no Event of Default shall have occurred and be continuing; (iii)
the Company shall have delivered an Officer's Certificate and an Opinion of
Counsel (as defined in the Indenture) each stating that all conditions
precedent provided in the Indenture relating to such transaction have been
complied with and (iv) the rating then in effect on the Existing Bonds and any
additional series of Bonds, then outstanding, is Reaffirmed, after giving
effect to such merger, consolidation, sale, lease, transfer or other
transaction. Notwithstanding the foregoing, (i) in no event shall the Company
be permitted to merge or consolidate with or into, or sell, lease, transfer or
otherwise dispose of all or substantially all of its assets to, the Issuer and
(ii) in no event shall the Issuer be permitted to merge or consolidate with or
into, or sell, lease, transfer or otherwise dispose of all or substantially all
of its assets to, the Company. Notwithstanding anything in this paragraph to
the contrary, the Company or a PIC Entity may sell its direct or indirect
interests in a Project or Projects to the extent provided in "Sales of
Projects" below. None of the Issuer, the Company or any PIC Entity shall
purchase or otherwise acquire all or substantially all of the assets of any
person except that (i) the Company and the PIC Entities may acquire direct or
indirect interests in Project Entities and Projects to the extent permitted by
the Indenture, (ii) in connection with any merger, consolidation or sale,
lease, transfer or other transaction satisfying the applicable requirements of
this paragraph and as provided in "Sales of Projects" below, (iii) for the
creation or acquisition by PIC of a PIC Entity or by a PIC Entity of a Project
Entity or (iv) any purchase or other acquisition of interests in or held by the
Company's or any PIC Entity's existing investments if after giving effect to
any such purchase or acquisition, no Default or Event of Default will exist or
result therefrom. Except in connection with any merger, consolidation or sale
transaction satisfying the applicable requirements of this paragraph, or as
contemplated by the Security Documents, the Company may not transfer all or any
portion of its ownership interest in the Issuer or any PIC Entity.
Change of Control
Upon the occurrence of a Change of Control, the Issuer will be obligated
to make an offer to purchase all of the then outstanding Existing Bonds and
additional series of Bonds, if any (a "Change of Control Offer"), and will
purchase on a Business Day (the "Change of Control Purchase Date") not more
than 60 nor less than 30 days following such Change of Control, all of the then
outstanding Bonds validly tendered pursuant to such Change of Control Offer and
not withdrawn, at a purchase price (the "Change of Control Purchase Price")
equal to 101% of the principal amount thereof plus accrued and unpaid interest,
if any, to the Change of Control Purchase Date in accordance with the terms of
the Indenture. The Change of Control Offer is required to remain open for at
least 20 Business Days and until the close of business on the fifth Business
Day prior to the Change of Control Purchase Date.
In order to effect such Change of Control Offer, the Issuer will, not
later than the 30th day after the Change of Control, mail to the Trustee and
each Bondholder a notice of the Change of Control Offer, which notice shall
govern the terms of the Change of Control Offer and shall state, among other
things, the procedures that Bondholders must follow to accept the Change of
Control Offer.
There can be no assurance that the Issuer will have available funds
sufficient to fund the purchase of the Bonds upon a Change of Control. In the
event a Change of Control occurs at a time when the Issuer does not have
available funds sufficient to pay the Change of Control Purchase Price for all
of the Bonds delivered by Bondholders seeking to accept the Change of Control
Offer, an Event of Default would occur under the Indenture. The definition of
Change of Control includes an event by which the Company sells, conveys,
transfers, leases or otherwise disposes of all or substantially all of the
properties and assets of the Company and its Subsidiaries, taken as a whole.
There is little case law interpreting the phrase "all or substantially all" in
the context of an indenture. Because there is no precise established
definition of this phrase, there may be uncertainty as to whether a Change of
Control has occurred as a result of any particular sale, conveyance, transfer,
lease or other disposition of assets of the Company and its Subsidiaries. Any
such uncertainty may adversely affect the enforceability of the Change of
Control provisions of the Indenture.
The Issuer will not be required to make a Change of Control Offer upon a
Change of Control if another person makes the Change of Control Offer at the
same purchase price, at the same time and otherwise in substantial compliance
with the requirements applicable to a Change of Control Offer to be made by the
Issuer and purchases all Bonds validly tendered and not withdrawn under such
Change of Control Offer.
The Issuer will comply with Rule 14e-1 under the Exchange Act and any
other securities laws and regulations thereunder, if applicable, if a Change of
Control occurs and the Issuer is required to repurchase Bonds as described
above. The existence of a Bondholder's right to require, subject to certain
conditions, the Issuer to repurchase its Bonds upon a Change of Control may
deter a third party from acquiring the Issuer in a transaction that
constitutes, or results in, a Change of Control.
The Issuer shall, subject to certain exceptions described in the
Indenture, be required to purchase all Existing Bonds and Bonds of additional
series, if any, properly tendered pursuant to the Change of Control Offer and
not withdrawn.
Additional Collateral
If the U.S. federal income tax laws are amended to permit the
International Accounts and Funds or any shares of the capital stock of or other
ownership interests in the PIC International Entities that have not been
pledged to the Collateral Agent pursuant to the Security Documents to be
included as part of the Collateral without adversely affecting Panda
International's ability to defer U.S. federal income taxes on earnings from Non-
U.S. Projects, then (i) the Issuer and the Company will enter into a
supplemental indenture with the Trustee to include such capital stock or other
ownership interests and the International Accounts and Funds as part of the
Collateral and (ii) the Company shall, and shall cause the PIC International
Entities to, execute appropriate security documents pledging to the Collateral
Agent as Collateral such International Accounts and Funds and such stock or
other ownership interests, as the case may be.
Transactions with Affiliates
The Issuer and the Company shall not, and the Company shall not permit any
PIC Entity or Project Entity (collectively, the "PIC Group") to, engage in
transactions with affiliates of the Company other than members of the PIC Group
except for (i) transactions which are on terms no less favorable to the PIC
Group than the PIC Group could obtain in arms-length transactions from third
parties which are not affiliates of the Company, (ii) distributions, loans and
investments permitted by the Indenture and (iii) transactions required by the
Indenture or the Transaction Documents.
Use of Proceeds
The Issuer loaned all of the proceeds received by it from the issuance of
the Old Bonds to the Company which used and will use the net proceeds thereof
(after deducting underwriting discounts and commissions) (i) to fund the
Capitalized Interest Fund in the amount of approximately $9.8 million; (ii) to
fund the Debt Service Reserve Fund in the amount of approximately $6.4 million;
(iii) to fund the Company Expense Fund in the amount of approximately $300,000;
(iv) to pay transaction expenses and fees incurred in connection with the Prior
Offering, estimated at approximately $900,000; (v) to fund in the amount of
approximately $25.1 million a portion of the acquisition by the Panda-Rosemary
Partnership of the limited partnership interest therein held by Ford Credit;
(vi) to distribute approximately $60.9 million to Panda International, of which
approximately $26.4 million was used by Panda International to prepay senior
indebtedness held by Trust Company of the West.
Sales of Projects
The Company will not, and the Company will not permit any PIC Entity or
Project Entity to, sell any direct or indirect interests in Projects for
aggregate consideration in excess of $2,000,000 in any calendar year; provided,
however, that any such sale may be made (i) if after giving effect to any such
sale, the Company complies with the requirements set forth in "Certain
Covenants - Ownership of Projects," (ii) the proceeds of any such sale are
applied as provided in "Mandatory Redemption" above to effect a mandatory
redemption of any PIC International Entity Notes or Bonds, as the case may be,
(iii) the Company provides a certificate to the Trustee (supported by a
certificate to the Trustee from the Consolidating Engineer) stating that, after
giving effect to such sale and the application of the proceeds therefrom
(including through a mandatory redemption), the projected Company Debt Service
Coverage Ratio and the projected Consolidated Debt Service Coverage Ratio (if
then applicable) equal or exceed 1.7 to 1.0 and 1.25 to 1.0, respectively for
each Future Ratio Determination Period and (iv) if the proceeds of such sale to
be received by the Company or any PIC Entity exceed the lesser of (x) $50
million and (y) 25% of the aggregate principal amount of the Bonds then
outstanding, the rating on the Bonds immediately prior to such sale is
Reaffirmed (after giving effect to such sale and the application of the
proceeds therefrom). (Section 7.28)
PIC International Entity Loan Agreements
The Company shall cause each PIC International Entity that is created,
acquired or purchased after the Issue Date to execute, and to deliver a copy to
the Trustee, a loan agreement, substantially in the form of the PIC
International Entity Loan Agreement attached to the Indenture, at the time such
PIC International Entity is so created, acquired or purchased, and to enter
into the security documents granting the Company a security interest in the
International Accounts and Funds and distributions from PIC International
Entities.
Additional Covenants
In addition to the covenants described above, the Indenture also contains
covenants of the Issuer and the Company regarding maintenance of existence,
compliance with organizational documents, nonmodification and nonamendment of
organizational documents (except in the manner provided therein and in a manner
that does not modify certain provisions relating to the existence of an
independent director or the business purpose of such entity and that could not
be reasonably expected to result in a Material Adverse Change), payment of
taxes, pursuing rights to compensation upon the occurrence of a casualty or
condemnation, maintenance of books and records, the right of the Trustee to
inspect the property, compliance with laws, opinions of counsel regarding the
maintenance of recordations and filings, providing further assurances, delivery
of financial statements, compliance certificates, reports, notices of certain
material subsequent events and certain information required to be delivered
pursuant to Rule 144A(d)(4) under the Securities Act in order to permit
compliance by a Bondholder with Rule 144A in connection with the resale of
Existing Bonds and additional series of Bonds, if any, restrictions on
termination or amendment of any Transaction Document or entry into any new
agreement which could reasonably be expected to result in a Material Adverse
Change, limitations on investments, restrictions on actions that require
registration as an "investment company" under the Investment Company Act,
pursuing rights to compensation with respect to certain events of loss,
compliance with the Public Utility Holding Company Act, appointments to fill
vacancy in the office of Trustee, the issuance of Other International Notes and
furnishing of lists of holders of the Existing Bonds and the additional series
of Bonds, if any, to the Trustee.
Defaults and Remedies
Events of Default.
Each of the following shall constitute an Event of Default:
(i) the failure to pay or cause to be paid principal of, or premium, if
any, or interest on any Existing Bond or any Bond of an additional
series when the same becomes due and payable, whether by scheduled
maturity or required redemption, upon repurchase pursuant to a
Change of Control Offer, or by acceleration or otherwise, and the
continuation of such failure for 15 or more days;
(ii) any representation, warranty or statement made by any of Panda
International, PEC, the Company, the Issuer or any PIC Entity in any
certificate, financial statement or other document furnished to the
Trustee by or on behalf of Panda International, PEC, the Company,
the Issuer or any PIC Entity under the Indenture, any Security
Document or any other Transaction Document proves to have been false
or misleading in any material respect as of the time made, confirmed
or furnished and the fact, event or circumstance that gave rise to
such inaccuracy has resulted in a Material Adverse Change, and the
fact, event or circumstance that gave rise to such Material Adverse
Change, shall continue uncured for 30 or more days after the earlier
to occur of (a) any officer of such person obtaining actual or
constructive knowledge thereof and (b) written notice thereof being
given to such person; provided that if such person commences and
diligently pursues efforts to cure such fact, event or circumstance
within such 30-day period, such person may continue to effect such
cure of the fact, event or circumstance (and such misrepresentation
shall not be deemed an "Event of Default") for an additional 60 days
so long as such person is diligently pursuing the cure;
(iii) failure by the Company or the Issuer to perform or observe its
respective covenants contained in the Indenture relating to
maintenance of existence, prohibition on fundamental changes and
disposition of assets, limitations on Debt, limitations on Liens,
limitations on guaranties, limitations on distributions, limitations
of activities by the Company or the Issuer, limitations on
transactions with affiliates, limitation on formation of
Subsidiaries, limitations on Project Debt and Project agreements,
distributions by Projects, additional collateral, limitations on
sales of Projects, PIC International Entity Loan Agreements, PIC
U.S. Entity guaranties and not being required to register under the
Investment Company Act and such failure continues uncured for 30 or
more days;
(iv) failure by the Company or the Issuer to perform or observe any of
the covenants contained in the Indenture and not listed in clause
(iii) or clause (xv) under "Events of Default", and such failure
continues uncured for 30 or more days after the earlier to occur of
(a) any officer of the Company or the Issuer, as the case may be,
obtaining actual or constructive knowledge of such failure and (b)
written notice thereof being given to the Company or the Issuer by
the Trustee or to the Company, the Issuer or the Trustee by holders
of at least 10% in aggregate principal amount of the Bonds then
outstanding; provided that if the Company or the Issuer, as the case
may be, commences and diligently pursues efforts to cure such
default within such 30-day period, the Company or the Issuer, as the
case may be, may continue to effect such cure of the default (and
such default shall not be deemed an "Event of Default") for an
additional 60 days so long as the Company or the Issuer, as the case
may be, is diligently pursuing the cure;
(v) failure by Panda International, PEC, the Company, the Issuer or any
PIC Entity to observe or perform any of their respective covenants
or agreements contained in any Transaction Document other than the
Indenture, and such failure continues unremedied beyond the
expiration of any applicable grace period which may be expressly
allowed under such Transaction Document;
(vi) certain events involving the bankruptcy, insolvency, dissolution,
receivership or reorganization of the Company, the Issuer or any PIC
Entity;
(vii) the entry of one or more final and non-appealable judgments for the
payment of money in excess of $2.0 million against any of the
Company, the Issuer or any PIC Entity which remain unpaid or
unstayed for a period of 60 or more consecutive days;
(viii) failure by the Company, the Issuer or any PIC Entity to make any
payment when due (subject to any applicable grace period) in respect
of any debt, which debt is in an amount exceeding $2.0 million
(other than debt which is subordinated debt and other than any
amount due under or pursuant to the Indenture), which failure
continues unwaived beyond any applicable grace period;
(ix) failure by any PIC Entity to make any payment when due (subject to
any applicable grace period) in respect of any outstanding
subordinated debt, which subordinated debt is in an amount exceeding
$2.0 million and a default and acceleration is declared with respect
to such debt;
(x) any grant of a Lien contained in the Security Documents ceases to be
effective to grant a perfected Lien to the Collateral Agent on any
of the Collateral described therein with the priority purported to
be created thereby which cessation results in a Material Adverse
Change; provided, however, that an Event of Default shall not result
from the creation of Permitted Liens;
(xi) the Company Guaranty or any PIC Entity Guaranties shall for any
reason cease to be, or be asserted by the Company, any PIC U.S.
Entity or the Issuer not to be, in full force and effect and
enforceable in accordance with its terms;
(xii) the Issuer shall cease to have ownership of the Company Notes free
and clear of all Liens and other encumbrances on title thereto or
the Company shall cease to have ownership of the PIC International
Entity Notes free and clear of all Liens and other encumbrances on
title thereto;
(xiii) (a) the Company shall cease to own and control 100% of the capital
stock or ownership interest of the Issuer or any PIC Entity
(excluding any director's qualifying shares required to be held by
third parties pursuant to applicable law) that holds direct or
indirect ownership interests in any Project or (b) PEC or Panda
International shall cease to own and control directly or indirectly
100% of the capital stock of the Company (except as permitted under
"Prohibition on Fundamental Changes and Disposition of Assets"
above);
(xiv) any Letter of Credit ceases to be in full force and effect and
valid, binding and enforceable in accordance with its terms and is
not replaced within 10 days, unless the amount on deposit in the
Debt Service Reserve Fund (without giving effect to such Letter of
Credit) at such time equals or exceeds the Debt Service Reserve
Requirement then applicable; and
(xv) the failure to make or consummate a Change of Control Offer in
accordance with the provisions of the "Change of Control" covenant.
Remedies
If an Event of Default described in clause (i) under "Defaults and
Remedies - Events of Default," above occurs, the Trustee may, and upon request
of the holders of not less than 33-1/3% in aggregate principal amount of all
Existing Bonds and all additional series of Bonds, if any, then outstanding
(considered as one class) shall, declare the principal of all Existing Bonds
and all additional series of Bonds, if any, then outstanding to be immediately
due and payable. If an Event of Default (other than one described in the
immediately preceding sentence) occurs, the Trustee may, and upon request of
the holders of not less than 50% in aggregate principal amount of all Existing
Bonds and all additional series of Bonds, if any, then outstanding (considered
as one class) shall, declare the principal of all Existing Bonds and all
additional series of Bonds, if any, then outstanding to be immediately due and
payable. Upon such declaration said principal, together with interest accrued
thereon, shall become due and payable immediately. If an Event of Default due
to the bankruptcy, insolvency or reorganization of the Company, the Issuer or
any PIC Entity occurs, all unpaid principal, premium, if any, and interest will
immediately become due and payable. For remedies available under the Security
Documents, see "Collateral for the Exchange Bonds - Remedies under the Security
Documents" above.
If, after the principal of the Existing Bonds and the additional series of
Bonds, if any, has been declared or is deemed to be due and payable, the Issuer
(i) pays all principal and interest due (other than by a declaration of
acceleration) on the Existing Bonds and the additional series of Bonds, if any,
including any Bonds required to have been purchased on a Change of Control
Date, and the reasonable fees, expenses and advances of the Trustee and its
agents and counsel and (ii) cures all other Events of Default under the
Indenture (other than nonpayment of principal and interest on the Existing
Bonds and any additional series of Bonds that became due solely by reason of
such acceleration), the holders of a majority in aggregate principal amount of
the Existing Bonds and all additional series of Bonds, if any, then outstanding
(considered as one class) may annul such declaration and its consequences.
If any Event of Default occurs and is continuing, the Trustee may, and
upon the request of a majority in aggregate principal amount of the Existing
Bonds and all additional series of Bonds, if any then outstanding (considered
as one class), and the offering to it of any indemnity required under the
Indenture shall (unless the Trustee in good faith shall determine that such
exercise would involve it in personal liability or expense), enforce every
right available to it under the Indenture and under the Security Documents.
Any monies received by the Trustee following an Event of Default shall be
applied first to pay the compensation due to and reasonable costs and expenses
incurred by the Trustee and its agents and counsel and second to pay principal
and interest then owing on the Existing Bonds and the additional series of
Bonds, if any, (if such monies shall be insufficient to pay the same in full,
then to the payment of principal and interest ratably). The Trustee shall pay
the surplus, if any, to the Collateral Agent to be applied pursuant to the
Collateral Agency Agreement or the person lawfully entitled to receive the
same. See "Collateral for the Exchange Bonds - Collateral Agency Agreement"
above.
Amendments and Supplements
Without the consent of the holders of any Existing Bonds or additional
series of Bonds, if any, the Issuer, the Company and the Trustee may enter into
one or more supplemental indentures thereto for any of the following purposes:
(i) to establish the form and terms of any additional series permitted under
the Indenture; (ii) to evidence the succession of another entity to the Issuer
or the Company, and the assumption by any such successor of the covenants and
other obligations of such entity under the Existing Bonds or any additional
series of Bonds or the Indenture; (iii) to evidence the succession of a new
Trustee pursuant to the Indenture; (iv) to add to the covenants of the Issuer
or the Company, or to surrender any right or power therein conferred upon the
Issuer or the Company; (v) to convey, transfer and assign to the Trustee
properties or assets to secure the Existing Bonds and the additional series of
Bonds, if any, and to correct or amplify the description of any property at any
time subject to the Indenture or to assure, convey and confirm unto the Trustee
or the Collateral Agent any property subject or required to be subject to the
Indenture; (vi) to permit or facilitate the issuance of Existing Bonds or any
additional series of Bonds in uncertificated form; (vii) to change or eliminate
any provision of the Indenture that does not adversely affect the interests of
the holders of the Existing Bonds and the additional series of Bonds, if any;
(viii) to comply with any requirement of the Commission in connection with
qualifying the Indenture under the Trust Indenture Act of 1939, as amended, or
maintaining such qualification thereafter; (ix) to provide for the issuance of
a new series of Bonds registered under the Securities Act in exchange for a
series of Bonds if such exchange is contemplated by any registration rights
agreement entered into in connection with the issuance of a series of Bonds or
any other exchange securities pursuant to any other agreement to register any
series of Bonds under the Securities Act, and to make such other changes in the
Indenture or the Transaction Documents as the board of directors of the Company
determines are necessary or appropriate in connection therewith, provided such
action shall not adversely affect the interests of the holders of Bonds of any
series in any material respect; (x) to cure any ambiguity or to correct or
supplement any provision of the Indenture that may be defective or inconsistent
with any other provision therein; or (xi) to make any other provisions with
respect to matters or questions arising under the Indenture, provided such
action shall not adversely affect the interests of the holders of any Existing
Bonds or the additional series of Bonds, if any, in any material respect.
With the consent of the holders of not less than a majority in aggregate
principal amount of the Existing Bonds and all additional series of Bonds, if
any, then outstanding (considered as one class) the Issuer and the Company may,
and the Trustee shall, enter into an indenture or indentures supplemental
thereto for the purpose of adding any provisions to or changing in any manner
or eliminating or waiving any of the provisions of, the Indenture; provided,
that no such supplemental indenture shall, without the consent of the holder of
each outstanding Bond directly affected thereby, (i) change the stated maturity
of any Bond (or the stated maturity of any such installment of principal of any
Bond), or of any payment of interest thereon, or the dates or circumstances of
payment of premium, if any, on any Bond or change the principal amount thereof
or the interest thereon or any premium payable upon the redemption thereof, or
change the place of payment where, or the coin or currency in which, any Bond
or the premium, if any, or the interest thereon is payable, or impair the right
to institute suit for the enforcement of any such payment or interest on or
after the stated maturity thereof (or, in the case of redemption, on or after
the redemption date) or such payment of premium, if any, on or after the date
such payment of premium becomes due and payable or change the dates or the
amounts of payments to be made through the operation of a sinking fund in
respect of such Bonds, (ii) permit the creation of any lien prior to or pari
passu with the Lien of the Security Documents with respect to any of the
property pledged under the Security Documents or terminate the Lien of the
Security Documents of any property pledged thereunder or deprive any holder of
the security afforded by the Lien of the Security Documents, except to the
extent expressly permitted by the Indenture or any of the Security Documents,
(iii) reduce the percentage in principal amount of the outstanding Bonds, if
any, the consent of whose holders is required for any such supplemental
indenture, or the consent of whose holders is required for any waiver (of
compliance with certain provisions of the Indenture or certain defaults
thereunder and their consequences) provided for in the Indenture, or reduce the
requirements with respect to quorum or voting, (iv) modify certain of the
provisions of the Indenture relating to the waiver of defaults or the making of
modifications or (v) amend, change or modify the obligation of the Issuer to
make and consummate a Change of Control Offer in the event of a Change of
Control, or to modify any of the provisions or definitions with respect
thereto.
Amendment of Security Documents or Collateral Agency Agreement
The Issuer, the Company, the Trustee or the Collateral Agent, as the case
may be, may, without the consent of or notice to the Bondholders, consent to
any amendment or modification of any Security Document or the Collateral Agency
Agreement as may be required (i) by the provisions of such Security Document,
the Collateral Agency Agreement or the Indenture, (ii) to cure any ambiguity or
formal defect, (iii) to add additional rights in favor of the Issuer in the
Company Notes or Security Documents or (iv) in connection with any other change
in the Security Documents or the Collateral Agency Agreement, including any
change required by the rating agencies, with respect to which the Trustee shall
have received an officer's certificate of the Company or the Issuer, as the
case may be, or an opinion of counsel reasonably satisfactory to the Trustee to
the effect that such change is not to the prejudice of the Trustee or the
Bondholders and which, in the judgment of the Trustee, is not to the prejudice
of the Trustee or the Bondholders provided that the Trustee shall not be liable
for any action it takes or omits to take in good faith in reliance on any such
officer's certificate or opinion of counsel. Except as described above, neither
the Issuer nor the Trustee shall consent to any other amendment or modification
of a Security Document or the Collateral Agency Agreement without the consent
of the holders of not less than 66-2/3% in aggregate principal amount of the
Existing Bonds and the additional series of Bonds, if any, then outstanding
(considered as one class). An amendment to a Security Document or the
Collateral Agency Agreement which changes the amounts of payments due
thereunder, the person to whom such payments are to be made or the date on
which such payments are to be made shall not be made without the unanimous
consent of the Bondholders.
Discharge of Indenture
The Issuer may terminate the Indenture by delivering all outstanding
Existing Bonds and the additional series of Bonds, if any, to the Trustee for
cancellation, by paying all sums payable under the Indenture and by delivering
an officer's certificate and opinion of counsel stating that all conditions
precedent in the Indenture relating to its discharge have been complied with.
In addition to the foregoing, the Existing Bonds and any additional series
of Bonds, shall, prior to the stated maturity thereof, be deemed to be paid,
and the indebtedness of the Issuer and, to the extent of the Company Guaranty,
the Company in respect thereof shall be deemed to be satisfied and discharged,
on the 123rd day after the date of the deposit referred to in clause (i) below
and the other conditions set forth below have been satisfied:
(i) the Issuer has irrevocably deposited with the Trustee, in trust,
monies or U.S. government obligations in an amount which shall be
sufficient to pay when due the principal of and premium, if any, and
interest due and to become due on the Existing Bonds and any
additional series of Bonds, on each stated maturity of such
principal or installment of principal or interest (to and including
the final installment of principal thereof);
(ii) no Event of Default or Default with respect to the Existing Bonds or
any additional series of Bonds shall have occurred and be continuing
on the date of such deposit or during the period ending on the 123rd
day after such date;
(iii) the Issuer has delivered to the Trustee (a) a ruling from the
Internal Revenue Service or an opinion of counsel to the effect that
such satisfaction and discharge of the indebtedness of the Issuer
with respect to the Existing Bonds or any additional series of Bonds
shall not be deemed to be, or result in, a taxable event with
respect to the holders of Existing Bonds or additional series of
Bonds, if any, for purposes of United States Federal income taxation
and (b) an Opinion of Counsel with respect to certain Investment
Company Act and bankruptcy matters set forth in the Indenture;
(iv) the Issuer shall have irrevocably designated a redemption date, if
applicable; and
(v) the Issuer shall have delivered to the Trustee an officer's
certificate and Opinion of Counsel stating that all conditions
precedent in the Indenture relating to the discharge of the Existing
Bonds and any additional series of Bonds, have been complied with.
Trustee
There shall at all times be a Trustee under the Indenture, which shall be
a corporation having a combined capital, surplus and undivided profits of at
least $50 million, authorized by federal or state or District of Columbia law
to exercise corporate trust powers, to the extent there is such an institution
eligible and willing to serve. The Trustee may resign at any time by giving
written notice thereof to the Issuer, the Company and the holders of the
Existing Bonds and the additional series of Bonds, if any. The Trustee may be
removed at any time by act of the holders of the Bonds, if any, of a majority
in principal amount of the outstanding Existing Bonds and the additional series
of Bonds, if any, delivered to the Trustee and to the Issuer. The Issuer shall
give notice of each resignation and removal of the Trustee and each appointment
of a successor Trustee to all Bondholders.
Governing Law
The Indenture, the Guaranties and the Existing Bonds shall be governed by,
and construed in accordance with, the laws of the State of New York.
Agency Relationship
The Company has designated the Issuer as its agent under the Indenture for
the sole purpose of (i) issuing the Existing Bonds and any additional series of
Bonds, to the extent of the Company's obligations thereunder, and (ii)
otherwise carrying out the Company's obligations and duties and exercising the
Company's rights and privileges under the Indenture and under the Guaranties.
The Company will indemnify the Issuer against all claims arising in connection
with the Issuer's performance of its obligations.
Information Available to Bondholders
The Company, the Issuer and Panda Interholding have filed the Registration
Statement with the Commission. This Prospectus constitutes a part of the
Registration Statement and does not contain all of the information set forth in
the Registration Statement or the exhibits thereto, certain parts of which have
been omitted in accordance with the rules and regulations of the Commission.
For further information pertaining to the Issuer, the Company, Panda
Interholding, the Exchange Bonds, the Company Guaranty and the PIHC Guaranty,
reference is made to the Registration Statement, including the exhibits
thereto. Statements made in this Prospectus concerning the provisions of any
documents to which reference is made are not necessarily complete and, in the
case of documents filed as exhibits to the Registration Statement, reference is
made to the copy of the documents so filed for a more complete description of
the matter involved, and each such statement shall be deemed qualified in its
entirety by such reference.
As a result of this offering, the Company, the Issuer and Panda
Interholding will be subject to periodic reporting and other informational
requirements of the Exchange Act. The Registration Statement and the exhibits
thereto, as well as the periodic reports and other information filed by the
Company, the Issuer and Panda Interholding with the Commission, may be
inspected and copied at the public reference facility maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the regional offices of the Commission located at Seven
World Trade Center, Suite 1300, New York, New York 10048 and Citicorp Center,
Suite 1400, 500 West Madison Street, Chicago, Illinois 60661. Copies of such
material may also be obtained at prescribed rates from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549.
The Company's, the Issuer's and Panda Interholding's obligation to file
periodic reports with the Commission pursuant to the Exchange Act may be
suspended if the Exchange Bonds are held of record by fewer than 300 holders at
the beginning of any fiscal year of the Company, the Issuer or Panda
Interholding, other than the fiscal year in which the Registration Statement
becomes effective. Pursuant to the Indenture, the Company and the Issuer have
agreed that, so long as the Company is not subject to the reporting
requirements of either Section 13 or 15(d) of the Exchange Act, they will
furnish to the Trustee copies of annual, quarterly and current reports that the
Company would be required to file under the Exchange Act if it were subject to
such reporting requirements. In addition, subject to the limitations set forth
in the Indenture, upon the written request of a holder of Bonds, the Issuer or
the Company will provide without charge to such holder or prospective investor,
a copy of such information as is required by Rule 144A to enable resales of
Bonds to be made pursuant to Rule 144A, unless at the time of such request the
Company or the Issuer is subject to the reporting requirements of Section 13 or
15(d) of the Exchange Act. Any such request will be subject to the
confidentiality provisions set forth below. Written requests for such
information should be addressed to Panda Funding Corporation, c/o Panda
Energy International, Inc., 4100 Spring Valley Road, Suite 1001, Dallas, Texas
75244, Attention: Chief Financial Officer.
By requesting additional information relating to the offering of Bonds at
a time when neither the Company nor the Issuer is subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act, each holder and
prospective investor agrees to keep confidential the various documents and all
written information which from time to time have been or will be disclosed to
it concerning the Issuer, the Company or any of their affiliates which is not
publicly available, and agrees not to disclose any portion of the same to any
person other than to its own consultants, except as may be required by
applicable law or in a legal proceeding involving the Company or the Issuer.
Book Entry; Delivery and Form
The Exchange Bonds initially will be represented by a single, permanent
global certificate in definitive, fully registered form (the "Global Bond").
The Global Bond will be deposited with, or on behalf of, DTC and registered in
the name of a nominee of DTC. After the initial issuance of the Global Bond,
Exchange Bonds in certificated form will be issued in exchange for the Global
Bond only as set forth in the Indenture.
The Global Bond
The Company expects that pursuant to procedures established by DTC (i)
upon the issuance of the Global Bond, DTC or its custodian will credit, on its
internal system, the principal amount of Bonds of the individual beneficial
interests represented by such Global Bond to the respective accounts for
persons who have accounts with DTC and (ii) ownership of beneficial interests
in the Global Bond will be shown on, and the transfer of such ownership will be
effected only through, records maintained by DTC or its nominee (with respect
to interests of participants) and the records of participants (with respect to
interests of persons other than participants). Ownership of beneficial
interests in the Global Bond will be limited to persons who have accounts with
DTC ("participants") or persons who invest through participants. Qualified
Institutional Buyers will hold their interests in the Global Bond directly
through DTC, if they are participants in such system, or indirectly through
organizations which are participants in such system.
So long as DTC or its nominee is the registered owner or holder of the
Exchange Bonds, DTC or such nominee, as the case may be, will be considered the
sole owner or holder of the Exchange Bonds represented by such Global Bond for
all purposes under the Indenture. No beneficial owners of an interest in any
Global Bond will be able to transfer that interest except in accordance with
DTC's procedures in addition to those provided for under the Indenture.
Payments of the principal of, premium, if any, and interest on, the Global
Bond will be made to DTC or its nominee, as the case may be, as the registered
owner thereof. None of the Company, the Issuer, Panda Interholding, the Trustee
or any paying agent of the Company will have any responsibility or liability
for any aspect of the records relating to or payments made on account of
beneficial ownership interests in the Global Bond or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests.
The Company expects that DTC or its nominee, upon receipt of any payment
of principal, premium, if any, or interest in respect of the Global Bond, will
credit participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of the Global Bond as
shown on the records of DTC or its nominee. The Company also expects that
payments by participants to owners of beneficial interests in the Global Bond
held through such participants will be governed by standing instructions and
customary practice, as is now the case with securities held for the accounts of
customers registered in the names of nominees for such customers. Such payments
will be the responsibility of such participants.
Transfers between participants in DTC will be effected in the ordinary way
in accordance with DTC rules and will be settled in clearinghouse funds. If a
holder requires physical delivery of a Certificated Security for any reason,
including to sell Exchange Bonds to persons in states which require physical
delivery of the Certificated Securities, or to pledge such Securities, such
holder must transfer its interest in the Global Bond in accordance with the
normal procedures of DTC and with the procedures set forth in the Indenture.
DTC has advised the Company and the Issuer that it will take any action
permitted to be taken by a holder of Exchange Bonds only at the direction of
one or more participants to whose account the interests in the Global Bond are
credited and only in respect of such portion of the aggregate principal amount
of Exchange Bonds as to which such participant or participants have given such
direction. However, if there is an Event of Default under the Indenture, DTC
will exchange the Global Bond for Certificated Securities, which it will
distribute to its participants.
DTC has advised the Company and the Issuer as follows: DTC is a limited
purpose trust company organized under the laws of the State of New York, a
member of the Federal Reserve System, a "Clearing corporation" within the
meaning of the Uniform Commercial Code and a "clearing agency" registered
pursuant to the provisions of Section 17A of the Exchange Act. DTC was created
to hold securities for its participants and facilitate the clearance and
settlement of securities transactions between participants through electronic
book entry changes in accounts of its participants, thereby eliminating the
need for physical movement of certificates. Participants include securities
brokers and dealers, banks, trust companies and clearing corporations and
certain other organizations. Indirect access to the DTC system is available to
others such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a participant, either directly or
indirectly.
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Bond among participants of DTC, it is
under no obligation to perform such procedures, and such procedures may be
discontinued at any time. None of the Company, the Issuer, Panda Interholding
or the Trustee will have any responsibility for the performance by DTC or its
participants or indirect participants of their respective obligations under the
rules and procedures governing their operations.
Certificated Securities
If DTC is at any time unwilling or unable to continue as a depositary for
the Global Bond and a successor depositary is not appointed by the Company
within 90 days, or at the Company's election at any time, Certificated
Securities will be issued in exchange for the Global Bond.
OLD BONDS REGISTRATION RIGHTS
The holders of the Old Bonds have certain rights under the Registration
Rights Agreement, certain provisions of which are discussed below. The
following summary does not purport to be complete or definitive and is
qualified in its entirety by reference to the Registration Rights Agreement, a
copy of which is attached as an exhibit to the Registration Statement of which
this Prospectus constitutes a part.
The Registration Rights Agreement provides that: (i) the Issuer and the
Company will file an Exchange Offer Registration Statement with the Commission
on or prior to 90 days after the Issue Date; (ii) the Issuer and the Company
will use their best efforts to have the Exchange Offer Registration Statement
declared effective by the Commission on or prior to 180 days after the Issue
Date; and (iii) unless the Exchange Offer would not be permitted by applicable
law or Commission policy, the Issuer and the Company will commence the Exchange
Offer and use their best efforts to issue, on or prior to 30 business days
after the date on which the Exchange Offer Registration Statement was declared
effective by the Commission, Exchange Bonds in exchange for all Old Bonds
tendered prior thereto in the Exchange Offer. If (i) the Issuer and the Company
are not permitted to file the Exchange Offer Registration Statement or to
consummate the Exchange Offer because the Exchange Offer is not permitted by
applicable law or Commission policy or (ii) any holder of Old Bonds notifies
the Issuer and the Company within the specified time period that (a) due to a
change in law or Commission policy it is not entitled to participate in the
Exchange Offer, (b) due to a change in law or Commission policy it may not
resell the Exchange Bonds acquired by it in the Exchange Offer to the public
without delivering a prospectus and the prospectus contained in the Exchange
Offer Registration Statement is not legally available for such resales by such
holder or (c) it is a broker-dealer and owns Old Bonds acquired directly from
the Issuer or an Affiliate of the Issuer, the Issuer and the Company will file
with the Commission the Shelf Registration Statement to cover resales of the
applicable Transfer Restricted Bonds (as defined below) by the holders thereof.
The Issuer and the Company will use their best efforts to cause the applicable
registration statement to be declared effective by the Commission within the
specified periods. If obligated to file the Shelf Registration Statement, the
Issuer and the Company will file on or prior to the later of (a) 90 days after
the Issue Date or (b) 30 days after such filing obligation arises and use their
best efforts to cause the Shelf Registration Statement to be declared effective
by the Commission on or prior to 90 days after such obligation arises; provided
that if the Issuer and the Company have not consummated the Exchange Offer
within 180 days after the Issue Date, then the Issuer and the Company will file
the Shelf Registration Statement with the Commission on or prior to the 181st
day after the Issue Date and use their best efforts to cause the Shelf
Registration Statement to be declared effective within 60 days after such
filing. The Issuer and the Company will be required to use their best efforts
to keep such Shelf Registration Statement continuously effective, supplemented
and amended until the third anniversary of the Issue Date or such shorter
period that will terminate when all the Transfer Restricted Bonds covered by
the Shelf Registration Statement have been sold pursuant thereto.
If (i) the Issuer and the Company fail to file any of the registration
statements required by the Registration Rights Agreement on or before the date
specified for such filing, (ii) any of such registration statements are not
declared effective by the Commission on or prior to the date specified for such
effectiveness (the "Effectiveness Target Date"), (iii) the Issuer and the
Company fail to consummate the Exchange Offer, if obligated to do so, within 30
business days after the Exchange Offer Registration Statement is declared
effective by the Commission or (iv) the Shelf Registration Statement or the
Exchange Offer Registration Statement is declared effective but thereafter,
subject to certain exceptions, ceases to be effective or usable in connection
with the Exchange Offer or resales of the applicable Transfer Restricted Bonds,
as the case may be, during the periods specified in the Registration Rights
Agreement (each such event referred to in clauses (i) through (iv) above, a
"Registration Default"), then the interest rate on Transfer Restricted Bonds
will increase ("Additional Interest") by 0.50% per annum effective on the 181st
day following the Issue Date and Additional Interest will accrue until all
Registration Defaults have been cured. Following the cure of all Registration
Defaults, the accrual of Additional Interest will cease and the interest rate
will revert to the original rate; provided, however, if all Registration
Defaults are not cured within two years following the Issue Date, such increase
in the interest rate shall become permanent. The Registration Statement was
declared effective by the Commission on February 14, 1997, and accordingly,
Additional Interest on the Old Bonds accrued commencing on January 28, 1997
through February 13, 1997 and is payable on February 20, 1997, the next
Interest Payment Date, in the aggregate amount of $24,916.
For purposes of the foregoing, "Transfer Restricted Bonds" generally means
each Old Bond until (i) the date on which such Old Bond has been exchanged by a
person for an Exchange Bond in the Exchange Offer (other than a broker-dealer
that received Exchange Bonds in the Exchange Offer for its own account (a
"Participating Broker-Dealer")), (ii) following the exchange by a Participating
Broker-Dealer in the Exchange Offer of an Old Bond for an Exchange Bond, the
earlier of (A) the date on which such Exchange Bond is sold to a purchaser who
receives from such Participating Broker-Dealer on or prior to the date of such
sale a copy of the prospectus contained in the Exchange Offer Registration
Statement and (B) the date on which the Exchange Offer Registration Statement
has been effective under the Securities Act for a period of six months after
the consummation of the Exchange Offer, (iii) the date on which such Old Bond
has been effectively registered under the Securities Act and disposed of in
accordance with the Shelf Registration Statement or (iv) the date on which such
Old Bond is distributed to the public pursuant to Rule 144 under the Securities
Act or is saleable pursuant to Rule 144(k) under the Securities Act.
PLAN OF DISTRIBUTION
Each Participating Broker-Dealer that receives Exchange Bonds for its own
account pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Bonds. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a Participating Broker-Dealer in connection with resales of Exchange Bonds
received in exchange for Old Bonds where such Old Bonds were acquired as result
of market making activities or other trading activities. The Company and the
Issuer have agreed to make available for a period of up to six months a
prospectus meeting the requirements of the Securities Act to any Participating
Broker-Dealer for use in connection with any such resale. A broker-dealer that
delivers such a prospectus to a purchaser in connection with resales will be
subject to certain of the civil liability provisions under the Securities Act
and will be bound by the provisions of the Registration Rights Agreement
(including certain indemnification provisions). In addition, until May 15, 1997
(90 days from the date of this Prospectus), all dealers effecting transactions
in the Exchange Bonds may be required to deliver a prospectus.
Each holder of Old Bonds who wishes to exchange such Old Bonds for
Exchange Bonds in the Exchange Offer will be required to make certain
representations, including representations that (i) any Exchange Bonds to be
received by it will be acquired in the ordinary course of its business (whether
or not it is the registered holder of such Exchange Bonds), (ii) it has no
arrangement with any person to participate in the distribution (within the
meaning of the Securities Act) of the Exchange Bonds and (iii) it is not an
Affiliate of the Issuer, the Company or Panda Interholding, or if it is an
Affiliate, it will comply with the registration and prospectus delivery
requirements of the Securities Act to the extent applicable.
Neither the Issuer, the Company nor Panda Interholding will receive any
proceeds from any sale of Exchange Bonds by broker-dealers. Exchange Bonds
received by broker-dealers for their own account pursuant to the Exchange Offer
may be sold from time to time in one or more transactions in the over-the-
counter market, in negotiated transactions, through the writing of options on
the Exchange Bonds or a combination of such methods of resale, at market prices
prevailing at the time of resale, at prices related to such prevailing market
prices or at negotiated prices. Any such resale may be made directly to
purchasers or to or through brokers or dealers who may receive compensation in
the form of commissions or concessions from any such broker-dealer and/or the
purchasers of any such Exchange Bonds. Any broker-dealer that resells Exchange
Bonds that were received by it for its own account pursuant to the Exchange
Offer and any broker or dealer that participates in a distribution of such
Exchange Bonds may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of Exchange Bonds and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
The Company and the Issuer have agreed to pay all expenses incidental to
the Exchange Offer other than commissions and concessions of any brokers or
dealers and will indemnify holders of the Bonds (including any brokers or
dealers) against certain liabilities, including liabilities under the
Securities Act, as set forth in the Registration Rights Agreement.
LEGAL MATTERS
The validity of the issuance of the Exchange Bonds is being passed upon
for the Company, the Issuer and Panda Interholding by Chadbourne & Parke LLP,
New York, New York, as special counsel to the Company, the Issuer and Panda
Interholding.
EXPERTS
Independent Accountants
The consolidated financial statements of the Company as of December 31,
1994 and 1995 and for each of the three years in the period ended December 31,
1995 included in this Prospectus have been audited by Deloitte & Touche LLP,
independent accountants, as stated in their report appearing herein (which
report expresses an unqualified opinion and includes an explanatory paragraph
relating to the restatement of such financial statements) and have been so
included in reliance upon the report of such firm given upon their authority as
experts in accounting and auditing. Deloitte & Touche LLP has neither examined
nor compiled the accompanying prospective financial information appearing in
the Appendices hereto and, accordingly, does not express an opinion or any
other form of assurance with respect thereto.
Independent Engineers And Consultants
Consolidated Pro Forma
ICF Resources, Incorporated, a subsidiary of ICF Kaiser International, has
prepared a report entitled "Summary of the Consolidated Pro Formas of the Panda-
Rosemary and Panda-Brandywine Power Projects," dated January 10, 1997, included
as Appendix B to this Prospectus. The Consolidated Pro Forma Report is
included herein in reliance upon such firm as experts in energy economics and
financial analysis. The Consolidated Pro Forma Report should be read in its
entirety by all prospective investors for an understanding of the reliance
placed by ICF on pro forma projections prepared by Burns & McDonnell and of the
methods of calculating the debt coverage ratios projected therein.
Panda-Rosemary Project
Burns & McDonnell Engineering Company, Inc. has prepared a report entitled
"Panda-Rosemary Cogeneration Project Condition Assessment Report," dated July
26, 1996, and update report dated January 10, 1997, included as Appendix C to
this Prospectus. The Rosemary Engineering Report is included herein, in
reliance upon such firm as experts in preparing independent engineering reports
for similar projects. The Rosemary Engineering Report should be read in its
entirety by all prospective investors for information with respect to the Panda-
Rosemary Facility and the related subjects discussed therein.
Benjamin Schlesinger and Associates, Inc. has prepared a report entitled
"Assessment of Fuel Price, Supply and Delivery Risks for the Panda-Rosemary
Cogeneration Project," dated September 20, 1996, and an Officer's Certificate
dated January 10, 1997, included as Appendix D to this Prospectus. The Rosemary
Fuel Consultant's Report is included herein in reliance upon such firm as
experts in preparing fuel consultant's reports for similar projects. The
Rosemary Fuel Consultant's Report should be read in its entirety by all
prospective investors for information with respect to the Panda-Rosemary
Facility and related subjects discussed therein.
Panda-Brandywine Project
ICF Resources, Incorporated, a subsidiary of ICF Kaiser International, has
prepared a report entitled "Independent Panda-Brandywine Pro Forma
Projections," dated July 26, 1996, and an update report dated January 10, 1997,
included as Appendix E to this Prospectus. The Brandywine Pro Forma Report is
included herein in reliance on such firm as experts in energy economics and
financial analysis. The Brandywine Pro Forma Report should be read in its
entirety by all prospective investors for information with respect to the Panda-
Brandywine Facility and related subjects discussed therein.
Pacific Energy Systems, Inc. has prepared a report entitled "Independent
Engineer's Report Panda-Brandywine Cogeneration Project," dated July 22, 1996,
and an update report dated January 10, 1997, included as Appendix G to this
Prospectus. The Brandywine Engineering Report is included herein in reliance
upon such firm as experts in preparing independent engineering reports for
similar projects. The Brandywine Engineering Report should be read in its
entirety by all prospective investors for information with respect to the Panda-
Brandywine Facility and the related subjects discussed therein.
C.C. Pace Resources, Inc. has prepared a report entitled "Panda-
Brandywine, L.P. Generating Facility Fuel Consultant's Report," dated July 2,
1996, and an update report dated January 10, 1997, included as Appendix H to
this Prospectus. The Brandywine Fuel Consultant's Report is included herein in
reliance upon such firm as experts in preparing fuel consultant's reports for
similar projects. The Brandywine Fuel Consultant's Report should be read in its
entirety by all prospective investors for information with respect to the Panda-
Brandywine Facility and related subjects discussed therein.
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Panda Interfunding Corporation and Subsidiaries Consolidated Financial
Statements:
Independent Accountants' Report. . . . . . . . . . . . . . . . . . . F-2
Consolidated Balance Sheets as of December 31, 1994 and 1995 . . . . F-3
Consolidated Statements of Operations for the years ended December
31, 1993, 1994 and 1995 . . . . . . . . . . . . . . . . . . . . . . F-4
Consolidated Statements of Shareholder's Deficit for the years
ended December 31, 1993, 1994 and 1995. . . . . . . . . . . . . . . F-5
Consolidated Statements of Cash Flows for the years ended December
31, 1993, 1994 and 1995 . . . . . . . . . . . . . . . . . . . . . . F-6
Notes to Consolidated Financial Statements for the years ended
December 31, 1993, 1994 and 1995. . . . . . . . . . . . . . . . . . F-7
Panda Interfunding Corporation and Subsidiaries Condensed Consolidated
Financial Statements:
Condensed Consolidated Balance Sheets as of December 31, 1995 and
September 30, 1996. . . . . . . . . . . . . . . . . . . . . . . . . F-19
Condensed Consolidated Statements of Operations for the nine months
ended September 30, 1995 and 1996 . . . . . . . . . . . . . . . . . F-20
Condensed Consolidated Statements of Shareholder's Deficit for the
nine months ended September 30, 1996. . . . . . . . . . . . . . . . F-21
Condensed Consolidated Statements of Cash Flows for the nine months
ended September 30, 1995 and 1996 . . . . . . . . . . . . . . . . . F-22
Notes to Condensed Consolidated Financial Statements for the nine
months ended September 30, 1995 and 1996. . . . . . . . . . . . . . F-23
Panda Interholding Corporation and Subsidiaries Condensed Consolidated
Financial Statements:
Condensed Consolidated Balance Sheet as of September 30, 1996. . . . F-28
Condensed Consolidated Statement of Operations for the nine months
ended September 30, 1996. . . . . . . . . . . . . . . . . . . . . . F-29
Condensed Consolidated Statement of Shareholder's Deficit for the
nine months ended September 30, 1996. . . . . . . . . . . . . . . . F-30
Condensed Consolidated Statements of Cash Flow for the nine months
ended September 30, 1996. . . . . . . . . . . . . . . . . . . . . . F-31
Notes to Condensed Consolidated Financial Statements for the nine
months ended September 30, 1996 . . . . . . . . . . . . . . . . . . F-32
F-1
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors
of Panda Energy International, Inc.
We have audited the accompanying consolidated balance sheets of Panda
Interfunding Corporation and subsidiaries (the "Company") as of December 31,
1994 and 1995, and the related consolidated statements of operations,
shareholder's deficit and cash flows for each of the three years in the period
ended December 31, 1995. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company at December 31, 1994
and 1995, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles.
As discussed in Note 3, the accompanying consolidated financial statements have
been restated to reflect advances to parent as an increase in shareholder's
deficit.
DELOITTE & TOUCHE LLP
Dallas, Texas
January 10, 1997
F-2
<PAGE>
PANDA INTERFUNDING CORPORATION
CONSOLIDATED BALANCE SHEETS
(AS RESTATED - NOTE 3)
DECEMBER 31, 1994 AND 1995
ASSETS
<TABLE>
1994 1995
------------ ------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents . . . . . . . . . . . . . . . $ 3,921,093 $ 1,160,096
Restricted cash -- current. . . . . . . . . . . . . . . 2,571,826 1,876,142
Accounts receivable . . . . . . . . . . . . . . . . . . 5,660,318 5,199,999
Fuel oil, spare parts and supplies. . . . . . . . . . . 3,345,684 3,084,168
Other current assets. . . . . . . . . . . . . . . . . . 39,148 12,664
------------ ------------
Total current assets. . . . . . . . . . . . . . . . . 15,538,069 11,333,069
Plant and equipment:
Electric generating facility. . . . . . . . . . . . . . 105,045,351 105,168,094
Furniture and fixtures. . . . . . . . . . . . . . . . . 29,080 29,080
Less accumulated depreciation . . . . . . . . . . . . . (16,798,583) (21,008,036)
Construction in progress. . . . . . . . . . . . . . . . 6,616,881 132,604,494
------------ ------------
Total plant and equipment, net. . . . . . . . . . . . 94,892,729 216,793,632
Debt service reserves and escrow deposits. . . . . . . . . 9,451,293 10,198,948
Debt issuance costs, net of accumulated amortization of
$2,614,974, and $3,169,285, respectively. . . . . . . . . 4,210,575 3,990,655
Partnership formation costs, net of accumulated
amortization of $1,599,324 and $2,132,440, respectively . 1,066,216 533,100
------------ ------------
$125,158,882 $242,849,404
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDER'S DEFICIT
Current liabilities:
Accounts payable and accrued expenses:
Construction costs . . . . . . . . . . . . . . . . . . $ 1,489,412 $ 5,597,818
Interest and letter of credit fees . . . . . . . . . . 2,623,715 2,540,347
Operating expenses and other . . . . . . . . . . . . . 1,217,421 1,219,061
Current portion of long-term debt. . . . . . . . . . . . 7,200,000 9,100,000
------------ ------------
Total current liabilities. . . . . . . . . . . . . . . 12,530,548 18,457,226
Long term debt, less current portion . . . . . . . . . . . 106,342,894 234,608,361
Minority interest. . . . . . . . . . . . . . . . . . . . . 35,588,365 36,835,666
Commitments and contingencies (Note 8) . . . . . . . . . . -- --
Shareholder's deficit:
Common stock, par value $.01; 1,000 shares
authorized, issued and outstanding. . . . . . . . . . . 10 10
Advances to parent . . . . . . . . . . . . . . . . . . . (16,517,526) (32,263,761)
Accumulated deficit. . . . . . . . . . . . . . . . . . . (12,785,409) (14,788,098)
------------ ------------
Total shareholder's deficit. . . . . . . . . . . . . . (29,302,925) (47,051,849)
------------ ------------
$125,158,882 $242,849,404
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
PANDA INTERFUNDING CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
<TABLE>
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Revenue:
Electric capacity and energy sales. . . . . . . . . . . . . $29,856,269 $30,664,096 $29,858,475
Steam and chilled water sales . . . . . . . . . . . . . . . 617,598 650,575 473,040
Interest income . . . . . . . . . . . . . . . . . . . . . . 365,276 602,783 895,268
----------- ----------- -----------
30,839,143 31,917,454 31,226,783
----------- ----------- -----------
Expenses:
Plant operating expenses. . . . . . . . . . . . . . . . . . 7,676,470 8,940,146 9,347,707
Project development and administrative. . . . . . . . . . . 2,277,786 1,376,349 1,821,376
Interest expense and letter of credit fees. . . . . . . . . 11,065,648 11,017,418 11,715,929
Depreciation. . . . . . . . . . . . . . . . . . . . . . . . 4,281,673 4,208,314 4,209,453
Amortization of debt issuance costs . . . . . . . . . . . . 502,613 600,382 554,311
Amortization of partnership formation costs . . . . . . . . 533,104 533,116 533,116
----------- ----------- -----------
26,337,294 26,675,725 28,181,892
----------- ----------- -----------
Income before minority interest. . . . . . . . . . . . . . . 4,501,849 5,241,729 3,044,891
Minority interest. . . . . . . . . . . . . . . . . . . . . . (5,474,483) (5,699,994) (5,047,580)
----------- ----------- -----------
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . $ (972,634) $ (458,265) $ (2,002,689)
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
PANDA INTERFUNDING CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S DEFICIT
(AS RESTATED - NOTE 3)
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
<TABLE>
Total
Common Advances Accumulated Shareholder's
Stock to Parent Deficit Deficit
------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
Balance, January 1, 1993 . . . . . . . . . . . . . $ 10 $ (8,201,521) $(11,354,510) $(19,556,021)
Advances to parent . . . . . . . . . . . . . . . . -- (855,933) -- (855,933)
Net loss . . . . . . . . . . . . . . . . . . . . . -- -- (972,634) (972,634)
----- ------------ ------------ ------------
Balance, December 31, 1993 . . . . . . . . . . . . 10 (9,057,454) (12,327,144) (21,384,588)
Advances to parent . . . . . . . . . . . . . . . . -- (7,460,072) -- (7,460,072)
Net loss . . . . . . . . . . . . . . . . . . . . . -- -- (458,265) (458,265)
----- ------------ ------------ ------------
Balance, December 31, 1994 . . . . . . . . . . . . 10 (16,517,526) (12,785,409) (29,302,925)
Advances to parent . . . . . . . . . . . . . . . . -- (15,746,235) -- (15,746,235)
Net loss . . . . . . . . . . . . . . . . . . . . . -- -- (2,002,689) (2,002,689)
----- ------------ ------------ ------------
Balance, December 31, 1995 . . . . . . . . . . . . $ 10 $(32,263,761) $(14,788,098) $(47,051,849)
----- ------------ ------------ ------------
----- ------------ ------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
PANDA INTERFUNDING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
<TABLE>
1993 1994 1995
------------ ------------ --------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss. . . . . . . . . . . . . . . . . . . . . $ (972,634) $ (458,265) $ (2,002,689)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Minority interest . . . . . . . . . . . . . . . 5,474,483 5,699,994 5,047,580
Depreciation. . . . . . . . . . . . . . . . . . 4,281,673 4,208,314 4,209,453
Amortization of debt issuance costs . . . . . . 502,613 600,382 554,311
Amortization of partnership formation costs . . 533,104 533,116 533,116
Amortization of loan discount . . . . . . . . . -- -- 124,176
Changes in assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . 2,727,654 (2,454,524) 460,319
Fuel oil, spare parts and supplies. . . . . . . 180,866 (33,698) 261,516
Other current assets. . . . . . . . . . . . . . (34,430) 6,646 26,484
Accounts payable and accrued expenses . . . . . 45,433 (114,382) (81,728)
----------- ----------- ------------
Net cash provided by operating activities . . 12,738,762 7,987,583 9,132,538
----------- ----------- ------------
INVESTING ACTIVITIES:
Restricted cash-current . . . . . . . . . . . . . (330,888) 2,847,429 695,684
Additions to plant and equipment. . . . . . . . . (2,986,156) (3,801,777) (122,001,950)
Increase in debt service reserves and escrow
deposits . . . . . . . . . . . . . . . . . . . . (808,526) (457,538) (747,655)
----------- ----------- ------------
Net cash used in investing activities . . . . (4,125,570) (1,411,886) (122,053,921)
----------- ----------- ------------
FINANCING ACTIVITIES:
Distributions to minority interest owner. . . . . (4,341,935) (4,590,354) (3,800,279)
Advances to parent. . . . . . . . . . . . . . . . (855,933) (8,701,884) (15,746,235)
Proceeds from long-term debt. . . . . . . . . . . 2,550,000 16,534,706 147,541,291
Repayment of long-term debt . . . . . . . . . . . (4,400,000) (7,500,000) (17,500,000)
Debt issuance costs . . . . . . . . . . . . . . . (105,354) (498,281) (334,391)
----------- ----------- ------------
Net cash provided by (used in) financing
activities . . . . . . . . . . . . . . . . . (7,153,222) (4,755,813) 110,160,386
----------- ----------- ------------
Increase (decrease) in cash and cash equivalents. . 1,459,970 1,819,884 (2,760,997)
Cash and cash equivalents, beginning of period. . . 641,239 2,101,209 3,921,093
----------- ----------- ------------
Cash and cash equivalents, end of period. . . . . . $ 2,101,209 $ 3,921,093 $ 1,160,096
----------- ----------- ------------
----------- ----------- ------------
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid, net of amounts capitalized . . . . $11,078,485 $ 9,983,508 $ 5,968,240
NON CASH INVESTING AND FINANCING ACTIVITIES:
Accrued construction costs. . . . . . . . . . . . $ -- $ 1,489,412 $ 5,597,818
Interest cost . . . . . . . . . . . . . . . . . . -- -- 153,861
Debt discount . . . . . . . . . . . . . . . . . . -- 1,241,812 --
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
PANDA INTERFUNDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
1. ORGANIZATION AND BASIS OF PRESENTATION
The accompanying consolidated financial statements reflect the
ownership interests of two independent power projects for all periods. The
projects include the Rosemary project and the Brandywine project (see Note 5).
These ownership interests are held by certain entities which, until July 31,
1996, were wholly-owned by Panda Energy Corporation, a Texas corporation
("PEC"), which in turn is a wholly-owned subsidiary of Panda Energy
International, Inc. ("PEII"). These entities are collectively referred to as
"Panda Interfunding Corporation," "PIC" or the "Company". The Company and its
wholly-owned subsidiary, Panda Interholding Corporation ("Interholding") were
formed in July 1996 to hold the interests in the two independent power projects
which were transferred to the Company by PEC and recorded at PEC's historical
cost. Because the transfers occurred between entities under common control, the
transactions have been accounted for in a manner similar to pooling of interests
accounting. The entities primarily include Panda Rosemary Corporation ("PRC"), a
1% general partner in Panda-Rosemary, L.P. ("Panda-Rosemary"); PRC II
Corporation ("PRC II"), a 9% limited partner in Panda-Rosemary; Panda
Brandywine Corporation, a 50% general partner in Panda-Brandywine, L.P. ("Panda-
Brandywine"); Panda Energy Corporation, a Delaware corporation ("PEC-Delaware"),
a 50% limited partner in Panda-Brandywine; and Brandywine Water Company. The
Company, through its general and limited partnership interests, owns 100% of
Panda-Brandywine. The Rosemary project and the Brandywine project are in
different stages of construction and operation and are located in the United
States.
Additionally, Panda Funding Corporation ("PFC"), Panda-Rosemary
Funding Corporation ("PRFC") and Panda Cayman Interfunding Corporation ("PIC
Cayman") have been formed as wholly-owned subsidiaries of the Company for
purposes of facilitating the financing of the future development and the
acquisition of debt and equity interests of certain electric generation
facilities and currently have no independent operations.
All material intercompany accounts and transactions have been
eliminated in consolidation.
2. SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
CASH -- Included in cash and cash equivalents are highly liquid
investments with original maturities of three months or less.
RESTRICTED CASH - CURRENT -- Restricted cash-current represents
escrowed cash which may be used to pay operating expenses and make debt payments
and distributions to partners pursuant to the trust indenture agreements.
DEBT SERVICE RESERVES AND ESCROW DEPOSITS -- Debt service reserves
and escrow deposits include cash held by the bank to pay debt service and
capital improvements pursuant to the trust indenture agreements.
FUEL OIL, SPARE PARTS AND SUPPLIES -- These items include fuel oil
stored on-site, chemical inventory and various spare parts and supplies
necessary for plant maintenance. The items are valued at cost using the weighted
average method, and are expensed, as plant operating expenses, when used.
PLANT AND EQUIPMENT -- Electric generating facility assets are
recorded at cost and depreciated using the straight-line method over the
estimated useful lives of the assets, generally twenty-five years. Depreciation
of office furniture, equipment, and leasehold improvements is provided using the
straight-line method over the estimated useful lives of the assets, generally
three to five years. Costs, including interest on funds borrowed to finance the
construction of facilities, related to projects under construction are
capitalized as construction in progress. Construction in progress balances are
transferred to electric generating facilities when the assets are ready for
their intended use. Capitalized interest was $0, $803,254, and $5,793,296 during
1993, 1994 and 1995, respectively. Maintenance and repair costs are charged to
expense as incurred. Other projects currently under development by PEII may be
transferred to the Company at PEII's historical cost when construction financing
has been obtained or when the completed projects have commenced commercial
operations.
F-7
<PAGE>
DEBT ISSUANCE COSTS -- The costs related to the issuance of debt are
capitalized and amortized using the effective interest method over the term of
the related debt.
PARTNERSHIP FORMATION COSTS -- The costs related to the formation of
Panda-Rosemary are capitalized and amortized over five years.
ENVIRONMENTAL MATTERS -- The operations of the Company are subject to
federal, state and local laws and regulations relating to protection of the
environment. Although the Company believes that its operations are in compliance
with applicable environmental regulation, risks of additional costs and
liabilities are inherent in cogeneration operations, and there can be no
assurance that significant costs and liabilities will not be incurred by the
Company. Management is not aware of any contingent liabilities that currently
exist with respect to environmental matters.
Environmental expenditures are expensed or capitalized as appropriate.
Expenditures that relate to an existing condition caused by past operations, and
which do not contribute to current or future revenue generation, are expensed.
Liabilities are recorded if environmental assessments and/or remedial efforts
become probable, and the costs reasonably estimable.
REVENUE RECOGNITION -- Revenue generated from the sale of electric
capacity and energy from the Rosemary project is recognized based on the amount
billed under the power purchase agreement, which was entered into prior to May
21, 1992. The revenue generated from the sale of electric capacity and energy
from other projects will be recognized based on the lesser of the amount
billable under the power purchase agreement or an amount determined by the
annual kilowatts made available multiplied by the estimated average revenue per
kilowatt over the term of the power purchase agreement. Revenue from the sale of
steam and chilled water is recognized based on the output delivered at rates
specified under contract terms.
INCOME TAXES -- The Company records income taxes according to
Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes" (SFAS 109) which requires deferred tax liabilities or assets to be
recognized for the anticipated future tax effects of temporary differences that
arise as a result of the differences in the carrying amounts and the tax bases
of assets and liabilities. SFAS 109 also requires a valuation allowance for
deferred tax assets in certain circumstances.
The Company is included in the consolidated federal income tax return
of PEII. The accompanying financial statements reflect income taxes as if the
Company were a separate tax filing entity.
ALLOCATION OF ADMINISTRATIVE COSTS -- PEII performs certain
accounting, legal, insurance, and consulting services for the Company. These
general and administrative costs are generally allocated to the Company using
the percentage of time PEII spent performing these services. The expenses
allocated were $701,153, $600,353 and $870,200 in 1993, 1994 and 1995,
respectively, and are included in project development and administrative
expenses in the statement of operations. Management believes the method used to
allocate these costs is reasonable.
NEW ACCOUNTING PRONOUNCEMENTS -- In March 1995, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of" (SFAS 121). SFAS 121 is effective for financial
statements for fiscal years beginning after December 15, 1995 and requires the
write-down of certain long-lived assets if circumstances indicate that the
carrying value of those assets may not be recoverable. The Company will adopt
SFAS 121 in 1996 and such adoption will not have a material impact on its
financial position or results of operations.
INTEREST COST -- Total interest cost incurred, including capitalized
interest, was $11,065,648, $11,820,672 and $17,509,225 in 1993, 1994 and 1995,
respectively.
3. RESTATEMENT
The Company has restated its financial statements to reflect $16.5
million and $32.3 million as of December 31, 1994 and 1995, respectively, as an
increase in shareholder's deficit. These amounts represent cash advances to the
parent, allocations of general and administrative expenses from the parent, and
the excess of liabilities assumed over the assets contributed on projects owned
by the parent and contributed in connection with the formation of the Company.
F-8
<PAGE>
Previously, these amounts were recorded in the balance sheet as
Receivable from Parent. Based upon review of the nature and terms of such
advances and other transactions, management determined that the transactions
should be recorded as a component of shareholder's deficit. Accordingly, the
financial statements have been restated to reflect such treatment. This
restatement had no effect on previously reported results of operations of the
Company but increased the shareholder's deficit from that previously reported by
$16.5 million and $32.3 million at December 31, 1994 and 1995, respectively.
The advances to parent for the years ended December 31, 1993, 1994 and
1995 consist of the following:
Balance, January 1, 1993 . . . . . . . . . . . . $ 8,201,521
Cash advanced to parent. . . . . . . . . . . . . 1,557,086
Administrative costs allocated from parent . . . (701,153)
-----------
Balance, December 31, 1993 . . . . . . . . . . . 9,057,454
Cash advanced to parent. . . . . . . . . . . . . 9,302,237
Administrative costs allocated from parent . . . (600,353)
Debt discount allocated from parent. . . . . . . (1,241,812)
-----------
Balance, December 31, 1994 . . . . . . . . . . . 16,517,526
Cash advanced to parent. . . . . . . . . . . . . 16,616,435
Administrative costs allocated from parent. . . (870,200)
-----------
Balance, December 31, 1995 . . . . . . . . . . . $32,263,761
-----------
-----------
The average balance of advances to parent was $8,630,000, $12,787,000
and $20,336,000 during 1993, 1994 and 1995, respectively.
4. FUEL OIL, SPARE PARTS AND SUPPLIES
Fuel oil, spare parts and supplies are comprised of the following
amounts:
1994 1995
---------- ----------
Fuel oil . . . . . . . . . $1,235,022 $1,182,310
Spare parts . . . . . . . 2,082,310 1,880,732
Chemicals. . . . . . . . . 28,352 21,126
---------- ----------
Total. . . . . . $3,345,684 $3,084,168
---------- ----------
---------- ----------
5. POWER PROJECTS
ROSEMARY PROJECT -- Effective May 5, 1989, PEII formed a wholly-owned
subsidiary, now a wholly-owned subsidiary of the Company, to develop, construct,
and operate the 180 megawatt gas-fired Rosemary cogeneration facility in Roanoke
Rapids, North Carolina ("Rosemary Project"). Construction on the Rosemary
Project began in September 1989, and commercial operation of the facility began
on December 27, 1990.
The Rosemary Project produces both electricity and useful thermal
energy in the form of steam. Electric capacity and energy sales are based on the
terms of the power purchase agreement between Panda-Rosemary and Virginia
Electric Power Company ("VEPCO") dated January 24, 1989. The agreement requires
Panda-Rosemary to provide VEPCO with all the available capacity of the Rosemary
Project on an as-needed basis with VEPCO obligated to pay for the power
delivered and dependable capacity of the facility at a rate per kilowatt which
decreases in certain periods as defined by the agreement. The term of the
agreement is 25 years and it expires December 2015. Steam and chilled water are
sold to the Bibb Company under a separate agreement.
On January 6, 1992, PRC contributed substantially all project assets
and liabilities and $216,553 in cash to Panda-Rosemary, in exchange for a 10%
combined general partnership and limited partnership interest. The assets and
liabilities were recorded at historical cost, resulting in $19,874,216 in
partners' deficit being contributed by PRC. An institutional investor
F-9
<PAGE>
("Investor") contributed $30,948,987 in cash in exchange for a 90% limited
partnership interest. The Rosemary Project is managed by PRC, the general
partner, and is operated by an unrelated third party. In 1996, the Investor's
limited partnership interest was acquired by the Company (see Note 11).
Prior to the acquisition of the Investor's limited partnership
interest, the Investor received percentage allocations of income, expense, and
cash flow which decline over time if certain rate of return requirements are
achieved. The allocations to the Investor begin at 90%, then decrease to 60%,
30%, and finally 15% based upon attainment of the designated rate of return
requirements. The corresponding remainder of the cash flow (10%, 40%, 70%, and
finally 85%) is allocated to the Company.
The Company controls Panda-Rosemary through its one percent general
partner interest and a 9% limited partner interest, which increases over time if
certain rate of return requirements are achieved by Panda-Rosemary. As general
partner, the Company has exclusive management authority over the operations of
Panda-Rosemary. Accordingly, Panda-Rosemary's balance sheet as of December 31,
1994 and 1995, and statements of income for the years ended December 31, 1993,
1994, and 1995 have been consolidated in the accompanying financial statements.
The capital of the Investor and Panda-Rosemary's net income allocated to the
Investor are presented as minority interest in the accompanying financial
statements.
BRANDYWINE PROJECT -- On August 9, 1991, through a wholly-owned
partnership, Panda-Brandywine L.P. ("Panda-Brandywine"), PEII entered into a
power purchase agreement with Potomac Electric Power Company ("PEPCO") to build
a 230 megawatt gas-fired facility ("Brandywine Project"). The agreement requires
Panda-Brandywine to supply PEPCO with all available capacity from the facility
for the 25-year term of the agreement with a guaranteed dispatch level of at
least 60 hours per week for the first 15 years. The Brandywine Project, in
Brandywine, Maryland, constructed by Raytheon Engineers and Constructors, Inc.
under a fixed fee, turn-key contract was substantially completed and commenced
commercial operations in October, 1996. A construction loan commitment in the
amount of $215 million was provided by General Electric Capital Corporation
("GECC") in April, 1995. Upon substantial completion of construction, the loan
converted to a capital lease with GECC with a twenty year term and two five year
renewal options (see Note 11). The Company has incurred total costs of $132.6
million as of December 31, 1995, which is included in plant and equipment under
construction in progress in the accompanying balance sheet.
6. LONG-TERM DEBT
Long-term debt of the Company as of December 31, 1994, and 1995 is
summarized as follows:
1994 1995
------------ ------------
Taxable Revenue Bonds for Rosemary project. . $ 97,200,000 $ 90,000,000
Development Loan for Brandywine project . . . 10,084,706 --
Construction Loan for Brandywine project. . . -- 134,735,719
Term Loan with TCW, net of discount . . . . . 6,258,188 18,972,642
------------ ------------
113,542,894 243,708,361
Less current portion. . . . . . . . . . . . . (7,200,000) (9,100,000)
------------ ------------
$106,342,894 $234,608,361
------------ ------------
------------ ------------
TAXABLE REVENUE BONDS -- In October 1989, PRC obtained long-term
financing for the Rosemary Project in the form of $116 million of taxable
revenue bonds ("Tax Bonds") issued by the Halifax Regional Economic Development
Corporation ("Halifax"), a nonprofit corporation organized in North Carolina.
The Tax Bonds bear interest at a fixed rate of 9.25% payable semiannually.
Scheduled principal payments are required annually and began on October 1, 1991
and will continue through maturity on October 1, 2005. Such principal and
interest payments paid by Panda-Rosemary to Halifax are used to make required
payments on the Tax Bonds. The Tax Bonds are subject to mandatory redemption
prior to maturity under certain conditions.
The Tax Bonds are fully guaranteed by an irrevocable, direct-pay
letter of credit issued by The Fuji Bank, Limited, Houston Agency ("Fuji"). The
letter of credit has a term equal to the term of the Tax Bonds and includes
annual fees of .9375% for years 1-5, 1.3125% for years 6-10, and 1.6875%
thereafter. The letter of credit is secured by the Rosemary Project as well as
all of the outstanding capital stock of PRC. The letter of credit contains
certain covenants including a minimum debt service coverage ratio to be
maintained by Panda-Rosemary.
F-10
<PAGE>
During the Rosemary Project's operating period and while amounts are
outstanding under the long-term financing arrangements, all revenues of Panda-
Rosemary are paid to a collateral agent, acting on behalf of Fuji. On a
quarterly basis, the collateral agent remits to Panda-Rosemary remaining funds
available after payment of all expenditures relating to the Rosemary Project,
including debt service, provided that Panda-Rosemary is in compliance with the
debt service coverage ratio and other covenants under the letter of credit.
Under the long-term financing arrangements, the collateral agent withholds funds
to meet future debt service, maintenance and pollution control requirements, if
necessary. These amounts are reflected as restricted cash-current and debt
service reserves and escrow deposits in the accompanying consolidated balance
sheets.
Fuji has also provided a letter of credit for approximately $5 million
guaranteeing Panda-Rosemary's performance under the power purchase agreement.
TERM LOAN -- On October 27, 1995, PEII obtained a term loan in the
amount of $20 million from Trust Company of the West ("TCW"). This loan amended
and restated the loan agreement dated November 8, 1994. The loan bears interest
at a rate of 13.5%, payable at a rate of 11.0%, and matures on November 8, 2004.
The 2.5% interest not payable currently is added to the principal balance of the
loan. The loan is secured by the pledge of the common stock of PEC which
currently owns the interest in all PEII's various projects (including the
projects held by the Company). In addition, the Company is in the process of
completing a debt offering in which a portion of the proceeds will be used to
retire all the term loan debt (see Note 11).
Under the loan agreement, TCW also received 1,004,000 warrants to
purchase shares of PEII stock. A loan discount of $1,241,812 was created as a
result of allocating value to the warrants. The warrants are exercisable at $8
per share, subject to adjustment, and expire on November 8, 2004. If a public
offering of PEII's stock has not occurred, PEII is obligated to repurchase the
warrants at the holder's option for $2.18 and $2.91 at November 8, 1999 and
2001, respectively. The warrants are callable in total by PEII if a public
offering of stock has occurred at $12 per warrant during a call period when the
closing price for PEII's common stock has equaled or exceeded 250% of the
exercise price of the warrants. The carrying value of the warrants is adjusted
annually to the redemption price. Such adjustment was $153,861 in 1995 and was
recorded as interest expense in the accompanying statement of operations. The
carrying value of the warrants was $1,395,673 at December 31, 1995 and will
increase periodically to the ultimate redemption value of $2,921,640 on November
8, 2001. The term loan contains certain restrictive covenants including
limitations on indebtedness, limitations on corporate investments and others.
Proceeds from the November 8, 1994, TCW loan were used to pay unpaid
principal and accrued interest in the amount of $1,431,781 on an existing term
loan with Nova Northwest Inc. ("Nova"). Under the agreement, Nova will continue
to receive 4.33% of cash flow participation in the distributions received by
PEII from the Rosemary Project for the term of the Panda-Rosemary L.P.
partnership agreement. PEII and Nova each have the option to convert the present
value of cash flow participation, as defined by the agreement, to PEII common
stock at $6 a share.
CONSTRUCTION LOAN -- On April 10, 1995, Panda-Brandywine closed the
initial funding of a $215 million construction loan commitment with GECC. The
construction loan is considered non-recourse project debt and should provide for
all capital costs of the project. The construction loan bears an interest rate
of the Eurodollar rate plus 2.5%, and upon completion of the Brandywine facility
the construction loan was converted to a capital lease with GECC which has a 20-
year initial term and two 5-year renewal options. The lease payments anticipated
under the capital lease are used to determine the future minimum payments (see
Note 11). The construction loan provides for commitments under letters of credit
aggregating approximately $12.4 million of which approximately $5.4 million is
outstanding as of December 31, 1995. The letters of credit have terms up to the
terms of the lease, an annual fee of 1.50% on any amounts outstanding and 1.25%
on the unused commitment and are collateralized by the Brandywine Project.
LONG-TERM DEBT MATURITIES -- The maturities of long-term obligations,
excluding the construction loan, for each of the five years succeeding December
31, 1995 and thereafter, are as follows:
1996. . . . . . . . . . . $ 9,100,000
1997 . . . . . . . . . . 9,178,000
1998 . . . . . . . . . . 9,978,000
1999. . . . . . . . . . . 9,278,000
2000 . . . . . . . . . . 11,178,000
Thereafter . . . . . . . 60,260,642
------------
$108,972,642
------------
------------
F-11
<PAGE>
7. INCOME TAXES
A provision for income taxes for 1993, 1994 and 1995 has not been
recorded since operating losses were incurred for each year.
PEII has approximately $16 million of net operating loss carryforwards
at December 31, 1995 which are available to the Company and will expire during
the years 2007 to 2010. PEII may become subject to a limitation on the amount of
net operating loss carryforwards which may be used annually to offset income
should certain changes in its ownership occur in the future.
Deferred tax assets of approximately $8 million and $10 million as of
December 31, 1994 and 1995, respectively, consist primarily of interest in
partnerships and net operating losses and are offset by a valuation allowance.
The deferred tax asset for interest in partnerships relates to the difference
between the tax basis of the assets contributed to the partnership upon its
formation and the Company's financial reporting basis in those assets.
SFAS No. 109 requires that a valuation allowance be recorded against
tax assets which are not likely to be realized. The Company's carryforwards
expire at specific future dates and utilization of certain carryforwards is
limited to specific amounts each year. However, due to the uncertain nature of
their ultimate realization based upon past performance and expiration dates, the
Company has established a full valuation allowance against these carryforward
benefits and will recognize the benefits only when reassessment demonstrates
that it is more likely than not that such benefits will be realized.
Realization is entirely dependent upon future earnings in specific tax
jurisdictions. While the need for this valuation allowance is subject to
periodic review, if the allowance is reduced, the tax benefits of the
carryforwards will be recorded in future operations as a reduction of the
Company's income tax expense.
8. COMMITMENTS AND CONTINGENCIES
The Company has entered into various long-term contracts for the
purchase and transportation of fuel subject to termination only in certain
limited circumstances. These contracts have remaining terms of 10 to 25 years.
The Company's minimum purchase commitment under these contracts is 2.3 million
British thermal units of gas annually from October 31, 1996 through October 31,
2011. In the aggregate, such commitments are not at prices in excess of the
current market.
The Brandywine Project, upon substantial completion of construction,
was leased under a capital lease with GECC. See Note 11 for the future minimum
lease commitments under the capital lease.
PEC is also involved in other legal and administrative proceedings in
the ordinary course of business. Management believes, based on the advice of
counsel, the amount of ultimate liability with respect to these matters will not
have a material affect on the financial position, results of operations or cash
flows of the Company.
See Note 11 for information concerning additional matters which have
arisen subsequent to December 31, 1995.
9. RELATED PARTY TRANSACTIONS
The Company purchases insurance coverage through an agency owned by a
shareholder of PEII who is also a member of the board of directors of PEII and a
relative of PEII's chairman. The Company believes such coverage is on terms
that are no less favorable than reasonably available from unaffiliated third
parties. Total insurance purchases through this agency were $336,616, $291,142
and $298,728 for the years ended December 31, 1993, 1994 and 1995, respectively.
10. FAIR VALUE OF FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK
The estimated fair values of the Company's financial instruments as of
December 31, 1995 are as follows:
CARRYING VALUE FAIR VALUE
-------------- ------------
Long-term debt . . . . . . . . $243,708,361 $257,877,561
F-12
<PAGE>
The carrying amounts of variable rate debt approximate their fair
values. The taxable revenue bonds have limited trading. The fair value of these
bonds is estimated based on a March 1996, third party quotation, adjusted to
reflect changes in the yield of government securities with similar maturities
since December 31, 1995. The fair value of the other long-term debt is
established using discounted cash flow analyses, based on the Company's current
incremental borrowing rates for similar types of borrowing arrangements.
The Company is also a party to letters of credit. Historically, no
claims have been made against these financial instruments and management does
not expect any material losses to result from these off-balance-sheet
instruments because performance is not usually expected to be required.
Therefore, management is of the opinion that the fair value of these instruments
is zero.
The Company has various purchase commitments for gas supply and
delivery incident to the ordinary conduct of business. In the aggregate, such
commitments are not at prices in excess of the current market.
The Company's electric capacity and energy sales are currently under
one power sales contract with a single customer. The failure of this customer to
fulfill its contractual obligations could have a substantial negative impact on
the Company's revenue. However, the Company does not anticipate non-performance
by the customer under this contract.
11. SUBSEQUENT EVENTS
In July 1996, Panda-Rosemary Funding Corporation ("PRFC"), a wholly-
owned subsidiary of Panda-Rosemary, issued $111,400,000 of first mortgage bonds
("Rosemary Bonds"). The Rosemary Bonds bear interest at a fixed rate of 8-5/8%
payable quarterly commencing November 15, 1996. Scheduled principal payments
are required quarterly commencing November 15, 1996, and will continue through
maturity on February 15, 2016. The Rosemary Bonds are subject to mandatory
redemption prior to maturity under certain conditions. The Rosemary Bonds are
unconditionally guaranteed by Panda-Rosemary but are non-recourse to the
Company, and are secured by substantially all of the assets of Panda-Rosemary as
well as all of the outstanding capital stock of PRC, PRC II and PRFC. The
indenture contains certain covenants, including limitations on distributions,
additional debt and certain other transactions.
While amounts are outstanding under the Rosemary Bonds, all revenues
of Panda-Rosemary are paid to a collateral agent. Funds held by the collateral
agent are included in the accompanying consolidated balance sheets as restricted
cash-current. On a monthly basis, the collateral agent remits to Panda-Rosemary
remaining funds available after payment of all expenditures relating to the
Rosemary project, including debt service, provided that Panda-Rosemary is in
compliance with the debt covenants. Additionally, the collateral agent
withholds funds to meet future debt service, maintenance and pollution control
requirements, if required under the indenture. These amounts are included in
the accompanying consolidated balance sheets as restricted cash-current and debt
service reserves and escrow deposits.
Also in July 1996, Panda Funding Corporation ("PFC"), a wholly-owned
subsidiary of the Company, issued $105,525,000 of pooled project bonds ("Series
A Bonds"). The Series A Bonds bear interest at a fixed rate of 11-5/8% payable
semiannually commencing February 20, 1997. Scheduled principal payments are
required semiannually commencing February 20, 1997 and will continue through
maturity on August 20, 2012. The Series A Bonds are subject to mandatory
redemption prior to maturity under certain conditions. The Series A Bonds are
fully and unconditionally guaranteed by the Company and are guaranteed on a
limited basis by Interholding up to a maximum amount specified by the guarantee
agreement which approximates $25.1 million at September 30, 1996. See Note 12
for condensed consolidating financial information concerning the guarantor and
nonguarantor subsidiaries of the Company. The consolidated financial statements
of the Company as of December 31, 1994 and 1995 and for each of the three years
in the period ended December 31, 1995 are also the consolidated financial
statements of Interholding as of such dates and for such periods. Additionally,
the Series A Bonds are secured by (i) all of the capital stock of PFC, the
Company and Interholding, (ii) 60% of the capital stock of PIC Cayman, (iii) the
Company's interest in distributions from Interholding, and (iv) certain other
collateral. Individually, the pledges of the capital stock of PFC, Interholding
and PIC Cayman do not constitute a "substantial portion of collateral" (as
defined in Rule 3-10 of Regulation S-X promulgated under the Securities Act of
1933) for the Series A Bonds. Accordingly, separate financial statements of
PFC, Interholding and PIC Cayman are not presented because the Company believes
that such disclosure is not material. The Series A Bonds are effectively
subordinated to the obligations of the Company's subsidiaries under project-
level financing arrangements. The indenture contains certain covenants,
including limitations on distributions, additional debt and certain other
transactions.
F-13
<PAGE>
While amounts are outstanding under the Series A Bonds, all
distributions from Interholding and certain proceeds received from PIC Cayman
will be paid to a collateral agent. On a monthly basis, the collateral agent
will remit to the Company remaining funds available after satisfaction of the
Company's debt service obligations (including amounts withheld, if necessary, to
meet future debt service and reserve fund requirements as required by the
indenture) provided that the Company is in compliance with the debt covenants.
In connection with the issuance of the Rosemary Bonds and the Series A
Bonds, the Company refinanced the taxable revenue bonds issued in 1989 for the
Rosemary project and repaid the TCW term loan. The Company incurred a loss of
$21,336,550 on the early extinguishment of these obligations. Additionally, the
Company acquired the minority interest holder's limited partnership interest in
Panda-Rosemary for a purchase price of approximately $34.3 million. As a result
of this acquisition, the Company owns 100% of Panda-Rosemary. The acquisition
was accounted for using the purchase method of accounting. The excess of
minority interest over the purchase price (approximately $3.8 million) was
allocated to plant and equipment. Additionally, the Company advanced
approximately $34.8 million to PEII for project development and general
corporate purposes.
The Brandywine Project commenced commercial operations in October
1996. As discussed in Note 6, General Electric Capital Corporation provided a
construction loan to finance construction of the Brandywine Project. The
construction loan was converted to long-term financing of $217.5 million in the
form of a capital lease (together with the construction loan, the "Panda-
Brandywine Financing") during December 1996. To effect the lease financing,
title to the Brandywine Project was transferred to a third party trustee and
leased back to Panda-Brandywine. The Brandywine facility lease is a net lease
and its initial term is 20 years. The documents governing the Panda-Brandywine
Financing contain various affirmative and negative covenants, including
limitations on the ability of Panda-Brandywine to make distributions to its
partners.
The future minimum lease commitments under the capital lease for the
Brandywine Project are as follows:
1997 . . . . . . . . . . . . . . . . . . . $ 7,831,527
1998 . . . . . . . . . . . . . . . . . . . 10,419,439
1999 . . . . . . . . . . . . . . . . . . . 17,584,915
2000 . . . . . . . . . . . . . . . . . . . 20,489,320
2001 . . . . . . . . . . . . . . . . . . . 25,613,918
Thereafter . . . . . . . . . . . . . . . . 501,415,526
-------------
Total minimum lease payments . . . . . . . 583,354,645
Amounts representing interest. . . . . . . (365,866,000)
-------------
Present value of net minimum payments. . . $ 217,488,645
-------------
-------------
In August 1996, Panda-Brandywine and PEPCO commenced discussions
concerning commercial operational requirements of the Brandywine Project and
conversion of the construction loan to long-term financing in the form of a
lease. During these discussions, disagreements arose between Panda-Brandywine
and PEPCO with respect to certain provisions of the Brandywine Power Purchase
Agreement, one of which relates to the determination of the interest rate that
is the basis for reduction in capacity payments thereunder (the "PEPCO Interest
Rate Dispute"). PEPCO and Panda-Brandywine are presently attempting to resolve
these disagreements but there are no assurances that such efforts will be
successful. If the PEPCO Interest Rate Dispute is determined adversely to
Panda-Brandywine, the capacity payments paid by PEPCO under the Brandywine Power
Purchase Agreement will be less than originally anticipated, thereby adversely
affecting the revenues realized by Panda-Brandywine, and consequently, reducing
the amount of funds that would be available for distribution to the Company.
Raytheon Engineers and Constructors, Inc. ("Raytheon") constructed the
Brandywine Project pursuant to a fixed-price, turnkey engineering, procurement
and construction contract (the "Brandywine EPC Agreement") with Panda-
Brandywine. Raytheon completed the construction and start-up of the Brandywine
Project and has met the requirements for commercial operations and substantial
completion under the Brandywine EPC Agreement, although the date on which
commercial operations were achieved and the entitlement of Raytheon to certain
early completion bonuses under the Brandywine EPC Agreement are the subject of a
dispute between Panda-Brandywine and Raytheon. The Company estimates that the
amount in dispute is less than $1 million and believes that the resolution of
this dispute will not have a material adverse effect upon the financial
position, results of operations or liquidity of the Company.
F-14
<PAGE>
12. CONDENSED CONSOLIDATING FINANCIAL INFORMATION
As discussed in Note 11, the Series A Bonds are fully and
unconditionally guaranteed by the Company and are guaranteed on a limited
basis by Interholding. Condensed consolidating financial information for
Panda Interfunding Corporation and Subsidiaries as of December 31, 1994 and
1995 and for the years ended December 31, 1993, 1994 and 1995 is as follows:
<TABLE>
PANDA INTERFUNDING CORPORATION
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1994
ASSETS
Non-
Panda Panda Panda Guar- Panda
Funding Interfunding Interholding antor Interfunding
Corporation Corporation Corporation Subsid- Elimi- Corporation
(Issuer) (Guarantor) (Guarantor) iaries nations Consolidated
----------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents . . . . . . . . . . $ -- $ -- $ -- $ 3,921,093 $ -- $ 3,921,093
Restricted cash -- current. . . . . . . . . . -- -- -- 2,571,826 -- 2,571,826
Accounts receivable . . . . . . . . . . . . . 10 10 10 5,660,338 (50) 5,660,318
Fuel oil, spare parts and supplies. . . . . . -- -- -- 3,345,684 -- 3,345,684
Other current assets. . . . . . . . . . . . . -- -- -- 39,148 -- 39,148
----- ------------ ------------ ------------ ----------- ------------
Total current assets. . . . . . . . . . . . 10 10 10 15,538,089 (50) 15,538,069
Plant and equipment:
Electric generating facility. . . . . . . . . -- -- -- 105,045,351 -- 105,045,351
Furniture and fixtures. . . . . . . . . . . . -- -- -- 29,080 -- 29,080
Less accumulated depreciation . . . . . . . . -- -- -- (16,798,583) -- (16,798,583)
Construction in progress. . . . . . . . . . . -- -- -- 6,616,881 -- 6,616,881
----- ------------ ------------ ------------ ----------- ------------
Total plant and equipment, net. . . . . . . -- -- -- 94,892,729 -- 94,892,729
Debt service reserves and escrow deposits . . . -- -- -- 9,451,293 -- 9,451,293
Debt issuance costs . . . . . . . . . . . . . . -- -- -- 4,210,575 -- 4,210,575
Partnership formation costs, net. . . . . . . . -- -- -- 1,066,216 -- 1,066,216
----- ------------ ------------ ------------ ----------- ------------
$ 10 $ 10 $ 10 $125,158,902 $ (50) $125,158,882
----- ------------ ------------ ------------ ----------- ------------
----- ------------ ------------ ------------ ----------- ------------
LIABILITIES AND SHAREHOLDER'S DEFICIT
Current liabilities:
Accounts payable and accrued expenses:
Construction costs. . . . . . . . . . . . . $ -- $ -- $ -- $ 1,489,412 $ -- $ 1,489,412
Interest and letter of credit fees. . . . . -- -- -- 2,623,715 -- 2,623,715
Operating expenses and other. . . . . . . . -- -- -- 1,217,421 -- 1,217,421
Current portion of long-term debt . . . . . . -- -- -- 7,200,000 -- 7,200,000
----- ------------ ------------ ------------ ----------- ------------
Total current liabilities . . . . . . . . . -- -- -- 12,530,548 -- 12,530,548
Long term debt, less current portion. . . . . . -- -- -- 106,342,894 -- 106,342,894
Investment in and advances from subsidiaries. . -- 29,302,935 29,302,935 -- (58,605,870) --
Minority interest . . . . . . . . . . . . . . . -- -- -- 35,588,365 -- 35,588,365
Commitments and contingencies . . . . . . . . . -- -- -- -- -- --
Shareholder's equity (deficit):
Common stock, par value $.01; 1,000 shares
authorized, issued and outstanding . . . . . 10 10 10 30 (50) 10
Advances to parent. . . . . . . . . . . . . . -- (16,517,526) (16,517,526) (16,517,526) 33,035,052 (16,517,526)
Accumulated deficit . . . . . . . . . . . . . -- (12,785,409) (12,785,409) (12,785,409) 25,570,818 (12,785,409)
----- ------------ ------------ ------------ ----------- ------------
Total shareholder's equity(deficit) . . . . 10 (29,302,925) (29,302,925) (29,302,905) 58,605,820 (29,302,925)
----- ------------ ------------ ------------ ----------- ------------
$ 10 $ 10 $ 10 $125,158,902 $ (50) $125,158,882
----- ------------ ------------ ------------ ----------- ------------
----- ------------ ------------ ------------ ----------- ------------
</TABLE>
F-15
<PAGE>
12. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
PANDA INTERFUNDING CORPORATION
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1995
ASSETS
<TABLE>
Non-
Panda Panda Panda Guar- Panda
Funding Interfunding Interholding antor Interfunding
Corporation Corporation Corporation Subsid- Elimi- Corporation
(Issuer) (Guarantor) (Guarantor) iaries nations Consolidated
------- ----------- ----------- ------ ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents. . . . . . . . . . . $ -- $ -- $ -- $ 1,160,096 $ -- $ 1,160,096
Restricted cash -- current . . . . . . . . . . -- -- -- 1,876,142 -- 1,876,142
Accounts receivable. . . . . . . . . . . . . . 10 10 10 5,200,019 (50) 5,199,999
Fuel oil, spare parts and supplies . . . . . . -- -- -- 3,084,168 -- 3,084,168
Other current assets . . . . . . . . . . . . . -- -- -- 12,664 -- 12,664
------ ------------ ------------ ------------ ------------ ------------
Total current assets . . . . . . . . . . . 10 10 10 11,333,089 (50) 11,333,069
Plant and equipment:
Electric generating facility . . . . . . . . . -- -- -- 105,168,094 -- 105,168,094
Furniture and fixtures . . . . . . . . . . . . -- -- -- 29,080 -- 29,080
Less accumulated depreciation. . . . . . . . . -- -- -- (21,008,036) -- (21,008,036)
Construction in progress . . . . . . . . . . . -- -- -- 132,604,494 -- 132,604,494
------ ------------ ------------ ------------ ------------ ------------
Total plant and equipment, net . . . . . . -- -- -- 216,793,632 -- 216,793,632
Debt service reserves and escrow deposits. . . . -- -- -- 10,198,948 -- 10,198,948
Debt issuance costs. . . . . . . . . . . . . . . -- -- -- 3,990,655 -- 3,990,655
Partnership formation costs, net . . . . . . . . -- -- -- 533,100 -- 533,100
------ ------------ ------------ ------------ ------------ ------------
$ 10 $ 10 $ 10 $242,849,424 $ (50) $242,849,404
------ ------------ ------------ ------------ ------------ ------------
------ ------------ ------------ ------------ ------------ ------------
LIABILITIES AND SHAREHOLDER'S DEFICIT
Current liabilities:
Accounts payable and accrued expenses:
Construction costs . . . . . . . . . . . . . $ -- $ -- $ -- $ 5,597,818 $ -- 5,597,818
Interest and letter of credit fees . . . . . -- -- -- 2,540,347 -- 2,540,347
Operating expenses and other . . . . . . . . -- -- -- 1,219,061 -- 1,219,061
Current portion of long-term debt. . . . . . . -- -- -- 9,100,000 -- 9,100,000
------ ------------ ------------ ------------ ------------ ------------
Total current liabilities. . . . . . . . . -- -- -- 18,457,226 -- 18,457,226
Long term debt, less current portion . . . . . . -- -- -- 234,608,361 -- 234,608,361
Investment in and advances from subsidiaries . . 47,051,859 47,051,859 -- (94,103,718) --
Minority interest. . . . . . . . . . . . . . . . -- -- -- 36,835,666 -- 36,835,666
Commitments and contingencies. . . . . . . . . . -- -- -- -- -- --
Shareholder's equity (deficit):
Common stock, par value
$.01; 1,000 shares authorized,
issued and outstanding . . . . . . . . . . . 10 10 10 30 (50) 10
Advances to parent . . . . . . . . . . . . . . -- (32,263,761) (32,263,761) (32,263,761) 64,527,522 (32,263,761)
Accumulated deficit. . . . . . . . . . . . . . -- (14,788,098) (14,788,098) (14,788,098) 29,576,196 (14,788,098)
------ ------------ ------------ ------------ ------------ ------------
Total shareholder's equity (deficit) . . . 10 (47,051,849) (47,051,849) (47,051,829) 94,103,698 (47,051,849)
------ ------------ ------------ ------------ ------------ ------------
$ 10 $ 10 $ 10 $242,849,424 $ (50) $242,849,404
------ ------------ ------------ ------------ ------------ ------------
------ ------------ ------------ ------------ ------------ ------------
</TABLE>
F-16
<PAGE>
12. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
PANDA INTERFUNDING CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1993
<TABLE>
Non-
Panda Panda Panda Guar- Panda
Funding Interfunding Interholding antor Interfunding
Corporation Corporation Corporation Subsid- Elimi- Corporation
(Issuer) (Guarantor) (Guarantor) iaries nations Consolidated
------- ----------- ----------- ------ ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Electric capacity. . . . . . . . . . . . . . . $ -- $ -- $ -- $ 29,856,269 $ -- $ 29,856,269
Steam and chilled water sales. . . . . . . . . -- -- -- 617,598 -- 617,598
Interest income. . . . . . . . . . . . . . . . -- -- -- 365,276 -- 365,276
Equity in loss of subsidiary . . . . . . . . . -- (972,634) (972,634) -- 1,945,268 --
------ ------------ ------------ ------------ ----------- ------------
-- (972,634) (972,634) 30,839,143 1,945,268 30,839,143
Expenses:
Plant operating expenses . . . . . . . . . . . -- -- -- 7,676,470 -- 7,676,470
Project development and administrative . . . . -- -- -- 2,277,786 -- 2,277,786
Interest expense and letter of credit fees . . -- -- -- 11,065,648 -- 11,065,648
Depreciation . . . . . . . . . . . . . . . . . -- -- -- 4,281,673 -- 4,281,673
Amortization of debt issuance costs. . . . . . -- -- -- 502,613 -- 502,613
Amortization of partnership formation costs. . -- -- -- 533,104 -- 533,104
------ ------------ ------------ ------------ ----------- ------------
-- -- -- 26,337,294 -- 26,337,294
------ ------------ ------------ ------------ ----------- ------------
Income (loss) before minority interest . . . . . -- (972,634) (972,634) 4,501,849 1,945,268 4,501,849
Minority interest. . . . . . . . . . . . . . . . -- -- -- (5,474,483) -- (5,474,483)
------ ------------ ------------ ------------ ----------- -----------
Net loss . . . . . . . . . . . . . . . . . . . . $ -- $ (972,634) $ (972,634) $ (972,634) $ 1,945,268 $ (972,634)
------ ------------ ------------ ------------ ----------- ------------
------ ------------ ------------ ------------ ----------- ------------
FOR THE YEAR ENDED DECEMBER 31, 1994
Non-
Panda Panda Panda Guar- Panda
Funding Interfunding Interholding antor Interfunding
Corporation Corporation Corporation Subsid- Elimi- Corporation
(Issuer) (Guarantor) (Guarantor) iaries nations Consolidated
------- ----------- ----------- ------ ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Electric capacity. . . . . . . . . . . . . . . $ -- $ -- $ -- $ 30,664,096 $ -- $ 30,664,096
Steam and chilled water sales. . . . . . . . . -- -- -- 650,575 -- 650,575
Interest income. . . . . . . . . . . . . . . . -- -- -- 602,783 -- 602,783
Equity in loss of subsidiary . . . . . . . . . -- (458,265) (458,265) -- 916,530 --
------ ------------ ------------ ------------ ----------- ------------
-- (458,265) (458,265) 31,917,454 916,530 31,917,454
Expenses:
Plant operating expenses . . . . . . . . . . . -- -- -- 8,940,146 -- 8,940,146
Project development and administrative . . . . -- -- -- 1,376,349 -- 1,376,349
Interest expense and letter of credit fees . . -- -- -- 11,017,418 -- 11,017,418
Depreciation . . . . . . . . . . . . . . . . . -- -- -- 4,208,314 -- 4,208,314
Amortization of debt issuance costs. . . . . . -- -- -- 600,382 -- 600,382
Amortization of partnership formation costs. . -- -- -- 533,116 -- 533,116
------ ------------ ------------ ------------ ----------- ------------
-- -- -- 26,675,725 -- 26,675,725
------ ------------ ------------ ------------ ----------- ------------
Income (loss) before minority interest . . . . . -- (458,265) (458,265) 5,241,729 916,530 5,241,729
Minority interest. . . . . . . . . . . . . . . . -- -- -- (5,699,994) -- (5,699,994)
------ ------------ ------------ ------------ ----------- ------------
Net loss . . . . . . . . . . . . . . . . . $ -- $ (458,265) $ (458,265) $ (458,265) $ 916,530 $ (458,265)
------ ------------ ------------ ------------ ----------- ------------
------ ------------ ------------ ------------ ----------- ------------
</TABLE>
F-17
<PAGE>
12. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
PANDA INTERFUNDING CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
Non-
Panda Panda Panda Guar-
Funding Interfunding Interholding antor
Corporation Corporation Corporation Subsid-
(Issuer) (Guarantor) (Guarantor) iaries
----------- ------------ ------------- -----------
<S> <C> <C> <C> <C>
Revenue:
Electric capacity . . . . . . . . . . . . . . . . $ -- $ -- $ -- $29,858,475
Steam and chilled water sales . . . . . . . . . . -- -- -- 473,040
Interest income . . . . . . . . . . . . . . . . . -- -- -- 895,268
Equity in loss of subsidiary. . . . . . . . . . . -- (2,002,689) (2,002,689) --
----- ----------- ----------- -----------
-- (2,002,689) (2,002,689) 31,226,783
----- ----------- ----------- -----------
Expenses:
Plant operating expenses. . . . . . . . . . . . . -- -- -- 9,347,707
Project development and administrative. . . . . . -- -- -- 1,821,376
Interest expense and letter of credit fees. . . . -- -- -- 11,715,929
Depreciation. . . . . . . . . . . . . . . . . . . -- -- -- 4,209,453
Amortization of debt issuance costs . . . . . . . -- -- -- 554,311
Amortization of partnership formation costs . . . -- -- -- 533,116
----- ----------- ----------- -----------
-- -- -- 28,181,892
----- ----------- ----------- -----------
Income (loss) before minority interest. . . . . . . -- (2,002,689) (2,002,689) 3,044,891
Minority interest . . . . . . . . . . . . . . . . . -- -- -- (5,047,580)
----- ----------- ----------- -----------
Net loss. . . . . . . . . . . . . . . . . . . . . . $ -- $(2,002,689) $(2,002,689) $(2,002,689)
----- ----------- ----------- -----------
----- ----------- ----------- -----------
Panda
Interfunding
Elimi- Corporation
nations Consolidated
---------- ------------
<S> <C> <C>
Revenue:
Electric capacity . . . . . . . . . . . . . . . . $ -- $29,858,475
Steam and chilled water sales . . . . . . . . . . -- 473,040
Interest income . . . . . . . . . . . . . . . . . -- 895,268
Equity in loss of subsidiary . . . . . . . . . . 4,005,378 --
---------- -----------
4,005,378 31,226,783
---------- -----------
Expenses:
Plant operating expenses. . . . . . . . . . . . . -- 9,347,707
Project development and administrative. . . . . . -- 1,821,376
Interest expense and letter of credit fees. . . . -- 11,715,929
Depreciation. . . . . . . . . . . . . . . . . . . -- 4,209,453
Amortization of debt issuance costs . . . . . . . -- 554,311
Amortization of partnership formation costs . . . -- 533,116
---------- -----------
-- 28,181,892
---------- -----------
Income (loss) before minority interest. . . . . . . 4,005,378 3,044,891
Minority interest . . . . . . . . . . . . . . . . . -- (5,047,580)
---------- -----------
Net loss. . . . . . . . . . . . . . . . . . . . . . $4,005,378 $(2,002,689)
---------- -----------
---------- -----------
</TABLE>
F-18
<PAGE>
PANDA INTERFUNDING CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
(UNAUDITED)
DECEMBER 31 SEPTEMBER 30
1995 1996
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . $ 1,160,096 $ 1,777,537
Restricted cash -- current. . . . . . . . . . . . . . . . . . . 1,876,142 4,796,962
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . 5,199,999 7,279,292
Fuel oil, spare parts and supplies. . . . . . . . . . . . . . . 3,084,168 3,243,548
Other current assets. . . . . . . . . . . . . . . . . . . . . . 12,664 27,189
------------ ------------
Total current assets. . . . . . . . . . . . . . . . . . . . . 11,333,069 17,124,528
Plant and equipment:
Electric generating facilities. . . . . . . . . . . . . . . . . 105,168,094 101,706,112
Furniture and fixtures. . . . . . . . . . . . . . . . . . . . . 29,080 61,432
Less: accumulated depreciation. . . . . . . . . . . . . . . . . (21,008,036) (24,167,695)
Construction in progress. . . . . . . . . . . . . . . . . . . . 132,604,494 186,395,144
------------ ------------
Total plant and equipment, net. . . . . . . . . . . . . . . 216,793,632 263,994,993
Debt service reserves and escrow deposits . . . . . . . . . . . . 10,198,948 29,085,297
Debt issuance costs, net of accumulated amortization
of $3,169,285 and $65,997, respectively . . . . . . . . . . . . 3,990,655 6,891,138
Partnership formation costs, net of accumulated
amortization of $2,132,440 and $2,532,266, respectively . . . . 533,100 133,274
------------ ------------
$242,849,404 $317,229,230
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDER'S DEFICIT
Current liabilities:
Accounts payable and accrued expenses:
Construction costs. . . . . . . . . . . . . . . . . . . . . . $ 5,597,818 $ 4,015,270
Interest and letter of credit fees. . . . . . . . . . . . . . 2,540,347 3,645,922
Operating expenses and other. . . . . . . . . . . . . . . . . 1,219,061 3,209,228
Current portion of long-term debt . . . . . . . . . . . . . . . 9,100,000 5,718,960
------------ ------------
Total current liabilities . . . . . . . . . . . . . . . . . 18,457,226 16,589,380
Long-term debt, less current portion. . . . . . . . . . . . . . . 234,608,361 404,950,386
Minority interest . . . . . . . . . . . . . . . . . . . . . . . . 36,835,666 --
Commitments and contingencies . . . . . . . . . . . . . . . . . . -- --
Shareholder's deficit:
Common stock, par value $.01; 1,000 shares authorized, issued
and outstanding. . . . . . . . . . . . . . . . . . . . . . . . 10 10
Advances to parent. . . . . . . . . . . . . . . . . . . . . . . (32,263,761) (64,151,114)
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . (14,788,098) (40,159,432)
------------ ------------
Total shareholder's deficit . . . . . . . . . . . . . . . . (47,051,849) (104,310,536)
------------ ------------
$242,849,404 $317,229,230
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-19
<PAGE>
PANDA INTERFUNDING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996
(UNAUDITED)
1995 1996
----------- ------------
Revenue:
Electric capacity and energy sales. . . . . . . $22,139,124 $ 21,495,843
Steam and chilled water sales . . . . . . . . . 375,862 388,119
Interest income . . . . . . . . . . . . . . . . 695,707 611,242
----------- ------------
23,210,693 22,495,204
----------- ------------
Expenses:
Operating expenses. . . . . . . . . . . . . . . 6,751,249 7,813,737
Project development and administrative. . . . . 1,183,143 1,260,884
Interest expense and letter of credit fees. . . 8,525,125 11,095,941
Depreciation. . . . . . . . . . . . . . . . . . 3,156,234 3,159,659
Amortization of debt issuance costs . . . . . . 408,954 394,781
Amortization of partnership formation costs . . 399,837 399,826
----------- ------------
20,424,542 24,124,828
----------- ------------
Income (loss) before minority interest and
extraordinary item . . . . . . . . . . . . . . . 2,786,151 (1,629,624)
Minority interest . . . . . . . . . . . . . . . . (3,736,176) (2,405,160)
----------- ------------
Loss before extraordinary item. . . . . . . . . . (950,025) (4,034,784)
Extraordinary item - loss on early
extinguishment of debt . . . . . . . . . . . . . -- (21,336,550)
----------- ------------
Net loss. . . . . . . . . . . . . . . . . . . . . $ (950,025) $(25,371,334)
----------- ------------
----------- ------------
See accompanying notes to condensed consolidated financial statements.
F-20
<PAGE>
PANDA INTERFUNDING CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDER'S DEFICIT
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
Total
Common Advances Accumulated Shareholder's
Stock to Parent Deficit Deficit
----- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Balance, January 1, 1996 . . . . . . . $ 10 $(32,263,761) $(14,788,098) $ (47,051,849)
Advances to parent (Note 4). . . . . . -- (31,887,353) -- (31,887,353)
Net loss . . . . . . . . . . . . . . . -- -- (25,371,334) (25,371,334)
----- ------------ ------------ -------------
Balance, September 30, 1996. . . . . . $ 10 $(64,151,114) $(40,159,432) $(104,310,536)
----- ------------ ------------ -------------
----- ------------ ------------ -------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-21
<PAGE>
PANDA INTERFUNDING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996
(UNAUDITED)
<TABLE>
1995 1996
------------- -------------
<S> <C> <C>
Operating activities:
Net loss. . . . . . . . . . . . . . . . . . . . . . . . $ (950,025) $ (25,371,334)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Loss on early extinguishment of debt. . . . . . . . . -- 21,336,550
Minority interest . . . . . . . . . . . . . . . . . . 3,736,176 2,405,160
Depreciation. . . . . . . . . . . . . . . . . . . . . 3,156,234 3,159,659
Amortization of debt issuance costs . . . . . . . . . 408,954 394,781
Amortization of partnership formation costs . . . . . 399,837 399,826
Amortization of loan discount and deferred interest . 93,132 391,491
Changes in assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . . . . 760,397 (2,079,293)
Fuel oil, spare parts and supplies. . . . . . . . . . 203,513 (159,380)
Other current assets. . . . . . . . . . . . . . . . . 7,488 (14,525)
Accounts payable and accrued expenses . . . . . . . . 3,114,658 3,095,742
------------- -------------
Net cash provided by operating activities . . . . . . 10,930,364 3,558,677
------------- -------------
Investing activities:
Restricted cash-current . . . . . . . . . . . . . . . . (7,983,994) (2,920,820)
Additions to property, plant and equipment. . . . . . . (98,890,745) (55,332,280)
Acquisition of minority interest. . . . . . . . . . . . -- (34,700,000)
Increase in debt service reserves and escrow deposits . (458,299) (18,886,349)
------------- -------------
Net cash used in investing activities . . . . . . . . (107,333,038) (111,839,449)
------------- -------------
Financing activities:
Distributions to minority interest owner. . . . . . . . (3,008,667) (1,152,113)
Advances to parent. . . . . . . . . . . . . . . . . . . (3,886,187) (31,887,353)
Proceeds from long-term debt. . . . . . . . . . . . . . 101,675,197 275,933,627
Repayment of long-term debt . . . . . . . . . . . . . . -- (127,038,813)
Debt issuance costs . . . . . . . . . . . . . . . . . . -- (6,957,135)
------------- -------------
Net cash provided by financing activities . . . . . . 94,780,343 108,898,213
------------- -------------
Increase (decrease) in cash and cash equivalents. . . . . (1,622,331) 617,441
Cash and cash equivalents, beginning of period. . . . . . 3,921,093 1,160,096
------------- -------------
Cash and cash equivalents, end of period. . . . . . . . . $ 2,298,762 $ 1,777,537
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-22
<PAGE>
PANDA INTERFUNDING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996
1. ORGANIZATION AND BASIS OF PRESENTATION
The accompanying consolidated financial statements reflect the
ownership interests of two independent power projects for all periods. The
projects include the Rosemary project and the Brandywine project. These
ownership interests are held by certain entities which, until July 31, 1996,
were wholly-owned by Panda Energy Corporation, a Texas corporation ("PEC"),
which in turn is a wholly-owned subsidiary of Panda Energy International, Inc.
("PEII"). These entities are collectively referred to as "Panda Interfunding
Corporation," "PIC" or the "Company". The Company and its wholly-owned
subsidiary, Panda Interholding Corporation ("Interholding") were formed in July
1996 to hold the interests in the independent power projects which were
transferred to the Company by PEC and recorded at PEC's historical cost. Because
the transfers occurred between entities under common control, the transactions
have been accounted for in a manner similar to pooling of interests accounting.
The entities primarily include Panda Rosemary Corporation ("PRC"), a 1% general
partner in Panda-Rosemary, L.P. ("Panda-Rosemary"); PRC II Corporation ("PRC
II"), a 99% limited partner in Panda-Rosemary; Panda-Rosemary Funding
Corporation ("PRFC"), a wholly-owned subsidiary of Panda-Rosemary; Panda
Brandywine Corporation, a 50% general partner in Panda-Brandywine, L.P. ("Panda-
Brandywine"); Panda Energy Corporation, a Delaware corporation ("PEC-Delaware"),
a 50% limited partner in Panda-Brandywine; Brandywine Water Company; and Panda
Funding Corporation ("PFC") a wholly-owned subsidiary of PIC. The Company,
through its general and limited partnership interests, owns 100% of Panda-
Brandywine and, as of July 31, 1996, owns 100% of Panda-Rosemary. Prior to July
31, 1996, the Company owned 10% of Panda-Rosemary (see Note 4). The Rosemary
project and the Brandywine project are in different stages of construction and
operation and are located in the United States.
Additionally, Panda Cayman Interfunding Corporation ("PIC Cayman") has been
formed as a wholly-owned subsidiary of the Company for purposes of facilitating
the financing of the future development and the acquisition of debt and equity
interests of certain electric generation facilities and currently has no
independent operations.
All material intercompany accounts and transactions have been eliminated in
consolidation.
2. SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles and
should be read in conjunction with the audited financial statements for the year
ended December 31, 1995. The accompanying unaudited condensed consolidated
financial statements for the nine months ended September 30, 1995 and 1996
include all adjustments, consisting of normal recurring accruals, which
management considers necessary for a fair presentation of the results for the
interim periods. The results of operations for the nine months ended September
30, 1996 are not necessarily indicative of the results that may be expected for
the year ending December 31, 1996. The amounts presented in the balance sheet as
of December 31, 1995 were derived from the Company's audited consolidated
financial statements.
ALLOCATION OF ADMINISTRATIVE COSTS -- PEII performs certain accounting,
legal, insurance, and consulting services for the Company. These general and
administrative costs are generally allocated to the Company using the percentage
of time PEII spent performing these services. The expenses allocated were
$660,000 and $946,000 for the nine months ended September 30, 1995 and 1996,
respectively, and are included in project development and administrative
expenses in the statement of operations. Management believes the method used to
allocate these costs is reasonable.
3. POWER PROJECTS AND LONG-TERM DEBT
The Company has incurred total costs on the Brandywine Project of $132.6
million and $186.4 million as of December 31, 1995 and September 30, 1996,
respectively, which is included in plant and equipment under construction in
progress in the accompanying balance sheets. Long-term debt related to the
Brandywine Project was $134.7 million and $193.7 million at December 31, 1995
and September 30, 1996, respectively.
F-23
<PAGE>
4. LONG-TERM DEBT AND MINORITY INTEREST
In July 1996, Panda-Rosemary Funding Corporation ("PRFC"), a wholly-owned
subsidiary of Panda-Rosemary, issued $111,400,000 of first mortgage bonds
("Rosemary Bonds"). The Rosemary Bonds bear interest at a fixed rate of 8-5/8%
payable quarterly commencing November 15, 1996. Scheduled principal payments
are required quarterly commencing November 15, 1996, and will continue through
maturity on February 15, 2016. The Rosemary Bonds are subject to mandatory
redemption prior to maturity under certain conditions. The Rosemary Bonds are
unconditionally guaranteed by Panda-Rosemary but are non-recourse to the
Company, and are secured by substantially all of the assets of Panda-Rosemary as
well as all of the outstanding capital stock of PRC, PRC II and PRFC. The
indenture contains certain covenants, including limitations on distributions,
additional debt and certain other transactions.
While amounts are outstanding under the Rosemary Bonds, all revenues of
Panda-Rosemary are paid to a collateral agent. Funds held by the collateral
agent are included in the accompanying consolidated balance sheets as restricted
cash-current. On a monthly basis, the collateral agent remits to Panda-Rosemary
remaining funds available after payment of all expenditures relating to the
Rosemary project, including debt service, provided that Panda-Rosemary is in
compliance with the debt covenants. Additionally, the collateral agent
withholds funds to meet future debt service, maintenance and pollution control
requirements, if required under the indenture. These amounts are included in
the accompanying consolidated balance sheets as restricted cash-current and debt
service reserves and escrow deposits.
Also in July 1996, Panda Funding Corporation ("PFC"), a wholly-owned
subsidiary of the Company, issued $105,525,000 of pooled project bonds ("Series
A Bonds"). The Series A Bonds bear interest at a fixed rate of 11-5/8% payable
semiannually commencing February 20, 1997. Scheduled principal payments are
required semiannually commencing February 20, 1997 and will continue through
maturity on August 20, 2012. The Series A Bonds are subject to mandatory
redemption prior to maturity under certain conditions. The Series A Bonds are
fully and unconditionally guaranteed by the Company and are guaranteed on a
limited basis by Interholding up to a maximum amount specified by the guarantee
agreement which approximates $25.1 million at September 30, 1996. See Note 7
for condensed consolidating financial information concerning the guarantor and
nonguarantor subsidiaries of the Company. Also, see the accompanying separate
condensed consolidated financial statements of Interholding as of September 30,
1996 and for the nine months then ended. Additionally, the Series A Bonds are
secured by (i) all of the capital stock of PFC, the Company and Interholding,
(ii) 60% of the capital stock of PIC Cayman, (iii) the Company's interest in
distributions from Interholding, and (iv) certain other collateral.
Individually, the pledges of the capital stock of PFC, Interholding and PIC
Cayman do not constitute a "substantial portion of collateral" (as defined in
Rule 3-10 of Regulation S-X promulgated under the Securities Act of 1933) for
the Series A Bonds. Accordingly, except as discussed above, separate financial
statements of PFC, Interholding and PIC Cayman are not presented because the
Company believes that such disclosure is not material. The Series A Bonds are
effectively subordinated to the obligations of the Company's subsidiaries under
project-level financing arrangements. The indenture contains certain covenants,
including limitations on distributions, additional debt and certain other
transactions.
While amounts are outstanding under the Series A Bonds, all distributions
from Interholding and certain proceeds received from PIC Cayman will be paid to
a collateral agent. On a monthly basis, the collateral agent will remit to the
Company remaining funds available after satisfaction of the Company's debt
service obligations (including amounts withheld, if necessary, to meet future
debt service and reserve fund requirements as required by the indenture)
provided that the Company is in compliance with the debt covenants.
In connection with the issuance of the Rosemary Bonds and the Series A
Bonds, the Company refinanced the taxable revenue bonds issued in 1989 for the
Rosemary project and repaid the TCW term loan. The Company incurred a loss of
$21,336,550 on the early extinguishment of these obligations. Additionally, the
Company acquired the minority interest holder's limited partnership interest in
Panda-Rosemary for a purchase price of approximately $34.3 million. As a result
of this acquisition, the Company owns 100% of Panda-Rosemary. The acquisition
was accounted for using the purchase method of accounting. The excess of
minority interest over the purchase price (approximately $3.8 million) was
allocated to plant and equipment. Additionally, the Company advanced
approximately $34.8 million to PEII for project development and general
corporate purposes.
F-24
<PAGE>
5. COMMITMENTS AND CONTINGENCIES
In August 1996, Panda-Brandywine and PEPCO commenced discussions concerning
commercial operational requirements of the Brandywine Project and conversion of
the construction loan to long-term financing in the form of a lease. During
these discussions, disagreements arose between Panda-Brandywine and PEPCO with
respect to certain provisions of the Brandywine Power Purchase Agreement, one of
which relates to the determination of the interest rate that is the basis for
reduction in capacity payments thereunder (the "PEPCO Interest Rate Dispute").
PEPCO and Panda-Brandywine are presently attempting to resolve these
disagreements but there are no assurances that such efforts will be successful.
If the PEPCO Interest Rate Dispute is determined adversely to Panda-Brandywine,
the capacity payments paid by PEPCO under the Brandywine Power Purchase
Agreement will be less than originally anticipated, thereby adversely affecting
the revenues realized by Panda-Brandywine, and consequently, reducing the amount
of funds that would be available for distribution to the Company.
Raytheon Engineers and Constructors, Inc. ("Raytheon") constructed the
Brandywine Project pursuant to a fixed-price, turnkey engineering, procurement
and construction contract (the "Brandywine EPC Agreement") with Panda-
Brandywine. Raytheon completed the construction and start-up of the Brandywine
Project and has met the requirements for commercial operations and substantial
completion under the Brandywine EPC Agreement, although the date on which
commercial operations were achieved and the entitlement of Raytheon to certain
early completion bonuses under the Brandywine EPC Agreement are the subject of a
dispute between Panda-Brandywine and Raytheon. The Company estimates that the
amount in dispute is less than $1 million and believes that the resolution of
this dispute will not have a material adverse effect upon the financial
position, results of operations or liquidity of the Company.
6. SUBSEQUENT EVENTS
The Brandywine Project commenced commercial operations in October 1996. As
discussed in Notes 6 and 11 to the consolidated financial statements for the
year ended December 31, 1995, General Electric Capital Corporation provided a
construction loan to finance construction of the Brandywine Project. The
construction loan was converted to long-term financing of $217.5 million in the
form of a capital lease (together with the construction loan, the "Panda-
Brandywine Financing") during December 1996. To effect the lease financing,
title to the Brandywine Project was transferred to a third party trustee and
leased back to Panda-Brandywine. The Brandywine facility lease is a net lease
and its initial term is 20 years. The documents governing the Panda-Brandywine
Financing contain various affirmative and negative covenants, including
limitations on the ability of Panda-Brandywine to make distributions to its
partners.
F-25
<PAGE>
7. CONDENSED CONSOLIDATING FINANCIAL INFORMATION
The Series A Bonds are fully and unconditionally guaranteed by the Company
and are guaranteed on a limited basis by Interholding up to a maximum amount
specified by the guarantee agreement which approximates $25.1 million at
September 30, 1996. Condensed consolidating financial information for Panda
Interfunding Corporation and Subsidiaries as of September 30, 1996 and for the
nine months ended September 30, 1995 and 1996 is as follows:
PANDA INTERFUNDING CORPORATION
CONDENSED CONSOLIDATING BALANCE SHEET
SEPTEMBER 30, 1996
(UNAUDITED)
ASSETS
<TABLE>
Non-
Panda Panda Panda Guar-
Funding Interfunding Interholding antor
Corporation Corporation Corporation Subsid-
(Issuer) (Guarantor) (Guarantor) iaries
------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents . . . . . . . . . $ -- $ -- $ -- $ 1,777,537
Restricted cash -- current. . . . . . . . . -- 1,806,000 -- 2,990,962
Accounts receivable . . . . . . . . . . . . 2,044,557 -- 10 7,279,312
Notes receivable. . . . . . . . . . . . . . 215,800 -- -- --
Fuel oil, spare parts and supplies. . . . . -- -- -- 3,243,548
Other current assets. . . . . . . . . . . . -- -- -- 27,189
------------ ------------- ------------ ------------
Total current assets. . . . . . . . . . . 2,260,357 1,806,000 10 15,318,548
Plant and equipment:
Electric generating facility. . . . . . . . -- -- -- 101,706,112
Furniture and fixtures. . . . . . . . . . . -- -- -- 61,432
Less accumulated depreciation . . . . . . . -- -- -- (24,167,695)
Construction in progress. . . . . . . . . . -- -- -- 186,395,144
------------ ------------- ------------ ------------
Total plant and equipment, net. . . . . . -- -- -- 263,994,993
Notes receivable. . . . . . . . . . . . . . . 105,309,200 -- -- --
Debt service reserves and escrow deposits . . -- 14,741,593 -- 14,343,704
Debt issuance costs . . . . . . . . . . . . . -- 3,459,136 -- 3,432,002
Partnership formation costs, net. . . . . . . -- -- -- 133,274
------------ ------------- ------------ ------------
$107,569,557 $ 20,006,729 $ 10 $297,222,521
------------ ------------- ------------ ------------
------------ ------------- ------------ ------------
LIABILITIES AND SHAREHOLDER'S DEFICIT
Current liabilities:
Accounts payable and accrued expenses:
Construction costs. . . . . . . . . . . . $ -- $ -- $ -- $ 4,015,270
Interest and letter of credit fees. . . . 2,044,547 2,044,547 -- 1,601,375
Operating expenses and other. . . . . . . -- 56,728 -- 3,152,500
Current portion of long-term debt . . . . . 215,800 215,800 -- 5,503,160
------------ ------------- ------------ ------------
Total current liabilities . . . . . . . . 2,260,347 2,317,075 -- 14,272,305
Long term debt, less current portion. . . . . 105,309,200 105,309,200 -- 299,641,186
Investment in and advances from subsidiaries -- 16,690,990 38,078,474 --
Advance from parent . . . . . . . . . . . . . -- -- -- 21,387,474
Commitments and contingencies . . . . . . . . -- -- -- --
Shareholder's equity (deficit):
Common stock, par value
$.01; 1,000 shares authorized,
issued and outstanding . . . . . . . . . . 10 10 10 30
Advances to parent. . . . . . . . . . . . . -- (64,151,114) -- --
Accumulated deficit . . . . . . . . . . . . -- (40,159,432) (38,078,474) (38,078,474)
------------ ------------- ------------ ------------
Total shareholder's equity (deficit). . . 10 (104,310,536) (38,078,464) (38,078,444)
------------ ------------- ------------ ------------
$107,569,557 $ 20,006,729 $ 10 $297,222,521
------------ ------------- ------------ ------------
------------ ------------- ------------ ------------
ASSETS
Panda
Interfunding
Elimi- Corporation
nations Consolidated
------------ -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents . . . . . . . . . $ -- $ 1,777,537
Restricted cash -- current. . . . . . . . . -- 4,796,962
Accounts receivable . . . . . . . . . . . . (2,044,587) 7,279,292
Notes receivable. . . . . . . . . . . . . . (215,800) --
Fuel oil, spare parts and supplies. . . . . -- 3,243,548
Other current assets. . . . . . . . . . . . -- 27,189
------------ -------------
Total current assets. . . . . . . . . . . (2,260,387) 17,124,528
Plant and equipment:
Electric generating facility. . . . . . . . -- 101,706,112
Furniture and fixtures. . . . . . . . . . . -- 61,432
Less accumulated depreciation . . . . . . . -- (24,167,695)
Construction in progress. . . . . . . . . . -- 186,395,144
------------ -------------
Total plant and equipment, net. . . . . . -- 263,994,993
Notes receivable. . . . . . . . . . . . . . . (105,309,200) --
Debt service reserves and escrow deposits . . -- 29,085,297
Debt issuance costs . . . . . . . . . . . . . -- 6,891,138
Partnership formation costs, net. . . . . . . -- 133,274
------------ -------------
$(107,569,587) $ 317,229,230
------------ -------------
------------ -------------
LIABILITIES AND SHAREHOLDER'S DEFICIT
Current liabilities:
Accounts payable and accrued expenses:
Construction costs. . . . . . . . . . . . $ -- $ 4,015,270
Interest and letter of credit fees. . . . (2,044,547) 3,645,922
Operating expenses and other. . . . . . . -- 3,209,228
Current portion of long-term debt . . . . . (215,800) 5,718,960
------------ -------------
Total current liabilities . . . . . . . . (2,260,347) 16,589,380
Long term debt, less current portion. . . . . (105,309,200) 404,950,386
Investment in and advances from subsidiaries (54,769,464) --
Advance from parent . . . . . . . . . . . . . (21,387,474) --
Commitments and contingencies . . . . . . . . -- --
Shareholder's equity (deficit):
Common stock, par value
$.01; 1,000 shares authorized,
issued and outstanding . . . . . . . . . . (50) 10
Advances to parent. . . . . . . . . . . . . -- (64,151,114)
Accumulated deficit . . . . . . . . . . . . 76,156,948 (40,159,432)
------------ -------------
Total shareholder's equity (deficit). . . 76,156,898 (104,310,536)
------------ -------------
$107,569,587 $ 317,229,230
------------ -------------
------------ -------------
</TABLE>
F-26
<PAGE>
7. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
PANDA INTERFUNDING CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
<TABLE>
Panda Panda Panda Panda
Funding Interfunding Interholding Non- Interfunding
Corporation Corporation Corporation Guarantor Elimi- Corporation
(Issuer) (Guarantor) (Guarantor) Subsidiaries nations Consolidated
----------- ------------ ------------ ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Electric capacity . . . . . . . . . . . . . . $ -- $ -- $ -- $22,139,124 $ -- $22,139,124
Steam and chilled water sales . . . . . . . . -- -- -- 375,862 -- 375,862
Interest Income . . . . . . . . . . . . . . . -- -- -- 695,707 -- 695,707
Equity in loss of subsidiary. . . . . . . . . -- (950,025) (950,025) -- 1,900,050 --
----- --------- --------- ----------- ---------- -----------
-- (950,025) (950,025) 23,210,693 1,900,050 23,210,693
----- --------- --------- ----------- ---------- -----------
Expenses:
Plant operating expenses. . . . . . . . . . . -- -- -- 6,751,249 -- 6,751,249
Project development and administrative. . . . -- -- -- 1,183,143 -- 1,183,143
Interest expense and letter of credit fees. . -- -- -- 8,525,125 -- 8,525,125
Depreciation. . . . . . . . . . . . . . . . . -- -- -- 3,156,234 -- 3,156,234
Amortization of debt issuance costs . . . . . -- -- -- 408,954 -- 408,954
Amortization of partnership formation costs . -- -- -- 399,837 -- 399,837
----- --------- --------- ----------- ---------- -----------
-- -- -- 20,424,542 -- 20,424,542
----- --------- --------- ----------- ---------- -----------
Income (loss) before minority interest. . . . . -- (950,025) (950,025) 2,786,151 1,900,050 2,786,151
Minority interest . . . . . . . . . . . . . . . -- -- -- (3,736,176) -- (3,736,176)
----- --------- --------- ----------- ---------- -----------
Net loss. . . . . . . . . . . . . . . . . . . . $ -- $(950,025) $(950,025) $ (950,025) $1,900,050 $ (950,025)
----- --------- --------- ----------- ---------- -----------
----- --------- --------- ----------- ---------- -----------
</TABLE>
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
<TABLE>
Panda Panda Panda Panda
Funding Interfunding Interholding Non- Interfunding
Corporation Corporation Corporation Guarantor Elimi- Corporation
(Issuer) (Guarantor) (Guarantor) Subsidiaries nations Consolidated
----------- ------------ ------------ ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Electric capacity . . . . . . . . . . . . $ -- $ -- $ -- $ 21,495,843 $ -- $ 21,495,843
Steam and chilled water sales . . . . . . -- -- 388,119 -- 388,119
Interest Income . . . . . . . . . . . . . 2,044,547 -- -- 611,242 (2,044,547) 611,242
Equity in loss of subsidiary. . . . . . . -- (23,290,376) (23,290,376) -- 46,580,752 --
---------- ------------ ------------ ------------ ----------- ------------
2,044,547 (23,290,376) (23,290,376) 22,495,204 44,536,205 22,495,204
---------- ------------ ------------ ------------ ----------- ------------
Expenses:
Plant operating expenses. . . . . . . . . -- -- -- 7,813,737 -- 7,813,737
Project development and administrative. . -- -- -- 1,260,884 -- 1,260,884
Interest expense and letter of credit
fees . . . . . . . . . . . . . . . . . . 2,044,547 2,044,547 -- 9,051,394 (2,044,547) 11,095,941
Depreciation. . . . . . . . . . . . . . . -- -- -- 3,159,659 -- 3,159,659
Amortization of debt issuance costs . . . -- 36,411 -- 358,370 -- 394,781
Amortization of partnership formation
costs. . . . . . . . . . . . . . . . . . -- -- -- 399,826 -- 399,826
---------- ------------ ------------ ------------ ----------- ------------
2,044,547 2,080,958 -- 22,043,870 (2,044,547) 24,124,828
---------- ------------ ------------ ------------ ----------- ------------
Income (loss) before minority interest. . . -- (25,371,334) (23,290,376) 451,334 46,580,752 (1,629,624)
Minority interest . . . . . . . . . . . . . -- -- -- (2,405,160) -- (2,405,160)
---------- ------------ ------------ ------------ ----------- ------------
Loss before extraordinary item. . . . . . . -- (25,371,334) (23,290,376) (1,953,826) 46,580,752 (4,034,784)
Extraordinary item-loss on early
extinguishment of debt . . . . . . . . . . -- -- -- (21,336,550) -- (21,336,550)
---------- ------------ ------------ ------------ ----------- ------------
Net loss. . . . . . . . . . . . . . . . . . $ -- $(25,371,334) $(23,290,376) $(23,290,376) $46,580,752 $(25,371,334)
---------- ------------ ------------ ------------ ----------- ------------
---------- ------------ ------------ ------------ ----------- ------------
</TABLE>
F-27
<PAGE>
PANDA INTERHOLDING CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
ASSETS
SEPTEMBER 30,
1996
-------------
Current assets:
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . $ 1,777,537
Restricted cash -- current . . . . . . . . . . . . . . . . . . 2,990,962
Accounts receivable. . . . . . . . . . . . . . . . . . . . . . 7,279,292
Fuel oil, spare parts and supplies . . . . . . . . . . . . . . 3,243,548
Other current assets . . . . . . . . . . . . . . . . . . . . . 27,189
------------
Total current assets . . . . . . . . . . . . . . . . . . . . 15,318,528
Plant and equipment:
Electric generating facilities . . . . . . . . . . . . . . . . 101,706,112
Furniture and fixtures . . . . . . . . . . . . . . . . . . . . 61,432
Less: accumulated depreciation . . . . . . . . . . . . . . . . (24,167,695)
Construction in progress . . . . . . . . . . . . . . . . . . . 186,395,144
------------
Total plant and equipment, net . . . . . . . . . . . . . . . 263,994,993
Debt service reserves and escrow deposits. . . . . . . . . . . . 14,343,704
Debt issuance costs, net of accumulated amortization
of $29,586. . . . . . . . . . . . . . . . . . . . . . . . . . . 3,432,002
Partnership formation costs, net of accumulated
amortization of $2,532,266. . . . . . . . . . . . . . . . . . . 133,274
------------
$297,222,501
------------
------------
LIABILITIES AND SHAREHOLDER'S DEFICIT
Current liabilities:
Accounts payable and accrued expenses:
Construction costs . . . . . . . . . . . . . . . . . . . . . $ 4,015,270
Interest and letter of credit fees . . . . . . . . . . . . . 1,601,375
Operating expenses and other . . . . . . . . . . . . . . . . 3,152,500
Current portion of long-term debt. . . . . . . . . . . . . . . 5,503,160
------------
Total current liabilities. . . . . . . . . . . . . . . . . 14,272,305
Long-term debt, less current portion . . . . . . . . . . . . . . 299,641,186
Advance from Parent. . . . . . . . . . . . . . . . . . . . . . . 21,387,474
Commitments and contingencies. . . . . . . . . . . . . . . . . . --
Shareholder's deficit:
Common stock, par value $.01; 1,000 shares authorized,
issued and outstanding. . . . . . . . . . . . . . . . . . . . 10
Accumulated deficit. . . . . . . . . . . . . . . . . . . . . . (38,078,474)
------------
Total shareholder's deficit. . . . . . . . . . . . . . . . . (38,078,464)
------------
$297,222,501
------------
------------
See accompanying notes to condensed consolidated financial statements.
F-28
<PAGE>
PANDA INTERHOLDING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
1996
------------
Revenue:
Electric capacity and energy sales. . . . . . . . . . . . . . . $ 21,495,843
Steam and chilled water sales . . . . . . . . . . . . . . . . . 388,119
Interest income . . . . . . . . . . . . . . . . . . . . . . . . 611,242
------------
22,495,204
------------
Expenses:
Operating expenses. . . . . . . . . . . . . . . . . . . . . . . 7,813,737
Project development and administrative. . . . . . . . . . . . . 1,260,884
Interest expense and letter of credit fees. . . . . . . . . . . 9,051,394
Depreciation. . . . . . . . . . . . . . . . . . . . . . . . . . 3,159,659
Amortization of debt issuance costs . . . . . . . . . . . . . . 358,370
Amortization of partnership formation costs . . . . . . . . . . 399,826
------------
22,043,870
------------
Income before minority interest and extraordinary item . . . . . 451,334
Minority interest. . . . . . . . . . . . . . . . . . . . . . . . (2,405,160)
------------
Loss before extraordinary item . . . . . . . . . . . . . . . . . (1,953,826)
Extraordinary item - loss on early extinguishment of debt. . . . (21,336,550)
------------
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(23,290,376)
------------
------------
See accompanying notes to condensed consolidated financial statements.
F-29
<PAGE>
PANDA INTERHOLDING CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDER'S DEFICIT
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
Total
Common Advances Accumulated Shareholder's
Stock to Parent Deficit Deficit
------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Balance, January 1, 1996 . . . . . . $ 10 $(32,263,761) $(14,788,098) $(47,051,849)
Collection of advances to parent . . -- 32,263,761 -- 32,263,761
Net loss . . . . . . . . . . . . . . -- -- (23,290,376) (23,290,376)
---- ------------ ------------ ------------
Balance, September 30, 1996. . . . . $ 10 $ -- $(38,078,474) $(38,078,464)
---- ------------ ------------ ------------
---- ------------ ------------ ------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-30
<PAGE>
PANDA INTERHOLDING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
1996
---------------
Operating activities:
Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (23,290,376)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Loss on early extinguishment of debt . . . . . . . . . . . . 21,336,550
Minority interest. . . . . . . . . . . . . . . . . . . . . . 2,405,160
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . 3,159,659
Amortization of debt issuance costs. . . . . . . . . . . . . 358,370
Amortization of partnership formation costs. . . . . . . . . 399,826
Amortization of loan discount and deferred interest. . . . . 391,491
Changes in assets and liabilities:
Accounts receivable. . . . . . . . . . . . . . . . . . . . . (2,079,293)
Fuel oil, spare parts and supplies . . . . . . . . . . . . . (159,380)
Other current assets . . . . . . . . . . . . . . . . . . . . (14,525)
Accounts payable and accrued expenses. . . . . . . . . . . . 994,467
-------------
Net cash provided by operating activities. . . . . . . . . . 3,501,949
-------------
Investing activities:
Restricted cash-current . . . . . . . . . . . . . . . . . . . . (1,114,820)
Additions to property, plant and equipment. . . . . . . . . . . (55,332,280)
Acquisition of minority interest. . . . . . . . . . . . . . . . (34,700,000)
Increase in debt service reserves and escrow deposits . . . . . (4,144,756)
-------------
Net cash used in investing activities. . . . . . . . . . . . (95,291,856)
-------------
Financing activities:
Distributions to minority interest owner. . . . . . . . . . . . (1,152,113)
Collection of advances to parent. . . . . . . . . . . . . . . . 32,263,761
Advances from parent. . . . . . . . . . . . . . . . . . . . . . 21,387,474
Proceeds from long-term debt. . . . . . . . . . . . . . . . . . 170,408,627
Repayment of long-term debt . . . . . . . . . . . . . . . . . . (127,038,813)
Debt issuance costs . . . . . . . . . . . . . . . . . . . . . . (3,461,588)
-------------
Net cash provided by financing activities. . . . . . . . . . 92,407,348
-------------
Increase in cash and cash equivalents. . . . . . . . . . . . . . 617,441
Cash and cash equivalents, beginning of period . . . . . . . . . 1,160,096
-------------
Cash and cash equivalents, end of period . . . . . . . . . . . . $ 1,777,537
-------------
-------------
See accompanying notes to condensed consolidated financial statements.
F-31
<PAGE>
PANDA INTERHOLDING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
1. ORGANIZATION AND BASIS OF PRESENTATION
The accompanying consolidated financial statements reflect the
ownership interests of two independent power projects for all periods. The
projects include the Rosemary project and the Brandywine project. These
ownership interests are held by certain entities which, until July 31, 1996,
were wholly-owned by Panda Energy Corporation, a Texas corporation ("PEC"),
which in turn is a wholly-owned subsidiary of Panda Energy International, Inc.
("PEII"). In July 1996, PEII formed Panda Interfunding Corporation ("PIC") and
its wholly-owned subsidiary, Panda Interholding Corporation ("Interholding") to
hold the interests in the independent power projects which were transferred to
Interholding by PEC and recorded at PEC's historical cost. Because the transfers
occurred between entities under common control, the transactions have been
accounted for in a manner similar to pooling of interests accounting. The
entities primarily include Panda Rosemary Corporation ("PRC"), a 1% general
partner in Panda-Rosemary, L.P. ("Panda-Rosemary"); PRC II Corporation ("PRC
II"), a 99% limited partner in Panda-Rosemary; Panda-Rosemary Funding
Corporation ("PRFC"), a wholly-owned subsidiary of Panda-Rosemary; Panda
Brandywine Corporation, a 50% general partner in Panda-Brandywine, L.P. ("Panda-
Brandywine"); Panda Energy Corporation, a Delaware corporation ("PEC-Delaware"),
a 50% limited partner in Panda-Brandywine; Brandywine Water Company; and Panda
Funding Corporation ("PFC") a wholly-owned subsidiary of PIC. Interholding,
through its indirect ownership of the general and limited partnership interests,
owns 100% of Panda-Brandywine and, as of July 31, 1996, owns 100% of Panda-
Rosemary. Prior to July 31, 1996, Interholding owned 10% of Panda-Rosemary (see
Note 4). The Rosemary project and the Brandywine project are in different stages
of construction and operation and are located in the United States.
Additionally, Panda Cayman Interfunding Corporation ("PIC Cayman") has
been formed as a wholly-owned subsidiary of PIC for purposes of facilitating the
financing of the future development and the acquisition of debt and equity
interests of certain electric generation facilities and currently has no
independent operations.
All material intercompany accounts and transactions have been
eliminated in consolidation.
2. SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited condensed consolidated financial statements
of Interholding have been prepared in accordance with generally accepted
accounting principles and should be read in conjunction with the audited
financial statements of PIC for the year ended December 31, 1995. Historical
financial information of Interholding is included in the consolidating financial
information presented in Note 12 to the audited financial statements of PIC.
The accompanying unaudited condensed consolidated financial statements for the
nine months ended September 30, 1996 include all adjustments, consisting of
normal recurring accruals, which management considers necessary for a fair
presentation of the results for the interim periods. The results of operations
for the nine months ended September 30, 1996 are not necessarily indicative of
the results that may be expected for the year ending December 31, 1996.
ALLOCATION OF ADMINISTRATIVE COSTS -- PEII performs certain
accounting, legal, insurance, and consulting services for Interholding. These
general and administrative costs are generally allocated to Interholding using
the percentage of time PEII spent performing these services. The expenses
allocated were $946,000 for the nine months ended September 30, 1996,
respectively, and are included in project development and administrative
expenses in the statement of operations. Management believes the method used to
allocate these costs is reasonable.
3. POWER PROJECTS AND LONG-TERM DEBT
Interholding has incurred total costs on the Brandywine Project of
$186.4 million as of September 30, 1996 which is included in plant and equipment
under construction in progress in the accompanying balance sheet. Long-term debt
related to the Brandywine Project was $193.7 million at September 30, 1996.
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<PAGE>
4. LONG-TERM DEBT AND MINORITY INTEREST
In July 1996, Panda-Rosemary Funding Corporation ("PRFC"), a wholly-
owned subsidiary of Panda-Rosemary, issued $111,400,000 of first mortgage bonds
("Rosemary Bonds"). The Rosemary Bonds bear interest at a fixed rate of 8-5/8%
payable quarterly commencing November 15, 1996. Scheduled principal payments
are required quarterly commencing November 15, 1996, and will continue through
maturity on February 15, 2016. The Rosemary Bonds are subject to mandatory
redemption prior to maturity under certain conditions. The Rosemary Bonds are
unconditionally guaranteed by Panda-Rosemary but are non-recourse to
Interholding, and are secured by substantially all of the assets of Panda-
Rosemary as well as all of the outstanding capital stock of PRC, PRC II and
PRFC. The indenture contains certain covenants, including limitations on
distributions, additional debt and certain other transactions.
While amounts are outstanding under the Rosemary Bonds, all revenues
of Panda-Rosemary are paid to a collateral agent. Funds held by the collateral
agent are included in the accompanying consolidated balance sheet as restricted
cash-current. On a monthly basis, the collateral agent remits to Panda-Rosemary
remaining funds available after payment of all expenditures relating to the
Rosemary project, including debt service, provided that Panda-Rosemary is in
compliance with the debt covenants. Additionally, the collateral agent
withholds funds to meet future debt service, maintenance and pollution control
requirements, if required under the indenture. These amounts are included in
the accompanying consolidated balance sheet as restricted cash-current and debt
service reserves and escrow deposits.
Also in July 1996, Panda Funding Corporation ("PFC"), a wholly-owned
subsidiary of PIC, issued $105,525,000 of pooled project bonds ("Series A
Bonds"). The Series A Bonds bear interest at a fixed rate of 11-5/8% payable
semiannually commencing February 20, 1997. Scheduled principal payments are
required semiannually commencing February 20, 1997 and will continue through
maturity on August 20, 2012. The Series A Bonds are subject to mandatory
redemption prior to maturity under certain conditions. The Series A Bonds are
fully and unconditionally guaranteed by PIC and are guaranteed on a limited
basis by Interholding up to a maximum amount specified by the guarantee
agreement which approximates $25.1 million at September 30, 1996. See Note 7
of the condensed consolidated financial statements of PIC as of September 30,
1996 for condensed consolidating financial information concerning the guarantor
and nonguarantor subsidiaries of PIC. Additionally, the Series A Bonds are
secured by (i) all of the capital stock of PFC, the Company and Interholding,
(ii) 60% of the capital stock of PIC Cayman, (iii) the Company's interest in
distributions from Interholding, and (iv) certain other collateral.
Individually, the pledges of the capital stock of PFC, Interholding and PIC
Cayman do not constitute a "substantial portion of collateral" (as defined in
Rule 3-10 of Regulation S-X promulgated under the Securities Act of 1933) for
the Series A Bonds. Accordingly, separate financial statements of PFC and PIC
Cayman are not presented because the Company believes that such disclosure is
not material. The Series A Bonds are effectively subordinated to the
obligations of the Company's subsidiaries under project-level financing
arrangements. The indenture contains certain covenants, including limitations
on distributions, additional debt and certain other transactions.
While amounts are outstanding under the Series A Bonds, all
distributions from Interholding to PIC and certain proceeds received by PIC from
PIC Cayman will be paid to a collateral agent. On a monthly basis, the
collateral agent will remit to PIC remaining funds available after satisfaction
of PIC's debt service obligations (including amounts withheld, if necessary, to
meet future debt service and reserve fund requirements as required by the
indenture) provided that PIC is in compliance with the debt covenants.
In connection with the issuance of the Rosemary Bonds and the Series A
Bonds, Interholding refinanced the taxable revenue bonds issued in 1989 for the
Rosemary project and repaid the Trust Company of the West term loan.
Interholding incurred a loss of $21,336,550 on the early extinguishment of these
obligations. Additionally, Interholding acquired the minority interest holder's
limited partnership interest in Panda-Rosemary for a purchase price of
approximately $34.3 million. As a result of this acquisition, Interholding owns
100% of Panda-Rosemary. The acquisition was accounted for using the purchase
method of accounting. The excess of minority interest over the purchase price
(approximately $3.8 million) was allocated to plant and equipment. Additionally,
PIC advanced approximately $34.8 million to PEII for project development and
general corporate purposes.
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<PAGE>
5. COMMITMENTS AND CONTINGENCIES
In August 1996, Panda-Brandywine and PEPCO commenced discussions
concerning commercial operational requirements of the Brandywine Project and
conversion of the construction loan to long-term financing in the form of a
lease. During these discussions, disagreements arose between Panda-Brandywine
and PEPCO with respect to certain provisions of the Brandywine Power Purchase
Agreement, one of which relates to the determination of the interest rate that
is the basis for reduction in capacity payments thereunder (the "PEPCO Interest
Rate Dispute"). PEPCO and Panda-Brandywine are presently attempting to resolve
these disagreements but there are no assurances that such efforts will be
successful. If the PEPCO Interest Rate Dispute is determined adversely to
Panda-Brandywine, the capacity payments paid by PEPCO under the Brandywine Power
Purchase Agreement will be less than originally anticipated, thereby adversely
affecting the revenues realized by Panda-Brandywine, and consequently, reducing
the amount of funds that would be available for distribution to Interholding.
Raytheon Engineers and Constructors, Inc. ("Raytheon") constructed the
Brandywine Project pursuant to a fixed-price, turnkey engineering, procurement
and construction contract (the "Brandywine EPC Agreement") with Panda-
Brandywine. Raytheon completed the construction and start-up of the Brandywine
Project and has met the requirements for commercial operations and substantial
completion under the Brandywine EPC Agreement, although the date on which
commercial operations were achieved and the entitlement of Raytheon to certain
early completion bonuses under the Brandywine EPC Agreement are the subject of a
dispute between Panda-Brandywine and Raytheon. Interholding estimates that the
amount in dispute is less than $1 million and believes that the resolution of
this dispute will not have a material adverse effect upon the financial
position, results of operations or liquidity of Interholding.
6. SUBSEQUENT EVENTS
The Brandywine Project commenced commercial operations in October
1996. As discussed in Notes 6 and 11 to the consolidated financial statements
of PIC for the year ended December 31, 1995, General Electric Capital
Corporation provided a construction loan to finance construction of the
Brandywine Project. The construction loan was converted to long-term financing
of $217.5 million in the form of a capital lease (together with the construction
loan, the "Panda-Brandywine Financing") during December 1996. To effect the
lease financing, title to the Brandywine Project was transferred to a third
party trustee and leased back to Panda-Brandywine. The Brandywine facility lease
is a net lease and its initial term is 20 years. The documents governing the
Panda-Brandywine Financing contain various affirmative and negative covenants,
including limitations on the ability of Panda-Brandywine to make distributions
to its partners.
F-34
APPENDIX A
PART I -- DEFINED TERMS
Unless the context requires otherwise, any reference in this Prospectus to
any agreement means such agreement and all schedules, exhibits and attachments
thereto as amended, supplemented or otherwise modified and in effect from time
to time. Unless otherwise stated, any reference in this Prospectus to any
person or entity shall include its successors and assigns and, in the case of
any governmental authority, any entity succeeding to its functions and
capacities. All terms defined herein used in the singular shall have the same
meanings when used in the plural and vice versa.
TERM DEFINITION
"Accounts and Funds" means Project Accounts, the Debt
Service Fund, the Capitalized Interest
Fund, the Debt Service Reserve Fund, the
Company Expense Fund, the Mandatory
Redemption Accounts, the Extraordinary
Distribution Accounts and the Distribution
Suspense Funds.
"Additional Interest" means the additional interest payable
on Transfer Restricted Bonds as a result
of a Registration Default.
"Additional Projects Contract" means the Additional Projects
Contract, dated the Issue Date, among
Panda International, PEC and the Company.
"Affiliate" means an affiliate within the meaning
of Rule 405 promulgated under the
Securities Act.
"Annual Letter of Credit Fee" means the annual fee, or the
cumulative fees charged over one year,
charged by the Letter of Credit Provider.
"Anticipated Additional Debt" means the original principal amount
of an additional series of Bonds proposed
to be issued by the Issuer which is equal
to the largest principal amount of such
series that will provide a projected
Company Debt Service Coverage Ratio and a
projected Consolidated Debt Service
Coverage Ratio (if then applicable) of at
least 1.7:1 and 1.25:1, respectively, for
each Future Ratio Determination Period, as
confirmed in each case by a Consolidating
Engineer Certificate, assuming, in respect
of the additional series of Bonds proposed
to be issued: (i) a maximum maturity and
average life generally available in the
marketplace for debt of a similar nature
and (ii) a coupon rate then prevailing in
the market for debt of a similar nature,
and taking into account (a) in the case of
the Company Debt Service Coverage Ratio,
Cash Available for Distribution and (b) in
the case of the Consolidated Debt Service
Coverage Ratio, Cash Available from
Operations (net of any reserve
requirements under Project-level debt and
Company-level debt) from the Project
Portfolio (giving effect, in each case, to
the transfer to the Project Portfolio of
any Project in respect of which such
additional series of Bonds is proposed to
be issued); in making this analysis, the
Consolidating Engineer is required to use
generally accepted financial analysis
methods and generally follow the methods
used to calculate the amount of the
offering of the Existing Bonds, including
the methods used in the Consolidated Pro
Forma Report attached to this Prospectus
as Appendix B.
"Applicable Treasury Rate" means a rate which is equal to the
then current treasury rate on the most
actively traded security having a maturity
approximately equal to the remaining
average life of the Existing Bonds.
"Available Amounts" means, as of any date of
determination, amounts held in the
Extraordinary Distribution Accounts and
the Mandatory Redemption Accounts, as the
case may be, that are not needed to effect
a redemption as specified in a written
request or order of the Issuer to the
Trustee given prior to such date.
"Beneficial Owners" means the beneficial owners of the
Old Bonds.
"Bibb" means The Bibb Company, a Delaware
corporation.
"BG&E" means Baltimore Gas & Electric
Company, a Maryland utility.
"Bond" or "Bonds" means, individually or collectively,
the Existing Bonds and any additional
series of bonds that may be issued under
the Indenture.
"Bondholder" or "Bondholders" means a holder or holders of the
Bonds.
"Brandywine Available Cash Flow" means Panda-Brandywine Partnership's
cash flow remaining after payment of
Project expenses, rent, letter of credit
fees and debt service.
"Brandywine Construction Loan
Facility" means the construction loan facility
in the aggregate principal amount of $215
million under the Brandywine Loan
Agreement.
"Brandywine Distributable Cash
Flow" means Brandywine Available Cash Flow
less any required deposits into the
Operation and Maintenance Reserve Account
established under the Brandywine Facility
Lease.
"Brandywine Engineering
Report" means the report entitled
"Independent Engineer's Report Panda-
Brandywine Cogeneration Project" prepared
by PES dated July 22, 1996, as
supplemented by an update report dated
January 10, 1997, evaluating the design,
construction and expected operation of the
Panda-Brandywine Facility.
"Brandywine EPC Agreement" means the Amended and Restated
Turnkey Cogeneration Facility Agreement,
dated March 30, 1995, between Raytheon and
the Panda-Brandywine Partnership.
"Brandywine Equity Loan Facility" means the $17.5 million multiple draw
credit facility under the Equity Loan
Facility Letter Agreement, dated December
18, 1996, among PBC, Panda Energy Delaware
and GE Capital.
"Brandywine Facility Lease" means the Facility Lease, dated
December 18, 1996, between the Panda-
Brandywine Partnership and Fleet National
Bank, as Owner Trustee, pursuant to which
the Panda-Brandywine Partnership leases
the Panda-Brandywine.
"Brandywine Financing
Conversion" means the conversion on December 30,
1996 of the Brandywine Construction Loan
Facility to long-term financing under the
Brandywine Facility Lease and other
Brandywine Financing Documents.
"Brandywine Financing
Documents" means the Brandywine Loan Agreement,
the Brandywine Facility Lease, the
Participation Agreement and certain
agreements relating thereto.
"Brandywine Fuel Consultant's
Report" means the report entitled "Panda-
Brandywine, L.P. Generating Facility Fuel
Consultant's Report" prepared by C.C.
Pace, dated July 2, 1996, as supplemented
by an update report dated January 10,
1997, analyzing the sufficiency of the
fuel supply and transportation
arrangements for the Panda-Brandywine
Facility.
"Brandywine Fuel Management
Agreement" means the Fuel Supply Management
Agreement, dated March 30, 1995, between
CDC and the Panda-Brandywine Partnership.
"Brandywine Gas Agreement" means the Gas Sales Agreement, dated
March 30, 1995, between the Panda-
Brandywine Partnership and CDC.
"Brandywine Loan Agreement" means the Construction Loan Agreement
and Lease Commitment, dated March 30,
1995, among GE Capital, the Panda-
Brandywine Partnership and PBC.
"Brandywine O&M Agreement" means the Operations & Maintenance
Agreement, dated November 21, 1994, as
amended on December 7, 1994, between the
Panda-Brandywine Partnership and Ogden
Brandywine.
"Brandywine Power Purchase
Agreement" means the Power Purchase Agreement,
dated August 9, 1991, as amended September
16, 1994, between the Panda-Brandywine
Partnership and PEPCO.
"Brandywine Pro Forma" means the pro forma financial
projections prepared by Burns & McDonnell
which are contained in the Brandywine Pro
Forma Report.
"Brandywine Pro Forma Report" means the report entitled
"Independent Panda-Brandywine Pro Forma
Projections" prepared by ICF dated July
26, 1996, as supplemented by an update
report dated January 10, 1997, presenting
an independent assessment of the pro forma
for the Panda-Brandywine Facility.
"Brandywine Scenario" means a resolution of the PEPCO
Interest Rate Dispute in favor of the
position of the Panda-Brandywine
Partnership.
"Brandywine Steam Agreement" means the Steam Sales Agreement,
dated March 30, 1995, between Brandywine
Water Company and the Panda-Brandywine
Partnership.
"Brandywine Water Company" means Brandywine Water Company, a
Delaware corporation.
"Burns & McDonnell" means Burns & McDonnell Engineering
Company, Inc.
"Business Day" means any day on which commercial
banks are not authorized or required to
close in New York City, New York, Dallas,
Texas, the Cayman Islands or Luxembourg.
"Capital Stock" means, with respect to any person,
any and all shares, interests,
participations, rights or other
equivalents in the equity interests
(however designated) in such person, and
any rights (other than debt securities
convertible into an equity interest),
warrants or options exercisable for,
exchangeable for or convertible into such
an equity interest in such person.
"Capitalized Interest Deficiency" means, with respect to any Monthly
Distribution Date, the amount by which the
amount on deposit in the Capitalized
Interest Fund as of such date (after
giving effect to all transfers to the
Capitalized Interest Fund to be made on
such date) is less than the Capitalized
Interest Requirement in effect on such
date.
"Capitalized Interest Fund" means the fund entitled "Capitalized
Interest Fund" described in and maintained
by the Trustee pursuant to Article IV of
the Indenture.
"Capitalized Interest Requirement" means for purposes of the Indenture
an amount equal to the aggregate amounts
required to be on deposit in the
Capitalized Interest Fund on any date as
set forth in all Series Supplemental
Indentures, as the same may be reduced
pursuant to the Indenture.
"Cash Available for Distribution" means Total Cash Flow from all
Project Entities on a consolidated basis
less (i) regularly scheduled payments of
principal and interest on Project Debt,
(ii) additions to reserves required by
Project agreements, (iii) Trustee's fees
under the Indenture and (iv) the NNW Cash
Flow Participation, plus interest earned
on reserves required by Transaction
Documents entered into by the Company,
excluding, however, Extraordinary
Financial Distributions and proceeds
received as a result of Mandatory
Redemption Events, that at the time of
determination is available to be legally
distributed from the Project Entities to
the PIC Entities without contravention of
any Project agreement.
"Cash Available from Operations" means, for any period, Total Cash
Flow from all Project Entities on a
consolidated basis prior to all
Consolidated Debt Service, less (i)
additions to reserves required by Project
agreements, (ii) Trustee's fees under the
Indenture plus interest earned on reserves
required by Transaction Documents entered
into by the Company, and (iii) the NNW
Cash Flow Participation, excluding,
however, Extraordinary Financial
Distributions and proceeds received as a
result of Mandatory Redemption Events.
"C.C. Pace" means C.C. Pace Resources, Inc.
"CDC" means Cogen Development Company.
"Change of Control" means the occurrence of any event or
series of events by which: (a) any
"person" or "group" (as such terms are
used in Sections 13(d) and 14(d) of the
Exchange Act) is or becomes the
"beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or
indirectly, of more than 50% of the total
voting stock of the Company; (b) the
Company consolidates with or merges into
another person or any person consolidates
with, or merges into, the Company, in any
such event pursuant to a transaction in
which the outstanding voting stock of the
Company is changed into or exchanged for
cash, securities or other property, other
than any such transaction where (i) the
outstanding voting stock of the Company is
changed into or exchanged for voting stock
of the surviving or resulting person that
is Qualified Capital Stock and (ii) the
holders of the voting stock of the Company
immediately prior to such transaction own,
directly or indirectly, not less than a
majority of the voting stock of the
surviving or resulting person immediately
after such transaction; (c) the Company,
either individually or in conjunction with
one or more of its Subsidiaries, sells,
assigns, conveys, transfers, leases or
otherwise disposes of, or the Subsidiaries
of the Company sell, assign, convey,
transfer, lease or otherwise dispose of,
all or substantially all of the properties
of the Company and its Subsidiaries, taken
as a whole (either in one transaction or a
series of related transactions), including
Capital Stock of such Subsidiaries, to any
person (other than the Company or a wholly
owned Subsidiary of the Company); or (d)
the liquidation or dissolution of the
Company.
"Change of Control Offer" means an offer by the Issuer to
purchase all then outstanding Bonds upon
the occurrence of a Change of Control.
"Change of Control Purchase Date" means a Business Day not more than 60
nor less than 30 days following a Change
of Control on which the Issuer is
obligated to purchase Bonds pursuant to a
Change of Control Offer.
"Change of Control Purchase Price" means a purchase price equal to 101%
of the principal amount of Bonds to be
purchased by the Issuer in connection with
a Change of Control, plus accrued and
unpaid interest thereon.
"China" means the People's Republic of China.
"CNG" means CNG Transmission Corporation.
"Collateral" means all of the property and
interests in property, real or personal,
now owned or hereafter acquired in or upon
which a Lien has been or is purported or
intended to have been granted to the
Collateral Agent pursuant to the Security
Documents.
"Collateral Agency Agreement" means the Collateral Agency
Agreement, dated the Issue Date, among the
Collateral Agent, the Issuer, the Trustee,
PEC, the Letter of Credit Provider and the
Company.
"Collateral Agent" means Bankers Trust Company, a New
York banking corporation.
"Columbia Gas" means Columbia Gas Transmission
Corporation, a Delaware corporation.
"Columbia Gas FT Agreement" means the Amended and Restated FTS
Service Agreement, dated March 23, 1995,
between the Panda-Brandywine Partnership
and Columbia Gas.
"Columbia Gas IT Agreement" means the Service Agreement for
Service Under ITS Rate Schedule, dated as
of April 4, 1991, between Columbia Gas and
PR Corp., which agreement was assigned by
PR Corp. to, and assumed by, the Panda-
Rosemary Partnership on January 6, 1992.
"Columbia Gulf" means Columbia Gulf Transmission
Company, a Delaware corporation.
"Columbia Gulf IT Agreement" means the ITS-1 Transportation
Service Agreement, dated as of June 13,
1996, between Columbia Gulf and the Panda-
Rosemary Partnership.
"Columbia Precedent Agreement" means the Precedent Agreement, dated
as of February 25, 1994, as amended by the
Amending Agreement, dated March 24, 1995,
between the Panda-Brandywine Partnership
and Columbia Gas.
"Commercial Operations" means, with respect to a Project, (i)
the completion of construction and testing
and the functioning of such Project and
(ii) the satisfaction and discharge of all
completion requirements of, and
commencement of regular capacity or
reservation payments under, the purchase,
transportation or other off-take or use
contracts for such Project.
"Commission" means the U.S. Securities and
Exchange Commission.
"Company" means Panda Interfunding Corporation,
a Delaware corporation.
"Company Debt Service" means, for any period, scheduled
principal and interest payments on the
Bonds.
"Company Debt Service
Coverage Ratio" means for purposes of the Indenture,
as of any date of determination, the ratio
of (i) Cash Available for Distribution
during the relevant period to (ii) Company
Debt Service for such period.
"Company Distribution
Certificate" means the officer's certificate from
the Company stating that the conditions
precedent for transferring monies from a
Distribution Suspense Fund to the
appropriate Distribution Fund have been
satisfied.
"Company Expense Fund" means the fund entitled "Company
Expense Fund" described in and maintained
by the Trustee pursuant to Article IV of
the Indenture.
"Company Expenses Amount" means for each calendar year
commencing with 1997, an amount equal to
$300,000 as adjusted as of January of each
year ratably for inflation and for each
partial calendar year in which Bonds shall
be outstanding, and as such amount may
otherwise be increased pursuant to the
Indenture.
"Company Guaranty" means the full and unconditional
guarantee of the Existing Bonds by the
Company.
"Company Loan Agreement" means the Loan Agreement, dated the
Issue Date, between the Company and the
Issuer.
"Company Notes" means the Initial Company Note and
each promissory note evidencing loans from
the Issuer to the Company of the proceeds
from the Prior Offering and any future
offerings of additional series of Bonds.
"Company Security Agreement" means the Security Agreement, dated
the Issue Date, between the Company and
the Collateral Agent.
"Company Stock Pledge Agreement" means the Stock Pledge Agreement,
dated the Issue Date, between the Company
and the Collateral Agent, pledging as
Collateral all of the issued and
outstanding capital stock of the Issuer
and each PIC U.S. Entity and 60% of the
issued and outstanding capital stock or
other ownership interests of each PIC
International Entity.
"Consolidated Debt Service" means for purposes of the Indenture,
for any period, Company Debt Service plus
scheduled principal and interest payments
on all Project Debt.
"Consolidated Debt Service
Coverage Ratio" means, as of any date of
determination, the ratio of (i) Cash
Available from Operations during the
relevant period to (ii) Consolidated Debt
Service for such period; provided,
however, that at any time that the Company
holds Project Interests in more than four
Projects, then the Consolidated Debt
Service Coverage Ratio shall not be
applied in respect of any event or
requirement.
"Consolidated Pro Forma" means a summary consolidation of the
pro forma financial projections for the
Panda-Brandywine Facility and the Panda-
Rosemary Facility.
"Consolidated Pro Forma Report" means the report entitled "Summary of
the Consolidated Pro Formas of the Panda-
Rosemary and Panda-Brandywine Power
Projects" prepared by ICF dated January
10, 1997, containing the Consolidated Pro
Forma.
"Consolidating Engineer" means ICF, or its successor, which
shall be a firm of national reputation
with expertise in engineering and
financial analysis and which may rely, to
the extent necessary for purposes of
performing its duties under the Indenture,
on other Independent Engineers.
"Constellation" means Constellation Energy
Corporation, the surviving corporation
after the merger of PEPCO and BG&E.
"Cove Point" means Cove Point LNG Limited
Partnership.
"Cove Point FT Agreement" means that certain FTS Service
Agreement, dated March 30, 1995, between
the Panda-Brandywine Partnership and Cove
Point.
"Credit Agreement" means the Credit, Term Loan and
Security Agreement, dated August 31, 1993,
among PEC, PR Corp., PRC II and NNW.
"Credit Suisse" means Credit Suisse, a Swiss bank.
"Debt Service Deficiency" means, with respect to any Payment
Date, the amount by which monies on
deposit in the Debt Service Fund as of
such date (after giving effect to all
transfers to the Debt Service Fund to be
made on such date) is insufficient for the
payment of the amounts of interest and, if
applicable, principal due and payable on
the Company Notes (including any past due
amounts) on the Payment Date for each
series of Bonds outstanding next following
the day immediately preceding such Monthly
Distribution Date.
"Debt Service Fund" means the fund entitled "Debt Service
Fund" described in and maintained by the
Trustee pursuant to Article IV of the
Indenture.
"Debt Service Reserve Fund" means the fund entitled "Debt Service
Reserve Fund" described in and maintained
by the Trustee pursuant to Article IV of
the Indenture.
"Debt Service Reserve Deficiency" means the amount, with respect to any
Monthly Distribution Date, the amount by
which the amount on deposit in the Debt
Service Reserve Fund as of such date
(after giving effect to all transfers to
the Debt Service Reserve Fund to be made
on such date) is less than the Debt
Service Reserve Requirement in effect on
such date.
"Debt Service Reserve Requirement" means on the Issue Date, an amount
equal to $6.4 million, and, except as may
be otherwise provided in any Series
Supplemental Indenture, at any time
thereafter, an amount equal to the
scheduled principal and interest payments
on the Bonds created by such Series
Supplemental Indenture due pursuant to the
Indenture during the 12-month period
immediately following the date of
determination, except that, if less than
12 months remain before the Final Stated
Maturity of the Bonds, then an amount
equal to the scheduled principal and
interest payments on the Bonds due
pursuant to the Indenture for such period
shall be maintained; provided that the
Debt Service Reserve Requirement, as
determined at any time, shall be reduced
by the amount then on deposit in the
Capitalized Interest Fund in respect of
interest payments scheduled to be made
during the 12-month period immediately
following the date of determination.
"Disqualified Capital Stock" means any Capital Stock that, either
by its terms, by the terms of any security
into which it is convertible or exchangeable
or otherwise, is, or upon the happening of
an event or passage of time would be,
required to be redeemed or repurchased prior
to the final stated maturity of the Bonds or
is redeemable at the option of the holder
thereof at any time prior to such final
stated maturity, or is convertible into or
exchangeable for debt securities at any time
prior to such final stated maturity.
"Distribution Funds" means the U.S. Distribution Fund and
the International Distribution Fund.
"Distribution Suspense Funds" means the U.S. Distribution Suspense
Fund and the International Distribution
Suspense Fund.
"DTC" means The Depository Trust Company, a
limited purpose trust company organized
under the laws of the State of New York
and a member of the Federal Reserve
System.
"Effectiveness Target Date" means the respective target date for
effectiveness of the Exchange Offer
Registration Statement or the Shelf
Registration Statement as specified in the
Registration Rights Agreement.
"Eligible Institution" means a firm that is a member of a
registered national securities exchange or
a member of the National Association of
Securities Dealers, Inc., or a commercial
bank or trust company having an office or
correspondent in the United States, or an
entity that is otherwise an "eligible
guarantor institution" within the meaning
of Rule 17Ad-15 under the Exchange Act.
"Energy Policy Act" means the Energy Policy Act of 1992.
"ERK" means ERK Energy, Inc., the fuel oil
coordinator for the Panda-Brandywine
Facility.
"Event of Default" means the events listed in Section
9.1 of the Indenture.
"EWG" means an Exempt Wholesale Generator.
"Exchange Act" means the Securities Exchange Act of
1934, as amended.
"Exchange Agent" means Bankers Trust Company.
"Exchange Bonds" means the 11-5/8% Pooled Project
Bonds, Series A-1 due 2012, of Panda
Funding Corporation.
"Exchange Offer" means the offer of the Issuer, upon
the terms and subject to the conditions
set forth in the Prospectus and in the
Letter of Transmittal, to exchange up to
$105,525,000 in aggregate principal amount
of its 11-5/8% Pooled Project Bonds,
Series A-1 due 2012 for a like principal
amount of its 11-5/8% Pooled Project
Bonds, Series A due 2012.
"Exchange Offer Registration
Statement" means a registration statement
covering an offer by the Issuer to
exchange Old Bonds for like bonds to be
filed with the Commission by the Company
and the Issuer pursuant to the
Registration Rights Agreement.
"Exempt Wholesale Generator" means a company that the FERC has
declared to be an exempt wholesale
generator pursuant to Section 32 of PUHCA
and that, as a result, is exempt from
PUHCA.
"Existing Bonds" means collectively, the Old Bonds and
the Exchange Bonds.
"Expiration Date" means the expiration of the Exchange
Offer at 5:00 p.m., New York City time, on
March 19, 1997, unless extended by the
Issuer in its sole discretion.
"Extraordinary Distribution
Accounts" means the U.S. Extraordinary
Distribution Account and the International
Extraordinary Distribution Account.
"Extraordinary Financial
Distribution" means all Project distributions
received by the Company or any PIC Entity
or any person on behalf of the Company or
any PIC Entity, directly or indirectly, in
respect of any of the Projects (including
all distributions from Project Entities
directly or indirectly to the Company or
any PIC Entity), net of related
unreimbursed costs and expenses that are
attributable to or incurred by the Company
or any PIC Entity that may be legally
distributed or paid to the Company or any
PIC Entity without contravention of any
Project agreement, in respect of (i)
settlements, judgments or other payments
received by a Project in connection with
any litigation, arbitration or similar
proceeding at law or in equity or any
administrative proceeding, except to the
extent that any such proceeding is in
connection with a Mandatory Redemption
Event, (ii) any monies released from an
escrow or similar account established by
or on behalf of a Project in connection
with the financing or contractual
arrangements of such Project (other than
(a) monies held in an escrow or similar
account established under the Project's
financing arrangements for the purpose of
governing the disbursement of such
Project's revenue either before or
subsequent to a default by a Project under
any of such Project's contractual
obligations, (b) monies held in operating
or similar reserve accounts established
for Project operating contingencies and
funded out of the Project's operating cash
flow and (c) monies held in an escrow or
similar account as a construction
contingency or for the payment of
development or similar fees), (iii) any
buy-out or settlement of a contract to
which a Project is a party or (iv) any
transaction that results in the receipt of
cash or other property upon the sale,
transfer or other disposition (other than
as set forth in clause (iii) hereof) of
any contractual rights of a Project except
to the extent that such transaction is in
connection with a Mandatory Redemption
Event.
"FERC" means the Federal Energy Regulatory
Commission.
"Final Stated Maturity means the last stated maturity date
of any series of Bonds outstanding under
the Indenture.
"Financial Closing" means closing of the initial
construction or long-term project
financing of a Project.
"Firm Gas Transportation
Agreements" means the Transco 284 Agreement and
the similar firm transportation agreements
the Panda-Rosemary Partnership entered
into with Texas Gas and CNG.
"Flippo" means Flippo Construction.
"Florida Act" means the Florida Securities Act.
"Florida Power" means Florida Power Corporation, a
Florida corporation.
"Florida PSC" means the Florida Public Service
Commission.
"Ford Credit" means Ford Motor Credit Company, a
Delaware corporation.
"FPA" means the Federal Power Act, as
amended.
"Fuel Consultant" means, with respect to the Panda-
Rosemary Facility, Schlesinger and, with
respect to the Panda-Brandywine Facility,
C.C. Pace, or their respective successors.
"Future Ratio Determination Period" means, as of the date of
determination, each of the following: (1)
the period beginning with the date of
determination through December 31 of that
calendar year; (2) each period consisting
of a calendar year thereafter through the
calendar year immediately prior to the
calendar year in which the Final Stated
Maturity occurs and (3) the period
thereafter beginning with January 1 and
ending with the Final Stated Maturity.
"GE Capital" means General Electric Capital
Corporation, a New York corporation.
"Global Bond" means the single permanent global
certificate in definitive, fully
registered form that represents the
Exchange Bonds.
"Guaranties" means collectively the Company Guaranty
and the PIC Entity Guaranties.
"GNPIPD" means the Gross National Product
Implicit Price Deflator.
"Harbin" means Harbin Power Engineering
Company Limited, the engineering,
procurement and construction contractor
for the Panda-Luannan Facility.
"Hardesty" means Hardesty & Son, Inc., a fuel
oil trucking transportation company.
"Heard Defendants" means the Heard Energy Corporation,
collectively with certain individual
former PEC officers, employees and
advisors who are involved in litigation
with PEC.
"ICF" means ICF Resources, Incorporated, a
Florida corporation.
"Indenture" means collectively the Trust
Indenture, dated the Issue Date, among the
Issuer, the Company and the Trustee and
all Series Supplemental Indentures.
"Independent Director" means the "Independent Director" of
each of the Issuer and the Company, with
the power and authority and duties
provided in the respective Certificates of
Incorporation and By-laws thereof.
"Independent Engineer" means, with respect to the Panda-
Rosemary Facility, Burns & McDonnell, and,
with respect to the Panda-Brandywine
Facility, PES, or their respective
successors.
"Initial Company Note" means the promissory note issued by
the Company to the Issuer with an original
principal amount equal to the original
aggregate principal amount of the Old
Bonds, representing a loan to the Company
of the proceeds of the issuance of the Old
Bonds.
"Initial Purchaser" means Jefferies & Company, Inc., a
Delaware corporation.
"Institutional Accredited Investors" means institutional "accredited
investors" as defined under Rule
501(a)(1), (2), (3) or (7) under the
Securities Act.
"Interest Payment Date" means each February 20 and August 20,
commencing February 20, 1997, on which
interest on the Existing Bonds is paid,
and the dates on which each installment of
interest is due on any other series of
Bonds.
"International Accounts and Funds" means the International Accounts and
Funds described in and maintained by the
International Collateral Agent pursuant to
Article IV of the Indenture.
"International Collateral Agent" means the Trustee acting in its
capacity as agent for the PIC
International Entities for the benefit of
the Company.
"International Distribution Fund" means the fund entitled
"International Distribution Fund"
described in and maintained pursuant to
Article IV of the Indenture.
"International Distribution
Suspense Fund" means the fund entitled
"International Distribution Suspense Fund"
described in and maintained by the
International Collateral Agent pursuant to
Article IV of the Indenture.
"International Extraordinary
Distribution Account" means the account entitled
"International Extraordinary Distribution
Account" described in and maintained by
the International Collateral Agent
pursuant to Article IV of the Indenture.
"International Mandatory
Redemption Account" means the account entitled
"International Mandatory Redemption
Account" described in and maintained by
the International Collateral Agent
pursuant to Article IV of the Indenture.
"International Project Account" means the account entitled
"International Project Account" described
in and maintained by the International
Collateral Agent pursuant to Article IV of
the Indenture.
"International Project
Distributions" means distributions and amounts
received by any PIC International Entity
or any other person on behalf of any PIC
International Entity from, or in
connection with, Non-U.S. Projects that
may be legally distributed or paid to any
PIC International Entity without
contravention of any Project agreement,
other than Extraordinary Financial
Distributions and amounts that are
required to be deposited in the
International Mandatory Redemption Account
pursuant to the Indenture, and all
interest earned and received on amounts on
deposit in the International Accounts and
Funds.
"Investment Company Act" means the Investment Company Act of
1940, as amended.
"Issue Date" means July 31, 1996, the date of
issuance of the Old Bonds.
"Issuer" means Panda Funding Corporation, a
Delaware corporation.
"Issuer Security Agreement" means that certain Security Agreement,
dated the Issue Date, between the Issuer
and the Collateral Agent which provides
for the collateral assignment of all of
the Issuer's personal property.
"Joint Venture Companies" means collectively the four equity
joint ventures formed under PRC law for
purposes of developing, constructing and
operating the Panda-Luannan Facility.
"Koch" means Koch Refining Company, L.P.
"Letter of Credit" means for purposes of the Indenture
an irrevocable standby letter of credit
which may be used to satisfy in whole or
in part, the Debt Service Reserve
Requirement.
"Letter of Credit Provider" means any commercial bank that issues
a Letter of Credit and that enters into a
reimbursement agreement as required
pursuant to the Indenture and becomes a
party to the Collateral Agency Agreement.
"Letter of Transmittal" means the Letter of Transmittal
accompanying the Prospectus which holders
of Old Bonds must execute and deliver to
the Exchange Agent in order to tender
their Old Bonds in the Exchange Offer.
"Lien" means for purposes of the Indenture
any mortgage, pledge, hypothecation,
security interest, collateral assignment,
lien (statutory or other), preference,
priority or other security agreement or
payment arrangement or encumbrance of any
kind or nature whatsoever, including,
without limitation, any conditional sale
or other title retention agreement, any
financing lease having substantially the
same effect as any of the foregoing and
the filing of any financing statement or
similar instrument under the Uniform
Commercial Code or comparable law of any
jurisdiction, domestic or international.
"Loan Participants" means Credit Suisse and the other
participants that loaned amounts to the
Owner Trustee under the Participation
Agreement to finance the acquisition of
the Panda-Brandywine Facility.
"Mandatory Redemption Accounts" mean the U.S. Mandatory Redemption
Account and the International Mandatory
Redemption Account.
"Mandatory Redemption Event" means (i) the sale or disposition of
any Collateral, any Project or portion
thereof or any direct or indirect interest
of the Company or any PIC Entity in any
Project or (ii) any event of casualty,
loss or condemnation with respect to any
Project.
"Material Adverse Change" means (i) a material adverse change
in the business, results of operations,
condition (financial or otherwise) or
property of (a) the Company, (b) the
Issuer, (c) any PIC Entity or (d) any
Project or (e) any Project Entity, in each
case to the extent that such change could
be reasonably expected to have a material
adverse effect on the Issuer or its
ability to make payments on the Bonds, or
on the Company or its ability to make
payments on the Company Notes or to
perform its obligations under the Company
Guaranty or (ii) any event or occurrence
of whatever nature, which in any case has
a material adverse effect on (a) the
ability of PEC, the Company, the Issuer or
any PIC Entity to perform its obligations
under any agreement governing the rights
and obligations of such entity, including
any Transaction Document, or any Project
Entity's ability to perform its
obligations under any agreement governing
the rights and obligations of such entity,
in each such case, to the extent that such
event or occurrence could be reasonably
expected to have a material adverse effect
on the Issuer or its ability to make
payments on all series of Bonds, or on the
Company or its ability to make payments on
the Company Notes or its ability to
perform its obligations under the Company
Guaranty or (b) the validity or priority
of the Trustee's or Collateral Agent's
Lien on the Collateral.
"Monthly Distribution Date" means a date prescribed each month
for the distribution of monies deposited
in the Project Accounts according to the
priority set forth in Article IV of the
Indenture.
"NCNG" means North Carolina Natural Gas
Corporation, a Delaware corporation.
"NCPG" means North China Power Group, one of
five interprovincial power groups in
China.
"NCPGC" means North China Power Group
Company, the business arm of NCPG.
"NCUC" means the North Carolina Utilities
Commission.
"NEA" means Nepal Electricity Authority.
"NGC" means Natural Gas Clearinghouse, a
Colorado general partnership.
"Non-U.S. Projects" means the Projects owned by PIC
International Entities and located outside
of the United States in respect of which
deferral of U.S. federal income taxes is
being sought.
"NNW" means NNW, Inc., formerly known as
Nova Northwest, Inc., an Oregon
corporation.
"NNW Cash Flow Participation" means NNW's cash flow participation
in distributions from the Panda-Rosemary
Partnership.
"NPDES" means the National Pollutant
Discharge Elimination System.
"Ogden Brandywine" means Ogden Brandywine Operations,
Inc., a subsidiary of Ogden Power
Corporation.
"Ogden Rosemary" means Ogden Rosemary Operations,
Inc., a subsidiary of Ogden Power
Corporation.
"Old Bonds" means the 11-5/8% Pooled Project
Bonds, Series A due 2012, of Panda Funding
Corporation.
"Other International Note" means any loan to a PIC International
Entity from the Company which is not
evidenced by a PIC International Entity
Note.
"Owner Trustee" means the entity that holds title to
the Panda-Brandywine Facility as trustee
on behalf of the Loan Participants.
"Panda-Brandywine Facility" means the 230 MW natural gas-fired,
combined-cycle cogeneration facility
located in Brandywine, Prince George's
County, Maryland.
"Panda-Brandywine Financing" means, collectively, the construction
loan provided by GE Capital and the
leveraged lease provided under the
Brandywine Lease Facility and
Participation Agreement in respect of the
Brandywine Facility.
"Panda-Brandywine Partnership" means Panda-Brandywine, L.P., a
Delaware limited partnership.
"Panda Energy Delaware" means Panda Energy Corporation, a
Delaware corporation.
"Panda Global Services" means Panda Global Services, Inc., a
Delaware corporation.
"Panda Interholding" means Panda Interholding Corporation,
a Delaware corporation.
"Panda International" means Panda Energy International,
Inc., a Texas corporation.
"Panda-Kathleen Facility" means the natural gas-fired, combined-
cycle cogeneration facility to be located
near Lakeland, Florida that is being
developed by Panda International.
"Panda-Kathleen Partnership" means Panda-Kathleen, L.P., a
Delaware limited partnership.
"Panda-Lapanga Facility" means the 500 MW coal-fired power
generation facility to be located in the
State of Orissa, India that is being
developed by Panda International.
"Panda-Luannan Facility" means the 2 X 50 MW coal-fired
cogeneration facility to be located in
Luannan County, Tangshan Municipality,
Hebei Province, China that is being
developed by Panda International.
"Panda-Nepal Facility" means the 36 MW hydroelectric
generation facility to be located on the
upper Bhote Koshi River in Nepal that is
being developed by Panda International.
"Panda-Rosemary Facility" means the 180 MW natural gas-fired,
combined-cycle cogeneration facility
located in Roanoke Rapids, North Carolina.
"Panda-Rosemary Partnership" means Panda-Rosemary, L.P., a
Delaware limited partnership.
"Panda-Rosemary Partnership Loan" means the loan by the Rosemary Issuer
to the Panda-Rosemary Partnership of funds
from the proceeds from the sale of the
Rosemary Bonds.
"Panda-Rosemary Pipeline" means the approximately 10.26 mile
natural gas pipeline owned by the Panda-
Rosemary Partnership commencing in
Pleasant Hill, North Carolina and
terminating at the Panda-Rosemary
Facility, together with all appurtenant
facilities.
"Participating Broker-Dealer" means a broker-dealer that received
Exchange Bonds in the Exchange Offer for
its own account in exchange for Old Bonds
acquired as a result of market making or
other trading activities.
"Participation Agreement" means the Participation Agreement,
dated December 18, 1996, among the Panda-
Brandywine Partnership, PBC, GE Capital as
Owner Participant, Fleet National Bank as
Owner Trustee and Security Agent, First
Security Bank, National Association as
Indenture Trustee, Credit Suisse as
Administrative Agent and the Loan
Participants.
"Payment Date" means a Principal Payment Date or
Interest Payment Date.
"PBC" means Panda Brandywine Corporation, a
Delaware corporation.
"PEC" means Panda Energy Corporation, a
Texas corporation.
"PEC Stock Pledge Agreement" means the Stock Pledge Agreement,
dated the Issue Date, between PEC and the
Collateral Agent, pursuant to which PEC
pledges 100% of its capital stock in the
Company as Collateral.
"PEPCO" means Potomac Electric Power
Corporation, a District of Columbia and
Virginia corporation.
"PEPCO Interest Rate Dispute" means the dispute between PEPCO and
the Panda-Brandywine Partnership regarding
the determination of the interest rate
that is the basis for reduction in
capacity payments under the Brandywine
Power Purchase Agreement.
"PEPCO Scenario" means a resolution of the PEPCO
Interest Rate Dispute in favor of the
position of PEPCO.
"Permitted Investments" means those investments of balances
in Accounts and Funds that are permitted
under the Indenture.
"PES" means Pacific Energy Services, Inc.
"PIC Entity or Entities" means one or more corporations,
companies, partnerships, limited liability
companies or other entities (i) that are
not Project Entities, (ii) 100% of the
voting capital stock or other voting
equity interests of which is owned
directly by the Company, other than
directors' qualifying shares mandated by
applicable law and (iii) through which the
Company owns indirect interests in Project
Entities.
"PIC Entity Guaranties" means the guaranty agreement dated
the Issue Date, among the PIC U.S.
Entities and the Collateral Agent.
"PIC International Entities" means PIC Entities that own, through
Project Entities, Non-U.S. Projects.
"PIC International Entity Loan" means any loan by the Company to a
PIC International Entity of the proceeds
of the issuance of a series of Bonds
(issued by the Issuer to the Company and
represented by a Company Note), the
payments on which are to be made from
distributions from a Non-U.S. Project to
be held by such PIC International Entity
as part of the Project Portfolio.
"PIC International Entity Note" means a note evidencing a PIC
International Entity Loan.
"PIC U.S. Entities" means PIC Entities that, through
Project Entities, own U.S. Projects.
"PIHC Guaranty" means the PIC Entity Guaranty executed
by Panda Interholding on July 31, 1996.
"Pipeline Operating Agreement" means the Pipeline Operating
Agreement, dated as of February 14, 1990,
among PEC, PR Corp., and NCNG, as amended,
which agreement was assigned by PEC to PR
Corp. on January 15, 1990 and as the same
was assigned by PR Corp. to, and assumed
by, the Panda-Rosemary Partnership.
"PORTAL" means the Private Offerings, Resale
and Trading through Automatic Linkages.
"PR Corp." means Panda-Rosemary Corporation, a
Delaware corporation.
"PRC" means the People's Republic of China.
"PRC II" means PRC II Corporation, a Delaware
corporation.
"Principal Payment Date" means each February 20 and August 20,
commencing on February 20, 1997, on which
principal on the Existing Bonds is paid,
and the dates on which each installment of
principal is due on any other series of
Bonds.
"Prior Offering" means the offering of the Old Bonds.
"Project" or "Projects" means one or more electric power
generation projects (including businesses
substantially related thereto, such as a
steam host affiliated therewith) that has
been or will be transferred to the Company
or a PIC Entity pursuant to the Additional
Projects Contract.
"Project Accounts" means the U.S. Project Account and
the International Project Account.
"Project Debt" means any indebtedness created,
incurred or assumed by a Project Entity or
secured by the assets of a Project.
"Project Distributions" means U.S. Project Distributions and
International Project Distributions.
"Project Entity" means any corporation, company,
partnership, limited liability company or
other entity that is (i) directly or
indirectly owned by a PIC Entity and (ii)
(A) that is the direct or indirect owner
of a Project or (B) that is obligated
under or a guarantor of Project Debt or
that has granted a security interest in
any of its assets (including Project cash
flows), other than the capital stock of
any of its Subsidiaries (and any dividends
or other distributions on such capital
stock and proceeds therefrom), to secure
the payment of Project Debt or the
performance of any Project agreement.
"Project Interest" means an equity or similar ownership
interest in a Project.
"Project Portfolio" means the portfolio of Projects
owned, directly or indirectly, by the
Company.
"Project Distributions" means U.S. Project Distributions and
International Project Distributions.
"Prospectus" means this Prospectus dated February
14, 1997 with respect to the Exchange Bonds.
"Prudent Utility Practices" means the practices generally
followed by the electric utility industry,
as changed from time to time, which
generally include, but are not limited to,
engineering and operating considerations.
"PUCs" means state public utility
commissions in the United States.
"PUHCA" means the Public Utility Holding
Company Act of 1935, as amended.
"Purchase Agreement" means the Purchase Agreement dated
July 26, 1996, between the Issuer and the
Initial Purchaser.
"PURPA" means the Public Utility Regulatory
Policies Act of 1978, as amended.
"QF" means Qualifying Facility.
"Qualified Capital Stock" of any person means any and all
Capital Stock of such person other than
Disqualified Capital Stock.
"Qualified Institutional Buyer" means a qualified institutional buyer
as such term is defined in Rule 144A.
"Qualifying Facility" means either a small power production
facility or a cogeneration facility that
has satisfied the definition of
"qualifying facility" as set forth in 18
C.F.R. 292.101(b)(1) of the regulations
promulgated under PURPA.
"Rating Agencies" means Moody's Investors Service, Inc.
and Duff & Phelps Credit Rating Co.
"Raytheon" means Raytheon Engineers and
Constructors, Inc.
"Reaffirmation" means, with respect to any event, a
confirmation in writing from at least one
rating agency that the rating of the Bonds
in effect immediately prior to such event
will be maintained or improved after
giving effect to such event. The terms
"Reaffirm" or "Reaffirmed" used as verbs
have a correlative meaning.
"Registration Default" means the occurrence of any of the
following: (a) the Issuer and the Company
fail to file any of the registration
statements required by the Registration
Rights Agreement on or before the date
specified for such filing, (ii) any of
such registration statements are not
declared effective by the Commission on or
prior to the Effectiveness Target Date,
(iii) the Issuer and the Company fail to
consummate the Exchange Offer within 30
business days after the Effectiveness
Target Date or (iv) the Shelf Registration
Statement or the Exchange Offer
Registration Statement is declared
effective but thereafter, subject to
certain exceptions, ceases to be effective
or usable in connection with the Exchange
Offer or resales of Transfer Restricted
Bonds, as the case may be, during the
periods specified in the Registration
Rights Agreement.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated the Issue Date, among the
Company, the Issuer and the Initial
Purchaser.
"Registration Statement" means this Registration Statement on
Form S-1, Registration Numbers 333-14495
and 333-14495-01, filed with the
Commission covering the Exchange Bonds and
the Company Guaranty.
"Reimbursement Agreement" means the Second Amended and Restated
Letter of Credit and Reimbursement
Agreement, dated January 6, 1992, among
the Panda-Rosemary Partnership, The Fuji
Bank, Limited, and certain other banks
party thereto.
"Rosemary Bonds" means the 8-5/8% First Mortgage Bonds
due 2016 of Panda-Rosemary Funding
Corporation.
"Rosemary Borrowers" means PEC, PR Corp. and PRC II.
"Rosemary Engineering Report" means the report entitled "Panda-
Rosemary Corporation Project Condition
Assessment Report for Potential Investors
at the Request of Panda Energy Corporation"
prepared by Burns & McDonnell, dated July
26, 1996, as supplemented by an update
report dated January 10, 1997, concerning
certain technical, environmental and
economic aspects of the Panda-Rosemary
Facility.
"Rosemary Facility Site" means the site on which the Panda-
Rosemary Facility is located.
"Rosemary Fuel Consultant" means Schlesinger or its successor.
"Rosemary Fuel Consultant's Report" means the report entitled "Assessment
of Fuel Price, Supply and Delivery Risks for
the Panda-Rosemary Cogeneration Project"
prepared by Schlesinger, dated September
20, 1996, analyzing the sufficiency of the
fuel supply and transportation
arrangements for the Panda-Rosemary
Facility.
"Rosemary Fuel Management
Agreement" means the Fuel Supply Management
Agreement, dated October 10, 1990, between
the Panda-Rosemary Partnership and NGC, as
amended.
"Rosemary Gas Supply Agreement" means the Gas Purchase Contract,
dated April 12, 1990, between the Panda-
Rosemary Partnership and NGC, as amended.
"Rosemary Indenture" means the indenture, dated as of
the Issue Date, among the Panda-Rosemary
Partnership, Panda-Rosemary Funding
Corporation, and Fleet National Bank.
"Rosemary Issuer" means Panda-Rosemary Funding
Corporation, a Delaware corporation.
"Rosemary O&M Agreement" means the Operations & Maintenance
Agreement, effective as of January 1,
1997, between the Panda-Rosemary
Partnership and Panda Global Services.
"Rosemary Offering" means the offering of the Rosemary
Bonds.
"Rosemary Power Purchase
Agreement" means the Power Purchase and
Operating Agreement, dated January 24,
1989, as amended on October 24, 1989 and
July 30, 1993, between VEPCO and the Panda-
Rosemary Partnership.
"Rosemary Pro Forma" means the pro forma financial
projections prepared by Burns & McDonnell
that are contained in the Rosemary
Engineering Report.
"Rosemary Site Lease" means the Real Property Lease
and Easement Agreement, dated June 9,
1989, as amended on October 1, 1989 and as
further amended on January 31, 1990 and
March 15, 1996, between the Panda-Rosemary
Partnership and Bibb.
"Rosemary Steam Agreement" means the Cogeneration Energy Supply
Agreement, dated January 12, 1989, by and
between PEC and Bibb, which contract was
assigned by PEC to, and assumed by, PR
Corp., as such contract was amended
October 1, 1989, and as the same was
further assigned by PR Corp. to, and
assumed by, the Panda-Rosemary Partnership
on January 3, 1990.
"Rule 144A" means Rule 144A under the Securities
Act.
"SCC" means the Virginia State Corporation
Commission.
"Schlesinger"
"Secured Parties" means the Bondholders, the Letter of
Credit Provider and the Trustee.
"Securities Act" means the Securities Act of 1933,
as amended.
"Security Documents" means, collectively, (i) the
Collateral Agency Agreement, (ii) the
Issuer Security Agreement, (iii) the PEC
Stock Pledge Agreement, (iv) the Company
Stock Pledge Agreement, (v) the Company
Security Agreement, and all financing
statements executed in connection
therewith and any and all other agreements
or instruments now or hereafter executed
by the Issuer, the Company, any PIC
Entity, PEC, Panda International or any
other person as security for the payment
or performance of the Bonds.
"Series A Supplemental Indenture" means collectively, the First
Supplemental Indenture, dated the Issue
Date, and the Second Supplemental
Indenture, dated as of January 6, 1997,
entered into in accordance with the
Indenture among the Company, the Issuer
and the Trustee in connection with the
Existing Bonds.
"Series Supplemental Indenture" means any supplemental indenture
entered into in accordance with the
Indenture among the Company, the Issuers
and the Trustee.
"Shelf Registration Statement" means a shelf registration statement
covering resales of the Old Bonds which
the Company and the Issuer may be required
to file with the Commission pursuant to
the Registration Rights Agreement.
"SPC" means the State Planning Commission
of the People's Republic of China.
"Subsidiary" means, in respect of any person, a
corporation, partnership, limited
liability company or other entity, (i) at
least a 50% (direct or indirect) ownership
or equivalent interest of the outstanding
stock or other equity interests of which
are owned, directly or indirectly, by such
person or (ii) (a) at least a 25% (direct
or indirect) ownership or equivalent stock
or other equity interests are owned,
directly or indirectly, by such person and
(b) such person exercises a controlling
influence over the management and policies
with respect to such corporation,
partnership, limited liability company or
other entity, directly or indirectly,
whether through the ownership of voting
securities, by contract or otherwise,
provided that no other entity has greater
control than such person over the
management and policies of such
corporation, partnership, limited
liability company or other entity.
"TCW" means Trust Company of the West.
"Texas Gas" means Texas Gas Transmission
Corporation.
"Total Cash Flow" means, as to any person, the sum of
the net income of such person for any
period plus, to the extent deducted from
net income, all non-cash items, including,
but not limited to, depreciation,
depletion and impairment, amortization of
intangibles and deferred taxes, in each
case for such period and determined as to
such person minus to the extent included
in net income, all non-cash income,
calculated in accordance with generally
accepted accounting principles.
"Transaction Documents" means the Security Documents, the
Company Notes, the Bonds, the Company
Guaranty, the Indenture, the Company Loan
Agreement, the PIC U.S. Entity Guarantees,
the PIC International Entity Pledge
Agreement, the PIC International Entity
Loan Agreement, the PIC International
Entity Notes, the Other International
Notes and the Additional Projects
Contract, together with any other
document, instrument or agreement, now or
hereafter entered into in connection with
the Indenture, the Bonds or the
Collateral.
"Transco" means Transcontinental Gas Pipe Line
Corporation, a Delaware corporation.
"Transco Service Agreement" means the Service Agreement, dated
October 22, 1991, between Transco and PEC,
which agreement was assigned by PEC to,
and assumed by, PR Corp., thereafter
assigned by PR Corp. to, and assumed by,
the Panda-Rosemary Partnership.
"Transco 284 Agreement" means the Service Agreement, dated
July 26, 1996, between Transco and the
Panda-Rosemary Partnership, as amended.
"Transfer Restricted Bonds" means each Old Bond until (i) the
date on which such Old Bond has been
exchanged by a person other than a broker-
dealer for an Exchange Bond in the
Exchange Offer, (ii) following the
exchange by a broker-dealer in the
Exchange Offer of an Old Bond for an
Exchange Bond, the date on which such
Exchange Bond is sold to a purchaser who
receives from such broker-dealer on or
prior to the date of such sale a copy of
the prospectus contained in the Exchange
Offer Registration Statement, (iii) the
date on which such Old Bond has been
effectively registered under the
Securities Act and disposed of in
accordance with the Shelf Registration
Statement or (iv) the date on which such
Old Bond is distributed to the public
pursuant to Rule 144 under the Securities
Act.
"Trustee" means Bankers Trust Company, a New
York banking corporation, as trustee under
the Indenture.
"U.S. Accounts and Funds" means U.S. Accounts and Funds
described in and maintained by the Trustee
pursuant to Article IV of the Indenture.
"U.S. Account Rights" means for purposes of the Indenture,
collectively, all of the rights with
respect to each U.S. Account and Fund,
including all funds and investments in
securities and other instruments from time
to time therein and all letters of credit
or other instruments substituting for
funds in any such U.S. Accounts or Funds.
"U.S. Distribution Fund" means the fund entitled "U.S.
Distribution Fund" described in and
maintained by the Trustee pursuant to
Article IV of the Indenture.
"U.S. Distribution Suspense Fund" means the fund entitled "U.S.
Distribution Suspense Fund" described in
and maintained by the Trustee pursuant to
Article IV of the Indenture.
"U.S. Extraordinary Distribution
Account" means the account entitled "U.S.
Extraordinary Distribution Account"
described in and maintained by the Trustee
pursuant to Article IV of the Indenture.
"U.S. Mandatory Redemption
Account" means the account entitled "U.S.
Mandatory Redemption Account" described in
and maintained by the Trustee pursuant to
Article IV of the Indenture.
"U.S. Project Account" means the account entitled "U.S.
Project Account" described in and
maintained by the Trustee pursuant to
Article IV of the Indenture.
"U.S. Project Distributions" means distributions and amounts
received by the Company, any PIC U.S.
Entity or any other person on behalf of
the Company or any PIC U.S. Entity from,
or in connection with, U.S. Projects that
may be legally distributed or paid to the
Company or any PIC U.S. Entity without
contravention of any Project agreement,
other than Extraordinary Financial
Distributions and amounts that are
required to be deposited in the Mandatory
Redemption Accounts pursuant to the
Indenture, and all interest earned and
received on amounts on deposit in the U.S.
Accounts and Funds.
"U.S. Projects" means the Projects owned by PIC U.S.
Entities and located in the United States
and certain other international Projects
in respect of which deferral of U.S.
federal income taxes is not being sought.
"U-Tech" means University Technical Services,
Inc., a California corporation, doing
business as UTECH Services, Inc., a wholly
owned subsidiary of EMCOR Group, Inc.
"VEPCO" means Virginia Electric and Power
Company, a Virginia public service
corporation (including North Carolina
Power).
"WGL" means the Washington Gas Light
Company, a District of Columbia
Corporation and a Virginia Corporation.
"WGL Agreement" means the Gas Transportation and
Supply Agreement, dated November 10, 1994,
between the Panda-Brandywine Partnership
and WGL.
PART II -- CERTAIN TECHNICAL TERMS COMMONLY USED IN THE UTILITY INDUSTRY
Defined below are certain technical terms commonly used in the electric
and gas utility industries.
TERM DEFINITION
"Available" means the status of a major piece of
equipment which is capable of service,
whether or not it is actually in service.
"Bcf" means one billion standard cubic feet.
"Btu" means British Thermal Unit, the
amount of heat required to raise the
temperature of 1 pound of pure water 1
degree F from 59 degrees F to 60 degrees F
at a constant pressure of 14.73 pounds per
square inch absolute.
"Capability" means the maximum load which an
electric generating unit can carry under
specific conditions for a given period of
time, without exceeding approved limits of
temperature and stress.
"Capacity" means the load for which an electric
generating unit is rated either by the
user or by the manufacturer.
"Capacity Factor" means the ratio of the average
operating load of an electric generating
unit for a period of time to the capacity
rating of the unit during that period.
"Cogeneration" means the sequential production of
electric energy and useful thermal energy
for industrial, commercial, heating or
cooling purposes.
"Cogeneration Facility" means a facility that produces
electric energy and useful thermal energy
used for industrial, commercial, heating
or cooling purposes. A cogeneration
facility must meet certain efficiency and
useful thermal output criteria to qualify
for certain regulatory benefits under
PURPA.
"Dekatherm" or "Dth" means a unit of heating value
equivalent to 10 therms or 1,000,000
Btu's.
"Dispatch" means the operating control of an
integrated electric system to assign
generation to specific generating stations
and other sources of supply to effect the
most reliable and economical supply as
demand rises or falls.
"Dispatch Factor" means the amount of production
scheduled by an electric generating unit's
power purchaser in a given time period
(i.e., output level of that unit times the
number of hours dispatched).
"Economic Dispatch" means the start-up, shutdown and
allocation of load to individual electric
generating units to effect the most
economical production of electricity for
customers by a utility.
"Equivalent Availability Factor" means the ratio of the number of
megawatt hours a facility could have
produced in a given period to the rated
number of megawatt hours of the facility.
"GWh" means gigawatt hour or one million
kilowatt hours.
"Heat Rate" means a measure of generating station
thermal efficiency, generally expressed in
Btu per net kilowatt-hour. It is computed
by dividing the total Btu content of fuel
burned for electric generation by the
resulting net kilowatt-hour generation.
"Heating Value" means the amount of heat produced by
the complete combustion of a unit quantity
of fuel. The gross or higher heating value
(HHV) is that which is obtained when all of
the products of combustion are cooled to
the temperature existing before combustion,
the water vapor formed during combustion is
condensed and all the necessary corrections
have been made. The net or lower heating
value (LHV) is obtained by subtracting the
latent heat of vaporization of the water
vapor, formed by the combustion of the
hydrogen in the fuel, from the gross or
higher heating value.
"HRSGs" means Heat Recovery Steam Generators.
"Kilowatt" or "kW" means 1,000 watts.
"Kilowatt-hour" or "kWh" means the basic unit of electric energy
equal to one kilowatt of power supplied to
or taken from an electrical circuit steadily
for one hour.
"Load Factor" means, in the context of electric
generation, the ratio of the average load in
kilowatts supplied during a designated
period to the peak or maximum load in
kilowatts occurring in that period. Load
factor, in percent, also may be derived by
multiplying the kilowatt-hours in the period
by 100 and dividing by the product of the
maximum demand in kilowatts and the number
of hours in the period. In the context of
gas transportation, "load factor" means the
ratio of the average actual requirement for
gas transportation capacity to the maximum
contractual gas transportation capacity for
the same time period.
"LHV" means lower heating value (see Heating
Value).
"Mcf" means one thousand standard cubic feet
of gas (cubic feet at 60 degrees F and at a
pressure of 14.73 pounds per square inch
absolute).
"MMBtu" means one million British thermal
units.
"MM Lbs" means one million pounds.
"MW" or "Megawatt" means one million watts.
"No" means oxides of nitrogen.
"O&M" means operating and maintenance.
"Partial Outage" means the outage of an electric
generating unit or plant auxiliary equipment
which reduces the capability of the electric
generating unit without causing a complete
shutdown.
"Watt" means the electric unit of real power
or rate of doing work. The rate of energy
transfer equivalent to one ampere flowing
due to an electrical pressure of one volt
at unity power factor.
A P P E N D I X B
Summary of the
Consolidated Pro Formas of the
Panda Rosemary and
Panda Brandywine Power Projects
Prepared for:
Panda Energy International, Inc.
Prepared by:
ICF Resources Incorporated,
A Subsidiary of ICF Kaiser International
January 10, 1997
This report was produced by ICF
Resources Incorporated (ICF) in
accordance with an agreement with Panda
Energy International, Inc., who paid for
its services in producing the report and
this report is subject to the terms of
that agreement. This report is meant to
be read as a whole and in conjunction
with this disclaimer. Any use of this
report other than as a whole and in
conjunction with this disclaimer is
forbidden. Any use of this report,
other than as provided for in ICF's
agreement with Panda Energy
International, is forbidden. This
report may not be copied in whole or in
part or distributed to anyone outside
Panda Energy International without ICF's
prior express and specific written
permission.
This report and information and
statements herein are based in whole or
in part on information obtained from
various sources. ICF makes no
assurances as to the accuracy of any
such information or any conclusions
based thereon. ICF bears no
responsibility for the results of any
actions taken on the basis of this
Report.
============================================================
CONSOLIDATED PRO FORMA
============================================================
ICF Resources, Incorporated ("ICF"), a subsidiary of ICF
Kaiser International, was retained by Panda Energy
International ("Panda") on behalf of its subsidiary, Panda
Interfunding Corporation (the "Company"), to create a
consolidated summary of the pro forma financial projections
(the "Consolidated Pro Forma") for the Panda-Rosemary
cogeneration project (the "Rosemary Project") and the Panda-
Brandywine cogeneration project (the "Brandywine Project")
(collectively, the "Projects"). In preparing the
Consolidated Pro Forma, ICF has relied on the independent
reports described below of Burns & McDonnell, the
independent engineer for the Rosemary Project and of ICF and
Pacific Energy Systems, Inc. ("PES"), the independent
consultant and independent engineer, respectively, for the
Brandywine Project. This report describes the Consolidated
Pro Forma and explains how it was derived.
Background
The Rosemary Project
The Rosemary Project is a 180 MW gas- and oil-fired
cogeneration project operating in Roanoke Rapids, North
Carolina. The Rosemary Project sells electricity to Virginia
Electric and Power Company pursuant to a Power Purchase
Agreement that expires on December 27, 2015.
Burns & McDonnell, the independent engineer for the Rosemary
Project since 1988, has prepared pro forma financial
projections (the "Rosemary Pro Forma"), which are presented
in Panda-Rosemary Cogeneration Project Condition Assessment
Report dated July 26, 1996, as supplemented by an Update
Report dated January 10, 1997 (as so supplemented, the
"Rosemary Engineering Report"). The Rosemary Engineering
Report contains the primary assumptions underlying, and the
conclusions drawn from, the Rosemary Pro Forma, a copy of
which is attached as Appendix C to the Prospectus of which
this report constitutes a part. ICF has reviewed the
Rosemary Engineering Report only to the extent necessary to
incorporate the results of the Rosemary Pro Forma in the
Consolidated Pro Forma, and has made no independent
investigation of the conclusions or the assumptions
contained therein.
The Brandywine Project
The Brandywine Project is a 230 MW gas- and oil-fired
cogeneration project under construction in Brandywine,
Maryland. According to Pacific Energy Systems ("PES"),
construction was substantially complete as of October 31,
1996, when commencement of commercial operations occurred.
Beginning on the commercial operations date, the Brandywine
Project began selling electricity to Potomac Electric Power
Company pursuant to a 25-year Power Purchase Agreement.
ICF has prepared pro forma financial projections for the
Brandywine Project's operations (the "Brandywine Pro
Forma"), which are presented in Independent Panda-Brandywine
Pro Forma Projections dated July 26, 1996, as supplemented
by an Update Report dated January 10, 1997. (as so
supplemented the "Brandywine Pro Forma Report"). As
discussed more fully in the Brandywine Pro Forma Report in
preparing the Brandywine Pro Forma, ICF relied, among other
things, on PES's report, Independent Engineer's Report:
Panda-Brandywine Cogeneration Project dated July 22, 1996,
and supplemented by an Update Report dated January 10, 1997
(as so supplemented the "Brandywine Engineering Report"). A
more complete discussion of the assumptions underlying the
Brandywine Pro Forma and the conclusions drawn therefrom are
contained in the Brandywine Pro Forma Report, a copy of
which is attached as Appendix E to the Prospectus of which
this report constitutes a part.
The capacity payment adjustment factor based upon 12-year T-
Bill rates is fixed at 7.94 percent using the 12-year T-Bill
rate on October 6, 1994, GECC's initial commitment date for
permanent financing. Brandywine is currently in a dispute
with PEPCO over the T-Bill rate which should be used for
this adjustment factor. PEPCO's position on this issue
designates a T-Bill rate of 6.40 which was the effective
rate on the closing date of the conversion to permanent
financing in the form of a leveraged lease. If the rate was
established in favor of PEPCO ("the PEPCO Scenario") it
would have a material adverse effect on the amount of
capacity payments received by the project and the net cash
flow from the Project (see conclusion).
Results
The attached table presents the Consolidated Pro Forma. The
information set forth under Company Debt Service reflects
the issuance of Pooled Project Bonds (the "Bonds") in an
aggregate principal amount of $105.525 million, an interest
rate of 115/8 percent and due 2012. Amounts for Trustee
Fees, the NNW Interest (as defined below), and Interest from
Company Reserves have been provided by the Company based on
estimates of Trustee's fees provided by Bankers Trust
Company, the requirements of the cash flow participation
interest held by NNW, Inc. (the "NNW Interest"), and an
assumed interest factor on Company reserves of 5 percent.
The operating cash flows prior to Project-level debt, as
taken from the Rosemary Pro Forma and the Brandywine Pro
Forma, presented as the Projects' "Total Operating Cash
Flow." In 1997, the first full calendar year after issuance
of the Bonds, the Projects have a Total Operating Cash Flow
of approximately $42.7 million. This figure increases to
over $72 million by 2001. Under the PEPCO Scenario, the
Projects have a total operating cash flow of approximately
$38.5 million in 1997 increasing to $67.7 million by 2001.
Project Debt Service and Additions to Reserves for the
Projects are then subtracted from Total Operating Cash Flow
to arrive at "Net Cash Available from Projects." After
subtracting Trustee Fees, the NNW Interest, and adding
Interest from Company Reserves, the result is "Total Cash
Flow Available for Company Debt Service." This figure is
divided by the total debt service on the Bonds to arrive at
the Company Coverage ratio. Company Coverage is at least
1.4 times Company Debt Service through the final maturity of
the Bonds. The average Company Coverage ratio over the life
of the Bonds is 2.0:1. Under the PEPCO Scenario, Company
Coverage is at least 1.3 times (except during 1997 in which
it is 0.90 times) Company Debt Service with an average
Company Coverage ratio over the life of the bonds of 1.6:1.
The Projects' consolidated debt service coverages are also
provided in the Consolidated Pro Forma. Consolidated
Coverage divides the Total Operating Cash Flow, less
Additions to Reserves, less Trustee Fees and the NNW
Interest, plus Interest from Company Reserves, by the sum of
the Company's and the Projects' debt service. Consolidated
Coverage does not fall below 1.12 times the combined debt
service of the Company and the Projects through the final
maturity of the Bonds. The average Consolidated Coverage
ratio over the life of the Bonds is 1.27:1. Under the PEPCO
Scenario, the Consolidated Coverage does not fall below 1.10
times (except during 1997 in which it is 0.98 times) and the
average Consolidated Coverage ratio over the life of the
Bonds is 1.17.
Please refer to the footnotes to the Consolidated Pro Forma
included herewith for a discussion of certain other variables
tht may affect the Company Coverage and Consolidated Coverage
ratios.
Respectfully Submitted,
/s/ ICF Resources Incorporated
<PAGE>
CONSOLIDATED PRO FORMA FOR Page 1 of 3
PANDA BRANDYWINE AND
PANDA ROSEMARY
($ IN THOUSANDS)
<TABLE>
YEAR ENDED DECEMBER 31
--------------------------------------------------------------
1996 1997 1998 1999 2000 2001
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
OPERATING CASH FLOW
Rosemary $10,922 $20,188 $20,624 $19,116 $19,445 $19,806
Brandywine 7,675 23,166 23,179 40,056 41,274 52,894
------- ------- ------- ------- ------- -------
TOTAL OPERATING CASH FLOW 18,596 43,354 43,803 59,172 60,719 72,700
PROJECT DEBT SERVICE (1)
Rosemary $ 7,928 $14,694 $14,627 $13,314 $13,242 $13,164
Brandywine - 10,442 10,412 19,976 20,660 27,265
------- ------- ------- ------- ------- -------
TOTAL PROJECT DEBT SERVICE 7,928 25,136 25,039 33,290 33,902 40,429
ADDITIONS TO RESERVES
Rosemary $ 37 $ 250 $ (265) $ 483 $ 615 $ 743
Brandywine (2) 125 4,330 6,201 2,588 5,144 2,528
------- ------- ------- ------- ------- -------
TOTAL ADDITIONS TO RESERVES 162 4,580 5,936 3,071 5,759 3,271
NET CASH AVAILABLE FROM PROJECTS 10,506 13,638 12,828 22,811 21,058 29,000
Less: Trustee Fees (20) (40) (40) (40) (40) (40)
Less: NNW Interest (9) (14) (19) (19) (20) (23)
Plus: Interest from Company Reserves 216 588 689 750 622 881
------- ------- ------- ------- ------- -------
TOTAL CASH FLOW AVAILABLE FOR COMPANY
DEBT SERVICE 10,693 14,171 13,458 23,503 21,619 29,818
------- ------- ------- ------- ------- -------
COMPANY DEBT SERVICE (3)
Principal Payments - - - 2,052 - 4,554
Interest Payments 6,572 10,865 10,865 10,813 10,655 10,541
------- ------- ------- ------- ------- -------
TOTAL COMPANY BONDS DEBT SERVICE 6,572 10,865 10,865 12,865 10,655 15,095
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
==============================================================
COVERAGE RATIOS (2)(4)(5)
Company Coverage 1.7x 1.4x 2.4x 1.8x 2.0x 2.0x
Consolidated Coverage 1.30x 1.12x 1.26x 1.23x 1.25x 1.27x
PEPCO SCENARIO COVERAGE RATIOS (6)
Company Coverage 1.7x 0.9x 1.6x 1.4x 1.6x 1.6x
Consolidated Coverage 1.30x 0.98x 1.10x 1.13x 1.14x 1.18x
</TABLE>
(1) Represents debt service for the year ended January 31 and February 15
in the year immediately following the year presented for Brandywine,
and Rosemary respectively.
(2) In the event Raytheon receives the full disputed amount of its bonus,
additions to reserves could be $0.88 million more in 1997 resulting in a
projected Company Coverage Ratio of 1.2x and a projected Consolidated
Coverage Ratio of 1.07x in 1997.
(3) Represents debt service for the year ended February 20 in the year
immediately following the year presented.
(4) Ratios are calculated net of capitalized interest of $617,449,
$2,421,348, $6,688,699, and $106,614 for 1996, 1997, 1998, and 2000
respectively.
(5) In the event NNW were to prevail in its dispute with Panda Energy
Corporation concerning the value of its Cash Flow Participation Interest
in Rosemary, the Company Coverage Ratio would be projected to be
maintained at a level of at least 1.4x in all years. In such event,
the Consolidated Coverage Ratio would be projected to be maintained at a
level of at least 1.23x in all years (excluding, (i) 1997, where the
level would be projected to be 1.12, (ii) 2008, where the level would be
projected to be 1.19x).
(6) Assumes that the dispute with PEPCO regarding designation of the T-Bill
rate is resolved in favor of PEPCO. Does not include adjustment for the
disputes with Raytheon regarding its claimed bonus or the dispute with
NNW.
<PAGE>
CONSOLIDATED PRO FORMA FOR Page 2 of 3
PANDA BRANDYWINE AND
PANDA ROSEMARY
($ IN THOUSANDS)
<TABLE>
YEAR ENDED DECEMBER 31
--------------------------------------------------------------
2002 2003 2004 2005 2006 2007
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
OPERATING CASH FLOW
Rosemary $19,915 $20,139 $20,309 $20,532 $14,697 $14,269
Brandywine 54,116 54,158 53,501 53,750 54,820 58,180
------- ------- ------- ------- ------- -------
TOTAL OPERATING CASH FLOW 74,031 74,297 73,810 74,282 69,517 72,449
PROJECT DEBT SERVICE (1)
Rosemary $13,058 $12,943 $12,825 $12,669 $ 8,710 $ 8,534
Brandywine 27,938 27,907 27,456 27,602 28,188 30,071
------- ------- ------- ------- ------- -------
TOTAL PROJECT DEBT SERVICE 40,996 40,850 40,281 40,271 36,898 38,605
ADDITIONS TO RESERVES
Rosemary $ 810 $ 920 $ 997 $ (850) $ 1,091 $ 1,081
Brandywine (2) 1,500 728 1,122 3,916 4,758 1,319
------- ------- ------- ------- ------- -------
TOTAL ADDITIONS TO RESERVES 2,310 1,648 2,119 3,066 5,849 2,400
NET CASH AVAILABLE FROM PROJECTS 30,725 31,799 31,410 30,945 26,769 31,444
Less: Trustee Fees (40) (40) (40) (40) (40) (40)
Less: NNW Interest (27) (28) (28) (58) (61) (58)
Plus: Interest from Company Reserves 937 839 1,003 993 886 1,097
------- ------- ------- ------- ------- -------
TOTAL CASH FLOW AVAILABLE FOR COMPANY
DEBT SERVICE 31,595 32,570 32,344 31,840 27,554 32,443
------- ------- ------- ------- ------- -------
COMPANY DEBT SERVICE (3)
Principal Payments 6,024 4,940 8,337 9,044 8,106 12,669
Interest Payments 10,037 9,448 8,856 7,983 7,081 6,136
------- ------- ------- ------- ------- -------
TOTAL COMPANY BONDS DEBT SERVICE 16,061 14,388 17,192 17,027 15,187 18,805
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
==============================================================
COVERAGE RATIOS (2)(4)(5)
Company Coverage 2.0x 2.3x 1.9x 1.9x 1.8x 1.7x
Consolidated Coverage 1.27x 1.33x 1.27x 1.26x 1.24x 1.24x
PEPCO SCENARIO COVERAGE RATIOS (6)
Company Coverage 1.7x 1.9x 1.6x 1.6x 1.5x 1.4x
Consolidated Coverage 1.19x 1.24x 1.18x 1.17x 1.14x 1.15x
</TABLE>
<PAGE>
CONSOLIDATED PRO FORMA FOR Page 3 of 3
PANDA BRANDYWINE AND
PANDA ROSEMARY
($ IN THOUSANDS)
<TABLE>
YEAR ENDED DECEMBER 31
----------------------------------------
2008 2009 2010 2011
------- ------- ------- -------
<S> <C> <C> <C> <C>
OPERATING CASH FLOW
Rosemary $13,824 $13,366 $13,335 $13,086
Brandywine 59,024 60,398 63,836 68,609
------- ------- ------- -------
TOTAL OPERATING CASH FLOW 72,848 73,764 77,171 81,695
PROJECT DEBT SERVICE (1)
Rosemary $ 8,352 $ 8,154 $ 7,946 $ 7,772
Brandywine 30,529 31,285 33,212 35,922
------- ------- ------- -------
TOTAL PROJECT DEBT SERVICE 38,881 39,439 41,158 43,694
ADDITIONS TO RESERVES
Rosemary $ 1,064 $ 1,052 $ 1,063 $ 1,055
Brandywine (2) 2,236 2,130 4,167 5,086
------- ------- ------- -------
TOTAL ADDITIONS TO RESERVES 3,300 3,182 5,230 6,141
NET CASH AVAILABLE FROM PROJECTS 30,668 31,143 30,783 31,860
Less: Trustee Fees (40) (40) (40) (40)
Less: NNW Interest (58) (222) (213) (210)
Plus: Interest from Company Reserves 1,195 1,101 1,052 142
------- ------- ------- -------
TOTAL CASH FLOW AVAILABLE FOR COMPANY
DEBT SERVICE 31,765 31,982 31,581 31,751
------- ------- ------- -------
COMPANY DEBT SERVICE (3)
Principal Payments 15,726 15,720 16,514 2,315
Interest Payments 4,760 3,148 1,514 119
------- ------- ------- -------
TOTAL COMPANY BONDS DEBT SERVICE 20,486 18,868 18,029 2,434
------- ------- ------- -------
------- ------- ------- -------
========================================
COVERAGE RATIOS (2)(4)(5)
Company Coverage 1.6x 1.7x 1.8x 13.0x
Consolidated Coverage 1.19x 1.23x 1.23x 1.64x
PEPCO SCENARIO COVERAGE RATIOS (6)
Company Coverage 1.3x 1.4x 1.4x 10.8x
Consolidated Coverage 1.10x 1.14x 1.14x 1.52x
</TABLE>
[ICF Resources Letterhead]
Officer's Certificate
I, B.S. Venkateshwara, Vice President of ICF Resources
Incorporated, DO HEREBY CERTIFY that:
Since January 10, 1997, to our knowledge, no event
affecting our reports entitled "Independent Panda-Brandywine
Pro Forma Projections," dated July 26, 1996 As
Supplemented and Modified by the Update Report dated January 10,
1997 and "Summary of the Consolidate Pro Formas of Panda-Rosemary and
Panda Brandywine Power Projects" dated January 10, 1997
(the "Pro Forma Reports") or the matters referred to therein
has occurred which makes untrue or incorrect in any
material respect, as of the date hereof, any information or
statement contained in the Pro Forma Reports or in the Prospectus
relating to the offering of Pooled Project Bonds, Series
A-1 due 2012 by Panda Funding Corporation (the "Prospectus")
under the captions "Consolidating Engineer's Pro Forma
Report" and "Independent Pro Forma Analysis - Brandywine" in the
Prospectus Summary.
WITNESS my hand this 5th day of February, 1997.
/s/ B. S. Venkateshwara
Name: B.S. Venkateshwara
Title: Vice President
APPENDIX C
PANDA - ROSEMARY COGENERATION PROJECT
CONDITION ASSESSMENT REPORT
Dated July 26, 1996 as Supplemented
and Modified for an Update Report,
Dated January 10, 1997
for
POTENTIAL INVESTORS
at the Request of
PANDA ENERGY CORPORATION
(SYMBOL OF PANDA LOGO)
Burns
&
McDonnell
[Burns & McDonnell Letterhead]
July 26, 1996
Mr. Bryan Urban
Panda Energy International, Inc.
4100 Spring Valley, Suite 1001
Dallas, TX 75244
Panda - Rosemary Cogeneration Project
Burns & McDonnell Project No. 94-443-4
--------------------------------------
Dear Bryan:
We are pleased to submit this Final Report for the Panda - Rosemary
Cogeneration project. This document summarizes efforts by Panda Energy
Corporation and Burns & McDonnell to assess the conditions, operating history,
and operating projections of the 180-MW Panda - Rosemary Cogeneration project
on behalf of potential Project Investors.
Please feel free to call if you have any comments or questions.
Sincerely,
BURNS & MCDONNELL
Gregory L. Mack, P.E.
Project Manager
Jeffrey J. Greig
Senior Economist
Melissa A. Yancey
Project Analyst
cc: Pete Wright
TABLE OF CONTENTS
Page No.
PART I - EXECUTIVE SUMMARY
Assumptions. . . . . . . . .. . . . . . . . . . . . . . . . C-1
Conclusions. . . . . . . . . . . . . . . . . . . . . . . . . C-3
PART II - INTRODUCTION
PART III - FACILITY DESCRIPTION
Project Site . . . . . . . . . . . . . . . . . . . . . . . . C-8
Mechanical Equipment and Systems . . . . . . . . . . . . . . C-8
Environmental Control Equipment. . . . . . . . . . . . . . . C-9
Electrical Intertie. . . . . . . . . . . . . . . . . . . . . C-11
Site Visit . . . . . . . . . . . . . . . . . . . . . . . . . C-11
PART IV - OPERATING HISTORY
Electric Power Production. . . . . . . . . . . . . . . . . . C-14
Steam Production . . . . . . . . . . . . . . . . . . . . . . C-14
Availability . . . . . . . . . . . . . . . . . . . . . . . . C-15
Heat Rate. . . . . . . . . . . . . . . . . . . . . . . . . . C-16
Qualifying Facility Compliance . . . . . . . . . . . . . . . C-18
Environmental Compliance . . . . . . . . . . . . . . . . . . C-19
Air Permit. . . . . . . . . . . . . . . . . . . . . . C-20
Clean Air Act Amendments. . . . . . . . . . . . . . . C-20
NPDES Permit. . . . . . . . . . . . . . . . . . . . . C-20
Spill Prevention. . . . . . . . . . . . . . . . . . . C-20
Forced Outages . . . . . . . . . . . . . . . . . . . . . . . C-21
Major Maintenance Activities . . . . . . . . . . . . . . . . C-21
Equipment and System Design Changes. . . . . . . . . . . . . C-22
Freeze Protection . . . . . . . . . . . . . . . . . . C-22
Transformers. . . . . . . . . . . . . . . . . . . . . C-23
Corrosion Protection. . . . . . . . . . . . . . . . . C-23
Chiller #2. . . . . . . . . . . . . . . . . . . . . . C-24
Fire Protection . . . . . . . . . . . . . . . . . . . C-24
Oil Conditioning. . . . . . . . . . . . . . . . . . . C-25
Ultraviolet Protection. . . . . . . . . . . . . . . . C-25
Chemical Feed Lines . . . . . . . . . . . . . . . . . C-25
TABLE OF CONTENTS
(continued)
Page No.
PART IV - OPERATING HISTORY (continued)
Automatic Generation Control . . . . . . . . . . . . C-25
O&M Contractor . . . . . . . . . . . . . . . . . . . . . . C-26
Training Program . . . . . . . . . . . . . . . . . . . . . C-26
PART V - EQUIPMENT ASSESSMENT
Operating Condition. . . . . . . . . . . . . . . . . . . . C-27
Major Maintenance and Overall Programs . . . . . . . . . . C-28
Equipment Replacement Program. . . . . . . . . . . . . . . C-28
PART VI - PROJECTED PLANT PERFORMANCE
Capacity . . . . . . . . . . . . . . . . . . . . . . . . . C-30
Capacity and Heat Rate Degradation. . . . . . . . . C-30
Dispatch . . . . . . . . . . . . . . . . . . . . . . . . . C-32
Availability . . . . . . . . . . . . . . . . . . . . . . . C-32
Heat Rate. . . . . . . . . . . . . . . . . . . . . . . . . C-32
Annual Operation and Maintenance Costs . . . . . . . . . . C-35
Major Maintenance Programs and Costs . . . . . . . . . . . C-35
Equipment Replacement Provisions . . . . . . . . . . . . . C-36
Overall Economic Life. . . . . . . . . . . . . . . . . . . C-36
Steam Turbine Rankine Cycle . . . . . . . . . . . . C-37
Combustion Turbines Brayton Cycle . . . . . . . . . C-37
PART VII - FINANCIAL ASSESSMENT OF PROJECT
Power Purchase Agreement . . . . . . . . . . . . . . . . . C-39
Factors Affecting Project. . . . . . . . . . . . . . . . . C-39
Effective Operating Service Life of the Project . . C-39
Expected Rates for Capacity and Energy. . . . . . . C-39
Expected Dispatch of the Project. . . . . . . . . . C-44
Zero Dispatch Case. . . . . . . . . . . . . . . . . C-44
Expected Operating Performance. . . . . . . . . . . C-44
Project Capacity. . . . . . . . . . . . . . C-47
Project Heat Rate . . . . . . . . . . . . . C-47
Project Fixed Operating Costs . . . . . . . C-48
Project Variable Operation and
Maintenance Expenses . . . . . . . . . . C-49
Project Overhaul Requirements . . . . . . . C-49
Project Steam/Chilled Water Sales and
Costs. . . . . . . . . . . . . . . . . . C-49
Expected Fuel Costs. . . . . . . . . . . . . . . . C-49
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . C-52
Statement of Limiting Conditions . . . . . . . . . . . . . C-52
TABLE OF CONTENTS
(continued)
Page No.
PART VIII - CONCLUSIONS
Project Condition . . . . . . . . . . . . . . . . . . . . . C-55
EXHIBIT A - PROJECT PRO FORMA
EXHIBIT B - PROJECT PRO FORMA FOR ZERO DISPATCH
LIST OF TABLES
Table No. Page No.
PART I - EXECUTIVE SUMMARY
I-1 Summary of Project Debt Coverage Ratios. . . . . . . . . . C-5
PART IV - OPERATING HISTORY
IV-1 Panda-Rosemary Project Operating History . . . . . . . . . C-14
IV-2 Project Availability History . . . . . . . . . . . . . . . C-16
IV-3 Annual Average Heat Rate . . . . . . . . . . . . . . . . . C-16
IV-4 Average Fired Hours Per Start. . . . . . . . . . . . . . . C-17
IV-5 History of Qualifying Facility Status. . . . . . . . . . . C-19
PART V - EQUIPMENT ASSESSMENT
V-1 Comparison of Manufacturers' Recommendations with 10 Year
Plan Maintenance Activities for Major Pieces of Rotating
Equipment. . . . . . . . . . . . . . . . . . . . . . . . . C-29
PART VI - PROJECTED PLANT PERFORMANCE
VI-1 Historical Capacity Test Results. . . . . . . . . . . . . . C-30
VI-2 Results of Heat Rate Review . . . . . . . . . . . . . . . . C-33
PART VII - FINANCIAL ASSESSMENT OF PROJECT
VII-1 Contractual Capacity Charges . . . . . . . . . . . . . . . . C-40
VII-2 Summer and Winter Gas Energy Charges . . . . . . . . . . . . C-42
VII-3 Dispatch Assumptions . . . . . . . . . . . . . . . . . . . . C-45
VII-4 Fuel Cost Assumptions. . . . . . . . . . . . . . . . . . . . C-50
VII-5 Summary of Project Debt Coverage Ratios. . . . . . . . . . . C-53
VII-6 Summary of Project Debt Coverage Ratios, Zero Dispatch
Option. . . . . . . . . . . . . . . . . . . . . . . . . . C-54
LIST OF FIGURES
Figure No. Page No.
PART III - FACILITY DESCRIPTION
III-1 Panda-Rosemary Simplified Process Diagram. . . . . . . . . C-10
III-2 Panda-Rosemary Electrical Interconnections- One
Line Diagram. . . . . . . . . . . . . . . . . . . . . . . C-12
III-3 Panda-Rosemary Project Site Plan. . . . . . . . . . . . . . C-13
PART VI - PROJECTED PLANT PERFORMANCE
VI-1 Heavy-Duty Gas Turbine Degradation as a Function
of Total Factored Hours. . . . . . . . . . . . . . . . . C-31
PART VII - FINANCIAL ASSESSMENT OF PROJECT
VII-1 Contractural Capacity Charges . . . . . . . . . . . . . . . . C-41
VII-2 Summer and Winter Gas Energy Charges. . . . . . . . . . . . . C-43
VII-3 Dispatch Assumptions. . . . . . . . . . . . . . . . . . . . . C-46
VII-4 Fuel Cost Assumptions . . . . . . . . . . . . . . . . . . . . C-51
PART I
EXECUTIVE SUMMARY
This Report includes, among other things, a review and assessment of the 180-MW
Panda-Rosemary cogeneration project (the "Project") and its facility (the
"Facility"), the Facility's equipment and operating condition, its operating
history, the significant Project agreements and projections of revenues,
expenses and debt service coverage for the Facility for the period that the
First Mortgage Bonds due 2016 (the "Bonds") proposed to be issued by a finance
subsidiary of the Panda-Rosemary Partnership (the "Partnership") are scheduled
to be outstanding. Burns & McDonnell provides a variety of professional and
technical services in the fields of engineering, architecture, planning,
economics and environmental sciences. Our project work includes studies,
design, planning, construction and construction management for electric power
generation and transmission facilities as well as for waste management, water
treatment, airport, and other transportation infrastructure facilities. Burns
& McDonnell has been involved with the Facility since 1989.
In the preparation of this Report and the opinions contained herein, Burns &
McDonnell made certain assumptions with respect to conditions that may exist
or events that may occur in the future. Although Burns & McDonnell believes
those assumptions to be reasonable for the purposes of this Report, they are
dependent upon future events, and actual conditions may differ from those
assumed. In addition, Burns & McDonnell used and relied upon certain
information provided to us by sources that we believe to be reliable. Burns &
McDonnell believes the use of such information and assumptions is reasonable
for the purposes of this Report. However, some assumptions may prove to be
inaccurate, perhaps materially, due to unanticipated events and circumstances.
To the extent that actual future conditions differ from those assumed in this
Report or provided to us by others, the results will vary from those forecast.
This Report summarizes our work up to the date hereof. Thus, changed
conditions occurring or becoming known after this date could affect the
material presented to the extent of these changes.
Burns & McDonnell has relied upon projections of the Facility's dispatch
profile and fuel costs over the term of the Power Purchase Agreement prepared
by ICF Resources Incorporated ("ICF"). Based on ICF's experience in
undertaking similar analyses, Burns & McDonnell believes that the use of ICF's
dispatch profile and fuel cost projections is reasonable for the purposes of
this Report.
ASSUMPTIONS
The principal assumptions made in developing the projected operating results
are as follows:
1. We have made no determination as to the validity and enforceability
of any contract, agreement, rule or regulation applicable to the
Facility and its operations. For purposes of this Report, we have
assumed that all such contracts, agreements, rules and regulations
will be fully enforceable in accordance with their terms and that
all parties will comply with the provisions of their respective
agreements.
2. The operator under the Operations and Maintenance Agreement (the
"Operator") will operate the Facility as currently required under
such agreement.
3. The Operator will maintain the Facility in accordance with good
engineering practice, and make all required equipment renewals and
replacements in a timely manner.
4. The Operator will employ qualified and competent personnel who will
properly operate the equipment in accordance with the manufacturers'
recommendations and good engineering practice and will generally
operate the Facility in a sound and businesslike manner.
5. Inspections, overhauls, repairs and modifications have been and will
continue to be planned for and conducted in accordance with
manufacturers' recommendations and with special regard for the need
to monitor certain operating parameters to identify early signs of
potential problems.
6. All permits and approvals necessary to operate the Facility will
remain in full force and effect.
7. Long-term fuel costs will equal the projections prepared by ICF.
8. The Facility will be dispatched as projected by ICF, except that
ICF's dispatch projections have been increased by 400 hours annually
in 1996-1997, 500 hours annually in 1998-2002, and 600 hours annually
in 2003-2015 to reflect hours that we project the Facility will be
dispatched using gas supplied by Virginia Electric Power Co. Under
these assumptions, dispatch is projected to increase from 1,144
equivalent full load hours in 1997 to 4,216 equivalent full load
hours in 2005. After 2005, dispatch is projected to decrease
steadily to 3,201 equivalent full load hours in 2010, and thereafter
to stay relatively constant through 2015.
9. Thermal energy in the form of steam and chilled water will be
exported from the Facility, operating in the cogeneration mode, to
Bibb's facility such that the useful thermal energy, as defined under
PURPA and the regulations promulgated thereunder, will be sufficient
to maintain the Facility's QF status. The Partnership will continue
to absorb an annual operating loss on the sale of steam and chilled
water over the life of the Facility.
10. Steam and chilled water sales to Bibb will remain constant at 50,000
lbs/hr for 7,800 hours per year and 1,010 tons/hr for 4,000 hours
per year, respectively.
11. Operating costs, including fixed fuel transportation and operating
and maintenance and other administrative costs, will equal those
estimated by the Partnership. The fixed operating cost forecast
reflects an annual 3.0% escalation for most cost components. The
exceptions include property taxes, Facility maintenance costs, and
firm gas transportation costs. The property tax estimate is
decreased 3.0% annually to reflect a declining asset value. The
general maintenance and repair costs are escalated at a rate of 8.0%
per year due to an increase in anticipated maintenance and repair.
The additional maintenance allowance component of Facility
maintenance costs is held constant.
12. By August 1996, the Partnership expects to convert its existing fixed
fuel transportation agreement with Transco to a new agreement that
will permit the release of pipeline transportation capacity when not
required by the Facility. The benefits of capacity released and
bundled sales of pipeline capacity and gas sales are estimated to
result in a 50% return of firm gas transportation costs for 1800
MMBtu/d of the Facility's contracted capacity of 3075 MMBtu/d.
13. The original principal amount of the bonds will be $111,400,000.
14. The projected annual interest rate on the Bonds outstanding upon
their initial date of issuance (the "Issue Date") will be 8.63.
15. On the Issue Date, the Debt Service Reserve Fund will be funded at
$8,090,714 and thereafter will be maintained at adequate levels
throughout the Bonds' repayment period. The Debt Service Reserve
fund will earn interest at a rate of 5% per year.
16. The Partnership will not be required to establish or maintain any
balance in the Property Tax Fund.
17. The actual amortization schedule of the Bonds will be as provided by
the Partnership.
CONCLUSIONS
Set forth below are the principal conclusions that we have reached with respect
to the technical, economic and environmental aspects of the Facility. For a
complete understanding of the estimates, assumptions and calculations upon
which these conclusions are based, this Report should be read in its entirety.
On the basis of our review and analysis of the Facility and the assumptions
set forth in this Report, we conclude that:
1. The technology incorporated in the Facility is a sound, proven
method of generating electric and thermal energy and incorporates
commercially proven technology. The design, operation and
maintenance of the Facility implemented by the Partnership and the
Operator were developed and have been implemented in accordance with
good engineering practices and generally accepted industry practices
and have taken into consideration existing and proposed
environmental and permit requirements applicable to the Facility.
The Independent Engineer knows of no significant technical problems
relating to the Facility that should be of concern to potential
investors.
2. The Facility is in good condition and has a competent, conscientious
operation and maintenance staff that has developed a long-term
Facility maintenance program that is consistent with the
manufacturers' recommendations and generally-accepted practices
within the electric power generation industry.
3. The Facility will have an expected operating service life well
beyond the term of the Power Purchase Agreement if properly operated
and maintained, consistent with current practices.
4. The Partnership has obtained and maintained in full force and effect
the key environmental permits and approvals required from the various
federal, state and local agencies that are currently necessary to
operate the Facility.
5. The basis for the Partnership's estimates of the cost of operating
and maintaining the Facility is reasonable. The expense projections
prepared by the Partnership and based on projected levels of dispatch
appear adequate to account for the variable operation and maintenance
expenses. The budgeted allowance for overhauls should be increased
from $220 to $260 per fired hour.
6. The Facility's heat rate will average 9,100 Btu/kWh (HHV) over the
remaining initial term of the Power Purchase Agreement.
7. Table I-1 on the following page summarizes the projected revenues and
expenditures and debt coverage ratios of the Project based upon the
issuance of the Bonds and the refinancing plan submitted to us by the
Partnership. Projected revenues from the sale of thermal energy and
electricity and other income are adequate to pay annual operations
and maintenance expenses (including provision for major maintenance),
fuel costs, and other operating expenses and provide a minimum annual
debt service coverage on the Bonds of 1.37:1 and an average debt
service coverage over the outstanding term of the Bonds of 1.66:1,
as shown on Table I-1.
<PAGE>
<TABLE>
<CAPTION>
Table I-1
SUMMARY OF PROJECT DEBT COVERAGE RATIONS
Panda-Rosemary Cogeneration Project
Pre-Tax Total Debt
Total Total Operating Debt Service Coverage
Year Revenues Expenses Cashflow Costs Ratio
----- ----------- ---------- ----------- ------------ --------
<S> <C> <C> <C> <C> <C>
7/96-12/96[1] $15,633,000 $ 4,731,000 $10,902,000 $ 7,928,000 1.38
1997 $30,151,000 $ 9,976,000 $20,175,000 $14,694,000 1.37
1998 $32,288,000 $11,567,000 $20,721,000 $14,627,000 1.42
1999 $32,670,000 $13,190,000 $19,480,000 $13,314,000 1.46
2000 $34,377,000 $14,542,000 $19,835,000 $13,242,000 1.50
2001 $36,189,000 $16,127,000 $20,062,000 $13,164,000 1.52
2002 $38,456,000 $18,009,000 $20,447,000 $13,058,000 1.57
2003 $41,244,000 $20,268,000 $20,976,000 $12,943,000 1.62
2004 $44,549,000 $23,032,000 $21,517,000 $12,825,000 1.68
2005 $48,512,000 $26,433,000 $22,079,000 $12,669,000 1.74
2006 $42,050,000 $26,334,000 $15,716,000 $ 8,710,000 1.80
2007 $41,179,000 $26,320,000 $14,859,000 $ 8,534,000 1.74
2008 $41,128,000 $26,356,000 $14,772,000 $ 8,352,000 1.77
2009 $40,751,000 $26,524,000 $14,227,000 $ 8,154,000 1.74
2010 $40,249,000 $26,746,000 $13,683,000 $ 7,946,000 1.72
2011 $41,487,000 $27,927,000 $13,560,000 $ 7,772,000 1.74
2012 $42,623,000 $29,252,000 $13,371,000 $ 7,565,000 1.77
2013 $43,969,000 $30,732,000 $13,237,000 $ 7,328,000 1.81
2014 $45,459,000 $32,403,000 $13,056,000 $ 7,042,000 1.85
2015 $47,137,000 $34,288,000 $12,849,000 $ 6,356,000 2.02
</TABLE>
Average coverage over the term of the Bonds is 1.66:1.
[1] Reflects one-half year of operations following the planned debt
refinancing in July 1996.
PART II
INTRODUCTION
The Panda-Rosemary Cogeneration Project (Project) is a 180-MW combined cycle
cogeneration plant located in Roanoke Rapids, North Carolina. Burns &
McDonnell has been involved with the Project since the initial development of
the Project in 1988. Burns & McDonnell's responsibility throughout the
development, financing, construction, start-up, and operation of the Project
has been to serve as independent engineer to Project investors. Burns &
McDonnell was originally retained by Heller Financial as their independent
engineer for a $6 million subordinated bridge loan. This bridge loan was
necessary to continue Project development efforts required to meet an
aggressive construction loan closing schedule. Based upon the Project
economics and the technical input provided by Burns & McDonnell, Heller
Financial provided the bridge loan despite the fact that key Project
development activities, such as the air permit, were not yet complete. As
anticipated, development activities were eventually completed and long- term
Project financing was placed through The Fuji Bank.
Since 1989, Burns & McDonnell has served as independent engineer for The Fuji
Bank. Throughout Project design, construction, start-up, and six years of
operation, Burns & McDonnell has continuously provided independent engineer
services to the Project lenders. These services have included:
- Monthly site visits and preparation of monthly progress
reports during Project construction and start-up activities.
- Participation in Project performance test activities to
confirm that actual Project performance met or exceeded
guarantees included in the turnkey construction contract.
- Review of Project spare parts inventories and planned
maintenance activities in comparison with generally-accepted
industry practices.
- Additional efforts following commercial operation of the
Project have included:
- review of monthly operating reports
- annual site visits
- preparation of annual reports to assess the Project
Most recently, Burns & McDonnell has been retained to provide independent
engineer services for potential investors in the Project refinancing.
During February 1996, Burns & McDonnell conducted a Project site visit. The
primary purpose of this site visit was to assess recent Project condition,
operations and maintenance activities, and to report any observed deficiencies
that could potentially have a detrimental impact upon existing or future
Project investors. The following report is based on Burns & McDonnell's long
association with the Project, the February 1996 site visit, and recent
telephone conversations with the Project participants, permitting agencies and
others.
PART III
FACILITY DESCRIPTION
PROJECT SITE
The Panda-Rosemary Project is a nominal 180-MW combined cycle, intermediate-
load cogeneration plant located in Roanoke Rapids, North Carolina. It is
located adjacent to the Bibb Company which is the Project's thermal host. The
Project commenced commercial operation on December 27, 1990. The Project is
presently operated by University Technical Services under contract to Panda-
Rosemary.
MECHANICAL EQUIPMENT AND SYSTEMS
The Project consists of two combustion turbines, each with a heat recovery
steam generator (HRSG). The facility also has one steam turbine along with two
auxiliary boilers, two absorption chillers, and miscellaneous equipment.
Combustion turbine No. 1 is a General Electric (GE) PG7111(EA) ("Frame 7").
Its nominal output is 83.5 megawatts. The first Frame 7 combustion turbines
were commercially available in 1984. Combustion turbine No. 2 is a General
Electric (GE) PG6541(B) ("Frame 6"). Its nominal output is 38.3 megawatts.
The first Frame 6 combustion turbines were introduced in 1978. Both combustion
turbines use natural gas as a primary fuel and No. 2 distillate fuel as a
backup. Both combustion turbines are capable of on-line fuel changes such
that potential fuel switch outages may be avoided.
HRSG No. 1 receives exhaust from the Frame 7 combustion turbine. It is a three-
pressure HRSG manufactured by Nooter Erikson. The high-pressure section of
the boiler operates at 1,455 psig and has a steam flow capacity of 265,540
pounds per hour. The intermediate-pressure section operates at 215 psig and
the low pressure section operates at 25 psig. The HRSG connected to the
Frame 6 combustion turbine (Unit No. 2) is also a three-pressure HRSG
manufactured by Nooter Erikson. The three pressures of HRSG No. 2 are the
same as those listed for Unit No. 1. The highpressure steaming capacity of
HRSG No. 2 is 130,470 pounds per hour.
The Project has one Asea Brown Boveri (ABB) "VAX" steam turbine. It has an
output of 60 megawatts. The high pressure and low pressure sections of the
turbine are split and operate at different speeds. The high pressure steam
turbine rotor and generator are coupled with a reducing gear while the low
pressure steam turbine rotor and generator are direct coupled. The turbine
has two controlled extractions at 200 and 40 psig and has a single 200 psig
controlled induction.
Two auxiliary boilers are on-site. These boilers supply steam to the thermal
host while the Project is not dispatched to Virginia Electric and Power Company
(VEPCO). The auxiliary boilers were manufactured by ABCO Industries, Inc.
They have the capacity to produce an annual average 65,000 pounds of steam
per hour at 150 psi.
The Project has two 1,000-ton absorption chillers manufactured by York
International. These chillers supply chilled water to the thermal host. Each
absorption chiller has a chilled water flow of 240 gpm at a cold water outlet
temperature of 45 degrees F.
For the reader's convenience and enhanced understanding of Project operations,
a simplified Process Flow diagram is shown in Figure III-1. Natural gas is
transported to the facility via three pipeline systems interconnected to a 10-
mile dedicated pipeline owned by the Project. These redundant gas
interconnections provide flexibility and added assurance of gas supply should
problems evelop in any of the pipeline systems.
The Project is also capable of operating on fuel oil during times when natural
gas is curtailed. Fuel oil is transported to the Project by trucks. The
Project has two million gallons of onsite fuel oil storage capacity capable of
operating the Project at full load for 168 hours. This fuel oil storage
capacity was installed by Panda to conform to requirements included in the
Power Purchase Agreement.
The condensate system consists of a 100,000-gallon demineralized water tank, a
100,000-gallon condensate storage tank, and an online conductivity meter for
determining condensate return quality. The operator may close the condensate
return valve when the conductivity meter indicates the return condensate
quality is unacceptable.
Bibb typically returns good-quality condensate. However, Bibb returns only
about 10 percent of the condensate from the steam it receives from Panda.
Panda uses on-site water treatment equipment to produce demineralized water
required as make-up to the HRSG's.
ENVIRONMENTAL CONTROL EQUIPMENT
The Project has several environmental control features including the following:
- Combustion turbines equipped with water injection capability
for NOx control.
- A berm around each fuel oil tank for spill containment.
- Silencers installed in the relief valve stacks for noise
attenuation.
- An oil-water separator for wastewater treatment.
FIGURE III-1
PANDA-ROSEMARY
SIMPLIED PROCESS
DIAGRAM
- Sanitary water treatment for pH control in a neutralization
tank before it is discharged. No hazardous waste is
produced on the site.
Panda and Burns & McDonnell know of no soil or groundwater contamination.
ELECTRICAL INTERTIE
The Project ties into the VEPCO grid system. The Project intertie with VEPCO
is rated 300 MVA at 230 kV. The interconnection point is the 230 kV
underground cable termination structure (205704) located inside the Project's
substation. See Figure III-2 for the electrical interconnection one-line.
Note that North Carolina Power (NCP) is an operating utility in the VEPCO
system and they are considered to be the same entity in this report.
SITE VISIT
Burns & McDonnell conducted a site visit on February 29, 1996. Figure III-3 is
a site plan. Photographs from the site visit are also included.
FIGURE III-2
PANDA-ROSEMARY
ELECTRICAL INTERCONNECTIONS
ONE-LINE DIAGRAM
HAWKER SIDDELEY POWER ENGINEERING INC.
PLOT PLAN
PANDA-ROSEMARY CORPORATION
BIBB ROSEMARY COGENERATION FACILITY
PART IV
OPERATING HISTORY
The operating history of the Project is summarized in Table IV-1.
<TABLE>
<CAPTION>
TABLE IV-1
PANDA-ROSEMARY PROJECT OPERATING HISTORY
1991 1992 1993 1994 1995
-------- ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
Total Hours Dispatched 1,174 377 324 764 2,224
Total Electricity Produced (MW) 129,042 44,759 31,938 76,652 234,866
Summer Dependable Capacity (MW) 161 161 165 165 165
Winter Dependable Capacity (MW) 192 198 198 198 198
Forced Outage Days 12 1 16 12 18
Total Steam Produced (1,000 lbs) 330,832 377,940 429,915 364,786 291,170
Total Chilled Water Produced
(1,000 ton-hrs) N/A 4,028 3,694 4,123 4,069
</TABLE>
ELECTRIC POWER PRODUCTION
The dispatch hours for 1994 were greater than the previous two years due
primarily to an amendment to the Power Purchase Agreement (PPA). Panda
negotiated this amendment to the PPA as a means of increasing dispatch hours
which allows equipment exercising to be increasingly conducted while on-line.
During 1995, the Project was dispatched for 2,224 hours. A fueling
arrangement Included in a 1993 amendment to the PPA provided specific
provisions for the Project to use natural gas provided directly from VEPCO.
VEPCO had two extended forced outages at their other gas fired plants, which
resulted in gas being redirected to the Project. These two forced outages
were caused by unusual problems with major components at VEPCO's facilities.
For planning purposes, these extended outages by VEPCO are not anticipated in
the future. Approximately 54 percent of the total dispatch hours in 1995 were
due to this fuel arrangement contained in the amendment. Approximately
1,0002,000 dispatched hours would have been normal for 1995 based on typical
conditions.
STEAM PRODUCTION
The Bibb Company (Bibb) is the Project's thermal host. Bibb is a major
manufacturer of terry cloth towels. Bibb's Rosemary mill currently produces
approximately thirty percent of the terry cloth towels produced in the United
States. Steam and chilled water required by Bibb are supplied by the Project.
Steam and chilled water sales to Bibb are required to satisfy the requirements
of the Public Utilities Regulatory Policy Act (PURPA) as described further
below under the heading "Qualifying Facility Compliance". The amount of steam
produced in the HRSGs considered for PURPA requirements during 1995 was 88,852
klb. The total exported steam summarized in Table IV-1 includes both
extraction steam and steam produced by the auxiliary boilers. Bibb also
purchases chilled water for its Rosemary Complex textile mill. Chilled water
is derived from steam through the use of absorption chillers. While the steam
and chilled water sales contract between Panda and Bibb has no "minimum take"
requirement, Bibb is obligated to purchase all of its steam and chilled water
requirements from the Project.
In the event Bibb discontinued operations, Panda would need to either find a
new steam host, install a self-performing steam host, or have the Project
reclassified as an Exempt Wholesale Generator (EWG). Since the Bibb plant is
a major manufacturer of terry cloth towels, it is unlikely the plant will
discontinue operations under its current ownership or with future ownership.
In the event the Project's steam host did discontinue operations, two other
potential steam hosts in Roanoke Rapids include Champion Paper and Halifax
Paperboard. Although it is technically feasible to deliver steam to these
facilities, a relatively long steam pipeline directed through town would be
required. This would present additional economic and sociologic challenges to
the Project. As an alternative, Panda may build a distilled water plant or a
similar facility to replace Bibb as the steam host. This would allow the
Project to continue operation as a Qualifying Facility under PURPA.
Panda currently has a water distillation plant as the thermal host at their
Brandywine, MD facility. Because Panda has complete control over the steam
production and usage, PURPA requirements can be met without sacrificing heat
rate on output performance.
The Brandywine distilled water plant process uses steam from the Project to
evaporate effluent water into a vapor. Vapor released from the liquid is
condensed in a water-cooled condenser to produce distilled water. A complete
installed distilled water plant budget price for the Rosemary facility would
be approximately $2,000,000. This cost estimate appears reasonable for this
type of facility.
Burns & McDonnell believes Bibb will remain a viable steam host into the
foreseeable future. However, if they discontinue operations of the facility,
the Project has a sufficient back-up plan in the form of a distilled water
facility that is viable and cost effective.
AVAILABILITY
The facility was dispatched to VEPCO for 137 days during 1995. There were 18
forced-outage days declared and 26 scheduled maintenance-outage days declared.
The following table summarizes the information reported by Panda to the
National Electric Reliability Council - Generating Availability Data System
(NERC-GADS):
<TABLE>
<CAPTION>
TABLE IV-2
PROJECT AVAILABILITY HISTORY
1991 1992 1993 1994 1995
-------- ------- ------ ------ -------
<S> <C> <C> <C> <C> <C>
Dispatched MWh 129,052 45,056 31,930 76,652 234,866
Period Hours 8,760 8,760 8,760 8,760 8,760
Forced MWh 23,908 3,857 60,357 44,193 23,890
Unavailable MWh 148,534 122,844 164,828 133,619 141,719
Hours Unavailable 906.1 776.2 949.4 768.4 818.9
Capacity Factor 7.56% 2.88% 1.98% 6.60% 14.56%
Equivalent Forced Outage Rate 1.40% 0.25% 3.75% 3.80% 1.48%
Equivalent Availability 91.29% 92.14% 89.76% 88.50% 91.22%
Availability 90.64% 91.16% 89.13% 88.36% 90.65%
</TABLE>
HEAT RATE
Hawker Siddely, the turnkey construction contractor, guaranteed the facility
would have a heat rate of 7,936 Btu/kWh (LHV) at full load, burning natural
gas, at an ambient temperature of 90 degrees F. This equates to a higher
heating value (HHV) heat rate of 8,809 Btu/kWh. Hawker Siddeley achieved its
performance guarantees during initial performance tests of the Project.
The contract heat rate as determined by the PPA is 8,900 Btu/kWh (HHV). The
weighted average heat rate for the Project, including start-ups and shut-
downs, is summarized in Table IV-3. The Project heat rates included in Table
IV-3 do not include a credit for thermal production of steam.
TABLE IV-3
ANNUAL AVERAGE HEAT RATE
Year Btu/kWh (HHV)
------- ----------------
1991 9,024
1992 9,290
1993 9,550
1994 9,459
1995 9,652
The actual heat rate of the Project has historically been greater than the
construction contract guaranteed heat rate. There are several factors that
contribute to this. First and foremost, the construction contract guaranteed
heat rate should be viewed in the proper context. The heat rate guarantee of
8,809 Btu/kWh (HHV) represents an achievable Project heat rate for full load,
steady state conditions with all equipment in "as new" condition. Second,
normal day-to-day operation of the Project has varied substantially from these
conditions with the plant being operated as a peaking facility with numerous
starts and stops and with the Frame 6 (highest heat rate) being dispatched
on-line for nearly twice the number of hours as the Frame 7 (lowest heat
rate), partially due to equipment availability and PURPA efficiency
requirements. The thermal efficiency of a combined cycle unit is lower
during the start-up period than when operating at full load. As a result,
more hours of full load operation and longer run times between starts would
improve annual heat rate. Table IV-4 illustrates the average fired hours per
start over the history of the Project.
<TABLE>
<CAPTION>
TABLE IV-4
AVERAGE FIRED HOURS PER START
1992 1993 1994 1995
------- ------- ------- --------
<S> <C> <C> <C> <C>
Frame 6 17 26 30 19
Frame 7 27 11 10 11
Plant Average 22 17 18 15
</TABLE>
The pattern of dispatch by VEPCO has require numerous start-ups and shut-downs
during the past three years. This has caused an increase in the heat rate
during this time period. All other variables constant, if the dispatch
pattern by VEPCO is modified to schedule more hours per start, the heat rate
of the Project would improve. According to our estimate, a heat rate
improvement of 1.6 percent may be realized if the hours per start are
increased from 20 to 50. It is unlikely the hours per start will be any less
than what has been experienced recently.
The PPA allows VEPCO to dispatch the Project at full load with both combustion
turbines or to use the Frame 6 or Frame 7 separately. The Frame 7 is more
efficient than the Frame 6. As a result the overall Project heat rate will
improve as the Frame 7 is operated more often. The more efficient Frame 7
combustion turbine was unavailable at times during 1993 and 1994 due to
problems with certain power transformers. During this period, the Project
operated its Frame 6 gas turbine which increased the average heat rate. In
addition, during 1994 and 1995, additional hours of only Frame 6 operation were
incurred in connection with Owner Requested Generation (ORG) runs necessary to
meet certain PURPA requirements. (See "Qualifying Facility Compliance"
section).
During 1994 and 1995, the Frame 7 operated 38 percent of the total fired hours
of both units. If the number of hours of operation had been equal between the
two machines, Burns & McDonnell would expect the heat rate to improve.
According to our estimate, if the Frame 7 would have been used for the same
number of hours as the Frame 6, a 3 to 4 percent heat rate improvement would
have been realized during the last two years.
Generation load also affects heat rate. The design heat rate was calculated
at full load output. Unit efficiency decreases as the output from the unit
decreases. Therefore, to realize the best heat rate possible for the Project,
the optimum operation is both the Frame 6 and Frame 7 together at full load.
VEPCO implemented Automatic Generation Control (AGC) in 1995. The purpose of
AGC was to use the help of computers to enhance economic dispatch of the
entire VEPCO system. During 1995 under AGC, the facility was ramped from full
load to minimum load and back to full load at the maximum ramp rate as often
as seven times in one hour. The PPA requires Panda to achieve a load ramp
rate of 16 MW/min. Panda has indicated most VEPCO power purchase agreements
are much less stringent with load ramp rates typically in the range of
5 MW/min.
Excessive load ramp rates are not consistent with prudent utility practices and
are detrimental to heat rate optimization. Panda has discussed this issue
with VEPCO and is optimistic less severe load ramp rates can be negotiated in
accordance with prudent utility practices. As an electric utility, VEPCO
should understand Panda's concerns regarding load ramp rates. Panda is
optimistic VEPCO will therefore be willing to reach agreement on this issue.
QUALIFYING FACILITY COMPLIANCE
The Public Utilities Regulatory Policies Act (PURPA) of 1978 established
certain criteria which must be met before facilities such as the Project may
be deemed as a Qualifying Facility (QF) as defined under PURPA. As a QF, the
Project may generate and sell electric power under legal constraints that are
far less stringent than those for electric utilities such as VEPCO. The
Federal Energy Regulatory Commission has jurisdiction over all QFs.
To maintain status as a QF under PURPA regulations, the Project must meet
minimum annual requirements for thermal output and efficiency. For any QF,
thermal output must be at least 5 percent of the total energy output of the
facility.
PURPA defines thermal output as that useful cogenerated thermal energy
delivered to the host facility while the Project is being dispatched. For the
Project, we estimate thermal efficiency as follows:
(Send-Out Steam, lbs)(1,094 Btu/lb) + (Send-Out Chilled
Thermal Water, Tons Hrs)(12,000 Btu/Ton Hr)
-----------------------------------------------
Output = Net Thermal and Electrical Output
PURPA also requires the Project to meet an efficiency standard ("FERC
Efficiency") of at least 45 percent (Note: This standard is at least 42.5
percent if the project produces more than 15 percent thermal output). FERC
Efficiency is defined under the regulations as the useful electric output
plus half the useable thermal energy output divided by the lower heating
value of fuel input for any calendar year.
FERC (Useful Net Electric Output) + (one-half)(Useful Thermal Output)
---------------------------------------------------------
Efficiency = Energy Input
Thermal Output and FERC Efficiency calculations are based upon operating
results while the Project is being dispatched to provide electric power to the
utility. The operation of the auxiliary boilers, therefore, has no impact upon
the calculations. Also, thermal and electrical energy sold or purchased by the
Project while the Project is not being dispatched has no impact on the above
calculations.
Another important criteria is that the Project must meet PURPA requirements
based only upon annual operating results. If the Project is unable to meet
PURPA requirements for one or more months, the Project will still be in
compliance so long as the annual operating results calculated at the end of
each calendar year meet PURPA requirements.
Panda reviews the PURPA requirements monthly. The early October 1994 review
revealed a shortage in the percentage of thermal heat exported to the host.
For the first time since commercial operations, Panda requested an ORG run
with VEPCO to raise the percentage of thermal energy exported to the host.
After the October 1994 ORG, the Project's annual operating results satisfied
all PURPA requirements.
Again in October 1995 an ORG was required to satisfy PURPA requirements. For
388 hours in October 1995, the plant ran below full capacity to ensure meeting
PURPA requirements. This was unfortunate that the October 1995 ORG was needed
because the project had been exceeding PURPA requirements until July when Bibb
shut down during an extended Project dispatch period. During this period,
annual thermal efficiency fell below PURPA requirements because a substantial
amount of electric power was produced without any steam sales (see "thermal
output" equation above). If Bibb would have taken steam during this period,
the October 1995 ORG may not have been required.
The project has shown the ability to effectively schedule ORG runs as needed
to facilitate meeting annual PURPA requirements or to test equipment after
maintenance outages.
Results from prior years of Project operation are summarized in Table IV-5.
<TABLE>
<CAPTION>
TABLE IV-5
HISTORY OF QUALIFYING FACILITY STATUS
1992 1993 1994 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
Thermal Output 25.46% 16.30% 16.17% 15.18%
FERC Efficiency 48.39% 44.35% 44.70% 43.38%
Meet PURPA Yes Yes Yes Yes
</TABLE>
ENVIRONMENTAL COMPLIANCE
The Project records were reviewed to determine the status of compliance with
existing permit conditions and reporting requirements. Our review included
interviews with Panda representatives at the plant, and confirmation of the
responses by representatives of the City of Roanoke Rapids and the North
Carolina Department of Environmental Management (NCDEM). Based on our review,
it appears the Project is currently operating in compliance with all permit
conditions.
Air Permit
The existing air permit (No. 6586R2) required initial compliance stack testing
of nitrogen oxides, carbon monoxide, and particulate matter. It also requires
submittal of quarterly reports. Compliance tests, which were performed in
March 1991, showed the facility to be operating in compliance with the limits
set in the permit. There is no continuous emission monitoring required.
The permit also restricts the hours of operation of the two combustion turbine
units. Currently, the Project does not include SCR pollution control
equipment. If the fired hours exceed 2,000 for the Frame 7 combustion turbine
unit or the combined fired hours of both combustion turbines exceed 4,000, the
permit requires an SCR to be installed. In 1995, the Frame 6 unit had 2,220
fired hours, while the Frame 7 had 1,473 fired hours. Quarterly reports have
been submitted to the NCDEM regional office in Raleigh indicating the hours of
operation, fuel use, etc. The NCDEM indicated that the reports have been
satisfactory.
Clean Air Act Amendments
Title V of the Clean Air Act Amendments of 1990 requires that Panda obtain an
operating permit for the Project. In North Carolina, the mandated application
submittal date is third quarter 1996. Panda has retained a consultant to
review the operating permit requirements for the Project, to conduct an
emissions inventory of all plant emission sources, and to prepare the actual
permit application. They indicate the work is scheduled to be completed ahead
of the mandatory submittal date.
NPDES Permit
The Project has a valid National Pollution Discharge Elimination System
(NPDES) permit (NC0079014) which pertains to discharges related to the tank
farm containment area. The Project has submitted monthly reports as required
by the NPDES permit.
Panda currently discharges to the wastewater treatment facility to the City of
Roanoke Rapid's sanitary sewer system under a separate permit (No. 007) with
the Roanoke Rapids Sanitary District. The city requires monthly reports which
document the results of an effluent sampling program. Eight separate sampling
locations are included in the program. The Sanitary District has indicated
that there have been a few minor violations of the permit onditions since the
facility became operational in 1991. These violations reportedly were related
to plant start-up and appear to have been remedied to the point where future
violations are not expected.
Spill Prevention
Panda has indicated a Spill Prevention and Countermeasure Control (SPCC) plan
is currently in place for the Project.
No other unresolved permitting issues were identified during our investigation.
FORCED OUTAGES
In 1991, 12 Forced Outage Days, as defined under the PPA, were taken to
correct the Project's typical first year problems including: HRSG drum level
control problems, hot well level control problems, intermittent steam turbine
trips, and boiler tube failures. None of these problems have reoccurred.
Only one forced outage day was declared in 1992.
In 1993, 16 Forced Outage Days were experienced primarily due to failure in
the Frame 7 step-up power transformer bushings. The bushings were replaced
and minor modifications were made to the transformers to prevent reoccurrence.
In 1994, 12 Forced Outage Days were taken due to freeze problems during the
record January cold snap (3-day outage) and failure of an auxiliary power
transformer (9-day outage). Panda recognized improvements were needed in
these two areas. Actions taken to prevent future problems are described under
"Equipment and System Design Changes."
In 1995, 18 Forced Outage Days were experienced due to equipment problems on
the Combustion Turbines. The specific equipment causing the failures were the
hydraulic fluid lines to the gas control valve, generator breaker, electrical
synchronization equipment, and a faulty cable. A contributing factor to these
equipment failures was the unusually high ramp loading and unloading rates
imposed on the Project by the VEPCO AGC. These ramp load rates and the
inconsistency with prudent utility practices are discussed above in more
detail under the heading "Heat Rate".
Other events causing forced outages in 1995 were tube leaks in HRSG No. 1 and
a steam turbine trip caused by a sharp increase in steam demand by Bibb. High
axial vibration was a concern on the Frame 6 turbine, although it did not
cause a forced outage and was corrected in the fall of 1995.
MAJOR MAINTENANCE ACTIVITIES
Maintenance activities performed recently include:
- Reviewing of the heat tracing system to prevent overloading
feeder circuits.
- Repair of boiler feedwater heater tube leaks.
- Installation of new insulation and heat tracing on the Bibb
steam pressure control valve.
- Installation of sidewalks throughout the facility to improve
maintenance access.
- Installation of a skywalk for direct access across the top
landings of the HRSGs.
- Modification of Frame 6 bearing pedestal to reduce vibration.
- Planned outage which included inspection and scheduled
maintenance of both combustion turbines, both HRSGs,
steam turbine, and transformers T-1 and T-2.
EQUIPMENT AND SYSTEM DESIGN CHANGES
Freeze Protection
Weaknesses in freeze protection were responsible for a forced outage
experienced during January 1994. Actions taken by Panda to improve Project
freeze protection since January 1994 include the following:
- Heat tracing replacements - A portion of the Project's heat
tracing, a type of electric heating element used to prevent lines
from freezing, was and is being replaced by Panda with an improved
type of heat tracing. The new heat tracing to be installed will be
self-limiting such that it will not overheat and boil out the
fluid contained in the tubing.
- Transmitter relocations - A number of pressure transmitters were
originally installed at grade, requiring long tubing runs that
were susceptible to freezing in the event of cold weather and an
open circuit on the heat tracing or boiling in the event of
overheating by the heat tracing. These transmitters were relocated
closer to the equipment to minimize the length of tubing runs.
This should minimize freezing and boiling problems.
- Instrument air - Small diameter lines such as the tubing used to
convey compressed instrument air for Project instrumentation and
controls are typically susceptible to freezing in cold weather.
Moisture in the compressed air may freeze, causing the Project
controls to become inoperable. To minimize this problem, Panda
has modified their nitrogen blanketing system (see discussion
below regarding this new system) to allow the use of nitrogen in
the instrument air system. If properly purged with nitrogen
before the onset of cold weather, freezing in the instrument air
system should be avoided with the use of moisture-free nitrogen
which has a very low dew point of -70 degrees F. A new vent valve
and filter were installed in the compressed air system to prevent
moisture in the lines. This change should also minimize freezing
in the instrument air system.
- New deaerator level controls - Panda has added a new deaerator
level control column to replace the conventional transmitter and
tubing used previously. This is in response to frozen deaerator
controls that were a significant problem during the recent cold
ambient temperatures.
- Steam heat under HRSGs - Panda has enclosed the area under the
HRSGs and installed a bare steam line network under each HRSG.
This provides heat for the water and steam lines previously exposed
to the elements.
- Cold weather operating procedures - Panda operates the combustion
turbines at zero load whenever temperatures inside the HRSG drop
below 33 degrees F. Other systems found to be susceptible to
freezing are also operated during off-line conditions as a means of
building up heat in these systems.
- Enclosures - Panda has built enclosures around the air compressors
and raw water pumps. Provisions for heating these buildings have
been made to help prevent freezing in these systems.
Forced outages due to freezing will be minimized due to Panda's freeze
protection improvement plan. Burns & McDonnell feels Panda's freeze protection
improvements are prudent.
Transformers
A two-week forced outage was experienced in September 1993 due to a failure in
generator step-up transformer T-1. This transformer is connected to the
General Electric Frame 7 combustion turbine and is capable of being switched to
the steam turbine. The failure was attributed to the failure of the low
voltage bushing.
The bushing manufacturer has supplied new bushings with larger oil reservoirs.
These larger reservoirs are designed to allow for more expansion thereby
reducing the operating pressures within the bushing to acceptable levels. In
addition, ventilation ducts have been added to the transformer connection box
to reduce the temperatures inside the bushing housing, further reducing
internal bushing pressure due to thermal expansion of the oil inside the
bushing.
It appears the problems associated with these bushings have been eliminated
and should not be a problem in the future.
Transformer T-3 failed to meet performance guarantees while still under
warranty. In early 1994, T-3 was sent to ABB for extensive repair and was
re-installed at the Project site in April 1995. Panda has essentially a new
transformer in this location now.
Corrosion Protection
The Project currently operates as a peaking unit that typically goes on line
only during peak demand periods. This type of service requires equipment to
sit idle during extended periods between peak demands. During these periods
when the Project is not on line, internal heat transfer surfaces are
susceptible to corrosion due to the presence of oxygen. Panda has found
corrosion pitting has occurred in the steam drum, evidence of oxygen-related
corrosion.
In an effort to enhance the long term reliability of the Project, Panda
installed a nitrogen blanketing system in 1994. When the Project is taken off
line, equipment will return to ambient temperatures and pressures such that,
if left unchecked, the infiltration of atmospheric oxygen is possible. The
nitrogen blanketing system introduces compressed nitrogen to the waterside
internal components of the Project and maintains a positive pressure on these
components to prevent the infiltration of atmospheric oxygen. This reduces
the amount of corrosion experienced by the Project during off-line periods.
Similar systems have been used effectively to reduce corrosion at many other
operating facilities.
In Burns & McDonnell's opinion, the installation of the nitrogen blanketing
system should be viewed by the Project investors as a positive event. Panda's
efforts to install this system serves as a good indication that Panda is
concerned about the long term economic viability of the Project.
Chiller #2
Chilled water production was not initiated until March 1992. The turnkey
contractor for the chilled water system aborted attempts to make the system
work properly. An alternate contractor redesigned and modified the chilled
water system. Presently, the system operates satisfactorily. However, there
were damages to Chiller #2 from the original installation which cause the
system to not achieve full output. Operating data indicates Chiller #2 will
only produce approximately 50 to 60 percent of nominal capacity in its
current condition. Panda has recently tried unsuccessfully to correct the
problem by replacing damaged absorber tubes.
A pinhole leak in the original vacuum pump may have contributed to the
problems experienced by Chiller #2. The performance of the lithium bromide
chillers is dependent on a good vacuum existing in the machine. The
performance of Chiller #2 was improved when a new high volume vacuum pump was
purchased and used during start-up to initially pull the required vacuum.
However, this improvement is not perceived as a permanent solution. Chiller
#2 is budgeted to be replaced in 1996 at an estimated cost of $770,000.
Fire Protection
During 1993 Panda installed additions to the fire protection system including
installation of the following:
- New sprinklers around the steam turbine lube oil area to meet the
recommendation of Hartford Steam Boiler Insurance Co.
- Bearing protection system for the steam turbine.
- Wet suppression system on the subfloor under the steam turbine.
- Deluge system on the south side of both the administration building
and power house.
- Additional fire water pump at the cooling tower basin to support
the capacity of above mentioned systems.
These fire protection system improvements were made to lower the insurance
premium payments.
Oil Conditioning
During 1995, the Facility installed a permanent lube oil conditioning (filter
and coalescent) unit for the steam turbine. Conditioning the lube oil will
extend the life of the turbine by preventing foreign particles and water from
entering the bearings. This is increasingly important because of the high
rotational speed of the ABB VAX turbine.
Panda has plans in place to purchase a portable lube oil conditioner for the
combustion turbines. This portable unit will condition the combustion turbine
lube oil by a batch process. Consistent with the steam turbine, this
commitment to improving lube oil quality will improve bearing life and reduce
overall long-term turbine maintenance costs.
Ultraviolet Protection
Panda has completed covering the cable trays previously exposed to the
atmosphere. If left to the elements, cable insulation degrades from UV
exposure from direct sunlight. The covered cable trays should improve cable
life. This project completion should be viewed as a step to reduce cable
replacement costs in the future.
Chemical Feed Lines
Panda has added chemical feed lines from the bulk chemical storage to the
water treatment building. In the past, facility personnel were required to
carry chemicals in buckets to the water treatment equipment. This improvement
will cut down a chemical waste and, more importantly, improve safety at the
Project.
Automatic Generation Control
In July 1995 Automatic Generation Control was introduced to the Project. In
this operating mode, North Carolina Power (NCP), a wholly-owned subsidiary of
VEPCO and operating under VEPCO direction, uses computers to calculate the
most economic load for the Project and sends this information directly to the
Project's Distributed Control System (DCS). The DCS controls the plant
generation to match the continuously updated set point signal sent by NCP's
computer. Since the AGC was a new and complex control system, much tuning
needed to be done on the system. During the first week of operation, a
facility transducer caused an 11 MW error in its output set point
determination. The AGC is able to fluctuate load within a window between 80
percent and 100 percent of full load. Per the contract operating procedures,
AGC often changes load at a ramp rate of 8 MW/min up and 16 MW/min down.
These ramp rates are as much as four times the maximum ramp rate guidelines
used at other combined cycle facilities. The severe loading and shedding
ramp rates cause higher stresses on the plant equipment and, as discussed,
increased the number of forced outages incurred during 1995. Also, the
overall plant heat rate suffers because of the part load operation that AGC
requires.
O&M CONTRACTOR
University Technical Services (U-TECH) is responsible for managing the day-to-
day operations and administrative functions of the Project. U-TECH is under
contract to provide these services until December 1996. Panda's alternatives
after December 1996 include extending the term of the present agreement or
requesting bids for a new O&M contract. The current O&M contract calls for a
fixed monthly payment of approximately $130,000 and includes bonuses and
penalties based on availability and other factors. Panda should be able to
replace this agreement when it expires in 1996 without a significant change in
the basic terms. U-TECH has 19 employees on-site to operate and maintain the
facility.
It is the opinion of Burns & McDonnell that U-TECH's performance has been
adequate during the term of the O&M contract in force and that U-TECH has not
suffered any operational deficiencies as a result of its ownership by EMCOR,
the restructured entity established during the Chapter 11 bankruptcy of JWP
Inc., the former owner.
TRAINING PROGRAM
Since many of the current site employees were also working at the Project in
1990, they were able to take part in the Hawker Siddeley training program
during the start-up of the plant. Panda has frequent training sessions for the
U-TECH personnel. In November 1994, Panda held a training session for the
U-TECH employees on gas turbines. All new employees are required to go through
a 3- to 6-month training period with day shift personnel. After this period of
training, employees are allowed to work other shifts on their own without
constant supervision. Safety meetings are held monthly for all employees.
PART V
EQUIPMENT ASSESSMENT
OPERATING CONDITION
The current operating condition of the Project is very good with only a few
exceptions. The Unit No. 2 chiller is operating at reduced capacity, as
previously discussed. Another exception may be the recent problems with the
Frame 7 combustion turbine. Although of some concern, steps have been taken
to remedy this situation.
Hartford Steam Boiler and Chemtreat conducted the nnual package boiler
inspection in July 1995. The Operating Certificates for the two package
boilers have been extended until July 1996.
Panda completed a scheduled maintenance outage during September 16-30, 1995.
Activities that were successfully completed include:
- Hot gas path inspection on the Frame 6 combustion turbine.
- New first stage turbine buckets on the Frame 6.
- Frame 6 generator inspection.
- Borescopic inspection of the low pressure section of the
steam turbine.
- Replacement of several boiler tubes in HRSG No. 1.
- Annual HRSG inspections.
Results of the outage indicate the equipment is generally in very good
condition. Panda chose to perform a hot gas path inspection of the Frame 6
much earlier than scheduled because new first stage turbine buckets were
provided by GE free of charge. Panda's Frame 6 was a forecast unit (built
before the order was placed). GE improved the design of the first stage
buckets shortly after the Project's Frame 6 was built, but before Panda
placed the order with GE. Therefore, GE was obligated to install the
improved first stage buckets to upgrade the turbine to its design at the time
of the order. The casing was removed to replace the buckets, so a hot gas
path inspection was performed simultaneously. Only minor wear was detected
at various points along the hot gas path. Rebuilt combustion liners and
transition pieces were reinstalled during the inspection.
An exhaust temperature spread on the Frame 7 combustion turbine has been
consistently noticed while the unit operated at full load. In attempts to
solve this problem, Panda has replaced worn or inaccurate thermocouples,
replaced fuel nozzles with rebuilds from GE, and improved the purge air check
valves. The spread in exhaust temperature has been constant and as much as 120
degrees F, however the machine is operable in this condition. GE has stated
that the spread is acceptable and does not restrict the load capability of the
machine.
MAJOR MAINTENANCE AND OVERALL PROGRAMS
Burns & McDonnell feels adequate maintenance of major pieces of rotating
equipment (i.e. the combustion turbines and the steam turbine) is crucial for
long term Project reliability. For each of these pieces of equipment,
manufacturers provide recommended maintenance activities.
Burns & McDonnell has compared the manufacturer's recommendations with Panda's
proposed maintenance schedule as summarized in Table V-1. In addition to the
items listed in Table V-1, U-TECH performs borescopic inspections of the three
turbines annually. By reviewing Table V-1, Burns & McDonnell concludes that
planned maintenance activities meet or exceed manufacturer recommendations.
It is apparent that Panda has established a maintenance schedule that will
provide major equipment maintenance activities recommended by the equipment
manufacturers. Panda's 10-year maintenance plan is regarded by plant
personnel as a living document that will be reviewed and updated periodically,
as the actual operations become known and future predications regarding
turbine operating hours and starts become more accurate. Burns & McDonnell
views this as an indication that Panda's operation and maintenance philosophy
is geared toward long term Project reliability.
Although Burns & McDonnell has not inventoried maintenance activities on every
piece of equipment for the Project, we have generally observed that U-TECH
uses an organized computerized preventative maintenance program and noted that
annual spare parts inventory counts are performed. The computer schedules and
prioritizes all preventive and corrective maintenance requests. Based upon this
program, Panda completes approximately 90 to 110 preventative maintenance
requests in one month's time and also completes 40 to 70 maintenance requests
per month. Currently, they have a backlog of around 70 maintenance requests.
To respond to maintenance requests, Panda maintains a $2 million spare parts
inventory on-site.
EQUIPMENT REPLACEMENT PROGRAM
Project operating hours are relatively low and there is currently little need
for equipment replacement. Equipment replacement is set up on an operating
hours schedule. Panda has established a ten-year program for predicting
equipment replacement based on hours of equipment operation.
The No. 2 chiller replacement is a capital project that is required despite
low operating hours. This chiller was damaged during its installation and now
needs to be replaced. The replacement of the No. 2 chiller is included in the
1996 capital expenditure budget.
<TABLE>
<CAPTION>
TABLE V-1
COMPARISON OF MANUFACTURERS' RECOMMENDATIONS
WITH 10 YEAR PLAN MAINTENANCE ACTIVITIES FOR MAJOR PIECES OF ROTATING EQUIPMENT
Panda-Rosemary Cogeneration Project
(Factored Hours)
Combustion Hot Gas Path Major Limited Major
Unit Inspection Inspection Inspection Overhaul Overhaul
- -------- ------------ ------------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
MFG Panda MFG Panda MFG Panda MFG Panda MFG Panda
----- ------ ----- ------ ----- ----- ---- ----- ---- -----
Unit 1,
Frame 7 8,000 8,000 24,000 24,000 48,000 40,000
Combustion Turbine
Unit 2,
Frame 6 12,000 8,000 24,000 24,000 48,000 48,000
Combustion Turbine
Unit 3 25,000 16,000 50,000 50,000
Steam Turbine
</TABLE>
PART VI
PROJECTED PLANT PERFORMANCE
CAPACITY
Panda is required to perform capacity tests to satisfy the requirements of the
PPA. The maximum contract capacity payments are available if the plant can
achieve 198 MW in the winter and 165 MW in the summer. The winter period is
defined as October through March. The summer period starts in April and runs
through September. If required by VEPCO, the output capacity shall be
demonstrated for 12 hours in the summer and 6 hours in the winter.
Table VI-1 presents the historical capacity test results for the Project in
summer and winter periods. As indicated in Table VI-1, the Project was
exceeded the maximum contract capacity output of 198 MW winter and 165 MW
since 1993. The Project has not been requested to demonstrate capacity limits
by VEPCO during the past two years.
<TABLE>
<CAPTION>
TABLE V1-1
HISTORICAL CAPACITY TEST RESULTS
Test Date Result Contract Maximum
------------ --------- --------------------
<S> <C> <C>
Winter 1990 185 198
Winter 1991 192 198
Winter 1992 200 198
Summer 1991 161 165
Summer 1992 161 165
Summer 1993 168 165
Summer 1994 167 165
</TABLE>
Capacity and Heat Rate Degradation
Figure VI-1 indicates General Electric's anticipated combustion turbine
capacity and heat rate degradation as a function of factored hours. At
48,000 factored hours, a major combustion turbine overhaul is performed and
capacity returns to near-new condition (typically within 0.5 percent of as-new
condition). This cycle then is continue throughout the life of the Project.
Figure VI-1 indicates: (1) the anticipated capacity derate will vary from zero
to 5.5 percent and, (2) the anticipated heat rate derate will vary from zero
to 3.0 percent between major overhauls. Burns & McDonnell has used a
straight-line capacity and heat rate derate estimation of 4 percent and 3
percent, respectively, for the life of the Project. In any given year, this
estimation of capacity and heat rate derate will be higher or lower than
actual equipment performance depending upon the number of total factored
hours since the last major overhaul.
FIGURE VI-1
HEAVY-DUTY GAS TURBINE
DEGRADATION AS A
FUNCTION OF TOTAL
FACTORED HOURS
LINE CHART
Since the Project currently has about 8,000 factored hours, Project
performance during 1995 was deemed as representative of the estimated
straight-line derate performance throughout the life of the Project (refer
to Figure VI-1). Actual Project performance in 1995 was therefore used as
the basis for projecting Project capacity and heat rate throughout the life
of the Project.
Based upon actual performance in 1995, it was assumed the Project would, on
average, continue to achieve those capacity levels included in the PPA. A
more detailed discussion of heat rate is included below.
DISPATCH
Panda amended the Power Purchase Agreement with VEPCO in 1993 to effect the
results of an energy price redetermination. The amended PPA closely matches
energy payments with energy production costs. This increased the Project
dispatch hours and allowed Panda the opportunity to increase on-line exercise
of equipment more often. Refer dispatch analysis discussion in Part IV.
The Project realized a sharp increase in dispatch hours in 1995. VEPCO
furnished the Project with natural gas from their Chesterfield 7 gas turbine
unit. Under stipulations in the PPA, Panda was required to use this fuel
displaced from the Chesterfield unit experiencing an extended forced outage.
This caused an unexpected increase in dispatch hours during 1995. The total
dispatch hours in 1995 were 2,224 compared to 760 in 1994.
Due to emission permit requirements, annual dispatch hours are of concern. If
the fired hours exceed 2,000 hours for the Frame 7 or the total combined hours
of the combustion turbines exceed 4,000 hours, an SCR or alternate pollution
control system needs to be installed to reduce NOx emissions levels.
According to forecast predictions, which we have reviewed for adequacy of the
reserve provided, this NOx reduction equipment installation will take place
in 2003.
AVAILABILITY
Availability during 1994 was hampered largely due to transformer and freeze
protection problems. Since Panda addressed these issues, the availability of
the Project in 1995 has increased to 90.65 percent from 88.36 percent.
HEAT RATE
As noted earlier, the contract heat rate determined by the PPA is 8,900
Btu/kWh (HHV). Recent operating data shows the Project has demonstrated a
full continuous load plant heat rate of 8,678 Btu/kWh (HHV) during the
spring of 1995. This demonstrates the plant's ability of achieving the PPA
heat rate when the plant is operated at continuous full load and providing
steam to the thermal host. This heat rate includes fuel that was used to
cogenerate thermal energy for the steam host. In order to fairly compare
the Project's heat rate to the contract heat rate, credit must be given for
the portion of fuel used for process steam generation. Following is a summary
of the Project's 1995 heat rate review. Specific days selected were days
when no unusual operations events occurred and the plant was either running
continuously or had a normal start-up/shut-down transition.
The dates selected were:
- May 18 - The plant was operating for the entire 24 hour period at
full load with only a short period of minimum load on all units.
The plant was not on AGC.
- July 5-6 - These days represent normal morning dispatch, start-up,
continuous operation and shut-down with both CT's for short
operational periods. This data represents a period of operation
without the thermal host. The plant operated as it would in a
"merchant plant" mode. The low pressure section of the steam
turbine was not designed to handle full throttle flow steam rate.
Therefore, large quantities of steam were being dumped to the
condenser during this period.
- October 17 - This day represents the plant under an ORG "PURPA"
run. As was mentioned earlier, Panda was forced to run for
several days in October to meet PURPA requirements. The plant
operated the Frame 6 at part load while sending steam and chilled
water to Bibb. Table VI-2 summarizes the results of the heat rate
review.
<TABLE>
<CAPTION>
TABLE V1-2
RESULTS OF HEAT RATE REVIEW
Overall Project HR Electrical Portion of HR
(Btu/kWh) (Btu/kWh)
-------------------- --------------------------
<S> <C> <C>
PPA Contract -- 8,900
May 18 8,678 8,238
1995 Year End Results 9,652 9,095
July 5-6 9,160 9,160
October 17 11,899 9,640
</TABLE>
The plant heat rate increases when the Facility is not able to provide steam
to Bibb. This is evidenced by the July 5th and 6th records in which Bibb was
down for an outage. The plant operated at a heat rate of approximately 9,160
Btu/kWh (HHV). Since Bibb did not take steam, no credit can be given to this
heat rate figure. The design of the steam turbine does not allow more steam
through the low pressure section when the steam is not exported to process.
Therefore steam must be wasted directly to the condenser instead of using the
energy in the turbine or process.
The 1995 year end adjusted heat rate was higher than the contract heat rate
due to several circumstances that occurred in 1995. They include:
- The plant operated at full load in early July while Bibb was shut
down. It was during this time when the Project lost good PURPA
standing for the year, causing the ORG run in October.
- 1995 was the first year for AGC. This system automatically ramps
the Project load from 80 percent to 100 percent based on economic
dispatch factors. The AGC system had several first year "bugs"
which contributed to lower dispatch power levels.
- The PURPA run in October was performed operating only the Frame 6
at part load.
As can be seen in Table VI-2, the Project has demonstrated excellent heat rate
for as-designed conditions of full load, cogeneration mode. Presently, two
factors prevent the Project from demonstrating this excellent heat rate
potential: (1) the reliability of the thermal host, and (2) the dispatch
pattern of VEPCO. With the normalization of these events, Burns & McDonnell
feels that the contract heat rate of 8900 Btu/kWh can be consistently
obtained.
For planning purposes during the PPA term, Burns & McDonnell believes
estimating the Project's fuel costs on the contract heat rate of 8900 Btu/kWh
is achievable, but aggressive given the recent operating history of the
Project. Burns & McDonnell has estimated a more conservative net electrical
heat rate of 8900 Btu/kWh with a corresponding overall heat rate of 9100
Btu/kWh excluding a thermal production credit. Burns & McDonnell believes
the Project can achieve these heat rate performance levels if no ORG runs are
required in the future. If the Frame 7 unit dispatch can be increased and
the operating hours per start increased while mitigating the substantial AGC
fluctuations, Burns & McDonnell believes the Project can outperform the heat
rate estimates indicated.
Following the PPA term, Panda can pursue two capital improvement alternatives
to reduce the waste of steam that would otherwise be exported to Bibb and
impact the Project's heat rate. First, the steam turbine could be modified
to accept more steam in the LP section. A change in the LP design will
decrease the heat rate to a point under the contract heat rate when operating
without a steam host.
The second alternative consists of constructing a separate condensing system
for the steam extraction which would relieve a back pressure problem with
the steam turbine when more steam is sent through the LP section. This
change would reduce the heat rate penalty of operating the Project without a
steam host. A capital cost estimate has not been developed for either of
these alternatives.
ANNUAL OPERATION AND MAINTENANCE COSTS
Annual fixed and variable operation and maintenance (O&M) costs are
characterized as follows:
- The 19 member operational staff is the primary component of fixed
O&M cost.
- The variable O&M costs consist primarily of water usage and
discharge chemicals, equipment repairs and maintenance, consumable
equipment parts, and other expenses bought through purchase orders
and open Purchase orders.
Since an increase in staff size is unlikely, we do not anticipate a
substantial increase in fixed O&M costs other than those increases due to the
inflation rate. The maintenance budget should escalate at a slightly higher
rate than inflation due to the increasing age of the facility. As the plant
ages, an increasing amount of small consumables will be needed to repair and
replace worn-out components.
As is the case with any power facility, unexpected repairs are needed. Panda
has experienced these "extraordinary" events during the past few years with
the HRSG tube leaks and transformer bushing failures. These past
"extraordinary" events have been identified and an estimated dollar amount has
been assumed. This amount, it is assumed, would escalate with inflation.
Panda's actual expenditures have historically tracked budgeted expenditures
very closely. The 1996 budget was very similar to actual 1995 expenditures
on a total cost basis.
MAJOR MAINTENANCE PROGRAMS AND COSTS
The maintenance staff at Panda is doing an excellent job of maintaining the
major pieces of rotating equipment. In many cases, the inspections are being
done at more frequent intervals than are required by the manufacturers, but
in all cases the minimum manufacturers maintenance schedules are followed.
Panda plans to continue the same inspection interval policies as evidenced
by their ten year maintenance plan. The ten year plan charts the planned
maintenance on all the major equipment until 2005.
The Project maintains a Major Maintenance Overhaul Reserve to fund equipment
overhaul costs. As indicated in Table V-1 presented previously in the
report, Panda plans for combustion inspections of the combustion turbines at a
8,000 factored hours interval, hot gas path inspections at a 24,000 factored
hours interval, and major overhauls for the Frame 6 unit at 48,000 factored
hours and 40,000 factored hours for the Frame 7 unit. Panda also schedules
periodic limited and major overhauls of the steam turbine. As noted
previously, Panda plans to meet or exceed the manufacturer's recommended
maintenance overhauls for the major equipment. Burns & McDonnell has reviewed
the current ten year maintenance plan as well as a long-term forecast of
overhaul schedules and costs. Burns & McDonnell has concluded that Panda
has appropriately planned for maintenance overhauls and the costs of the
overhauls can be met with a hourly dispatch overhaul allowance of $260 per
fired hour. This is slightly higher than the current overhaul allowance of
$220 per hour.
EQUIPMENT REPLACEMENT PROVISIONS
Since maintenance and repairs on the No. 2 chiller have been unable to restore
its capacity to the original design, plans are being made for its replacement.
Auxiliary boilers typically have a life of 25-30 years. The auxiliary boiler
at the Project is operated a large number of hours but typically operates at
less than full load. The boilers also operate on gas fuel which is easier on
the equipment than heavier fuel oils. The boilers should last 30 years,
assuming similar modes of operation and proper water chemistry practices are
followed.
Assuming the recommended maintenance activities are performed as scheduled,
the combustion turbines and steam turbines are likely to last the entire
40 year economic life of the Project. Hence, no provisions need to be made
for their replacement.
OVERALL ECONOMIC LIFE
The financial projections included in this report assume the Project will
remain in operation well beyond the term of the PPA. Burns & McDonnell has
evaluated the Project and combined cycle/combustion turbine technology as a
whole and concluded this is a reasonable assumption in the event the Project
is continuously upgraded and maintained throughout the operating life of the
Project.
Additional repairs and maintenance allowances have been included in the
Project financial projections to account for future upgrades and maintenance
that may be required to extend the economic life of the Project beyond the
expiration date of the Power Purchase Agreement. Burns & McDonnell has
concluded these allowances are reasonable. The repairs and maintenance
allowances included in the financial projections include the following:
- General Maintenance and Repairs - This allowance in the annual
Project budget accounts for normal maintenance activities required
to keep the Project functioning on a dayto-day basis. Normal parts
replacement and repairs to equipment is included in this allowance.
The allowance was prepared using historic data escalated at an
accelerated rate of eight percent annually to account for the fact
that as the plant ages, additional repairs and maintenance will be
required. The compounding effect of this accelerated escalation
rate is intended to address the potential need in the future to
perform any upgrades or maintenance activities that may be required
to extend the economic life of the Project.
- Planned Plant Maintenance Projects - These costs represent regularly-
scheduled maintenance activities on the major pieces of equipment
including both combustion turbines and the steam turbine. The
overhaul allowance to fund these planned maintenance costs has been
calculated using the projected Project dispatch hours to estimate
the frequency of regularly-scheduled maintenance activities based
upon the manufacturers' recommendations. Key examples of
maintenance activities included in this allowance are combustion
turbine hot gas path inspections and major overhauls for the
combustion turbines and steam turbine.
- Additional Maintenance Allowance - This allowance has been included
to account for unplanned, medium-to large-scaled maintenance
activities that are required due to unforeseeable events. Typically,
during the first five-year "shake-out" period of a project, a fairly
high number of these maintenance activities are required. After the
shakeout period, far fewer unplanned maintenance activities are
required until the equipment becomes old enough that components begin
to show substantial signs of wear (after about twenty years). This
allowance was calculated using historic costs during the first five
years escalated at the rate of inflation.
To assess the economic life of the Project, Burns & McDonnell has evaluated
each of the major components of the Project as described below.
Steam Turbine Rankine Cycle
Based upon past operating experience within the electric power generation
industry, it is Burns & McDonnell's professional opinion that if the Project
continues to be appropriately maintained, the steam turbine and balance of
plant equipment should have an operating life well beyond the term of the PPA.
We base this conclusion primarily upon past experience with similar steam
turbine cycles that have received proper maintenance.
Combustion Turbines Brayton Cycle
Combustion turbine technology has been commercially available for power
generation for about thirty years. As a result, we are unable to refer to a
significant number of combustion turbines that, with good maintenance
practices, have historically operated for forty years or more. The
combustion turbines should therefore be of primary concern in assessing the
remaining life of the Project.
Panda plans to continue to maintain the Project in accordance with
recommendations by the major equipment manufacturers. The combustion turbine
manufacturer, General Electric, has developed their recommended maintenance
procedures based upon the operating experience of the entire General Electric
combustion turbine fleet. Based upon past experience with this fleet, General
Electric recommends periodic inspection and, as required, replacement of
combustion turbine components. Generally speaking, the components covered by
these recommended maintenance activities include those components that are in
direct contact with the gas path. This includes all blades for the compressor
and power turbine, combustion nozzles, combustor liners, transition pieces and
related parts.
The philosophy behind these periodic inspections is to identify and repair or
replace damaged components before they have the chance to break-off and
potentially cause additional downstream damage to other internal components.
However, due to the relatively recent commercialization of combustion turbine
technology, it is not possible to use historic information to determine if
these and other components will eventually need to be replaced due to
long-term metal fatigue.
Regardless, combustion turbines are fabricated using numerous components, each
of which can be epaired or replaced. Some components are more difficult and
expensive than others to replace. For example, the "wheels" which are bolted
together to form the rotor shaft, are designed to remain in service for the
life of the equipment. While we know of very few cases where it has been
necessary to actually replace the wheels of a combustion turbine, it can be
done if required over time due to metal fatigue.
But even a worst-case scenario resulting in the need in the future to replace
certain components originally designed for the life or the equipment would not
result in the combustion turbine reaching the end of it's operating life.
Notwithstanding a catastrophic failure requiring replacement of the casing,
each combustion turbine component, including the rotor shaft, is replaceable.
PART VII
FINANCIAL ASSESSMENT OF PROJECT
POWER PURCHASE AGREEMENT
Panda's existing Power Purchase Agreement (PPA) with VEPCO has a remaining
term of 20 years, until December 27, 2015. The PPA can be extended for
additional periods if both parties agree. The existing PPA provides for fixed
capacity payments subject to capacity and availability requirements, and energy
payments based on fuel prices, variable operation and maintenance expenses,
and the Project's dispatch. VEPCO retains the right to dispatch the Project
based on relative economic dispatch criteria, subject to specified operating
limitations.
FACTORS AFFECTING PROJECT
The primary factors influencing the value of the Project include the following
and are discussed below:
- Effective Operating Service Life of the Project
- Expected Rates for Capacity and Energy
- Expected Dispatch of the Project
- Expected Operating Performance of the Project
- Expected Fuel Costs
Effective Operating Service Life of the Project
Burns & McDonnell has concluded the Project will ave an expected operating
service life well beyond the term of the PPA if properly operated and
maintained, consistent with current practices.
Expected Rates for Capacity and Energy
The Project's capacity payments are fixed by the existing PPA and are only
adjusted if the Project's demonstrated capacity changes. The contract
capacity payments for the remainder of the PPA term are presented in Table
VII-1 and illustrated graphically in Figure VII-1.
Energy charges under the existing PPA are based on the delivered cost of fuel
and the Project's variable operation and maintenance expenses. The forecasted
value of energy sales under the current PPA as estimated by ICF are presented
in Table VII-2 and illustrated graphically in Figure VII-2. The forecasted
value of energy sales under the current PPA are based on a fuel cost forecast
prepared by ICF.
TABLE VII-1
CONTRACTUAL CAPACITY CHARGES
Panda-Rosemary Cogeneration Project
Year Capacity Charge
------- -----------------
($/kW-month)
1996 [1] 12.49
1997 11.65
1998 11.65
2000 10.82
2001 10.82
2002 10.82
2003 10.82
2004 10.82
2005 10.82
2006 8.32
2007 8.32
2008 8.32
2009 8.32
2010 8.32
2011 8.32
2012 8.32
2013 8.32
2014 8.32
2015 8.32
[1] Capacity payments through 2015 are contractually
established by the PPA.
FIGURE VII-1
CONTRACTUAL CAPACITY CHARGES
Panda-Rosemary Cogeneration Project
LINE CHART
<TABLE>
<CAPTION>
TABLE VII-2
SUMMER AND WINTER GAS ENERGY CHARGES
Panda-Rosemary Cogeneration Project
Summer Winter
Year Energy Charge Energy Charge
------- -------------- --------------
($/kWh) ($/kWh)
<S> <C> <C>
1996 [1] 0.0231 0.0288
1997 0.0233 0.0293
1998 0.0237 0.0297
1999 0.0240 0.0300
2000 0.0245 0.0304
2001 0.0254 0.0317
2002 0.0264 0.0331
2003 0.0276 0.0345
2004 0.0288 0.0359
2005 0.0300 0.0373
2006 0.0320 0.0397
2007 0.0340 0.0421
2008 0.0362 0.0446
2009 0.0386 0.0475
2010 0.0411 0.0504
2011 0.0433 0.0530
2012 0.0455 0.0558
2013 0.0479 0.0588
2014 0.0505 0.0616
2015 0.0532 0.0647
</TABLE>
[1] Summer and Winter gas energy charges under the PPA term
based cost of delivered fuel and variable operation
and maintenance expenditures. Delivered fuel cost forecast
prepared by ICF.
FIGURE VII-2
SUMMER & WINTER
GAS ENERGY CHARGES
Panda-Rosemary Cogeneration Project
LINE CHART
Expected Dispatch of the Project
VEPCO controls the dispatch of the Project under the terms of the existing
PPA. urrently, VEPCO uses the Project to meet peak and intermediate capacity
and energy requirements based on economic dispatch of its generation and
power supply resources. The expected dispatch for the remainder of the PPA
term are presented in Table VII-3 and illustrated graphically in Figure
VII-3 as estimated by ICF.
Zero Dispatch Case
To illustrate the ability to repay debt service under the most extreme
dispatch case, a Project pro forma analysis has been prepared under a zero
dispatch scenario, meaning it has been assumed that the Project is mothballed
with no dispatch over the remaining life of the PPA. Although extremely
unlikely, based on recent dispatch history and also based on the ICF forecast
of dispatch for the Project, the ability to pay debt service under this zero
dispatch case is illustrated in this scenario and demonstrates strong
coverages of debt service over the remainder of the PPA.
Certain operating assumptions consistent with mothballing the Project under
this zero dispatch case have been made including: release of turbine overhaul
reserves, release of gas transmission capacity and reduction in staff
associated with reduced operations of the Project. There is no reason to
believe the zero dispatch case is likely to materialize for the Project,
especially in light of the Project's recent performance, forecasted demand
growth in VEPCO system requirements, and the Project's competitive heat rate.
The pro forma analysis associated with this case was prepared as an
illustration of the Project's ability to repay Project debt in the most
unlikely dispatch case.
Expected Operating Performance
The expected operating performance of the Project under the long-term dispatch
forecast presented in Table VII-3 is dependent upon the following factors
discussed below:
- Project Capacity
- Project Heat Rate
- Project Fixed Operating Costs
- Project Variable Operation and Maintenance Costs
- Project Overhaul Requirements
- Project Steam/Chilled Water Sales and Costs
<TABLE>
<CAPTION>
TABLE VII-3
DISPATCH ASSUMPTIONS [1]
Panda-Rosemary Cogeneration Project
Summer Winter Gas Winter Oil VEPCO Gas Total
Dispatch Dispatch Dispatch Dispatch Dispatch
Year Hours Hours Hours Hours [2] Hours Percent
- ---- --------- ---------- ---------- ----------- ----------- ---------
%
<S> <C> <C> <C> <C> <C> <C>
1996[3] 674 3 0 400 1077 12.29%
1997 625 119 0 400 1144 13.06%
1998 918 219 0 500 1637 18.69%
1999 1201 210 0 500 2030 23.17%
2000 1463 248 15 500 2326 26.55%
2001 1715 276 30 500 2621 29.92%
2002 1887 480 48 500 2915 33.28%
2003 2077 601 76 500 3354 38.29%
2004 2285 742 122 600 3749 42.80%
2005 2513 908 195 600 4216 48.13%
2006 2418 763 185 600 3966 45.27%
2007 2327 642 175 600 3744 42.74%
2008 2239 539 166 600 3544 40.46%
2009 2155 452 157 600 3364 38.40%
2010 2073 379 149 600 3201 36.54%
2011 2000 429 147 600 3176 36.26%
2012 1929 485 144 600 3158 36.05%
2013 1861 548 142 600 3151 35.97%
2014 1794 619 140 600 3153 35.99%
2015 1729 698 138 600 3165 36.13%
</TABLE>
[1] Equivalent full load dispatch hours.
[2] VEPCO gas dispatch assumptions provided by Panda.
[3] Forecast of equivalent full dispatch hours prepared by ICF.
FIGURE VII-3
DISPATCH ASSUMPTIONS
Panda-Rosemary Cogeneration Project
BAR CHART
Project Capacity: The Project's demonstrated capacity directly impacts the
capacity charge revenues contracted in the PPA. The current capacity charges
under the existing PPA are based on a net summer capacity of 165 MW and a net
winter capacity of 198 MW. The Project may be tested twice per year at
VEPCO's discretion to demonstrate its dependable capacity. The capacity
charges will be adjusted through liquidated damage payments if the Project
fails to demonstrate a net capacity output within 10 percent of the 150 MW
summer and 180 MW winter capacity levels initially contracted with VEPCO in
the PPA. Demonstrated capacity output between the minimum capacity
requirements and a maximum capacity output level equal to 110 percent of the
initial contract levels determine the capacity payments made by VEPCO during
the corresponding summer or winter period. If the demonstrated capacity of
the Project exceeds the maximum capacity levels of 165 MW in the summer and
198 MW in the winter, which represent 110 percent of the initial levels,
VEPCO is not required to pay additional capacity charges. The Project has
demonstrated summer and winter capacity output in excess of the 110 percent
limits for the last three years consecutively.
As the Project ages during the term of the PPA, the expected capacity output
will degrade in the periods between major overhauls of the combustion turbines
and steam turbine. Major overhauls of this equipment can restore the expected
capacity output to near-original levels. The Project's historical capacity
tests and capacity degradation issues were discussed in Part VI of the Report.
As noted, the Project has demonstrated summer and winter capacity output in
excess of the 110 percent limits for the last three years consecutively.
During this time period, the Project has not yet undergone amajor overhaul of
the combustion turbines and steam turbine. The first major overhaul of the
combustion turbines is scheduled for 2002. Therefore, Burns & McDonnell
concludes it is reasonable to expect that the Project can maintain the
demonstrated capacity levels at the 110 percent maximum capacity limits of the
PPA throughout the remainder of the PPA term with adequately scheduled and
completed major overhauls.
Project Heat Rate: The Project's heat rate performance directly impacts the
annual fuel costs incurred in meeting the dispatch requirements of VEPCO.
During the term of the PPA, the Project's energy payments are based on a
contract average annual heat rate of 8900 Btu/kWh, irrespective of actual heat
rate performance. If the Project exceeds the contracted heat rate
performance, the additional fuel costs are absorbed by Panda. Conversely,
improved heat rate performance directly increases Panda's margin on energy
charges.
The Project's actual heat rate performance was reviewed in Part VI of the
Report. Historically, the Project has not been able to achieve the average
annual heat rate performance of 8900 Btu/kWh, but can achieve this target
under steady-state, full load operating conditions. The specific issues
related to the Project's heat rate performance and heat rate degradation were
reviewed in Part VI of the Report.
As the Project ages during the term of the PPA, the expected heat rate
performance will also degrade in the periods between major overhauls of the
combustion turbines and steam turbine. Major overhauls of this equipment can
restore the expected heat rate performance to near original levels. The
Project has not yet undergone a major overhaul of the combustion turbines
and steam turbine. The first major overhaul of the combustion turbines is
scheduled for 2002. Burns & McDonnell has estimated the Project can maintain
an average annual electrical heat rate performance of 9100 Btu/kWh throughout
the remainder of the PPA term with adequately scheduled and completed major
overhauls.
Project Fixed Operating Costs: The Project's fixed operating costs are
generally incurred independent of the dispatch of the Project. The major
cost items include fixed fuel transportation and management services, costs
for the Project's third-party operation and maintenance contract currently
provided by University Technical Services, annual recurring maintenance and
repair costs, property taxes, insurance, administration and office costs, and
Panda's management fee. Panda provided the actual fixed operating costs in
1995, the 1996 budget, and a forecast of fixed operating costs for the
remainder of the PPA term. Burns & McDonnell reviewed the actual and
projected fixed operating costs for reasonableness and concluded the expense
projections appear adequate to account for these cost items.
The fixed operating cost forecast reflects an annual 3.0 percent escalation
for most cost components. The exceptions include property taxes, Project
maintenance costs, the Panda management fee, and firm gas transportation
costs. The property tax cost estimate is decreased 3.0 percent annually
to reflect a declining asset value. The general maintenance and repair cost
component of Project maintenance costs is escalated at an 8.0 percent annual
rate to provide a conservative allowance that the increased age of the Project
will require additional maintenance and repair expenditures over time. The
additional maintenance allowance component of Project maintenance costs is
held constant throughout the planning period. In addition, Panda will
subordinate the management fee of $480,000 annually to all other Project
operating, debt, and capital costs. Therefore, the Panda management fee has
been removed from the Project fixed operating cost forecast.
The Project's firm gas transportation costs are based on 3075 MMBtu/d firm
capacity of which 1200 MMBtu/d is currently utilized on an average annual
basis. Historically, Panda's firm transportation agreement with Transco did
not permit capacity releases. By August 1996, Panda expects to convert its
existing FTNT transportation agreement to a new FT agreement that would permit
Panda to release pipeline transportation capacity when not required by the
Project. In addition, Panda expects to bundle excess pipeline capacity with
gas purchases and sell this bundled product to recapture firm gas
transportation costs. The benefits of capacity release and bundled capacity
and gas sales are estimated to result in a 50.0% return of firm gas
transportation costs for 1800 MMBtu/d of Panda's contracted capacity of 3075
MMBtu/d. This reduction in firm gas transportation costs as estimated by
Panda has been reflected in the economic analysis by Burns & McDonnell
beginning in August 1996.
Project Variable Operation and Maintenance Expenses: The Project's variable
operation and maintenance (O&M) expenses vary directly with the dispatch of
the project and consist of electricity usage when the Project is not
dispatched, water and chemical costs, and water discharge costs. Panda
provided the actual variable O&M expenses in 1995 and a forecast of variable
O&M expenses for the remainder of the PPA term. Burns & McDonnell reviewed
the actual and projected variable O&M expenses for reasonableness and
concluded the expense projections appear adequate to account for these cost
items. The variable O&M expense forecast is based on the projected dispatch
of the Project and also reflects an annual 3.0 percent escalation of costs.
Project Overhaul Requirements: Currently, Panda provides for an overhaul
allowance of $220 for each fired hour of the Project. As noted in Part VI,
Burns & McDonnell believes the Panda maintenance staff is doing an excellent
job of maintaining the major equipment. Inspections have been done and are
planned to be done at more frequent intervals than required by the
manufacturers. Burns & McDonnell has reviewed the 10 year maintenance plan
and the long-term scheduling of the major overhauls for the combustion
turbines. Burns & McDonnell concludes that the maintenance plan and overhaul
schedule are prudent, and that the budgeted costs are reasonable. Burns &
McDonnell recommends that the overhaul allowance be slightly increased to
$260 per fired hour to cover all overhaul costs in the future.
Project Steam/Chilled Water Sales and Costs: Currently, Panda provides both
steam and chilled water to its thermal host, the Bibb Company, to maintain QF
status under PURPA. However, due to the Project's low dispatch requirements,
the thermal loads for the Bibb Company are mainly met from the operation of
auxiliary boilers. The current steam and chilled water pricing in the
Cogeneration Energy Supply Agreement provides the Bibb Company with a
significant discount on the production costs of the thermal energy. Panda
currently absorbs an annual operating loss on the sale of steam and chilled
water to the Bibb Company. The pro forma assumes this will continue
throughout the life of the Project.
Expected Fuel Costs
As noted, energy charges under the existing PPA are based on the delivered
cost of fuel and the Project's variable operation and maintenance expenses.
A long-term fuel cost forecast was prepared for Panda by ICF. The forecast
of seasonal delivered fuel costs under the current PPA as estimated by ICF
are presented in Table VII-4 and illustrated graphically in Figure VII-4.
The forecasted fuel costs under the current PPA term were directly used to
determine the resulting energy charges presented in Table VII-2.
<TABLE>
<CAPTION>
TABLE VII-4
FUEL COST ASSUMPTIONS
Panda-Rosemary Cogeneration Project
Summer Winter Winter
Year Gas Cost Gas Cost Oil Cost
------ ---------- ---------- ----------
($/MMBtu) ($/MMBtu) ($/MMBtu)
<S> <C> <C> <C>
1996 [1] $2.26 $2.92 $3.82
1997 $2.28 $2.97 $3.96
1998 $2.31 $3.00 $4.10
1999 $2.34 $3.03 $4.25
2000 $2.38 $3.07 $4.40
2001 $2.47 $3.20 $4.43
2002 $2.57 $3.35 $4.46
2003 $2.69 $3.48 $4.48
2004 $2.81 $3.63 $4.51
2005 $2.94 $3.78 $4.54
2006 $3.14 $4.03 $4.59
2007 $3.35 $4.29 $4.64
2008 $3.57 $4.55 $4.70
2009 $3.82 $4.85 $4.76
2010 $4.08 $5.16 $4.82
2011 $4.31 $5.44 $4.87
2012 $4.54 $5.74 $4.93
2013 $4.78 $6.06 $5.00
2014 $5.05 $6.35 $5.06
2015 $5.33 $6.68 $5.12
</TABLE>
[1] Fuel cost forecast prepared by ICF.
FIGURE VII-4
FUEL COST ASSUMPTIONS
Panda-Rosemary Cogeneration Project
LINE CHART
CONCLUSION
Table VII-5 presents a summary of the forecasted revenues and expenditures,
and debt coverage ratios of the Project. The summary information was taken
from a detailed economic model which is included in Exhibit A of this Report.
Table VII-6 presents a summary of the forecasted revenues and expenditures,
and debt coverage ratios of the Project with the zero dispatch scenario. The
summary information was taken from a detailed economic model which is
included in Exhibit B of this Report.
Table VII-5 indicates the Project is expected to maintain strong debt coverage
ratios throughout the twenty-year debt repayment period under the dispatch
forecast presented in Table VII-4. Table VII-6 further indicates that the
Project can also maintain adequate debt coverage ratios under an extreme zero
dispatch scenario. This is due to the Project's fixed capacity revenues
which will provide adequate revenues for the Project irrespective of dispatch
operations.
STATEMENT OF LIMITING CONDITIONS
The conclusion stated above is subject to the following limiting conditions:
- In preparation of this Report, Burns & McDonnell has relied on
operating and financial information provided by Panda and its
consultants. While we have no reason to believe that the
information provided to Burns & McDonnell by Panda and its
consultants, and upon which we have relied, is inaccurate in any
material respect, Burns & McDonnell has not independently verified
such information and cannot guarantee its accuracy or
completeness.
- This Report is prepared on the assumption that all contracts and
agreements, specifically the Power Purchase Agreement, the
Cogeneration Energy Supply Agreement, the Gas Supply Agreement,
the Fuel Supply Management Agreement, and the Gas Transportation
Agreements, as well as all statutes, regulations, rules and
permits under which the Project is currently operating will be
fully enforceable in accordance with all provisions and conditions
throughout the duration of their term. Burns & McDonnell makes no
representations or warranties and provides no opinion concerning
the enforceability or legal interpretation of such contractual,
regulatory, or legal requirements.
In addition, in preparation of this Report and the opinions expressed herein,
Burns & McDonnell has made certain assumptions with respect to conditions
which may exist in the future. While we believe the assumptions made are
reasonable for the purposes of this Report, Burns & McDonnell makes no
representation that the conditions assumed will, in fact, occur. To the
extent future conditions differ from those assumed herein or from estimates
and information provided by Panda and its consultants, the actual results
will vary from those projected.
<TABLE>
<CAPTION>
TABLE VII-5
SUMMARY OF PROJECT DEBT COVERAGE RATIOS
Panda-Rosemary Cogeneration Project
Pre-Tax Total Debt Debt
Total Total Operating Service Coverage
Year Revenues Expenses Cashflow Cost Ratio
------ ---------- ---------- ------------- ---------- ---------
<S> <C> <C> <C> <C> <C>
7/96-12/96 [1] $15,633,000 $ 4,731,000 $10,902,000 $ 7,928,000 1.38
1997 $30,151,000 $ 9,976,000 $20,175,000 $14,694,000 1.37
1998 $32,288,000 $11,567,000 $20,721,000 $14,627,000 1.42
1999 $32,670,000 $13,190,000 $19,480,000 $13,314,000 1.46
2000 $34,377,000 $14,542,000 $19,835,000 $13,242,000 1.50
2001 $36,189,000 $16,127,000 $20,062,000 $13,164,000 1.52
2002 $38,456,000 $18,009,000 $20,447,000 $13,058,000 1.57
2003 $41,244,000 $20,268,000 $20,976,000 $12,943,000 1.62
2004 $44,549,000 $23,032,000 $21,517,000 $12,825,000 1.68
2005 $48,512,000 $26,433,000 $22,079,000 $12,669,000 1.74
2006 $42,050,000 $26,334,000 $15,716,000 $ 8,710,000 1.80
2007 $41,179,000 $26,320,000 $14,859,000 $ 8,534,000 1.74
2008 $41,128,000 $26,356,000 $14,772,000 $ 8,352,000 1.77
2009 $40,751,000 $26,524,000 $14,227,000 $ 8,154,000 1.74
2010 $40,429,000 $26,746,000 $13,683,000 $ 7,946,000 1.72
2011 $41,487,000 $27,927,000 $13,560,000 $ 7,772,000 1.74
2012 $42,623,000 $29,252,000 $13,371,000 $ 7,565,000 1.77
2013 $43,969,000 $30,732,000 $13,237,000 $ 7,328,000 1.81
2014 $45,459,000 $32,403,000 $13,056,000 $ 7,042,000 1.85
2015 $47,137,000 $34,288,000 $12,849,000 $ 6,356,000 2.02
</TABLE>
Average coverage over the term of the Bonds is 1.66:1.
[1] Reflects one-half year of operations following the planned debt
refinancing in July 1996.
<TABLE>
<CAPTION>
TABLE VII-6
SUMMARY OF PROJECT DEBT COVERAGE RATIOS
ZERO DISPATCH OPTION
Panda-Rosemary Cogeneration Project
Pre-Tax Total Debt
Total Total Operating Debt Service Coverage
Year Revenues Expenses Cashflow Costs Ratio
- ------- ---------- ---------- ---------- ------------- --------
<S> <C> <C> <C> <C> <C>
7/96-12/96 [1] $14,088,500 $2,748,500 $11,340,000 $ 7,928,000 1.43
1997 $26,343,000 $5,497,000 $20,846,000 $14,694,000 1.42
1998 $26,326,000 $5,553,000 $20,773,000 $14,627,000 1.42
1999 $24,494,000 $5,598,000 $18,896,000 $13,314,000 1.42
2000 $24,493,000 $5,689,000 $18,804,000 $13,242,000 1.42
2001 $24,512,000 $5,799,000 $18,713,000 $13,164,000 1.42
2002 $24,509,000 $5,928,000 $18,581,000 $13,058,000 1.42
2003 $24,507,000 $6,064,000 $18,443,000 $12,943,000 1.42
2004 $24,504,000 $6,205,000 $18,299,000 $12,825,000 1.43
2005 $24,451,000 $6,355,000 $18,096,000 $12,669,000 1.43
2006 $18,973,000 $6,572,000 $12,401,000 $ 8,710,000 1.42
2007 $18,969,000 $6,806,000 $12,163,000 $ 8,534,000 1.74
2008 $18,964,000 $7,045,000 $11,919,000 $ 8,352,000 1.43
2009 $18,959,000 $7,308,000 $11,651,000 $ 8,154,000 1.43
2010 $18,955,000 $7,585,000 $11,370,000 $ 7,946,000 1.43
2011 $18,970,000 $7,830,000 $11,140,000 $ 7,772,000 1.43
2012 $18,965,000 $8,108,000 $10,861,000 $ 7,565,000 1.43
2013 $18,959,000 $8,375,000 $10,584,000 $ 7,328,000 1.44
2014 $18,943,000 $8,673,000 $10,270,000 $ 7,042,000 1.44
2015 $18,853,000 $8,983,000 $ 9,870,000 $ 6,356,000 1.55
</TABLE>
[1] Reflects one-half year of operations following the planned debt
refinancing in July 1996.
PART VIII
CONCLUSIONS
This report summarizes Burns & McDonnell's efforts to assess the condition,
operating history, and pro forma operating projections of the 180-MW Panda-
Rosemary cogeneration project operating in Roanoke Rapids, North Carolina.
These efforts have been performed on behalf of potential Project investors.
PROJECT CONDITION
Overall, the Project is in very good condition. The Project has a competent,
conscientious operation and maintenance staff that has developed a long-term
Project maintenance program that is consistent with manufacturer's
recommendations and generally-accepted practices within the electric power
generation industry. Burns & McDonnell knows of no significant technical
problems with the Project that should be of concern to potential investors.
Burns & McDonnell concludes that the Project would have an expected operating
service life well beyond the term of the PPA if properly operated and
maintained, consistent with current practices.
Respectfully submitted,
/s/ BURNS & MCDONNELL
-----------------------------------
<PAGE>
Exhibit A
Project Pro Forma
Burns & McDonnell
94-433-4-001 PANDA
Panda Energy Corporation
Alternative: Case with ICF Dispatch Projections
Panda-Rosemary Cogen Project Refinancing
File Name: CASEICF3.WK4
********************************************************************************
26-Jul-96 Page 1
11:43 AM
<PAGE>
OPERATING ASSUMPTIONS
Planning Period
Base Year: 1996
PPA Final Year: 2015
PPA Remaining Term: 20 years
Planning Period: 20 years
Rounding Precision: -3
<TABLE>
<CAPTION>
Capacity Assumptions
--------------------
Summer Summer Winter Winter
Demonstrated Capacity Contract Demonstrated Capacity Contract
Year Capacity Degradation Capacity Capacity Degradation Capacity
---- -------- ----------- -------- -------- ----------- --------
(MW) (%) (MW) (MW) (%) (MW)
<S> <C> <C> <C> <C> <C> <C>
1996 174.0 0.00% 165.0 198.0 0.00% 198.0 674
1997 174.0 0.00% 165.0 198.0 0.00% 198.0
1998 174.0 0.00% 165.0 198.0 0.00% 198.0
1999 174.0 0.00% 165.0 198.0 0.00% 198.0
2000 174.0 0.00% 165.0 198.0 0.00% 198.0
2001 174.0 0.00% 165.0 198.0 0.00% 198.0
2002 174.0 0.00% 165.0 198.0 0.00% 198.0
2003 174.0 0.00% 165.0 198.0 0.00% 198.0
2004 174.0 0.00% 165.0 198.0 0.00% 198.0
2005 174.0 0.00% 165.0 198.0 0.00% 198.0
2006 174.0 0.00% 165.0 198.0 0.00% 198.0
2007 174.0 0.00% 165.0 198.0 0.00% 198.0
2008 174.0 0.00% 165.0 198.0 0.00% 198.0
2009 174.0 0.00% 165.0 198.0 0.00% 198.0
2010 174.0 0.00% 165.0 198.0 0.00% 198.0
2011 174.0 0.00% 165.0 198.0 0.00% 198.0
2012 174.0 0.00% 165.0 198.0 0.00% 198.0
2013 174.0 0.00% 165.0 198.0 0.00% 198.0
2014 174.0 0.00% 165.0 198.0 0.00% 198.0
2015 174.0 0.00% 165.0 198.0 0.00% 198.0
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Dispatch Assumptions
--------------------
Summer Gas Winter Gas Winter Oil VEPCO Gas Total
Dispatch Summer Dispatch Winter gas Dispatch Winter Gas Dispatch VEPCO Gas Dispatch
Year Hours(1) Output Hours(1) Output Hours(1) Output Hours(1)(2) Output Hours(1) Percent
- ---- -------- ------ -------- ------ -------- ------ ----------- ------ -------- -------
(MWh) (MWh) (MWh) (MWh) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996 674 111,210 3 594 0 0 400 66,000 1077 12.29%
1997 625 103,125 119 23,562 0 0 400 66,000 1144 13.06%
1998 918 151,470 219 43,362 0 0 500 82,500 1637 18.69%
1999 1210 199,650 320 63,360 0 0 500 82,500 2030 23.17%
2000 1463 241,395 348 68,904 15 2,970 500 82,500 2326 26.55%
2001 1715 282,975 376 74,448 30 5,940 500 82,500 2621 29.92%
2002 1887 311,355 480 95,040 48 9,504 500 82,500 2915 33.28%
2003 2077 342,705 601 118,998 76 15,048 600 99,000 3354 38.29%
2004 2285 377,025 742 146,916 122 24,156 600 99,000 3749 42.80%
2005 2513 414,645 908 179,784 195 38,610 600 99,000 4216 48.13%
2006 2418 398,970 763 151,074 185 36,630 600 99,000 3966 45.27%
2007 2327 383,955 642 127,116 175 34,650 600 99,000 3744 42.74%
2008 2239 369,435 539 106,722 166 32,868 600 99,000 3544 40.46%
2009 2155 355,575 452 89,496 157 31,086 600 99,000 3364 38.40%
2010 2073 342,045 379 75,042 149 29,502 600 99,000 3201 36.54%
2011 2000 330,000 429 84,942 147 29,106 600 99,000 3176 36.26%
2012 1929 318,285 485 96,030 144 28,512 600 99,000 3158 36.05%
2013 1861 307,065 548 108,504 142 28,116 600 99,000 3151 35.97%
2014 1794 296,010 619 122,562 140 27,720 600 99,000 3153 35.99%
2015 1729 285,285 698 138,204 138 27,324 600 99,000 3165 36.13%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Electric Heat Assumptions(3) Aux. Boiler Steam/Chilled Water Assumptions
---------------------------- -------------------------------------------
Demonstrated Contract Steam C. Water Steam
Heat Heat Rate Heat Production Steam Production C. Water Heat
Year Rate Degradation Rate Hours Production Hours Production Requirement
- ---- ---- ----------- ---- ----- ---------- ----- ---------- -----------
(Btu/kWh) (%) (Btu/kWh) (pph) (ton-hr) (Btu/lb)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1996 8900 0.00% 8900 7800 50,000 4000 1010 1714
1997 8900 0.00% 8900 7800 50,000 4000 1010 1714
1998 8900 0.00% 8900 7800 50,000 4000 1010 1714
1999 8900 0.00% 8900 7800 50,000 4000 1010 1714
2000 8900 0.00% 8900 7800 50,000 4000 1010 1714
2001 8900 0.00% 8900 7800 50,000 4000 1010 1714
2002 8900 0.00% 8900 7800 50,000 4000 1010 1714
2003 8900 0.00% 8900 7800 50,000 4000 1010 1714
2004 8900 0.00% 8900 7800 50,000 4000 1010 1714
2005 8900 0.00% 8900 7800 50,000 4000 1010 1714
2006 8900 0.00% 8900 7800 50,000 4000 1010 1714
2007 8900 0.00% 8900 7800 50,000 4000 1010 1714
2008 8900 0.00% 8900 7800 50,000 4000 1010 1714
2009 8900 0.00% 8900 7800 50,000 4000 1010 1714
2010 8900 0.00% 8900 7800 50,000 4000 1010 1714
2011 8900 0.00% 8900 7800 50,000 4000 1010 1714
2012 8900 0.00% 8900 7800 50,000 4000 1010 1714
2013 8900 0.00% 8900 7800 50,000 4000 1010 1714
2014 8900 0.00% 8900 7800 50,000 4000 1010 1714
2015 8900 0.00% 8900 7800 50,000 4000 1010 1714
</TABLE>
(1) Dispatch hour forecast represents equivalent full load dispatch hours
incorporating planned and forced outage factors.
(2) VEPCO gas dispatch forecast during PPA term provided by Panda.
(3) Net electrical generation heat rate including credit from thermal
production.
<PAGE>
FUEL COST ASSUMPTIONS
Escalation 1996-2015 ICF Forecast
<TABLE>
<CAPTION>
Summer Gas Cost
---------------
SSG SGT SGT SGT SR1 SR2 SRX Summer Summer Summer
Gulf Spot Transco Panda NCG Transco NCNG Swing Gas Gas Gas Gas
Year Price IT Pipeline IT Mgt. Fee Retainage Retainage Retainage Charge Charge Cost Margin Margin
- ---- ----- -- ----------- -------- --------- --------- --------- ------ ------ ---- ------ ------
($/MMBtu) ($/MMBtu) ($/MMBtu) ($/MMBtu) (%) (%) (%) ($/MMBtu) ($/kWh) ($/MMBtu) ($/MMBtu) ($/kWh)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996 $1.79 $0.34 $0.26 $0.04 3.79% 2.00% 3.00% $2.59 $0.02307 $2.26 $0.33 $0.00297
1997 $1.81 $0.34 $0.27 $0.04 3.79% 2.00% 3.00% $2.62 $0.02335 $2.28 $0.34 $0.00304
1998 $1.84 $0.35 $0.27 $0.04 3.79% 2.00% 3.00% $2.66 $0.02372 $2.31 $0.35 $0.00312
1999 $1.85 $0.36 $0.28 $0.04 3.79% 2.00% 3.00% $2.69 $0.02398 $2.34 $0.36 $0.00320
2000 $1.88 $0.37 $0.29 $0.04 3.79% 2.00% 3.00% $2.75 $0.02447 $2.38 $0.37 $0.00329
2001 $1.96 $0.38 $0.30 $0.04 3.79% 2.00% 3.00% $2.86 $0.02542 $2.47 $0.38 $0.00339
2002 $2.05 $0.38 $0.31 $0.04 3.79% 2.00% 3.00% $2.97 $0.02642 $2.57 $0.39 $0.00351
2003 $2.15 $0.39 $0.32 $0.04 3.79% 2.00% 3.00% $3.10 $0.02757 $2.69 $0.41 $0.00363
2004 $2.26 $0.40 $0.33 $0.04 3.79% 2.00% 3.00% $3.23 $0.02877 $2.81 $0.42 $0.00375
2005 $2.37 $0.42 $0.34 $0.04 3.79% 2.00% 3.00% $3.37 $0.03001 $2.94 $0.44 $0.00388
2006 $2.55 $0.43 $0.35 $0.04 3.79% 2.00% 3.00% $3.59 $0.03198 $3.14 $0.45 $0.00404
2007 $2.75 $0.43 $0.36 $0.04 3.79% 2.00% 3.00% $3.83 $0.03404 $3.35 $0.47 $0.00421
2008 $2.95 $0.44 $0.37 $0.04 3.79% 2.00% 3.00% $4.07 $0.03620 $3.57 $0.49 $0.00438
2009 $3.18 $0.45 $0.38 $0.04 3.79% 2.00% 3.00% $4.34 $0.03859 $3.82 $0.51 $0.00456
2010 $3.41 $0.47 $0.39 $0.04 3.79% 2.00% 3.00% $4.62 $0.04110 $4.08 $0.53 $0.00475
2011 $3.61 $0.48 $0.40 $0.04 3.79% 2.00% 3.00% $4.86 $0.04326 $4.31 $0.55 $0.00493
2012 $3.83 $0.48 $0.41 $0.04 3.79% 2.00% 3.00% $5.11 $0.04552 $4.54 $0.58 $0.00512
2013 $4.05 $0.49 $0.43 $0.04 3.79% 2.00% 3.00% $5.38 $0.04787 $4.78 $0.60 $0.00531
2014 $4.30 $0.51 $0.44 $0.04 3.79% 2.00% 3.00% $5.67 $0.05048 $5.05 $0.62 $0.00552
2015 $4.55 $0.52 $0.45 $0.04 3.79% 2.00% 3.00% $5.98 $0.05321 $5.33 $0.64 $0.00573
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Winter Gas Cost
---------------
WSG Panda WGT WR1 WR2 WR2 WRX
Appala- WGT WGT Pipe- NGC Transco CNG NCNG Swing Gas Winter Winter Winter Winter
chian Transco CNG line Mgt. Retain- Retain- Retain- Retain- Gas Gas Gas Gas
Year Price IT IT IT Fee age age age age Charge Charge Cost Cost Margin Margin
- ---- ----- -- -- -- --- --- --- --- --- ------ ------ ---- ---- ------ ------
(------------$/MMBtu-------------) (%) (%) (%) (%) ($/MMBtu) ($/kWh)($/MMBtu) ($/kWh) ($/MMBtu) ($/kWh)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996 $2.28 $0.24 $0.21 $0.26 $0.04 1.97% 2.28% 2.00% 3.00% $3.23 $0.02878 $2.92 $0.02596 $0.31673 $0.00282
1997 $2.31 $0.24 $0.21 $0.27 $0.04 1.97% 2.28% 2.00% 3.00% $3.29 $0.02932 $2.97 $0.02642 $0.32541 $0.00290
1998 $2.34 $0.25 $0.21 $0.27 $0.04 1.97% 2.28% 2.00% 3.00% $3.33 $0.02967 $3.00 $0.02669 $0.33403 $0.00297
1999 $2.36 $0.25 $0.21 $0.28 $0.04 1.97% 2.28% 2.00% 3.00% $3.37 $0.03001 $3.03 $0.02695 $0.34288 $0.00305
2000 $2.39 $0.26 $0.22 $0.29 $0.04 1.97% 2.28% 2.00% 3.00% $3.42 $0.03044 $3.07 $0.02731 $0.35196 $0.00313
2001 $2.50 $0.26 $0.23 $0.30 $0.04 1.97% 2.28% 2.00% 3.00% $3.56 $0.03169 $3.20 $0.02846 $0.36345 $0.00323
2002 $2.62 $0.27 $0.23 $0.31 $0.04 1.97% 2.28% 2.00% 3.00% $3.72 $0.03311 $3.35 $0.02977 $0.37563 $0.00334
2003 $2.74 $0.28 $0.24 $0.32 $0.04 1.97% 2.28% 2.00% 3.00% $3.87 $0.03447 $3.48 $0.03102 $0.38789 $0.00345
2004 $2.86 $0.29 $0.25 $0.33 $0.04 1.97% 2.28% 2.00% 3.00% $4.03 $0.03587 $3.63 $0.03231 $0.40055 $0.00356
2005 $2.98 $0.30 $0.26 $0.34 $0.04 1.97% 2.28% 2.00% 3.00% $4.19 $0.03733 $3.78 $0.03365 $0.41361 $0.00368
2006 $3.21 $0.30 $0.25 $0.35 $0.04 1.97% 2.28% 2.00% 3.00% $4.46 $0.03967 $4.03 $0.03584 $0.42962 $0.00382
2007 $3.45 $0.30 $0.26 $0.36 $0.04 1.97% 2.28% 2.00% 3.00% $4.73 $0.04211 $4.29 $0.03814 $0.44622 $0.00397
2008 $3.69 $0.31 $0.26 $0.37 $0.04 1.97% 2.28% 2.00% 3.00% $5.02 $0.04465 $4.55 $0.04053 $0.46305 $0.00412
2009 $3.95 $0.32 $0.27 $0.38 $0.04 1.97% 2.28% 2.00% 3.00% $5.33 $0.04745 $4.85 $0.04317 $0.48088 $0.00428
2010 $4.22 $0.33 $0.28 $0.39 $0.04 1.97% 2.28% 2.00% 3.00% $5.66 $0.05038 $5.16 $0.04594 $0.49936 $0.00444
2011 $4.46 $0.34 $0.29 $0.40 $0.04 1.97% 2.28% 2.00% 3.00% $5.95 $0.05298 $5.44 $0.04838 $0.51726 $0.00460
2012 $4.73 $0.35 $0.30 $0.41 $0.04 1.97% 2.28% 2.00% 3.00% $6.27 $0.05585 $5.74 $0.05108 $0.53622 $0.00477
2013 $5.01 $0.36 $0.31 $0.43 $0.04 1.97% 2.28% 2.00% 3.00% $6.61 $0.05884 $6.06 $0.05389 $0.55585 $0.00495
2014 $5.28 $0.37 $0.30 $0.44 $0.04 1.97% 2.28% 2.00% 3.00% $6.93 $0.06163 $6.35 $0.05651 $0.57572 $0.00512
2015 $5.58 $0.36 $0.31 $0.45 $0.04 1.97% 2.28% 2.00% 3.00% $7.27 $0.06472 $6.68 $0.05941 $0.59675 $0.00531
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Winter Fuel Oil Cost
--------------------
Delivered Panda Winter Winter Winter
Fuel Oil Handling Oil Oil Fuel Oil Oil
Year Price Charge Charge Charge Usage Cost Margin Margin
- ---- ----- ------ ------ ------ ----- ---- ------ ------
($/MMBtu) ($/MMBtu) ($/MMBtu) ($/kWh) (%) ($/MMBtu) ($/MMBtu) ($/kWh)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1996 $4.05 $0.10 $4.14 $0.03686 80.00% $3.82 $0.32219 $0.00287
1997 $4.21 $0.10 $4.31 $0.03833 80.00% $3.96 $0.34700 $0.00309
1998 $4.38 $0.10 $4.48 $0.03985 80.00% $4.10 $0.37759 $0.00336
1999 $4.55 $0.11 $4.66 $0.04144 80.00% $4.25 $0.40979 $0.00365
2000 $4.73 $0.11 $4.84 $0.04309 80.00% $4.40 $0.44134 $0.00393
2001 $4.73 $0.11 $4.84 $0.04309 80.00% $4.43 $0.41551 $0.00370
2002 $4.73 $0.11 $4.84 $0.04309 80.00% $4.46 $0.38604 $0.00344
2003 $4.73 $0.11 $4.84 $0.04309 80.00% $4.48 $0.35809 $0.00319
2004 $4.73 $0.11 $4.84 $0.04309 80.00% $4.51 $0.32905 $0.00293
2005 $4.73 $0.11 $4.84 $0.04309 80.00% $4.54 $0.29888 $0.00266
2006 $4.73 $0.11 $4.84 $0.04309 80.00% $4.59 $0.24961 $0.00222
2007 $4.73 $0.11 $4.84 $0.04309 80.00% $4.64 $0.19805 $0.00176
2008 $4.73 $0.11 $4.84 $0.04309 80.00% $4.70 $0.14432 $0.00128
2009 $4.73 $0.11 $4.84 $0.04309 80.00% $4.76 $0.08489 $0.00076
2010 $4.73 $0.11 $4.84 $0.04309 80.00% $4.82 $0.02271 $0.00020
2011 $4.73 $0.11 $4.84 $0.04309 80.00% $4.87 ($0.03204) ($0.00029)
2012 $4.73 $0.11 $4.84 $0.04309 80.00% $4.93 ($0.09269) ($0.00082)
2013 $4.73 $0.11 $4.84 $0.04309 80.00% $5.00 ($0.15601) ($0.00139)
2014 $4.73 $0.11 $4.84 $0.04309 80.00% $5.06 ($0.21484) ($0.00191)
2015 $4.73 $0.11 $4.84 $0.04309 80.00% $5.12 ($0.27998) ($0.00249)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
VEPCO Gas Cost
--------------
MGT Panda VEPCO VEPCO Plant FA VEPCO VEPCO VEPCO VEPCO
Management Pipeline Gas Gas Variable NCNG Nomination Gas Nomination Gas
Year Fee Charge Charge Charge O&M Costs Retainage Fee Charge Fee Cost Margin
- ---- --- ------ ------ ------ --------- --------- --- ------ --- ---- ------
($/MMBtu) ($/MMBtu) ($/MMBtu) ($/kWh) ($/kWh) (%) ($/day) ($/kWh) ($/day) ($/kWh) ($/kWh)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996 $0.04 $0.13 $0.17 $0.00150 $0.00222 2.00% $ 7,500 $0.00391 $ 7,500 $0.00011 $0.00380
1997 $0.04 $0.13 $0.17 $0.00153 $0.00229 2.00% $ 7,500 $0.00402 $ 7,500 $0.00011 $0.00390
1998 $0.04 $0.14 $0.18 $0.00157 $0.00236 2.00% $ 9,375 $0.00412 $ 9,375 $0.00011 $0.00401
1999 $0.04 $0.14 $0.18 $0.00161 $0.00243 2.00% $ 9,375 $0.00423 $ 9,375 $0.00011 $0.00412
2000 $0.04 $0.14 $0.18 $0.00164 $0.00250 2.00% $ 9,375 $0.00434 $ 9,375 $0.00011 $0.00423
2001 $0.04 $0.14 $0.18 $0.00164 $0.00258 2.00% $ 9,375 $0.00442 $ 9,375 $0.00011 $0.00431
2002 $0.04 $0.14 $0.18 $0.00164 $0.00266 2.00% $ 9,375 $0.00450 $ 9,375 $0.00011 $0.00439
2003 $0.04 $0.14 $0.18 $0.00164 $0.00274 2.00% $11,250 $0.00458 $11,250 $0.00011 $0.00447
2004 $0.04 $0.14 $0.18 $0.00164 $0.00282 2.00% $11,250 $0.00466 $11,250 $0.00011 $0.00455
2005 $0.04 $0.14 $0.18 $0.00164 $0.00290 2.00% $11,250 $0.00475 $11,250 $0.00011 $0.00464
2006 $0.04 $0.14 $0.18 $0.00164 $0.00299 2.00% $11,250 $0.00484 $11,250 $0.00011 $0.00473
2007 $0.04 $0.14 $0.18 $0.00164 $0.00308 2.00% $11,250 $0.00493 $11,250 $0.00011 $0.00482
2008 $0.04 $0.14 $0.18 $0.00164 $0.00317 2.00% $11,250 $0.00503 $11,250 $0.00011 $0.00491
2009 $0.04 $0.14 $0.18 $0.00164 $0.00327 2.00% $11,250 $0.00512 $11,250 $0.00011 $0.00501
2010 $0.04 $0.14 $0.18 $0.00164 $0.00337 2.00% $11,250 $0.00522 $11,250 $0.00011 $0.00511
2011 $0.04 $0.14 $0.18 $0.00164 $0.00347 2.00% $11,250 $0.00533 $11,250 $0.00011 $0.00521
2012 $0.04 $0.14 $0.18 $0.00164 $0.00357 2.00% $11,250 $0.00543 $11,250 $0.00011 $0.00532
2013 $0.04 $0.14 $0.18 $0.00164 $0.00368 2.00% $11,250 $0.00554 $11,250 $0.00011 $0.00543
2014 $0.04 $0.14 $0.18 $0.00164 $0.00379 2.00% $11,250 $0.00565 $11,250 $0.00011 $0.00566
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Auxillary Boiler Steam/Chilled Water Fuel Cost
----------------------------------------------
Texas Steam Steam
Gulf Spot Transco GRI/ACA NCG Transco CNG Gas NCNG Gas Gas Steam
Year Price Commodity Surcharge Mgt. Fee Retainage Retainage Retainage Retainage Cost Cost Charge Margin
- ---- ----- --------- --------- -------- --------- --------- --------- --------- ---- ---- ------ ------
($/MMBtu) ($/MMBtu) ($/MMBtu) ($/MMBtu) (%) (%) (%) (%) ($/MMBtu) ($/klbs) ($/klbs) ($/klbs)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996 $1.79 $0.03 $0.02 $0.04 3.79% 2.28% 2.00% 1.00% $2.05 $3.51 $1.15 ($2.36)
1997 $1.81 $0.03 $0.02 $0.04 3.79% 2.28% 2.00% 1.00% $2.07 $3.55 $1.15 ($2.40)
1998 $1.84 $0.03 $0.02 $0.04 3.79% 2.28% 2.00% 1.00% $2.10 $3.60 $1.15 ($2.45)
1999 $1.85 $0.03 $0.02 $0.04 3.79% 2.28% 2.00% 1.00% $2.11 $3.62 $1.15 ($2.47)
2000 $1.88 $0.03 $0.02 $0.04 3.79% 2.28% 2.00% 1.00% $2.15 $3.68 $1.15 ($2.53)
2001 $1.96 $0.03 $0.02 $0.04 3.79% 2.28% 2.00% 1.00% $2.24 $3.83 $1.15 ($2.68)
2002 $2.05 $0.03 $0.02 $0.04 3.79% 2.28% 2.00% 1.00% $2.34 $4.01 $1.15 ($2.86)
2003 $2.15 $0.03 $0.02 $0.04 3.79% 2.28% 2.00% 1.00% $2.45 $4.20 $1.15 ($3.05)
2004 $2.26 $0.03 $0.02 $0.04 3.79% 2.28% 2.00% 1.00% $2.56 $4.39 $1.15 ($3.24)
2005 $2.37 $0.03 $0.02 $0.04 3.79% 2.28% 2.00% 1.00% $2.68 $4.60 $1.15 ($3.45)
2006 $2.55 $0.03 $0.02 $0.04 3.79% 2.28% 2.00% 1.00% $2.88 $4.94 $1.15 ($3.79)
2007 $2.75 $0.03 $0.02 $0.04 3.79% 2.28% 2.00% 1.00% $3.10 $5.32 $1.15 ($4.17)
2008 $2.95 $0.03 $0.02 $0.04 3.79% 2.28% 2.00% 1.00% $3.32 $5.69 $1.15 ($4.54)
2009 $3.18 $0.03 $0.02 $0.04 3.79% 2.28% 2.00% 1.00% $3.57 $6.12 $1.15 ($4.97)
2010 $3.41 $0.03 $0.02 $0.04 3.79% 2.28% 2.00% 1.00% $3.83 $6.56 $1.15 ($5.41)
2011 $3.61 $0.03 $0.02 $0.04 3.79% 2.28% 2.00% 1.00% $4.04 $6.93 $1.15 ($5.78)
2012 $3.83 $0.03 $0.02 $0.04 3.79% 2.28% 2.00% 1.00% $4.29 $7.35 $1.15 ($6.20)
2013 $4.05 $0.03 $0.02 $0.04 3.79% 2.28% 2.00% 1.00% $4.53 $7.76 $1.15 ($6.61)
2014 $4.30 $0.03 $0.02 $0.04 3.79% 2.28% 2.00% 1.00% $4.79 $8.21 $1.15 ($7.06)
2015 $4.55 $0.03 $0.02 $0.04 3.79% 2.28% 2.00% 1.00% $5.07 $8.69 $1.15 ($7.54)
</TABLE>
<PAGE>
PROJECT FINANCING ASSUMPTIONS
Equal
Financing Sources of Funds Annual
Refinancing Debt Service
----------- ------------
DEBT FINANCING:
First Mortage Bonds:
Percentage Financed 85.63%
Principal Amount $111,400,000 $11,879,000
Interest Rate 8.63%
Term 20.0
Years of Interest Only 0.0
Debt Service Reserve Fund
(% of Principal) 7.26%
Financing Fees 2.69%
Subordinate Debt A:
Percentage Financed 0.00%
Principal Amount $0 $0
Interest Rate 9.00%
Term 20.0
Years of Interest Only 0.0
Debt Service Reserve Fund
(% of Principal) 0.00%
Financing Fees 0.00%
OTHER FINANCING SOURCES:
Existing Debt Service
Reserve Fund $4,117,388
Existing Turbine Overhaul
Reserve $931,032
Existing Reimbursement
Obligation Account $8,247,605
Existing Pollution Control
Account $5,256,983
Existing Spare Parts
Account $113,737
Existing Revenue Account $27,763
-------
Total Other Financing
Sources $18,694,508
TOTAL SOURCES OF FUNDS $130,094,508
Financing Uses of Funds
REFINANCING COSTS::
Operating Account $868,226
Defeasance of Taxable Revenue
Bonds $103,209,600
PROJECT COSTS:
Pollution Control Reserve $5,256,983
Turbine Overhaul Reserve $942,632
FINANCING COSTS
Debt Service Reserve $8,090,714
Fees and Expenses $3,000,000
Partial Redemption of FMCC
Rosemary Interest $8,726,353
TOTAL USES OF FUNDS $130,094,508
<PAGE>
Custom Principal
Amortization Schedules
----------------------
First Mortgage Subordinate
Year Bonds Debt A
- ---- ----- ------
1996 2,752,798 0
2997 5,500,608 0
1998 5,992,178 0
1999 5,092,966 0
2000 5,472,948 0
2001 5,879,990 0
2002 6,293,568 0
2003 6,737,102 0
2004 7,215,320 0
2005 7,696,926 0
2006 4,292,216 0
2007 4,491,704 0
2008 4,704,828 0
2009 4,919,192 0
2010 5,142,758 0
2011 5,422,034 0
2012 5,691,114 0
2013 5,952,686 0
2014 6,188,248 0
2015 6,030,816 0
====================================
111,400,000
<PAGE>
<TABLE>
<CAPTION>
DEBT SERVICE CALCULATIONS 50.00%
1996 1997 1998 1999 2000 2001 2002 2003
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
First Mortgage Bonds:
Beginning Balance 111,400,000 108,647,202 103,146,594 97,224,416 92,131,450 86,658,502 80,778,512 74,484,944
Interest 5,175,000 9,192,911 8,704,848 8,220,881 7,769,322 7,284,115 6,763,589 6,206,423
Principal 2,752,798 5,500,608 5,922,178 5,092,966 5,472,948 5,879,990 6,293,568 6,737,102
Debt Service 7,927,798 14,693,519 14,627,026 13,313,847 13,242,270 13,164,105 13,057,157 12,943,525
Ending Balance 108,647,202 103,146,594 97,224,416 92,131,450 86,658,502 80,778,512 74,484,944 67,747,842
Subordinated Debt A:
Beginning Balance 0 0 0 0 0 0 0 0
Interest 0 0 0 0 0 0 0 0
Principal 0 0 0 0 0 0 0 0
Debt Service 0 0 0 0 0 0 0 0
Ending Balance 0 0 0 0 0 0 0 0
TOTAL DEBT SERVICE
Interest 5,175,000 9,192,911 8,704,848 8,220,881 7,769,322 7,284,115 6,763,589 6,206,423
Principal 2,752,798 5,500,608 5,922,178 5,092,966 5,472,948 5,879,990 6,293,568 6,737,102
Debt Service 7,927,798 14,693,519 14,627,026 13,313,847 13,242,270 13,164,105 13,057,157 12,943,525
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
2004 2005 2006 2007 2008 2009 2010 2011
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
First Mortgage Bonds:
Beginning Balance 67,747,842 60,532,522 52,835,596 48,543,380 44,051,676 39,346,848 34,427,656 29,284,898
Interest 5,609,882 4,971,983 4,418,244 4,041,589 3,647,284 3,234,560 2,803,049 2,350,454
Principal 7,215,320 7,696,926 4,292,216 4,491,704 4,704,828 4,919,192 5,142,758 5,422,034
Debt Service 12,825,202 12,668,909 8,710,460 8,533,293 8,352,112 8,153,752 7,945,807 7,772,488
Ending Balance 60,532,522 52,835,596 48,543,380 44,051,676 39,346,848 34,427,656 29,284,898 23,862,864
Subordinated Debt A:
Beginning Balance 0 0 0 0 0 0 0 0
Interest 0 0 0 0 0 0 0 0
Principal 0 0 0 0 0 0 0 0
Debt Service 0 0 0 0 0 0 0 0
Ending Balance 0 0 0 0 0 0 0 0
TOTAL DEBT SERVICE
Interest 5,609,882 4,971,983 4,418,244 4,041,589 3,647,284 3,234,560 2,803,049 2,350,454
Principal 7,215,320 7,696,926 4,292,216 4,491,704 4,704,828 4,919,192 5,142,758 5,422,034
Debt Service 12,825,202 12,668,909 8,710,460 8,533,293 8,352,112 8,153,752 7,945,807 7,772,488
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
2012 2013 2014 2015
---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
First Mortgage Bonds:
Beginning Balance 23,862,864 18,171,750 12,219,064 6,030,816
Interest 1,874,100 1,374,781 853,744 325,100 94,821,650
Principal 5,691,114 5,952,686 6,188,248 6,030,816 111,400,000
--------- --------- --------- ---------
Debt Service 7,565,214 7,327,467 7,041,992 6,355,916
Ending Balance 18,171,750 12,219,064 6,030,816 0
Subordinated Debt A:
Beginning Balance 0 0 0 0
Interest 0 0 0 0
Principal 0 0 0 0
- - - -
Debt Service 0 0 0 0
Ending Balance 0 0 0 0
TOTAL DEBT SERVICE
Interest 1,874,100 1,374,781 853,744 325,100
Principal 5,691,114 5,952,686 6,188,248 6,030,816
--------- --------- --------- ---------
Debt Service 7,565,214 7,327,467 7,041,992 6,355,916
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FUEL COSTS
Dispatch Operations 1996 1997 1998 1999 2000 2001 2002
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Total Hours 8,760 8,760 8,760 8,760 8,760 8,760 8,760
Summer & VEPCO Capacity 165.0 165.0 165.0 165.0 165.0 165.0 165.0
Winter Capacity 198.0 198.0 198.0 198.0 198.0 198.0 198.0
Summer Dispatch 674 625 918 1,210 1,463 1,715 1,887
Winter Gas Dispatch 3 119 219 320 348 376 480
Winter Oil Dispatch 0 0 0 0 15 30 48
VEPCO Gas Dispatch 400 400 500 500 500 500 500
--- --- --- --- --- --- ---
Total Dispatch Hour 1,077 1,144 1,637 2,030 2,326 2,621 2,915
Percentage 12.29% 13.06% 18.69% 23.17% 26.55% 29.92% 33.28%
Winter Starts 0 3 5 8 9 9 12
Winter Start Duration 40 40 40 40 40 40 40
Net Generation
Availability Factor [1] 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Equivalent Load Factor 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
[1] Equivalent full load dispatch hours from Dispatch Assumptions incorporate
planned outage and forced outage availability factors.
Summer Output MWh 111,210 103,125 151,470 199,650 241,395 282,975 311,355
Winter Gas Output MWh 594 23,562 43,362 63,360 68,904 74,448 95,040
Winter Oil Dispatch MWh 0 0 0 0 2,970 5,940 9,504
VEPCO Gas Dispatch MWh 66,000 66,000 82,500 82,500 82,500 82,500 82,500
------ ------ ------ ------ ------ ------ ------
Net Generation MWh 177,804 192,687 277,332 345,510 395,769 445,863 498,399
Fuel Usage - Electrical Generation
Net Electric
Heat Rate Btu/kWh 8900 8900 8900 8900 8900 8900 8900
Summer Gas Fuel MMBtu 989,769 917,813 1,348,083 1,776,885 2,148,416 2,518,478 2,771,060
Winter Gas Fuel MMBtu 5,287 209,702 385,922 563,904 613,246 662,587 845,856
Winter Oil Fuel MMBtu 0 0 0 0 26,433 52,866 84,586
VEPCO Gas Fuel MMBtu 587,400 587,400 734,250 734,250 734,250 734,250 734,250
------- ------- ------- ------- ------- ------- -------
Total Fuel MMBtu 1,582,456 1,714,914 2,468,255 3,075,039 3,522,344 3,968,181 4,435,751
Fuel Cost - Electrical Generation
Summer Gas Fuel $/MMBtu $2.26 $2.28 $2.31 $2.34 $2.38 $2.47 $2.57
Winter Gas Fuel $/MMBtu $2.92 $2.97 $3.00 $3.03 $3.07 $3.20 $3.35
Winter Oil Fuel $/MMBtu $3.82 $3.96 $4.10 $4.25 $4.40 $4.43 $4.46
VEPCO Gas Fuel $/kWh $0.00011 $0.00011 $0.00011 $0.00011 $0.00011 $0.00011 $0.00011
Summer Gas Fuel $ 2,236,000 2,094,000 3,120,000 4,149,000 5,113,000 6,233,000 7,134,000
Winter Gas Fuel $ 15,000 623,000 1,157,000 1,708,000 1,882,000 2,119,000 2,829,000
Winter Oil Fuel $ 0 0 0 0 116,000 234,000 377,000
VEPCO Gas Fuel $ 7,500 7,500 9,400 9,400 9,400 9,400 9,400
----- ----- ----- ----- ----- ----- -----
Total Fuel Cost $ 2,258,500 2,724,500 4,286,400 5,866,400 7,120,400 8,595,400 10,349,400
Total Fuel Costs - Cogen Plant
Summer Gas Fuel $ 2,236,000 2,094,000 3,120,000 4,149,000 5,113,000 6,233,000 7,134,000
Winter Gas Fuel $ 15,000 623,000 1,157,000 1,708,000 1,882,000 2,119,000 2,829,000
Winter Oil Fuel $ 0 0 0 0 116,000 234,000 377,000
VEPCO Gas Fuel $ 7,500 7,500 9,400 9,400 9,400 9,400 9,400
Fuel Usage - Thermal MMBtu 35,561 38,537 55,466 69,102 79,154 89,173 99,680
Fuel Cost - Thermal [2]$ 73,000 80,000 116,000 146,000 170,000 199,000 233,000
------ ------ ------- ------- ------- ------- -------
Total Fuel Costs -
Cogen Plant 2,332,000 2,805,000 4,402,000 6,012,000 7,290,000 8,794,000 10,582,000
Average Fuel Cost($/MMBtu) $1.44 $1.60 $1.74 $1.91 $2.02 $2.17 $2.33
Average Fuel Cost($/kWh) $0.0131 $0.0146 $0.0159 $0.0174 $0.0184 $0.0197 $0.0212
[2] Boiler fuel cost estimate below used to determine fuel cost allocation of
thermal production.
Steam/Chilled Water
Steam Production Hours 7,800 7,800 7,800 7,800 7,800 7,800 7,800
Chilled Water Production 4,000 4,000 4,000 4,000 4,000 4,000 4,000
Steam Production Hours - Boiler 6,723 6,656 6,163 5,770 5,474 5,179 4,885
Chilled Water Production
Hours - Boil 2,923 2,856 2,363 1,970 1,689 1,409 1,133
Steam Fuel - Boiler MMBtu 576,161 570,419 528,169 494,489 469,122 443,840 418,645
C. Water Fuel - Boiler MMBtu 90,070 88,006 72,814 60,704 52,045 43,417 34,913
------ ------ ------ ------ ------ ------ ------
Total Boiler Fuel MMBtu 666,231 658,425 600,983 555,193 521,167 487,258 453,557
Boiler Fuel Cost $/MMBtu $2.05 $2.07 $2.10 $2.11 $2.15 $2.24 $2.34
Boiler Fuel Cost $ 1,365,000 1,365,000 1,261,000 1,172,000 1,120,000 1,089,000 1,062,000
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FUEL COSTS
Dispatch Operations 2003 2004 2005 2006 2007 2008 2009
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Total Hours 8,760 8,760 8,760 8,760 8,760 8,760 8,760
Summer & VEPCO Capacity 165.0 165.0 165.0 165.0 165.0 165.0 165.0
Winter Capacity 198.0 198.0 198.0 198.0 198.0 198.0 198.0
Summer Dispatch 2,077 2,285 2,513 2,418 2,327 2,239 2,155
Winter Gas Dispatch 601 742 908 763 642 539 452
Winter Oil Dispatch 76 122 195 185 175 166 157
VEPCO Gas Dispatch 600 600 600 600 600 600 600
--- --- --- --- --- --- ---
Total Dispatch Hour 3,354 3,749 4,216 3,966 3,744 3,544 3,364
Percentage 38.29% 42.80% 48.13% 45.27% 42.74% 40.46% 38.40%
Winter Starts 15 19 23 19 16 13 11
Winter Start Duration 40 40 40 40 40 40 40
Net Generation
Availability Factor [1] 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Equivalent Load Factor 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
[1] Equivalent full load dispatch hours from Dispatch Assumptions incorporate
planned outage and forced outage availability factors.
Summer Output MWh 342,705 377,025 414,645 398,970 383,955 369,435 355,575
Winter Gas Output MWh 118,998 146,916 179,784 151,074 127,116 106,722 89,496
Winter Oil Dispatch MWh 15,048 24,156 38,610 36,630 34,650 32,868 31,086
VEPCO Gas Dispatch MWh 99,000 99,000 99,000 99,000 99,000 99,000 99,000
------ ------ ------ ------ ------ ------ ------
Net Generation MWh 575,751 647,097 732,039 685,674 644,721 608,025 575,157
Fuel Usage - Electrical Generation
Net Electric
Heat Rate Btu/kWh 8900 8900 8900 8900 8900 8900 8900
Summer Gas Fuel MMBtu 3,050,075 3,355,523 3,690,341 3,550,833 3,417,200 3,287,972 3,164,618
Winter Gas Fuel MMBtu 1,059,082 1,307,552 1,600,078 1,344,559 1,131,332 949,826 796,514
Winter Oil Fuel MMBtu 133,927 214,988 343,629 326,007 308,385 292,525 276,665
VEPCO Gas Fuel MMBtu 881,100 881,100 881,100 881,100 881,100 881,100 881,100
------- ------- ------- ------- ------- ------- -------
Total Fuel MMBtu 5,124,184 5,759,163 6,515,147 6,102,499 5,738,017 5,411,423 5,118,897
Fuel Cost - Electrical Generation
Summer Gas Fuel $/MMBtu $2.69 $2.81 $2.94 $3.14 $3.35 $3.57 $3.82
Winter Gas Fuel $/MMBtu $3.48 $3.63 $3.78 $4.03 $4.29 $4.55 $4.85
Winter Oil Fuel $/MMBtu $4.48 $4.51 $4.54 $4.59 $4.64 $4.70 $4.76
VEPCO Gas Fuel $/kWh $0.00011 $0.00011 $0.00011 $0.00011 $0.00011 $0.00011 $0.00011
Summer Gas Fuel $ 8,205,000 9,431,000 10,835,000 11,146,000 11,455,000 11,754,000 12,100,000
Winter Gas Fuel $ 3,691,000 4,747,000 6,050,000 5,415,000 4,848,000 4,325,000 3,864,000
Winter Oil Fuel $ 600,000 970,000 1,561,000 1,497,000 1,432,000 1,374,000 1,316,000
VEPCO Gas Fuel $ 11,300 11,300 11,300 11,300 11,300 11,300 11,300
Total Fuel Cost $ 12,507,300 15,159,300 18,457,300 18,069,300 17,746,300 17,464,300 17,291,300
Total Fuel Costs - Cogen Plant
Summer Gas Fuel $ 8,205,000 9,431,000 10,835,000 11,146,000 11,455,000 11,754,000 12,100,000
Winter Gas Fuel $ 3,691,000 4,747,000 6,050,000 5,415,000 4,848,000 4,325,000 3,864,000
Winter Oil Fuel $ 600,000 970,000 1,561,000 1,497,000 1,432,000 1,374,000 1,316,000
VEPCO Gas Fuel $ 11,300 11,300 11,300 11,300 11,300 11,300 11,300
Fuel Usage - Thermal MMBtu 115,150 129,419 146,408 137,135 128,944 121,605 115,031
Fuel Cost - Thermal [2]$ 282,000 332,000 393,000 395,000 400,000 404,000 410,000
------- ------- ------- ------- ------- ------- -------
Total Fuel Costs -
Cogen Plant 12,789,000 15,491,000 18,850,000 18,464,000 18,146,000 17,868,000 17,701,000
Average Fuel Cost($/MMBtu) $2.44 $2.63 $2.83 $2.96 $3.09 $3.23 $3.38
Average Fuel Cost($/kWh) $0.0222 $0.0239 $0.0257 $0.0269 $0.0281 $0.0294 $0.0308
[2] Boiler fuel cost estimate below used to determine fuel cost allocation of
thermal production.
Steam/Chilled Water
Steam Production Hours 7,800 7,800 7,800 7,800 7,800 7,800 7,800
Chilled Water Production 4,000 4,000 4,000 4,000 4,000 4,000 4,000
Steam Production Hours - Boiler 4,446 4,051 3,584 3,834 4,056 4,256 4,436
Chilled Water Production
Hours - Boil 722 373 0 219 431 622 793
Steam Fuel - Boiler MMBtu 381,022 347,171 307,149 328,574 347,599
C. Water Fuel - Boiler MMBtu 22,248 11,494 0 6,748 13,281 19,166 24,436
------ ------ - ----- ------ ------ ------
Total Boiler Fuel MMBtu 403,270 358,664 307,149 335,322 360,880 383,906 404,601
Boiler Fuel Cost $/MMBtu $2.45 $2.56 $2.68 $2.88 $3.10 $3.32 $3.57
Boiler Fuel Cost $ 988,000 919,000 824,000 966,000 1,120,000 1,276,000 1,444,000
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FUEL COSTS
Dispatch Operations 2010 2011 2012 2013 2014 2015
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Total Hours 8,760 8,760 8,760 8,760 8,760 8,760
Summer & VEPCO Capacity 165.0 165.0 165.0 165.0 165.0 165.0
Winter Capacity 198.0 198.0 198.0 198.0 198.0 198.0
Summer Dispatch 2,073 2,000 1,929 1,861 1,794 1,729
Winter Gas Dispatch 379 429 485 548 619 698
Winter Oil Dispatch 149 147 144 142 140 138
VEPCO Gas Dispatch 600 600 600 600 600 600
--- --- --- --- --- ---
Total Dispatch Hour 3,201 3,176 3,158 3,151 3,153 3,165
Percentage 36.54% 36.26% 36.05% 35.97% 35.99% 36.13%
Winter Starts 9 11 12 14 15 17
Winter Start Duration 40 40 40 40 40 40
Net Generation
Availability Factor [1] 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Equivalent Load Factor 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
[1] Equivalent full load dispatch hours from Dispatch Assumptions incorporate
planned outage and forced outage availability factors.
Summer Output MWh 342,045 330,000 318,285 307,065 296,010 285,285
Winter Gas Output MWh 75,042 84,942 96,030 108,504 122,562 138,204
Winter Oil Dispatch MWh 29,502 29,106 28,512 28,116 27,720 27,324
VEPCO Gas Dispatch MWh 99,000 99,000 99,000 99,000 99,000 99,000
------ ------ ------ ------ ------ ------
Net Generation MWh 545,589 543,048 541,827 542,685 545,292 549,813
Fuel Usage - Electrical Generation
Net Electric
Heat Rate Btu/kWh 8900 8900 8900 8900 8900 8900
Summer Gas Fuel MMBtu 3,044,201 2,937,000 2,832,737 2,732,879 2,634,489 2,539,037
Winter Gas Fuel MMBtu 667,874 755,984 854,667 965,686 1,090,802 1,230,016
Winter Oil Fuel MMBtu 262,568 259,043 253,757 250,232 246,708 243,184
VEPCO Gas Fuel MMBtu 881,100 881,100 881,100 881,100 881,100 881,100
------- ------- ------- ------- ------- -------
Total Fuel MMBtu 4,855,742 4,833,127 4,822,260 4,829,897 4,853,099 4,893,336
Fuel Cost - Electrical Generation
Summer Gas Fuel $/MMBtu $4.08 $4.31 $4.54 $4.78 $5.05 $5.33
Winter Gas Fuel $/MMBtu $5.16 $5.44 $5.74 $6.06 $6.35 $6.68
Winter Oil Fuel $/MMBtu $4.82 $4.87 $4.93 $5.00 $5.06 $5.12
VEPCO Gas Fuel $/kWh $0.00011 $0.00011 $0.00011 $0.00011 $0.00011 $0.00011
Summer Gas Fuel $ 12,433,000 12,648,000 12,858,000 13,066,000 13,309,000 13,546,000
Winter Gas Fuel $ 3,447,000 4,109,000 4,905,000 5,848,000 6,926,000 8,211,000
Winter Oil Fuel $ 1,265,000 1,262,000 1,252,000 1,250,000 1,247,000 1,245,000
VEPCO Gas Fuel $ 11,300 11,300 11,300 11,300 11,300 11,300
Total Fuel Cost $ 17,156,300 18,030,300 19,026,300 20,175,300 21,493,300 23,013,300
Total Fuel Costs - Cogen Plant
Summer Gas Fuel $ 12,433,000 12,648,000 12,858,000 13,066,000 13,309,000 13,546,000
Winter Gas Fuel $ 3,447,000 4,109,000 4,905,000 5,848,000 6,926,000 8,211,000
Winter Oil Fuel $ 1,265,000 1,262,000 1,252,000 1,250,000 1,247,000 1,245,000
VEPCO Gas Fuel $ 11,300 11,300 11,300 11,300 11,300 11,300
Fuel Usage - Thermal MMBtu 109,118 108,610 108,365 108,537 109,058 109,963
Fuel Cost - Thermal [2]$ 417,000 439,000 465,000 491,000 523,000 558,000
------- ------- ------- ------- ------- -------
Total Fuel Costs -
Cogen Plant 17,573,000 18,469,000 19,491,000 20,666,000 22,016,000 23,571,000
Average Fuel Cost($/MMBtu) $3.54 $3.74 $3.95 $4.18 $4.44 $4.71
Average Fuel Cost($/kWh) $0.0322 $0.0340 $0.0360 $0.0381 $0.0404 $0.0429
[2] Boiler fuel cost estimate below used to determine fuel cost allocation of
thermal production.
Steam/Chilled Water
Steam Production Hours 7,800 7,800 7,800 7,800 7,800 7,800
Chilled Water Production 4,000 4,000 4,000 4,000 4,000 4,000
Steam Production Hours - Boiler 4,599 4,624 4,642 4,649 4,647 4,635
Chilled Water Production
Hours - Boil 948 971 986 991 987 973
Steam Fuel - Boiler MMBtu 394,134 396,277 397,819 398,419 398,248 397,220
C. Water Fuel - Boiler MMBtu 29,212 29,921 30,383 30,537 30,414 29,982
------ ------ ------ ------ ------ ------
Total Boiler Fuel MMBtu 423,346 426,197 428,202 428,956 428,662 427,202
Boiler Fuel Cost $/MMBtu $3.83 $4.04 $4.29 $4.53 $4.79 $5.07
Boiler Fuel Cost $ 1,620,000 1,723,000 1,836,000 1,941,000 2,054,000 2,167,000
</TABLE>
<PAGE>
PLANT OPERATING COSTS
<TABLE>
<CAPTION>
1995 1996
Estimated Actual Budget Escalation
---------------- ------ ----------
<S> <C> <C> <C>
Fuel Transportation Costs:
Firm Transportation - Transco $1,097,889 $1,080,318 0.00%
Less: Capacity Release $0 ($132,000) 0.00%
Fuel Management Fee $240,000 $240,000 3.00%
-------- --------
Total Fuel Transportation $1,337,889 $1,188,318
Operating Costs:
O&M Contract Fee $1,641,825 $1,703,120 3.00%
General Maintenance & Repairs $144,622 $160,825 8.00%
Planned Plant Maintenance $156,972 $328,425 3.00%
Additional Maintenance $274,024 $155,000 0.00%
Parts Replacement $228,392 $167,940 3.00%
Other Plant Expenses $34,930 $52,100 3.00%
Panda Management Fee [2] $480,000 $0 0.00%
Office & Admin Expenses $231,061 $190,015 3.00%
Property Taxes $977,109 $972,000 -3.00%
Insurance $298,728 $300,000 3.00%
VEPCO Performance LOC $64,602 $66,232 Input Panda Forecast
------- -------
Total Operating Costs $4,532,265 $4,095,657
Total Plant Operating Cost $5,870,154 $5,283,975
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Plant Operating Costs 1996 1997 1998 1999 2000 2001 2002 2003
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Firm Transportation - Transco 1,080,000 1,080,000 1,080,000 1,080,000 1,080,000 1,080,000 1,080,000 1,080,000
Capacity Release Revenues (132,000) (316,000) (316,000) (316,000) (316,000) (316,000) (316,000) (316,000)
Fuel Management Fee 240,000 247,000 255,000 262,000 270,000 278,000 287,000 295,000
O&M Contract Fee 1,703,000 1,754,000 1,807,000 1,861,000 1,917,000 1,974,000 2,034,000 2,095,000
General Maintenance & Repairs 161,000 174,000 188,000 203,000 219,000 236,000 255,000 276,000
Planned Plant Maintenanance 328,000 338,000 348,000 359,000 370,000 381,000 392,000 404,000
Additional Maintenance 155,000 155,000 155,000 155,000 155,000 155,000 155,000 155,000
Parts Replacement 168,000 173,000 178,000 184,000 189,000 195,000 201,000 207,000
Other Plant Expenses 52,000 54,000 55,000 57,000 59,000 60,000 62,000 64,000
Panda Management Fee [2] 0 0 0 0 0 0 0 0
Office & Admin Expenses 190,000 196,000 202,000 208,000 214,000 220,000 227,000 234,000
Property Taxes 972,000 943,000 915,000 887,000 861,000 835,000 810,000 785,000
Insurance 300,000 309,000 318,000 328,000 338,000 348,000 358,000 369,000
VEPCO Performance LOC 66,000 66,000 66,000 66,000 84,000 84,000 84,000 84,000
------ ------ ------ ------ ------ ------ ------ ------
Plant Operating Costs 5,283,000 5,173,000 5,251,000 5,334,000 5,440,000 5,530,000 5,629,000 5,732,000
Percent Change -10.00% -2.08% 1.51% 1.58% 1.99% 1.65% 1.79% 1.83%
</TABLE>
[1] Capacity release revenues based on estimated 1800 MMBtu/d and 50% recovery
of tariff rate starting in August 1996.
[2] Panda Management Fee will be subordinated to all Project costs.
<PAGE>
<TABLE>
<CAPTION>
Plant Operating Costs 2004 2005 2006 2007 2008 2009 2010
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Firm Transportation - Transco 1,080,000 1,080,000 1,080,000 1,080,000 1,080,000 1,080,000 1,080,000
Capacity Release Revenues (316,000) (316,000) (316,000) (316,000) (316,000) (316,000) (316,000)
Fuel Management Fee 304,000 313,000 323,000 332,000 342,000 352,000 363,000
O&M Contract Fee 2,157,000 2,222,000 2,289,000 2,358,000 2,428,000 2,501,000 2,576,000
General Maintenance & Repairs 298,000 321,000 347,000 375,000 405,000 437,000 472,000
Planned Plant Maintenanance 416,000 429,000 441,000 455,000 468,000 482,000 497,000
Additional Maintenance 155,000 155,000 155,000 155,000 155,000 155,000 155,000
Parts Replacement 213,000 219,000 226,000 232,000 239,000 247,000 254,000
Other Plant Expenses 66,000 68,000 70,000 72,000 74,000 77,000 79,000
Panda Management Fee [2] 0 0 0 0 0 0 0
Office & Admin Expenses 241,000 248,000 255,000 263,000 271,000 279,000 287,000
Property Taxes 762,000 739,000 717,000 695,000 674,000 654,000 635,000
Insurance 380,000 391,000 403,000 415,000 428,000 441,000 454,000
VEPCO Performance LOC 84,000 84,000 84,000 84,000 84,000 84,000 84,000
------ ------ ------ ------ ------ ------ ------
Plant Operating Costs 5,840,000 5,953,00 6,074,000 6,200,000 6,332,000 6,473,000 6,620,000
Percent Change 1.88% 1.93% 2.03% 2.07% 2.13% 2.23% 2.27%
</TABLE>
[1] Capacity release revenues based on estimated 1800 MMBtu/d and 50% recovery
of tariff rate starting in August 1996.
[2] Panda Management Fee will be subordinated to all Project costs.
<PAGE>
<TABLE>
<CAPTION>
Plant Operating Costs 2011 2012 2013 2014 2015
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Firm Transportation - Transco 1,080,000 1,080,000 1,080,000 1,080,000 1,080,000
Capacity Release Revenues (316,000) (316,000) (316,000) (316,000) (316,000)
Fuel Management Fee 374,000 385,000 397,000 409,000 421,000
O&M Contract Fee 2,653,000 2,733,000 2,815,000 2,899,000 2,986,000
General Maintenance & Repairs 510,000 551,000 595,000 643,000 694,000
Planned Plant Maintenanance 512,000 527,000 543,000 559,000 576,000
Additional Maintenance 155,000 155,000 155,000 155,000 155,000
Parts Replacement 262,000 269,000 278,000 286,000 294,000
Other Plant Expenses 81,000 84,000 86,000 89,000 91,000
Panda Management Fee [2] 0 0 0 0 0
Office & Admin Expenses 296,000 305,000 314,000 323,000 333,000
Property Taxes 616,000 597,000 579,000 562,000 545,000
Insurance 467,000 481,000 496,000 511,000 526,000
VEPCO Performance LOC 84,000 84,000 84,000 84,000 84,000
------ ------ ------ ------ ------
Plant Operating Costs 6,774,000 6,935,000 7,106,000 7,284,000 7,469,000
Percent Change 2.33% 2.38% 2.47% 2.50% 2.54%
</TABLE>
[1] Capacity release revenues based on estimated 1800 MMBtu/d and 50% recovery
of tariff rate starting in August 1996.
[2] Panda Management Fee will be subordinated to all Project costs.
<PAGE>
<TABLE>
<CAPTION>
VARIABLE PLANT COSTS
1995 1996
Actual Summary Escalation
------ ------- ----------
<S> <C> <C> <C>
Plant Electricity Usage
Hours Not Dispatched 7698 7683
Average Electric Load (kW) 1150 1150
Electric Rate ($/kWh) $0.0440 $0.0453 3.00%
------- -------
Total Plant Electricity Usage $389,519 $400,423
Water & Chemical Usage
Hours Dispatched 1062 1077
Gallons per Hour Usage - Cogen 32,000 32,000
Steam/Chilled Water Production Hours 11,800 11,800
Gallons per Hour Usage - Boiler 8,000 8,000
Total Gallons (1000s) 128,384 128,864
Water & Chemical Cost ($/1000 gal) $1.34 $1.38 3.00%
----- -----
Total Water & Chemical Usage $172,035 $177,858
Water Discharge
Hours Dispatched 1062 1077
Gallons per Hour Usage - Cogen 8,000 8,000
Steam/Chilled Water Production Hours 11,800 11,800
Gallons per Hour Usage - Boiler 2,000 2,000
Total Gallons (1000s) 32,096 32,216
Water Discharge Cost ($/1000 gal) $1.09 $1.12 3.00%
----- -----
Total Water Discharge $34,985 $36,169
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Plant Variable Costs 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Hours Dispatched 1077 1144 1637 2030 2326 2621 2915 3354 3749 4216
Hours Not Dispatched 7683 7616 7123 6730 6434 6139 5845 5406 5011 4544
Steam/Chilled Water Production Hours 11,800 11,800 11,800 11,800 11,800 11,800 11,800 11,800 11,800 11,800
Plant Electricity Usage 400,000 409,000 394,000 383,000 377,000 371,000 364,000 347,000 331,000 309,000
Water & Chemical Usage 178,000 186,000 215,000 240,000 262,000 285,000 309,000 342,000 375,000 413,000
Water Discharge 36,000 38,000 44,000 49,000 53,000 58,000 63,000 70,000 76,000 84,000
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total Plant Variable Cost 614,000 633,000 653,000 672,000 692,000 714,000 736,000 759,000 782,000 806,000
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Plant Variable Costs 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Hours Dispatched 3966 3744 3544 3364 3201 3176 3158 3151 3153 3165
Hours Not Dispatched 4794 5016 5216 5396 5559 5584 5602 5609 5607 5595
Steam/Chilled Water Production Hours 11,800 11,800 11,800 11,800 11,800 11,800 11,800 11,800 11,800 11,800
Plant Electricity Usage 336,000 362,000 388,000 413,000 438,000 453,000 469,000 483,000 497,000 511,000
Water & Chemical Usage 411,000 409,000 409,000 410,000 411,000 422,000 433,000 445,000 459,000 474,000
Water Discharge 83,000 83,000 83,000 83,000 84,000 86,000 88,000 91,000 93,000 96,000
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total Plant Variable Cost 830,000 854,000 880,000 906,000 933,000 961,000 990,000 1,019,000 1,049,000 1,081,000
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
REVENUE GENERATION
Dispatch Operations 1996 1997 1998 1999 2000 2001 2002 2003
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total Hours 8,760 8,760 8,760 8,760 8,760 8,760 8,760 8,760
Summer & VEPCO Capacity 165.0 165.0 165.0 165.0 165.0 165.0 165.0 165.0
Winter Capacity 198.0 198.0 198.0 198.0 198.0 198.0 198.0 198.0
Summer Dispatch 674 625 918 1,210 1,463 1,715 1,887 2,077
Winter Gas Dispatch 3 119 219 320 348 376 480 601
Winter Oil Dispatch 0 0 0 0 15 30 48 76
VEPCO Gas Dispatch 400 400 500 500 500 500 500 600
Total Dispatch Hours 1,077 1,144 1,637 2,030 2,326 2,621 2,915 3,354
Percentage 12.29% 13.06% 18.69% 23.17% 26.55% 29.92% 33.28% 38.29
Winter Starts 0 3 5 8 9 9 12 15
Winter Start Duration 40 40 40 40 40 40 40 40
Net Generation
Availability Factor 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Load Factor 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Summer Output MWh 111,210 103,125 151,470 199,650 241,395 282,975 311,355 342,705
Winter Gas Output MWh 594 23,562 43,362 63,360 68,904 74,448 95,040 118,998
Winter Oil Dispatch MWh 0 0 0 0 2,970 5,940 9,504 15,048
VEPCO Gas Dispatch MWh 66,000 66,000 82,500 82,500 82,500 82,500 82,500 99,000
Net Generation MWh 177,804 192,687 277,332 345,510 395,769 445,863 498,399 575,751
Capacity Revenues
Capacity Rate $/kw-mo $12.49 $11.65 $11.65 $10.82 $10.82 $10.82 $10.82 $10.82
Capacity Revenues - Summer 12,363,000 11,537,000 11,537,000 10,713,000 10,713,000 10,713,000 10,713,000 10,713,000
Capacity Revenues - Winter 14,836,000 13,845,000 13,845,000 12,855,000 12,855,000 12,855,000 12,855,000 12,855,000
Total Capacity Revenues 27,199,000 25,382,000 25,382,000 23,568,000 23,568,000 23,568,000 23,568,000 23,568,000
Energy Revenues
Summer Gas Charge $/kWh $0.0231 $0.0233 $0.0237 $0.0240 $0.0245 $0.0254 $0.0264 $0.0276
Winter Gas Charge $/kWh $0.0288 $0.0293 $0.0297 $0.0300 $0.0304 $0.0317 $0.0331 $0.0345
Winter Oil Charge $/kWh $0.0369 $0.0383 $0.0399 $0.0414 $0.0431 $0.0431 $0.0431 $0.0431
VEPCO Gas Chargee $/kWh $0.0039 $0.0040 $0.0041 $0.0042 $0.0043 $0.0044 $0.0045 $0.0046
Variable O&M Charge $/kWh $0.0022 $0.0023 $0.0024 $0.0024 $0.0025 $0.0026 $0.0027 $0.0027
Summer Gas Revenues $ 2,813,000 2,644,000 3,950,000 5,273,000 6,510,000 7,923,000 9,054,000 10,387,000
Winter Gas Revenues $ 18,000 745,000 1,389,000 2,055,000 2,270,000 2,552,000 3,400,000 4,427,000
Winter Oil Revenues $ 0 0 0 0 135,000 271,000 435,000 690,000
VEPCO Gas Revenues $ 258,000 265,000 340,000 349,000 358,000 365,000 371,000 454,000
Total Energy Revenues $ 3,089,000 3,654,000 5,679,000 7,677,000 9,273,000 11,111,000 13,260,000 15,958,000
Start Revenues
Winter Gas Start Payment $38,286 $38,286 $38,286 $38,286 $38,286 $38,286 $38,286 $38,286
Winter Gas Start Revenues 0 154,000 283,000 499,000 611,000 566,000 687,000 779,000
Thermal Revenues
Steam Production Hours 7,800 7,800 7,800 7,800 7,800 7,800 7,800 7,800
Chilled Water Production Hours 4,000 4,000 4,000 4,000 4,000 4,000 4,000 4,000
Steam Production pph 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000
Chilled Water Production tph 1,010 1,010 1,010 1,010 1,010 1,010 1,010 1,010
Steam Production klbs 390,000 390,000 390,000 390,000 390,000 390,000 390,000 390,000
Chilled Water Productio ktons 4,040 4,040 4,040 4,040 4,040 4,040 4,040 4,040
Steam Charge $/klbs $1.15 $1.15 $1.15 $1.15 $1.15 $1.15 $1.15 $1.15
Chilled Water Charge $/ton $0.035 $0.035 $0.035 $0.035 $0.035 $0.040 $0.040 $0.040
Steam Revenues $ 449,000 449,000 449,000 449,000 449,000 449,000 449,000 449,000
Chilled Water Revenues $ 141,000 141,000 141,000 141,000 141,000 162,000 162,000 162,000
Total Thermal Revenues $ 590,000 590,000 590,000 590,000 590,000 611,000 611,000 611,000
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
REVENUE GENERATION
Dispatch Operations 2004 2005 2006 2007 2008 2009 2010 2011
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total Hours 8,760 8,760 8,760 8,760 8,760 8,760 8,760 8,760
Summer & VEPCO Capacity 165.0 165.0 165.0 165.0 165.0 165.0 165.0 165.0
Winter Capacity 198.0 198.0 198.0 198.0 198.0 198.0 198.0 198.0
Summer Dispatch 2,285 2,513 2,418 2,327 2,239 2,155 2,073 2,000
Winter Gas Dispatch 742 908 763 642 539 452 379 429
Winter Oil Dispatch 122 195 185 175 166 157 149 147
VEPCO Gas Dispatch 600 600 600 600 600 600 600 600
Total Dispatch Hours 3,749 4,216 3,966 3,744 3,544 3,364 3,201 3,176
Percentage 42.80% 48.13% 45.27% 42.74% 40.46% 38.40% 36.54%
Winter Starts 19 23 19 16 13 11 9 11
Winter Start Duration 40 40 40 40 40 40 40 40
Net Generation
Availability Factor 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Load Factor 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Summer Output MWh 377,025 414,645 398,970 383,955 369,435 355,575 342,045 330,000
Winter Gas Output MWh 146,916 179,784 151,074 127,116 106,722 89,496 75,042 84,942
Winter Oil Dispatch MWh 24,156 38,610 36,630 34,650 32,868 31,086 29,502 29,106
VEPCO Gas Dispatch MWh 99,000 99,000 99,000 99,000 99,000 99,000 99,000 99,000
Net Generation MWh 647,097 732,039 685,674 644,721 608,025 575,157 545,589 543,048
Capacity Revenues
Capacity Rate $/kw-mo $10.82 $10.82 $8.32 $8.32 $8.32 $8.32 $8.32 $8.32
Capacity Revenues - Summer 10,713,000 10,713,000 8,238,000 8,238,000 8,238,000 8,238,000 8,238,000 8,238,000
Capacity Revenues - Winter 12,855,000 12,855,000 9,885,000 9,885,000 9,885,000 9,885,000 9,885,000 9,885,000
Total Capacity Revenues 23,568,000 23,568,000 18,123,000 18,123,000 18,123,000 18,123,000 18,123,000 18,123,000
Energy Revenues
Summer Gas Charge $/kWh $ $0.0288 $0.0300 $0.0320 $0.0340 $0.0362 $0.0386 $0.0411 $0.0433
Winter Gas Charge $/kWh $ $0.0359 $0.0373 $0.0397 $0.0421 $0.0446 $0.0475 $0.0504 $0.0530
Winter Oil Charge $/kWh $ $0.0431 $0.0431 $0.0431 $0.0431 $0.0431 $0.0431 $0.0431 $0.0431
VEPCO Gas Chargee $/kWh $ $0.0047 $0.0048 $0.0048 $0.0049 $0.0050 $0.0051 $0.0052 $0.0053
Variable O&M Charge $/kWh $ $0.0028 $0.0029 $0.0030 $0.0031 $0.0032 $0.0033 $0.0034 $0.0035
Summer Gas Revenues $ 11,909,000 13,648,000 13,951,000 14,254,000 14,544,000 14,884,000 15,209,000 15,419,000
Winter Gas Revenues $ 5,684,000 7,233,000 6,444,000 5,744,000 5,104,000 4,539,000 4,033,000 4,795,000
Winter Oil Revenues $ 1,109,000 1,776,000 1,688,000 1,600,000 1,520,000 1,441,000 1,370,000 1,355,000
VEPCO Gas Revenues $ 462,000 470,000 479,000 488,000 498,000 507,000 517,000 527,000
Total Energy Revenues $ 19,164,000 23,127,000 22,562,000 22,086,000 21,666,000 21,371,000 21,129,000 22,096,000
Start Revenues
Winter Gas Start Payment $38,286 $38,286 $38,286 $38,286 $38,286 $38,286 $38,286 $38,286
Winter Gas Start Revenues 881,000 934,000 515,000 124,000 498,000 421,000 345,000 421,000
Thermal Revenues
Steam Production Hours 7,800 7,800 7,800 7,800 7,800 7,800 7,800 7,800
Chilled Water Production Hours 4,000 4,000 4,000 4,000 4,000 4,000 4,000 4,000
Steam Production pph 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000
Chilled Water Production tph 1,010 1,010 1,010 1,010 1,010 1,010 1,010 1,010
Steam Production klbs 390,000 390,000 390,000 390,000 390,000 390,000 390,000 390,000
Chilled Water Productio ktons 4,040 4,040 4,040 4,040 4,040 4,040 4,040 4,040
Steam Charge $/klbs $1.15 $1.15 $1.15 $1.15 $1.15 $1.15 $1.15 $1.15
Chilled Water Charge $/ton $0.040 $0.040 $0.045 $0.045 $0.045 $0.045 $0.045 $0.050
Steam Revenues $ 449,000 449,000 449,000 449,000 449,000 449,000 449,000 449,000
Chilled Water Revenues $ 162,000 162,000 182,000 182,000 182,000 182,000 182,000 202,000
Total Thermal Revenues $ 611,000 611,000 631,000 631,000 631,000 631,000 631,000 651,000
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
REVENUE GENERATION
Dispatch Operations 2012 2013 2014 2015
---- ---- ---- ----
<S> <C> <C> <C> <C>
Total Hours 8,760 8,760 8,760 8,760
Summer & VEPCO Capacity 165.0 165.0 165.0 165.0
Winter Capacity 198.0 198.0 198.0 198.0
Summer Dispatch 1,929 1,861 1,794 1,729
Winter Gas Dispatch 485 548 619 698
Winter Oil Dispatch 144 142 140 138
VEPCO Gas Dispatch 600 600 600 600
Total Dispatch Hours 3,158 3,151 3,153 3,165
Percentage
Winter Starts 12 14 15 17
Winter Start Duration 40 40 40 40
Net Generation
Availability Factor 100.0% 100.0% 100.0% 100.0%
Load Factor 100.0% 100.0% 100.0% 100.0%
Summer Output MWh 318,285 307,065 296,010 285,285
Winter Gas Output MWh 96,030 108,504 122,562 138,204
Winter Oil Dispatch MWh 28,512 28,116 27,720 27,324
VEPCO Gas Dispatch MWh 99,000 99,000 99,000 99,000
Net Generation MWh 541,827 542,685 545,292 549,813
Capacity Revenues
Capacity Rate $/kw-mo $8.32 $8.32 $8.32 $8.32
Capacity Revenues - Summer 8,238,000 8,238,000 8,238,000 8,238,000
Capacity Revenues - Winter 9,885,000 9,885,000 9,885,000 9,885,000
Total Capacity Revenues 18,123,000 18,123,000 18,123,000 18,123,000
Energy Revenues
Summer Gas Charge $/kWh $0.0455 $0.0479 $0.0505 $0.0532
Winter Gas Charge $/kWh $0.0558 $0.0588 $0.0616 $0.0647
Winter Oil Charge $/kWh $0.0431 $0.0431 $0.0431 $0.0431
VEPCO Gas Chargee $/kWh $0.0054 $0.0055 $0.0057 $0.0058
Variable O&M Charge $/kWh $0.0036 $0.0037 $0.0038 $0.0039
Summer Gas Revenues $ 15,625,000 15,827,000 16,065,000 16,294,000
Winter Gas Revenues $ 5,706,000 6,783,000 8,018,000 9,484,000
Winter Oil Revenues $ 1,330,000 1,315,000 1,299,000 1,284,000
VEPCO Gas Revenues $ 538,000 549,000 560,000 571,000
Total Energy Revenues $ 23,199,000 24,474,000 25,942,000 27,633,000
Start Revenues
Winter Gas Start Payment $38,286 $38,286 $38,286 $38,286
Winter Gas Start Revenues 459,000 536,000 574,000 651,000
Thermal Revenues
Steam Production Hours 7,800 7,800 7,800 7,800
Chilled Water Production Hours 4,000 4,000 4,000 4,000
Steam Production pph 50,000 50,000 50,000 50,000
Chilled Water Production tph 1,010 1,010 1,010 1,010
Steam Production klbs 390,000 390,000 390,000 390,000
Chilled Water Productio ktons 4,040 4,040 4,040 4,040
Steam Charge $/klbs $1.15 $1.15 $1.15 $1.15
Chilled Water Charge $/ton $0.050 $0.050 $0.050 $0.050
Steam Revenues $ 449,000 449,000 449,000 449,000
Chilled Water Revenues $ 202,000 202,000 202,000 202,000
Total Thermal Revenues $ 651,000 651,000 651,000 651,000
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL FORECAST
Revenues 7/96-12/96 [1] 1997 1998 1999 2000 2001 2002
-------------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues from Electric Sales:
Total Capacity Revenues 13,599,500 25,382,000 25,382,000 23,568,000 23,568,000 23,568,000 23,568,000
Energy Charges
Summer Gas Charge 1,406,500 2,644,000 3,950,000 5,273,000 6,510,000 7,923,000 9,054,000
Winter Gas Charge 9,000 745,000 1,389,000 2,055,000 2,270,000 2,552,000 3,400,000
Winter Oil Charge 0 0 0 0 135,000 271,000 435,000
VEPCO Gas Charge 129,000 265,000 340,000 349,000 358,000 365,000 371,000
------- ------- ------- ------- ------- ------- -------
Total Energy Revenues 1,544,500 3,654,000 5,679,000 7,677,000 9,273,000 11,111,000 13,260,000
Winter Gas Start Revenues 0 154,000 283,000 499,000 611,000 566,000 687,000
Steam Sales Revenues 224,500 449,000 449,000 449,000 449,000 449,000 449,000
Chilled Water Sales Revenues 70,500 141,000 141,000 141,000 141,000 162,000 162,000
------ ------- ------- ------- ------- ------- -------
Total Thermal Revenues 295,000 590,000 590,000 590,000 590,000 611,000 611,000
Total Sales Revenues 15,439,000 29,780,000 31,934,000 32,334,000 34,042,000 35,856,000 38,126,000
Interest - D.S.R. 5.0% 194,000 371,000 354,000 336,000 335,000 333,000 330,000
------- ------- ------- ------- ------- ------- -------
Total Revenues 15,633,000 30,151,000 32,288,000 32,670,000 34,377,000 36,189,000 38,456,000
Expenses
Fuel Costs - Cogen Plant 1,166,000 2,805,000 4,402,000 6,012,000 7,290,000 8,794,000 10,582,000
Fuel Costs - Boiler 682,500 1,365,000 1,261,000 1,172,000 1,120,000 1,089,000 1,062,000
Plant Operating Costs 2,575,500 5,173,000 5,251,000 5,334,000 5,440,000 5,530,000 5,629,000
Plant Variable Costs 307,000 633,000 653,000 672,000 692,000 714,000 736,000
------- ------- ------- ------- ------- ------- -------
Total Operating Costs 4,731,000 9,976,000 11,567,000 13,190,000 14,542,000 16,127,000 18,009,000
Rev. Avail. for Debt Service 10,902,000 20,175,000 20,721,000 19,480,000 19,835,000 20,062,000 20,447,000
Debt Service
Total Interest Costs 5,175,000 9,193,000 8,705,000 8,221,000 7,769,000 7,284,000 6,764,000
Total Principal Payments 2,753,000 5,501,000 5,922,000 5,093,000 5,473,000 5,880,000 6,294,000
--------- --------- --------- --------- --------- --------- ---------
Total Debt Service 7,928,000 14,694,000 14,627,000 13,314,000 13,242,000 13,164,000 13,058,000
Operating Cashflow
Pre-Tax Cashflow from Operations 2,974,000 5,481,000 6,094,000 6,166,000 6,593,000 6,898,000 7,389,000
Overhaul Reserve Fund Additions (140,000) (306,000) (452,000) (577,000) (681,000) (790,000) (905,000)
Expected Debt Service Reserve Releases 655,000 26,000 670,000 30,000 33,000 47,000 50,000
Debt Service Reserve Fund Additions 0 0 0 0 0 0 0
- - - - - - -
Net Balance from Operations [2] 3,489,000 5,201,000 6,312,000 5,619,000 5,945,000 6,155,000 6,534,000
Debt Service Coverage
Revenue Avail. for Debt Service 10,902,000 20,175,000 20,721,000 19,480,000 19,835,000 20,062,000 20,447,000
Total Interest Costs 5,175,000 9,193,000 8,705,000 8,221,000 7,769,000 7,284,000 6,764,000
Total Principal Payments 2,753,000 5,501,000 5,922,000 5,093,000 5,473,000 5,880,000 6,294,000
--------- --------- --------- --------- --------- --------- ---------
Total Debt Service Costs 7,928,000 14,694,000 14,627,000 13,314,000 13,242,000 13,164,000 13,058,000
Times Interest Coverage 2.11 2.19 2.38 2.37 2.55 2.75 3.02
Times Total Debt Coverage 1.38 1.37 1.42 1.46 1.50 1.52 1.57
</TABLE>
[1] Project closing of July 1996 assumed. Reflects one-half year's operations
following refinancing.
[2] Available for capital expenditures or distributions to Project owners.
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL FORECAST
Revenues 2003 2004 2005 2006 2007 2008 2009
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues from Electric Sales:
Total Capacity Revenues 23,568,000 23,568,000 23,568,000 18,123,000 18,123,000 18,123,000 18,123,000
Energy Charges
Summer Gas Charge 10,387,000 11,909,000 13,648,000 13,951,000 14,254,000 14,544,000 14,884,000
Winter Gas Charge 4,427,000 5,684,000 7,233,000 6,444,000 5,744,000 5,104,000 4,539,000
Winter Oil Charge 690,000 1,109,000 1,776,000 1,688,000 1,600,000 1,520,000 1,441,000
VEPCO Gas Charge 454,000 462,000 470,000 479,000 488,000 498,000 507,000
------- ------- ------- ------- ------- ------- -------
Total Energy Revenues 15,958,000 19,164,000 23,127,000 22,562,000 22,086,000 21,666,000 21,371,000
Winter Gas Start Revenues 779,000 881,000 934,000 515,000 124,000 498,000 421,000
Steam Sales Revenues 449,000 449,000 449,000 449,000 449,000 449,000 449,000
Chilled Water Sales Revenues 162,000 162,000 162,000 182,000 182,000 182,000 182,000
------- ------- ------- ------- ------- ------- -------
Total Thermal Revenues 611,000 611,000 611,000 631,000 631,000 631,000 631,000
Total Sales Revenues 40,916,000 44,224,000 48,240,000 41,831,000 40,964,000 40,918,000 40,546,000
Interest - D.S.R. 5.0% 328,000 325,000 272,000 219,000 215,000 210,000 205,000
------- ------- ------- ------- ------- ------- -------
Total Revenues 41,244,000 44,549,000 48,512,000 42,050,000 41,179,000 41,128,000 40,751,000
Expenses
Fuel Costs - Cogen Plant 12,789,000 15,491,000 18,850,000 18,464,000 18,146,000 17,868,000 17,701,000
Fuel Costs - Boiler 988,000 919,000 824,000 966,000 1,120,000 1,276,000 1,444,000
Plant Operating Costs 5,732,000 5,840,000 5,953,000 6,074,000 6,200,000 6,332,000 6,473,000
Plant Variable Costs 759,000 782,000 806,000 830,000 854,000 880,000 906,000
------- ------- ------- ------- ------- ------- -------
Total Operating Costs 20,268,000 23,032,000 26,433,000 26,334,000 26,320,000 26,356,000 26,524,000
Rev. Avail. for Debt Service 20,976,000 21,517,000 22,079,000 15,716,000 14,859,000 14,772,000 14,227,000
Debt Service
Total Interest Costs 6,206,000 5,610,000 4,972,000 4,418,000 4,042,000 3,647,000 3,235,000
Total Principal Payments 6,737,000 7,215,000 7,697,000 4,292,000 4,492,000 4,705,000 4,919,000
--------- --------- --------- --------- --------- --------- ---------
Total Debt Service 12,943,000 12,825,000 12,669,000 8,710,000 8,534,000 8,352,000 8,154,000
Operating Cashflow
Pre-Tax Cashflow from Operations 8,033,000 8,692,000 9,410,000 7,006,000 6,325,000 6,420,000 6,073,000
Overhaul Reserve Fund Additions (1,072,000) (1,235,000) (1,430,000) (1,386,000) (1,347,000) (1,314,000) (1,284,000)
Expected Debt Service Reserve Releases 51,000 70,000 2,034,000 85,000 87,000 96,000 100,000
Debt Service Reserve Fund Additions 0 0 0 0 0 0 0
- - - - - - -
Net Balance from Operations [2] 7,012,000 7,527,000 10,014,000 5,705,000 5,065,000 5,202,000 4,889,000
Debt Service Coverage
Revenue Avail. for Debt Service 20,976,000 21,517,000 22,079,000 15,716,000 14,859,000 14,772,000 14,227,000
Total Interest Costs 6,206,000 5,610,000 4,972,000 4,418,000 4,042,000 3,647,000 3,235,000
Total Principal Payments 6,737,000 7,215,000 7,697,000 4,292,000 4,492,000 4,705,000 4,919,000
--------- --------- --------- --------- --------- --------- ---------
Total Debt Service Costs 12,943,000 12,825,000 12,669,000 8,710,000 8,534,000 8,352,000 8,154,000
Times Interest Coverage 3.38 3.84 4.44 3.56 3.68 4.05 4.40
Times Total Debt Coverage 1.62 1.68 1.74 1.80 1.74 1.77 1.74
</TABLE>
[1] Project closing of July 1996 assumed. Reflects one-half year's operations
following refinancing.
[2] Available for capital expenditures or distributions to Project owners.
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL FORECAST
Revenues 2010 2011 2012 2013 2014 2015
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Revenues from Electric Sales:
Total Capacity Revenues 18,123,000 18,123,000 18,123,000 18,123,000 18,123,000 18,123,000
Energy Charges
Summer Gas Charge 15,209,000 15,419,000 15,625,000 15,827,000 16,065,000 16,294,000
Winter Gas Charge 4,033,000 4,795,000 5,706,000 6,783,000 8,018,000 9,484,000
Winter Oil Charge 1,370,000 1,355,000 1,330,000 1,315,000 1,299,000 1,284,000
VEPCO Gas Charge 517,000 527,000 538,000 549,000 560,000 571,000
------- ------- ------- ------- ------- -------
Total Energy Revenues 21,129,000 22,096,000 23,199,000 24,474,000 25,942,000 27,633,000
Winter Gas Start Revenues 345,000 421,000 459,000 536,000 574,000 651,000
Steam Sales Revenues 449,000 449,000 449,000 449,000 449,000 449,000
Chilled Water Sales Revenues 182,000 202,000 202,000 202,000 202,000 202,000
------- ------- ------- ------- ------- -------
Total Thermal Revenues 631,000 651,000 651,000 651,000 651,000 651,000
Total Sales Revenues 40,228,000 41,291,000 42,432,000 43,784,000 45,290,000 47,058,000
Interest - D.S.R. 5.0% 201,000 196,000 191,000 185,000 169,000 79,000
------- ------- ------- ------- ------- ------
Total Revenues 40,429,000 41,487,000 42,623,000 43,969,000 45,459,000 47,137,000
Expenses
Fuel Costs - Cogen Plant 17,573,000 18,469,000 19,491,000 20,666,000 22,016,000 23,571,000
Fuel Costs - Boiler 1,620,000 1,723,000 1,836,000 1,941,000 2,054,000 2,167,000
Plant Operating Costs 6,620,000 6,774,000 6,935,000 7,106,000 7,284,000 7,469,000
Plant Variable Costs 933,000 961,000 990,000 1,019,000 1,049,000 1,081,000
------- ------- ------- --------- --------- ---------
Total Operating Costs 26,746,000 27,927,000 29,252,000 30,732,000 32,403,000 34,288,000
Rev. Avail. for Debt Service 13,683,000 13,560,000 13,371,000 13,237,000 13,056,000 12,849,000
Debt Service
Total Interest Costs 2,803,000 2,350,000 1,874,000 1,375,000 854,000 325,000
Total Principal Payments 5,143,000 5,422,000 5,691,000 5,953,000 6,188,000 6,031,000
--------- --------- --------- --------- --------- ---------
Total Debt Service 7,946,000 7,772,000 7,565,000 7,328,000 7,042,000 6,356,000
Operating Cashflow
Pre-Tax Cashflow from Operations 5,737,000 5,788,000 5,806,000 5,909,000 6,014,000 6,493,000
Overhaul Reserve Fund Additions (1,259,000) (1,287,000) (1,318,000) (3,354,000) (2,396,000) (1,443,000)
Expected Debt Service Reserve Releases 82,000 99,000 115,000 139,000 476,000 3,145,000
Debt Service Reserve Fund Additions 0 0 0 0 0 0
- - - - - -
Net Balance from Operations [2] 4,560,000 4,600,000 4,603,000 2,694,000 4,094,000 8,195,000
Debt Service Coverage
Revenue Avail. for Debt Service 13,683,000 13,560,000 13,371,000 13,237,000 13,056,000 12,849,000
Total Interest Costs 2,803,000 2,350,000 1,874,000 1,375,000 854,000 325,000
Total Principal Payments 5,143,000 5,422,000 5,691,000 5,953,000 6,188,000 6,031,000
--------- --------- --------- --------- --------- ---------
Total Debt Service Costs 7,946,000 7,772,000 7,565,000 7,328,000 7,042,000 6,356,000
Times Interest Coverage 4.88 5.77 7.14 9.63 15.29 39.54
Times Total Debt Coverage 1.72 1.74 1.77 1.81 1.85 2.02
</TABLE>
[1] Project closing of July 1996 assumed. Reflects one-half year's operations
following refinancing.
[2] Available for capital expenditures or distributions to Project owners.
<PAGE>
<TABLE>
<CAPTION>
RESERVE FUNDS
Debt Service Reserve Fund 1996 1997 1998 1999 2000 2001 2002 2003
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Beginning Balance 8,090,714 7,435,714 7,409,285 6,739,285 6,709,642 6,677,142 6,630,356 6,580,713
Additions 0 0 0 0 0 0 0 0
Interest 5.00% 388,000 371,000 354,000 336,000 335,000 333,000 330,000 328,000
Withdrawals (388,000) (371,000) (354,000) (336,000) (335,000) (333,000) (330,000) (328,000)
Releases (655,000) (26,429) (670,000) (29,643) (32,500) (46,786) (49,643) (51,429)
-------- ------- -------- ------- ------- ------- ------- -------
Ending Balance 7,435,714 7,409,285 6,739,285 6,709,642 6,677,142 6,630,356 6,580,713 6,529,284
Overhaul Reserve Fund
Beginning Balance 942,632 904,632 1,256,632 1,565,632 2,213,632 1,214,632 1,874,632 1,247,632
Additions 280,000 306,000 452,000 577,000 681,000 790,000 905,000 1,072,000
Additional Overhaul Allowance 0 0 0 0 0 0 0 0
Interest 5.00% 46,000 54,000 71,000 94,000 86,000 77,000 78,000
Turbine Overhauls (318,000) 0 (197,000) 0 (1,774,000) (216,000) (1,609,000) (2,575,000)
Other Withdrawals 0 0 0 0 0 0 0 0
Interest Withdrawal 0 0 0 0 0 0 0 0
Releases 0 0 0 0 0 0 0 0
- - - - - - - -
Ending Balance 904,632 1,256,632 1,565,632 2,213,632 1,214,632 1,874,632 1,247,632 (177,368)
Dispatch Hours [1] 1,077 1,144 1,637 2,030 2,326 2,621 2,915 3,354
Reserve Addition 3.00% $260 $268 $276 $284 $293 $301 $310 $320
Reserve Addition 280,000 306,000 452,000 577,000 681,000 790,000 905,000 1,072,000
Overhaul Requirements
Frame 6 Operating Hours 4,863 6,007 7,644 9,674 12,000 14,621 17,536 20,890
Estimated Maintenance Factor 2.82 2.82 2.82 2.82 2.82 2.82 2.82 2.82
Frame 6 Factored Hours 14,056 16,940 21,556 27,281 33,840 41,231 49,452 58,910
Combustion Inspection (CI) [2] $59,000 $63,000 $65,000 $69,000
Hot Gas Path Inspection (HGP) [3]
Major Overhaul (MO) [4] $1,513,000
Frame 7 Operating Hours 3,525 4,669 6,306 8,336 10,662 13,283 16,198 19,552
Estimated Maintenance Factor 2.82 2.82 2.82 2.82 2.82 2.82 2.82 2.82
Frame 7 Factored Hours 10,186 13,167 17,783 23,508 30,067 37,458 45,678 55,137
Combustion Inspection (CI) [5] $85,000 $93,000 $96,000
Hot Gas Path Inspection (HGP) [6] $1,711,000
Major Overhaul (MO) [7] $2,445,000
Steam Turbine Equiv. Hours 9,029 10,173 11,810 13,840 16,166 18,787 21,702 25,056
Limited ST Overhaul (LO) [8] $53,000 $58,000 $61,000
Major ST Overhaul (MO) [9] $318,000
--------
Total Overhaul Costs $318,000 $0 $197,000 $0 $1,774,000 $216,000 $1,609,000 $2,575,000
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RESERVE FUNDS
Debt Service Reserve Fund 2004 2005 2006 2007 2008 2009 2010 2011
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Beginning Balance 6,529,284 6,458,927 4,424,641 4,339,284 4,252,141 4,156,427 4,056,070 3,973,927
Additions 0 0 0 0 0 0 0 0
Interest 5.00% 325,000 272,000 219,000 215,000 210,000 205,000 201,000 196,000
Withdrawals (325,000) (272,000) (219,000) (215,000) (210,000) (205,000) (201,000) (196,000)
Releases (70,357) (2,034,286) (85,357) (87,143) (95,714) (100,357) (82,143) (99,286)
------- ---------- ------- ------- ------- -------- ------- -------
Ending Balance 6,458,927 4,424,641 4,339,284 4,252,141 4,156,427 4,056,070 3,973,927 3,874,641
Overhaul Reserve Fund
Beginning Balance (177,368) 912,632 (777,368) 309,632 1,382,632 (1,019,368) 64,632 (1,921,368)
Additions 1,235,000 1,430,000 1,386,000 1,347,000 1,314,000 1,284,000 1,259,000 1,287,000
Additional Overhaul Allowance 0 0 0 0 0 0 0 0
Interest 5.00% 27,000 18,000 49,000 84,000 38,000 (12,000) 42,000 9,000
Turbine Overhauls (172,000) (1,315,000) (183,000) (4,506,000) (265,000) (199,000) (3,703,000) (212,000)
Other Withdrawals 0 0 0 0 0 0 0 0
Interest Withdrawal 0 0 0 0 0 0 0 0
Releases 0 0 0 0 0 0 0 0
- - - - - - - -
Ending Balance 912,632 1,045,632 2,297,632 (777,368) 309,632 1,382,632 (1,019,368) 64,632
Dispatch Hours [1] 3,749 4,216 3,966 3,744 3,544 3,364 3,201 3,176
Reserve Addition 3.00% $329 $339 $349 $360 $371 $382 $393 $405
Reserve Addition 1,235,000 1,430,000 1,386,000 1,347,000 1,314,000 1,284,000 1,259,000 1,287,000
Overhaul Requirements
Frame 6 Operating Hours 24,639 28,855 32,821 36,565 40,109 43,473 46,674 49,850
Estimated Maintenance Factor 2.82 2.82 2.82 2.82 2.82 2.82 2.82 2.82
Frame 6 Factored Hours 69,482 81,371 92,555 103,113 113,107 122,594 131,621 140,577
Combustion Inspection (CI) [2] $71,000 $75,000 $80,000 $82,000 $87,000
Hot Gas Path Inspection (HGP) [3] $1,211,000 $1,404,000
Major Overhaul (MO) [4] $1,754,000
Frame 7 Operating Hours 23,301 27,517 31,483 35,227 38,771 42,135 45,336 48,512
Estimated Maintenance Factor 2.82 2.82 2.82 2.82 2.82 2.82 2.82 2.82
Frame 7 Factored Hours 65,709 77,598 88,782 99,340 109,334 118,821 127,848 136,804
Combustion Inspection (CI) [5] $101,000 $104,000 $108,000 $114,000 $117,000 $125,000
Hot Gas Path Inspection (HGP) [6] $2,299,000
Major Overhaul (MO) [7] $2,752,000
Steam Turbine Equiv. Hours 28,805 33,021 36,987 40,731 44,275 47,639 50,840 54,016
Limited ST Overhaul (LO) [8] $71,000
Major ST Overhaul (MO) [9]
Total Overhaul Costs $172,000 $1,315,000 $183,000 $4,506,000 $265,000 $199,000 $3,703,000 $212,000
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RESERVE FUNDS
Debt Service Reserve Fund 2012 2013 2014 2015
---- ---- ---- ----
<S> <C> <C> <C> <C>
Beginning Balance 3,874,641 3,759,998 3,621,069 3,145,447
Additions 0 0 0 0
Interest 5.00% 191,000 185,000 169,000 79,000
Withdrawals (191,000) (185,000) (169,000) (79,000)
Releases (114,643) (138,929) (475,622) (3,145,449)
-------- -------- -------- ----------
Ending Balance 3,759,998 3,621,069 3,145,477 (2)
Overhaul Reserve Fund
Beginning Balance 64,632 (1,921,368) (2,060,368) 4,632
Additions 1,318,000 1,354,000 1,396,000 1,443,000
Additional Overhaul Allowance 0 2,000,000 1,000,000 0
Interest 5.00% (24,000) (46,000) (100,000) (51,000)
Turbine Overhauls (3,280,000) (3,447,000) (231,000) (2,763,000)
Other Withdrawals 0 0 0 0
Interest Withdrawal 0 0 0 0
Releases 0 0 0 0
- - - -
Ending Balance (1,921,368) (2,060,368) 4,632 (1,366,368)
Dispatch Hours [1] 3,158 3,151 3,153 3,165
Reserve Addition 3.00% $417 $430 $443 $456
Reserve Addition 1,318,000 1,354,000 1,396,000 1,443,000
Overhaul Requirements
Frame 6 Operating Hours 53,008 56,159 59,312 62,477
Estimated Maintenance Factor 2.82 2.82 2.82 2.82
Frame 6 Factored Hours 149,483 158,368 167,260 176,185
Combustion Inspection (CI) [2] $90,000 $95,000 $98,000
Hot Gas Path Inspection (HGP) [3]
Major Overhaul (MO) [4] $2,094,000
Frame 7 Operating Hours 51,670 54,821 57,974 61,139
Estimated Maintenance Factor 2.82 2.82 2.82 2.82
Frame 7 Factored Hours 145,709 154,595 163,487 172,412
Combustion Inspection (CI) [5] $132,000 $136,000
Hot Gas Path Inspection (HGP) [6] $2,665,000
Major Overhaul (MO) [7] $3,190,000
Steam Turbine Equiv. Hours 57,174 60,325 63,478 66,643
Limited ST Overhaul (LO) [8]
Major ST Overhaul (MO) [9] $1,221,000
----------
Total Overhaul Costs $3,280,000 $3,447,000 $231,000 $2,763,000
</TABLE>
[1] Equivalent full load dispatch hours.
[2] CI conducted each 8,000 factored hours. Estimated cost of $56,000 (1996$)
[3] HGP conducted each 24,000 factored hours. Estimated cost of $928,000
(1996$)
[4] MO conducted each 48,000 factored hours. Estimated cost of $1,267,000
(1996$)
[5] CI conducted each 8,000 factored hours. Estimated cost of $80,000 (1996$)
[6] HGP conducted each 24,000 factored hours. Estimated cost of $1,520,000
(1996$)
[7] MO conducted each 40,000 factored hours. Estimated cost of $1,988,000
(1996$)
[8] LO conducted each 16,000 equivalent hours. Estimated cost of $50,000
(1996$)
[9] MO conducted each 50,000 equivalent hours. Estimated cost of $739,000
(1996$)
<PAGE>
EXHIBIT B
PROJECTED PRO FORMA FOR ZERO DISPATCH
OPERATING ASSUMPTIONS
Planning Period
Base Year: 1996
PPA Final Year: 2015
PPA Remaining Term: 20 years
Planning Period: 20 years
Rounding Precision: -3
<TABLE>
<CAPTION>
Capacity Assumptions
--------------------
Summer Summer Winter Winter
Demonstrated Capacity Contract Demonstrated Capacity Contract
Year Capacity Degradation Capacity Capacity Degradation Capacity
---- -------- ----------- -------- -------- ----------- --------
(MW) (%) (MW) (MW) (%) (MW)
<S> <C> <C> <C> <C> <C> <C>
1996 174.0 0.00% 165.0 198.0 0.00% 198.0
1997 174.0 0.00% 165.0 198.0 0.00% 198.0
1998 174.0 0.00% 165.0 198.0 0.00% 198.0
1999 174.0 0.00% 165.0 198.0 0.00% 198.0
2000 174.0 0.00% 165.0 198.0 0.00% 198.0
2001 174.0 0.00% 165.0 198.0 0.00% 198.0
2002 174.0 0.00% 165.0 198.0 0.00% 198.0
2003 174.0 0.00% 165.0 198.0 0.00% 198.0
2004 174.0 0.00% 165.0 198.0 0.00% 198.0
2005 174.0 0.00% 165.0 198.0 0.00% 198.0
2006 174.0 0.00% 165.0 198.0 0.00% 198.0
2007 174.0 0.00% 165.0 198.0 0.00% 198.0
2008 174.0 0.00% 165.0 198.0 0.00% 198.0
2009 174.0 0.00% 165.0 198.0 0.00% 198.0
2010 174.0 0.00% 165.0 198.0 0.00% 198.0
2011 174.0 0.00% 165.0 198.0 0.00% 198.0
2012 174.0 0.00% 165.0 198.0 0.00% 198.0
2013 174.0 0.00% 165.0 198.0 0.00% 198.0
2014 174.0 0.00% 165.0 198.0 0.00% 198.0
2015 174.0 0.00% 165.0 198.0 0.00% 198.0
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Dispatch Assumptions
--------------------
Summer Gas Winter Gas Winter Oil VEPCO Gas Total
Dispatch Summer Dispatch Winter gas Dispatch Winter Gas Dispatch VEPCO Gas Dispatch
Year Hours Output Hours Output Hours Output Hours Output Hours Percent
- ---- -------- ------ -------- ------ -------- ------ ----------- ------ -------- -------
(MWh) (MWh) (MWh) (MWh) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996 0 0 0 0 0 0 0 0 0 0
1997 0 0 0 0 0 0 0 0 0 0
1998 0 0 0 0 0 0 0 0 0 0
1999 0 0 0 0 0 0 0 0 0 0
2000 0 0 0 0 0 0 0 0 0 0
2001 0 0 0 0 0 0 0 0 0 0
2002 0 0 0 0 0 0 0 0 0 0
2003 0 0 0 0 0 0 0 0 0 0
2004 0 0 0 0 0 0 0 0 0 0
2005 0 0 0 0 0 0 0 0 0 0
2006 0 0 0 0 0 0 0 0 0 0
2007 0 0 0 0 0 0 0 0 0 0
2008 0 0 0 0 0 0 0 0 0 0
2009 0 0 0 0 0 0 0 0 0 0
2010 0 0 0 0 0 0 0 0 0 0
2011 0 0 0 0 0 0 0 0 0 0
2012 0 0 0 0 0 0 0 0 0 0
2013 0 0 0 0 0 0 0 0 0 0
2014 0 0 0 0 0 0 0 0 0 0
2015 0 0 0 0 0 0 0 0 0 0
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Electric Heat Assumptions(3) Aux. Boiler Steam/Chilled Water Assumptions
---------------------------- -------------------------------------------
Demonstrated Contract Steam C. Water Steam
Heat Heat Rate Heat Production Steam Production C. Water Heat
Year Rate Degradation Rate Hours Production Hours Production Requirement
- ---- ---- ----------- ---- ----- ---------- ----- ---------- -----------
(Btu/kWh) (%) (Btu/kWh) (pph) (ton-hr) (Btu/lb)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1996 8900 0.00% 8900 7800 50,000 4000 1010 1714
1997 8900 0.00% 8900 7800 50,000 4000 1010 1714
1998 8900 0.00% 8900 7800 50,000 4000 1010 1714
1999 8900 0.00% 8900 7800 50,000 4000 1010 1714
2000 8900 0.00% 8900 7800 50,000 4000 1010 1714
2001 8900 0.00% 8900 7800 50,000 4000 1010 1714
2002 8900 0.00% 8900 7800 50,000 4000 1010 1714
2003 8900 0.00% 8900 7800 50,000 4000 1010 1714
2004 8900 0.00% 8900 7800 50,000 4000 1010 1714
2005 8900 0.00% 8900 7800 50,000 4000 1010 1714
2006 8900 0.00% 8900 7800 50,000 4000 1010 1714
2007 8900 0.00% 8900 7800 50,000 4000 1010 1714
2008 8900 0.00% 8900 7800 50,000 4000 1010 1714
2009 8900 0.00% 8900 7800 50,000 4000 1010 1714
2010 8900 0.00% 8900 7800 50,000 4000 1010 1714
2011 8900 0.00% 8900 7800 50,000 4000 1010 1714
2012 8900 0.00% 8900 7800 50,000 4000 1010 1714
2013 8900 0.00% 8900 7800 50,000 4000 1010 1714
2014 8900 0.00% 8900 7800 50,000 4000 1010 1714
2015 8900 0.00% 8900 7800 50,000 4000 1010 1714
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FUEL COST ASSUMPTIONS
Summer Gas Cost
---------------
SSG SGT SGT SGT SR1 SR2 SRX Summer Summer Summer
Gulf Spot Transco Panda NCG Transco NCNG Swing Gas Gas Gas Gas
Year Price IT Pipeline IT Mgt. Fee Retainage Retainage Retainage Charge Charge Cost Margin Margin
- ---- ----- -- ----------- -------- --------- --------- --------- ------ ------ ---- ------ ------
($/MMBtu) ($/MMBtu) ($/MMBtu) ($/MMBtu) (%) (%) (%) ($/MMBtu) ($/kWh) ($/MMBtu) ($/MMBtu) ($/kWh)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996 $1.79 $0.34 $0.26 $0.04 3.79% 2.00% 3.00% $2.59 $0.02307 $2.26 $0.33 $0.00297
1997 $1.81 $0.34 $0.27 $0.04 3.79% 2.00% 3.00% $2.62 $0.02335 $2.28 $0.34 $0.00304
1998 $1.84 $0.35 $0.27 $0.04 3.79% 2.00% 3.00% $2.66 $0.02372 $2.31 $0.35 $0.00312
1999 $1.85 $0.36 $0.28 $0.04 3.79% 2.00% 3.00% $2.69 $0.02398 $2.34 $0.36 $0.00320
2000 $1.88 $0.37 $0.29 $0.04 3.79% 2.00% 3.00% $2.75 $0.02447 $2.38 $0.37 $0.00329
2001 $1.96 $0.38 $0.30 $0.04 3.79% 2.00% 3.00% $2.86 $0.02542 $2.47 $0.38 $0.00339
2002 $2.05 $0.38 $0.31 $0.04 3.79% 2.00% 3.00% $2.97 $0.02642 $2.57 $0.39 $0.00351
2003 $2.15 $0.39 $0.32 $0.04 3.79% 2.00% 3.00% $3.10 $0.02757 $2.69 $0.41 $0.00363
2004 $2.26 $0.40 $0.33 $0.04 3.79% 2.00% 3.00% $3.23 $0.02877 $2.81 $0.42 $0.00375
2005 $2.37 $0.42 $0.34 $0.04 3.79% 2.00% 3.00% $3.37 $0.03001 $2.94 $0.44 $0.00388
2006 $2.55 $0.43 $0.35 $0.04 3.79% 2.00% 3.00% $3.59 $0.03198 $3.14 $0.45 $0.00404
2007 $2.75 $0.43 $0.36 $0.04 3.79% 2.00% 3.00% $3.83 $0.03404 $3.35 $0.47 $0.00421
2008 $2.95 $0.44 $0.37 $0.04 3.79% 2.00% 3.00% $4.07 $0.03620 $3.57 $0.49 $0.00438
2009 $3.18 $0.45 $0.38 $0.04 3.79% 2.00% 3.00% $4.34 $0.03859 $3.82 $0.51 $0.00456
2010 $3.41 $0.47 $0.39 $0.04 3.79% 2.00% 3.00% $4.62 $0.04110 $4.08 $0.53 $0.00475
2011 $3.61 $0.48 $0.40 $0.04 3.79% 2.00% 3.00% $4.86 $0.04326 $4.31 $0.55 $0.00493
2012 $3.83 $0.48 $0.41 $0.04 3.79% 2.00% 3.00% $5.11 $0.04552 $4.54 $0.58 $0.00512
2013 $4.05 $0.49 $0.43 $0.04 3.79% 2.00% 3.00% $5.38 $0.04787 $4.78 $0.60 $0.00531
2014 $4.30 $0.51 $0.44 $0.04 3.79% 2.00% 3.00% $5.67 $0.05048 $5.05 $0.62 $0.00552
2015 $4.55 $0.52 $0.45 $0.04 3.79% 2.00% 3.00% $5.98 $0.05321 $5.33 $0.64 $0.00573
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Winter Gas Cost
---------------
WSG Panda WGT WR1 WR2 WR2 WRX
Appala- WGT WGT Pipe- NGC Transco CNG NCNG Swing Gas Winter Winter Winter Winter
chian Transco CNG line Mgt. Retain- Retain- Retain- Retain- Gas Gas Gas Gas
Year Price IT IT IT Fee age age age age Charge Charge Cost Cost Margin Margin
- ---- ----- -- -- -- --- --- --- --- --- ------ ------ ---- ---- ------ ------
(------------$/MMBtu-------------) (%) (%) (%) (%) ($/MMBtu) ($/kWh)($/MMBtu) ($/kWh) ($/MMBtu) ($/kWh)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996 $2.28 $0.24 $0.21 $0.26 $0.04 1.97% 2.28% 2.00% 3.00% $3.23 $0.02878 $2.92 $0.02596 $0.31673 $0.00282
1997 $2.31 $0.24 $0.21 $0.27 $0.04 1.97% 2.28% 2.00% 3.00% $3.29 $0.02932 $2.97 $0.02642 $0.32541 $0.00290
1998 $2.34 $0.25 $0.21 $0.27 $0.04 1.97% 2.28% 2.00% 3.00% $3.33 $0.02967 $3.00 $0.02669 $0.33403 $0.00297
1999 $2.36 $0.25 $0.21 $0.28 $0.04 1.97% 2.28% 2.00% 3.00% $3.37 $0.03001 $3.03 $0.02695 $0.34288 $0.00305
2000 $2.39 $0.26 $0.22 $0.29 $0.04 1.97% 2.28% 2.00% 3.00% $3.42 $0.03044 $3.07 $0.02731 $0.35196 $0.00313
2001 $2.50 $0.26 $0.23 $0.30 $0.04 1.97% 2.28% 2.00% 3.00% $3.56 $0.03169 $3.20 $0.02846 $0.36345 $0.00323
2002 $2.62 $0.27 $0.23 $0.31 $0.04 1.97% 2.28% 2.00% 3.00% $3.72 $0.03311 $3.35 $0.02977 $0.37563 $0.00334
2003 $2.74 $0.28 $0.24 $0.32 $0.04 1.97% 2.28% 2.00% 3.00% $3.87 $0.03447 $3.48 $0.03102 $0.38789 $0.00345
2004 $2.86 $0.29 $0.25 $0.33 $0.04 1.97% 2.28% 2.00% 3.00% $4.03 $0.03587 $3.63 $0.03231 $0.40055 $0.00356
2005 $2.98 $0.30 $0.26 $0.34 $0.04 1.97% 2.28% 2.00% 3.00% $4.19 $0.03733 $3.78 $0.03365 $0.41361 $0.00368
2006 $3.21 $0.30 $0.25 $0.35 $0.04 1.97% 2.28% 2.00% 3.00% $4.46 $0.03967 $4.03 $0.03584 $0.42962 $0.00382
2007 $3.45 $0.30 $0.26 $0.36 $0.04 1.97% 2.28% 2.00% 3.00% $4.73 $0.04211 $4.29 $0.03814 $0.44622 $0.00397
2008 $3.69 $0.31 $0.26 $0.37 $0.04 1.97% 2.28% 2.00% 3.00% $5.02 $0.04465 $4.55 $0.04053 $0.46305 $0.00412
2009 $3.95 $0.32 $0.27 $0.38 $0.04 1.97% 2.28% 2.00% 3.00% $5.33 $0.04745 $4.85 $0.04317 $0.48088 $0.00428
2010 $4.22 $0.33 $0.28 $0.39 $0.04 1.97% 2.28% 2.00% 3.00% $5.66 $0.05038 $5.16 $0.04594 $0.49936 $0.00444
2011 $4.46 $0.34 $0.29 $0.40 $0.04 1.97% 2.28% 2.00% 3.00% $5.95 $0.05298 $5.44 $0.04838 $0.51726 $0.00460
2012 $4.73 $0.35 $0.30 $0.41 $0.04 1.97% 2.28% 2.00% 3.00% $6.27 $0.05585 $5.74 $0.05108 $0.53622 $0.00477
2013 $5.01 $0.36 $0.31 $0.43 $0.04 1.97% 2.28% 2.00% 3.00% $6.61 $0.05884 $6.06 $0.05389 $0.55585 $0.00495
2014 $5.28 $0.37 $0.30 $0.44 $0.04 1.97% 2.28% 2.00% 3.00% $6.93 $0.06163 $6.35 $0.05651 $0.57572 $0.00512
2015 $5.58 $0.36 $0.31 $0.45 $0.04 1.97% 2.28% 2.00% 3.00% $7.27 $0.06472 $6.68 $0.05941 $0.59675 $0.00531
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Winter Fuel Oil Cost
--------------------
Delivered Panda Winter Winter Winter
Fuel Oil Handling Oil Oil Fuel Oil Oil
Year Price Charge Charge Charge Usage Cost Margin Margin
- ---- ----- ------ ------ ------ ----- ---- ------ ------
($/MMBtu) ($/MMBtu) ($/MMBtu) ($/kWh) (%) ($/MMBtu) ($/MMBtu) ($/kWh)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1996 $4.05 $0.10 $4.14 $0.03686 80.00% $3.82 $0.32219 $0.00287
1997 $4.21 $0.10 $4.31 $0.03833 80.00% $3.96 $0.34700 $0.00309
1998 $4.38 $0.10 $4.48 $0.03985 80.00% $4.10 $0.37759 $0.00336
1999 $4.55 $0.11 $4.66 $0.04144 80.00% $4.25 $0.40979 $0.00365
2000 $4.73 $0.11 $4.84 $0.04309 80.00% $4.40 $0.44134 $0.00393
2001 $4.73 $0.11 $4.84 $0.04309 80.00% $4.43 $0.41551 $0.00370
2002 $4.73 $0.11 $4.84 $0.04309 80.00% $4.46 $0.38604 $0.00344
2003 $4.73 $0.11 $4.84 $0.04309 80.00% $4.48 $0.35809 $0.00319
2004 $4.73 $0.11 $4.84 $0.04309 80.00% $4.51 $0.32905 $0.00293
2005 $4.73 $0.11 $4.84 $0.04309 80.00% $4.54 $0.29888 $0.00266
2006 $4.73 $0.11 $4.84 $0.04309 80.00% $4.59 $0.24961 $0.00222
2007 $4.73 $0.11 $4.84 $0.04309 80.00% $4.64 $0.19805 $0.00176
2008 $4.73 $0.11 $4.84 $0.04309 80.00% $4.70 $0.14432 $0.00128
2009 $4.73 $0.11 $4.84 $0.04309 80.00% $4.76 $0.08489 $0.00076
2010 $4.73 $0.11 $4.84 $0.04309 80.00% $4.82 $0.02271 $0.00020
2011 $4.73 $0.11 $4.84 $0.04309 80.00% $4.87 ($0.03204) ($0.00029)
2012 $4.73 $0.11 $4.84 $0.04309 80.00% $4.93 ($0.09269) ($0.00082)
2013 $4.73 $0.11 $4.84 $0.04309 80.00% $5.00 ($0.15601) ($0.00139)
2014 $4.73 $0.11 $4.84 $0.04309 80.00% $5.06 ($0.21484) ($0.00191)
2015 $4.73 $0.11 $4.84 $0.04309 80.00% $5.12 ($0.27998) ($0.00249)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
VEPCO Gas Cost
--------------
MGT Panda VEPCO VEPCO Plant FA VEPCO VEPCO VEPCO VEPCO
Management Pipeline Gas Gas Variable NCNG Nomination Gas Nomination Gas
Year Fee Charge Charge Charge O&M Costs Retainage Fee Charge Fee Cost Margin
- ---- --- ------ ------ ------ --------- --------- --- ------ --- ---- ------
($/MMBtu) ($/MMBtu) ($/MMBtu) ($/kWh) ($/kWh) (%) ($/day) ($/kWh) ($/day) ($/kWh) ($/kWh)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996 $0.04 $0.13 $0.17 $0.00150 $0.00222 2.00% $0 $0.00000 $0 $0.00000 $0.00000
1997 $0.04 $0.13 $0.17 $0.00153 $0.00229 2.00% $0 $0.00000 $0 $0.00000 $0.00000
1998 $0.04 $0.14 $0.18 $0.00157 $0.00236 2.00% $0 $0.00000 $0 $0.00000 $0.00000
1999 $0.04 $0.14 $0.18 $0.00161 $0.00243 2.00% $0 $0.00000 $0 $0.00000 $0.00000
2000 $0.04 $0.14 $0.18 $0.00164 $0.00250 2.00% $0 $0.00000 $0 $0.00000 $0.00000
2001 $0.04 $0.14 $0.18 $0.00164 $0.00258 2.00% $0 $0.00000 $0 $0.00000 $0.00000
2002 $0.04 $0.14 $0.18 $0.00164 $0.00266 2.00% $0 $0.00000 $0 $0.00000 $0.00000
2003 $0.04 $0.14 $0.18 $0.00164 $0.00274 2.00% $0 $0.00000 $0 $0.00000 $0.00000
2004 $0.04 $0.14 $0.18 $0.00164 $0.00282 2.00% $0 $0.00000 $0 $0.00000 $0.00000
2005 $0.04 $0.14 $0.18 $0.00164 $0.00290 2.00% $0 $0.00000 $0 $0.00000 $0.00000
2006 $0.04 $0.14 $0.18 $0.00164 $0.00299 2.00% $0 $0.00000 $0 $0.00000 $0.00000
2007 $0.04 $0.14 $0.18 $0.00164 $0.00308 2.00% $0 $0.00000 $0 $0.00000 $0.00000
2008 $0.04 $0.14 $0.18 $0.00164 $0.00317 2.00% $0 $0.00000 $0 $0.00000 $0.00000
2009 $0.04 $0.14 $0.18 $0.00164 $0.00327 2.00% $0 $0.00000 $0 $0.00000 $0.00000
2010 $0.04 $0.14 $0.18 $0.00164 $0.00337 2.00% $0 $0.00000 $0 $0.00000 $0.00000
2011 $0.04 $0.14 $0.18 $0.00164 $0.00347 2.00% $0 $0.00000 $0 $0.00000 $0.00000
2012 $0.04 $0.14 $0.18 $0.00164 $0.00357 2.00% $0 $0.00000 $0 $0.00000 $0.00000
2013 $0.04 $0.14 $0.18 $0.00164 $0.00368 2.00% $0 $0.00000 $0 $0.00000 $0.00000
2014 $0.04 $0.14 $0.18 $0.00164 $0.00379 2.00% $0 $0.00000 $0 $0.00000 $0.00000
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Auxillary Boiler Steam/Chilled Water Fuel Cost
----------------------------------------------
Texas Steam Steam
Gulf Spot Transco GRI/ACA NCG Transco CNG Gas NCNG Gas Gas Steam
Year Price Commodity Surcharge Mgt. Fee Retainage Retainage Retainage Retainage Cost Cost Charge Margin
- ---- ----- --------- --------- -------- --------- --------- --------- --------- ---- ---- ------ ------
($/MMBtu) ($/MMBtu) ($/MMBtu) ($/MMBtu) (%) (%) (%) (%) ($/MMBtu) ($/klbs) ($/klbs) ($/klbs)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996 $1.79 $0.03 $0.02 $0.04 3.79% 2.28% 2.00% 1.00% $2.05 $3.51 $1.15 ($2.36)
1997 $1.81 $0.03 $0.02 $0.04 3.79% 2.28% 2.00% 1.00% $2.07 $3.55 $1.15 ($2.40)
1998 $1.84 $0.03 $0.02 $0.04 3.79% 2.28% 2.00% 1.00% $2.10 $3.60 $1.15 ($2.45)
1999 $1.85 $0.03 $0.02 $0.04 3.79% 2.28% 2.00% 1.00% $2.11 $3.62 $1.15 ($2.47)
2000 $1.88 $0.03 $0.02 $0.04 3.79% 2.28% 2.00% 1.00% $2.15 $3.68 $1.15 ($2.53)
2001 $1.96 $0.03 $0.02 $0.04 3.79% 2.28% 2.00% 1.00% $2.24 $3.83 $1.15 ($2.68)
2002 $2.05 $0.03 $0.02 $0.04 3.79% 2.28% 2.00% 1.00% $2.34 $4.01 $1.15 ($2.86)
2003 $2.15 $0.03 $0.02 $0.04 3.79% 2.28% 2.00% 1.00% $2.45 $4.20 $1.15 ($3.05)
2004 $2.26 $0.03 $0.02 $0.04 3.79% 2.28% 2.00% 1.00% $2.56 $4.39 $1.15 ($3.24)
2005 $2.37 $0.03 $0.02 $0.04 3.79% 2.28% 2.00% 1.00% $2.68 $4.60 $1.15 ($3.45)
2006 $2.55 $0.03 $0.02 $0.04 3.79% 2.28% 2.00% 1.00% $2.88 $4.94 $1.15 ($3.79)
2007 $2.75 $0.03 $0.02 $0.04 3.79% 2.28% 2.00% 1.00% $3.10 $5.32 $1.15 ($4.17)
2008 $2.95 $0.03 $0.02 $0.04 3.79% 2.28% 2.00% 1.00% $3.32 $5.69 $1.15 ($4.54)
2009 $3.18 $0.03 $0.02 $0.04 3.79% 2.28% 2.00% 1.00% $3.57 $6.12 $1.15 ($4.97)
2010 $3.41 $0.03 $0.02 $0.04 3.79% 2.28% 2.00% 1.00% $3.83 $6.56 $1.15 ($5.41)
2011 $3.61 $0.03 $0.02 $0.04 3.79% 2.28% 2.00% 1.00% $4.04 $6.93 $1.15 ($5.78)
2012 $3.83 $0.03 $0.02 $0.04 3.79% 2.28% 2.00% 1.00% $4.29 $7.35 $1.15 ($6.20)
2013 $4.05 $0.03 $0.02 $0.04 3.79% 2.28% 2.00% 1.00% $4.53 $7.76 $1.15 ($6.61)
2014 $4.30 $0.03 $0.02 $0.04 3.79% 2.28% 2.00% 1.00% $4.79 $8.21 $1.15 ($7.06)
2015 $4.55 $0.03 $0.02 $0.04 3.79% 2.28% 2.00% 1.00% $5.07 $8.69 $1.15 ($7.54)
</TABLE>
<PAGE>
PROJECT FINANCING ASSUMPTIONS
Equal
Financing Sources of Funds Annual
Refinancing Debt Service
----------- ------------
DEBT FINANCING:
First Mortage Bonds:
Percentage Financed 85.63%
Principal Amount $111,400,000 $11,879,000
Interest Rate 8.63%
Term 20.0
Years of Interest Only 0.0
Debt Service Reserve Fund
(% of Principal) 7.26%
Financing Fees 2.69%
Subordinate Debt A:
Percentage Financed 0.00%
Principal Amount $0 $0
Interest Rate 9.00%
Term 20.0
Years of Interest Only 0.0
Debt Service Reserve Fund
(% of Principal) 0.00%
Financing Fees 0.00%
OTHER FINANCING SOURCES:
Existing Debt Service
Reserve Fund $4,117,388
Existing Turbine Overhaul
Reserve $931,032
Existing Reimbursement
Obligation Account $8,247,605
Existing Pollution Control
Account $5,256,983
Existing Spare Parts
Account $113,737
Existing Revenue Account $27,763
-------
Total Other Financing
Sources $18,694,508
TOTAL SOURCES OF FUNDS $130,094,508
Financing Uses of Funds
REFINANCING COSTS::
Operating Account $868,226
Defeasance of Taxable Revenue
Bonds $103,209,600
PROJECT COSTS:
Pollution Control Reserve $5,256,983
Turbine Overhaul Reserve $942,632
FINANCING COSTS
Debt Service Reserve $8,090,714
Fees and Expenses $3,000,000
Partial Redemption of FMCC
Rosemary Interest $8,726,353
TOTAL USES OF FUNDS $130,094,508
<PAGE>
Custom Principal
Amortization Schedules
----------------------
First Mortgage Subordinate
Year Bonds Debt A
- ---- ----- ------
1996 2,752,798 0
2997 5,500,608 0
1998 5,992,178 0
1999 5,092,966 0
2000 5,472,948 0
2001 5,879,990 0
2002 6,293,568 0
2003 6,737,102 0
2004 7,215,320 0
2005 7,696,926 0
2006 4,292,216 0
2007 4,491,704 0
2008 4,704,828 0
2009 4,919,192 0
2010 5,142,758 0
2011 5,422,034 0
2012 5,691,114 0
2013 5,952,686 0
2014 6,188,248 0
2015 6,030,816 0
====================================
111,400,000
<PAGE>
<TABLE>
<CAPTION>
DEBT SERVICE CALCULATIONS 50.00%
1996 1997 1998 1999 2000 2001 2002 2003
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
First Mortgage Bonds:
Beginning Balance 111,400,000 108,647,202 103,146,594 97,224,416 92,131,450 86,658,502 80,778,512 74,484,944
Interest 5,175,000 9,192,911 8,704,848 8,220,881 7,769,322 7,284,115 6,763,589 6,206,423
Principal 2,752,798 5,500,608 5,922,178 5,092,966 5,472,948 5,879,990 6,293,568 6,737,102
Debt Service 7,927,798 14,693,519 14,627,026 13,313,847 13,242,270 13,164,105 13,057,157 12,943,525
Ending Balance 108,647,202 103,146,594 97,224,416 92,131,450 86,658,502 80,778,512 74,484,944 67,747,842
Subordinated Debt A:
Beginning Balance 0 0 0 0 0 0 0 0
Interest 0 0 0 0 0 0 0 0
Principal 0 0 0 0 0 0 0 0
Debt Service 0 0 0 0 0 0 0 0
Ending Balance 0 0 0 0 0 0 0 0
TOTAL DEBT SERVICE
Interest 5,175,000 9,192,911 8,704,848 8,220,881 7,769,322 7,284,115 6,763,589 6,206,423
Principal 2,752,798 5,500,608 5,922,178 5,092,966 5,472,948 5,879,990 6,293,568 6,737,102
Debt Service 7,927,798 14,693,519 14,627,026 13,313,847 13,242,270 13,164,105 13,057,157 12,943,525
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
2004 2005 2006 2007 2008 2009 2010 2011
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
First Mortgage Bonds:
Beginning Balance 67,747,842 60,532,522 52,835,596 48,543,380 44,051,676 39,346,848 34,427,656 29,284,898
Interest 5,609,882 4,971,983 4,418,244 4,041,589 3,647,284 3,234,560 2,803,049 2,350,454
Principal 7,215,320 7,696,926 4,292,216 4,491,704 4,704,828 4,919,192 5,142,758 5,422,034
Debt Service 12,825,202 12,668,909 8,710,460 8,533,293 8,352,112 8,153,752 7,945,807 7,772,488
Ending Balance 60,532,522 52,835,596 48,543,380 44,051,676 39,346,848 34,427,656 29,284,898 23,862,864
Subordinated Debt A:
Beginning Balance 0 0 0 0 0 0 0 0
Interest 0 0 0 0 0 0 0 0
Principal 0 0 0 0 0 0 0 0
Debt Service 0 0 0 0 0 0 0 0
Ending Balance 0 0 0 0 0 0 0 0
TOTAL DEBT SERVICE
Interest 5,609,882 4,971,983 4,418,244 4,041,589 3,647,284 3,234,560 2,803,049 2,350,454
Principal 7,215,320 7,696,926 4,292,216 4,491,704 4,704,828 4,919,192 5,142,758 5,422,034
Debt Service 12,825,202 12,668,909 8,710,460 8,533,293 8,352,112 8,153,752 7,945,807 7,772,488
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
2012 2013 2014 2015
---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
First Mortgage Bonds:
Beginning Balance 23,862,864 18,171,750 12,219,064 6,030,816
Interest 1,874,100 1,374,781 853,744 325,100 94,821,650
Principal 5,691,114 5,952,686 6,188,248 6,030,816 111,400,000
--------- --------- --------- ---------
Debt Service 7,565,214 7,327,467 7,041,992 6,355,916
Ending Balance 18,171,750 12,219,064 6,030,816 0
Subordinated Debt A:
Beginning Balance 0 0 0 0
Interest 0 0 0 0
Principal 0 0 0 0
- - - -
Debt Service 0 0 0 0
Ending Balance 0 0 0 0
TOTAL DEBT SERVICE
Interest 1,874,100 1,374,781 853,744 325,100
Principal 5,691,114 5,952,686 6,188,248 6,030,816
--------- --------- --------- ---------
Debt Service 7,565,214 7,327,467 7,041,992 6,355,916
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FUEL COSTS
Dispatch Operations 1996 1997 1998 1999 2000 2001 2002
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Total Hours 8,760 8,760 8,760 8,760 8,760 8,760 8,760
Summer & VEPCO Capacity 165.0 165.0 165.0 165.0 165.0 165.0 165.0
Winter Capacity 198.0 198.0 198.0 198.0 198.0 198.0 198.0
Summer Dispatch 0 0 0 0 0 0 0
Winter Gas Dispatch 0 0 0 0 0 0 0
Winter Oil Dispatch 0 0 0 0 0 0 0
VEPCO Gas Dispatch 0 0 0 0 0 0 0
--- --- --- --- --- --- ---
Total Dispatch Hour 0 0 0 0 0 0 0
Percentage 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Winter Starts 0 0 0 0 0 0 0
Winter Start Duration 40 40 40 40 40 40 40
Net Generation
Availability Factor 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Equivalent Load Factor 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Summer Output MWh 0 0 0 0 0 0 0
Winter Gas Output MWh 0 0 0 0 0 0 0
Winter Oil Dispatch MWh 0 0 0 0 0 0 0
VEPCO Gas Dispatch MWh 0 0 0 0 0 0 0
--- --- --- --- --- --- ---
Net Generation MWh 0 0 0 0 0 0 0
Fuel Usage - Electrical Generation
Net Electric
Heat Rate Btu/kWh 8900 8900 8900 8900 8900 8900 8900
Summer Gas Fuel MMBtu 0 0 0 0 0 0 0
Winter Gas Fuel MMBtu 0 0 0 0 0 0 0
Winter Oil Fuel MMBtu 0 0 0 0 0 0 0
VEPCO Gas Fuel MMBtu 0 0 0 0 0 0 0
--- --- --- --- --- --- ---
Total Fuel MMBtu 0 0 0 0 0 0 0
Fuel Cost - Electrical Generation
Summer Gas Fuel $/MMBtu $2.26 $2.28 $2.31 $2.34 $2.38 $2.47 $2.57
Winter Gas Fuel $/MMBtu $2.92 $2.97 $3.00 $3.03 $3.07 $3.20 $3.35
Winter Oil Fuel $/MMBtu $3.82 $3.96 $4.10 $4.25 $4.40 $4.43 $4.46
VEPCO Gas Fuel $/kWh $0.00000 $0.00000 $0.00000 $0.00000 $0.00000 $0.00000 $0.00000
Summer Gas Fuel $ 0 0 0 0 0 0 0
Winter Gas Fuel $ 0 0 0 0 0 0 0
Winter Oil Fuel $ 0 0 0 0 0 0 0
VEPCO Gas Fuel $ 0 0 0 0 0 0 0
--- --- --- --- --- --- ---
Total Fuel Cost $ 0 0 0 0 0 0 0
Total Fuel Costs - Cogen Plant
Summer Gas Fuel $ 0 0 0 0 0 0 0
Winter Gas Fuel $ 0 0 0 0 0 0 0
Winter Oil Fuel $ 0 0 0 0 0 0 0
VEPCO Gas Fuel $ 0 0 0 0 0 0 0
Fuel Usage - Thermal MMBtu 0 0 0 0 0 0 0
Fuel Cost - Thermal [1]$ 0 0 0 0 0 0 0
--- --- --- --- --- --- ---
Total Fuel Costs - Cogen Plant 0 0 0 0 0 0 0
Average Fuel Cost($/MMBtu) $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
Average Fuel Cost($/kWh) $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
[1] Boiler fuel cost estimate below used to determine fuel cost allocation of
thermal production.
Steam/Chilled Water
Steam Production Hours 7,800 7,800 7,800 7,800 7,800 7,800 7,800
Chilled Water Production 4,000 4,000 4,000 4,000 4,000 4,000 4,000
Steam Production Hours - Boiler 7,800 7,800 7,800 7,800 7,800 7,800 7,800
Chilled Water Production
Hours - Boil 4,000 4,000 4,000 4,000 4,000 4,000 4,000
Steam Fuel - Boiler MMBtu 668,460 668,460 668,460 668,460 668,460 668,460 668,460
C. Water Fuel - Boiler MMBtu 123,257 123,257 123,257 123,257 123,257 123,257 123,257
------- ------- ------- ------- ------- ------- -------
Total Boiler Fuel MMBtu 791,717 791,717 791,717 791,717 791,717 791,717 791,717
Boiler Fuel Cost $/MMBtu $2.05 $2.07 $2.10 $2.11 $2.15 $2.24 $2.34
Boiler Fuel Cost $ 1,622,000 1,642,000 1,662,000 1,672,000 1,701,000 1,770,000 1,853,000
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FUEL COSTS
Dispatch Operations 2003 2004 2005 2006 2007 2008 2009
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Total Hours 8,760 8,760 8,760 8,760 8,760 8,760 8,760
Summer & VEPCO Capacity 165.0 165.0 165.0 165.0 165.0 165.0 165.0
Winter Capacity 198.0 198.0 198.0 198.0 198.0 198.0 198.0
Summer Dispatch 0 0 0 0 0 0 0
Winter Gas Dispatch 0 0 0 0 0 0 0
Winter Oil Dispatch 0 0 0 0 0 0 0
VEPCO Gas Dispatch 0 0 0 0 0 0 0
--- --- --- --- --- --- ---
Total Dispatch Hour 0 0 0 0 0 0 0
Percentage 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Winter Starts 0 0 0 0 0 0 0
Winter Start Duration 40 40 40 40 40 40 40
Net Generation
Availability Factor 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Equivalent Load Factor 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Summer Output MWh 0 0 0 0 0 0 0
Winter Gas Output MWh 0 0 0 0 0 0 0
Winter Oil Dispatch MWh 0 0 0 0 0 0 0
VEPCO Gas Dispatch MWh 0 0 0 0 0 0 0
--- --- --- --- --- --- ---
Net Generation MWh 0 0 0 0 0 0 0
Fuel Usage - Electrical Generation
Net Electric
Heat Rate Btu/kWh 8900 8900 8900 8900 8900 8900 8900
Summer Gas Fuel MMBtu 0 0 0 0 0 0 0
Winter Gas Fuel MMBtu 0 0 0 0 0 0 0
Winter Oil Fuel MMBtu 0 0 0 0 0 0 0
VEPCO Gas Fuel MMBtu 0 0 0 0 0 0 0
--- --- --- --- --- --- ---
Total Fuel MMBtu 0 0 0 0 0 0 0
Fuel Cost - Electrical Generation
Summer Gas Fuel $/MMBtu $2.69 $2.81 $2.94 $3.14 $3.35 $3.57 $3.82
Winter Gas Fuel $/MMBtu $3.48 $3.63 $3.78 $4.03 $4.29 $4.55 $4.85
Winter Oil Fuel $/MMBtu $4.48 $4.51 $4.54 $4.59 $4.64 $4.70 $4.76
VEPCO Gas Fuel $/kWh $0.00000 $0.00000 $0.00000 $0.00000 $0.00000 $0.00000 $0.00000
Summer Gas Fuel $ 0 0 0 0 0 0 0
Winter Gas Fuel $ 0 0 0 0 0 0 0
Winter Oil Fuel $ 0 0 0 0 0 0 0
VEPCO Gas Fuel $ 0 0 0 0 0 0 0
Total Fuel Cost $ --- --- --- --- --- --- ---
0 0 0 0 0 0 0
Total Fuel Costs - Cogen Plant
Summer Gas Fuel $ 0 0 0 0 0 0 0
Winter Gas Fuel $ 0 0 0 0 0 0 0
Winter Oil Fuel $ 0 0 0 0 0 0 0
VEPCO Gas Fuel $ 0 0 0 0 0 0 0
Fuel Usage - Thermal MMBtu 0 0 0 0 0 0 0
Fuel Cost - Thermal $ 0 0 0 0 0 0 0
--- --- --- --- --- --- ---
Total Fuel Costs - Cogen Plant 0 0 0 0 0 0 0
Average Fuel Cost($/MMBtu) $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
Average Fuel Cost($/kWh) $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
Steam/Chilled Water
Steam Production Hours 7,800 7,800 7,800 7,800 7,800 7,800 7,800
Chilled Water Production 4,000 4,000 4,000 4,000 4,000 4,000 4,000
Steam Production Hours - Boiler 7,800 7,800 7,800 7,800 7,800 7,800 7,800
Chilled Water Production
Hours - Boil 4,000 4,000 4,000 4,000 4,000 4,000 4,000
Steam Fuel - Boiler MMBtu 668,460 668,460 668,460 668,460 668,460 668,460 668,460
C. Water Fuel - Boiler MMBtu 123,257 123,257 123,257 123,257 123,257 123,257 123,257
------- ------- ------- ------- ------- ------- -------
Total Boiler Fuel MMBtu 791,717 791,717 791,717 791,717 791,717 791,717 791,717
Boiler Fuel Cost $/MMBtu $2.45 $2.56 $2.68 $2.88 $3.10 $3.32 $3.57
Boiler Fuel Cost $ 1,939,000 2,029,000 2,123,000 2,280,000 2,457,000 2,630,000 2,825,000
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FUEL COSTS
Dispatch Operations 2010 2011 2012 2013 2014 2015
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Total Hours 8,760 8,760 8,760 8,760 8,760 8,760
Summer & VEPCO Capacity 165.0 165.0 165.0 165.0 165.0 165.0
Winter Capacity 198.0 198.0 198.0 198.0 198.0 198.0
Summer Dispatch 0 0 0 0 0 0
Winter Gas Dispatch 0 0 0 0 0 0
Winter Oil Dispatch 0 0 0 0 0 0
VEPCO Gas Dispatch 0 0 0 0 0 0
--- --- --- --- --- ---
Total Dispatch Hour 0 0 0 0 0 0
Percentage 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Winter Starts 0 0 0 0 0 0
Winter Start Duration 40 40 40 40 40 40
Net Generation
Availability Factor 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Equivalent Load Factor 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Summer Output MWh 0 0 0 0 0 0
Winter Gas Output MWh 0 0 0 0 0 0
Winter Oil Dispatch MWh 0 0 0 0 0 0
VEPCO Gas Dispatch MWh 0 0 0 0 0 0
--- --- --- --- --- ---
Net Generation MWh 0 0 0 0 0 0
Fuel Usage - Electrical Generation
Net Electric
Heat Rate Btu/kWh 8900 8900 8900 8900 8900 8900
Summer Gas Fuel MMBtu 0 0 0 0 0 0
Winter Gas Fuel MMBtu 0 0 0 0 0 0
Winter Oil Fuel MMBtu 0 0 0 0 0 0
VEPCO Gas Fuel MMBtu 0 0 0 0 0 0
--- --- --- --- --- ---
Total Fuel MMBtu 0 0 0 0 0 0
Fuel Cost - Electrical Generation
Summer Gas Fuel $/MMBtu $4.08 $4.31 $4.54 $4.78 $5.05 $5.33
Winter Gas Fuel $/MMBtu $5.16 $5.44 $5.74 $6.06 $6.35 $6.68
Winter Oil Fuel $/MMBtu $4.82 $4.87 $4.93 $5.00 $5.06 $5.12
VEPCO Gas Fuel $/kWh $0.00000 $0.00000 $0.00000 $0.00000 $0.00000 $0.00000
Summer Gas Fuel $ 0 0 0 0 0 0
Winter Gas Fuel $ 0 0 0 0 0 0
Winter Oil Fuel $ 0 0 0 0 0 0
VEPCO Gas Fuel $ 0 0 0 0 0 0
Total Fuel Cost $ --- --- --- --- --- ---
0 0 0 0 0 0
Total Fuel Costs - Cogen Plant
Summer Gas Fuel $ 0 0 0 0 0 0
Winter Gas Fuel $ 0 0 0 0 0 0
Winter Oil Fuel $ 0 0 0 0 0 0
VEPCO Gas Fuel $ 0 0 0 0 0 0
Fuel Usage - Thermal MMBtu 0 0 0 0 0 0
Fuel Cost - Thermal $ 0 0 0 0 0 0
--- --- --- --- --- ---
Total Fuel Costs - 0 0 0 0 0 0
Cogen Plant
$0.00 $0.00 $0.00 $0.00 $0.00 $0.00
Average Fuel Cost($/MMBtu) $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
Average Fuel Cost($/kWh)
Steam/Chilled Water
Steam Production Hours 7,800 7,800 7,800 7,800 7,800 7,800
Chilled Water Production 4,000 4,000 4,000 4,000 4,000 4,000
Steam Production Hours - Boiler 7,800 7,800 7,800 7,800 7,800 7,800
Chilled Water Production
Hours - Boil 4,000 4,000 4,000 4,000 4,000 4,000
Steam Fuel - Boiler MMBtu 668,460 668,460 668,460 668,460 668,460 668,460
C. Water Fuel - Boiler MMBtu 123,257 123,257 123,257 123,257 123,257 123,257
------- ------- ------- ------- ------- -------
Total Boiler Fuel MMBtu 791,717 791,717 791,717 791,717 791,717 791,717
Boiler Fuel Cost $/MMBtu $3.83 $4.04 $4.29 $4.53 $4.79 $5.07
Boiler Fuel Cost $ 3,029,000 3,201,000 3,395,000 3,583,000 3,794,000 4,016,000
</TABLE>
<PAGE>
PLANT OPERATING COSTS
<TABLE>
<CAPTION>
1995 1996
Estimated Actual Budget Escalation
---------------- ------ ----------
<S> <C> <C> <C>
Fuel Transportation Costs:
Firm Transportation - Transco $1,097,889 $1,080,316 0.00%
Less: Capacity Release Revenues [1] $0 ($132,000) 0.00%
Fuel Management Fee $240,000 $240,000 3.00%
-------- --------
Total Fuel Transportation Costs $1,337,889 $1,188,316
Operating Costs:
O&M Contract Fee $1,641,825 $681,248 [3] 3.00%
General Maintenance & Repairs $144,622 $16,083 [4] 8.00%
Planned Plant Maintenance Projects $156,972 $32,843 [4] 3.00%
Additional Maintenance Allowance $274,024 $15,500 [4] 0.00%
Parts Replacement $228,392 $16,794 [4] 3.00%
Other Plant Expenses $34,930 $10,420 [5] 3.00%
Panda Management Fee [2] $480,000 $0 0.00%
Office & Admin Expenses $231,061 $95,008 [6] 3.00%
Property Taxes $977,109 $972,000 -3.00%
Insurance $298,728 $300,000 3.00%
VEPCO Performance LOC $64,602 $66,232 Input Panda Forecast
------- -------
Total Operating Costs $4,532,265 $2,206,127
Total Plant Operating Costs $5,870,154 $3,394,442
</TABLE>
[1] Capacity release revenues based on estimated 1800 MMBtu/d and 50% recovery
of tariff rate starting in August 1996.
[2] Panda Management Fee will be subordinated to all Project costs.
[3] Cost @ 40% of base case.
[4] Cost @ 10% of base case.
[5] Cost @ 20% base case.
[6] Cost @ 50% base case.
<PAGE>
<TABLE>
<CAPTION>
Plant Operating Costs 1996 1997 1998 1999 2000 2001 2002 2003
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Firm Transportation - Transco 1,080,000 1,080,000 1,080,000 1,080,000 1,080,000 1,080,000 1,080,000 1,080,000
Capacity Release Revenues (132,000) (316,000) (316,000) (316,000) (316,000) (316,000) (316,000) (316,000)
Fuel Management Fee 240,000 247,000 255,000 262,000 270,000 278,000 287,000 295,000
O&M Contract Fee 681,000 702,000 1,807,000 1,861,000 1,917,000 1,974,000 2,034,000 2,095,000
General Maintenance & Repairs 16,000 174,000 188,000 203,000 219,000 236,000 255,000 276,000
Planned Plant Maintenanance 328,000 338,000 348,000 359,000 370,000 381,000 392,000 404,000
Additional Maintenance 155,000 155,000 155,000 155,000 155,000 155,000 155,000 155,000
Parts Replacement 168,000 173,000 178,000 184,000 189,000 195,000 201,000 207,000
Other Plant Expenses 52,000 54,000 55,000 57,000 59,000 60,000 62,000 64,000
Panda Management Fee [2] 0 0 0 0 0 0 0 0
Office & Admin Expenses 190,000 196,000 202,000 208,000 214,000 220,000 227,000 234,000
Property Taxes 972,000 943,000 915,000 887,000 861,000 835,000 810,000 785,000
Insurance 300,000 309,000 318,000 328,000 338,000 348,000 358,000 369,000
VEPCO Performance LOC 66,000 66,000 66,000 66,000 84,000 84,000 84,000 84,000
------ ------ ------ ------ ------ ------ ------ ------
Plant Operating Costs 5,283,000 5,173,000 5,251,000 5,334,000 5,440,000 5,530,000 5,629,000 5,732,000
Percent Change -10.00% -2.08% 1.51% 1.58% 1.99% 1.65% 1.79% 1.83%
</TABLE>
[1] Capacity release revenues based on estimated 1800 MMBtu/d and 50% recovery
of tariff rate starting in August 1996.
[2] Panda Management Fee will be subordinated to all Project costs.
<TABLE>
<CAPTION>
Plant Operating Costs 2004 2005 2006 2007 2008 2009 2010
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Firm Transportation - Transco 1,080,000 1,080,000 1,080,000 1,080,000 1,080,000 1,080,000 1,080,000
Capacity Release Revenues (316,000) (316,000) (316,000) (316,000) (316,000) (316,000) (316,000)
Fuel Management Fee 304,000 313,000 323,000 332,000 342,000 352,000 363,000
O&M Contract Fee 2,157,000 2,222,000 2,289,000 2,358,000 2,428,000 2,501,000 2,576,000
General Maintenance & Repairs 298,000 321,000 347,000 375,000 405,000 437,000 472,000
Planned Plant Maintenanance 416,000 429,000 441,000 455,000 468,000 482,000 497,000
Additional Maintenance 155,000 155,000 155,000 155,000 155,000 155,000 155,000
Parts Replacement 213,000 219,000 226,000 232,000 239,000 247,000 254,000
Other Plant Expenses 66,000 68,000 70,000 72,000 74,000 77,000 79,000
Panda Management Fee [2] 0 0 0 0 0 0 0
Office & Admin Expenses 241,000 248,000 255,000 263,000 271,000 279,000 287,000
Property Taxes 762,000 739,000 717,000 695,000 674,000 654,000 635,000
Insurance 380,000 391,000 403,000 415,000 428,000 441,000 454,000
VEPCO Performance LOC 84,000 84,000 84,000 84,000 84,000 84,000 84,000
------ ------ ------ ------ ------ ------ ------
Plant Operating Costs 5,840,000 5,953,00 6,074,000 6,200,000 6,332,000 6,473,000 6,620,000
Percent Change 1.88% 1.93% 2.03% 2.07% 2.13% 2.23% 2.27%
</TABLE>
[1] Capacity release revenues based on estimated 1800 MMBtu/d and 50% recovery
of tariff rate starting in August 1996.
[2] Panda Management Fee will be subordinated to all Project costs.
<TABLE>
<CAPTION>
Plant Operating Costs 2011 2012 2013 2014 2015
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Firm Transportation - Transco 1,080,000 1,080,000 1,080,000 1,080,000 1,080,000
Capacity Release Revenues (316,000) (316,000) (316,000) (316,000) (316,000)
Fuel Management Fee 374,000 385,000 397,000 409,000 421,000
O&M Contract Fee 2,653,000 2,733,000 2,815,000 2,899,000 2,986,000
General Maintenance & Repairs 510,000 551,000 595,000 643,000 694,000
Planned Plant Maintenanance 512,000 527,000 543,000 559,000 576,000
Additional Maintenance 155,000 155,000 155,000 155,000 155,000
Parts Replacement 262,000 269,000 278,000 286,000 294,000
Other Plant Expenses 81,000 84,000 86,000 89,000 91,000
Panda Management Fee [2] 0 0 0 0 0
Office & Admin Expenses 296,000 305,000 314,000 323,000 333,000
Property Taxes 616,000 597,000 579,000 562,000 545,000
Insurance 467,000 481,000 496,000 511,000 526,000
VEPCO Performance LOC 84,000 84,000 84,000 84,000 84,000
------ ------ ------ ------ ------
Plant Operating Costs 6,774,000 6,935,000 7,106,000 7,284,000 7,469,000
Percent Change 2.33% 2.38% 2.47% 2.50% 2.54%
</TABLE>
[1] Capacity release revenues based on estimated 1800 MMBtu/d and 50% recovery
of tariff rate starting in August 1996.
[2] Panda Management Fee will be subordinated to all Project costs.
<PAGE>
<TABLE>
<CAPTION>
Plant Operating Costs 1996 1997 1998 1999 2000 2001 2002
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Firm Transportation - Transco 1,080,000 1,080,000 1,080,000 1,080,000 1,080,000 1,080,000 1,080,000
Capacity Release Revenues (132,000) (316,000) (316,000) (316,000) (316,000) (316,000) (316,000)
Fuel Management Fee 240,000 247,000 255,000 262,000 270,000 278,000 287,000
O&M Contract Fee 681,000 702,000 723,000 744,000 767,000 790,000 813,000
General Maintenance & Repairs 16,000 17,000 19,000 20,000 22,000 24,000 26,000
Planned Plant Maintenance Projects 33,000 34,000 35,000 36,000 37,000 38,000 39,000
Additional Maintenance 16,000 16,000 16,000 16,000 16,000 16,000 16,000
Parts Replacement 17,000 17,000 18,000 18,000 19,000 19,000 20,000
Other Plant Expenses 10,000 11,000 11,000 11,000 12,000 12,000 12,000
Panda Management Fee [2] 0 0 0 0 0 0 0
Office & Admin Expenses 95,000 98,000 101,000 104,000 107,000 110,000 113,000
Property Taxes 972,000 943,000 915,000 887,000 861,000 835,000 810,000
Insurance 300,000 309,000 318,000 328,000 338,000 348,000 358,000
VEPCO Performance LOC 66,000 66,000 66,000 66,000 84,000 84,000 84,000
------ ------ ------ ------ ------ ------ ------
Plant Operating Costs 3,394,000 3,224,000 3,241,000 3,256,000 3,297,000 3,318,000 3,342,000
Percent Change -42.18% -5.01% 0.53% 0.46% 1.26% 0.64% 0.72%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Plant Operating Costs 2003 2004 2005 2006 2007 2008 2009
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Firm Transportation - Transco 1,080,000 1,080,000 1,080,000 1,080,000 1,080,000 1,080,000 1,080,000
Capacity Release Revenues (316,000) (316,000) (316,000) (316,000) (316,000) (316,000) (316,000)
Fuel Management Fee 295,000 304,000 313,000 323,000 332,000 342,000 352,000
O&M Contract Fee 838,000 863,000 889,000 916,000 943,000 971,000 1,000,000
General Maintenance & Repairs 28,000 30,000 32,000 35,000 37,000 40,000 44,000
Planned Plant Maintenance Projects 40,000 42,000 43,000 44,000 45,000 47,000 48,000
Additional Maintenance 16,000 16,000 16,000 16,000 16,000 16,000 16,000
Parts Replacement 21,000 21,000 22,000 23,000 23,000 24,000 25,000
Other Plant Expenses 13,000 13,000 14,000 14,000 14,000 15,000 15,000
Panda Management Fee [2] 0 0 0 0 0 0 0
Office & Admin Expenses 117,000 120,000 124,000 128,000 132,000 135,000 140,000
Property Taxes 785,000 762,000 739,000 717,000 695,000 674,000 654,000
Insurance 369,000 380,000 391,000 403,000 415,000 428,000 441,000
VEPCO Performance LOC 84,000 84,000 84,000 84,000 84,000 84,000 84,000
------ ------ ------ ------ ------ ------ ------
Plant Operating Costs 3,370,000 3,399,000 3,431,000 3,467,000 3,500,000 3,540,000 3,583,000
Percent Change 0.84% 0.86% 0.94% 1.05% 0.95% 1.14% 1.21%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Plant Operating Costs 2010 2011 2012 2013 2014 2015
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Firm Transportation - Transco 1,080,000 1,080,000 1,080,000 1,080,000 1,080,000 1,080,000
Capacity Release Revenues (316,000) (316,000) (316,000) (316,000) (316,000) (316,000)
Fuel Management Fee 363,000 374,000 385,000 397,000 409,000 421,000
O&M Contract Fee 1,030,000 1,061,000 1,093,000 1,126,000 1,160,000 1,195,000
General Maintenance & Repairs 47,000 51,000 55,000 60,000 64,000 69,000
Planned Plant Maintenance Projects 50,000 51,000 53,000 54,000 56,000 58,000
Additional Maintenance 16,000 16,000 16,000 16,000 16,000 16,000
Parts Replacement 25,000 26,000 27,000 28,000 29,000 29,000
Other Plant Expenses 16,000 16,000 17,000 17,000 18,000 18,000
Panda Management Fee [2] 0 0 0 0 0 0
Office & Admin Expenses 144,000 148,000 152,000 157,000 162,000 167,000
Property Taxes 635,000 616,000 597,000 579,000 562,000 545,000
Insurance 454,000 467,000 481,000 496,000 511,000 526,000
VEPCO Performance LOC 84,000 84,000 84,000 84,000 84,000 84,000
------ ------ ------ ------ ------ ------
Plant Operating Costs 3,628,000 3,674,000 3,724,000 3,778,000 3,835,000 3,892,000
Percent Change 1.26% 1.27% 1.36% 1.45% 1.51% 1.49%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
VARIABLE PLANT COSTS
1995 1996
Actual Summary Escalation
------ ------- ----------
<S> <C> <C> <C>
Plant Electricity Usage
Hours Not Dispatched 7698 8760
Average Electric Load (kW) 1150 1150
Electric Rate ($/kWh) $0.0440 $0.0453 3.00%
------- -------
Total Plant Electricity Usage $389,519 $456,554
Water & Chemical Usage
Hours Dispatched 1062 0
Gallons per Hour Usage - Cogen 32,000 32,000
Steam/Chilled Water Production Hours 11,800 11,800
Gallons per Hour Usage - Boiler 8,000 8,000
Total Gallons (1000s) 128,384 94,400
Water & Chemical Cost ($/1000 gal) $1.34 $1.38 3.00%
----- -----
Total Water & Chemical Usage $172,035 $130,291
Water Discharge
Hours Dispatched 1062 0
Gallons per Hour Usage - Cogen 8,000 8,000
Steam/Chilled Water Production Hours 11,800 11,800
Gallons per Hour Usage - Boiler 2,000 2,000
Total Gallons (1000s) 32,096 32,600
Water Discharge Cost ($/1000 gal) $1.09 $1.12 3.00%
----- -----
Total Water Discharge $34,985 $26,496
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Plant Variable Costs 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Hours Dispatched 0 0 0 0 0 0 0 0 0 0
Hours Not Dispatched 8760 8760 8760 8760 8760 8760 8760 8760 8760 8760
Steam/Chilled Water Production Hours 11,800 11,800 11,800 11,800 11,800 11,800 11,800 11,800 11,800 11,800
Plant Electricity Usage 457,000 470,000 484,000 499,000 514,000 529,000 545,000 562,000 578,000 596,000
Water & Chemical Usage 130,000 134,000 138,000 142,000 147,000 151,000 156,000 160,000 165,000 170,000
Water Discharge 26,000 27,000 28,000 29,000 30,000 31,000 32,000 33,000 34,000 35,000
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total Plant Variable Cost 613,000 631,000 650,000 670,000 691,000 711,000 733,000 755,000 777,000 801,000
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Plant Variable Costs 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Hours Dispatched 0 0 0 0 0 0 0 0 0 0
Hours Not Dispatched 8760 8760 8760 8760 8760 8760 8760 8760 8760 8760
Steam/Chilled Water Production Hours 11,800 11,800 11,800 11,800 11,800 11,800 11,800 11,800 11,800 11,800
Plant Electricity Usage 614,000 632,000 651,000 670,000 691,000 711,000 733,000 755,000 777,000 801,000
Water & Chemical Usage 175,000 180,000 186,000 191,000 197,000 203,000 209,000 215,000 222,000 228,000
Water Discharge 36,000 37,000 38,000 39,000 40,000 41,000 43,000 44,000 45,000 46,000
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total Plant Variable Cost 825,000 849,000 875,000 900,000 928,000 955,000 985,000 1,014,000 1,044,000 1,075,000
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
REVENUE GENERATION
Dispatch Operations 1996 1997 1998 1999 2000 2001 2002 2003
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total Hours 8,760 8,760 8,760 8,760 8,760 8,760 8,760 8,760
Summer & VEPCO Capacity 165.0 165.0 165.0 165.0 165.0 165.0 165.0 165.0
Winter Capacity 198.0 198.0 198.0 198.0 198.0 198.0 198.0 198.0
Summer Dispatch 0 0 0 0 0 0 0 0
Winter Gas Dispatch 0 0 0 0 0 0 0 0
Winter Oil Dispatch 0 0 0 0 0 0 0 0
VEPCO Gas Dispatch 0 0 0 0 0 0 0 0
Total Dispatch Hours 0 0 0 0 0 0 0 0
Percentage 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Winter Starts 0 0 0 0 0 0 0 0
Winter Start Duration 40 40 40 40 40 40 40 40
Net Generation
Availability Factor 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Load Factor 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Summer Output MWh 0 0 0 0 0 0 0 0
Winter Gas Output MWh 0 0 0 0 0 0 0 0
Winter Oil Dispatch MWh 0 0 0 0 0 0 0 0
VEPCO Gas Dispatch MWh 0 0 0 0 0 0 0 0
Net Generation MWh 0 0 0 0 0 0 0 0
Capacity Revenues
Capacity Rate $/kw-mo $12.49 $11.65 $11.65 $10.82 $10.82 $10.82 $10.82 $10.82
Capacity Revenues - Summer 12,363,000 11,537,000 11,537,000 10,713,000 10,713,000 10,713,000 10,713,000 10,713,000
Capacity Revenues - Winter 14,836,000 13,845,000 13,845,000 12,855,000 12,855,000 12,855,000 12,855,000 12,855,000
Total Capacity Revenues 27,199,000 25,382,000 25,382,000 23,568,000 23,568,000 23,568,000 23,568,000 23,568,000
Energy Revenues
Summer Gas Charge $/kWh $0.0231 $0.0233 $0.0237 $0.0240 $0.0245 $0.0254 $0.0264 $0.0276
Winter Gas Charge $/kWh $0.0288 $0.0293 $0.0297 $0.0300 $0.0304 $0.0317 $0.0331 $0.0345
Winter Oil Charge $/kWh $0.0369 $0.0383 $0.0399 $0.0414 $0.0431 $0.0431 $0.0431 $0.0431
VEPCO Gas Chargee $/kWh $0.0039 $0.0040 $0.0041 $0.0042 $0.0043 $0.0044 $0.0045 $0.0046
Variable O&M Charge $/kWh $0.0022 $0.0023 $0.0024 $0.0024 $0.0025 $0.0026 $0.0027 $0.0027
Summer Gas Revenues $ 0 0 0 0 0 0 0 0
Winter Gas Revenues $ 0 0 0 0 0 0 0 0
Winter Oil Revenues $ 0 0 0 0 0 0 0 0
VEPCO Gas Revenues $ 0 0 0 0 0 0 0 0
Total Energy Revenues $ 0 0 0 0 0 0 0 0
Start Revenues
Winter Gas Start Payment $38,286 $38,286 $38,286 $38,286 $38,286 $38,286 $38,286 $38,286
Winter Gas Start Revenues 0 154,000 283,000 499,000 611,000 566,000 687,000 779,000
Thermal Revenues
Steam Production Hours 7,800 7,800 7,800 7,800 7,800 7,800 7,800 7,800
Chilled Water Production Hours 4,000 4,000 4,000 4,000 4,000 4,000 4,000 4,000
Steam Production pph 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000
Chilled Water Production tph 1,010 1,010 1,010 1,010 1,010 1,010 1,010 1,010
Steam Production klbs 390,000 390,000 390,000 390,000 390,000 390,000 390,000 390,000
Chilled Water Productio ktons 4,040 4,040 4,040 4,040 4,040 4,040 4,040 4,040
Steam Charge $/klbs $1.15 $1.15 $1.15 $1.15 $1.15 $1.15 $1.15 $1.15
Chilled Water Charge $/ton $0.035 $0.035 $0.035 $0.035 $0.035 $0.040 $0.040 $0.040
Steam Revenues $ 449,000 449,000 449,000 449,000 449,000 449,000 449,000 449,000
Chilled Water Revenues $ 141,000 141,000 141,000 141,000 141,000 162,000 162,000 162,000
Total Thermal Revenues $ 590,000 590,000 590,000 590,000 590,000 611,000 611,000 611,000
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
REVENUE GENERATION
Dispatch Operations 2004 2005 2006 2007 2008 2009 2010 2011
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total Hours 8,760 8,760 8,760 8,760 8,760 8,760 8,760 8,760
Summer & VEPCO Capacity 165.0 165.0 165.0 165.0 165.0 165.0 165.0 165.0
Winter Capacity 198.0 198.0 198.0 198.0 198.0 198.0 198.0 198.0
Summer Dispatch 0 0 0 0 0 0 0 0
Winter Gas Dispatch 0 0 0 0 0 0 0 0
Winter Oil Dispatch 0 0 0 0 0 0 0 0
VEPCO Gas Dispatch 0 0 0 0 0 0 0 0
Total Dispatch Hours 0 0 0 0 0 0 0 0
Percentage 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Winter Starts 0 0 0 0 0 0 0 0
Winter Start Duration 40 40 40 40 40 40 40 40
Net Generation
Availability Factor 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Load Factor 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Summer Output MWh 0 0 0 0 0 0 0 0
Winter Gas Output MWh 0 0 0 0 0 0 0 0
Winter Oil Dispatch MWh 0 0 0 0 0 0 0 0
VEPCO Gas Dispatch MWh 0 0 0 0 0 0 0 0
Net Generation MWh 0 0 0 0 0 0 0 0
Capacity Revenues
Capacity Rate $/kw-mo $10.82 $10.82 $8.32 $8.32 $8.32 $8.32 $8.32 $8.32
Capacity Revenues - Summer 10,713,000 10,713,000 8,238,000 8,238,000 8,238,000 8,238,000 8,238,000 8,238,000
Capacity Revenues - Winter 12,855,000 12,855,000 9,885,000 9,885,000 9,885,000 9,885,000 9,885,000 9,885,000
Total Capacity Revenues 23,568,000 23,568,000 18,123,000 18,123,000 18,123,000 18,123,000 18,123,000 18,123,000
Energy Revenues
Summer Gas Charge $/kWh $ $0.0288 $0.0300 $0.0320 $0.0340 $0.0362 $0.0386 $0.0411 $0.0433
Winter Gas Charge $/kWh $ $0.0359 $0.0373 $0.0397 $0.0421 $0.0446 $0.0475 $0.0504 $0.0530
Winter Oil Charge $/kWh $ $0.0431 $0.0431 $0.0431 $0.0431 $0.0431 $0.0431 $0.0431 $0.0431
VEPCO Gas Chargee $/kWh $ $0.0047 $0.0048 $0.0048 $0.0049 $0.0050 $0.0051 $0.0052 $0.0053
Variable O&M Charge $/kWh $ $0.0028 $0.0029 $0.0030 $0.0031 $0.0032 $0.0033 $0.0034 $0.0035
Summer Gas Revenues $ 0 0 0 0 0 0 0 0
Winter Gas Revenues $ 0 0 0 0 0 0 0 0
Winter Oil Revenues $ 0 0 0 0 0 0 0 0
VEPCO Gas Revenues $ 0 0 0 0 0 0 0 0
Total Energy Revenues $ 0 0 0 0 0 0 0 0
Start Revenues
Winter Gas Start Payment $38,286 $38,286 $38,286 $38,286 $38,286 $38,286 $38,286 $38,286
Winter Gas Start Revenues 881,000 934,000 515,000 124,000 498,000 421,000 345,000 421,000
Thermal Revenues
Steam Production Hours 7,800 7,800 7,800 7,800 7,800 7,800 7,800 7,800
Chilled Water Production Hours 4,000 4,000 4,000 4,000 4,000 4,000 4,000 4,000
Steam Production pph 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000
Chilled Water Production tph 1,010 1,010 1,010 1,010 1,010 1,010 1,010 1,010
Steam Production klbs 390,000 390,000 390,000 390,000 390,000 390,000 390,000 390,000
Chilled Water Productio ktons 4,040 4,040 4,040 4,040 4,040 4,040 4,040 4,040
Steam Charge $/klbs $1.15 $1.15 $1.15 $1.15 $1.15 $1.15 $1.15 $1.15
Chilled Water Charge $/ton $0.040 $0.040 $0.045 $0.045 $0.045 $0.045 $0.045 $0.050
Steam Revenues $ 449,000 449,000 449,000 449,000 449,000 449,000 449,000 449,000
Chilled Water Revenues $ 162,000 162,000 182,000 182,000 182,000 182,000 182,000 202,000
Total Thermal Revenues $ 611,000 611,000 631,000 631,000 631,000 631,000 631,000 651,000
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
REVENUE GENERATION
Dispatch Operations 2012 2013 2014 2015
---- ---- ---- ----
<S> <C> <C> <C> <C>
Total Hours 8,760 8,760 8,760 8,760
Summer & VEPCO Capacity 165.0 165.0 165.0 165.0
Winter Capacity 198.0 198.0 198.0 198.0
Summer Dispatch 0 0 0 0
Winter Gas Dispatch 0 0 0 0
Winter Oil Dispatch 0 0 0 0
VEPCO Gas Dispatch 0 0 0 0
Total Dispatch Hours 0 0 0 0
Percentage 0.00% 0.00% 0.00% 0.00%
Winter Starts 0 0 0 0
Winter Start Duration 40 40 40 40
Net Generation
Availability Factor 100.0% 100.0% 100.0% 100.0%
Load Factor 100.0% 100.0% 100.0% 100.0%
Summer Output MWh 0 0 0 0
Winter Gas Output MWh 0 0 0 0
Winter Oil Dispatch MWh 0 0 0 0
VEPCO Gas Dispatch MWh 0 0 0 0
Net Generation MWh 0 0 0 0
Capacity Revenues
Capacity Rate $/kw-mo $8.32 $8.32 $8.32 $8.32
Capacity Revenues - Summer 8,238,000 8,238,000 8,238,000 8,238,000
Capacity Revenues - Winter 9,885,000 9,885,000 9,885,000 9,885,000
Total Capacity Revenues 18,123,000 18,123,000 18,123,000 18,123,000
Energy Revenues
Summer Gas Charge $/kWh $0.0455 $0.0479 $0.0505 $0.0532
Winter Gas Charge $/kWh $0.0558 $0.0588 $0.0616 $0.0647
Winter Oil Charge $/kWh $0.0431 $0.0431 $0.0431 $0.0431
VEPCO Gas Chargee $/kWh $0.0054 $0.0055 $0.0057 $0.0058
Variable O&M Charge $/kWh $0.0036 $0.0037 $0.0038 $0.0039
Summer Gas Revenues $ 0 0 0 0
Winter Gas Revenues $ 0 0 0 0
Winter Oil Revenues $ 0 0 0 0
VEPCO Gas Revenues $ 0 0 0 0
Total Energy Revenues $ 0 0 0 0
Start Revenues
Winter Gas Start Payment $38,286 $38,286 $38,286 $38,286
Winter Gas Start Revenues 459,000 536,000 574,000 651,000
Thermal Revenues
Steam Production Hours 7,800 7,800 7,800 7,800
Chilled Water Production Hours 4,000 4,000 4,000 4,000
Steam Production pph 50,000 50,000 50,000 50,000
Chilled Water Production tph 1,010 1,010 1,010 1,010
Steam Production klbs 390,000 390,000 390,000 390,000
Chilled Water Productio ktons 4,040 4,040 4,040 4,040
Steam Charge $/klbs $1.15 $1.15 $1.15 $1.15
Chilled Water Charge $/ton $0.050 $0.050 $0.050 $0.050
Steam Revenues $ 449,000 449,000 449,000 449,000
Chilled Water Revenues $ 202,000 202,000 202,000 202,000
Total Thermal Revenues $ 651,000 651,000 651,000 651,000
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL FORECAST
Revenues 7/96-12/96 [1] 1997 1998 1999 2000 2001 2002
-------------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues from Electric Sales:
Total Capacity Revenues 13,599,500 25,382,000 25,382,000 23,568,000 23,568,000 23,568,000 23,568,000
Energy Charges
Summer Gas Charge 0 0 0 0 0 0 0
Winter Gas Charge 0 0 0 0 0 0 0
Winter Oil Charge 0 0 0 0 0 0 0
VEPCO Gas Charge 0 0 0 0 0 0 0
- - - - - - -
Total Energy Revenues 0 0 0 0 0 0 0
Winter Gas Start Revenues 0 0 0 0 0 0 0
Steam Sales Revenues 224,500 449,000 449,000 449,000 449,000 449,000 449,000
Chilled Water Sales Revenues 70,500 141,000 141,000 141,000 141,000 162,000 162,000
------ ------- ------- ------- ------- ------- -------
Total Thermal Revenues 295,000 590,000 590,000 590,000 590,000 611,000 611,000
Total Sales Revenues 13,894,000 25,972,000 25,972,000 24,158,000 24,158,000 24,179,000 24,179,000
Interest - D.S.R. 5.0% 194,000 371,000 354,000 336,000 335,000 333,000 330,000
------- ------- ------- ------- ------- ------- -------
Total Revenues 14,088,500 26,343,000 26,326,000 24,494,000 24,493,000 24,509,000 24,509,000
Expenses
Fuel Costs - Cogen Plant 0 0 0 0 0 0 0
Fuel Costs - Boiler 811,000 1,642,000 1,662,000 1,672,000 1,701,000 1,770,000 1,853,000
Plant Operating Costs 1,631,000 3,224,000 3,241,000 3,256,000 3,297,000 3,318,000 3,342,000
Plant Variable Costs 306,500 631,000 650,000 670,000 691,000 711,000 733,000
------- ------- ------- ------- ------- ------- -------
Total Operating Costs 2,748,500 5,497,000 5,553,000 5,598,000 5,689,000 5,799,000 5,928,000
Rev. Avail. for Debt Service 11,340,000 20,846,000 20,773,000 18,896,000 18,804,000 18,713,000 18,581,000
Debt Service
Total Interest Costs 5,175,000 9,193,000 8,705,000 8,221,000 7,769,000 7,284,000 6,764,000
Total Principal Payments 2,753,000 5,501,000 5,922,000 5,093,000 5,473,000 5,880,000 6,294,000
--------- --------- --------- --------- --------- --------- ---------
Total Debt Service 7,928,000 14,694,000 14,627,000 13,314,000 13,242,000 13,164,000 13,058,000
Operating Cashflow
Pre-Tax Cashflow from Operations 3,412,000 6,152,000 6,146,000 5,582,000 5,562,000 5,549,000 5,523,000
Overhaul Reserve Fund Additions 0 0 0 0 0 0
Expected Debt Service Reserve Releases 655,000 26,000 670,000 30,000 33,000 47,000 50,000
Debt Service Reserve Fund Additions 0 0 0 0 0 0 0
- - - - - - -
Net Balance from Operations [2] 4,067,000 6,178,000 6,816,000 5,612,000 5,595,000 5,596,000 5,573,000
Debt Service Coverage
Revenue Avail. for Debt Service 11,340,000 20,846,000 20,773,000 18,896,000 18,804,000 18,713,000 18,581,000
Total Interest Costs 5,175,000 9,193,000 8,705,000 8,221,000 7,769,000 7,284,000 6,764,000
Total Principal Payments 2,753,000 5,501,000 5,922,000 5,093,000 5,473,000 5,880,000 6,294,000
--------- --------- --------- --------- --------- --------- ---------
Total Debt Service Costs 7,928,000 14,694,000 14,627,000 13,314,000 13,242,000 13,164,000 13,058,000
Times Interest Coverage 2.19 2.27 2.39 2.30 2.42 2.57 2.75
Times Total Debt Coverage 1.43 1.42 1.42 1.42 1.42 1.42 1.42
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL FORECAST
Revenues 2003 2004 2005 2006 2007 2008 2009
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues from Electric Sales:
Total Capacity Revenues 23,568,000 23,568,000 23,568,000 18,123,000 18,123,000 18,123,000 18,123,000
Energy Charges
Summer Gas Charge 0 0 0 0 0 0 0
Winter Gas Charge 0 0 0 0 0 0 0
Winter Oil Charge 0 0 0 0 0 0 0
VEPCO Gas Charge 0 0 0 0 0 0 0
- - - - - - -
Total Energy Revenues 0 0 0 0 0 0 0
Winter Gas Start Revenues 0 0 0 0 0 0 0
Steam Sales Revenues 449,000 449,000 449,000 449,000 449,000 449,000 449,000
Chilled Water Sales Revenues 162,000 162,000 162,000 182,000 182,000 182,000 182,000
------- ------- ------- ------- ------- ------- -------
Total Thermal Revenues 611,000 611,000 611,000 631,000 631,000 631,000 631,000
Total Sales Revenues 24,179,000 24,179,000 24,179,000 18,754,000 18,754,000 18,754,000 18,754,000
Interest - D.S.R. 5.0% 328,000 325,000 272,000 219,000 215,000 210,000 205,000
------- ------- ------- ------- ------- ------- -------
Total Revenues 24,507,000 24,504,000 24,451,000 18,973,000 18,969,000 18,964,000 18,959,000
Expenses
Fuel Costs - Cogen Plant 0 0 0 0 0 0 0
Fuel Costs - Boiler 1,939,000 2,029,000 2,123,000 2,280,000 2,457,000 2,630,000 2,825,000
Plant Operating Costs 3,370,000 3,399,000 3,431,000 3,467,000 3,500,000 3,540,000 3,583,000
Plant Variable Costs 755,000 777,000 801,000 825,000 849,000 875,000 900,000
------- ------- ------- ------- ------- ------- -------
Total Operating Costs 6,064,000 6,205,000 6,355,000 6,572,000 6,806,000 7,045,000 7,308,000
Rev. Avail. for Debt Service 18,443,000 18,299,000 18,096,000 12,401,000 12,163,000 11,919,000 11,651,000
Debt Service
Total Interest Costs 6,206,000 5,610,000 4,972,000 4,418,000 4,042,000 3,647,000 3,235,000
Total Principal Payments 6,737,000 7,215,000 7,697,000 4,292,000 4,492,000 4,705,000 4,919,000
--------- --------- --------- --------- --------- --------- ---------
Total Debt Service 12,943,000 12,825,000 12,669,000 8,710,000 8,534,000 8,352,000 8,154,000
Operating Cashflow
Pre-Tax Cashflow from Operations 5,500,000 5,474,000 5,427,000 3,691,000 3,629,000 3,567,000 3,497,000
Overhaul Reserve Fund Additions 0 0 0 0 0 0 0
Expected Debt Service Reserve Releases 51,000 70,000 2,034,000 85,000 87,000 96,000 100,000
Debt Service Reserve Fund Additions 0 0 0 0 0 0 0
- - - - - - -
Net Balance from Operations [2] 5,551,000 5,544,000 7,461,000 3,776,000 3,716,000 3,663,000 3,597,000
Debt Service Coverage
Revenue Avail. for Debt Service 18,443,000 18,299,000 18,096,000 12,401,000 12,163,000 11,919,000 11,651,000
Total Interest Costs 6,206,000 5,610,000 4,972,000 4,418,000 4,042,000 3,647,000 3,235,000
Total Principal Payments 6,737,000 7,215,000 7,697,000 4,292,000 4,492,000 4,705,000 4,919,000
--------- --------- --------- --------- --------- --------- ---------
Total Debt Service Costs 12,943,000 12,825,000 12,669,000 8,710,000 8,534,000 8,352,000 8,154,000
Times Interest Coverage 2.97 3.26 3.64 2.81 3.01 3.27 3.60
Times Total Debt Coverage 1.42 1.43 1.43 1.42 1.43 1.43 1.43
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL FORECAST
Revenues 2010 2011 2012 2013 2014 2015
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Revenues from Electric Sales:
Total Capacity Revenues 18,123,000 18,123,000 18,123,000 18,123,000 18,123,000 18,123,000
Energy Charges
Summer Gas Charge 0 0 0 0 0 0
Winter Gas Charge 0 0 0 0 0 0
Winter Oil Charge 0 0 0 0 0 0
VEPCO Gas Charge 0 0 0 0 0 0
- - - - - -
Total Energy Revenues 0 0 0 0 0 0
Winter Gas Start Revenues 0 0 0 0 0 0
Steam Sales Revenues 449,000 449,000 449,000 449,000 449,000 449,000
Chilled Water Sales Revenues 182,000 202,000 202,000 202,000 202,000 202,000
------- ------- ------- ------- ------- -------
Total Thermal Revenues 631,000 651,000 651,000 651,000 651,000 651,000
Total Sales Revenues 18,754,000 18,774,000 18,774,000 18,774,000 18,774,000 18,774,000
Interest - D.S.R. 5.0% 201,000 196,000 191,000 185,000 169,000 79,000
------- ------- ------- ------- ------- ------
Total Revenues 18,955,000 18,970,000 18,965,000 18,959,000 18,943,000 18,853,000
Expenses
Fuel Costs - Cogen Plant 0 0 0 0 0 0
Fuel Costs - Boiler 3,029,000 3,201,000 3,395,000 3,583,000 3,794,000 4,016,000
Plant Operating Costs 3,628,000 3,674,000 3,724,000 3,778,000 3,835,000 3,892,000
Plant Variable Costs 928,000 955,000 985,000 1,014,000 1,044,000 1,075,000
------- ------- ------- --------- --------- ---------
Total Operating Costs 7,585,000 7,830,000 8,104,000 8,375,000 8,673,000 8,983,000
Rev. Avail. for Debt Service 11,370,000 11,140,000 10,861,000 10,584,000 10,270,000 9,870,000
Debt Service
Total Interest Costs 2,803,000 2,350,000 1,874,000 1,375,000 854,000 325,000
Total Principal Payments 5,143,000 5,422,000 5,691,000 5,953,000 6,188,000 6,031,000
--------- --------- --------- --------- --------- ---------
Total Debt Service 7,946,000 7,772,000 7,565,000 7,328,000 7,042,000 6,356,000
Operating Cashflow
Pre-Tax Cashflow from Operations 3,424,000 3,368,000 3,296,000 3,256,000 3,228,000 3,514,000
Overhaul Reserve Fund Additions 0 0 0 0 0 0
Expected Debt Service Reserve Releases 82,000 99,000 115,000 139,000 476,000 3,145,000
Debt Service Reserve Fund Additions 0 0 0 0 0 0
- - - - - -
Net Balance from Operations [2] 3,506,000 3,467,000 3,411,000 3,395,000 3,704,000 6,659,000
Debt Service Coverage
Revenue Avail. for Debt Service 11,370,000 11,140,000 10,861,000 10,584,000 10,270,000 9,870,000
Total Interest Costs 2,803,000 2,350,000 1,874,000 1,375,000 854,000 325,000
Total Principal Payments 5,143,000 5,422,000 5,691,000 5,953,000 6,188,000 6,031,000
--------- --------- --------- --------- --------- ---------
Total Debt Service Costs 7,946,000 7,772,000 7,565,000 7,328,000 7,042,000 6,356,000
Times Interest Coverage 4.06 4.74 5.80 7.70 12.03 30.37
Times Total Debt Coverage 1.43 1.43 1.44 1.44 1.46 1.55
</TABLE>
[1] Project closing of July 1996 assumed. Reflects one-half year's operations
following refinancing.
[2] Available for capital expenditures or distributions to Project owners.
<PAGE>
<TABLE>
<CAPTION>
RESERVE FUNDS
Debt Service Reserve Fund 1996 1997 1998 1999 2000 2001 2002 2003
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Beginning Balance 8,090,714 7,435,714 7,409,285 6,739,285 6,709,642 6,677,142 6,630,356 6,580,713
Additions 0 0 0 0 0 0 0 0
Interest 5.00% 388,000 371,000 354,000 336,000 335,000 333,000 330,000 328,000
Withdrawals (388,000) (371,000) (354,000) (336,000) (335,000) (333,000) (330,000) (328,000)
Releases (655,000) (26,429) (670,000) (29,643) (32,500) (46,786) (49,643) (51,429)
-------- ------- -------- ------- ------- ------- ------- -------
Ending Balance 7,435,714 7,409,285 6,739,285 6,709,642 6,677,142 6,630,356 6,580,713 6,529,284
Overhaul Reserve Fund
Beginning Balance 942,632 (4,207,368) (4,207,368) (4,417,368) (4,633,368) (4,859,368) (5,096,368) (5,345,368)
Additions 0 0 0 0 0 0 0 0
Interest Earnings 5.00% 0 0 (210,000) (216,000) (226,000) (237,000) (249,000) (261,000)
Turbine Overhauls 0 0 0 0 0 0 0 0
Other Withdrawals 0 0 0 0 0 0 0 0
Interest Withdrawal 0 0 0 0 0 0 0 0
Releases (5,150,000) 0 0 0 0 0 0 0
---------- - - - - - - -
Ending Balance (4,207,368) (4,207,368) (4,417,368) (4,633,368) (4,859,368) (5,096,368) (5,345,368) (5,606,368)
Dispatch Hours 0 0 0 0 0 0 0 0
Reserve Addition 3.00% $260 $268 $276 $284 $293 $301 $310 $320
Reserve Addition 0 0 0 0 0 0 0 0
Overhaul Requirements
Frame 6 Operating Hours 4,863 4,863 4,863 4,863 4,863 4,863 4,863 4,863
Estimated Maintenance Factor 2.82 2.82 2.82 2.82 2.82 2.82 2.82 2.82
Frame 6 Factored Hours 14,056 13,714 13,714 13,714 13,714 13,714 13,714 13,714
Combustion Inspection (CI) [1]
Hot Gas Path Inspection (HGP) [2]
Major Overhaul (MO) [3]
Frame 7 Operating Hours 3,525 3,525 3,525 3,525 3,525 3,525 3,525 3,525
Estimated Maintenance Factor 2.82 2.82 2.82 2.82 2.82 2.82 2.82 2.82
Frame 7 Factored Hours 10,186 9,941 9,941 9,941 9,941 9,941 9,941 9,941
Combustion Inspection (CI) [4]
Hot Gas Path Inspection (HGP) [5]
Major Overhaul[6]
Steam Turbine Equiv. Hours 9,029 9,029 9,029 9,029 9,029 9,029 9,029 9,029
Limited ST Overhaul (LO) [7]
Major ST Overhaul (MO) [8] -
-----------------------------------------------------------------------------------------------
Total Overhaul Costs $0 $0 $0 $0 $0 $0 $0 $0
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Debt Service Reserve Fund 2004 2005 2006 2007 2008 2009 2010
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Beginning Balance 6,529,284 6,458,927 4,424,641 4,339,284 4,252,141 4,156,427 4,056,070
Additions 0 0 0 0 0 0 0
Interest 5.00% 325,000 272,000 219,000 215,000 210,000 205,000 201,000
Withdrawals (325,000) (272,000) (219,000) (215,000) (210,000) (205,000) (201,000
Releases (70,357) (2,034,286) (85,357) (87,143) (95,714) (100,357) (82,143)
------- ---------- ------- ------- ------- -------- -------
Ending Balance 6,458,927 4,424,641 4,339,284 4,252,141 4,156,427 4,056,070 3,973,927
Overhaul Reserve Fund
Beginning Balance (5,606,368) (5,880,368) (6,167,368) (6,468,368) (6,784,368) (7,115,368) (7,462,368
Additions 0 0 0 0 0 0 0
Interest Earnings 5.00% (274,000) (287,000) (301,000) (316,000) (331,000) (347,000) (364,000
Turbine Overhauls 0 0 0 0 0 0 0
Other Withdrawals 0 0 0 0 0 0 0
Interest Withdrawal 0 0 0 0 0 0 0
Releases 0 0 0 0 0 0 0
- - - - - - -
Ending Balance (5,880,368) (6,167,368) (6,468,368) (6,784,368) (7,115,368) (7,462,368) (7,826,368)
Dispatch Hours 0 0 0 0 0 0 0
Reserve Addition 3.00% $329 $339 $349 $360 $371 $382 $393
Reserve Addition 0 0 0 0 0 0 0
Overhaul Requirements
Frame 6 Operating Hours 4,863 4,863 4,863 4,863 4,863 4,863 4,863
Estimated Maintenance Factor 2.82 2.82 2.82 2.82 2.82 2.82 2.82
Frame 6 Factored Hours 13,714 13,714 13,714 13,714 13,714 13,714 13,714
Combustion Inspection (CI) [1]
Hot Gas Path Inspection (HGP)
Major Overhaul (MO) [3]
Frame 7 Operating Hours 3,525 3,525 3,525 3,525 3,525 3,525 3,525
Estimated Maintenance Factor 2.82 2.82 2.82 2.82 2.82 2.82 2.82
Frame 7 Factored Hours 9,941 9,941 9,941 9,941 9,941 9,941 9,941
Combustion Inspection (CI) [4]
Hot Gas Path Inspection (HGP) [5]
Major Overhaul[6]
---------------------------------------------------------------------------------------
Steam Turbine Equiv. Hours 9,029 9,029 9,029 9,029 9,029 9,029 9,029
Limited ST Overhaul (LO) [7]
Major ST Overhaul (MO) [8]
Total Overhaul Costs $0 $0 $0 $0 $0 $0 $0
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Debt Service Reserve Fund 2011 2012 2013 2014 2015
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Beginning Balance 3,973,927 3,874,641 3,759,998 3,621,069 3,145,447
Additions 0 0 0 0 0
Interest 5.00% 196,000 191,000 185,000 169,000 79,000
Withdrawals (196,000) (191,000) (185,000) (169,000) (79,000)
Releases (99,286) (114,643) (138,929) (475,622) (3,145,449)
------- -------- -------- -------- ----------
Ending Balance 3,874,641 3,759,998 3,621,069 3,145,447 (2)
Overhaul Reserve Fund
Beginning Balance (7,826,368) (8,208,368) (8,609,368) (9,029,368) (9,470,368)
Additions 0 0 0 0 0
Interest Earnings 5.00% (382,000) (401,000) (420,000) (441,000) (462,000)
Turbine Overhauls 0 0 0 0 0
Other Withdrawals 0 0 0 0 0
Interest Withdrawal 0 0 0 0 0
Releases 0 0 0 0 0
- - - - -
Ending Balance (8,208,368) (8,609,368) (9,029,368) (9,470,368) (9,932,368)
Dispatch Hours 0 0 0 0 0
Reserve Addition 3.00% $405 $417 $430 $443 $456
Reserve Addition 0 0 0 0 0
Overhaul Requirements
Frame 6 Operating Hours 4,863 4,863 4,863 4,863 4,863
Estimated Maintenance Factor 2.82 2.82 2.82 2.82 2.82
Frame 6 Factored Hours 13,714 13,714 13,714 13,714 13,714
Combustion Inspection (CI) [1]
Hot Gas Path Inspection (HGP)
Major Overhaul (MO) [3]
Frame 7 Operating Hours 3,525 3,525 3,525 3,525 3,525
Estimated Maintenance Factor 2.82 2.82 2.82 2.82 2.82
Frame 7 Factored Hours 9,941 9,941 9,941 9,941 9,941
Combustion Inspection (CI) [4]
Hot Gas Path Inspection (HGP) [5]
Major Overhaul[6]
Steam Turbine Equiv. Hours 9,029 9,029 9,029 9,029 9,029
Limited ST Overhaul (LO) [7]
Major ST Overhaul (MO) [8]
-----------------------------------------------------------------
Total Overhaul Costs $0 $0 $0 $0 $0
</TABLE>
<PAGE>
January 10, 1997
Mr. Bryan Urban
Panda Funding Corporation
Panda Interfunding Corporation
4100 Spring Valley Road, Suite 1001
Dallas, Texas 75244
Panda Energy International, Inc.
Panda-Rosemary Cogeneration Project
Project Condition Assessment Update Report
B&McD Project No. 94-443-4-002 PANDA
Dear Sirs:
This Project Condition Assessment Update letter report
(Update Report) summarizes Burns & McDonnell's recent
efforts to review the Panda-Rosemary Cogeneration Project
(Project) on behalf of Project lenders. These efforts have
been conducted to evaluate whether any material changes have
occurred since Burns and McDonnell's "Panda-Rosemary
Cogeneration Condition Assessment Report," dated July 26,
1996 (Condition Assessment Report). This Update Report is
prepared in condition with the offering of Pooled Project
Bonds, Series A-1 due 2012 by Panda Funding Corporation in
exchange for its Pooled Project Bonds, Series A due 2012.
This Update Report is intended to supplement the Condition
Assessment Report, and is not intended to serve as a stand-
alone document. Except as noted herein, our previous
opinions included in the Condition Assessment Report remain
applicable to the Project. To obtain the proper context,
the reader is encouraged to refer to and become familiar
with the Condition Assessment Report prior to reading this
Update Report.
A primary focus of this Update Report is to assess and
comment upon recent damage to certain Project equipment
components. The damage to the Project equipment was caused
by extraordinary weather conditions which occurred during a
recent hurricane.
Purpose
This Update Report is intended to serve the following
purposes:
- - Hurricane Damage - To review recent hurricane damage to
the Project and to assess the financial impact this damage
may have upon Project lenders.
- - Economic Dispatch - To update the anticipated economic
dispatch included in the Project pro forma and to assess the
financial impact to Project lenders.
- - Fuel Costs - To update anticipated fuel costs included
in the Project pro forma and to assess the financial impact
to Project lenders.
- - Operation and Maintenance Costs - To update anticipated
Project operation and maintenance costs included in the
Project pro forma and to assess the financial impact to
Project lenders.
- - Project Pro Forma Assumptions - To review the Project
pro forma assumptions included in the Condition Assessment
Report to confirm, given recent events, these assumptions
are reasonable.
Background
Burns & McDonnell has provided professional engineering
services for the Panda-Rosemary Cogeneration Project since
its inception in 1989. Our responsibilities in this
capacity have been to serve as independent engineer for
Project lenders. Our most recent involvement included
preparation of the Condition Assessment Report which
consisted of a review and assessment of the Project's
equipment and operating condition; its operating history;
the significant Project agreements; and projections of
revenues, expenses and debt service coverage for the Project
for the period that the First Mortgage Bonds due 2016 are
scheduled to be outstanding. Our additional past experience
with the Project is explained in more detail in the
Condition Assessment Report.
Hurricane Damage
On Friday, September 6, 1996, the Project experienced
extraordinary weather conditions caused by hurricane "Fran".
These conditions resulted in an electrical fault which
caused damage to certain electrical interconnection
equipment. Panda Energy's engineering consultant, C. H.
Guernsey & Company (Guernsey), conducted an immediate site
visit, inspected the damage due to the incident, and
consulted on recommended repairs to the damaged equipment.
A report of the incident was prepared by Guernsey.
The damage occurred to two switches and one power
transformer used to interconnect the Project with VEPCO.
The damage to the transformer is of primary concern for the
following reasons:
- - Replacement Cost - The damaged transformer is a major
component of the Project. Repair of this component is
estimated to cost $577,250.
- - Delivery Schedule - The damaged transformer is a major
component that is not kept in stock by equipment suppliers.
The delivery schedule for a replacement transformer would
most likely be several months at best. Repair to the
damaged transformer, as proposed by Panda Energy, will also
require several months with a planned in-service date of
April, 1997. A substantial cost to be incurred as a result
of this delivery schedule is rental costs for use of a
temporary transformer. Anticipated rental costs of
$1,021,680 are actually greater than anticipated repair
costs for the transformer.
Burns & McDonnell has reviewed the report prepared by
Guernsey and subsequent cost estimates prepared by Panda
Energy, Guernsey and others. These cost estimates include
price quotes from well-qualified equipment suppliers and
repair facilities. Based upon our review of this report,
these cost estimates and discussions with Panda Energy's
insurance specialist, it appears damages to the facility
will most likely be covered by insurance. Assuming this is
true, the financial impact to the Project is the insurance
deductible costs of $330,000.
A preliminary assessment of the damage to the transformer
indicates one of the three phases contained within the
transformer have been damaged. Although tests at the repair
facility could indicate the other two phases are
satisfactory, degradation of these phases may have occurred.
Considering the cost of a potential failure of this
transformer in the future, Panda Energy has indicated they
plan to repair all three phases regardless of any favorable
test results at the repair facility. The incremental cost
of repairing all three phases versus only one phase may or
may not be covered by insurance. In the event these
incremental costs are not covered by insurance, Panda Energy
will incur an additional cost of $222,225. The Project pro
forma has been modified under the assumption that Panda
incurs this cost.
The inclusion of the hurricane damage costs incurred by
Panda Energy did not affect the debt service coverage,
because it is assumed that the debt service coverage
obligations are paid before this cost.
Economic Dispatch
The projected dispatch update, as prepared by ICF Resources
Incorporated (ICF), is presented in Table A. For the
remaining Power Purchase Agreement (PPA) term covering 1997
to 2015, the updated ICF dispatch projection is
approximately 14 percent lower than the forecast presented
in the Condition Assessment Report. The Project pro forma
Contained in Exhibit A to the Condition Assessment Report
has been modified by Exhibit A to this Update Report to
reflect the updated dispatch projection.
ICF has reported the decrease in the dispatch forecast can
be attributed primarily to the following two factors:
- - ICF's updated fuel cost forecast, discussed in a
subsequent section, has resulted in a slightly lower
economic dispatch for the Project relative to competing
independent power units.
- - VEPCO has agreed as part of a recent buyout of an
independent power project, Richmond Power Enterprises (RPE),
to purchase economy energy from an Enron affiliate which is
forecasted to displace some of the Project's off-peak
dispatch.
The projection of hours dispatched under VEPCO gas has not
been modified from the Condition Assessment Report. These
estimates were provided by Panda Energy and confirmed by
ICF. Burns & McDonnell and Panda Energy believe the VEPCO
gas dispatch forecast has not materially changed from the
projection presented in the Condition Assessment Report.
Fuel Costs
ICF has provided an updated forecast of seasonal delivered
fuel costs. The updated fuel cost forecast is presented in
Table B. Burns & McDonnell has reviewed this updated
forecast and made the following observations:
- - Compared to the Condition Assessment Report, the summer
delivered gas cost forecast is increased for the 1998
through 2007 time period, and decreased during the 2009
through 2015 time period.
- - The winter delivered gas cost forecast has decreased
each year from 1997 through 2015.
- - The winter delivered fuel oil cost forecast is
essentially unchanged from the Condition Assessment Report.
The Project pro forma Contained in Exhibit A to the
Condition Assessment Report has been modified by Exhibit A
to this Update Report to reflect the updated fuel cost
forecast.
Operation and Maintenance Costs
Burns & McDonnell has reviewed the Project's 1996 year-to-
date fixed and variable operating costs and concluded that
the projections in the Condition Assessment Report remain
reasonable. Year-to-date operating costs are within three
percent of budgeted costs which formed the basis of the
projection contained in the Condition Assessment Report.
Conclusion
Burns & McDonnell has updated the Project pro forma to
reflect the financial impact of the hurricane damage, the
updated dispatch forecast, and the updated fuel cost
forecast. The updated summary of the Project pro forma is
attached.
Table C presents a summary of the debt coverage ratios of
the Project with the updated assumptions compared to the
previously projected debt service coverage ratios included
in the Condition Assessment Report.
Table C indicates the Project is expected to maintain strong
debt coverage ratios throughout the twenty-year debt
repayment period, although the updated debt service coverage
ratios are slightly lower, due to a lower ICF dispatch
projection.
Burns & McDonnell concludes the impact of the hurricane
damage, updated dispatch forecast, and updated gas cost
forecast do not significantly alter the revenue available
for debt service, which ultimately affects the risk to the
lenders.
The conclusions stated above are subject to the following
limiting conditions:
- - Burns & McDonnell has relied on operating and financial
information provided by Panda Energy and its consultants.
While we have no reason to believe that the information
provided is inaccurate in any material respect, Burns &
McDonnell has not independently verified such information
and cannot guarantee its accuracy or completeness.
- - In preparation of this Update Report and the opinions
expressed herein, Burns & McDonnell has made certain
assumptions with respect to conditions which may exist in
the future as set forth in Part I of the Condition Report.
While we believe the assumptions made are reasonable for the
purposes of this Report, Burns & McDonnell makes no
representation that the conditions assumed will, in fact,
occur. To the extent future conditions differ from those
assumed herein or from estimates and information provided by
Panda Energy and its consultants, the actual results will
vary from those projected.
O&M Agreement
As of January 1, 1997, Panda Global Services, Inc. will assume
responsibility of the O&M Agreement for the Panda Rosemary Cogeneration
Facility previously held by University Technical Services (UTECH).
Burns & McDonnell recently reviewed the executed O&M Agreement,
concluding the new agreement is consistent with the UTECH O&M Agreement
which was obtained through a competitive bid process. Burns & McDonnell
knows of no reason why Panda Global Services, Inc., would not continue to
implement the operation and maintenance of the Panda-Rosemary Facility in
accordance with good engineering practices and generally accepted industry
practices.
Confirmation and Consent
We confirm the conclusions and other information contained
in the Condition Assessment Report, as supplemented and
modified by this Update Report.
We consent to the inclusion of the Condition Assessment
Report and this Update Report in the Registration Statement
of Panda Funding Corporation relating to its Pooled Project
Bonds, Series A-1 due 2012.
We are pleased to be of service to Panda Energy. If we can
be of further assistance, please contact Greg Mack at (816)
822-3178 or Melissa Yancey at (816) 333-9400.
Sincerely,
/s/ Gregory J. Mack, P.E.
Gregory J. Mack, P.E.
Project Manager
/s/ Melissa A. Yancey
Melissa A. Yancey
Project Financial Analyst
Enclosures
update.wpd
cc: file
<TABLE>
<CAPTION>
TABLE A
UPDATED DISPTACH ASSUMPTIONS [1]
Panda-Rosemary Cogeneration Project
Summer Winter Gas Winter Oil VEPCO Gas [2] Total %
Year Dispatch Hours Dispatch Hours Dispatch Hours Dispatch Hours Dispatch Hours Percent
- ---- -------------- -------------- -------------- -------------- -------------- -------
<C> <C> <C> <C> <C> <C> <C>
1996[3] 874 3 0 400 1077 12.29
1997 511 117 3 400 1031 11.77
1998 775 183 10 500 1468 16.76
1999 1038 250 17 500 1805 20.61
2000 1453 241 19 500 2213 25.26
2001 1888 231 21 500 2620 29.91
2002 1980 272 37 500 2769 31.61
2003 2053 320 65 600 3038 34.68
2004 2149 378 114 600 3241 37.00
2005 2248 441 202 600 3491 39.85
2006 2151 428 188 600 3365 38.41
2007 2058 415 171 600 3244 37.03
2008 1969 401 158 600 3128 35.71
2009 1884 388 145 600 3017 34.44
2010 1802 375 134 600 2911 33.23
2011 1756 361 133 600 2850 32.53
2012 1710 348 132 600 2790 31.85
2013 1666 335 131 600 2732 31.19
2014 1622 322 130 600 2674 30.53
2015 1579 310 129 600 2618 29.89
</TABLE>
[1] Equivalent full load dispatch hours.
[2] VEPCO gas dispatch assumptions provided by Panda.
[3] Forecast of equivalent full dispatch hours prepared by ICF.
Reference: Condition Assessment Report Table VII-3
<TABLE>
<CAPTION>
TABLE B
UPDATED FUEL COST ASSUMPTIONS
Panda-Rosemary Cogeneration Project
Summer Winter Winter
Year Gas Cost Gas Cost Oil Cost
---- -------- -------- --------
($/MMBtu) ($/MMBtu) ($/MMTbu)
<C> <C> <C> <C>
1996 [1] 2.20 2.85 3.81
1997 2.15 2.61 3.89
1998 2.26 2.72 4.05
1999 2.38 2.84 4.21
2000 2.50 2.97 4.38
2001 2.61 3.10 4.41
2002 2.71 3.24 4.43
2003 2.84 3.37 4.48
2004 2.97 3.53 4.49
2005 3.10 3.67 4.52
2006 3.24 3.83 4.55
2007 3.38 3.97 4.58
2008 3.53 4.15 4.62
2009 3.70 4.32 4.65
2010 3.87 4.51 4.69
2011 4.02 4.68 4.72
2012 4.15 4.85 4.76
2013 4.31 5.03 4.79
2014 4.47 5.20 4.83
2015 4.84 5.36 4.86
</TABLE>
[1] Fuel cost forecast prepared by ICF.
Reference: Condition Assessment Report, Table VII-4
<TABLE>
<CAPTION>
TABLE C
UPDATED SUMMARY OF PROJECT DEBT COVERAGE RATIOS
Panda-Rosemary Cogeneration Project
7/26/96
Pre-Tax Total Debt Debt
Total Total Operating Debt-Service Coverage Coverage
Year Revenues Expenses Cashflow Costs Ratio Ratio
- ---- ---------- ---------- ---------- ------------ ----------- ---------
$ $ $ $
<C> <C> <C> <C> <C> <C> <C>
7/96-
12/96
[1] 15,680,000 4,744,000 10,936,000 7,928,000 1.38 1.38
1997 29,656,000 9,445,000 20,211,000 14,694,000 1.38 1.37
1998 31,602,000 10,942,000 20,660,000 14,627,000 1.41 1.42
1999 31,778,000 12,614,000 19,184,000 13,314,000 1.44 1.46
2000 34,081,000 14,565,000 19,516,000 13,242,000 1.47 1.50
2001 36,499,000 16,600,000 19,899,000 13,164,000 1.51 1.52
2002 37,870,000 17,855,000 20,015,000 13,058,000 1.53 1.57
2003 39,628,000 19,361,000 20,247,000 12,943,000 1.56 1.62
2004 41,635,000 21,209,000 20,426,000 12,825,000 1.59 1.68
2005 44,136,000 23,477,000 20,659,000 12,669,000 1.63 1.74
2006 38,488,000 23,667,000 14,621,000 8,710,000 1.70 1.80
2007 38,202,000 23,810,000 14,392,000 8,534,000 1.69 1.74
2008 37,925,000 23,979,000 13,946,000 8,352,000 1.67 1.77
2009 37,693,000 24,208,000 13,485,000 8,154,000 1.65 1.74
2010 37,918,000 24,484,000 13,454,000 7,946,000 1.69 1.72
2011 38,067,000 24,862,000 13,205,000 7,772,000 1.70 1.74
2012 38,147,000 25,227,000 12,920,000 7,565,000 1.71 1.77
2013 38,235,000 25,649,000 12,586,000 7,328,000 1.72 1.81
2014 38,328,000 26,086,000 12,262,000 7,042,000 1.74 1.85
2015 38,351,000 26,495,000 11,856,000 6,356,000 1.87 2.02
</TABLE>
Average coverage over the term of the Bonds is 1.50:1.
[1] Reflects one-half year of operations following the planned debt refinancing
in July 1996.
Reference: Condition Assessment Report, Table VII-5
<PAGE>
Panda Energy Corporation Alternative: Updated Corporate Page 1
Panda-Rosemary Cogen Project Refinancing Offering Base Case
*******************************************************************************
OPERATING ASSUMPTIONS
Planning Period
Base Year: 1996
PPA Final Year: 2015
PPA Remaining Term: 20 years
Planning Period: 20 years
Rounding Precision: -3
<TABLE>
<CAPTION>
Capacity Assumptions
---------------------------------------------------------------------------------------
Summer Summer Winter Winter Summer Gas
Demonstrated Capacity Contract Demonstrated Capacity Contract Dispatch
Year Capacity Degradation Capacity Capacity Degradation Capacity Hours [1]
---- ------------ ----------- -------- ------------ ----------- -------- ----------
(MW) (%) (MW) (MW) (%) (MW)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
0 1995 174.0 165.0 198.0 198.0 660
1 1996 174.0 0.00% 165.0 198.0 0.00% 198.0 674
2 1997 174.0 0.00% 165.0 198.0 0.00% 198.0 511
3 1998 174.0 0.00% 165.0 198.0 0.00% 198.0 775
4 1999 174.0 0.00% 165.0 198.0 0.00% 198.0 1038
5 2000 174.0 0.00% 165.0 198.0 0.00% 198.0 1453
6 2001 174.0 0.00% 165.0 198.0 0.00% 198.0 1868
7 2002 174.0 0.00% 165.0 198.0 0.00% 198.0 1960
8 2003 174.0 0.00% 165.0 198.0 0.00% 198.0 2053
9 2004 174.0 0.00% 165.0 198.0 0.00% 198.0 2149
10 2005 174.0 0.00% 165.0 198.0 0.00% 198.0 2248
11 2006 174.0 0.00% 165.0 198.0 0.00% 198.0 2151
12 2007 174.0 0.00% 165.0 198.0 0.00% 198.0 2058
13 2008 174.0 0.00% 165.0 198.0 0.00% 198.0 1969
14 2009 174.0 0.00% 165.0 198.0 0.00% 198.0 1884
15 2010 174.0 0.00% 165.0 198.0 0.00% 198.0 1802
16 2011 174.0 0.00% 165.0 198.0 0.00% 198.0 1756
17 2012 174.0 0.00% 165.0 198.0 0.00% 198.0 1710
18 2013 174.0 0.00% 165.0 198.0 0.00% 198.0 1666
19 2014 174.0 0.00% 165.0 198.0 0.00% 198.0 1622
20 2015 174.0 0.00% 165.0 198.0 0.00% 198.0 1579
<CAPTION>
Dispatch Assumptions
---------------------------------------------------------------------
Winter Gas Winter Oil VEPCO Gas
Summer Dispatch Winter Gas Dispatch Winter Gas Dispatch
Year Output [4] Hours [1] Output Hours [1] Output Hours [1],[2]
---- ---------- ---------- ---------- ---------- ---------- -------------
(MWh) (MWh) (MWh)
<S> <C> <C> <C> <C> <C> <C> <C>
0 1995 114,840 2 396 0 0 400
1 1996 117,276 3 594 0 0 400
2 1997 88,914 117 23,166 3 594 400
3 1998 134,850 183 36,234 10 1,980 500
4 1999 180,612 250 49,500 17 3,366 500
5 2000 252,822 241 47,718 19 3,762 500
6 2001 325,032 231 45,738 21 4,158 500
7 2002 341,040 272 53,856 37 7,326 500
8 2003 357,222 320 63,360 65 12,870 600
9 2004 373,926 378 74,844 114 22,572 600
10 2005 391,152 441 87,318 202 39,996 600
11 2006 374,274 428 84,744 186 36,828 600
12 2007 358,092 415 82,170 171 33,858 600
13 2008 342,606 401 79,398 158 31,284 600
14 2009 327,816 388 76,824 145 28,710 600
15 2010 313,548 375 74,250 134 26,532 600
16 2011 305,544 361 71,478 133 26,334 600
17 2012 297,540 348 68,904 132 26,136 600
18 2013 289,884 335 66,330 131 25,938 600
19 2014 282,228 322 63,756 130 25,740 600
20 2015 274,746 310 61,380 129 25,542 600
<CAPTION>
Dispatch Assumptions
----------------------------
Total
VEPCO Gas Dispatch
Year Output Hours [1] Percent
---- --------- --------- -------
(MWh) (%)
<S> <C> <C> <C> <C>
0 1995 66,000 1062 12.12%
1 1996 66,000 1077 12.29%
2 1997 66,000 1031 11.77%
3 1998 82,500 1468 16.76%
4 1999 82,500 1805 20.61%
5 2000 82,500 2213 25.26%
6 2001 82,500 2620 29.91%
7 2002 82,500 2769 31.61%
8 2003 99,000 3038 34.68%
9 2004 99,000 3241 37.00%
10 2005 99,000 3491 39.85%
11 2006 99,000 3365 38.41%
12 2007 99,000 3244 37.03%
13 2008 99,000 3128 35.71%
14 2009 99,000 3017 34.44%
15 2010 99,000 2911 33.23%
16 2011 99,000 2850 32.53%
17 2012 99,000 2790 31.85%
18 2013 99,000 2732 31.19%
19 2014 99,000 2674 30.53%
20 2015 99,000 2618 29.89%
</TABLE>
[1] Dispatch hour forecast represents equivalent full load dispatch
hours incorporating planned and forced outage factors.
[2] VEPCO gas dispatch forecast during PPA term provided by Panda.
[3] Net electrical generation heat rate including credit from thermal
production.
[4] Summer output based on demonstrated capacity.
<TABLE>
<CAPTION>
Electric Heat Rate Assumptions [3] Aux. Boiler Steam/Chilled Water Assumptions
---------------------------------- --------------------------------------------------------
Demonstrated Contract Steam C. Water Steam
Heat Heat Rate Heat Production Steam Production C. Water Heat
Year Rate Degradation Rate Hours Production Hours Production Requirement
---- ------------ ----------- -------- ---------- ---------- ---------- ---------- -----------
(Btu/kWh) (%) (Btu/kWh) (pph) (tons-hr) (Btu/lb)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0 1995 8900 8900 7800 50,000 4000 1010 1714
1 1996 8900 0.00% 8900 7800 50,000 4000 1010 1714
2 1997 8900 0.00% 8900 7800 50,000 4000 1010 1714
3 1998 8900 0.00% 8900 7800 50,000 4000 1010 1714
4 1999 8900 0.00% 8900 7800 50,000 4000 1010 1714
5 2000 8900 0.00% 8900 7800 50,000 4000 1010 1714
6 2001 8900 0.00% 8900 7800 50,000 4000 1010 1714
7 2002 8900 0.00% 8900 7800 50,000 4000 1010 1714
8 2003 8900 0.00% 8900 7800 50,000 4000 1010 1714
9 2004 8900 0.00% 8900 7800 50,000 4000 1010 1714
10 2005 8900 0.00% 8900 7800 50,000 4000 1010 1714
11 2006 8900 0.00% 8900 7800 50,000 4000 1010 1714
12 2007 8900 0.00% 8900 7800 50,000 4000 1010 1714
13 2008 8900 0.00% 8900 7800 50,000 4000 1010 1714
14 2009 8900 0.00% 8900 7800 50,000 4000 1010 1714
15 2010 8900 0.00% 8900 7800 50,000 4000 1010 1714
16 2011 8900 0.00% 8900 7800 50,000 4000 1010 1714
17 2012 8900 0.00% 8900 7800 50,000 4000 1010 1714
18 2013 8900 0.00% 8900 7800 50,000 4000 1010 1714
19 2014 8900 0.00% 8900 7800 50,000 4000 1010 1714
20 2015 8900 0.00% 8900 7800 50,000 4000 1010 1714
</TABLE>
<PAGE>
Panda Energy Corporation Alternative: Updated Corporate Page 2
Panda-Rosemary Cogen Project Refinancing Offering Base Case
********************************************************************************
FUEL COST ASSUMPTIONS
<TABLE>
<CAPTION>
Summer Gas Cost
---------------------------------------------------------------------------------
SSG SGT SGT SGT SR1 SR2 SRX
Gulf Spot Transco Panda NCG Transco NCNG Swing Gas
Year Price IT Pipeline IT Mgt. Fee Retainage Retainage Retainage
---- --------- --------- ----------- -------- --------- --------- ---------
($/MMBtu) ($/MMBtu) ($/MMBtu) ($/MMBtu) (%) (%) (%)
--------------------------------------------- 3.79% 2.00% 3.00%
Escalation 1996-2015 ICF Forecast
---------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
0 1995 $1.56 $0.34 $0.26 $0.04 3.79% 2.00% 3.00%
1 1996 $1.74 $0.34 $0.26 $0.04 3.79% 2.00% 3.00%
2 1997 $1.69 $0.34 $0.27 $0.04 3.79% 2.00% 3.00%
3 1998 $1.78 $0.35 $0.27 $0.04 3.79% 2.00% 3.00%
4 1999 $1.89 $0.36 $0.28 $0.04 3.79% 2.00% 3.00%
5 2000 $1.99 $0.37 $0.29 $0.04 3.79% 2.00% 3.00%
6 2001 $2.09 $0.38 $0.30 $0.04 3.79% 2.00% 3.00%
7 2002 $2.19 $0.38 $0.31 $0.04 3.79% 2.00% 3.00%
8 2003 $2.30 $0.39 $0.32 $0.04 3.79% 2.00% 3.00%
9 2004 $2.41 $0.40 $0.33 $0.04 3.79% 2.00% 3.00%
10 2005 $2.52 $0.42 $0.34 $0.04 3.79% 2.00% 3.00%
11 2006 $2.65 $0.43 $0.35 $0.04 3.79% 2.00% 3.00%
12 2007 $2.78 $0.43 $0.36 $0.04 3.79% 2.00% 3.00%
13 2008 $2.91 $0.44 $0.37 $0.04 3.79% 2.00% 3.00%
14 2009 $3.05 $0.45 $0.38 $0.04 3.79% 2.00% 3.00%
15 2010 $3.21 $0.47 $0.39 $0.04 3.79% 2.00% 3.00%
16 2011 $3.33 $0.48 $0.40 $0.04 3.79% 2.00% 3.00%
17 2012 $3.47 $0.48 $0.41 $0.04 3.79% 2.00% 3.00%
18 2013 $3.60 $0.49 $0.43 $0.04 3.79% 2.00% 3.00%
19 2014 $3.75 $0.51 $0.44 $0.04 3.79% 2.00% 3.00%
20 2015 $3.89 $0.52 $0.45 $0.04 3.79% 2.00% 3.00%
<CAPTION>
Summer Gas Cost
------------------------------------------------------
Summer Summer Summer
Gas Gas Gas
Year Charge Charge Cost Margin Margin
---- --------- ------- -------- -------- ------
($/MMBtu) ($/kWh) ($/MMBtu) ($/MMBtu) ($/kWh)
Escalation 1996-2015
<S> <C> <C> <C> <C> <C> <C>
0 1995 $2.34 $0.02082 $2.01 $0.33 $0.00290
1 1996 $2.54 $0.02256 $2.20 $0.33 $0.00295
2 1997 $2.49 $0.02213 $2.15 $0.34 $0.00300
3 1998 $2.61 $0.02320 $2.26 $0.35 $0.00310
4 1999 $2.74 $0.02441 $2.38 $0.36 $0.00322
5 2000 $2.87 $0.02557 $2.50 $0.37 $0.00333
6 2001 $3.00 $0.02667 $2.61 $0.39 $0.00344
7 2002 $3.11 $0.02770 $2.71 $0.40 $0.00356
8 2003 $3.26 $0.02899 $2.84 $0.41 $0.00368
9 2004 $3.40 $0.03022 $2.97 $0.43 $0.00381
10 2005 $3.54 $0.03150 $3.10 $0.44 $0.00394
11 2006 $3.70 $0.03295 $3.24 $0.46 $0.00408
12 2007 $3.86 $0.03434 $3.38 $0.47 $0.00422
13 2008 $4.02 $0.03578 $3.53 $0.49 $0.00436
14 2009 $4.20 $0.03741 $3.70 $0.51 $0.00452
15 2010 $4.39 $0.03911 $3.87 $0.53 $0.00467
16 2011 $4.56 $0.04057 $4.02 $0.54 $0.00483
17 2012 $4.71 $0.04194 $4.15 $0.56 $0.00498
18 2013 $4.89 $0.04351 $4.31 $0.58 $0.00515
19 2014 $5.07 $0.04514 $4.47 $0.60 $0.00531
20 2015 $5.26 $0.04682 $4.64 $0.62 $0.00549
<CAPTION>
Winter Gas Cost
-----------------------------------------------------------------------------------------------------
WSG WGT WGT Panda WGI WR1 WR2 WR2 WRX
Appalachian Transco CNG Pipeline NCG Transco CNG NCNG Swing Gas
Year Price IT IT IT Mgt. Fee Retainage Retainage Retainage Retainage
---- ----------- --------- --------- --------- -------- --------- ---------- --------- ----------
($/MMBtu) ($/MMBtu) ($/MMBtu) ($/MMBtu) ($/MMBtu) (%) (%) (%) (%)
------------------------------------------------------ 1.97% 2.28% 2.00% 3.00%
Escalation 1996-2015 ICF Forecast
------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0 1995 $1.72 $0.23 $0.20 $0.26 $0.04 1.97% 2.28% 2.00% 3.00%
1 1996 $2.21 $0.24 $0.21 $0.26 $0.04 1.97% 2.28% 2.00% 3.00%
2 1997 $1.98 $0.24 $0.21 $0.27 $0.04 1.97% 2.28% 2.00% 3.00%
3 1998 $2.08 $0.25 $0.21 $0.27 $0.04 1.97% 2.28% 2.00% 3.00%
4 1999 $2.19 $0.25 $0.21 $0.28 $0.04 1.97% 2.28% 2.00% 3.00%
5 2000 $2.30 $0.26 $0.22 $0.29 $0.04 1.97% 2.28% 2.00% 3.00%
6 2001 $2.40 $0.26 $0.23 $0.30 $0.04 1.97% 2.28% 2.00% 3.00%
7 2002 $2.52 $0.27 $0.23 $0.31 $0.04 1.97% 2.28% 2.00% 3.00%
8 2003 $2.63 $0.28 $0.24 $0.32 $0.04 1.97% 2.28% 2.00% 3.00%
9 2004 $2.76 $0.29 $0.25 $0.33 $0.04 1.97% 2.28% 2.00% 3.00%
10 2005 $2.88 $0.30 $0.26 $0.34 $0.04 1.97% 2.28% 2.00% 3.00%
11 2006 $3.02 $0.30 $0.25 $0.35 $0.04 1.97% 2.28% 2.00% 3.00%
12 2007 $3.16 $0.30 $0.26 $0.36 $0.04 1.97% 2.28% 2.00% 3.00%
13 2008 $3.31 $0.31 $0.26 $0.37 $0.04 1.97% 2.28% 2.00% 3.00%
14 2009 $3.45 $0.32 $0.27 $0.38 $0.04 1.97% 2.28% 2.00% 3.00%
15 2010 $3.62 $0.33 $0.28 $0.39 $0.04 1.97% 2.28% 2.00% 3.00%
16 2011 $3.75 $0.34 $0.29 $0.40 $0.04 1.97% 2.28% 2.00% 3.00%
17 2012 $3.90 $0.35 $0.30 $0.41 $0.04 1.97% 2.28% 2.00% 3.00%
18 2013 $4.05 $0.36 $0.31 $0.43 $0.04 1.97% 2.28% 2.00% 3.00%
19 2014 $4.21 $0.37 $0.30 $0.44 $0.04 1.97% 2.28% 2.00% 3.00%
20 2015 $4.37 $0.36 $0.31 $0.45 $0.04 1.97% 2.28% 2.00% 3.00%
<CAPTION>
Winter Gas Cost
-----------------------------------------------------------------
Total
Winter Winter Winter Winter
Gas Gas Gas Gas
Year Charge Charge Cost Cost Margin Margin
---- --------- ------- --------- --------- -------- -------
($/MMBtu) ($/kWh) ($/MMBtu) ($/MMBtu) ($/MMBtu) ($/kWh)
Escalation 1996-2015
<S> <C> <C> <C> <C> <C> <C> <C>
0 1995 $2.61 $0.02322 $2.30 $0.02051 $0.30476 $0.00271
1 1996 $3.16 $0.02813 $2.85 $0.02533 $0.31501 $0.00280
2 1997 $2.93 $0.02605 $2.61 $0.02323 $0.31668 $0.00282
3 1998 $3.05 $0.02714 $2.72 $0.02423 $0.32729 $0.00291
4 1999 $3.18 $0.02827 $2.84 $0.02526 $0.33825 $0.00301
5 2000 $3.32 $0.02955 $2.97 $0.02643 $0.34956 $0.00311
6 2001 $3.46 $0.03076 $3.10 $0.02755 $0.36096 $0.00321
7 2002 $3.61 $0.03214 $3.24 $0.02882 $0.37303 $0.00332
8 2003 $3.76 $0.03345 $3.37 $0.03002 $0.38518 $0.00343
9 2004 $3.93 $0.03494 $3.53 $0.03140 $0.39805 $0.00354
10 2005 $4.09 $0.03636 $3.67 $0.03270 $0.41101 $0.00366
11 2006 $4.25 $0.03784 $3.83 $0.03406 $0.42474 $0.00378
12 2007 $4.41 $0.03924 $3.97 $0.03534 $0.43857 $0.00390
13 2008 $4.60 $0.04096 $4.15 $0.03693 $0.45321 $0.00403
14 2009 $4.79 $0.04261 $4.32 $0.03845 $0.46795 $0.00416
15 2010 $5.00 $0.04447 $4.51 $0.04016 $0.48356 $0.00430
16 2011 $5.18 $0.04609 $4.68 $0.04165 $0.49888 $0.00444
17 2012 $5.37 $0.04778 $4.85 $0.04320 $0.51468 $0.00458
18 2013 $5.56 $0.04952 $5.03 $0.04480 $0.53098 $0.00473
19 2014 $5.75 $0.05118 $5.20 $0.04630 $0.54780 $0.00488
20 2015 $5.94 $0.05288 $5.38 $0.04785 $0.56514 $0.00503
<CAPTION>
Winter Fuel Oil Cost
---------------------------------------------------------------------------------
Delivered Panda Winter Winter Winter
Fuel Oil Handling Oil Oil Fuel Oil Oil
Year Price Charge Charge Charge Usage Cost Margin Margin
---- ---------- --------- --------- ------- -------- -------- -------- -------
($/MMBtu) ($/MMBtu) ($/MMBtu) ($/kWh) (%) ($/MMBtu) ($/MMBtu) ($/kWh)
Escalation 1996-2015 4.00% 3.00%
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0 1995 $3.89 $0.09 $3.98 $0.03545 80.00% $3.57 $0.41068 $0.00366
1 1996 $4.05 $0.10 $4.14 $0.03686 80.00% $3.81 $0.33637 $0.00299
2 1997 $4.21 $0.10 $4.31 $0.03833 80.00% $3.89 $0.41867 $0.00373
3 1998 $4.38 $0.10 $4.48 $0.03985 80.00% $4.05 $0.43299 $0.00385
4 1999 $4.55 $0.11 $4.66 $0.04144 80.00% $4.21 $0.44788 $0.00399
5 2000 $4.73 $0.11 $4.84 $0.04309 80.00% $4.38 $0.46103 $0.00410
6 2001 $4.73 $0.11 $4.84 $0.04309 80.00% $4.41 $0.43601 $0.00388
7 2002 $4.73 $0.11 $4.84 $0.04309 80.00% $4.43 $0.40747 $0.00363
8 2003 $4.73 $0.11 $4.84 $0.04309 80.00% $4.46 $0.38039 $0.00339
9 2004 $4.73 $0.11 $4.84 $0.04309 80.00% $4.49 $0.34955 $0.00311
10 2005 $4.73 $0.11 $4.84 $0.04309 80.00% $4.52 $0.32026 $0.00285
11 2006 $4.73 $0.11 $4.84 $0.04309 80.00% $4.55 $0.28973 $0.00258
12 2007 $4.73 $0.11 $4.84 $0.04309 80.00% $4.58 $0.26098 $0.00232
13 2008 $4.73 $0.11 $4.84 $0.04309 80.00% $4.62 $0.22520 $0.00200
14 2009 $4.73 $0.11 $4.84 $0.04309 80.00% $4.65 $0.19112 $0.00170
15 2010 $4.73 $0.11 $4.84 $0.04309 80.00% $4.69 $0.15251 $0.00136
16 2011 $4.73 $0.11 $4.84 $0.04309 80.00% $4.72 $0.11901 $0.00106
17 2012 $4.73 $0.11 $4.84 $0.04309 80.00% $4.76 $0.08430 $0.00075
18 2013 $4.73 $0.11 $4.84 $0.04309 80.00% $4.79 $0.04835 $0.00043
19 2014 $4.73 $0.11 $4.84 $0.04309 80.00% $4.83 $0.01462 $0.00013
20 2015 $4.73 $0.11 $4.84 $0.04309 80.00% $4.86 ($0.02024) ($0.00018)
<CAPTION>
VEPCO Gas Cost
-----------------------------------------------------------------------------------------------------------
MGT Panda VEPCO VEPCO Plant FA VEPCO VEPCO VEPCO VEPCO
Management Pipeline Gas Gas Variable NCNG Nomination Gas Nomination Gas
Year Fee Charge Charge Charge O&M Costs Retainage Fee Charge Fee Cost Margin
---- ---------- --------- --------- ------- --------- --------- ---------- ------- ---------- ------- -------
($/MMBtu) ($/MMBtu) ($/MMBtu) ($/kWh) ($/kWh) (%) ($/day) ($/kWh) ($/day) ($/kWh) ($/kWh)
Escalation 1996-2015 0.00% 3.00 2.00% $450 $450
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0 1995 $0.04 $0.12 $0.16 $0.00147 $0.00216 2.00% $7,500 $0.00381 $7,500 $0.00011 $0.00370
1 1996 $0.04 $0.13 $0.17 $0.00150 $0.00222 2.00% $7,500 $0.00391 $7,500 $0.00011 $0.00380
2 1997 $0.04 $0.13 $0.17 $0.00153 $0.00229 2.00% $7,500 $0.00402 $7,500 $0.00011 $0.00390
3 1998 $0.04 $0.14 $0.18 $0.00157 $0.00236 2.00% $9,375 $0.00412 $9,375 $0.00011 $0.00401
4 1999 $0.04 $0.14 $0.18 $0.00161 $0.00243 2.00% $9,375 $0.00423 $9,375 $0.00011 $0.00412
5 2000 $0.04 $0.14 $0.18 $0.00164 $0.00250 2.00% $9,375 $0.00434 $9,375 $0.00011 $0.00423
6 2001 $0.04 $0.14 $0.18 $0.00164 $0.00258 2.00% $9,375 $0.00442 $9,375 $0.00011 $0.00431
7 2002 $0.04 $0.14 $0.18 $0.00164 $0.00266 2.00% $9,375 $0.00450 $9,375 $0.00011 $0.00439
8 2003 $0.04 $0.14 $0.18 $0.00164 $0.00274 2.00% $11,250 $0.00458 $11,250 $0.00011 $0.00447
9 2004 $0.04 $0.14 $0.18 $0.00164 $0.00282 2.00% $11,250 $0.00466 $11,250 $0.00011 $0.00455
10 2005 $0.04 $0.14 $0.18 $0.00164 $0.00290 2.00% $11,250 $0.00475 $11,250 $0.00011 $0.00464
11 2006 $0.04 $0.14 $0.18 $0.00164 $0.00299 2.00% $11,250 $0.00484 $11,250 $0.00011 $0.00473
12 2007 $0.04 $0.14 $0.18 $0.00164 $0.00308 2.00% $11,250 $0.00493 $11,250 $0.00011 $0.00482
13 2008 $0.04 $0.14 $0.18 $0.00164 $0.00317 2.00% $11,250 $0.00503 $11,250 $0.00011 $0.00491
14 2009 $0.04 $0.14 $0.18 $0.00164 $0.00327 2.00% $11,250 $0.00512 $11,250 $0.00011 $0.00501
15 2010 $0.04 $0.14 $0.18 $0.00164 $0.00337 2.00% $11,250 $0.00522 $11,250 $0.00011 $0.00511
16 2011 $0.04 $0.14 $0.18 $0.00164 $0.00347 2.00% $11,250 $0.00533 $11,250 $0.00011 $0.00521
17 2012 $0.04 $0.14 $0.18 $0.00164 $0.00357 2.00% $11,250 $0.00543 $11,250 $0.00011 $0.00532
18 2013 $0.04 $0.14 $0.18 $0.00164 $0.00368 2.00% $11,250 $0.00554 $11,250 $0.00011 $0.00543
19 2014 $0.04 $0.14 $0.18 $0.00164 $0.00379 2.00% $11,250 $0.00565 $11,250 $0.00011 $0.00554
20 2015 $0.04 $0.14 $0.18 $0.00164 $0.00390 2.00% $11,250 $0.00577 $11,250 $0.00011 $0.00566
<CAPTION>
Auxiliary Boiler Steam/Chilled Water Fuel Cost
--------------------------------------------------------------------------------------
NCG Texas
Gulf Spot Transco GRI/ACA Mgt. Transco CNG Gas NCNG
Year Price Commodity Surcharge Fee Retainage Retainage Retainage Retainage
---- --------- --------- --------- -------- --------- --------- --------- ---------
($/MMBtu) ($/MMBtu) ($/MMBtu) ($/MMBtu) (%) (%) (%) (%)
Escalation 1996-2015 ICF Forecast 3.00% 3.00% 0.00% 3.79% 2.28% 2.00% 1.00%
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0 1995 $1.56 $0.03 $0.02 $0.04 3.79% 2.28% 2.00% 1.00%
1 1996 $1.74 $0.03 $0.02 $0.04 3.79% 2.28% 2.00% 1.00%
2 1997 $1.69 $0.03 $0.02 $0.04 3.79% 2.28% 2.00% 1.00%
3 1998 $1.78 $0.03 $0.02 $0.04 3.79% 2.28% 2.00% 1.00%
4 1999 $1.89 $0.03 $0.02 $0.04 3.79% 2.28% 2.00% 1.00%
5 2000 $1.99 $0.03 $0.02 $0.04 3.79% 2.28% 2.00% 1.00%
6 2001 $2.09 $0.03 $0.02 $0.04 3.79% 2.28% 2.00% 1.00%
7 2002 $2.19 $0.03 $0.02 $0.04 3.79% 2.28% 2.00% 1.00%
8 2003 $2.30 $0.03 $0.02 $0.04 3.79% 2.28% 2.00% 1.00%
9 2004 $2.41 $0.03 $0.02 $0.04 3.79% 2.28% 2.00% 1.00%
10 2005 $2.52 $0.03 $0.02 $0.04 3.79% 2.28% 2.00% 1.00%
11 2006 $2.65 $0.03 $0.02 $0.04 3.79% 2.28% 2.00% 1.00%
12 2007 $2.78 $0.03 $0.02 $0.04 3.79% 2.28% 2.00% 1.00%
13 2008 $2.91 $0.03 $0.02 $0.04 3.79% 2.28% 2.00% 1.00%
14 2009 $3.05 $0.03 $0.02 $0.04 3.79% 2.28% 2.00% 1.00%
15 2010 $3.21 $0.03 $0.02 $0.04 3.79% 2.28% 2.00% 1.00%
16 2011 $3.33 $0.03 $0.02 $0.04 3.79% 2.28% 2.00% 1.00%
17 2012 $3.47 $0.03 $0.02 $0.04 3.79% 2.28% 2.00% 1.00%
18 2013 $3.60 $0.03 $0.02 $0.04 3.79% 2.28% 2.00% 1.00%
19 2014 $3.75 $0.03 $0.02 $0.04 3.79% 2.28% 2.00% 1.00%
20 2015 $3.89 $0.03 $0.02 $0.04 3.79% 2.28% 2.00% 1.00%
<CAPTION>
Auxiliary Boiler Steam/Chilled Water Fuel Cost
----------------------------------------------
Steam Steam
Gas Gas Steam
Year Cost Cost Charge Margin
---- ----- ----- ------ ------
($/MMBtu) ($/klbs) ($/klbs) ($/klbs)
Escalation 1996-2015 0.00%
<S> <C> <C> <C> <C> <C>
0 1995 $1.79 $3.07 $1.15 ($1.92)
1 1996 $1.99 $3.41 $1.15 ($2.26)
2 1997 $1.94 $3.32 $1.15 ($2.17)
3 1998 $2.04 $3.50 $1.15 ($2.35)
4 1999 $2.16 $3.70 $1.15 ($2.55)
5 2000 $2.27 $3.90 $1.15 ($2.75)
6 2001 $2.38 $4.07 $1.15 ($2.92)
7 2002 $2.48 $4.26 $1.15 ($3.11)
8 2003 $2.61 $4.47 $1.15 ($3.32)
9 2004 $2.73 $4.67 $1.15 ($3.52)
10 2005 $2.85 $4.88 $1.15 ($3.73)
11 2006 $2.99 $5.12 $1.15 ($3.97)
12 2007 $3.14 $5.38 $1.15 ($4.23)
13 2008 $3.28 $5.61 $1.15 ($4.46)
14 2009 $3.43 $5.89 $1.15 ($4.74)
15 2010 $3.60 $6.17 $1.15 ($5.02)
16 2011 $3.74 $6.41 $1.15 ($5.26)
17 2012 $3.89 $6.66 $1.15 ($5.51)
18 2013 $4.03 $6.92 $1.15 ($5.77)
19 2014 $4.19 $7.18 $1.15 ($6.03)
20 2015 $4.35 $7.46 $1.15 ($6.31)
</TABLE>
<PAGE>
Panda Energy Corporation Alternative: Updated Corporate Page 3
Panda-Rosemary Cogen Project Refinancing Offering Base Case
********************************************************************************
PROJECT FINANCING ASSUMPTIONS
<TABLE>
<CAPTION>
Equal
Financing Sources of Funds Annual
- -------------------------- Refinancing Debt Service
------------ ------------
<S> <C> <C>
DEBT FINANCING:
First Mortage Bonds:
Percentage Financed 85.63%
Principal Amount $111,400,000 $11,879,000
Interest Rate 8.63%
Term 20.0
Years of Interest Only 0.0
Debt Service Reserve Fund (% of Principal) 7.26%
Financing Fees 2.69%
Subordinate Debt A:
Percentage Financed 0.00%
Principal Amount $0 $0
Interest Rate 9.00%
Term 20.0
Years of Interest Only 0.0
Debt Service Reserve Fund (% of Principal) 0.00%
Financing Fees 0.00%
OTHER FINANCING SOURCES:
Existing Debt Service Reserve Fund $4,117,388
Existing Turbine Overhaul Reserve $931,032
Existing Reimbursement Obligation Account $8,247,605
Existing Pollution Control Account $5,256,983
Existing Spare Parts Account $113,737
Existing Revenue Account $27,763
------------
Total Other Financing Sources $18,694,508
TOTAL SOURCES OF FUNDS $130,094,508
Financing Uses of Funds
REFINANCING COSTS::
Operating Account $868,226
Defeasance of Taxable Revenue Bonds $103,209,600
PROJECT COSTS:
Pollution Control Reserve $5,256,983
Turbine Overhaul Reserve $942,632
FINANCING COSTS
Debt Service Reserve $8,090,714
Fees and Expenses $3,000,000
Partial Redemption of FMCC Rosemary Interest $8,726,353
------------
TOTAL USES OF FUNDS $130,094,508
</TABLE>
- -----------------------------------------------------------------------
Principal Amortization Option 4
- -----------------------------------------------------------------------
Equal Annual Principal & Interest - No Deferral 1
Equal Annual Principal & Interest - Deferral 2
Equal Annual Principal 3
Custom Principal Amortization 4
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
Principal Amortization Option 1
- -----------------------------------------------------------------------
Equal Annual Principal & Interest - No Deferral 1
Equal Annual Principal & Interest - Deferral 2
Equal Annual Principal 3
Custom Principal Amortization 4
- -----------------------------------------------------------------------
Custom Principal
Amortization Schedules
--------------------------------
First Mortgage Subordinate
Year Bonds Debt A
-------------------------------------------
1996 2,752,798 0
1997 5,500,608 0
1998 5,922,178 0
1999 5,092,966 0
2000 5,472,948 0
2001 5,879,990 0
2002 6,293,568 0
2003 6,737,102 0
2004 7,215,320 0
2005 7,696,926 0
2006 4,292,216 0
2007 4,491,704 0
2008 4,704,828 0
2009 4,919,192 0
2010 5,142,758 0
2011 5,422,034 0
2012 5,691,114 0
2013 5,952,686 0
2014 6,188,248 0
2015 6,030,816 0
-------------------------------------------
111,400,000 0
<PAGE>
Panda Energy Corporation Alternative: Updated Corporate Page 4
Panda-Rosemary Cogen Project Refinancing Offering Base Case
*******************************************************************************
DEBT SERVICE CALCULATIONS 50.00%
<TABLE>
<CAPTION>
1 2 3 4 5 6 7
1996 1997 1998 1999 2000 2001 2002
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
First Mortgage Bonds:
Beginning Balance 111,400,000 108,647,202 103,146,594 97,224,416 92,131,450 86,658,502 80,778,512
Interest 5,175,000 9,192,911 8,704,848 8,220,881 7,769,322 7,284,115 6,763,589
Principal 2,752,798 5,500,608 5,922,178 5,092,966 5,472,948 5,879,990 6,293,568
----------- ----------- ---------- ---------- ---------- ---------- ----------
Debt Service 7,927,798 14,693,519 14,627,026 13,313,847 13,242,270 13,164,105 13,057,157
Ending Balance 108,647,202 103,146,594 97,224,416 92,131,450 86,658,502 80,778,512 74,484,944
Subordinated Debt A:
Beginning Balance 0 0 0 0 0 0 0
Interest 0 0 0 0 0 0 0
Principal 0 0 0 0 0 0 0
----------- ----------- ---------- ---------- ---------- ---------- ----------
Debt Service 0 0 0 0 0 0 0
Ending Balance 0 0 0 0 0 0 0
TOTAL DEBT SERVICE
Interest 5,175,000 9,192,911 8,704,848 8,220,881 7,769,322 7,284,115 6,763,589
Principal 2,752,798 5,500,608 5,922,178 5,092,966 5,472,948 5,879,990 6,293,568
----------- ----------- ---------- ---------- ---------- ---------- ----------
Debt Service 7,927,798 14,693,519 14,627,026 13,313,847 13,242,270 13,164,105 13,057,157
<CAPTION>
8 9 10 11 12 13 14
2003 2004 2005 2006 2007 2008 2009
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
First Mortgage Bonds:
Beginning Balance 74,484,944 67,747,842 60,532,522 52,835,596 48,543,380 44,051,676 39,346,848
Interest 6,206,423 5,609,882 4,971,983 4,418,244 4,041,589 3,647,284 3,234,560
Principal 6,737,102 7,215,320 7,696,926 4,292,216 4,491,704 4,704,828 4,919,192
----------- ----------- ---------- ---------- ---------- ---------- ----------
Debt Service 12,943,525 12,825,202 12,668,909 8,710,460 8,533,293 8,352,112 8,153,752
Ending Balance 67,747,842 60,532,522 52,835,596 48,543,380 44,051,676 39,346,848 34,427,656
Subordinated Debt A:
Beginning Balance 0 0 0 0 0 0 0
Interest 0 0 0 0 0 0 0
Principal 0 0 0 0 0 0 0
----------- ----------- ---------- ---------- ---------- ---------- ----------
Debt Service 0 0 0 0 0 0 0
Ending Balance 0 0 0 0 0 0 0
TOTAL DEBT SERVICE
Interest 6,206,423 5,609,882 4,971,983 4,418,244 4,041,589 3,647,284 3,234,560
Principal 6,737,102 7,215,320 7,696,926 4,292,216 4,491,704 4,704,828 4,919,192
----------- ----------- ---------- ---------- ---------- ---------- ----------
Debt Service 12,943,525 12,825,202 12,668,909 8,710,460 8,533,293 8,352,112 8,153,752
<CAPTION>
15 16 17 18 19 20
2010 2011 2012 2013 2014 2015
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
First Mortgage Bonds:
Beginning Balance 34,427,656 29,284,898 23,862,864 18,171,750 12,219,064 6,030,816
Interest 2,803,049 2,350,454 1,874,100 1,374,781 853,744 325,100 94,821,859
Principal 5,142,758 5,422,034 5,691,114 5,952,686 6,188,248 6,030,816 111,400,000
----------- ----------- ---------- ---------- ---------- ----------
Debt Service 7,945,807 7,772,488 7,565,214 7,327,467 7,041,992 6,355,916
Ending Balance 29,284,898 23,862,864 18,171,750 12,219,064 6,030,816 0
Subordinated Debt A:
Beginning Balance 0 0 0 0 0 0
Interest 0 0 0 0 0 0
Principal 0 0 0 0 0 0
----------- ----------- ---------- ---------- ---------- ----------
Debt Service 0 0 0 0 0 0
Ending Balance 0 0 0 0 0 0
TOTAL DEBT SERVICE
Interest 2,803,049 2,350,454 1,874,100 1,374,781 853,744 325,100
Principal 5,142,758 5,422,034 5,691,114 5,952,686 6,188,248 6,030,816
----------- ----------- ---------- ---------- ---------- ----------
Debt Service 7,945,807 7,772,488 7,565,214 7,327,467 7,041,992 6,355,916
</TABLE>
<PAGE>
Panda Energy Corporation Alternative: Updated Corporate Page 5
Panda-Rosemary Cogen Project Refinancing Offering Base Case
*******************************************************************************
FUEL COSTS
<TABLE>
<CAPTION>
1 2 3 4 5 6 7
DISPATCH OPERATIONS 1996 1997 1998 1999 2000 2001 2002
-------- ------- ------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Total Hours 8,760 8,760 8,760 8,760 8,760 8,760 8,760
Summer Capacity 174.0 174.0 174.0 174.0 174.0 174.0 174.0
VEPCO Capacity 165.0 165.0 165.0 165.0 165.0 165.0 165.0
Winter Capacity 198.0 198.0 198.0 198.0 198.0 198.0 198.0
Summer Dispatch 674 511 775 1,038 1,453 1,868 1,960
Winter Gas Dispatch 3 117 183 250 241 231 272
Winter Oil Dispatch 0 3 10 17 19 21 37
VEPCO Gas Dispatch 400 400 500 500 500 500 500
-------- ------- ------ ------- ------- ------- -------
Total Dispatch Hours 1,077 1,031 1,468 1,805 2,213 2,620 2,769
Percentage 12.29% 11.77% 16.76% 20.61% 25.26% 29.91% 31.61%
Winter Starts 0 3 5 6 6 6 7
Winter Start Duration 40 40 40 40 40 40 40
NET GENERATION
Availability Factor [1] 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Equivalent Load Factor 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
[1] Equivalent full load dispatch hours from Dispatch Assumptions incorporate
planned outage and forced outage availability factors.
Summer Output MWh 117,276 88,914 134,850 180,612 252,822 325,032 341,040
Winter Gas Output MWh 594 23,166 36,234 49,500 47,718 45,738 53,856
Winter Oil Dispatch MWh 0 594 1,980 3,366 3,762 4,158 7,326
VEPCO Gas Dispatch MWh 66,000 66,000 82,500 82,500 82,500 82,500 82,500
-------- ------- ------ ------- ------- ------- -------
Net Generation MWh 183,870 178,674 255,564 315,978 386,802 457,428 484,722
FUEL USAGE - ELECTRICAL GENERATION
Net Electric Heat Rate Btu/kWh 8900 8900 8900 8900 8900 8900 8900
Summer Gas Fuel MMBtu 1,043,756 791,335 1,200,165 1,607,447 2,250,116 2,892,785 3,035,256
Winter Gas Fuel MMBtu 5,287 206,177 322,483 440,550 424,690 407,068 479,318
Winter Oil Fuel MMBtu 0 5,287 17,622 29,957 33,482 37,006 65,201
VEPCO Gas Fuel MMBtu 587,400 587,400 734,250 734,250 734,250 734,250 734,250
--------- --------- --------- --------- --------- --------- ---------
Total Fuel Usage MMBtu 1,636,443 1,590,199 2,274,520 2,812,204 3,442,538 4,071,109 4,314,026
FUEL COST - ELECTRICAL GENERATION
Summer Gas Fuel $/MMBtu $2.20 $2.15 $2.26 $2.38 $2.50 $2.61 $2.71
Winter Gas Fuel $/MMBtu $2.85 $2.61 $2.72 $2.84 $2.97 $3.10 $3.24
Winter Oil Fuel $/MMBtu $3.81 $3.89 $4.05 $4.21 $4.38 $4.41 $4.43
VEPCO Gas Fuel $/kWh $0.00011 $0.00011 $0.00011 $0.00011 $0.00011 $0.00011 $0.00011
Summer Gas Fuel $ 2,300,000 1,702,000 2,710,000 3,829,000 5,624,000 7,549,000 8,231,000
Winter Gas Fuel $ 15,000 538,000 878,000 1,250,000 1,261,000 1,260,000 1,552,000
Winter Oil Fuel $ 0 21,000 71,000 126,000 147,000 163,000 289,000
VEPCO Gas Fuel $ 7,500 7,500 9,400 9,400 9,400 9,400 9,400
-------- --------- --------- --------- --------- --------- ----------
Total Fuel Cost $ 2,322,500 2,268,500 3,668,400 5,214,400 7,041,400 8,981,400 10,081,400
TOTAL FUEL COSTS - COGEN PLANT
Summer Gas Fuel $ 2,300,000 1,702,000 2,710,000 3,829,000 5,624,000 7,549,000 8,231,000
Winter Gas Fuel $ 15,000 538,000 878,000 1,250,000 1,261,000 1,260,000 1,552,000
Winter Oil Fuel $ 0 21,000 71,000 126,000 147,000 163,000 289,000
VEPCO Gas Fuel $ 7,500 7,500 9,400 9,400 9,400 9,400 9,400
Fuel Usage - Thermal MMBtu 36,774 35,735 51,113 63,196 77,360 91,486 96,944
Fuel Cost - Thermal [2] $ 73,000 69,000 104,000 137,000 176,000 217,000 241,000
-------- ------- ------ ------- ------- ------- -------
Total Fuel Costs - Cogen Plant 2,396,000 2,338,000 3,772,000 5,351,000 7,217,000 9,198,000 10,322,000
Average Fuel Cost ($/MMBtu) $1.43 $1.44 $1.62 $1.86 $2.05 $2.21 $2.34
Average Fuel Cost ($/kWh) $0.0130 $0.0131 $0.0148 $0.0169 $0.0187 $0.0201 $0.0213
[2] Boiler fuel cost estimate below used to determine fuel cost allocation of
thermal production.
STEAM/CHILLED WATER
Steam Production Hours 7,800 7,800 7,800 7,800 7,800 7,800 7,800
Chilled Water Production Hours 4,000 4,000 4,000 4,000 4,000 4,000 4,000
Steam Production Hours - Boiler 6,723 6,769 6,332 5,995 5,587 5,180 5,031
Chilled Water Production Hours - Boi 2,923 2,972 2,542 2,212 1,806 1,401 1,268
Steam Fuel - Boiler MMBtu 576,161 580,103 542,652 513,772 478,806 443,926 431,157
C. Water Fuel - Boiler MMBtu 90,070 91,580 78,330 68,161 55,651 43,171 39,073
-------- ------- ------ ------- ------- ------- -------
Total Boiler Fuel MMBtu 666,231 671,683 620,982 581,933 534,457 487,097 470,229
Boiler Fuel Cost $/MMBtu $1.99 $1.94 $2.04 $2.16 $2.27 $2.38 $2.48
Boiler Fuel Cost $ 1,327,000 1,301,000 1,267,000 1,257,000 1,215,000 1,158,000 1,168,000
<CAPTION>
8 9 10 11 12 13 14
DISPATCH OPERATIONS 2003 2004 2005 2006 2007 2008 2009
------ ------- ------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Total Hours 8,760 8,760 8,760 8,760 8,760 8,760 8,760
Summer Capacity 174.0 174.0 174.0 174.0 174.0 174.0 174.0
VEPCO Capacity 165.0 165.0 165.0 165.0 165.0 165.0 165.0
Winter Capacity 198.0 198.0 198.0 198.0 198.0 198.0 198.0
Summer Dispatch 2,053 2,149 2,248 2,151 2,058 1,969 1,884
Winter Gas Dispatch 320 378 441 428 415 401 388
Winter Oil Dispatch 65 114 202 186 171 158 145
VEPCO Gas Dispatch 600 600 600 600 600 600 600
------ ------- ------ ------- ------- ------- -------
Total Dispatch Hour 3,038 3,241 3,491 3,365 3,244 3,128 3,017
Percentage 34.68% 37.00% 39.85% 38.41% 37.03% 35.71% 34.44%
Winter Starts 8 9 11 11 10 10 10
Winter Start Duration 40 40 40 40 40 40 40
NET GENERATION
Availability Factor [1] 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Equivalent Load Factor 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Summer Output 357,222 373,926 391,152 374,274 358,092 342,606 327,816
Winter Gas Output 63,360 74,844 87,318 84,744 82,170 79,398 76,824
Winter Oil Dispatch 12,870 22,572 39,996 36,828 33,858 31,284 28,710
VEPCO Gas Dispatch 99,000 99,000 99,000 99,000 99,000 99,000 99,000
------ ------- ------ ------- ------- ------- -------
Net Generation 532,452 570,342 617,466 594,846 573,120 552,288 532,350
FUEL USAGE - ELECTRICAL
GENERATION
Net Electric Heat Rate 8900 8900 8900 8900 8900 8900 8900
Summer Gas Fuel 3,179,276 3,327,941 3,481,253 3,331,039 3,187,019 3,049,193 2,917,562
Winter Gas Fuel 563,904 666,112 777,130 754,222 731,313 706,642 683,734
Winter Oil Fuel 114,543 200,891 355,964 327,769 301,336 278,428 255,519
VEPCO Gas Fuel 881,100 881,100 881,100 881,100 881,100 881,100 881,100
--------- --------- --------- --------- --------- ------- ---------
Total Fuel Usage 4,738,823 5,076,044 5,495,447 5,294,129 5,100,768 4,915,363 4,737,915
FUEL COST - ELECTRICAL
GENERATION
Summer Gas Fuel $2.84 $2.97 $3.10 $3.24 $3.38 $3.53 $3.70
Winter Gas Fuel $3.37 $3.53 $3.67 $3.83 $3.97 $4.15 $4.32
Winter Oil Fuel $4.46 $4.49 $4.52 $4.55 $4.58 $4.62 $4.65
VEPCO Gas Fuel $0.00011 $0.00011 $0.00011 $0.00011 $0.00011 $0.00011 $0.00011
Summer Gas Fuel 9,041,000 9,876,000 10,779,000 10,807,000 10,786,000 10,762,000 10,783,000
Winter Gas Fuel 1,902,000 2,350,000 2,855,000 2,886,000 2,904,000 2,932,000 2,954,000
Winter Oil Fuel 511,000 902,000 1,609,000 1,492,000 1,380,000 1,285,000 1,188,000
VEPCO Gas Fuel 11,300 11,300 11,300 11,300 11,300 11,300 11,300
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total Fuel Cost 11,465,300 13,139,300 15,254,300 15,196,300 15,081,300 14,990,300 14,936,300
TOTAL FUEL COSTS -
COGEN PLANT
Summer Gas Fuel 9,041,000 9,876,000 10,779,000 10,807,000 10,786,000 10,762,000 10,783,000
Winter Gas Fuel 1,902,000 2,350,000 2,855,000 2,886,000 2,904,000 2,932,000 2,954,000
Winter Oil Fuel 511,000 902,000 1,609,000 1,492,000 1,380,000 1,285,000 1,188,000
VEPCO Gas Fuel 11,300 11,300 11,300 11,300 11,300 11,300 11,300
Fuel Usage - Thermal 106,490 114,068 123,493 118,969 114,624 110,458 106,470
Fuel Cost - Thermal [2] 278,000 311,000 352,000 356,000 360,000 362,000 366,000
---------- ---------- ---------- -- ------- --------- ------- ----------
Total Fuel Costs - 11,743,000 13,450,000 15,606,000 15,552,000 15,441,000 15,352,000 15,302,000
Average Fuel Cost ( ) $2.42 $2.59 $2.78 $2.87 $2.96 $3.05 $3.16
Average Fuel Cost ( ) $0.0221 $0.0236 $0.0253 $0.0261 $0.0269 $0.0278 $0.0287
STEAM/CHILLED WATER
Steam Production Hours 7,800 7,800 7,800 7,800 7,800 7,800 7,800
Chilled Water Production 4,000 4,000 4,000 4,000 4,000 4,000 4,000
Steam Production Hours - 4,762 4,559 4,309 4,435 4,556 4,672 4,783
Chilled Water Production 1,027 873 711 821 927 1,030 1,128
Steam Fuel - Boiler 408,103 390,706 369,281 380,080 390,449 400,390 409,903
C. Water Fuel - Boiler 31,646 26,901 21,909 25,299 28,565 31,739 34,759
-------- ------- ------ ------- ------- ------- -------
Total Boiler Fuel 439,750 417,607 391,190 405,378 419,014 432,129 444,662
Boiler Fuel Cost $2.61 $2.73 $2.85 $2.99 $3.14 $3.28 $3.43
Boiler Fuel Cost 1,148,000 1,139,000 1,114,000 1,212,000 1,315,000 1,415,000 1,527,000
<CAPTION>
15 16 17 18 19 20
DISPATCH OPERATIONS 2010 2011 2012 2013 2014 2015
------ ------- ------ ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Total Hours 8,760 8,760 8,760 8,760 8,760 8,760
Summer Capacity 174.0 174.0 174.0 174.0 174.0 174.0
VEPCO Capacity 165.0 165.0 165.0 165.0 165.0 165.0
Winter Capacity 198.0 198.0 198.0 198.0 198.0 198.0
Summer Dispatch 1,802 1,756 1,710 1,666 1,622 1,579
Winter Gas Dispatch 375 361 348 335 322 310
Winter Oil Dispatch 134 133 132 131 130 129
VEPCO Gas Dispatch 600 600 600 600 600 600
------ ------- ------ ------- ------- -------
Total Dispatch Hour 2,911 2,850 2,790 2,732 2,674 2,618
Percentage 33.23% 32.53% 31.85% 31.19% 30.53% 29.89%
Winter Starts 9 9 9 8 8 8
Winter Start Duration 40 40 40 40 40 40
NET GENERATION
Availability Factor [1] 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Equivalent Load Factor 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Summer Output 313,548 305,544 297,540 289,884 282,228 274,746
Winter Gas Output 74,250 71,478 68,904 66,330 63,756 61,380
Winter Oil Dispatch 26,532 26,334 26,136 25,938 25,740 25,542
VEPCO Gas Dispatch 99,000 99,000 99,000 99,000 99,000 99,000
------ ------- ------ ------- ------- -------
Net Generation 513,330 502,356 491,580 481,152 470,724 460,668
FUEL USAGE - ELECTRICAL
GENERATION
Net Electric Heat Rate 8900 8900 8900 8900 8900 8900
Summer Gas Fuel 2,790,577 2,719,342 2,648,106 2,579,968 2,511,829 2,445,239
Winter Gas Fuel 660,825 636,154 613,246 590,337 567,428 546,282
Winter Oil Fuel 236,135 234,373 232,610 230,848 229,086 227,324
VEPCO Gas Fuel 881,100 881,100 881,100 881,100 881,100 881,100
---------- ---------- ---------- ---------- ---------- ----------
Total Fuel Usage 4,568,637 4,470,968 4,375,062 4,282,253 4,189,444 4,099,945
FUEL COST - ELECTRICAL
GENERATION
Summer Gas Fuel $3.87 $4.02 $4.15 $4.31 $4.47 $4.64
Winter Gas Fuel $4.51 $4.68 $4.85 $5.03 $5.20 $5.38
Winter Oil Fuel $4.69 $4.72 $4.76 $4.79 $4.83 $4.86
VEPCO Gas Fuel $0.00011 $0.00011 $0.00011 $0.00011 $0.00011 $0.00011
Summer Gas Fuel 10,796,000 10,922,000 10,997,000 11,122,000 11,240,000 11,357,000
Winter Gas Fuel 2,982,000 2,977,000 2,977,000 2,972,000 2,952,000 2,937,000
Winter Oil Fuel 1,107,000 1,107,000 1,107,000 1,106,000 1,106,000 1,105,000
VEPCO Gas Fuel 11,300 11,300 11,300 11,300 11,300 11,300
---------- ---------- ---------- ---------- ---------- ----------
Total Fuel Cost 14,896,300 15,017,300 15,092,300 15,211,300 15,309,300 15,410,300
TOTAL FUEL COSTS -
COGEN PLANT
Summer Gas Fuel 10,796,000 10,922,000 10,997,000 11,122,000 11,240,000 11,357,000
Winter Gas Fuel 2,982,000 2,977,000 2,977,000 2,972,000 2,952,000 2,937,000
Winter Oil Fuel 1,107,000 1,107,000 1,107,000 1,106,000 1,106,000 1,105,000
VEPCO Gas Fuel 11,300 11,300 11,300 11,300 11,300 11,300
Fuel Usage - Thermal 102,666 100,471 98,316 96,230 94,145 92,134
Fuel Cost - Thermal [2] 370,000 376,000 382,000 388,000 395,000 401,000
---------- ---------- ---------- ---------- ---------- ----------
Total Fuel Costs - 15,266,000 15,393,000 15,474,000 15,599,000 15,704,000 15,811,000
Average Fuel Cost ( ) $3.27 $3.37 $3.46 $3.56 $3.67 $3.77
Average Fuel Cost ( ) $0.0297 $0.0306 $0.0315 $0.0324 $0.0334 $0.0343
STEAM/CHILLED WATER
Steam Production Hours 7,800 7,800 7,800 7,800 7,800 7,800
Chilled Water Production 4,000 4,000 4,000 4,000 4,000 4,000
Steam Production Hours - 4,889 4,950 5,010 5,068 5,126 5,182
Chilled Water Production 1,223 1,283 1,342 1,399 1,456 1,511
Steam Fuel - Boiler 418,987 424,215 429,357 434,328 439,298 444,097
C. Water Fuel - Boiler 37,686 39,535 41,353 43,109 44,866 46,560
---------- ---------- ---------- ---------- ---------- ----------
Total Boiler Fuel 456,673 463,750 470,710 477,437 484,164 490,658
Boiler Fuel Cost $3.60 $3.74 $3.89 $4.03 $4.19 $4.35
Boiler Fuel Cost 1,645,000 1,735,000 1,829,000 1,926,000 2,029,000 2,135,000
</TABLE>
<PAGE>
Panda Energy Corporation Alternative: Updated Corporate Page 6
Panda-Rosemary Cogen Project Refinancing Offering Base Case
*******************************************************************************
PLANT OPERATING COSTS
<TABLE>
<CAPTION>
1995 1996
ESTIMATED ACTUAL BUDGET ESCALATION
---------------- ------ ----------
<S> <C> <C> <C>
FUEL TRANSPORTATION COSTS:
Firm Transportation - Transco $1,097,889 $1,080,318 0.00%
Less: Capacity Release Revenues(1) $0 ($132,000) 0.00%
Fuel Management Fee $240,000 $240,000 3.00%
-----------------------------
Total Fuel Transportation Costs $1,337,889 $1,188,318
OPERATING COSTS:
O&M Contract Fee $1,641,825 $1,703,120 3.00%
General Maintenance & Repairs $144,622 $160,825 8.00%
Planned Plant Maintenance Projects $156,972 $328,425 3.00%
Additional Maintenance Allowance $274,024 $155,000 0.00%
Parts Replacement $228,392 $167,940 3.00%
Other Plant Expenses $34,930 $52,100 3.00%
Panda Management Fee [2] $480,000 $0 0.00%
Office & Admin Expenses $231,061 $190,015 3.00%
Property Taxes $977,109 $972,000 -3.00%
Insurance $298,728 $300,000 3.00%
VEPCO Performance LOC $64,602 $66,232 Input Panda Forecast
-----------------------------
Total Operating Costs $4,532,265 $4,095,657
Total Plant Operating Costs $5,870,154 $5,283,975
<CAPTION>
1 2 3 4 5 6 7
PLANT OPERATING COSTS 1996 1997 1998 1999 2000 2001 2002
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Firm Transportation - Transco 1,080,000 1,080,000 1,080,000 1,080,000 1,080,000 1,080,000 1,080,000
Capacity Release Revenues (132,000) (316,000) (316,000) (316,000) (316,000) (316,000) (316,000)
Fuel Management Fee 240,000 247,000 255,000 262,000 270,000 278,000 287,000
O&M Contract Fee 1,703,000 1,754,000 1,807,000 1,861,000 1,917,000 1,974,000 2,034,000
General Maintenance & Repairs 161,000 174,000 188,000 203,000 219,000 236,000 255,000
Planned Plant Maintenance Projects 328,000 338,000 348,000 359,000 370,000 381,000 392,000
Additional Maintenance Allowance 155,000 155,000 155,000 155,000 155,000 155,000 155,000
Parts Replacement 168,000 173,000 178,000 184,000 189,000 195,000 201,000
Other Plant Expenses 52,000 54,000 55,000 57,000 59,000 60,000 62,000
Panda Management Fee [2] 0 0 0 0 0 0 0
Office & Admin Expenses 190,000 196,000 202,000 208,000 214,000 220,000 227,000
Property Taxes 972,000 943,000 915,000 887,000 861,000 835,000 810,000
Insurance 300,000 309,000 318,000 328,000 338,000 348,000 358,000
VEPCO Performance LOC 66,000 66,000 66,000 66,000 84,000 84,000 84,000
Plant Operating Costs 5,283,000 5,173,000 5,251,000 5,334,000 5,440,000 5,530,000 5,629,000
----------------------------------------------------------------------------------------
Percent Change -10.00% -2.08% 1.51% 1.58% 1.99% 1.65% 1.79%
<CAPTION>
8 9 10 11 12 13 14
PLANT OPERATING COSTS 2003 2004 2005 2006 2007 2008 2009
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Firm Transportation - Transco 1,080,000 1,080,000 1,080,000 1,080,000 1,080,000 1,080,000 1,080,000
Capacity Release Revenues (316,000) (316,000) (316,000) (316,000) (316,000) (316,000) (316,000)
Fuel Management Fee 295,000 304,000 313,000 323,000 332,000 342,000 352,000
O&M Contract Fee 2,095,000 2,157,000 2,222,000 2,289,000 2,358,000 2,428,000 2,501,000
General Maintenance & Repairs 276,000 298,000 321,000 347,000 375,000 405,000 437,000
Planned Plant Maintenance Projects 404,000 416,000 429,000 441,000 455,000 468,000 482,000
Additional Maintenance Allowance 155,000 155,000 155,000 155,000 155,000 155,000 155,000
Parts Replacement 207,000 213,000 219,000 226,000 232,000 239,000 247,000
Other Plant Expenses 64,000 66,000 68,000 70,000 72,000 74,000 77,000
Panda Management Fee [2] 0 0 0 0 0 0 0
Office & Admin Expenses 234,000 241,000 248,000 255,000 263,000 271,000 279,000
Property Taxes 785,000 762,000 739,000 717,000 695,000 674,000 654,000
Insurance 369,000 380,000 391,000 403,000 415,000 428,000 441,000
VEPCO Performance LOC 84,000 84,000 84,000 84,000 84,000 84,000 84,000
---------------------------------------------------------------------------------------
Plant Operating Costs 5,732,000 5,840,000 5,953,000 6,074,000 6,200,000 6,332,000 6,473,000
Percent Change 1.83% 1.88% 1.93% 2.03% 2.07% 2.13% 2.23%
<CAPTION>
13 14
PLANT OPERATING COSTS 2008 2009
---- ----
<S> <C> <C>
Firm Transportation - Transco 1,080,000 1,080,000
Capacity Release Revenues (316,000) (316,000)
Fuel Management Fee 342,000 352,000
O&M Contract Fee 2,428,000 2,501,000
General Maintenance & Repairs 405,000 437,000
Planned Plant Maintenance Projects 488,000 482,00
Additional Maintenance Allowance 155,000 155,000
Parts Replacement 239,000 247,000
Other Plant Expenses 74,000 77,000
Panda Management Fee [2] 0 0
Office & Admin Expenses 271,000 279,000
Property Taxes 674,000 654,000
Insurance 428,000 441,000
VEPCO Performance LOC 84,000 84,000
------------------------------
Plant Operating Costs 6,332,000 6,473,000
Percent Change 2.13% 2.23%
<CAPTION>
15 16 17 18 19 20
PLANT OPERATING COSTS 2010 2011 2012 2013 2014 2015
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Firm Transportation - Transco 1,080,000 1,080,000 1,080,000 1,080,000 1,080,000 1,080,000
Capacity Release Revenues (316,000) (316,000) (316,000) (316,000) (316,000) (316,000)
Fuel Management Fee 363,000 374,000 385,000 397,000 409,000 421,000
O&M Contract Fee 2,576,000 2,653,000 2,733,000 2,815,000 2,899,000 2,986,000
General Maintenance & Repairs 472,000 510,000 551,000 595,000 643,000 694,000
Planned Plant Maintenance Projects 497,000 512,000 527,000 543,000 559,000 576,000
Additional Maintenance Allowance 155,000 155,000 155,000 155,000 155,000 155,000
Parts Replacement 254,000 262,000 269,000 278,000 286,000 294,000
Other Plant Expenses 79,000 81,000 84,000 86,000 89,000 91,000
Panda Management Fee [2] 0 0 0 0 0 0
Office & Admin Expenses 287,000 296,000 305,000 314,000 323,000 333,000
Property Taxes 635,000 616,000 597,000 579,000 562,000 545,000
Insurance 454,000 467,000 481,000 496,000 511,000 526,000
VEPCO Performance LOC 84,000 84,000 84,000 84,000 84,000 84,000
----------------------------------------------------------------------------
Plant Operating Costs 6,620,000 6,774,000 6,935,000 7,106,000 7,284,000 7,469,000
Percent Change 2.27% 2.33% 2.38% 2.47% 2.50% 2.54%
</TABLE>
[1] Capacity release revenues based on estimated 1800 MMBtu/d and 50% recovery
of tariff rate starting in August 1996.
[2] Panda Management Fee will be subordinated to all Project costs.
<PAGE>
Panda Energy Corporation Alternative: Updated Corporate Page 7
Panda-Rosemary Cogen Project Refinancing Offering Base Case
*******************************************************************************
VARIABLE PLANT COSTS
<TABLE>
<CAPTION>
1995 1996
Actual Summary Escalation
------ ------- ----------
<S> <C> <C> <C>
PLANT ELECTRICITY USAGE
Hours Not Dispatched 7698 7683
Average Electric Load (kW) 1150 1150
Electric Rate ($/kWh) $0.0440 $0.0453 3.00%
-------- --------
Total Plant Electricity Usage $389,519 $400,423
WATER & CHEMICAL USAGE
Hours Dispatched 1062 1077
Gallons per Hour Usage - Cogen 32,000 32,000
Steam/Chilled Water Production Hours 11,800 11,800
Gallons per Hour Usage - Boiler 8,000 8,000
Total Gallons (1000s) 128,384 128,864
Water & Chemical Cost ($/1000 gal) $1.34 $1.38 3.00%
-------- --------
Total Water & Chemical Usage $172,035 $177,858
WATER DISCHARGE
Hours Dispatched 1062 1077
Gallons per Hour Usage - Cogen 8,000 8,000
Steam/Chilled Water Production Hours 11,800 11,800
Gallons per Hour Usage - Boiler 2,000 2,000
Total Gallons (1000s) 32,096 32,216
Water Discharge Cost ($/1000 gal) $1.09 $1.12 3.00%
------- -------
Total Water Discharge $34,985 $36,169
<CAPTION>
1 2 3 4 5 6
Plant Variable Costs 1996 1997 1998 1999 2000 2001
-------------------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Hours Dispatched 1077 1031 1468 1805 2213 2620
Hours Not Dispatched 7683 7729 7292 6955 6547 6140
Steam/Chilled Water Production Hours 11,800 11,800 11,800 11,800 11,800 11,800
Plant Electricity Usage 400,000 415,000 403,000 396,000 384,000 371,000
Water & Chemical Usage 178,000 181,000 207,000 229,000 257,000 285,000
Water Discharge 36,000 37,000 42,000 47,000 52,000 58,000
------- ------- ------- ------- ------- -------
Total Plant Variable Costs 614,000 633,000 652,000 672,000 693,000 714,000
Electricity Charge ($/kWh) $0.0453 $0.0467 $0.0481 $0.0495 $0.0510 $0.0525
Water & Chemical Charge ($/1000 gal) $1.38 $1.42 $1.46 $1.51 $1.55 $1.60
Water Discharge Cost ($/1000 gal) $1.12 $1.16 $1.19 $1.23 $1.26 $1.30
<CAPTION>
7 8 9 10 11 12 13
Plant Variable Costs 2002 2003 2004 2005 2006 2007 2008
-------------------- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Hours Dispatched 2769 3038 3241 3491 3365 3244 3128
Hours Not Dispatched 5991 5722 5519 5269 5395 5516 5632
Steam/Chilled Water Production Hours 11,800 11,800 11,800 11,800 11,800 11,800 11,800
Plant Electricity Usage 373,000 367,000 364,000 358,000 378,000 398,000 419,000
Water & Chemical Usage 302,000 325,000 346,000 371,000 375,000 379,000 383,000
Water Discharge 61,000 66,000 70,000 75,000 76,000 77,000 78,000
-------- -------- -------- -------- -------- -------- --------
Total Plant Variable Costs 736,000 758,000 780,000 804,000 829,000 854,000 880,000
Electricity Charge ($/kWh) $0.0541 $0.0557 $0.0574 $0.0591 $0.0609 $0.0627 $0.0646
Water & Chemical Charge ($/1000 gal) $1.65 $1.70 $1.75 $1.80 $1.85 $1.91 $1.97
Water Discharge Cost ($/1000 gal) $1.34 $1.38 $1.42 $1.46 $1.51 $1.55 $1.60
<CAPTION>
14 15 16 17 18 19 20
Plant Variable Costs 2009 2010 2011 2012 2013 2014 2015
-------------------- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Hours Dispatched 3017 2911 2850 2790 2732 2674 2618
Hours Not Dispatched 5743 5849 5910 5970 6028 6086 6142
Steam/Chilled Water Production Hours 11,800 11,800 11,800 11,800 11,800 11,800 11,800
Plant Electricity Usage 440,000 461,000 480,000 499,000 519,000 540,000 561,000
Water & Chemical Usage 387,000 392,000 399,000 407,000 415,000 423,000 431,000
Water Discharge 79,000 80,000 81,000 83,000 84,000 86,000 88,000
------- ------- ------- ------- --------- --------- ---------
Total Plant Variable Costs 906,000 933,000 960,000 989,000 1,018,000 1,049,000 1,080,000
Electricity Charge ($/kWh) $0.0666 $0.0686 $0.0706 $0.0727 $0.0749 $0.0772 $0.0795
Water & Chemical Charge ($/1000 gal) $2.03 $2.09 $2.15 $2.21 $2.28 $2.35 $2.42
Water Discharge Cost ($/1000 gal) $1.65 $1.70 $1.75 $1.80 $1.86 $1.91 $1.97
</TABLE>
<PAGE>
Panda Energy Corporation Alternative: Updated Corporate Page 8
Panda-Rosemary Cogen Project Refinancing Offering Base Case
*******************************************************************************
REVENUE GENERATION
<TABLE>
<CAPTION>
1 2 3 4 5 6
DISPATCH OPERATIONS 1996 1997 1998 1999 2000 2001
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Total Hours 8,760 8,760 8,760 8,760 8,760 8,760
Summer Demonstrated Capacity 174.0 174.0 174.0 174.0 174.0 174.0
Summer & VEPCO Contract Capacity 165.0 165.0 165.0 165.0 165.0 165.0
Winter Capacity 198.0 198.0 198.0 198.0 198.0 198.0
Summer Dispatch 674 511 775 1,038 1,453 1,868
Winter Gas Dispatch 3 117 183 250 241 231
Winter Oil Dispatch 0 3 10 17 19 21
VEPCO Gas Dispatch 400 400 500 500 500 500
---------- ---------- ---------- ---------- ---------- ----------
Total Dispatch Hour s 1,077 1,031 1,468 1,805 2,213 2,620
Percentage 12.29% 11.77% 16.76% 20.61% 25.26% 29.91%
Winter Starts 0 3 5 6 6 6
Winter Start Duration 40 40 40 40 40 40
NET GENERATION
Availability Factor 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Load Factor 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Summer Output MWh 117,276 88,914 134,850 180,612 252,822 325,032
Winter Gas Output MWh 594 23,166 36,234 49,500 47,718 45,738
Winter Oil Dispatch MWh 0 594 1,980 3,366 3,762 4,158
VEPCO Gas Dispatch MWh 66,000 66,000 82,500 82,500 82,500 82,500
---------- ---------- ---------- ---------- ---------- ----------
Net Generation MWh 183,870 178,674 255,564 315,978 386,802 457,428
CAPACITY REVENUES
Capacity Rate $/kw-mo $12.49 $11.65 $11.65 $10.82 $10.82 $10.82
Capacity Revenues - Summer 12,363,000 11,537,000 11,537,000 10,713,000 10,713,000 10,713,000
Capacity Revenues - Winter 14,836,000 13,845,000 13,845,000 12,855,000 12,855,000 12,855,000
---------- ---------- ---------- ---------- ---------- ----------
Total Capacity Revenues 27,199,000 25,382,000 25,382,000 23,568,000 23,568,000 23,568,000
ENERGY REVENUES
Summer Gas Charge $/kWh $0.0226 $0.0221 $0.0232 $0.0244 $0.0256 $0.0267
Winter Gas Charge $/kWh $0.0281 $0.0261 $0.0271 $0.0283 $0.0295 $0.0308
Winter Oil Charge $/kWh $0.0369 $0.0383 $0.0399 $0.0414 $0.0431 $0.0431
VEPCO Gas Charge $/kWh $0.0039 $0.0040 $0.0041 $0.0042 $0.0043 $0.0044
Variable O&M Charge $/kWh $0.0022 $0.0023 $0.0024 $0.0024 $0.0025 $0.0026
Summer Gas Revenue $ 2,907,000 2,172,000 3,447,000 4,849,000 7,099,000 9,506,000
Winter Gas Revenue $ 18,000 657,000 1,069,000 1,520,000 1,529,000 1,525,000
Winter Oil Revenue $ 0 24,000 84,000 148,000 172,000 190,000
VEPCO Gas Revenue $ 258,000 265,000 340,000 349,000 358,000 365,000
---------- ---------- ---------- ---------- ---------- ----------
Total Energy Revenues $ 3,183,000 3,118,000 4,940,000 6,866,000 9,158,000 11,586,000
START REVENUES
Winter Gas Start Payment $38,286 $38,286 $38,286 $38,286 $38,286 $38,286
Winter Gas Start Revenues 0 195,000 336,000 418,000 430,000 401,000
THERMAL REVENUES
Steam Production Hours 7,800 7,800 7,800 7,800 7,800 7,800
Chilled Water Production Hours 4,000 4,000 4,000 4,000 4,000 4,000
Steam Production pph 50,000 50,000 50,000 50,000 50,000 50,000
Chilled Water Production tph 1,010 1,010 1,010 1,010 1,010 1,010
Steam Production klbs 390,000 390,000 390,000 390,000 390,000 390,000
Chilled Water Production ktons 4,040 4,040 4,040 4,040 4,040 4,040
Steam Charge $/klbs $1.15 $1.15 $1.15 $1.15 $1.15 $1.15
Chilled Water Charge $/ton $0.035 $0.035 $0.035 $0.035 $0.035 $0.040
Steam Revenues $ 449,000 449,000 449,000 449,000 449,000 449,000
Chilled Water Revenues $ 141,000 141,000 141,000 141,000 141,000 162,000
---------- ---------- ---------- ---------- ---------- ----------
Total Thermal Revenues $ 590,000 590,000 590,000 590,000 590,000 611,000
<CAPTION>
7 8 9 10 11 12 13
DISPATCH OPERATIONS 2002 2003 2004 2005 2006 2007 2008
---------- ---------- ---------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Total Hours 8,760 8,760 8,760 8,760 8,760 8,760 8,760
Summer Demonstrated Capacity 174.0 174.0 174.0 174.0 174.0 174.0 174.0
Summer & VEPCO Contract Capacity 165.0 165.0 165.0 165.0 165.0 165.0 165.0
Winter Capacity 198.0 198.0 198.0 198.0 198.0 198.0 198.0
Summer Dispatch 1,960 2,053 2,149 2,248 2,151 2,058 1,969
Winter Gas Dispatch 272 320 378 441 428 415 401
Winter Oil Dispatch 37 65 114 202 186 171 158
VEPCO Gas Dispatch 500 600 600 600 600 600 600
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total Dispatch Hours 2,769 3,038 3,241 3,491 3,365 3,244 3,128
Percentage 31.61% 34.68% 37.00% 39.85% 38.41% 37.03% 35.71%
Winter Starts 7 8 9 11 11 10 10
Winter Start Duration 40 40 40 40 40 40 40
NET GENERATION
Availability Factor 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Load Factor 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Summer Output MWh 341,040 357,222 373,926 391,152 374,274 358,092 342,606
Winter Gas Output MWh 53,856 63,360 74,844 87,318 84,744 82,170 79,398
Winter Oil Dispatch MWh 7,326 12,870 22,572 39,996 36,828 33,858 31,284
VEPCO Gas Dispatch MWh 82,500 99,000 99,000 99,000 99,000 99,000 99,000
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net Generation MWh 484,722 532,452 570,342 617,466 594,846 573,120 552,288
CAPACITY REVENUES
Capacity Rate $/kw-mo $10.82 $10.82 $10.82 $10.82 $8.32 $8.32 $8.32
Capacity Revenues - Summer 10,713,000 10,713,000 10,713,000 10,713,000 8,238,000 8,238,000 8,238,000
Capacity Revenues - Winter 12,855,000 12,855,000 12,855,000 12,855,000 9,885,000 9,885,000 9,885,000
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total Capacity Revenues 23,568,000 23,568,000 23,568,000 23,568,000 18,123,000 18,123,000 18,123,000
ENERGY REVENUES
Summer Gas Charge $/kWh $0.0277 $0.0290 $0.0302 $0.0315 $0.0330 $0.0343 $0.0358
Winter Gas Charge $/kWh $0.0321 $0.0335 $0.0349 $0.0364 $0.0378 $0.0392 $0.0410
Winter Oil Charge $/kWh $0.0431 $0.0431 $0.0431 $0.0431 $0.0431 $0.0431 $0.0431
VEPCO Gas Charge $/kWh $0.0045 $0.0046 $0.0047 $0.0048 $0.0048 $0.0049 $0.0050
Variable O&M Charge $/kWh $0.0027 $0.0027 $0.0028 $0.0029 $0.0030 $0.0031 $0.0032
Summer Gas Revenues $ 10,351,000 11,334,000 12,354,000 13,456,000 13,452,000 13,400,000 13,344,000
Winter Gas Revenues $ 1,874,000 2,293,000 2,826,000 3,428,000 3,460,000 3,477,000 3,504,000
Winter Oil Revenues $ 335,000 590,000 1,036,000 1,839,000 1,697,000 1,563,000 1,447,000
VEPCO Gas Revenue $ 371,000 454,000 462,000 470,000 479,000 488,000 498,000
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total Energy Revenues $ 12,931,000 14,671,000 16,678,000 19,193,000 19,088,000 18,928,000 18,793,000
START REVENUES
Winter Gas Start Payment $38,286 $38,286 $38,286 $38,286 $38,286 $38,286 $38,286
Winter Gas Start Revenues 430,000 450,000 453,000 492,000 427,000 305,000 168,000
THERMAL REVENUES
Steam Production Hours 7,800 7,800 7,800 7,800 7,800 7,800 7,800
Chilled Water Production Hours 4,000 4,000 4,000 4,000 4,000 4,000 4,000
Steam Production pph 50,000 50,000 50,000 50,000 50,000 50,000 50,000
Chilled Water Production tph 1,010 1,010 1,010 1,010 1,010 1,010 1,010
Steam Production klbs 390,000 390,000 390,000 390,000 390,000 390,000 390,000
Chilled Water Production ktons 4,040 4,040 4,040 4,040 4,040 4,040 4,040
Steam Charge $/klbs $1.15 $1.15 $1.15 $1.15 $1.15 $1.15 $1.15
Chilled Water Charge $/ton $0.040 $0.040 $0.040 $0.040 $0.045 $0.045 $0.045
Steam Revenues $ 449,000 449,000 449,000 449,000 449,000 449,000 449,000
Chilled Water Revenues $ 162,000 162,000 162,000 162,000 182,000 182,000 182,000
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total Thermal Revenues $ 611,000 611,000 611,000 611,000 631,000 631,000 631,000
<CAPTION>
14 15 16 17 18 19 20
DISPATCH OPERATIONS 2009 2010 2011 2012 2013 2014 2015
---------- ---------- ---------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Total Hours 8,760 8,760 8,760 8,760 8,760 8,760 8,760
Summer Demonstrated Capacity 174.0 174.0 174.0 174.0 174.0 174.0 174.0
Summer & VEPCO Contract Capacity 165.0 165.0 165.0 165.0 165.0 165.0 165.0
Winter Capacity 198.0 198.0 198.0 198.0 198.0 198.0 198.0
Summer Dispatch 1,884 1,802 1,756 1,710 1,666 1,622 1,579
Winter Gas Dispatch 388 375 361 348 335 322 310
Winter Oil Dispatch 145 134 133 132 131 130 129
VEPCO Gas Dispatch 600 600 600 600 600 600 600
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total Dispatch Hours 3,017 2,911 2,850 2,790 2,732 2,674 2,618
Percentage 34.44% 33.23%
Winter Starts 10 9 9 9 8 8 8
Winter Start Duration 40 40 40 40 40 40 40
NET GENERATION
Availability Factor 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Load Factor 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Summer Output MWh 327,816 313,548 305,544 297,540 289,884 282,228 274,746
Winter Gas Output MWh 76,824 74,250 71,478 68,904 66,330 63,756 61,380
Winter Oil Dispatch MWh 28,710 26,532 26,334 26,136 25,938 25,740 25,542
VEPCO Gas Dispatch MWh 99,000 99,000 99,000 99,000 99,000 99,000 99,000
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net Generation MWh 532,350 513,330 502,356 491,580 481,152 470,724 460,668
CAPACITY REVENUES
Capacity Rate $/kw-mo $8.32 $8.32 $8.32 $8.32 $8.32 $8.32 $8.32
Capacity Revenues - Summer 8,238,000 8,238,000 8,238,000 8,238,000 8,238,000 8,238,000 8,238,000
Capacity Revenues - Winter 9,885,000 9,885,000 9,885,000 9,885,000 9,885,000 9,885,000 9,885,000
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total Capacity Revenues 18,123,000 18,123,000 18,123,000 18,123,000 18,123,000 18,123,000 18,123,000
ENERGY REVENUES
Summer Gas Charge $/kWh $0.0374 $0.0391 $0.0406 $0.0419 $0.0435 $0.0451 $0.0468
Winter Gas Charge $/kWh $0.0426 $0.0445 $0.0461 $0.0478 $0.0495 $0.0512 $0.0529
Winter Oil Charge $/kWh $0.0431 $0.0431 $0.0431 $0.0431 $0.0431 $0.0431 $0.0431
VEPCO Gas Charge $/kWh $0.0051 $0.0052 $0.0053 $0.0054 $0.0055 $0.0057 $0.0058
Variable O&M Charge $/kWh $0.0033 $0.0034 $0.0035 $0.0036 $0.0037 $0.0038 $0.0039
Summer Gas Revenues $ 13,334,000 13,317,000 13,456,000 13,542,000 13,679,000 13,808,000 13,936,000
Winter Gas Revenues $ 3,524,000 3,552,000 3,543,000 3,538,000 3,529,000 3,504,000 3,485,000
Winter Oil Revenues $ 1,331,000 1,232,000 1,226,000 1,219,000 1,213,000 1,207,000 1,200,000
VEPCO Gas Revenues $ 507,000 517,000 527,000 538,000 549,000 560,000 571,000
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total Energy Revenues $ 18,696,000 18,618,000 18,752,000 18,837,000 18,970,000 19,079,000 19,192,000
START REVENUES
Winter Gas Start Payment $38,286 $38,286 $38,286 $38,286 $38,286 $38,286 $38,286
Winter Gas Start Revenues 38,000 345,000 345,000 345,000 306,000 306,000 306,000
THERMAL REVENUES
Steam Production Hours 7,800 7,800 7,800 7,800 7,800 7,800 7,800
Chilled Water Production Hours 4,000 4,000 4,000 4,000 4,000 4,000 4,000
Steam Production pph 50,000 50,000 50,000 50,000 50,000 50,000 50,000
Chilled Water Production tph 1,010 1,010 1,010 1,010 1,010 1,010 1,010
Steam Production klbs 390,000 390,000 390,000 390,000 390,000 390,000 390,000
Chilled Water Production ktons 4,040 4,040 4,040 4,040 4,040 4,040 4,040
Steam Charge $/klbs $1.15 $1.15 $1.15 $1.15 $1.15 $1.15 $1.15
Chilled Water Charges $/ton $0.045 $0.045 $0.050 $0.050 $0.050 $0.050 $0.050
Steam Revenues $ 449,000 449,000 449,000 449,000 449,000 449,000 449,000
Chilled Water Revenues $ 182,000 182,000 202,000 202,000 202,000 202,000 202,000
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total Thermal Revenues $ 631,000 631,000 651,000 651,000 651,000 651,000 651,000
</TABLE>
<PAGE>
Panda Energy Corporation Alternative: Updated Corporate Page 9
Panda-Rosemary Cogen Project Refinancing Offering Base Case
*******************************************************************************
FINANCIAL FORECAST
<TABLE>
<CAPTION>
1 2 3 4 5 6
REVENUES 7/96-12/96 1997 1998 1999 2000 2001
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues from Electric Sales:
Total Capacity Revenues 13,599,500 25,382,000 25,382,000 23,568,000 23,568,000 23,568,000
Energy Charges
Summer Gas Charge 1,453,500 2,172,000 3,447,000 4,849,000 7,099,000 9,506,000
Winter Gas Charge 9,000 657,000 1,069,000 1,520,000 1,529,000 1,525,000
Winter Oil Charge 0 24,000 84,000 148,000 172,000 190,000
VEPCO Gas Charge 129,000 265,000 340,000 349,000 358,000 365,000
---------- ---------- ---------- ---------- ---------- ----------
Total Energy Revenues 1,591,500 3,118,000 4,940,000 6,866,000 9,158,000 11,586,000
Winter Gas Start Revenues 0 195,000 336,000 418,000 430,000 401,000
Steam Sales Revenues 224,500 449,000 449,000 449,000 449,000 449,000
Chilled Water Sales Revenues 70,500 141,000 141,000 141,000 141,000 162,000
---------- ---------- ---------- ---------- ---------- ----------
Total Thermal Revenues 295,000 590,000 590,000 590,000 590,000 611,000
Total Sales Revenues 15,486,000 29,285,000 31,248,000 31,442,000 33,746,000 36,166,000
Interest - D.S.R. 5.0% 194,000 371,000 354,000 336,000 335,000 333,000
---------- ---------- ---------- ---------- ---------- ----------
Total Revenues 15,680,000 29,656,000 31,602,000 31,778,000 34,081,000 36,499,000
EXPENSES
Fuel Costs - Cogen Plant 1,198,000 2,338,000 3,772,000 5,351,000 7,217,000 9,198,000
Fuel Costs - Boiler 663,500 1,301,000 1,267,000 1,257,000 1,215,000 1,158,000
Plant Operating Costs 2,575,500 5,173,000 5,251,000 5,334,000 5,440,000 5,530,000
Plant Variable Costs 307,000 633,000 652,000 672,000 693,000 714,000
---------- ---------- ---------- ---------- ---------- ----------
Total Operating Costs 4,744,000 9,445,000 10,942,000 12,614,000 14,565,000 16,600,000
Rev. Avail. for Debt Service 10,936,000 20,211,000 20,660,000 19,164,000 19,516,000 19,899,000
Debt Service
Total Interest Costs 5,175,000 9,193,000 8,705,000 8,221,000 7,769,000 7,284,000
Total Principal Payments 2,753,000 5,501,000 5,922,000 5,093,000 5,473,000 5,880,000
---------- ---------- ---------- ---------- ---------- ----------
Total Debt Service 7,928,000 14,694,000 14,627,000 13,314,000 13,242,000 13,164,000
OPERATING CASHFLOW
Pre-Tax Cashflow from Operations 3,008,000 5,517,000 6,033,000 5,850,000 6,274,000 6,735,000
Overhaul Reserve Fund Additions (140,000) (276,000) (405,000) (513,000) (648,000) (790,000)
Expected Debt Service Reserve Releases 655,000 26,000 670,000 30,000 33,000 47,000
Debt Service Reserve Fund Additions 0 0 0 0 0 0
Estimated Impact of Hurricane Damage [2] (330,000) (222,225) 0 0 0 0
---------- ---------- ---------- ---------- ---------- ----------
Net Balance from Operations [3] 3,193,000 5,044,775 6,298,000 5,367,000 5,659,000 5,992,000
DEBT SERVICE COVERAGE
Revenue Avail. for Debt Service 10,936,000 20,211,000 20,660,000 19,164,000 19,516,000 19,899,000
Total Interest Costs 5,175,000 9,193,000 8,705,000 8,221,000 7,769,000 7,284,000
Total Principal Payments 2,753,000 5,501,000 5,922,000 5,093,000 5,473,000 5,880,000
---------- ---------- ---------- ---------- ---------- ----------
Total Debt Service Costs 7,928,000 14,694,000 14,627,000 13,314,000 13,242,000 13,164,000
Times Interest Coverage 2.11 2.20 2.37 2.33 2.51 2.73
Times Total Debt Coverage 1.38 1.38 1.41 1.44 1.47 1.51
<CAPTION>
7 8 9 10 11 12 13
REVENUES 2002 2003 2004 2005 2006 2007 2008
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues from Electric Sales:
Total Capacity Revenues 23,568,000 23,568,000 23,568,000 23,568,000 18,123,000 18,123,000 18,123,000
Energy Charges
Summer Gas Charge 10,351,000 11,334,000 12,354,000 13,456,000 13,452,000 13,400,000 13,344,000
Winter Gas Charge 1,874,000 2,293,000 2,826,000 3,428,000 3,460,000 3,477,000 3,504,000
Winter Oil Charge 335,000 590,000 1,036,000 1,839,000 1,697,000 1,563,000 1,447,000
VEPCO Gas Charge 371,000 454,000 462,000 470,000 479,000 488,000 498,000
---------- ---------- ---------- ---------- ---------- ---------- -----------
Total Energy Revenues 12,931,000 14,671,000 16,678,000 19,193,000 19,088,000 18,928,000 18,793,000
Winter Gas Start Revenues 430,000 450,000 453,000 492,000 427,000 305,000 168,000
Steam Sales Revenues 449,000 449,000 449,000 449,000 449,000 449,000 449,000
Chilled Water Sales Revenues 162,000 162,000 162,000 162,000 182,000 182,000 182,000
---------- ---------- ---------- ---------- ---------- ---------- -----------
Total Thermal Revenues 611,000 611,000 611,000 611,000 631,000 631,000 631,000
Total Sales Revenues 37,540,000 39,300,000 41,310,000 43,864,000 38,269,000 37,987,000 37,715,000
Interest - D.S.R. 5.0% 330,000 328,000 325,000 272,000 219,000 215,000 210,000
---------- ---------- ---------- ---------- ---------- ---------- -----------
Total Revenues 37,870,000 39,628,000 41,635,000 44,136,000 38,488,000 38,202,000 37,925,000
EXPENSES
Fuel Costs - Cogen Plant 10,322,000 11,743,000 13,450,000 15,606,000 15,552,000 15,441,000 15,352,000
Fuel Costs - Boiler 1,168,000 1,148,000 1,139,000 1,114,000 1,212,000 1,315,000 1,415,000
Plant Operating Costs 5,629,000 5,732,000 5,840,000 5,953,000 6,074,000 6,200,000 6,332,000
Plant Variable Costs 736,000 758,000 780,000 804,000 829,000 854,000 880,000
---------- ---------- ---------- ---------- ---------- ---------- -----------
Total Operating Costs 17,855,000 19,381,000 21,209,000 23,477,000 23,667,000 23,810,000 23,979,000
Rev. Avail. for Debt Service 20,015,000 20,247,000 20,426,000 20,659,000 14,821,000 14,392,000 13,946,000
DEBT SERVICE
Total Interest Costs 6,764,000 6,206,000 5,610,000 4,972,000 4,418,000 4,042,000 3,647,000
Total Principal Payments 6,294,000 6,737,000 7,215,000 7,697,000 4,292,000 4,492,000 4,705,000
---------- ---------- ---------- ---------- ---------- ---------- -----------
Total Debt Service 13,058,000 12,943,000 12,825,000 12,669,000 8,710,000 8,534,000 8,352,000
OPERATING CASHFLOW
Pre-Tax Cashflow from Operations 6,957,000 7,304,000 7,601,000 7,990,000 6,111,000 5,858,000 5,594,000
Overhaul Reserve Fund Additions (860,000)(1,471,000)(1,067,000)(1,184,000)(1,176,000)(1,168,000) (1,660,000)
Expected Debt Service Reserve Releases 50,000 51,000 70,000 2,034,000 85,000 87,000 96,000
Debt Service Reserve Fund Additions 0 0 0 0 0 0 0
Estimated Impact of Hurricane Damage [2] 0 0 0 0 0 0 0
---------- ---------- ---------- ---------- ---------- ---------- -----------
Net Balance from Operations [3] 6,147,000 5,884,000 6,604,000 8,840,000 5,020,000 4,777,000 4,030,000
DEBT SERVICE COVERAGE
Revenue Avail. for Debt Service 20,015,000 20,247,000 20,426,000 20,659,000 14,821,000 14,392,000 13,946,000
Total Interest Costs 6,764,000 6,206,000 5,610,000 4,972,000 4,418,000 4,042,000 3,647,000
Total Principal Payments 6,294,000 6,737,000 7,215,000 7,697,000 4,292,000 4,492,000 4,705,000
---------- ---------- ---------- ---------- ---------- ---------- -----------
Total Debt Service Costs 13,058,000 12,943,000 12,825,000 12,669,000 8,710,000 8,534,000 8,352,000
Times Interest Coverage 2.96 3.26 3.64 4.16 3.35 3.56 3.82
Times Total Debt Coverage 1.53 1.56 1.59 1.63 1.70 1.69 1.67
<CAPTION>
14 15 16 17 18 19 20
REVENUES 2009 2010 2011 2012 2013 2014 2015
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues from Electric Sales:
Total Capacity Revenues 18,123,000 18,123,000 18,123,000 18,123,000 18,123,000 18,123,000 18,123,000
Energy Charges
Summer Gas Charge 13,334,000 13,317,000 13,456,000 13,542,000 13,679,000 13,808,000 13,936,000
Winter Gas Charge 3,524,000 3,552,000 3,543,000 3,538,000 3,529,000 3,504,000 3,485,000
Winter Oil Charge 1,331,000 1,232,000 1,226,000 1,219,000 1,213,000 1,207,000 1,200,000
VEPCO Gas Charge 507,000 517,000 527,000 538,000 549,000 560,000 571,000
---------- ---------- ---------- ---------- ---------- ---------- -----------
Total Energy Revenues 18,696,000 18,618,000 18,752,000 18,837,000 18,970,000 19,079,000 19,192,000
Winter Gas Start Revenues 38,000 345,000 345,000 345,000 306,000 306,000 306,000
Steam Sales Revenues 449,000 449,000 449,000 449,000 449,000 449,000 449,000
Chilled Water Sales Revenues 182,000 182,000 202,000 202,000 202,000 202,000 202,000
---------- ---------- ---------- ---------- ---------- ---------- -----------
Total Thermal Revenues 631,000 631,000 651,000 651,000 651,000 651,000 651,000
Total Sales Revenues 37,488,000 37,717,000 37,871,000 37,956,000 38,050,000 38,159,000 38,272,000
Interest - D.S.R. 5.0% 205,000 201,000 196,000 191,000 185,000 169,000 79,000
---------- ---------- ---------- ---------- ---------- ---------- -----------
Total Revenues 37,693,000 37,918,000 38,067,000 38,147,000 38,235,000 38,328,000 38,351,000
EXPENSES
Fuel Costs - Cogen Plant 15,302,000 15,266,000 15,393,000 15,474,000 15,599,000 15,704,000 15,811,000
Fuel Costs - Boiler 1,527,000 1,645,000 1,735,000 1,829,000 1,926,000 2,029,000 2,135,000
Plant Operating Costs 6,473,000 6,620,000 6,774,000 6,935,000 7,106,000 7,284,000 7,469,000
Plant Variable Costs 906,000 933,000 960,000 989,000 1,018,000 1,049,000 1,080,000
---------- ---------- ---------- ---------- ---------- ---------- -----------
Total Operating Costs 24,208,000 24,464,000 24,862,000 25,227,000 25,649,000 26,066,000 26,495,000
Rev. Avail. for Debt Service 13,485,000 13,454,000 13,205,000 12,920,000 12,586,000 12,262,000 11,856,000
Debt Service
Total Interest Costs 3,235,000 2,803,000 2,350,000 1,874,000 1,375,000 854,000 325,000
Total Principal Payments 4,919,000 5,143,000 5,422,000 5,691,000 5,953,000 6,188,000 6,031,000
---------- ---------- ---------- ---------- ---------- ---------- -----------
Total Debt Service 8,154,000 7,946,000 7,772,000 7,565,000 7,328,000 7,042,000 6,356,000
OPERATING CASHFLOW
Pre-Tax Cashflow from Operations 5,331,000 5,508,000 5,433,000 5,355,000 5,258,000 5,220,000 5,500,000
Overhaul Reserve Fund Additions (1,152,000)(1,145,000)(2,154,000)(1,164,000)(2,174,000)(2,184,000) (3,694,000)
Expected Debt Service Reserve Releases 100,000 82,000 99,000 115,000 139,000 476,000 3,145,000
Debt Service Reserve Fund Additions 0 0 0 0 0 0 0
Estimated Impact of Hurricane Damage [2] 0 0 0 0 0 0 0
---------- ---------- ---------- ---------- ---------- ---------- -----------
Net Balance from Operations [3] 4,279,000 4,445,000 3,378,000 4,306,000 3,223,000 3,512,000 4,951,000
DEBT SERVICE COVERAGE
Revenue Avail. for Debt Service 13,485,000 13,454,000 13,205,000 12,920,000 12,586,000 12,262,000 11,856,000
Total Interest Costs 3,235,000 2,803,000 2,350,000 1,874,000 1,375,000 854,000 325,000
Total Principal Payments 4,919,000 5,143,000 5,422,000 5,691,000 5,953,000 6,188,000 6,031,000
---------- ---------- ---------- ---------- ---------- ---------- -----------
Total Debt Service Costs 8,154,000 7,946,000 7,772,000 7,565,000 7,328,000 7,042,000 6,356,000
Times Interest Coverage 4.17 4.80 5.62 6.89 9.15 14.36 36.48
Times Total Debt Coverage 1.65 1.69 1.70 1.71 1.72 1.74 1.87
</TABLE>
[1] Project closing of July 1996 assumed. Reflects one-half year's operations
following refinancing
[2] Represents $330,000 Insurance Deductible and Insurance Business
Interruption, plus $222,255 as additional costs for a transformer rewind
[3] Available for capital expenditures or distributions to Project owners.
<PAGE>
Panda Energy Corporation Alternate: Updated Corporate Page 10
Panda-Rosemary Cogen Project Refinancing Offering Base Case
*******************************************************************************
<TABLE>
<CAPTION>
RESERVE FUNDS
1 2 3 4 5 6
DEBT SERVICE RESERVE FUND 1996 1997 1998 1999 2000 2001
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Beginning Balance 8,090,714 7,435,714 7,409,285 6,739,285 6,709,642 6,677,142
Additions 0 0 0 0 0 0
Interest Earnings 5.00% 388,000 371,000 354,000 336,000 335,000 333,000
Withdrawals (388,000) (371,000) (354,000) (336,000) (335,000) (333,000)
Releases (655,000) (26,429) (670,000) (29,643) (32,500) (46,786)
---------- ---------- ---------- ---------- ---------- ----------
Ending Balance 7,435,714 7,409,285 6,739,285 6,709,642 6,677,142 6,630,356
OVERHAUL RESERVE FUND
Beginning Balance 942,632 904,632 1,226,632 1,487,632 2,068,632 1,031,632
Additions 280,000 276,000 405,000 513,000 648,000 790,000
Additional Overhaul
Allowance 0 0 0 0 0 0
Interest Earnings 5.00% 46,000 53,000 68,000 89,000 78,000
Turbine Overhauls (318,000) 0 (197,000) 0 (1,774,000) (151,000)
Other Withdrawals 0 0 0 0 0 0
Interest Withdrawal 0 0 0 0 0 0
Releases 0 0 0 0 0 0
---------- ---------- ---------- ---------- ---------- ----------
Ending Balance 904,632 1,226,632 1,487,632 2,068,632 1,031,632 1,748,632
Dispatch Hours [1] 1,077 1,031 1,468 1,805 2,213 2,620
Reserve Addition 3.00% $260 $268 $276 $284 $293 $301
Reserve Addition 280,000 276,000 405,000 513,000 648,000 790,000
OVERHAUL REQUIREMENTS
Frame 6 Operating Hours 4,863 5,894 7,362 9,167 11,380 14,000
Estimated Maintenance
Factor 2.82 2.82 2.82 2.82 2.82 2.82
Frame 6 Factored Hours 14,056 16,621 20,761 25,851 32,092 39,480
Combustion Inspection (CI)[2] $59,000 $63,000
Hot Gas Path Inspection (HGP)[3]
Major Overhaul (MO)[4]
Frame 7 Operating Hours 3,525 4,556 6,024 7,829 10,042 12,662
Estimated Maintenance Factor 2.82 2.82 2.82 2.82 2.82 2.82
Frame 7 Factored Hours 10,186 12,848 16,988 22,078 28,318 35,707
Combustion Inspection (CI)[5] $85,000 $93,000
Hot Gas Path Inspection (HGP)[6] $1,711,000
Major Overhaul (MO)[7]
Steam Turbine Equiv. Hours 9,029 10,060 11,528 13,333 15,546 18,166
Limited ST Overhaul (LO)[8] $53,000 $58,000
Major ST Overhaul (MO)[9] $318,000
---------- ---------- ---------- ---------- ---------- ----------
Total Overhaul Costs $318,000 $0 $197,000 $0 $1,774,000 $151,000
<CAPTION>
7 8 9 10 11 12 13
DEBT SERVICE RESERVE FUND 2002 2003 2004 2005 2006 2007 2008
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Beginning Balance 6,630,356 6,580,713 6,529,284 6,458,927 4,424,641 4,339,284 4,252,141
Additions 0 0 0 0 0 0 0
Interest Earnings 5.00% 330,000 328,000 325,000 272,000 219,000 215,000 210,000
Withdrawals (330,000) (328,000) (325,000) (272,000) (219,000) (215,000) (210,000)
Releases (49,643) (51,429) (70,357) (2,034,286) (85,357) (87,143) (95,714)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Ending Balance 6,580,713 6,529,284 6,458,927 4,424,641 4,339,284 4,252,141 4,156,427
OVERHAUL RESERVE FUND
Beginning Balance 1,748,632 1,069,632 35,632 958,632 852,632 1,890,632 2,938,632
Additions 860,000 971,000 1,067,000 1,184,000 1,176,000 1,168,000 1,160,000
Additional Overhaul Allowance 0 500,000 0 0 0 0 500,000
Interest Earnings 5.00% 70,000 70,000 28,000 25,000 45,000 69,000 121,000
Turbine Overhauls (1,609,000) (2,575,000) (172,000) (1,315,000) (183,000) (189,000) (4,711,000)
Other Withdrawals 0 0 0 0 0 0 0
Interest Withdrawal 0 0 0 0 0 0 0
Releases 0 0 0 0 0 0 0
---------- ---------- ---------- ---------- ---------- ---------- ----------
Ending Balance 1,069,632 35,632 958,632 852,632 1,890,632 2,938,632 8,632
Dispatch Hours [1] 2,769 3,038 3,241 3,491 3,365 3,244 3,128
Reserve Addition 3.00% $310 $320 $329 $339 $349 $360 $371
Reserve Addition 860,000 971,000 1,067,000 1,184,000 1,176,000 1,168,000 1,160,000
OVERHAUL REQUIREMENTS
Frame 6 Operating Hours 16,769 19,807 23,048 26,539 29,904 33,148 36,276
Estimated Maintenance Factor 2.82 2.82 2.82 2.82 2.82 2.82 2.82
Frame 6 Factored Hours 47,289 55,856 64,995 74,840 84,329 93,477 102,298
Combustion Inspection (CI) [2] $69,000 $71,000 $75,000 $78,000
Hot Gas Path Inspection (HGP) [3] $1,211,000
Major Overhaul (MO) [4] $1,513,000 $1,806,000
Frame 7 Operating Hours 15,431 18,469 21,710 25,201 28,566 31,810 34,938
Estimated Maintenance Factor 2.82 2.82 2.82 2.82 2.82 2.82 2.82
Frame 7 Factored Hours 43,515 52,083 61,222 71,067 80,556 89,704 98,525
Combustion Inspection (CI) [5] $96,000 $101,000 $104,000 $108,000 $111,000
Hot Gas Path Inspection (HGP) [6]
Major Overhaul (MO) [7] $2,445,000 $2,834,000
Steam Turbine Equiv. Hours 20,935 23,973 27,214 30,705 34,070 37,314 40,442
Limited ST Overhaul (LO) [8] $61,000 $71,000
Major ST Overhaul (MO) [9]
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total Overhaul Costs $1,609,000 $2,575,000 $172,000 $1,315,000 $183,000 $189,000 $4,711,000
<CAPTION>
14 15 16 17 18 19 20
DEBT SERVICE RESERVE FUND 2009 2010 2011 2012 2013 2014 2015
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Beginning Balance 4,156,427 4,056,070 3,973,927 3,874,641 3,759,998 3,621,069 3,145,447
Additions 0 0 0 0 0 0 0
Interest Earnings 5.00% 205,000 201,000 196,000 191,000 185,000 169,000 79,000
Withdrawals (205,000) (201,000) (196,000) (191,000) (185,000) (169,000) (79,000)
Releases (100,357) (82,143) (99,286) (114,643) (138,929) (475,622) (3,145,449)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Ending Balance 4,056,070 3,973,927 3,874,641 3,759,998 3,621,069 3,145,447 (2)
OVERHAUL RESERVE FUND
Beginning Balance 8,632 1,035,632 2,000,632 416,632 1,512,632 257,632 243,632
Additions 1,152,000 1,145,000 1,154,000 1,164,000 1,174,000 1,184,000 1,194,000
Additional Overhaul Allowance 0 0 1,000,000 0 1,000,000 1,000,000 2,500,000
Interest Earnings 5.00% 74,000 26,000 76,000 60,000 48,000 44,000 13,000
Turbine Overhauls (199,000) (206,000) (3,814,000) (128,000) (3,477,000) (2,242,000) (3,961,000)
Other Withdrawals 0 0 0 0 0 0 0
Interest Withdrawal 0 0 0 0 0 0 0
Releases 0 0 0 0 0 0 0
---------- ---------- ---------- ---------- ---------- ---------- ----------
Ending Balance 1,035,632 2,000,632 416,632 1,512,632 257,632 243,632 (10,368)
Dispatch Hours [1] 3,017 2,911 2,850 2,790 2,732 2,674 2,618
Reserve Addition 3.00% $382 $393 $405 $417 $430 $443 $456
Reserve Addition 1,152,000 1,145,000 1,154,000 1,164,000 1,174,000 1,184,000 1,194,000
OVERHAUL REQUIREMENTS
Frame 6 Operating Hours 39,293 42,204 45,054 47,844 50,576 53,250 55,868
Estimated Maintenance Factor 2.82 2.82 2.82 2.82 2.82 2.82 2.82
Frame 6 Factored Hours 110,806 119,015 127,052 134,920 142,624 150,165 157,548
Combustion Inspection (CI) [2] $82,000 $85,000 $93,000
Hot Gas Path Inspection (HGP) [3] $1,446,000
Major Overhaul (MO) [4] $2,157,000
Frame 7 Operating Hours 37,955 40,866 43,716 46,506 49,238 51,912 54,530
Estimated Maintenance Factor 2.82 2.82 2.82 2.82 2.82 2.82 2.82
Frame 7 Factored Hours 107,033 115,242 123,279 131,147 138,851 146,392 153,775
Combustion Inspection (CI) [5] $117,000 $121,000 $128,000
Hot Gas Path Inspection (HGP) [6] $2,368,000 $2,665,000
Major Overhaul (MO) [7] $3,384,000
Steam Turbine Equiv. Hours 43,459 46,370 49,220 52,010 54,742 57,416 60,034
Limited ST Overhaul (LO) [8] $85,000
Major ST Overhaul (MO) [9] $1,296,000
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total Overhaul Costs $199,000 $206,000 $3,814,000 $128,000 $3,477,000 $2,242,000 $3,961,000
</TABLE>
[1] Equivalent full load dispatch hours.
[2] CI conducted each 8,000 factored hours. Estimated cost of $56,000 (1996$)
[3] HGP conducted each 24,000 factored hours. Estimated cost of $928,000
(1996$)
[4] MO conducted each 48,000 factored hours. Estimated cost of $1,267,000
(1996$)
[5] CI conducted each 8,000 factored hours. Estimated cost of $80,000 (1996$)
[6] HGP conducted each 24,000 factored hours. Estimated cost of $1,520,000
(1996$)
[7] MO conducted each 40,000 factored hours. Estimated cost of $1,988,000
(1996$)
[8] LO conducted each 16,000 equivalent hours. Estimated cost of $50,000
(1996$)
[9] MO conducted each 50,000 equivalent hours. Estimated cost of $739,000
(1996$)
[Burns & McDonnell Letterhead]
Officer's Certificate
I, Michael W. McComas, Vice President of Burns &
McDonnell Engineering Company, Inc., DO HEREBY CERTIFY that:
Since January 10, 1997, no event affecting our report
entitled "Panda-Rosemary Cogeneration Project Condition
Assessment Report for Potential Investors at the Request of
Panda Energy Corporation," dated July 26, 1996 and updated
January 10, 1997 (the "Independent Engineer's Report") or
the matters referred to therein has occurred (i) which makes
untrue or incorrect in any material respect, as of the date
hereof, any information or statement contained in the
Independent Engineer's Report or in the Prospectus relating
to the offering of Pooled Project Bonds, Series A-1 due 2012
by Panda Funding Corporation (the "Prospectus") under the
caption "Independent Engineer's Report-Rosemary" in the
Prospectus Summary or (ii) which is not reflected in the
Prospectus but should be reflected therein in order to make
the statements and information contained in the
"Independents Engineer's Report-Rosemary" in the Prospectus
Summary, in light of the circumstances under which they were
made, not misleading.
WITNESS my hand this 4th day of February, 1997.
/s/ Michael W. McComas
Name: Michael W. McComas
Title: Vice President
APPENDIX D
Assessment of Fuel Price,
Supply and Delivery Risks for the
Panda-RosemaryCogeneration Project
Prepared by:
Benjamin Schlesinger and Associates, Inc.
The Bethesda Gateway
7201 Wisconsin Avenue, Suite 740
Bethesda, MD 20814
Prepared for:
Panda Energy International, Inc.
4100 Spring Valley Road, Suite 1001
Dallas, Texas 75244
Updated September 20, 1996
[BENJAMIN SCHLESINGER AND ASSOCIATES, INC. LETTERHEAD]
September 20, 1996
Mr. Bryan J. Urban
Vice President and Controller
Panda Energy International, Inc.
4100 Spring Valley, Suite 1001
Dallas, TX 75244
Subject: Assessment of Fuel Price, Supply and Delivery Risks for the
Panda-Rosemary Cogeneration Project (the "Project").
Dear Bryan:
I am pleased to enclose Benjamin Schlesinger and Associates, Inc.'s
updated opinion report assessing the fuel supply and delivery arrangements
for the Project and the associated risk to bondholders. As before, the
section entitled "Opinions and Conclusions" contains our principal findings
based on our analysis and evaluation of the Project's fuel supply and
delivery arrangements. Portions of the report which we have brought up to
date pertain to Panda's firm gas transportation arrangements.
Please give me a call if you have any questions about this report.
Sincerely yours,
BENJAMIN SCHLESINGER AND ASSOCIATES, INC.
/s/ Benjamin Schlesinger
__________________________________________
Benjamin Schlesinger, Ph.D.
President
Enclosure
ASSESSMENT OF FUEL PRICE, SUPPLY AND DELIVERY RISKS FOR THE
PANDA-ROSEMARY COGENERATION PROJECT (THE "PROJECT")
INTRODUCTION
Panda Energy International, Inc. (Panda) developed and owns an interest
in the Project, a 180 MW gas-fired, combined cycle cogeneration facility
located in Roanoke Rapids, NC. The Project has sold electric capacity and
energy on a fully dispatchable basis to Virginia Electric and Power Company
(VEPCO) since beginning commercial operations in late December 1990. The
Project also sells steam and chilled water to its thermal host, the Bibb
Company.
The Project facilities include an approximately 10 mile, 10 inch natural
gas pipeline that connects the plant in Roanoke Rapids to an interconnection
with the Transco and Columbia interstate pipeline systems and with the North
Carolina Natural Gas Company (NCNG) system in Pleasant Hill, NC. The Project
has contracted for firm gas supply, firm transportation, gas balancing, and
fuel management services in order to satisfy its daily fuel requirements and
is permitted to burn low sulfur distillate fuel oil (DFO) as a backup fuel
supply.
In connection with two bond offerings being undertaken by subsidiaries of
Panda, Panda has retained Benjamin Schlesinger and Associates, Inc. (BSA) to
provide a due diligence analysis and evaluation of the Project's fuel supply
and delivery arrangements, focusing on the appropriateness of the existing
fuel arrangements, the historic reliability of fuel to the Project, and the
extent to which fuel costs and energy revenues match.
OPINIONS AND CONCLUSIONS
Viability of the Fuel Supply Plan. The Project's overall fuel supply plan
remains reasonable and appropriate given the Project's record of operation and
its energy payment structure (see below). Panda's contract with Natural Gas
Clearinghouse (NGC) for fuel management services lies at the heart of the
Project's fuel supply plan. NGC sells and delivers gas on a firm basis to
satisfy the Project's baseload fuel requirements to produce steam and chilled
water for sale to Bibb. Additionally, NGC buys and delivers gas and DFO on a
best efforts basis to satisfy the Project's variable daily fuel requirements
related to VEPCO's electric dispatch requests. The fuel plan includes direct
access to two interstate pipeline systems, monthly balancing and backup gas
sales service from NCNG, and sufficient on-site DFO storage and permit
authorization to burn DFO whenever gas deliveries to the Project are
insufficient to satisfy its total fuel requirements on a daily basis. We
conclude that, provided VEPCO continues to dispatch the Project principally as
a summer peaker, the additional fixed costs required to increase the
Project's gas supply or delivery reliability are not warranted from an
economic or fuel reliability perspective.
The Project's energy revenues under its power sales agreement reflect the
Project's fuel plan. During the months of January and February, when the
Project is most likely to be forced to burn DFO due to spot gas curtailments,
the energy payments are based on delivered DFO prices, while during the rest
of the year the energy payments are based on the delivered price of Gulf Coast
spot gas in the summer months and Appalachia spot gas in the winter months.
While the Project's actual fuel consumed for dispatch operations has generally
followed the seasonal fuel availability structure assumed in the energy payment
mechanism, we note that the Project's energy payments and actual fuel costs are
not directly linked, i.e., the Project's energy payment margins are at some
risk for a mismatch between energy payments and fuel costs to produce
electricity. Specifically, given that delivered DFO prices historically have
exceeded delivered gas prices, the Project benefits if it is able to burn gas
in January and February, but could experience reduced margins on its energy
payments if forced to burn DFO in lieu of spot gas to satisfy dispatch requests
in any other month. This risk, however, is largely mitigated by a start-up fee
payable by VEPCO each time the Project is dispatched in November, December and
March, the months other than January and February during which the Project is
most likely to be forced to burn DFO. Although we believe the existing fuel
plan to be reasonable and appropriate, we recommend that Panda continue to
monitor on an annual basis the Project's actual and projected dispatch and
gas and DFO pricing for the months of November, December and March to assess
the need for modifications in the existing fuel plan.
Fuel Reliability. Although the Project buys firm gas supply and delivery
services to satisfy only its baseload fuel requirements, the Project has always
had enough fuel to satisfy VEPCO's dispatch requests. Moreover, from the start
of commercial operations through the end of 1995, the Project has been able to
secure gas sufficient to satisfy in excess of 90% of its total dispatch fuel
requirements, a record attributable to relatively low levels of winter
dispatch as well as the flexibility of its gas arrangements. We conclude that
the Project's existing gas supply and delivery arrangements provide an
appropriate degree of gas reliability for an electric peaking facility. In
addition, we conclude that the Project's two million gallon on-site DFO storage
capacity, ready access to oil terminals in four nearby locations, and
operational DFO resupply procedures with NGC that have proven to be effective
to provide an appropriate degree of backup DFO supply reliability, i.e., no
additional DFO supply or delivery contracts are necessary. However, the
Project may not be able to sustain a 90% gas reliability level in the future
under a scenario of significantly higher levels of dispatch in the months of
November, December and March and Panda should continue to monitor projected
dispatch for these months as described above.
Review of Pro Forma Fuel Costs. We have reviewed the fuel supply and
transportation pricing projections used by Burns & McDonnell in their report on
the Project (the "Independent Engineer's Report"). We have concluded from
our review that the Independent Engineer's Report employs reasonably
conservative assumptions for the costs of the Project's various gas supply and
transportation services, i.e., based on our assessment of the fuel contracts
and the cost of gas supply and transportation services, we believe that fuel
delivered to the Project is likely to cost less than the estimates contained
in the Independent Engineer's Report.
Contract Terms. The Project's fuel supply and transportation contracts have
original terms of approximately 15 years and thus will need to be extended or
replaced. We conclude that the Project should have little difficulty
extending the existing fuel arrangements or, if necessary, replacing the
current fuel contracts with alternate service arrangements that offer
comparable price, credit support and reliability provisions. We note that the
Independent Engineer's Report projects fuel costs through the year 2015 on the
basis of the existing fuel contracts and, based on the foregoing conclusion,
we believe such projection to be reasonable.
DESCRIPTION OF THE PROJECT'S FUEL SUPPLY AND DELIVERY ARRANGEMENTS
I. Fuel Management.
Panda has two agreements with Natural Gas Clearinghouse (NGC) that
together provide the Project with a full spectrum of fuel management services.
Pursuant to these agreements, NGC satisfies the Project's daily fuel
requirements for baseload and dispatch operations by procuring the most
economical combination of firm and best efforts gas supply available to the
Project and maintaining an adequate supply of DFO to backup curtailments of
best efforts gas supplies. In this section, we briefly describe the NGC
contracts:
Panda negotiated a Gas Purchase Contract with NGC in 1990 (as amended in
1993) in order to secure a firm, warranted gas supply to support its
baseload fuel requirements. As amended, the firm gas supply contract
provides for the following:
- The contract term extends through November 30, 2005, after which
either party can terminate the contract with 30 days notice (see
ANALYSIS OF POTENTIAL RISKS TO INVESTORS).
- Panda nominates each month a Minimum Daily Quantity of gas it
will buy each day in such month (the "MDQ") up to a maximum of
3,075 MMBtu/day. NGC has a firm obligation to deliver Panda's
MDQ and, provided the parties reach agreement on a sales price,
to deliver all gas nominated by Panda in excess of the MDQ up
to the 3,075 MMBtu/day maximum.
- The price for the MDQ gas delivered is a monthly Gulf Coast
spot index plus $0.04/MMBtu, with any volume delivered in
excess of the MDQ priced at NGC's actual acquisition cost plus
$0.04/MMBtu.
- NGC delivers the gas to the Project either via Panda's firm
transportation contract with Transco (see below) or via
interruptible transportation (IT) service on the Transco or
Columbia interstate pipeline systems, or alternate pipeline
routes to the extent IT service is available.
- If Panda buys less than its MDQ in any month, it must pay NGC a
deficiency fee of $0.14/MMBtu times the amount of the
deficiency. If NGC fails to deliver the volume Panda nominates
each day up to the contract maximum of 3,075 MMBtu, it is
obligated to pay damages equal to the difference, on a
delivered cost to the Project basis, between Panda's
replacement fuel cost and the applicable cost of gas pursuant
to the contract for the deficient volume. In addition, NGC is
obligated, annually, to provide any lender or lessor to the
Project with financial information sufficient to assure lenders
of NGC's continuing ability to meet its delivery obligations.
In October, 1990, Panda executed a Fuel Supply Management Agreement (FSMA)
with NGC in order to secure spot gas to satisfy the Project's dispatch
fuel requirements and to secure DFO for use as a backup fuel when the
Project's total daily fuel requirements exceed the availability of gas
under the firm gas supply and the FSMA. The FSMA has the same term as
the NGC firm gas supply contract and contains the following provisions:
- NGC buys spot gas on a best efforts basis at the lowest
available price and delivers it to Pleasant Hill on an IT basis
via either Transco or Columbia.
- NGC manages the purchase of DFO for the Project and arranges
price hedging arrangements (see DFO Supply and Delivery below).
- Panda pays NGC's actual acquisition cost of gas and oil purchased
pursuant to the FSMA plus $0.04/MMBtu for all gas and
$0.002/gallon for all DFO delivered to the Project. In addition,
NGC keeps 60% of all discounts that it negotiates on behalf of
the Project relative to a benchmark delivered gas price equal to
the sum of a published monthly spot gas index and Transco's
monthly posted rate for IT service to Pleasant Hill.
- NGC manages all communications and billings related to gas
deliveries between Panda, NCNG, the interstate pipelines and all
gas suppliers, including dispatching gas from the suppliers
through the pipelines, invoicing, and verifying flowing
Volumes.(1)
II. Gas Transportation.
In October, 1991, Panda executed a Service Agreement with Transco for firm
transportation service (the FT-NT contract). Panda negotiated this service to
assure firm deliveries of the firm gas supply purchased from NGC to satisfy its
baseload fuel requirements. Pursuant to the FT-NT contract, Panda may deliver
up to 3,075 Mcf/day of gas to Texas Gas Transmission, a Transco affiliate, at
various points in Texas and Louisiana and receive the gas from Transco at
Pleasant Hill.
In July 1996, the Project entered into separate contracts with Texas Gas
Transmission Corporation (TGT), CNG Transmission Corporation (CNG), and
Transco under which it converted its FT-NT contract with Transco into
generally-applicable Part 284 firm transportation (FT) agreements with each
pipeline.(2) The Project's FT contracts with TGT, CNG and Transco provide it
with firm, 365 day/year service from each pipeline, subject to curtailment
only in the event of force majeure as specified in the FERC-approved tariffs of
each pipeline. Moreover, the conversion to FT service has enhanced the
Project's operational flexibility since it is now able to switch receipt and
delivery points for the gas and resell its capacity to third parties when
unneeded. Transco has assured the Project that as part of its FT service it
will continue to be guaranteed gas deliveries on a backhaul basis delivered
to Transco at Leidy via TGT and CNG.
Each contract term extends through October 31, 2006 (as did the Project's
FT-NT contract) and then extend year to year thereafter unless terminated by
either party with 12 months notice (see ANALYSIS OF POTENTIAL RISKS TO
INVESTORS). Panda pays each pipeline's FERC-approved maximum rates for this
service and NGC manages all three FT contracts as agent on behalf of Panda
(see above).
- ---------------------------
(1) Panda and NGC clarified NGC's fuel management responsibilities in a
1992 General Agent Confirmation Letter that designates NGC as the Project's
agent for purpose of arranging all transportation services with interstate
pipelines and NCNG for all gas delivered to the Project. As agent, NGC is
responsible for communicating all required information between the gas
suppliers, the pipelines and the Project and in reconciling any imbalances
that may arise pursuant to Panda's firm transportation agreement with Transco
(see below). Panda is responsible for paying all transportation costs as
invoiced by NGC.
(2) Transco offers this conversion to all of its FT-NT customers pursuant
to its FERC-authorized tariff.
III. Local Delivery and Gas Balancing.
In February 1990, as amended in December 1991, Panda executed the Pipeline
Operating Agreement with NCNG. The term of this agreement extends 15 years
from the date the Project began commercial operations, i.e., December 27, 2005,
and may be extended for two additional five year periods with the consent of
both parties (see ANALYSIS OF POTENTIAL RISKS TO INVESTORS). The Pipeline
Operating Agreement provides for the following:
NCNG operates and maintains Panda's pipeline between Pleasant Hill and the
plant in Roanoke Rapids.
NCNG balances Panda's receipt of gas from Transco and Columbia with the
delivery and consumption of gas at the plant in Roanoke Rapids on a daily
and monthly basis. Panda has the right to carryover to the following
month an imbalance between its receipt of gas at Pleasant Hill and its
delivery to Roanoke Rapids in any month equal to the greater of 50,000
MMBtu or 25% of the greater of the receipt or delivery volume for that
month. Panda "cashes out" its monthly imbalance volume in excess of the
carryover amount based upon NCNG's average purchase price of gas for that
month.
To the extent Panda is unable to buy gas, NCNG will sell gas to Panda on
a best efforts basis to the extent it has gas available without
diminishing service to its other customers.
Panda pays a fixed monthly fee of $20,000 for NCNG's services.
IV. DFO Supply and Delivery.
The Project's air permit allows it to operate for up to 2,000 hours/year
on DFO. The Project facilities include on-site storage capacity sufficient to
store approximately two million gallons of DFO (eight days of Project
operation when dispatched at its rated capacity output for 24 hours/day) for
use when gas is unavailable to the Project. The Project includes two oil
unloading bays that can each unload one tank truck in approximately 30
minutes. When refilling its storage tank, the Project will typically unload
two trucks/hour but can unload three trucks/hour if necessary.
Pursuant to the FSMA, NGC is responsible for arranging DFO supply for the
Project. Panda reports that NGC has no long-term contracts for DFO supply and
delivery. Rather, Panda reports that its DFO resupply plan calls for the
Project to top off its 2,000,000 gallon tank in advance of each winter season.
If the Project burns DFO early in the winter, it typically will elect to
replenish the consumed DFO immediately. However, as the winter progresses and
the Project anticipates that gas will become increasingly reliable, it may
decide not to replenish the tank immediately after an oil burn, but wait for
late summer to top off the tank in preparation for the following winter.
Pursuant to Panda's instructions, NGC currently buys DFO on a spot basis
and does not hedge its purchase price because the Project's energy revenues are
based on a spot oil price index (for January and February only) and the Project
cannot predict in advance when or how much DFO it will burn in lieu of gas.
NGC buys DFO from major oil companies and independent jobbers with product in
storage at major terminals off the Colonial Pipeline in Richmond, VA, Selma,
NC, Greensboro, NC, and at Norfolk marine terminals. In the past, NGC has
arranged for the Project to buy 80-90% of its supply from suppliers active in
Richmond and Selma, including BP, Conoco, Amoco, Exxon, Sprague, and several
smaller jobbers. Since the suppliers either own trucks or have contracts with
local trucking firms for regional truck delivery, NGC does not independently
arrange trucking service from the terminals to the Project, i.e., the purchase
price includes delivery to the plant.
When Panda decides that it needs to purchase DFO, it notifies NGC of the
desired volume. The NGC contact person in Houston is a petroleum products
specialist who purchases products for several other power facilities as well
as the Project. The NGC specialist contacts a list of suppliers active in the
four regional terminal locations identified above and solicits price bids for
the desired volume and product quality. NGC evaluates the bids and verbally
accepts the winning bid at Panda's direction, but does not execute a written
purchase order for the DFO until it receives the results of independent
laboratory tests to confirm that the supplier's product in storage at the
terminal complies with the Project's quality specifications. NGC hires local
testing firms to take a sample of the winning supplier's product in storage at
the terminal. Within 48 hours, NGC gets confirmation of product quality from
the independent lab, executes a written purchase order, and the supplier begins
loading trucks. If the Project, typically during early winter refills,
indicates to NGC that it needs to replenish DFO quickly, NGC may skip the
independent terminal test, but Panda reserves the right to reject product
delivered to the Project that fails to meet the truck test at the plant, as
described below.
State regulation requires suppliers to seal each truck at the terminal
and Panda refuses to unload a truck and accept the product if a truck arrives
with seals broken. The drive time from Richmond and Selma is approximately
1.5 hours and the Project can receive trucks for unloading 24 hours/day.
Prior to unloading, Panda takes a sample from each truck and sends a blended
sample from all trucks unloaded each day to an independent lab for quality
testing. Panda receives the test results within 24 hours. If the test shows
that the delivered product failed to meet the Project's specifications, Panda
halts further shipments from that supplier. However, because Panda purchases
low sulfur (.05%) product in the late summer to top off its tank, it is able
to blend any low quality product received during a winter replenishment with
the high quality summer product and maintain its air permit requirement of
.2% sulfur product.
ASSESSMENT OF PRO FORMA FUEL COSTS
As part of the due diligence review of the Project's fuel arrangements,
BSA evaluated the fuel supply and transportation assumptions made by Burns &
McDonnell in the Executive Summary of and the Expected Fuel Costs section of
the Financial Assessment of the Project contained in the Independent
Engineer's Report. We have concluded from our review that the Independent
Engineer's Report employs conservative assumptions for the fixed costs of gas
transportation services to the Project and that it assumes the Project's
variable fuel costs will track those used to calculate VEPCO's energy payments
in the summt with the term of its previous FT-NT contract, i.e., through
10/31/2006. Upon contract termination, the pipelines must make the physical
capacity that they used to serve the Project available to the shipper offering
the best price, subject to their maximum Part 284 FT rates. This implies that
a conservative case is one in which, starting 11/1/2006 and extending for the
duration of the financing, the Project would cease paying the existing FT-NT
rate and begin paying the maximum Part 284 FT rate on each of the three
pipelines in order to replicate the same service that Transco currently
provides on a packaged basis.
We conservatively estimate that, since the Project has replaced its FT-NT
service rate with Part 284 FT service rates on Transco, CNG and TGT, the cost
of the Project's FT service would increase in 2006 by approximately 22% over
the level assumed in the Project's financial model, i.e., up to the projected
2006 value of the pipelines' current Part 284 FT rates. Our analysis assumes
the following:
Transco, CNG and TGT built capacity under Section 7(c) of the Natural Gas
Act to serve the Project. This capacity will be available for much longer
than the 15 year term of the FT-NT service agreement.
When the Project's Part 284 service agreements expire in 2006, the
pipelines must make the capacity available to the shipper offering the
best price, subject to their maximum Part 284 FT rates. We therefore
assume that the pipelines will sell the capacity after 2006 to the highest
bidder and that the Project's ability to retain the capacity is a matter
of the Project's opting to maintain each of its three FT contracts in
force on a year-to-year basis, with termination provisions as
characterized above.
- --------------------------
(7) We estimate that the FT-NT rate is currently higher than the Part 284
FT rate. The Engineer's Report assumes that the Project pays the FT-NT rate.
Thus, we conservatively assume that the Project would have to pay the
maximum Part 284 FT rates to retain the Transco, CNG, TGT service after 2006.
We estimate that the sum of the Part 284 FT rates, although currently about 91%
of the cost of FT-NT service on a 100% load factor basis, would not exceed
FT-NT costs until after 1999, and could be approximately 22% higher than the
projected cost of FT-NT service by 2006. We note, however, that the foregoing
increase in estimated fuel expenses, were it to transpire, would apply only to
the firm component (3,075 Dth) of the Project's gas transportation
expenditures and would affect only the final years of the loan, thus we
conclude that itwould not represent a significant or material increase the
Project's overall fuel expenditures. In summary, the switch to Part 284 FT
rates enchances theProject's operational flexibility, is likely to provide
lower gas transportationcosts at least through 1999 and, under conservative
assumptions, would result in an immaterial increase in gas costs by the year
2006.
Gas Balancing
Pursuant to the Pipeline Operating Agreement, NCNG both maintains the
Project's pipeline from Pleasant Hill to Roanoke Rapids and provides the
Project with monthly carryover balancing service for one monthly fixed price.
Many parties are qualified to provide the former service. On the other hand,
the monthly carryover service provides a critical degree of operational
flexibility for a dispatchable electric generator and can only be accomplished
through the physical gas storage capability that exists on NCNG's system or on
the interstate pipelines. Therefore, we believe that NCNG or, possibly, NGC
are the only realistic providers of the latter service. At the appropriate
time, Panda intends to negotiate to extend the term of this agreement and
believes that its mutually beneficial relationship with NCNG will continue
under its current form.
CONCLUSION
Set forth above under Opinions and Conclusions are our principal findings
based on our analysis and evaluation of the Project's fuel supply and delivery
arrangements. For a more detailed description of the estimates and
assumptions upon which these opinions and conclusions are based, this report
should be read in its entirety.
[BENJAMIN SCHLESINGER AND ASSOCIATES, INC. LETTERHEAD]
BENJAMIN SCHLESINGER AND ASSOCIATES, INC.
Officer's Certificate
I, Benjamin Schlesinger, Principal of Benjamin
Schlesinger and Associates, Inc., DO HEREBY CERTIFY that:
Since September 20, 1996, no event affecting our
report entitled "Assessment of Fuel Price, Supply and
Delivery Risks for the Panda-Rosemary Cogeneration Project"
(the "Fuel Consultant's Report") or the matters referred to
therein has occurred (i) which makes untrue or incorrect in
any material respect, as of the date hereof, any information
or statement contained in the Fuel Consultant's Report or in
the Prospectus relating to the offering of Pooled Project
Bonds, Series A-1 due 2012 by Panda Funding Corporation (the
"Prospectus") under the caption "Fuel Consultant's Report-
Rosemary" in the Prospectus Summary or (ii) which is not
reflected in the Prospectus but should be reflected therein
in order to make the statements and information contained in
the Fuel Consultant's Report or in the Prospectus under the
caption "Fuel Consultant's Report-Rosemary" in the
Prospectus Summary, in light of the circumstances under
which they were made, not misleading.
We have reviewed the fuel supply and transportation
pricing projections used by Burns & McDonnell Engineering
Company, Inc. in their report, dated July 26, 1996, and
their update report, dated January 10, 1997, regarding
the Panda-Rosemary Cogeneration Project. We have concluded
that the projections developed by Burns & McDonnell in their
July 26 report and their update report (collectively, the
"B&M Report"), employ reasonably conservative assumptions
with respect to the Panda-Rosemary Partnership's fixed gas
transportation costs and the relationship of the Panda-
Rosemary Partnership's variable fuel costs to the energy
price under the Rosemary Power Purchase Agreement, and that
the B&M Report contains reasonable assumptions concerning the
revenue that the Panda-Rosemary Partnership may receive by
reselling transportation capacity that is excess to the
Panda-Rosemary Facility's average daily capacity utilization
and/or reselling gas using it excess transportation
capacity.
We have also reviewed the Amendment effective January 1,
1997 (the "Amendment") to the Service Agreement which the Panda-
Rosemary Partnership entered into with Transcontinental Gas Pipe
Line Corporation ("Transco") in July 1996. We have concluded
that the Amendment properly executes the same kind and quality
of firm backhaul transportation service which was put into place
under the FT-NT contract which the Panda-Rosemary Partnership executed
with Transco in October 1991, and which was envisioned in the
Description of the Project's Fuel Supply and Delivery Arrangements
contained in the September 20, 1996 Fuel Consultant's Report for the
Panda-Rosemary Cogeneration Project prepared by us.
WITNESS my hand this 5th day of February, 1997.
By: /s/ Benjamin Schlesinger
Name: Benjamin Schlesinger, Ph.D.
Title: President
APPENDIX E
Inependent Panda-Brandywine Pro Forma Projections
Prepared for:
Panda Energy International, Inc.
Prepared by:
ICF Resources Incorporated,
a subsidiary of ICF Kaiser International
July 26, 1996
As Supplemented and Modified by an Update Report, dated January 10, 1997
TABLE OF CONTENTS
Page
TABLE OF CONTENTS E-i
EXECUTIVE SUMMARY E-1
Assumptions E-2
Conclusions E-5
INTRODUCTION E-7
Description of Brandywine E-7
ICF's Role E-7
SCHEDULE A-INCOME STATEMENT AND SCHEDULE B-CASH FLOW
STATEMENT E-9
SCHEDULE C-DEVELOPMENT ASSUMPTIONS E-9
SCHEDULE D-OPERATING ASSUMPTIONS E-10
Operating assumptions E-10
Electricity Revenues-Capacity E-10
Electricity Revenues - Energy E-12
Distilled Water Revenues and Costs E-12
Fixed Operating Expenses E-12
Turbine Overhaul and Lease Reserve E-12
SCHEDULE E-LEASE PAYMENTS AND CAPACITY ADJUSTMENTS E-13
SCHEDULE F-GAS SUPPLY INCOME STATEMENT AND
SCHEDULE G-GAS SUPPLY OPERATING ASSUMPTIONS E-13
Dispatch Hours E-13
Gas and Fuel Oil Volumes and Compensation Price E-14
Energy-Based Revenues (Gas Supply Income Statement) E-16
Fuel Costs E-16
Transportation E-17
CONCLUSIONS E-19
APPENDIX PANDA BRANDYWINE PRO FORMA E-20
This report was produced by ICF Resources
Incorporated (ICF) in accordance with an agreement
with Panda Energy International, Inc., who paid for
its services in producing the report and this report
is subject to the terms of that agreement. This report
is meant to be read as a whole and in conjunction with
this disclaimer. Any use of this report other than as a
whole and in conjunction with this disclaimer is forbidden.
Any use of this report, other than as provided for in ICF's
agreement with Panda Energy International, is forbidden.
This report may not be copied in whole or in part or
distributed to anyone outside Panda Energy International
without ICF's prior express and specific written permission.
This report and information and statements herein are
based in whole or in part on information obtained from various
sources. ICF makes no assurances as to the accuracy of any
such information or any conclusions based thereon. ICF bears
no responsibility for the results of any actions taken on the
basis of this Report.
EXECUTIVE SUMMARY
ICF Resources, Incorporated, a subsidiary of ICF Kaiser International
("ICF"), has prepared the independent pro forma projections (the "Project Pro
Forma") for the Panda-Brandywine Cogeneration Project (the "Project")
contained herein pursuant to a Consulting Agreement with Panda Energy
International, Inc. ("Panda"). In developing its projections, ICF reviewed
the Project's fuel supply and transportation contracts and its Power Purchase
Agreement, as amended ("PPA"), as well as the independent reports on the
Project prepared by the Project's independent engineer, Pacific Energy
Services, Inc. ("PES"), and its fuel consultant, C.C. Pace Resources, Inc.
("C.C. Pace").
In the preparation of this Report and the opinions that follow, we have made
certain assumptions with respect to conditions that may exist or events that
may occur in the future. Although we believe these assumptions to be
reasonable for the purpose of this Report, they are dependent on future
events, and actual conditions may differ from those assumed. In addition, we
have used and relied upon certain information provided to us by sources that
we believe to be reliable; however, we make no assurances as to the accuracy
of any such information or any conclusions based thereon. To the extent that
actual future conditions differ from those assumed herein, the actual results
will vary from those forecast. This Report summarizes our work up to the date
hereof; changed conditions occurring or becoming known after such date could
affect the material presented.
In developing the Project Pro Forma contained herein, ICF reviewed and assessed
the pro forma financial projections prepared in connection with the financial
closing of the Project (the "Closing Pro Forma") and determined that it
represented a reasonable model upon which to build its projections. We have
independently reviewed the assumptions used in the Closing Pro Forma and,
where relevant, we updated such assumptions using information that may not
have been available at the time of their preparation. This additional
information includes available macroeconomic data on the Gross National
Product ("GNP"), Gross Domestic Product ("GDP"), and Producer Price Index
("PPI") indices used in the PPA and fuel supply contracts. We also have
relied on the following sources of information in preparing the projections:
- Operating specifications and cost, construction cost and
projected completion, maintenance schedules and cost:
Pacific Energy Services' report, Independent Engineer's
Report: Panda-Brandywine Cogeneration Project (the "PES
Report"). Based on PES's expertise in undertaking similar
analyses, ICF believes that our use of PES's analysis in
preparing this Report is reasonable.
- Dispatch projections: ICF Resources Incorporated,
Independent Assessment of the Dispatchability of the Panda-
Brandywine Project, May 1996 ("the Dispatchability
Analysis").
- Fuel cost projections: the Dispatchability Analysis.
C.C. Pace has reviewed ICF's fuel cost assumptions contained
in the Dispatchability Analysis and has determined them to
be reasonable in its report, Panda-Brandywine, L.P.
Generating Facility - Fuel Consultants' Report - July 2,
1996 (the "Pace Report").
- Structure of terms in the Loan Agreement: Base pro
forma information from the Closing Pro Forma.
- Current macroeconomic escalators: Bureau of Labor
Statistics, Department of Commerce.(1)
Assumptions
The principal assumptions that we made in developing the Project Pro Forma
include:
Project Assumptions:
1. We have not evaluated the validity and enforceability of any
contract, agreement, rule or regulation applicable to the Project and have
assumed that they will be fully enforceable in accordance with their
terms and that all parties will comply with the provisions thereof.
2. Raytheon Engineers and Constructors ("the Contractor") and Ogden
Brandywine, Inc. ("the Operator") will construct and operate the Project
as required under their respective contracts with Panda-Brandywine LP,
the owner of the Project, which contracts have been reviewed by PES; and
we further assume that PES's conclusions as to those agreements contained
in the PES Report are correct.
3. Construction will be completed by the end of September, 1996, in time
for commercial operation to commence in October, 1996, as projected by
PES in the PES Report.
4. All permits and approvals necessary to construct and operate the
Project will be obtained on a timely basis, as projected by PES, and will
be maintained in full force and effect, and any changes in required
permits and approvals will not require changes in design resulting either
in material delays in achieving construction completion as scheduled or
in significant increases in the cost of constructing the facility.
5. PES's conclusion contained in the PES Report that the Project's
design will enable it to "perform at a level consistent with that
anticipated in the [Project Pro Forma]" is reasonable.
6. PES's conclusion contained in the PES Report that the construction
cost of the facility will not exceed the initial capital budget of $215
million is reasonable.
7. In projecting the energy payment, we have assumed a contractual heat
rate of 8,461 Btu/kWh (HHV), even though under many dispatch scenarios
the Project would be entitled to base the energy payment on a higher
(and therefore more favorable to the Project) contractual heat rate.
This results in a more conservative set of projections.
- ----------------------------
(1) BLS, http://stats.bls.gov. Data extracted June 28,1996.
8. Potomac Electric Power Company ("PEPCO") will fully reimburse
Panda-Brandywine, L.P. the costs associated with start-ups through the
energy payment provisions of the PPA. This is consistent with PES's
observation that the Project's energy payment is corrected for the cost
of fuel used for various startups during the month.
Operating Assumptions:
1. The Operator will employ qualified and competent personnel who will
properly operate and maintain the equipment in accordance with the
manufacturers' recommendations and good engineering practice, will make
all required renewals and replacements and will generally operate the
Project in a sound and businesslike manner.
2. Overhauls and major maintenance will be planned for and conducted in
accordance with manufacturers' recommendations and the expected cost
thereof estimated by PES using the dispatch projections contained in the
Dispatchability Analysis.
3. The Project will be dispatched as projected in our Dispatchability
Analysis.
4. Long-term fuel cost inputs will be as we have projected in our
Dispatchability Analysis, as found reasonable by C.C. Pace in the Pace
Report.
5. There is a strong linkage between changes in the Project's expected
fuel-related costs and energy revenues under the PPA, as found reasonable
by C.C. Pace in the Pace Report.
6. The fuel supply arrangements fulfill the contractual requirements of
the PPA, and variable fuel-related costs will be less than energy
payments, as found reasonable by C.C. Pace in the Pace Report.
7. The gas supply and transportation operational requirements will
satisfy electric dispatch operational requirements, as found reasonable
by C.C. Pace in the Pace Report.
8. Natural gas transportation rates will escalate at 1.5 percent
annually.
9. The Project will recover 50% of the cost of its unutilized firm
natural gas transportation in the capacity release market.
10. Operations and maintenance costs, consumables and administrative
expenses will increase at a rate equal to the GNP deflator, currently 3.5
percent per year. Insurance and purchased electricity will increase at a
rate equal to the CPI deflator, currently 3.0 percent per year. Property
taxes will decrease due to declining asset value according to a schedule
provided by Panda Brandywine, L.P.
11. Based on FERC Form 714 data and projections for generation growth in
the Mid-Atlantic Region PEPCO's peak demand will surpass 5,697 MW prior
to the end of 1997, and therefore PEPCO will not be entitled to reduce
the capacity payments to the Project pursuant to the First Amendment to
the PPA.
12. The levels of dispatch indicated in the Dispatch Analysis are
consistent with an operating pattern where the Project is dispatched only
during weekdays (i.e., approximately 260 times per year). Given the
uncertainty regarding dispatch, a possible range of 200 to 300 starts per
year is reasonable.
Steam Sales Assumptions:
1. As projected by PES in the PES Report, thermal energy in the form of
steam will be exported from the Project, operating in the cogeneration
mode, to Brandywine Water Company's distilled water plant such that the
"useful thermal energy" produced by the Project, as defined in PURPA and
the regulations promulgated thereunder, will be sufficient to meet the
operating and efficiency standards required to maintain the facility's
status as a qualifying cogeneration facility under PURPA.
2. Brandywine Water Company's distilled water plant will operate as
projected by its manufacturer.
3. The United States Navy will perform as indicated in its Purchase
Order for the purchase of the distilled water plant's total distilled
water output at a price of $1.50 per 1,000 gallons.
Financing Assumptions:
1. The total amount of the construction loan and leas commitment from
General Electric Capital Corporation ("GECC") is $215 million. The
construction loan bears interest at a Eurodollar base rate plus 250
basis points. Upon completion of construction, the construction loan
will be converted to permanent financing in the form of a single investor
lease. The fixed payment terms under the single investor lease will be
established at the time of conversion using "Basic Rent Factors" contained
in the lease agreement, subject to adjustment based on GECC's then-
applicable federal tax rate, the final cost of the Project, and a Treasury
Index Rate.
2. At the time of conversion, the applicable GECC federal tax rate will
be 35 percent and the Treasury Index Rate will be 6.83 percent.
3. The actual Project lease cost calculation will be as provided in the
Closing Pro Forma.
4. The CPI will increase at a rate of 3 percent per year, the Gross
National Product Implicit Price Deflator will increase at a rate of 3.5
percent per year, and the Producer Price Index for Oil and Gas Field
Services will increase at a rate of 3.5 percent per year.
5. The Project will maintain a lease reserve of the next two quarterly
payments consistent with the provisions of its Loan Agreement with GECC.
6. The Project will maintain a turbine overhaul reserve of $5 million,
escalated at the GNP deflator after the year 2000 consistent with the
provisions of its Loan Agreement with GECC.
7. Panda-Brandywine, L.P., as a limited partnership, will not be subject
to federal and state income tax.
Conclusions
Set forth below are the principal opinions that we have reached regarding our
review of the Project. For a complete understanding of the estimates,
assumptions and calculations upon which these opinions are based, this Report,
including the attached Project Pro Forma, should be read in its entirety.
On the basis of our review and analyses of the Project and the assumptions set
forth in this Report, we are of the opinion that:
1. The financial projections in the Project Pro Forma provide
a reasonable reflection of the Project's expected costs, revenues
and cash flows.
2. The energy and capacity revenue calculations contained in the
Project Pro Forma are appropriate and consistent with the PPA.
Expectations for capacity payment adjustments under the PPA are
reasonable given recent peak day demand on PEPCO.
3. The Project's net cash flow will average approximately $22.9
million per year, reflecting a range of $5.9 million in 1998 to
$33.8 million in 2016.
4. The estimated lease obligation coverage ratios (i.e. the ratio
of earnings before income taxes to lease payments) are presented in
Table ES-1. During the 20-year term of the GECC lease, the Project's
lease obligation coverages will range from 3.05:1.0 in 1997 to 1.61:1.0
in 2016. On average, the Project's lease coverage will be 1.84:1.0.
<TABLE>
<CAPTION>
TABLE ES-1
Summary of Panda Brandywine Debt Coverage Ratios
(Costs and Revenues in $000)
Year Total Total Total Fixed EBIT Annual Lease
Ended Revenues Variable Expenses Lease Coverages
Cost Payments
(a) (b) (c) (d) (e) = b- (f) (e)/(f)
(c+d)
<C> <C> <C> <C> <C> <C> <C>
1996 3,791 2,742 1,441 (392) 0 -
1997 44,144 14,077 8,907 21,160 6,935 3.05
1998 47,957 17,408 8,931 21,619 9,799 2.21
1999 67,472 19,572 8,953 38,948 18,214 2.14
2000 71,459 21,882 8,973 40,604 19,609 2.07
2001 82,590 22,238 8,992 51,360 26,705 1.92
2002 83,288 22,381 9,008 51,899 27,590 1.88
2003 84,898 23,413 9,022 52,462 28,140 1.86
2004 85,944 24,499 9,118 52,327 28,343 1.85
2005 88,110 26,357 9,300 52,453 28,672 1.83
2006 90,397 27,528 9.486 53,382 28,630 1.86
2007 94,741 28,362 9,661 56,718 29,534 1.92
2008 96,760 29,296 9,857 57,607 30,718 1.88
2009 99,338 30,287 10,058 58,993 31,628 1.87
2010 104,154 31,526 10,264 62,363 33,989 1.83
2011 109,688 32,367 10,476 66,845 35,665 1.87
2012 119,106 34,001 10,693 74,412 41,937 1.77
2013 123,167 35,275 10,916 76,975 43,866 1.75
2014 126,801 36,948 11,145 78,708 45,574 1.73
2015 124,948 37,758 11,380 75,810 45,401 1.67
2016 118,506 39,060 11,621 67,825 42,140 1.61
</TABLE>
INTRODUCTION
ICF was retained by Panda Energy International ("Panda") pursuant to a
Consulting Agreement develop pro forma financial projections for the Panda
Brandywine Project (the "Project"). This section describes the Project and
discusses the scope ICF's review.
Description of Brandywine
The Project is a 230 MW gas- and oil-fired power project located in Prince
George's County, Maryland being developed by Panda. The Project will sell
power under a 25-year Power Purchase Agreement with Potomac Electric Power
Company ("PEPCO") beginning on the Project's Commercial Operations Date. The
PPA was signed August 9, 1991 and was amended by the First Amendment to the
Power Purchase Agreement (the "Amendment", and collectively, the "PPA") on
September 16, 1994. The Project will also provide sufficient thermal energy
in the form of steam to enable Brandywine Water Company to sell up to 100,000
gallons of distilled water daily to a nearby naval station under a recently
completed purchase order.
The Project facility will consist of two combustion turbine generators and
one steam turbine generator producing a net electrical output of 230 MW. The
Project has a gas supply agreement with Cogen Development Company, a wholly
owned subsidiary of MCN Corporation, for up to the Project's full gas
requirements. On March 30, 1995, the Project closed a Construction Loan
Agreement and Lease Commitment (the "Loan Agreement") with General Electric
Capital Corporation ("GECC"). The Loan Agreement provides for conversion to
a Facility Lease between the Project and GECC upon the completion of
construction.
ICF's Role
Panda requested that ICF review and assess the financial projections
contained in the pro forma prepared in connection with Project's financial
closing (the "Closing Pro Forma") to determine whether it represented a
reasonable model of the Project's operations, taking into account the
Project's fuel supply, power sales and financing (i.e., lease) agreements.
After ICF determined that the Closing Pro Forma would provide a reasonable
basis for our projections, we updated assumptions where necessary based on
information from the following sources:
- Operating specifications and cost, construction cost and
projected completion, maintenance schedules and cost:
Pacific Energy Services' report, Independent Engineer's
Report: Panda-Brandywine Cogeneration Project (the "PES
Report"). Based on PES's expertise in undertaking similar
analyses, ICF believes that our use of PES's analysis in
preparing this Report is reasonable.
- Dispatch projections: ICF Resources Incorporated,,
Independent Assessment of the Dispatchability of the Panda-
Brandywine Project, May 1996 ("Dispatchability Analysis").
- Fuel cost projections: the Dispatchability Analysis.
C.C. Pace has reviewed ICF's fuel cost assumptions contained
in the Dispatchability Analysis and has determined them to
be reasonable in its report Panda-Brandywine, L.P.
Generating Facility - Fuel Consultants' Report - July 1,
1996 (the "Pace Report").
- Structure of terms in the Loan Agreement: Base pro
forma information from the Closing Pro Forma.
- Current macroeconomic escalators: Bureau of Labor
Statistics, Department of Commerce.(2)
Based on these updated assumptions, ICF prepared the attached pro forma
projections (the "Project Pro Forma"). ICF has based its work on an analysis
of the Closing Pro Forma, the Project's contracts, operational assumptions
provided by the developer and engineering firms, and conversations with
parties having specific relevant information. Statements of fact have been
obtained from sources considered reliable, but no warranty is made as to
their completeness or accuracy. ICF offers no legal opinion or interpretation
of the contracts or agreements that have been reviewed in the preparation of
this document.
The Project Pro Forma is divided into six schedules.
- Schedule A-Income Statement
- Schedule B-Cash Flow Statement
- Schedule C-Development Assumptions
- Schedule D-Operating Assumptions
- Schedule E-Lease Payments and Capacity Adjustments
- Schedule F-Gas Supply Income Statement
- Schedule G-Gas Supply Operating Assumptions
Schedules A and B provide a financial reporting of the revenues, costs, and
cash flows developed in the more detailed Schedules C through G. A copy of
the Project Pro Forma has been included as an appendix. This review focuses
on how the assumptions behind these latter schedules contribute to the
development of estimated Project earnings and cash flows.
- ------------------------
(2) BLS, http://stats.bls.gov. Data extracted June 28, 1996.
SCHEDULE A-INCOME STATEMENT AND
SCHEDULE B-CASH FLOW STATEMENT
Schedules A and B summarize the Project's revenues, costs, and cash flows as
developed in the later schedules. The calculations in Schedule A and B are
consistent with the assumptions contained in the supporting schedules. For
example;
- Contract capacity revenues are calculated as the contract
capacity price times the Project capacity. The GNP-escalated
capacity adjustment is calculated separately. The Project's
capacity price and GNP escalator are calculated separately in
Schedule D.
- The Project fuel costs are expressed in the income statement for
both "Unit #1" and "Unit #2." The section below on Schedule D
describes the distinctions between turbines while the Section on
Schedules G and F describes the fuel cost calculations.
Therefore, the reader should refer to the discussions of the relevant
supporting schedules to find descriptions of the assumptions behind the
development of the ultimate "bottom line" results and ICF's assessment
thereof.
SCHEDULE C-DEVELOPMENT ASSUMPTIONS
Schedule C contains the basic macroeconomic assumptions exogenous to the
Project as well as estimates of the overall Project costs. Many of these
assumptions are discussed more fully in the detailed review of the schedules
below.
Macroeconomic assumptions included in the Development Assumptions include the
Base and Current Treasury Index Rates for financing calculations, the 12-year
T-Bill rate for capacity price adjustments under the PPA, the GNP deflator and
tax rates.
The Estimated Project Costs in the Closing Pro Forma correspond to the
Project's Approved Budget under the Loan Agreement ($215 million). PES
reviewed this budget and found it "adequate to build the project."
This Schedule also provides the assumed Commercial Operations Date. This
assumption is used throughout the model to adjust contract year data to a
calendar year basis. The Project's Actual Commercial Operations Date is
expected to be on or before October 31, 1996. The Project Pro Forma assumes
that November 1996 is the first month of operations. PES indicates that "the
Project remains on schedule at this time with construction approximately 90
percent complete as of July 15, 1996."
SCHEDULE D-OPERATING ASSUMPTIONS
Schedule D provides the basis for calculating the costs and revenues once the
Project begins operating. It also provides some unit measures of the
Project's costs and rates.
Operating assumptions
The Project Pro Forma assumes Project capacity equals 230 MW, which corresponds
to the Project's capacity commitment under the PPA. This value is an input to
calculate capacity-based payments under the PPA in the Income Statement. PES
has provided annual estimates of expected generator performance (output and
heat rate) for the twin GE MS70001EA turbines being used by the Project in
conjunction with the Nooter Erikson Heat Recovery Steam Generator.
The Project performance factors are adjusted to reflect the expected operation
of the Project. Under average annual conditions, PES has estimated that the
two units together will not generate over 230 MW. Nevertheless, PES has
indicated that, given the limited performance standards of the PPA (i.e., the
requirement that there be two output tests conducted per year) it is
reasonable to assume that the Project will qualify for its full capacity
payment.
The Project Pro Forma distinguishes between "Unit 1" and "Unit 2" operation
and performance. When the two turbines operate concurrently, their collective
performance is somewhat below the size-adjusted performance of a single
turbine operating alone. Because operation of the Project under the terms of
the PPA can vary between single-turbine and dual-turbine, the Project Pro Forma
provides for the ability to distinguish operating conditions by differentiating
units.
Unit 1 represents the operational characteristics of a single turbine
operating alone. Unit 2 represents the residual operations of the facility
when both turbines are operating concurrently. Neither of the actual
turbines is identified as such (i.e., the Project could operate either of the
turbines during the periods when only one is dispatched).
Electricity Revenues-Capacity
The Project Pro Forma reflects the unadjusted capacity rate stated in
Appendix L of the PPA. Contractually, the capacity rate is adjusted by several
factors. The capacity rate is increased by the change in GNP from June 1, 1994
to the Actual Commercial Operation Date (PPA, Section 6.1(b) and Amendment
2.4(a)(2)). At the time of financial closing, the GNP escalator was estimated
at 3.5 percent per year. The actual escalation of the GNP between June 1, 1994
and the midpoint of the fourth quarter of 1995 equaled 3.5 percent total.(3)
Assuming a 3.5 percent annual escalator from the midpoint of the fourth quarter
of 1995 to the Actual Commercial Operation Date, the capacity rate would be
adjusted by 6.4 percent.
- -----------------------
(3) Survey of Current Business, May 1996.
The PPA also adjusts the Project's capacity rate based on the cost of
financing on the date the Project closed on its financing agreement with GECC
(PPA, Section 6.1(c)). On the "Commitment Date," the 12-year T-Bill rate was
7.72 percent, lowering the capacity rate based on a multiple of the adjustment
schedule in Appendix L.
The amendment creates two kinds of Scheduled Adjustments to capacity
payments: Section 2.4(a)(1) changes the starting date for capacity payments to
January 1, 1997. The Project Pro Forma implements this adjustment through an
equivalent offsetting adjustment derived from the income statement. In the
Amendment, the Project agreed to a scheduled adjustment of annual capacity
payments (Schedule Q). This adjustment reduces the Project's near-term
capacity revenues in return for increased revenues in years 11 through 25.
The net present value of this adjustment, at the contractual discount rate, is
approximately zero.
The capacity payment is also adjusted by what is referred to in the Project
Pro Forma as the "Contingent Adjustment." The Contingent Adjustment estimates
the net potential cost to PEPCO of having excess capacity due to the Project,
or the Cumulative Present Worth of Incremental Revenue Requirements (the
"CPWIRR") less the cost of terminating the PPA. The CPWIRR is a function of
when the Project begins commercial operation and when PEPCO's peak demand
surpasses a certain specified level (5,697 MW). The CPWIRR and the termination
costs are defined in Attachment C and D to the Amendment, respectively. If
the net potential cost is less than or equal to zero, there is no adjustment.
Because the Project's financial closing occurred in March 1995, termination
costs are set at $18.6 million dollars (Amendment, Attachment C) plus a fixed
fee of $3 million under Paragraph 2.4(g) of the Amendment. Currently, the
Project Pro Forma assumes that PEPCO reaches the 5,697 MW peak, adjusted for
weather, prior to the end of 1997, based on the Dispatchability Analysis.
Consistent with the planned Commercial Operation Date, the CPWIRR equals
approximately $15.3 million. Based on these assumptions, the net cost to
PEPCO is negative, so there is no Contingent Adjustment to the Project's
capacity revenues.
PEPCO's most recently available filings with the Federal Energy Regulatory
Commission indicate the utility's peak demand, unadjusted for weather, reached
5660 MW in the summer of 1994.(4) ICF's dispatch model of the Mid-Atlantic
region, on which the Dispatchability Analysis was based in large part,
estimates regional demand growth through 2000. This information is consistent
with the expectation that PEPCO's demand will increase sufficiently to
validate the Project Pro Forma's assumptions.
If the Contingent Adjustment were positive, the Project would owe PEPCO the NPV
of the net potential costs beginning in Contract Year 11. From Contract Year
11 through Contract Year 15, a ceiling is placed on cost recovery of no more
than the Scheduled Adjustment (Amendment, Paragraph 2.4(i)). After Year 15,
the ceiling is removed and all costs not recovered in the first five years are
recovered over the following ten years.
The Project Pro Forma expresses the capacity-based revenues on a per unit
basis based on the generation and capacity assumptions above. The capacity-
based unit costs are used to calculate capacity revenues in the Income
Statement.
- --------------------------
(4) FERC Form 714. PEPCO's filed peak demand forecasts are slightly below the
1994 summer peak: 5,483 MW in 1995, 5,524 in 1996 and 5,577 in 1997.
Electricity Revenues - Energy
Energy revenues are calculated on a per unit basis from the Income Statement.
These costs are calculated in the fuel supply and revenue schedules reviewed
below.
Distilled Water Revenues and Costs
Estimates of revenues from distilled water sales associated with the Project's
cogeneration function have been revised substantially from the Closing Pro
Forma. The Closing Pro Forma was completed prior to the execution of a
contract to sell the distilled water produced from the Project's thermal energy
output. It assumes 250 days of 80,000 gallons of water delivery per year at a
price of $2.00 per gallon. The Project has since executed a sales contract
with the U.S. Navy calling for up to 100,000 gallons of distilled water per
day at a price of $1.50 per thousand gallons. This reduces revenues from the
Closing Pro Forma from $40,000 to $30,000 per year.
The operating specifications for the distilled water unit are the
manufacturer's own. Operating costs, which are estimated to equal $200,000
escalating with the GNP, are based on operator estimates. The discharge and
chemical usage fees come from the manufacturer and the operator.
Fixed Operating Expenses
The Project's firm gas transportation costs are calculated in the fuel
schedules discussed below. Other fixed operating expenses are based on the
Project's proposed budget for financial closing. In the Project's O&M
contract with Ogden Brandywine Operations, Inc., O&M expenses begin at $1.5
million per year and are escalated by the GNP escalator for the contract's
three year term. The Project Pro Forma assumes continued escalation at the
same rate thereafter. The PES Report confirms the reasonableness of this
assumption.
Turbine Overhaul and Lease Reserve
The Loan Agreement requires that the Project maintain a Rent Reserve equal to
the greater of $2.4 million or the sum of the succeeding two rent payments.
The Project Pro Forma refers to the Rent Reserve as the "Lease Reserve." The
Lease requires that the Project maintain an O&M Reserve account with an
initial balance of $1 million increased at a rate of $125,000 per quarter over
the next two years and $375,000 per quarter for the two years thereafter until
it reaches $5 million. If the Project draws on the O&M Reserve, it must
replenish it to its required balance using up to 50 percent of the Project's
available cash flow. The Project Pro Forma refers to this reserve as the
Turbine Overhaul Reserve. PES provided this schedule.
The interest the Project earns on these reserves are credited to the Project
as income that is included in the Income Statement. This is consistent with
the terms of the Lease.
SCHEDULE E-LEASE PAYMENTS AND CAPACITY ADJUSTMENTS
The Project Lease Agreement was based on an estimated Project cost of $215
million. The Basic Rent Factors applied quarterly to the Project cost are
provided in Schedule 10 to the Loan Agreement.
Under the Project Lease Agreement, the Basic Rent Factors are subject to
change at the time of conversion based on the federal income tax to which GECC
is subject and the annual rate of U.S. Treasury Notes with constant maturaties
equal to the weighted average life of the lease for the four week period
ending on the most recent Friday which is at least 15 days prior to date of
closing for the lease ("Treasury Index Rate"). The Project Pro Forma adjusts
the base lease payment assuming that GECC's federal tax rate is 35 percent and
the Treasury Index Rate equals 6.83 percent.
The Project Pro Forma calculates annual lease payments on an operation year
basis (i.e., Year 1 begins November 1996). Lease payments are assumed to be
paid on a calendar year basis. This results in a shift of approximately one
year in the Project Pro Forma to account for the difference between calendar
years and operation years.
SCHEDULE F-GAS SUPPLY INCOME STATEMENT AND
SCHEDULE G-GAS SUPPLY OPERATING ASSUMPTIONS
In Schedules F and G reside the calculations that estimate the Project's fuel
related revenues and costs. Because the assumptions and calculations in
Schedule F ultimately determine the financial results reported in Schedule G,
it is best to consider the two together both within the Project Pro Forma and
in the context of the PPA and the GSA. C.C. Pace has reviewed the fuel-
related inputs components of the Project Pro Forma and in the Pace Report,
determined that they are reasonable.
The calculation of Project's energy payment costs are discussed below.
Dispatch Hours
The number of dispatch hours in the Closing Pro Forma were based on estimated
Project run times provided by PEPCO. These run times were allocated
seasonally consistent with the Must Run provisions of the Amendment. ICF has
provided an updated dispatch profile in the "Independent Assessment of the
Dispatchability of the Panda-Brandywine Project" based on the results of our
own model runs.(5) This dispatch profile provides the basis for the amount of
electricity sold and the amount of fuel used in the Project Pro Forma.
Dispatch hours have been designated as "Unit 1" and "Unit 2" based on the
conventions described above.
Gas and Fuel Oil Volumes and Compensation Price
As discussed in detail by C.C. Pace in the Pace Report, Project fuel supplies
can be divided conceptually into four pricing categories representing the four
different fuel recovery mechanisms in the PPA:
- the Firm Gas Reserve Rate ("FGRR")
- the Firm Gas Market Rate ("FGMR")
- the Interruptible Gas Rate ("IGR")
- the Oil Rate ("OR")
The application of each of these rates to a specific fuel price category is
described in the Pace Report.
The first category represents the 60 "Must Run" dispatch hours per week for
the first 85 percent of a single turbine's net electrical output (Amendment
2.6(a)). Under the conventions of the Project Pro Forma, this Must Run output
is defined as the first 60 hours per week of generation from Unit 1. For
calculation purposes, the ICF Dispatch Report converts the partially
dispatched Must Run generation from Unit 1 into equivalent "full load" hours
(i.e., the number of hours that the Project would have to operate at full load
to generate the same electrical output). The fuel price on which the energy
payment for the Must Run hours is based is calculated as the firm gas rate
(FGRa). The FGRa, under Appendix M in the Amendment, is equal to the Firm Gas
Reserve Rate ("FGRR") for the first 15 years of operation and the Firm Gas
Market Rate ("FGMR") thereafter.
The FGRR is defined in a fixed price stream in Appendix M subject to a one-
time adjustment based on the Producer Price Index for Oil and Gas Field
Services between June 1, 1994 and the Actual Commercial Operation Date. The
actual escalation between June 1, 1994 and May 31, 1996 was 12.2 percent (6
percent per year). Assuming an annual escalation rate of 3.5 percent
(consistent with the GNP inflator) between May 1, 1996 and November 1, 1996,
the one-time FGRR escalator in the Project Pro Forma equals 14.2 percent
providing a starting FGRR price of $2.95 in Year 1 escalating according to the
PPA to $4.36 in Year 15.
In the first four years of operation, the FGMR price is reduced by 10 percent
under the Amendment.
The initial FGMR was set at an initial June 1, 1990 price of $2.27 per MMBtu
plus the firm displacement tariff rate on Columbia LNG pipeline ($0.0231 per
MMBtu), which is now known as Cove Point LNG. This is adjusted by a weighted
average: 77 percent times the change in the cumulative cost of four gas
indices, two based on the Gulf Coast and two based in Appalachia, plus 23
percent times half the change in the Consumer Price Index, which is meant to
represent the transportation component of the price. For the commodity price
component of the FGRR, the Closing Pro Forma uses forecasted 1996 seasonal gas
prices escalated at 4.0 percent per year.
- ----------------------------
(5) For further information on the basis for ICF Resources' dispatch estimates
see ICF Resources Incorporated, Independent Assessment of the Dispatchability
of the Panda-Brandywine Project, dated May 1996.
The Project Pro Forma now uses ICF's gas price forecast to ensure consistency
with the dispatch forecast.
The actual escalation for the transportation/CPI portion of the FGMR between
June 1, 1990 and May 31, 1996 was 20.6 percent total (3.2 percent per year).
The Project Pro Forma assumes a 3.0 percent annual escalator after May 31,
1996.
The remaining (i.e., non-Must Run) hours that Unit 1 would operate are also
priced at the FGMR. These hours are calculated as the difference between the
dispatch hours and the Must Run full load equivalent hours.
The third pricing category, the Interruptible Gas Rate ("IGR") reflects the
cost of fuel to Unit 2 when it is operating on natural gas. The IGR is
calculated based on the same market basket of gas price indices and
transportation used in the FGMR. However, the IGR is weighted seasonally
71:29 commodity versus transportation March through November and 84:16
December through February.
The fourth segment, the Oil Rate ("OR"), applies to Unit 2 output when it
burns fuel oil. The Project Pro Forma assumes that Unit 2 will operate on
fuel oil for one-third of its winter hours. A more precise calculation of the
Project's fuel oil requirements is possible only with greater detail in the
expected dispatch profile. In actuality the Project will likely only burn
fuel oil on those days that its firm gas transportation capacity and balancing
capabilities are not sufficient to meet the Project's full dispatch
requirements.
The Project has a number of alternatives that enable it to shift gas supply
deliveries among days to match its constant daily firm transportation ("FT")
capacity on its transporters. This practice is known as balancing. Cove
Point LNG, previously Columbia LNG, allows for a shipper to be up to 20,000
MMBtu out of balance for any given day during any hour. Both Washington Gas
Light ("WGL") and Columbia offer balancing services for a fee - WGL under
its contract with the Project, Columbia under its Storage in Transit service.
These balancing services can be limited by the providers under circumstances
of capacity constraint on their systems.
We have estimated the number of days of constraint on Columbia LNG, the most
inexpensive of the balancing services as equal to the number of days Columbia
interrupts WGL (which between December 1995 and February 1996 equaled
48 days). During half those days (24) we have assumed WGL's service is
available. We assume the Project uses fuel oil (i.e., no balancing services
are available) during the remaining 24 days.(6) The availability of balancing
services from Cove Point LNG, WGL and Columbia as well as the Project's
dispatch profile obviate the need to use interruptible capacity.
OR equals $3.89 and is adjusted by the change in the average fuel oil price at
Baltimore, Norfolk and Philadelphia-"as reported in Platt's Oilgram Price
Report in the U.S. Tank Car/Truck Transport table"-between June 1, 1990 and
the relevant billing period (PPA, Section 6.2(b)(vi)). As of May 1, 1996 the
adjusted OR rate equaled $5.03 per MMBtu. For consistency with the dispatch
forecast, ICF has incorporated its own oil price forecast into the Project
Pro Forma. The Pace Report found the Project Pro Forma's modeling of fuel oil
prices to be reasonable.
- ------------------------------
(6) The Project may also opportunistically sell its capacity and fuel supplies
during periods when the value of gas supply and capacity exceeds its cost
and when operating on fuel oil has minimal effect on its dispatch. ICF
Resources has not accounted for this opportunity in the pro forma.
Energy-Based Revenues (Gas Supply Income Statement)
The PPA provides an elaborate series of formulas to calculate the Project's
energy payment from PEPCO. After the Project begins commercial operations,
PEPCO will pay it a Unit Commitment Payment ("UCP") and a Dispatch Payment
("DP"). The UCP is paid on the first 99 MW of each Unit's operation based on
the number of hours the Project operates, contractual heat rates for Unit 1
individually and Units 1 and 2 working together, contractual adjustments for
unit performance based on historical ambient conditions and the cost of fuel
and O&M. The UCP also provides heat rate-based payments for start-ups using
the cost of the appropriate interruptible fuel (IGR or OR). The DP provides
an incremental payment for all Project operations based on a contractually
defined relationship between level of operation and performance.
The Project Pro Forma simplifies the Project's energy payment calculation by
multiplying the four fuel segments (FGRR, FGMR, IGR, and OR) by the
appropriate hours of operation and a "contractual" heat rate of 8,461 Btu per
kWh. This simplification provides a conservative estimate of Project revenues
because:
- The heat rates implicit in the UCP and DP payments
considered together are greater than or equal to 8,461.
- The revenue calculation in the Project Pro Forma does
not include start-up payments under the UCP.
To add a more precise calculation of revenues would require adding, at least,
monthly estimates of dispatch, contractual performance and capability, and
number of hot, cold, and partial start-ups.(7) The Project Pro Forma meets
thegoal of providing a reasonable, conservative estimate of the Project's
energyrevenues without requiring additional assumptions about the details of
the Project's forecasted operations.
Fuel Costs
The cost of the Project's contracted firm supply is fixed in its gas supply
contract with MCN's Cogen Development Company at $2.33 per MMBtu escalated at
4 percent per year plus a $0.10 per MMBtu "ANR Charge" escalated at $0.005 per
year after the first five years. This cost escalation is reflected in the
Project Pro Forma.
The Project has a minimum contractual obligation to purchase 2,299,500 MMBtu
per year at a rate of between 6,000 and 8,000 per day. This gas, the
"Limited Dispatch Quantity," is applied to the delivered FGRR requirements in
the Project Pro Forma.
The FGRR volumes are delivered over 12 hours during weekdays accounting for
approximately 9,200 MMBtu per day while the contract provides that the
Limited Dispatch Quantity is delivered daily at a rate of between 6,000 and
8,000 MMBtu per day. However, the Project can avail itself to one of the
available balancing services, receiving Limited Dispatch gas over the weekend
if necessary to smooth the disparity between the rate of takes of FGRR
quantities.
- ----------------------------
(7) In essence, the Project Pro Forma assumes that start-up costs are
recovered as a pass-through in the calculation of the UCP and an
increase in the heat rate above the EPC guarantee. The ICF Resources
dispatch forecast does not estimate start-ups although in consultation
with PES, it was determined that start-ups for Unit 1 on 200 for Unit 2
were consistent with the dispatch forecast.
The Limited Dispatch Quantity has a Demand Charge of $21,292 associated with
it, escalating at $1,064 per year after the first five years. This charge is
offset, however, with a Price Credit that eliminates the demand charge during
any month in which over 7,000 MMBtu per day is purchased. This demand charge
is not represented in the Project Pro Forma, but given the Must Run
requirements of the Project and the Project's flexibility in Limited Dispatch
takes on Columbia, the Demand Charge is unlikely to be assessed.
The Project may purchase either Scheduled Dispatch Gas or Dispatchable Gas to
fuel its FGMR requirements. The Scheduled Dispatch Gas is priced at the
monthly NYMEX futures price averaged the over the three days prior to closing
plus $0.50 per MMBtu. This premium, to a certain degree, reflects the basis
differential between the NYMEX price and the price at the GSA delivery point
in Ohio. The Project is obligated to take 80 percent of the Scheduled
Dispatch Quantity that it nominates prior to the beginning of the month.
The GSA also provides interruptible gas at a $0.10 premium over the daily
price of gas into Columbia Transmission. The Project may also purchase
its interruptible requirements from Cogen Development.
The Project Pro Forma provides a variety of options to the user for
estimating gas purchase costs. The Closing Pro Forma relies on the Cogen
Development Scheduled Dispatch Gas for Winter FGMR deliveries. All other FGMR
and IGR supplies are assumed to come from the spot market in Appalachia.
These assumptions are reasonable considering the Project's transportation
arrangements. Those arrangement are described below.
Transportation
The transportation rates in the Closing Pro Forma for Columbia Transmission
and Columbia LNG were taken from their espective tariffs. Because the Closing
Pro Forma assumes that gas supply comes from Appalachia, transportation on ANR
(a Gulf Coast to Upper Midwest pipeline) is unnecessary, so its tariff rates
are not included. The transportation rate on the Washington Gas Light system
is set contractually at $0.05 per MMBtu.
Transportation rates under pipeline tariffs have tended to lag behind
inflation. Transportation rates are traditionally cost-based with a
significant portion of the costs represented in sunk capital investment. The
escalation rate of 1.5 percent applied to pipeline transportation (versus the
3 to 4 percent escalators elsewhere in the Project Pro Forma) is consistent
with this trend.
In addition to paying a monetary charge for transportation, shippers must also
pay an in-kind fuel use charge for any transportation capacity used. The
Project Pro Forma usesthe tariff fuel rates to build up the fuel purchase
requirements for the Project. For each of the three gas segments (FGRR, FGMR,
and IGR), the amount of gas purchased under the Project Pro Forma is properly
calculated as the Units' consumption plus the pipeline fuel requirements.
Transportation fuel for the Limited Dispatch Gas (the FGRR segment) is priced
under the GSA at the Scheduled Dispatch rate. In the Project Pro Forma,
however, transportation fuel for both Unit 1 gas supplies (FGRR and FGMR) is
calculated based on a weighted average of the FGRR (Limited Dispatch gas) and
the FGMR (Scheduled Dispatch gas) and spot gas. Because of the premium
associated with the FGRR, using the FGRR for FGR transportation fuel provides
a higher-than- expected, conservative estimate for that cost.
The Project Pro Forma assumes that the Project's unused firm capacity can be
resold for 50 percent of the tariff rate (Schedule A). The Project will be
most likely to resell its fir capacity during the winter when dispatch is the
lowest. This happens to be the period when interruption is most likely on
Columbia. According to U.S. Midwest Natural Gas Market Review, short term
capacity releases on Columbia between December 1995 and February 1996 were
priced from 60 to 82 percent of the Columbia tariff rate. Even adjusting for
the severity of last winter, a 50 percent recovery of transportation costs
appears reasonable.
The Project Pro Forma calculates the total cost of interruptible
transportation ("IT") based on the total IGR volumes. The IT Savings
adjustments for Commodity and Fuel reduce the Project's costs by the amount of
firm transportation used for IGR supplies. At the level of dispatch provided
in the dispatch forecast and with the available flexibility in firm
transportation utilization, IT is not used. As a result, savings in IT costs
associated with the Project using its IT offset the cost of IT used for the
IGR volumes.
C.C. Pace reviewed the transportation costs used in the Project Pro Forma and
found that the Project Pro Forma is based on a reasonable forecast of
transportation costs. C.C. Pace also concluded that both the gas
transportation volumes and amounts to be received from short-term releases of
pipeline capacity assumed for purposes of the Project Pro Forma are
reasonable.
The levels of dispatch indicated in the Dispatch Analysis are consistent with
an operating pattern where the Project is dispatched only during weekdays
(i.e., approximately 260 times per year). Given the uncertainty regarding
dispatch, a possible range of 200 to 300 starts per year is reasonable. PES
has assumed 200 start-ups for Unit 2 in estimating the Project's overhaul
schedule.
The Dispatch Analysis indicates that the Project operates at minimum load for
a number of hours each year. This is the result of the Project running under
the minimum load conditions in the PPA. Under those circumstances, only Unit
1 would be operating. It is reasonable to assume, therefore, that Unit 1 is
started more often than Unit 2. PES has assumed 225 start-ups for Unit 1 in
estimating the Project's overhaul schedule.
CONCLUSIONS
Based on our review, we find the Project Pro Forma a reasonable reflection of
the Project's expected costs, revenues and cash flows. The bases for this
assessment are as follows:
1. The financial projections in the Project Pro Forma
provide a reasonable reflection of the Project's expected
costs, revenues and cash flows.
2. The Project's net cash flow will average approximately
$22.9 million per year, reflecting a range of $5.9 million
in 1998 to $33.8 million in 2016.
3. The estimated lease coverage ratios (i.e. the ratio of
earnings before income taxes to lease payments) are
presented in Table ES-1. During the 20-year term of the
GECC lease, the Project's lease coverages will range from
3.05:1.0 in 1997 to 1.61:1.0 in 2016. On average, the
Project's lease coverage will be 1.84:1.0.
4. The energy and capacity revenue calculations are
appropriate given the PPA. Expectations for capacity
payment adjustments under the PPA are reasonable given
recent peak day demand on PEPCO.
Respectfully Submitted,
/s/ ICF Resources Incorporated
APPENDIX
PANDA BRANDYWINE PRO FORMA
Panda-Brandywine L.P.
230MW PEPCO Project
Income Statement
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
Dec-1996 Dec-1997 Dec-1998 Dec-1999 Dec-2000 Dec-2001 Dec-2002
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Sales Revenue:
Capacity - Contract Amount $6,320,400 $38,005,200 $38,511,200 $39,067,800 $40,765,200 $47,324,800 $49,873,200
Capacity - GNP Adjustment 452,610 2,721,587 2,757,822 2,797,680 2,919,233 3,388,971 3,571,465
Capacity - Interest Rate Adjusment (139,104) (835,912) (844,928) (859,096) (866,824) (874,552) (882,280)
Capacity - Scheduled Adjustment (6,633,906) (15,000,000) (16,000,000) 0 (1,000,000) 2,000,000 0
Capacity - Contingent Adjustment 0 0 0 0 0 0 0
Energy Sales - Unit #1 1,785,251 10,161,812 11,897,405 12,832,774 13,917,801 15,134,834 15,644,569
Energy Sales - Unit #2 1,360,461 6,113,819 8,099,603 9,645,470 11,283,994 11,003,500 10,440,028
Energy - Variable O&M 405,826 2,252,437 2,804,184 3,188,760 3,594,974 3,639,736 3,606,478
Distilled Water Sales 5,000 30,000 30,000 30,000 30,000 30,000 30,000
Firm Transportation Capacity Release 72,511 467,838 331,680 250,751 166,927 195,984 236,702
Interest Income 162,347 227,334 370,123 518,227 648,146 746,457 767,928
------- ------- ------- ------- ------- ------- -------
Total Revenues 3,791,394 44,144,114 47,957,089 67,472,366 71,459,451 82,589,730 83,288,089
Cost of Sales:
Fuel Cost - Unit #1 1,518,967 8,660,634 10,291,425 11,138,397 12,037,436 12,603,086 13,133,024
Fuel Cost - Unit #2 1,081,509 4,623,765 6,186,231 7,414,754 8,736,243 8,540,172 8,166,897
Water Usage 59,497 324,078 391,614 431,521 471,506 455,830 440,133
Water Discharge & Chemical Usage 48,374 268,844 331,463 372,652 415,443 409,775 403,683
Distilled Water Operating Costs 33,333 200,000 207,000 214,245 221,744 229,505 237,537
------ ------- ------- ------- ------- ------- -------
Total Cost of Sales 2,741,681 14,077,321 17,407,734 19,571,570 21,882,372 22,238,368 22,381,273
Gross Profit 1,049,716 30,066,793 30,549,355 47,900,796 49,577,079 60,351,362 60,906,816
Fixed Expenses:
Firm Transportation 420,603 2,561,473 2,599,895 2,638,893 2,678,477 2,718,654 2,759,434
O&M Contract Costs 245,500 1,473,000 1,524,555 1,577,914 1,633,141 1,690,301 1,749,462
Consumables 125,000 750,000 776,250 803,419 831,538 860,642 890,765
Administrative Expenses 83,333 500,000 517,500 535,613 554,359 573,762 593,843
Insurance 83,333 500,000 515,000 530,450 546,364 562,754 579,637
Purchased Electricity 68,609 411,652 424,002 436,722 449,823 463,318 477,218
Letters of Credit Fee 15,000 90,000 90,000 90,000 90,000 90,000 90,000
Property Taxes 400,000 2,620,510 2,483,407 2,339,772 2,189,399 2,032,074 1,867,581
Depreciation & Amortization 0 0 0 0 0 0 0
- - - - - - -
Total Fixed Expenses 1,441,378 8,906,635 8,930,609 8,952,783 8,973,101 8,991,505 9,007,939
EBIT (391,663) 21,160,158 21,618,747 38,948,014 40,603,977 51,359,856 51,898,877
Annual Lease Payments 0 6,934,650 9,798,750 18,213,550 19,609,150 26,705,450 27,590,200
- --------- --------- ---------- ---------- ---------- ----------
Net Income ($391,663) $14,225,508 $11,819,997 $20,734,464 $20,994,827 $24,654,406 $24,308,677
========= =========== =========== =========== =========== =========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
Dec-2003 Dec-2004 Dec-2005 Dec-2006 Dec-2007 Dec-2008 Dec-2009
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Sales Revenue:
Capacity - Contract Amount $50,425,200 $50,420,600 $50,397,600 $50,784,000 $52,716,000 $52,752,800 $53,323,200
Capacity - GNP Adjustment 3,610,994 3,610,664 3,609,017 3,636,688 3,775,040 3,777,675 3,818,522
Capacity - Interest Rate Adjusment (890,008) (897,736) (906,752) (920,920) (928,648) (936,376) (944,104)
Capacity - Scheduled Adjustment 0 0 0 275,000 1,850,000 3,050,000 4,250,000
Capacity - Contingent Adjustment 0 0 0 0 0 0 0
Energy Sales - Unit #1 15,947,720 16,249,366 17,272,272 17,935,498 18,343,586 18,814,713 19,268,820
Energy Sales - Unit #2 11,028,730 11,649,928 12,577,028 13,358,688 13,572,197 13,797,423 14,013,817
Energy - Variable O&M 3,722,071 3,841,677 4,108,795 4,233,182 4,255,503 4,286,666 4,321,333
Distilled Water Sales 30,000 30,000 30,000 30,000 30,000 30,000 30,000
Firm Transportation Capacity Release 240,186 243,406 215,526 241,268 274,759 304,464 332,215
Interest Income 782,830 795,782 806,540 823,334 852,674 882,368 924,144
------- ------- ------- ------- ------- ------ -------
Total Revenues 84,897,723 85,943,688 88,110,028 90,396,738 94,741,111 96,759,734 99,337,948
Cost of Sales:
Fuel Cost - Unit #1 13,608,860 14,102,578 15,098,073 15,646,920 16,281,692 16,963,559 17,676,584
Fuel Cost - Unit #2 8,706,472 9,280,775 10,115,976 10,708,581 10,912,119 11,166,265 11,445,052
Water Usage 440,230 440,335 445,798 451,280 440,110 429,628 419,832
Water Discharge & Chemical Usage 411,954 420,399 434,231 448,467 446,214 44,395 443,039
Distilled Water Operating Costs 245,851 254,456 263,362 272,579 282,120 291,994 302,214
------- ------- ------- ------- ------- ------- -------
Total Cost of Sales 223,413,367 24,498,543 26,357,440 27,527,827 28,362,255 29,295,841 30,286,721
Gross Profit 61,484,356 61,445,145 61,752,587 62,868,910 66,378,856 67,463,893 69,051,227
Fixed Expenses:
Firm Transportation 2,800,825 2,842,837 2,885,480 2,928,762 2,972,694 3,017,284 3,062,543
O&M Contract Costs 1,810,693 1,874,067 1,939,660 2,007,548 2,077,812 2,150,535 2,225,804
Consumables 921,941 954,209 987,607 1,022,173 1,057,949 1,094,977 1,133,301
Administrative Expenses 614,628 636,140 658,405 681,449 705,299 729,985 755,534
Insurance 597,026 614,937 633,385 652,387 671,958 692,117 712,880
Purchased Electricity 491,534 506,280 521,469 537,113 553,226 569,823 586,918
Letters of Credit Fee 90,000 90,000 90,000 90,000 90,000 90,000 90,000
Property Taxes 1,695,695 1,599,555 1,583,926 1,567,032 1,532,315 1,512,427 1,491,130
Depreciation & Amortization 0 0 0 0 0 0 0
- - - - - - -
Total Fixed Expenses 9,022,343 9,118,026 9,299,931 9,486,463 9,661,253 9,857,148 10,058,111
EBIT 52,462,013 52,327,119 52,452,656 53,382,447 56,717,603 57,606,744 58,993,116
Annual Lease Payments 28,140,300 28,343,300 28,672,450 28,629,500 29,534,450 30,717,600 31,628,350
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net Income $24,321,713 $23,983,819 $23,780,206 $24,752,947 $27,183,153 $26,889,144 $27,364,766
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
Dec-2010 Dec-2011 Dec-2012 Dec-2013 Dec-2014 Dec-2015
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Sales Revenue:
Capacity - Contract Amount $55,508,200 $57,794,400 $63,158,000 $64,574,800 $64,786,400 $60,848,800
Capacity - GNP Adjustment 3,974,992 4,138,709 4,522,801 4,624,259 4,639,412 4,357,437
Capacity - Interest Rate Adjusment (950,544) (950,544) (950,544) (950,544) (950,544) (861,672)
Capacity - Scheduled Adjustment 5,450,000 6,650,000 7,850,000 9,050,000 10,250,000 11,450,000
Capacity - Contingent Adjustment 0 0 0 0 0 0
Energy Sales - Unit #1 20,002,633 21,517,421 23,559,238 24,504,792 25,971,074 26,843,104
Energy Sales - Unit #2 14,399,188 14,617,709 14,881,431 15,154,694 15,714,435 15,876,396
Energy - Variable O&M 4,412,867 4,442,955 4,489,177 4,540,719 4,680,416 4,705,294
Distilled Water Sales 30,000 30,000 30,000 30,000 30,000 30,000
Firm Transportation Capacity Release 352,351 384,341 410,331 436,021 451,619 493,653
Interest Income 973,889 1,063,079 1,155,141 1,201,907 1,228,018 1,204,820
------- --------- --------- --------- --------- ---------
Total Revenues 104,153,576 109,688,070 119,105,576 123,166,650 126,800,831 124,947,829
Cost of Sales:
Fuel Cost - Unit #1 18,495,575 19,138,672 20,454,130 21,415,036 22,525,484 23,103,617
Fuel Cost - Unit #2 11,864,581 12,061,244 12,377,243 12,686,758 13,243,122 13,467,875
Water Usage 410,720 401,811 393,506 385,794 378,665 372,113
Water Discharge & Chemical Usage 442,179 441,323 440,924 441,002 441,579 442,683
Distilled Water Operating Costs 312,791 323,739 335,070 346,797 358,935 371,498
------- ------- ------- ------- ------- ------
Total Cost of Sales 31,525,846 32,366,788 34,000,873 35,275,387 36,947,786 37,757,785
Gross Profit 72,627,730 77,321,282 85,104,703 87,891,263 89,853,046 87,190,044
Fixed Expenses:
Firm Transportation 3,108,481 3,155,109 3,202,435 3,250,472 3,299,229 3,348,717
O&M Contract Costs 2,303,707 2,384,337 2,467,789 2,554,161 2,643,557 2,736,082
Consumables 1,172,967 1,214,021 1,256,512 1,300,490 1,346,007 1,393,117
Administrative Expenses 781,978 809,347 837,674 866,993 897,338 928,745
Insurance 734,267 756,295 778,984 802,353 826,424 851,217
Purchased Electricity 604,525 622,661 641,341 660,581 680,398 700,810
Letters of Credit Fee 90,000 90,000 90,000 90,000 90,000 90,000
Property Taxes 1,468,376 1,444,116 1,418,298 1,390,870 1,361,777 1,330,965
Depreciation & Amortization 0 0 0 0 0 0
- - - - - -
Total Fixed Expenses 10,264,302 10,475,886 10,693,033 10,915,920 11,144,730 11,379,652
EBIT 62,363,428 66,845,397 74,411,671 76,975,343 78,708,316 75,810,392
Annual Lease Payments 33,989,000 35,664,950 41,937,300 43,866,450 45,574,050 45,401,250
---------- ---------- ---------- ---------- ---------- ----------
Net Income $28,374,428 $31,180,447 $32,474,371 $33,108,893 $33,134,266 $30,409,142
=========== =========== =========== =========== =========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Total
Dec-2016 Dec-2017 Dec-2018 Dec-2019 Dec-2020 Dec-2021
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Contract Sales Revenue:
Capacity - Contract Amount $52,113,400 $52,982,800 $53,925,800 $54,896,400 $55,903,800 $47,334,000 $1,304,514,000
Capacity - GNP Adjustment 3,731,887 3,794,146 3,861,675 3,931,181 4,003,321 3,389,630 93,417,420
Capacity - Interest Rate Adjustment (417,312) (417,312) (417,312) (417,312) (417,312) (347,760) (19,775,952)
Capacity - Scheduled Adjustment 12,650,000 13,850,000 15,050,000 16,250,000 17,450,000 15,375,000 114,116,094
Capacity - Contingent Adjustment 0 0 0 0 0 0 0
Energy Sales - Unit #1 27,812,826 28,857,807 29,966,410 31,582,358 32,731,962 28,042,023 526,598,069
Energy Sales - Unit #2 16,379,325 16,910,204 17,465,719 18,298,274 18,837,999 16,427,802 342,907,861
Energy - Variable O&M 4,766,657 4,833,587 4,903,449 5,046,573 5,105,456 4,353,193 104,541,961
Distilled Water Sales 30,000 30,000 30,000 30,000 30,000 25,000 750,000
Firm Transportation Capacity Release 525,970 554,546 580,824 599,756 627,817 535,622 9,527,070
Interest Income 913,110 654,412 666,762 679,545 692,775 555,695 20,297,386
------- ------- ------- ------- ------- ------- ----------
Total Revenues 118,505,862 122,050,189 126,033,327 130,896,774 134,965,818 115,690,204 2,496,893,909
Cost of Sales:
Fuel Cost - Unit #1 24,088,518 25,151,799 26,271,823 27,553,673 28,784,756 24,745,587 460,489,906
Fuel Cost - Unit #2 13,778,331 14,206,260 14,759,158 15,554,296 16,103,082 14,055,371 281,242,133
Water Usage 365,435 359,119 353,155 347,535 342,251 282,833 10,034,329
Water Discharge & Chemical Usage 443,494 444,600 446,011 447,737 449,787 379,163 10,559,413
Distilled Water Operating Costs 384,500 397,958 411,886 426,302 441,223 380,555 7,747,194
------- ------- ------- ------- ------- ------- ---------
Total Cost of Sales 39,060,279 40,559,736 42,242,033 44,329,543 46,121,098 39,843,508 762,325,780
Gross Profit 79,445,584 81,490,453 83,791,293 86,567,231 88,844,720 75,846,696 1,734,568,129
Fixed Expenses:
Firm Transportation 3,398,948 3,449,932 3,501,681 3,554,207 3,607,520 3,051,360 76,815,945
O&M Contract Costs 2,831,844 2,930,959 3,033,543 3,139,717 3,249,607 2,802,786 57,058,082
Consumables 1,441,876 1,492,342 1,544,574 1,598,634 1,654,586 1,427,080 29,051,976
Administrative Expenses 961,251 994,894 1,029,716 1,065,756 1,103,057 951,387 19,367,984
Insurance 876,753 903,056 930,147 958,052 986,793 846,998 18,143,566
Purchased Electricity 721,835 743,490 765,794 788,768 812,431 697,337 14,937,676
Letters of Credit Fee 90,000 90,000 90,000 90,000 90,000 75,000 2,250,000
Property Taxes 1,298,375 1,263,949 1,227,626 1,189,346 1,149,042 2,140,362 41,597,925
Depreciation & Amortization 0 0 0 0 0 0 0
- - - - - - -
Total Fixed Expenses 11,620,882 11,868,622 12,123,081 12,384,478 12,653,036 11,992,309 259,223,154
EBIT 67,824,702 69,621,831 71,668,213 74,182,752 76,191,685 63,854,387 1,475,344,974
Annual Lease Payments 42,140,350 15,077,276 15,077,276 15,077,276 15,077,276 15,077,276 678,477,431
---------- ---------- ---------- ---------- ---------- ---------- -----------
Net Income $25,684,352 $54,544,555 $56,590,936 $59,105,476 $61,114,408 $48,777,111 $796,867,543
=========== =========== =========== =========== =========== =========== ============
</TABLE>
<PAGE>
Panda-Brandywine L.P.
230MW PEPCO Project
Cash Flow Statement
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
Dec-1996 Dec-1997 Dec-1998 Dec-1999 Dec-2000 Dec-2001 Dec-2002 Dec-2003
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Income ($391,663) $14,225,508 $11,819,997 $20,734,464 $20,994,827 $24,654,406 $24,308,677 $24,321,713
+ Depreciation &
Amortization 0 0 0 0 0 0 0 0
+ Lease Payments 0 6,934,650 9,798,750 18,213,550 19,609,150 26,705,450 27,590,200 28,140,300
+ Contingency 8,750,274 0 0 0 0 0 0 0
--------- - - - - - - -
Cash Flow Available
for Lease Payment 8,358,611 21,160,158 21,618,747 38,948,014 40,603,977 51,359,856 51,898,877 52,462,013
Lease Payments 0 (6,934,650) (9,798,750) (18,213,550) (19,609,150) (26,705,450) (27,590,200) (28,140,300)
Reserves:
Net Overhaul Reserve (250,000) (1,196,000) (1,668,610) (2,245,573) (1,466,232) (3,215,936) (1,542,214) (981,563)
Lease Reserve (1,067,325) (1,432,050) (4,207,400) (697,800) (3,548,150) (442,375) (275,050) (101,500)
---------- ---------- ---------- -------- ---------- -------- -------- --------
Total Reserves (1,317,325) (2,628,050) (5,876,010) (2,943,373) (5,014,382) (3,658,311) (1,817,264) (1,083,063)
Net Cash Flow $7,041,286 $11,597,458 $5,943,987 $17,791,091 $15,980,446 $20,996,095 $22,491,413 $23,238,650
========== =========== ========== =========== =========== =========== =========== ===========
Lease Coverages 3.05 2.21 2.14 2.07 1.92 1.88 1.86
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
Dec-2004 Dec-2005 Dec-2006 Dec-2007 Dec-2008 Dec-2009 Dec-2010 Dec-2011
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Income $23,983,819 $23,780,206 $24,752,947 $27,183,153 $26,889,144 $27,364,766 $28,374,428 $31,180,447
+ Depreciation &
Amortization 0 0 0 0 0 0 0 0
+ Lease Payments 28,343,300 28,672,450 28,629,500 29,534,450 30,717,600 31,628,350 33,989,000 35,664,950
+ Contingency 0 0 0 0 0 0 0 0
- - - - - - - -
Cash Flow Available
for Lease Payment 52,327,119 52,452,656 53,382,447 56,717,603 57,606,744 58,993,116 62,363,428 66,845,397
Lease Payments (28,343,300) (28,672,450) (28,629,500) (29,534,450) (30,717,600) (31,628,350) (33,989,000) (35,664,950) )
Reserves:
Net Overhaul Reserve (1,079,532) (3,654,807) (3,850,870) (1,126,366) (1,895,774) (1,206,592) (2,855,006) (2,873,996)
Lease Reserve (164,575) 21,475 (452,475) (591,575) (455,375) (1,180,325) (837,975) (3,136,175)
-------- ------ -------- -------- -------- ---------- -------- ----------
Total Reserves (1,244,107) (3,633,332) (4,303,345) (1,717,941) (2,351,149) (2,386,917) (3,692,981) (6,010,171)
Net Cash Flow $22,739,712 $20,146,875 $20,449,603 $25,465,211 $24,537,995 $24,977,849 $24,681,448 $25,170,276
=========== =========== =========== =========== =========== =========== =========== ===========
Lease Coverages 1.85 1.83 1.86 1.92 1.88 1.87 1.83 1.87
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
Dec-2012 Dec-2013 Dec-2014 Dec-2015 Dec-2016 Dec-2017 Dec-2018 Dec-2019
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Income $32,474,371 $33,108,893 $33,134,266 $30,409,142 $25,684,352 $54,544,555 $56,590,936 $59,105,476
+ Depreciation &
Amortization 0 0 0 0 0 0 0 0
+ Lease Payments 41,937,300 43,866,450 45,574,050 45,401,250 42,140,350 15,077,276 15,077,276 15,077,276
+ Contingency 0 0 0 0 0 0 0 0
- - - - - - - -
Cash Flow Available
for Lease Payment 74,411,671 76,975,343 78,708,316 75,810,392 67,824,702 69,621,831 71,668,213 74,182,752
Lease Payments (41,937,300) (43,866,450) (45,574,050) (45,401,250) (42,140,350) (15,077,276) (15,077,276) (15,077,276)
Reserves:
Net Overhaul Reserve (1,421,537) (1,384,592) (5,878,464) (1,483,210) (5,432,032) (1,588,851) (1,747,433) (4,850,260)
Lease Reserve (964,575) (853,800) 86,400 1,630,450 13,531,537 0 0 0
-------- -------- ------ --------- ---------- - - -
Total Reserves (2,386,112) (2,238,392) (5,792,064) 147,240 8,099,505 (1,588,851) (1,747,433) (4,850,260)
Net Cash Flow $30,088,258 $30,870,501 $27,342,202 $30,556,382 $33,783,857 $52,955,704 $54,843,504 $54,255,216
=========== =========== =========== =========== =========== =========== =========== ===========
Lease Coverages 1.77 1.75 1.73 1.67 1.61 4.62 4.75 4.92
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year Ended Year Ended Total
Dec-2020 Dec-2021 Contract
-------- -------- --------
<S> <C> <C> <C>
Net Income $61,114,408 $48,777,111 $796,867,543
+ Depreciation &
Amortization 0 0 0
+ Lease Payments 15,077,276 15,077,276 678,477,431
+ Contingency 6,000,000 0 14,750,274
--------- - ----------
Cash Flow Available
for Lease Payment 82,191,685 63,854,387 1,490,095,248
Lease Payments (15,077,276) (15,077,276) (678,477,431)
Reserves:
Net Overhaul Reserve (1,871,893) (4,054,055) (60,821,397)
Lease Reserve 0 7,538,638 2,400,000
- --------- ---------
Total Reserves (1,871,893) 3,484,583 (58,421,397)
Net Cash Flow $65,242,515 $52,261,694 $753,196,420
=========== =========== ============
Lease Coverages 5.45 4.24
</TABLE>
<PAGE>
Panda-Brandywine L.P.
230MW PEPCO Project
Development Assumptions
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Lease Financing: * Estimated Project Costs
Leased Amount $215,000,000 * Cogen Construction Costs $118,258,816
Lease Term (Years) 20 * Distilled Water Construction Costs $3,400,000
Average Life 14.9 * Electrical Transmission Line & Fiber Optics $4,411,007
Implicit rate (Pre-tax) 10.20% * Effluent Water Pipeline $10,639,600
Treasury Index Rate (Base) 7.38% * Columbia Gas Pipeline Expansion $8,838,294
Treasury Index Rate (Current) 6.83% * PEPCO - Electrical Interconnect $2,200,000
* PEPCO - RTU/AGC Communications $250,000
Other Financing Assumptions: * Sales Tax on 10% of Construction Costs $434,000
--------------------------- * Water Wells on Site $348,095
Debt Service Reserve $2,400,000 * Building Permit $200,668
Letters of Credit (PEPCO, Fuel Supplier, etc.) $6,000,000 * Builder's Risk Insurance 579,645
Annual Letter of Credit Fee 1.50% * Other Construction Costs $25,000
Interest Income Rate 4.00% * Land Purchase Costs (Including Title InsurAnce) $4,180,669
12 Year Treasury Bill Rate (Capacity Adjustment) 7.72% * Right-of Way Payments $714,171
Annual GNP Deflator 3.50% * Outside Engineering Costs $2,896,553
Actual Commercial Operations Date Nov-96 * Permitting & Regulatory Costs $1,670,176
Months of Operation During 1996 (1st Calendar Year) 2 * Legal Costs $2,399,413
Months of Operation During 2021 (Last Calendar Year) 10 * Public Relations $331,131
Escalator Base Month Jun-94 * Interest During Development/Construction $19,218,038
Annual CPI Deflator 3.00% * Other Financing Costs $9,256,926
* Management & Administrative Costs $4,203,858
* Natural Gas Reserves Development $3,165,981
Tax Assumptions: * Furniture & Office Equipment $102,820
---------------- * O&M Contractor $1,006,200
Federal Tax Rate 0.00% * Fuel Purchased During Construction $550,000
State Tax Rate 0.00% * General Liability Insurance $88,838
Property Tax Rate (1994) 3.32% * Spare Parts Inventory $1,750,000
Annual Property Tax Rate Increase 3.00% * Fuel Oil Inventory $1,200,000
Assessed Property Value (Real Property) 50.00% * Initial Lease Reserve (Cash) $2,400,000
Initial Assessed Value (Real Property) $77,239,983 * Initial O&M Reserve (Cash) $1,000,000
Annual Assessed Property Depreciation Rate 4.00% * Initial Warranty Reserve (Cash) $750,000
Tax Depreciation Rate (Declining Value) 150.00% * Contingency $8,750,274
Tax Depreciation Period 20 * ------------
Amortization Period - Transaction Costs 102,820 *
* Total Project Costs $215,000,000
* ============
</TABLE>
<PAGE>
Panda-Brandywine L.P.
230MW PEPCO Project
Operating Assumptions
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
Dec-1996 Dec-1997 Dec-1998 Dec-1999 Dec-2000 Dec-2001 Dec-2002
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Assumptions:
Capacity in Kilowatts 230,000 230,000 230,000 230,000 230,000 230,000 230,000
Weighted Average Energy Output - Unit #1 120,040 118,280 117,840 117,600 117,340 118,840 117,940
Weighted Average Energy Output - Unit #2 120,040 118,280 117,840 117,600 117,340 118,840 117,940
Firm Dispatch Energy Production 99,000 99,000 99,000 99,000 99,000 99,000 99,000
Hours Per Year Running Unit #1 (Full Load) 616 3,482 4,024 4,249 4,474 4,475 4,476
Hours Per Year Running Unit #2 (Full Load) 420 2,154 2,782 3,244 3,705 3,425 3,145
Contract Heat Rate (BTU/KWH) 8,461 8,461 8,461 8,461 8,461 8,461 8,461
Weighted Average Heat Rate - Unit #1 (BTU/KWH) 7,939 8,048 8,075 8,106 8,141 8,086 8,141
Weighted Average Heat Rate - Unit #2 (BTU/KWH) 7,863 7,954 7,984 8,011 8,041 8,024 8,053
Actual Annual Energy - Unit #1 (MWH) 73,914 411,899 474,198 499,689 524,984 531,806 527,889
Actual Annual Energy - Unit #2 (MWH) 50,417 254,832 327,784 381,440 434,799 407,067 370,946
Annual Fuel Usage - Unit #1 (DT's) 586,804 3,314,965 3,829,146 4,050,482 4,273,892 4,300,182 ,297,542
Annual Fuel Usage - Unit #2 (DT's) 396,427 2,026,935 2,617,029 3,055,713 3,496,222 3,266,307 ,987,228
Electricity Revenues - Capacity:
Capital Costs/KW Month
(Unadjusted Contract Year) $13.74 $13.92 $14.12 $14.33 $16.97 $18.03 $18.27
Capital Costs/KW Year $27.48 $165.24 $167.44 $169.86 $177.24 $205.76 $216.84
Capital Costs Per KWH $0.04463 $0.04745 $0.04161 $0.03998 $0.03962 $0.04598 $0.04845
GNP Deflator Adjustment/KW Year $1.97 $11.83 $11.99 $12.16 $12.69 $14.73 $15.53
GNP Deflator Adjustment Per KWH $0.00320 $0.00340 $0.00298 $0.00286 $0.00284 $0.00329 $0.00347
Interest Rate Adjustment/KW Year ($0.60) ($3.63) ($3.67) ($3.74) ($3.77) ($3.80 ($3.84)
Interest Rate Adjustment Per KWH ($0.00098) ($0.00104) ($0.00091) ($0.00088) ($0.00084) ($0.00085 ($0.00086)
Scheduled Adjustment/KW Year ($28.84) ($65.22) ($69.57) $0.00 ($4.35) $8.70 $0.00
Scheduled Adjustment Per KWH ($0.04684) ($0.01873) ($0.01729) $0.00000 ($0.00097) $0.00194 $0.00000
Contingent Adjustment/KW Year $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
Contingent Adjustment Per KWH $0.00000 $0.00000 $0.00000 $0.00000 $0.00000 $0.00000 $0.00000
Total Capacity Rate/KW Year $0.00 $108.22 $106.19 $178.29 $181.82 $225.39 $228.53
Total Capacity Rate/KW Month $0.00 $9.02 $8.85 $14.86 $15.15 $18.78 $19.04
Total Capacity Rate Per KWH $0.00000 $0.03108 $0.02639 $0.04196 $0.04064 $0.05037 $0.05106
Electricity Revenues - Energy Escalation
----------
Energy Rate Per KWH (Weighted Average) $0.02530 $0.02441 $0.02493 $0.02551 $0.02626 $0.02784 $0.02902
Variable O&M Rate Per KWH 3.50% $0.00326 $0.00338 $0.00350 $0.00362 $0.00375 $0.00388 $0.00401
Total Energy Rate Per KWH $0.02857 $0.02779 $0.02843 $0.02913 $0.03000 $0.03172 $0.03303
Total Electricity Revenues - Capacity & Energy $0.0286 $0.0589 $0.0548 $0.0711 $0.0706 $0.0821 $0.0841
Distilled Water Revenues:
Water Delivery (Days/Year) 42 250 250 250 250 250 250
Daily Distilled Water Sales Volume (Gal) 80,000 80,000 80,000 80,000 80,000 80,000 80,000
Distilled Water Sales Price ($/000 Gal) $1.50 $1.50 $1.50 $1.50 $1.50 $1.50 $1.50
Contract Fuel Rates (Energy Revenue):
FGRR - Firm Gas Reserve Rate ($/DT) $2.95 $3.06 $3.18 $3.31 $3.45 $3.58 $3.72
FGMR - Firm Gas Market Rate ($/DT) $2.75 $2.80 $2.85 $2.89 $2.94 $3.07 $3.20
IGR - Interruptible Gas Rate ($/DT) $2.53 $2.57 $2.62 $2.66 $2.75 $3.14 $3.28
OR - Oil Rate ($/DT) $4.60 $4.57 $4.73 $5.00 $5.28 $5.51 $5.75
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
Dec-2003 Dec-2004 Dec-2005 Dec-2006 Dec-2007 Dec-2008 Dec-2009
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Assumptions:
Capacity in Kilowatts 230,000 230,000 230,000 230,000 230,000 230,000 230,000
Weighted Average Energy Output - Unit #1 117,690 117,450 120,000 118,120 117,760 117,530 117,270
Weighted Average Energy Output - Unit #2 117,690 117,450 120,000 118,120 117,760 117,530 117,270
Firm Dispatch Energy Production 99,000 99,000 99,000 99,000 99,000 99,000 99,000
Hours Per Year Running Unit #1 (Full Load) 4,432 4,388 4,450 4,513 4,450 4,393 4,342
Hours Per Year Running Unit #2 (Full Load) 3,184 3,222 3,247 3,271 3,133 3,002 2,877
Contract Heat Rate (BTU/KWH) 8,461 8,461 8,461 8,461 8,461 8,461 8,461
Weighted Average Heat Rate-Unit #1 (BTU/KWH) 8,174 8,209 8,166 8,051 8,085 8,119 8,153
Weighted Average Heat Rate-Unit #2 (BTU/KWH) 8,077 8,103 8,131 8,029 7,997 7,997 8,021
Actual Annual Energy - Unit #1 (MWH) 521,585 515,348 534,022 533,024 524,003 516,285 509,174
Actual Annual Energy - Unit #2 (MWH) 374,689 378,444 389,591 386,371 368,985 352,824 337,335
Annual Fuel Usage - Unit #1 (DT's) 4,263,440 4,230,492 4,360,825 4,291,374 4,236,562 4,191,718 4,151,297
Annual Fuel Usage - Unit #2 (DT's) 3,026,360 3,066,535 3,167,763 3,102,174 2,950,776 2,821,532 2,705,767
Electricity Revenues - Capacity:
Cap. Costs/KW Month -
Unadjusted Contract Year $18.27 $18.26 $18.26 $19.10 $19.10 $19.18 $20.02
Capital Costs/KW Year $219.24 $219.22 $219.12 $220.80 $229.20 $229.36 $231.84
Capital Costs Per KWH $0.04947 $0.04996 $0.04924 $0.04893 $0.05151 $0.05221 $0.05340
GNP Deflator Adjustment/KW Year $15.70 $15.70 $15.69 $15.81 $16.41 $16.42 $16.60
GNP Deflator Adjustment Per KWH $0.00354 $0.00358 $0.00353 $0.00350 $0.00369 $0.00374 $0.00382
Interest Rate Adjustment/KW Year ($3.87) ($3.90) ($3.94) ($4.00) ($4.04) ($4.07) ($4.10)
Interest Rate Adjustment Per KWH ($0.00087) ($0.00089) ($0.00089) ($0.00089) ($0.00091) ($0.00093) ($0.00095)
Scheduled Adjustment/KW Year $0.00 $0.00 $0.00 $1.20 $8.04 $13.26 18.48
Scheduled Adjustment Per KWH $0.00000 $0.00000 $0.00000 $0.00026 $0.00181 $0.00302 $0.00426
Contingent Adjustment/KW Year $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
Contingent Adjustment Per KWH $0.00000 $0.00000 $0.00000 $0.00000 $0.00000 $0.00000 $0.00000
Total Capacity Rate/KW Year $231.07 $231.02 $230.87 $233.80 $249.62 $254.97 $262.82
Total Capacity Rate/KW Month $19.26 $19.25 $19.24 $19.48 $20.80 $21.25 $21.90
Total Capacity Rate Per KWH $0.05214 $0.05265 $0.05188 $0.05181 $0.05610 $0.05804 $0.0
Electricity Revenues - Energy: Escalation
----------
Energy Rate Per KWH (Weighted Average) $0.03010 $0.03121 $0.03232 $0.03404 $0.03574 $0.03752 $0.03932
Variable O&M Rate Per KWH 3.50% $0.00415 $0.00430 $0.00445 $0.00460 $0.00477 $0.00493 $0.00510
Total Energy Rate Per KWH $0.03425 $0.03551 $0.03677 $0.03864 $0.04051 $0.04246 $0.04442
Total Electricity Revenues-Capacity & Energy $0.0864 $0.0882 $0.0886 $0.0905 $0.0966 $0.1005 $0.1050
Distilled Water Revenues:
Water Delivery (Days/Year) 250 250 250 250 250 250 250
Daily Distilled Water Sales Volume (Gal) 80,000 80,000 80,000 80,000 80,000 80,000 80,000
Distilled Water Sales Price ($/000 Gal) $1.50 $1.50 $1.50 $1.50 $1.50 $1.50 $1.50
Contract Fuel Rates (Energy Revenue):
FGRR - Firm Gas Reserve Rate ($/DT) $3.80 $3.88 $3.95 $4.03 $4.11 $4.20 $4.28
FGMR - Firm Gas Market Rate ($/DT) $3.35 $3.49 $3.65 $3.91 $4.18 $4.46 $4.76
IGR - Interruptible Gas Rate ($/DT) $3.43 $3.58 $3.75 $4.01 $4.29 $4.59 $4.90
OR - Oil Rate ($/DT) $6.00 $6.26 $6.53 $6.81 $7.10 $7.41 $7.72
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
Dec-2010 Dec-2011 Dec-2012
-------- -------- --------
<S> <C> <C> <C>
Operating Assumptions:
Capacity in Kilowatts 230,000 230,000 230,000
Weighted Average Energy Output - Unit #1 118,400 117,860 117,620
Weighted Average Energy Output - Unit #2 118,400 117,860 117,620
Firm Dispatch Energy Production 99,000 99,000 99,000
Hours Per Year Running Unit #1 (Full Load) 4,297 4,224 4,157
Hours Per Year Running Unit #2 (Full Load) 2,757 2,669 2,586
Contract Heat Rate (BTU/KWH) 8,461 8,461 8,461
Weighted Average Heat Rate-Unit #1 (BTU/KWH) 8,118 8,151 8,183
Weighted Average Heat Rate-Unit #2 (BTU/KWH) 8,045 8,020 8,049
Actual Annual Energy - Unit #1 (MWH) 508,800 497,854 488,986
Actual Annual Energy - Unit #2 (MWH) 326,408 314,613 304,172
Annual Fuel Usage - Unit #1 (DT's) 4,130,438 4,058,005 4,001,373
Annual Fuel Usage - Unit #2 (DT's) 2,625,953 2,523,193 2,448,281
Electricity Revenues - Capacity:
Cap. Costs/KW Month -
Unadjusted Contract Year $20.57 $22.79 $23.35
Capital Costs/KW Year $241.34 $251.28 $274.60
Capital Costs Per KWH $0.05616 $0.05949 $0.06605
GNP Deflator Adjustment/KW Year $17.28 $17.99 $19.66
GNP Deflator Adjustment Per KWH $0.00402 $0.00426 $0.00473
Interest Rate Adjustment/KW Year ($4.13) ($4.13) ($4.13)
Interest Rate Adjustment Per KWH ($0.00096) ($0.00098) ($0.00099)
Scheduled Adjustment/KW Year $23.70 $28.91 $34.13
Scheduled Adjustment Per KWH $0.00551 $0.00684 $0.00821
Contingent Adjustment/KW Year $0.00 $0.00 $0.00
Contingent Adjustment Per KWH $0.00000 $0.00000 $0.00000
Total Capacity Rate/KW Year $278.19 $294.05 $324.26
Total Capacity Rate/KW Month $23.18 $24.50 $27.02
Total Capacity Rate Per KWH $0.06473 $0.06961 $0.07800
Electricity Revenues - Energy: Escalation
Energy Rate Per KWH (Weighted Average) $0.04119 $0.04448 $0.04847
Variable O&M Rate Per KWH 3.50% $0.00528 $0.00547 $0.00566
Total Energy Rate Per KWH $0.04647 $0.04994 $0.05413
Total Electricity Revenues-Capacity & Energy $0.1112 $0.1196 $0.1321
Distilled Water Revenues:
Water Delivery (Days/Year) 250 250 250
Daily Distilled Water Sales Volume (Gal) 80,000 80,000 80,000
Distilled Water Sales Price ($/000 Gal) $1.50 $1.50 $1.50
Contract Fuel Rates (Energy Revenue):
FGRR - Firm Gas Reserve Rate ($/DT) $4.36 $4.45 $4.54
FGMR - Firm Gas Market Rate ($/DT) $5.08 $5.37 $5.68
IGR - Interruptible Gas Rate ($/DT) $5.23 $5.54 $5.86
OR - Oil Rate ($/DT) $8.05 $8.40 $8.76
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
Dec-2013 Dec-2014 Dec-2015 Dec-2016 Dec-2017 Dec-2018 Dec-2019
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Assumptions:
Capacity in Kilowatts 230,000 230,000 230,000 230,000 230,000 230,000 230,000
Weighted Average Energy Output- Unit #1 117,380 119,240 118,000 117,750 117,540 117,300 118,680
Weighted Average Energy Output- Unit #2 117,380 119,240 118,000 117,750 117,540 117,300 118,680
Firm Dispatch Energy Production 99,000 99,000 99,000 99,000 99,000 99,000 99,000
Hours Per Year Running Unit #1
(Full Load) 4,097 4,043 3,996 3,925 3,858 3,796 3,739
Hours Per Year Running Unit #2
(Full Load) 2,507 2,431 2,359 2,308 2,259 2,212 2,166
Contract Heat Rate (BTU/KWH) 8,461 8,461 8,461 8,461 8,461 8,461 8,461
Weighted Average Heat Rate - Unit #1
(BTU/KWH) 8,216 8,134 8,053 8,085 8,118 8,148 8,091
Weighted Average Heat Rate - Unit #2
(BTU/KWH) 8,067 8,087 8,108 8,008 7,968 7,986 8,006
Actual Annual Energy - Unit #1 (MWH) 480,905 482,099 471,493 462,141 453,510 445,312 443,705
Actual Annual Energy - Unit #2 (MWH) 294,230 289,865 278,329 271,774 265,543 259,467 257,116
Annual Fuel Usage - Unit #1 (DT's) 3,951,114 3,921,394 3,796,937 3,736,407 3,681,592 3,628,399 3,590,019
Annual Fuel Usage - Unit #2 (DT's) 2,373,555 2,344,135 2,256,692 2,176,367 2,115,847 2,072,103 2,058,470
Electricity Revenues - Capacity:
Capital Costs/KW Month
(Unadjusted Contract Year) $23.63 $22.69 $18.83 $19.14 $19.48 $19.83 $20.19
Capital Costs/KW Year $280.76 $281.68 $264.56 $226.58 $230.36 $234.46 $238.68
Capital Costs Per KWH $0.06853 $0.06967 $0.06621 $0.05773 $0.05970 $0.06176 $0.06384
GNP Deflator Adjustment/KW Year $20.11 $20.17 $18.95 $16.23 $16.50 $16.79 $17.09
GNP Deflator Adjustment Per KWH $0.00491 $0.00499 $0.00474 $0.00413 $0.00428 $0.00442 $0.00457
Interest Rate Adjustment/KW Year ($4.13) ($4.13) ($3.75) ($1.81) ($1.81) ($1.81) ($1.81)
Interest Rate Adjustment Per KWH ($0.00101) ($0.00102) ($0.00094) ($0.00046) ($0.00047) ($0.00048) ($0.00049)
Scheduled Adjustment/KW Year $39.35 $44.57 $49.78 $55.00 $60.22 $65.43 $70.65
Scheduled Adjustment Per KWH $0.00960 $0.01102 $0.01246 $0.01401 $0.01561 $0.01724 $0.01890
Contingent Adjustment/KW Year $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
Contingent Adjustment Per KWH $0.00000 $0.00000 $0.00000 $0.00000 $0.00000 $0.00000 $0.00000
Total Capacity Rate/KW Year $336.08 $342.28 $329.54 $295.99 $305.26 $314.87 $324.61
Total Capacity Rate/KW Month $28.01 $28.52 $27.46 $24.67 $25.44 $26.24 $27.05
Total Capacity Rate Per KWH $0.08203 $0.08466 $0.08247 $0.07542 $0.07912 $0.08294 $0.08682
Electricity Revenues - Energy:
Energy Rate Per KWH (Weighted Average) $0.05116 $0.05400 $0.05697 $0.06021 $0.06365 $0.06730 $0.07117
Variable O&M Rate Per KWH $0.00586 $0.00606 $0.00628 $0.00649 $0.00672 $0.00696 $0.00720
Total Energy Rate Per KWH $0.05702 $0.06006 $0.06325 $0.06671 $0.07037 $0.07426 $0.07838
Total Electricity Revenues -
Capacity & Energy $0.1391 $0.1447 $0.1457 $0.1421 $0.1495 $0.1572 $0.1652
Distilled Water Revenues:
Water Delivery (Days/Year) 250 250 250 250 250 250 250
Daily Distilled Water Sales Volume (Gal) 80,000 80,000 80,000 80,000 80,000 80,000 80,000
Distilled Water Sales Price ($/000 Gal) $1.50 $1.50 $1.50 $1.50 $1.50 $1.50 $1.50
Contract Fuel Rates (Energy Revenue):
FGRR - Firm Gas Reserve Rate ($/DT) $4.63 $4.73 $4.82 $4.91 $5.00 $5.09 $5.18
FGMR - Firm Gas Market Rate ($/DT) $6.01 $6.35 $6.71 $7.09 $7.49 $7.92 $8.38
IGR - Interruptible Gas Rate ($/DT) $6.20 $6.56 $6.93 $7.33 $7.75 $8.19 $8.67
OR - Oil Rate ($/DT) $9.14 $9.53 $9.94 $10.37 $10.81 $11.28 $11.77
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year Ended Year Ended
Dec-2020 Dec-2021
-------- --------
<S> <C> <C>
Operating Assumptions:
Capacity in Kilowatts 230,000 230,000
Weighted Average Energy Output- Unit #1 117,950 117,740
Weighted Average Energy Output- Unit #2 117,950 117,740
Firm Dispatch Energy Production 99,000 99,000
Hours Per Year Running Unit #1
(Full Load) 3,685 3,008
Hours Per Year Running Unit #2
(Full Load) 2,123 1,785
Contract Heat Rate (BTU/KWH) 8,461 8,461
Weighted Average Heat Rate - Unit #1
(BTU/KWH) 8,139 8,167
Weighted Average Heat Rate - Unit #2
(BTU/KWH) 8,026 8,002
Actual Annual Energy - Unit #1 (MWH) 434,671 354,213
Actual Annual Energy - Unit #2 (MWH) 250,352 210,123
Annual Fuel Usage - Unit #1 (DT's) 3,537,787 2,892,855
Annual Fuel Usage - Unit #2 (DT's) 2,009,322 1,681,408
Electricity Revenues - Capacity:
Capital Costs/KW Month
(Unadjusted Contract Year) $20.58 $0.00
Capital Costs/KW Year $243.06 $205.80
Capital Costs Per KWH $0.06596 $0.06841
GNP Deflator Adjustment/KW Year $17.41 $14.74
GNP Deflator Adjustment Per KWH $0.00472 $0.00490
Interest Rate Adjustment/KW Year ($1.81) ($1.51)
Interest Rate Adjustment Per KWH ($0.00049) ($0.00050)
Scheduled Adjustment/KW Year $75.87 $66.85
Scheduled Adjustment Per KWH $0.02059 $0.02222
Contingent Adjustment/KW Year $0.00 $0.00
Contingent Adjustment Per KWH $0.00000 $0.00000
Total Capacity Rate/KW Year $334.52 $285.87
Total Capacity Rate/KW Month $27.88 $23.82
Total Capacity Rate Per KWH $0.09077 $0.09502
Electricity Revenues - Energy:
Energy Rate Per KWH (Weighted Average) $0.07528 $0.07880
Variable O&M Rate Per KWH $0.00745 $0.00771
Total Energy Rate Per KWH $0.08274 $0.08651
Total Electricity Revenues -
Capacity & Energy $0.1735 $0.1815
Distilled Water Revenues:
Water Delivery (Days/Year) 250 208
Daily Distilled Water Sales Volume (Gal) 80,000 80,000
Distilled Water Sales Price ($/000 Gal) $1.50 $1.50
Contract Fuel Rates (Energy Revenue):
FGRR - Firm Gas Reserve Rate ($/DT) $5.27 $5.37
FGMR - Firm Gas Market Rate ($/DT) $8.86 $9.37
IGR - Interruptible Gas Rate ($/DT) $9.17 $9.70
OR - Oil Rate ($/DT) $12.27 $12.80
</TABLE>
<PAGE>
Panda-Brandywine L.P.
230MW PEPCO Project
Operating Assumptions
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
Dec-1996 Dec-1997 Dec-1998 Dec-1999 Dec-2000 Dec-2001 Dec-2002
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Unit #1 - Fuel Cost:
FGRR (Reserves) % 78% 75% 65% 62% 59% 58% 59%
FGMR (Market) % 22% 25% 35% 38% 41% 42% 41%
Blended Unit #1 Rate ($/DT) $2.84 $2.92 $2.97 $3.04 $3.14 $3.37 $3.51
Blended Unit #1 Rate ($/KWH) $0.02256 $0.02353 $0.02397 $0.02463 $0.02553 $0.02723 $0.02855
Unit #2 - Fuel Cost:
IGR (Spot Gas) % 80% 95% 94% 94% 93% 93% 93%
OR (Fuel Oil) % 20% 5% 6% 6% 7% 7% 7%
Blended Unit #2 Rate ($/DT) $3.11 $2.89 $2.96 $3.02 $3.10 $3.23 $3.37
Blended Unit #2 Rate ($/KWH) $0.02444 $0.02296 $0.02363 $0.02421 $0.02489 $0.02592 $0.02715
Water Usage:
Gallons Per Hour - Cooling
Towers & Distilled Water 55,000 55,000 55,000 55,000 55,000 55,000 55,000
Gallons Per Hour -
Boiler Makeup 1,500 1,500 1,500 1,500 1,500 1,500 1,500
Charles County Waste
Water Rate 0.00% $2.00 $2.00 $2.00 $2.00 $2.00 $2.00 $2.00
WSSC Water Usage Rate
($/000 Gallons) 2.00% $3.26 $3.32 $3.39 $3.46 $3.53 $3.60 $3.67
Water Discharge & Chemical Usage:
Gallons Per Hour - Cooling
Towers & Distilled Water 16,000 16,000 16,000 16,000 16,000 16,000 16,000
Gallons Per Hour - Boiler Makeup 120 120 120 120 120 120 120
WSSC Water Discharge Rate
($/000 Gallons) 2.00% $5.12 $5.22 $5.32 $5.43 $5.54 $5.65 $5.76
Chemical Usage Rate
($/000 Gallons) 3.00% $0.68 $0.70 $0.72 $0.74 $0.76 $0.79 $0.81
Distilled Water Costs:
Annual Operating Costs 3.50% $33,333 $200,000 $207,000 $214,245 $221,744 $229,505 $237,537
Fixed Operating Expenses:
Firm Transportation $420,603 $2,561,473 $2,599,895 $2,638,893 $2,678,477 $2,718,654 $2,759,434
O&M Contract Costs 3.50% $245,500 $1,473,000 $1,524,555 $1,577,914 $1,633,141 $1,690,301 $1,749,462
Consumables 3.50% $125,000 $750,000 $776,250 $803,419 $831,538 $860,642 $890,765
Administrative Expenses 3.50% $83,333 $500,000 $517,500 $535,613 $554,359 $573,762 $593,843
Insurance 3.00% $83,333 $500,000 $515,000 $530,450 $546,364 $562,754 $579,637
Purchased Electricity 3.00% $68,609 $411,652 $424,002 $436,722 $449,823 $463,318 $477,218
Property Taxes 3.00% $400,000 $2,620,510 $2,483,407 $2,339,772 $2,189,399 $2,032,074 $1,867,581
Turbine Overhaul Reserve:
Overhaul Reserve -
Beginning of Year
($5,000,000 Required Balance) $1,000,000 $1,250,000 $1,750,000 $2,750,000 $4,250,000 $5,000,000 $5,175,000
Additions to Reserve
($0 Per Turbine Hour) $250,000 $1,196,000 $1,668,610 $2,245,573 $1,466,232 $3,215,936 $1,542,214
Turbine Overhauls
(100.00% of Contract Amount) $0 ($696,000) ($668,610) ($745,573) ($716,232) ($3,040,936) ($1,361,089)
Reserve Disbursement $0 $0 $0 $0 $0 $0 $0
Overhaul Reserve - End of Year $1,250,000 $1,750,000 $2,750,000 $4,250,000 $5,000,000 $5,175,000 $5,356,125
Lease Reserve:
Lease Reserve - Beginning
of Year $2,400,000 $3,467,325 $4,899,375 $9,106,775 $9,804,575 $13,352,725 $13,795,100
Additions to Reserve $1,067,325 $1,432,050 $4,207,400 $697,800 $3,548,150 $442,375 $275,050
Reserve Disbursement $0 $0 $0 $0 $0 $0 $0
Lease Reserve - End of Year $3,467,325 $4,899,375 $9,106,775 $9,804,575 $13,352,725 $13,795,100 $14,070,150
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
Dec-2003 Dec-2004 Dec-2005 Dec-2006 Dec-2007 Dec-2008 Dec-2009
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Unit #1 - Fuel Cost:
FGRR (Reserves) % 59% 60% 58% 58% 59% 60% 61%
FGMR (Market) % 41% 40% 42% 42% 41% 40% 39%
Blended Unit #1 Rate ($/DT) $3.62 $3.73 $3.83 $3.98 $4.14 $4.31 $4.48
Blended Unit #1 Rate ($/KWH) $0.02956 $0.03060 $0.03124 $0.03206 $0.03349 $0.03501 $0.03650
Unit #2 - Fuel Cost:
IGR (Spot Gas) % 93% 93% 93% 92% 92% 92% 93%
OR (Fuel Oil) % 7% 7% 7% 8% 8% 8% 7%
Blended Unit #2 Rate ($/DT) $3.52 $3.68 $3.86 $4.13 $4.40 $4.69 $4.98
Blended Unit #2 Rate ($/KWH) $0.02846 $0.02983 $0.03138 $0.03318 $0.03520 $0.03747 $0.03997
Water Usage:
Gallons / Hour - Cooling
Towers & Dst. Water 55,000 55,000 55,000 55,000 55,000 55,000 55,000
Gallons Per Hour - Boiler Makeup 1,500 1,500 1,500 1,500 1,500 1,500 1,500
Charles Cty Waste Water Rate
($/000 Gallons) $2.00 $2.00 $2.00 $2.00 $2.00 $2.00 $2.00
WSSC Water Usage Rate
($/000 Gallons) $3.74 $3.82 $3.89 $3.97 $4.05 $4.13 $4.21
Water Discharge & Chemical Usage:
Gallons / Hour-Cooling Towers
& Dst. Water 16,000 16,000 16,000 16,000 16,000 16,000 16,000
Gallons Per Hour - Boiler Makeup 120 120 120 120 120 120 120
WSSC Water Discharge Rate
($/000 Gallons) $5.88 $5.99 $6.11 $6.24 $6.36 $6.49 $6.62
Chemical Usage Rate
($/000 Gallons) $0.84 $0.86 $0.89 $0.91 $0.94 $0.97 $1.60
Distilled Water Costs:
Annual Operating Costs $245,851 $254,456 $263,362 $272,579 $282,120 $291,994 $302,214
Fixed Operating Expenses:
Firm Transportation $2,800,825 $2,842,837 $2,885,480 $2,928,762 $2,972,694 $3,017,284 $3,062,543
O&M Contract Costs $1,810,693 $1,874,067 $1,939,660 $2,007,548 $2,077,812 $2,150,535 $2,225,804
Consumables $921,941 $954,209 $987,607 $1,022,173 $1,057,949 $1,094,977 $1,133,301
Administrative Expenses $614,628 $636,140 $658,405 $681,449 $705,299 $729,985 $755,534
Insurance $597,026 $614,937 $633,385 $652,387 $671,958 $692,117 $712,880
Purchased Electricity $491,534 $506,280 $521,469 $537,113 $553,226 $569,823 $586,918
Property Taxes $1,695,695 $1,599,555 $1,583,926 $1,567,032 $1,532,315 $1,512,427 $1,491,130
Turbine Overhaul Reserve:
Overhaul Reserve -
Beginning of Year $5,356,125 $5,543,589 $5,737,615 $5,938,432 $6,146,277 $6,361,396 $6,584,045
Additions to Reserve $981,563 $1,079,532 $3,654,807 $3,850,870 $1,126,366 $1,895,774 $1,206,592
Turbine Overhauls ($794,099) ($885,506) ($3,453,990) ($3,643,025) ($911,247) ($1,673,125) ($976,150
Reserve Disbursement $0 $0 $0 $0 $0 $0 $0
Overhaul Reserve -
End of Year $5,543,589 $5,737,615 $5,938,432 $6,146,277 $6,361,396 $6,584,045 $6,814,487
Lease Reserve:
Lease Reserve - Beginning
of Year $14,070,150 $14,171,650 $14,336,225 $14,314,750 $14,767,225 $15,358,800 $15,814,175
Additions to Reserve $101,500 $164,575 $0 $452,475 $591,575 $455,375 $1,180,325
Reserve Disbursement $0 $0 ($21,475) $0 $0 $0 $0
Lease Reserve - End of Year $14,171,650 $14,336,225 $14,314,750 $14,767,225 $15,358,800 $15,814,175 $16,994,500
</TABLE>
<PAGE>
<TABLE>
<PAGE>
year Ended year Ended Year Ended
Dec-2010 Dec-2011 Dec-2012
-------- -------- --------
<S> <C> <C> <C>
Unit #1 - Fuel Cost:
FGRR (Reserves) 61% 26% 0%
FGMR (Market) % 39% 74% 100%
Blended Unit #1 Rate ($/DT) $4.65 $5.16 $5.72
Blended Unit #1 Rate ($/KWH) $0.03776 $0.04203 $0.04679
Unit #2 - Fuel Cost:
IGR (Spot Gas) 93% 93% 93%
OR (Fuel Oil) % 7% 7% 7%
Blended Unit #2 Rate ($/DT) $5.30 $5.59 $5.90
Blended Unit #2 Rate ($/KWH) $0.04262 $0.04483 $0.04746
Water Usage:
Gallons / Hour - Cooling
Towers & Dst. Water 55,000 55,000 55,000
Gallons Per Hour - Boiler Makeup 1,500 1,500 1,500
Charles Cty Waste Water Rate
($/000 Gallons $2.00 $2.00 $2.00
WSSC Water Usage Rate
($/000 Gallons) $4.30 $4.38 $4.47
Water Discharge & Chemical Usage:
Gallons / Hour-Cooling Towers
& Dst. 16,000 16,000 16,000
Gallons Per Hour - Boiler Makeup 120 120 120
WSSC Water Discharge Rate
($/000 Gallons $6.75 $6.88 $7.02
Chemical Usage Rate
($/000 Gallons $1.03 $1.06 $1.09
Distilled Water Costs:
Annual Operating Costs $312,791 $323,739 $335,070
Fixed Operating Expenses:
Firm Transportation $3,108,481 $3,155,109 $3,202,435
O&M Contract Costs $2,303,707 $2,384,337 $2,467,789
Consumables $1,172,967 $1,214,021 $1,256,512
Administrative Expenses $ 720,299 $729,985 $755,534
Insurance $734,267 $756,295 $778,984
Purchased Electricity $604,525 $622,661 $641,341
Property Taxes $1,468,376 $1,444,116 $1,418,298
Turbine Overhaul Reserve:
Overhaul Reserve -
Beginning of Year $6,814,487 $7,052,994 $7,299,849
Additions to Reserve $2,855,006 $2,873,996 $1,421,537
Turbine Overhauls ($2,616,498) ($2,627,141) ($1,166,043)
Reserve Disbursement $0 $0 $0
Overhaul Reserve -
End of Year $7,052,994 $7,299,849 $7,555,343
Lease Reserve:
Lease Reserve - Beginning
of Year $16,994,500 $17,832,475 $20,968,650
Additions to Reserve $837,975 $3,136,175 $964,575
Reserve Disbursement $0 $0 $0
Lease Reserve - End of Year $17,832,475 $20,968,650 $21,933,225
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
Dec-2010 Dec-2011 Dec-2012
-------- -------- --------
<S> <C> <C> <C>
Unit #1 - Fuel Cost:
FGRR (Reserves) % 61% 26% 0%
FGMR (Market) % 39% 74% 100%
Blended Unit #1 Rate ($/DT) $4.65 $5.16 $5.72
Blended Unit #1 Rate ($/KWH) $0.03776 $0.04203 $0.04679
Unit #2 - Fuel Cost:
IGR (Spot Gas) % 93% 93% 93%
OR (Fuel Oil) % 7% 7% 7%
Blended Unit #2 Rate ($/DT) $5.30 $5.59 $5.90
Blended Unit #2 Rate ($/KWH) $0.04262 $0.04483 $0.04746
Water Usage:
Gallons / Hour - Cooling
Towers & Dst. Water 55,000 55,000 55,000
Gallons Per Hour - Boiler Makeup 1,500 1,500 1,500
Charles Cty Waste Water Rate
($/000 Gallons) $2.00 $2.00 $2.00
WSSC Water Usage Rate
($/000 Gallons) $4.30 $4.38 $4.47
Water Discharge & Chemical Usage:
Gallons / Hour-Cooling Towers
& Dst. Water 16,000 16,000 16,000
Gallons Per Hour - Boiler Makeup 120 120 120
WSSC Water Discharge Rate
($/000 Gallons) $6.75 $6.88 $7.02
Chemical Usage Rate
($/000 Gallons) $1.03 $1.06 $1.09
Distilled Water Costs:
Annual Operating Costs $312,791 $323,739 $335,070
Fixed Operating Expenses:
Firm Transportation $3,108,481 $3,155,109 $3,202,435
O&M Contract Costs $2,303,707 $2,384,337 $2,467,789
Consumables $1,172,967 $1,214,021 $1,256,512
Administrative Expenses $781,978 $809,347 $837,674
Insurance $734,267 $756,295 $778,984
Purchased Electricity $604,525 $622,661 $641,341
Property Taxes $1,468,376 $1,444,116 $1,418,298
Turbine Overhaul Reserve:
Overhaul Reserve -
Beginning of Year $6,814,487 $7,052,994 $7,299,849
Additions to Reserve $2,855,006 $2,873,996 $1,421,537
Turbine Overhauls ($2,616,498) ($2,627,141) ($1,166,043)
Reserve Disbursement $0 $0 $0
Overhaul Reserve -
End of Year $7,052,994 $7,299,849 $7,555,343
Lease Reserve:
Lease Reserve - Beginning
of Year $16,994,500 $17,832,475 $20,968,650
Additions to Reserve $837,975 $3,136,175 $964,575
Reserve Disbursement $0 $0 $0
Lease Reserve - End of Year $17,832,475 $20,968,650 $21,933,225
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
Dec-2013 Dec-2014 Dec-2015 Dec-2016 Dec-2017 Dec-2018 Dec-2019
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Unit #1 - Fuel Cost:
FGRR (Reserves) % 0% 0% 0% 0% 0% 0% 0%
FGMR (Market) % 100% 100% 100% 100% 100% 100% 100%
Blended Unit #1 Rate ($/DT) $6.05 $6.39 $6.76 $7.15 $7.56 $7.99 $8.45
Blended Unit #1 Rate ($/KWH) $0.04969 $0.05202 $0.05443 $0.05777 $0.06133 $0.06511 $0.06839
Unit #2 - Fuel Cost:
IGR (Spot Gas) % 93% 94% 94% 94% 93% 93% 93%
OR (Fuel Oil) % 7% 6% 6% 6% 7% 7% 7%
Blended Unit #2 Rate ($/DT) $6.22 $6.56 $6.91 $7.30 $7.71 $8.15 $8.61
Blended Unit #2 Rate ($/KWH) $0.05017 $0.05303 $0.05605 $0.05848 $0.06146 $0.06510 $0.06897
Water Usage:
Gallons Per Hour - Cooling Towers
& Distilled Water 55,000 55,000 55,000 55,000 55,000 55,000 55,000
Gallons Per Hour - Boiler Makeup 1,500 1,500 1,500 1,500 1,500 1,500 1,500
Charles County Waste Water Rate
($/000 Gallons) $2.00 $2.00 $2.00 $2.00 $2.00 $2.00 $2.00
WSSC Water Usage Rate
($/000 Gallons) $4.56 $4.65 $4.75 $4.84 $4.94 $5.04 $5.14
Water Discharge & Chemical Usage:
Gallons Per Hour - Cooling Towers
& Distilled Water 16,000 16,000 16,000 16,000 16,000 16,000 16,000
Gallons Per Hour - Boiler Makeup 120 120 120 120 120 120 120
WSSC Water Discharge Rate
($/000 Gallons) $7.16 $7.31 $7.45 $7.60 $7.75 $7.91 $8.07
Chemical Usage Rate
($/000 Gallons) $1.12 $1.16 $1.19 $1.23 $1.26 $1.30 $1.34
Distilled Water Costs:
Annual Operating Costs $346,797 $358,935 $371,498 $384,500 $397,958 $411,886 $426,302
Fixed Operating Expenses:
Firm Transportation $3,250,472 $3,299,229 $3,348,717 $3,398,948 $3,449,932 $3,501,681 $3,554,207
O&M Contract Costs $2,554,161 $2,643,557 $2,736,082 $2,831,844 $2,930,959 $3,033,543 $3,139,717
Consumables $1,300,490 $1,346,007 $1,393,117 $1,441,876 $1,492,342 $1,544,574 $1,598,634
Administrative Expenses $866,993 $897,338 $928,745 $961,251 $994,894 $1,029,716 $1,065,756
Insurance $802,353 $826,424 $851,217 $876,753 $903,056 $930,147 $958,052
Purchased Electricity $660,581 $680,398 $700,810 $721,835 $743,490 $765,794 $788,768
Property Taxes $1,390,870 $1,361,777 $1,330,965 $1,298,375 $1,263,949 $1,227,626 $1,189,346
Turbine Overhaul Reserve:
Overhaul Reserve - Beginning
of Year $7,555,343 $7,819,780 $8,093,473 $8,376,744 $8,669,930 $8,973,378 $9,287,446
Additions to Reserve $1,384,592 $5,878,464 $1,483,210 $5,432,032 $1,588,851 $1,747,433 $4,850,260
Turbine Overhauls ($1,120,155) ($5,604,772) ($1,199,938) ($5,138,846) ($1,285,404) ($1,433,364) ($4,525,199)
Reserve Disbursement $0 $0 $0 $0 $0 $0 $0
Overhaul Reserve - End of Year $7,819,780 $8,093,473 $8,376,744 $8,669,930 $8,973,378 $9,287,446 $9,612,507
Lease Reserve:
Lease Reserve - Beginning
of Year $21,933,225 $22,787,025 $22,700,625 $21,070,175 $7,538,638 $7,538,638 $7,538,638
Additions to Reserve $853,800 $0 $0 $0 $0 $0 $0
Reserve Disbursement $0 ($86,400) ($1,630,450)($13,531,537) $0 $0 $0
Lease Reserve - End of Year $22,787,025 $22,700,625 $21,070,175 $7,538,638 $7,538,638 $7,538,638 $7,538,638
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year Ended Year Ended
Dec-2020 Dec-2021
-------- --------
<S> <C> <C>
Unit #1 - Fuel Cost:
FGRR (Reserves) % 0% 0%
FGMR (Market) % 100% 100%
Blended Unit #1 Rate ($/DT) $8.94 $9.46
Blended Unit #1 Rate ($/KWH) $0.07278 $0.07728
Unit #2 - Fuel Cost:
IGR (Spot Gas) % 93% 94%
OR (Fuel Oil) % 7% 6%
Blended Unit #2 Rate ($/DT) $9.10 $9.57
Blended Unit #2 Rate ($/KWH) $0.07307 $0.07656
Water Usage:
Gallons Per Hour - Cooling Towers
& Distilled Water 55,000 55,000
Gallons Per Hour - Boiler Makeup 1,500 1,500
Charles County Waste Water Rate
($/000 Gallons) $2.00 $2.00
WSSC Water Usage Rate
($/000 Gallons) $5.24 $5.34
Water Discharge & Chemical Usage:
Gallons Per Hour - Cooling Towers
& Distilled Water 16,000 16,000
Gallons Per Hour - Boiler Makeup 120 120
WSSC Water Discharge Rate
($/000 Gallons) $8.23 $8.39
Chemical Usage Rate
($/000 Gallons) $1.38 $1.42
Distilled Water Costs:
Annual Operating Costs $441,223 $380,555
Fixed Operating Expenses:
Firm Transportation $3,607,520 $3,051,360
O&M Contract Costs $3,249,607 $2,802,786
Consumables $1,654,586 $1,427,080
Administrative Expenses $1,103,057 $951,387
Insurance $986,793 $846,998
Purchased Electricity $812,431 $697,337
Property Taxes $1,149,042 $2,140,362
Turbine Overhaul Reserve:
Overhaul Reserve - Beginning
of Year $9,612,507 $9,948,944
Additions to Reserve $1,871,893 $4,054,055
Turbine Overhauls ($1,535,456) ($3,705,842)
Reserve Disbursement $0 $0
Overhaul Reserve - End of Year $9,948,944 $10,297,157
Lease Reserve:
Lease Reserve - Beginning
of Year $7,538,638 $7,538,638
Additions to Reserve $0 $0
Reserve Disbursement $0 ($7,538,638)
Lease Reserve - End of Year $7,538,638 $0
</TABLE>
<PAGE>
Panda-Brandywine L.P.
230MW PEPCO Project
Lease Payments and Capacity Adjustments
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
Dec-1995 Dec-1996 Dec-1997 Dec-1998 Dec-1999 Dec-2000
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Lease Payments: Average Pymt
GECC Base Case (1997 PEPCO Peak) 31,054,050 7,637,000 10,742,000 19,049,000 20,548,000 27,630,000
GECC Case #2 (1998 PEPCO Peak) 31,054,050 7,637,000 10,742,000 19,049,000 20,548,000 27,630,000
GECC Case #3 (1999 PEPCO Peak) 31,054,050 7,637,000 10,742,000 19,049,000 20,548,000 27,630,000
GECC T-Bill Adj.
(100 bp increase) (A) 32,836,600 8,646,000 12,108,000 20,591,000 22,128,000 29,350,000
GECC T-Bill Adj.
(100 bp decrease) (B) 29,418,600 6,360,000 9,027,000 17,530,000 18,841,000 25,949,000
GECC Base Case Annual
Lease Payment Pre-Tax Yield 10.20% 215,000,000 7,637,000 10,742,000 19,049,000 20,548,000 27,630,000
Lease Payment
Adjustment (per 100
basis pts) Base Rate 7.38% 13.21% 12.72% 8.09% 7.69% 6.23%
Interest Adjustment
(14.9 Yr T-Bill Rate) Current Rate 6.83% (702,350) (943,250) (835,450) (938,850) (924,550)
GECC Base Case Annual
Lease Payment Pre-Tax Yield 9.78% 215,000,000 6,934,650 9,798,750 18,213,550 19,609,150 26,705,450
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year Ended Year Ended
Dec-2001 Dec-2002
-------- --------
<S> <C> <C>
Lease Payments:
GECC Base Case (1997 PEPCO Peak) 28,611,000 29,050,000
GECC Case #2 (1998 PEPCO Peak) 28,611,000 29,050,000
GECC Case #3 (1999 PEPCO Peak) 28,611,000 29,050,000
GECC T-Bill Adj.
(100 bp increase) (A) 30,314,000 30,883,000
GECC T-Bill Adj.
(100 bp decrease) (B) 26,755,000 27,396,000
GECC Base Case Annual
Lease Payment 28,611,000 29,050,000
Lease Payment
Adjustment (per 100
basis pts) 5.95% 6.31%
Interest Adjustment
(14.9 Yr T-Bill Rate) (1,020,800) (909,700)
GECC Base Case Annual
Lease Payment 27,590,200 28,140,300
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
Dec-2003 Dec-2004 Dec-2005 Dec-2006 Dec-2007 Dec-2008
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Lease Payments:
GECC Base Case (1997 PEPCO Peak) 29,275,000 29,619,000 29,592,000 30,503,000 31,690,000 32,609,000
GECC Case #2 (1998 PEPCO Peak) 29,275,000 29,619,000 29,592,000 30,503,000 31,690,000 32,609,000
GECC Case #3 (1999 PEPCO Peak) 29,275,000 29,619,000 29,592,000 30,503,000 31,690,000 32,609,000
GECC T-Bill Adj. (100 bp increase) (A) 31,035,000 31,417,000 31,409,000 32,350,000 33,574,000 34,510,000
GECC T-Bill Adj. (100 bp decrease) (B) 27,581,000 27,898,000 27,842,000 28,742,000 29,922,000 30,826,000
GECC Base Case Annual Lease Payment 29,275,000 29,619,000 29,592,000 30,503,000 31,690,000 32,609,000
Lease Payment Adjustment (per 100 basis pts) 6.01% 6.07% 6.14% 6.06% 5.95% 5.83%
Interest Adjustment (14.9 Yr T-Bill Rate) (931,700) (946,550) (962,500) (968,550) (972,400) (980,650)
GECC Base Case Annual Lease Payment 28,343,300 28,672,450 28,629,500 29,534,450 30,717,600 31,628,350
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Year Ended
Dec-2009 Dec-2010 Dec-2011 Dec-2012
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Lease Payments:
GECC Base Case (1997 PEPCO Peak) 34,979,000 36,639,000 42,902,000 44,813,000
GECC Case #2 (1998 PEPCO Peak) 34,979,000 36,639,000 42,902,000 44,813,000
GECC Case #3 (1999 PEPCO Peak) 34,979,000 36,639,000 42,902,000 44,813,000
GECC T-Bill Adj. (100 bp increase) (A) 36,942,000 38,631,000 45,009,000 46,955,000
GECC T-Bill Adj. (100 bp decrease) (B) 33,179,000 34,868,000 41,148,000 43,092,000
GECC Base Case Annual Lease Payment 34,979,000 36,639,000 42,902,000 44,813,000
Lease Payment Adjustment (per 100 basis pts) 5.61% 5.44% 4.91% 4.78%
Interest Adjustment (14.9 Yr T-Bill Rate) (990,000) (974,050) (964,700) (946,550)
GECC Base Case Annual Lease Payment 33,989,000 35,664,950 41,937,300 43,866,450
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
Dec-2013 Dec-2014 Dec-2015 Dec-2016 Dec-2017 Dec-2018 Dec-2019 Dec-2020
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Lease Payments:
GECC Base Case (1997 PEPCO Peak) 46,514,000 46,339,000 42,340,000 15,527,025 15,527,025 15,527,025 15,527,025 15,527,025
GECC Case #2 (1998 PEPCO Peak) 46,514,000 46,339,000 42,340,000 15,527,025 15,527,025 15,527,025 15,527,025 15,527,025
GECC Case #3 (1999 PEPCO Peak) 46,514,000 46,339,000 42,340,000 15,527,025 15,527,025 15,527,025 15,527,025 15,527,025
GECC T-Bill Adj.
(100 bp increase) (A) 48,688,000 48,501,000 43,691,000 16,418,300 16,418,300 16,418,300 16,418,300 16,418,300
GECC T-Bill Adj.
(100 bp decrease) (B) 44,805,000 44,634,000 41,977,000 14,709,300 14,709,300 14,709,300 14,709,300 14,709,300
GECC Base Case Annual
Lease Payment 46,514,000 46,339,000 42,340,000 15,527,025 15,527,025 15,527,025 15,527,025 15,527,025
Lease Payment Adjustment
(per 100 basis pts) 4.67% 4.67% 3.19% 5.74% 5.74% 5.74% 5.74% 5.74%
Interest Adjustment
(14.9 Yr T-Bill Rate) (939,950) (937,750) (199,650) (449,749) (449,749) (449,749) (449,749) (449,749
GECC Base Case Annual
Lease Payment 45,574,050 45,401,250 42,140,350 15,077,276 15,077,276 15,077,276 15,077,276 15,077,276
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Calendar Year Lease Payments: 1996 1997 1998 1999 2000 2001 2002
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
1st Quarter Lease Payment (Jan 31st) 0 1,733,663 2,449,688 4,553,388 4,902,288 6,676,363 6,897,550
2nd Quarter Lease Payment (April 30th) 0 1,733,663 2,449,688 4,553,388 4,902,288 6,676,363 6,897,550
3rd Quarter Lease Payment (July 31st) 0 1,733,663 2,449,688 4,553,388 4,902,288 6,676,363 6,897,550
4th Quarter Lease Payment (October 31st) 0 1,733,663 2,449,688 4,553,388 4,902,288 6,676,363 6,897,550
- --------- --------- --------- --------- --------- ---------
Total Annual Lease Pymts (Calendar Years) 0 6,934,650 9,798,750 18,213,550 19,609,150 26,705,450 27,590,200
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Calendar Year Lease Payments: 2003 2004 2005 2006 2007 2008 2009
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
1st Quarter Lease Payment (Jan 31st) 7,035,075 7,085,825 7,168,113 7,157,375 7,383,613 7,679,400 7,907,088
2nd Quarter Lease Payment (April 30th) 7,035,075 7,085,825 7,168,113 7,157,375 7,383,613 7,679,400 7,907,088
3rd Quarter Lease Payment (July 31st) 7,035,075 7,085,825 7,168,113 7,157,375 7,383,613 7,679,400 7,907,088
4th Quarter Lease Payment (October 31st) 7,035,075 7,085,825 7,168,113 7,157,375 7,383,613 7,679,400 7,907,088
--------- --------- --------- --------- --------- --------- ---------
Total Annual Lease Pymts (Calendar Years) 28,140,300 28,343,300 28,672,450 28,629,500 29,534,450 30,717,600 31,628,350
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Calendar Year Lease Payments: 2010 2011 2012 2013 2014 2015
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
1st Quarter Lease Payment (Jan 31st) 8,497,250 8,916,238 10,484,325 10,966,613 11,393,513 11,350,313
2nd Quarter Lease Payment (April 30th) 8,497,250 8,916,238 10,484,325 10,966,613 11,393,513 11,350,313
3rd Quarter Lease Payment (July 31st) 8,497,250 8,916,238 10,484,325 10,966,613 11,393,513 11,350,313
4th Quarter Lease Payment (October 31st) 8,497,250 8,916,238 10,484,325 10,966,613 11,393,513 11,350,313
--------- --------- ---------- ---------- ---------- ----------
Total Annual Lease Pymts (Calendar Years) 33,989,000 35,664,950 41,937,300 43,866,450 45,574,050 45,401,250
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Calendar Year Lease Payments: 2016 2017 2018 2019 2020 2021
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
1st Quarter Lease Payment (Jan 31st) 10,535,088 3,769,319 3,769,319 3,769,319 3,769,319 3,769,319
2nd Quarter Lease Payment (April 30th) 10,535,088 3,769,319 3,769,319 3,769,319 3,769,319 3,769,319
3rd Quarter Lease Payment (July 31st) 10,535,088 3,769,319 3,769,319 3,769,319 3,769,319 3,769,319
4th Quarter Lease Payment (October 31st) 10,535,088 3,769,319 3,769,319 3,769,319 3,769,319 3,769,319
---------- --------- --------- --------- --------- ---------
Total Annual Lease Pymts (Calendar Years) 42,140,350 15,077,276 15,077,276 15,077,276 15,077,276 15,077,276
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Year Ended Year Ended
Capacity Adjustments - Amendment #1: Dec-1996 Dec-1997 Dec-1998 Dec-1999 Dec-2000
- ------------------------------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Scheduled Adjustment:
Calendar Year Adj (Appendix Q - Column 2) (6,633,906) (15,000,000) (16,000,000) 0 (1,000,000)
Contract Year Adj (Appendix Q - Column 4) 0 0 0 0 0
- - - - -
Net Calendar Year Adjustment (6,633,906) (15,000,000) (16,000,000) 0 (1,000,000)
Contingent Adjustment Peak Yr
Levelized Adjustment - Contract Yr 1997 CPWIRR 11,571,429 0 0 0 0 0
Maximum Adjustment Cap - Contract Yr TC 21,600,000 0 0 0 0 0
Unrecovered Amount - Contract Yr PC 0 0 0 0 0 0
Carry Over Adjustment - Contract Yr 0 0 0 0 0
Contingent Adjustment - Contract Yr PV/Uncov 0 0 0 0 0 0
- - - - - -
Net Calendar Year Adjustment 0 0 0 0 0
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year Ended Year Ended
Capacity Adjustments - Amendment #1: Dec-2001 Dec-2002
- ------------------------------------ -------- --------
<S> <C> <C>
Scheduled Adjustment:
Calendar Year Adj (Appendix Q - Column 2) 2,000,000 0
Contract Year Adj (Appendix Q - Column 4) 0 0
Net Calendar Year Adjustment 2,000,000 0
Contingent Adjustment
Levelized Adjustment - Contract Yr 0 0
Maximum Adjustment Cap - Contract Yr 0 0
Unrecovered Amount - Contract Yr 0 0
Carry Over Adjustment - Contract Yr 0 0
Contingent Adjustment - Contract Yr 0 0
Net Calendar Year Adjustment 0 0
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
Capacity Adjustments - Amendment #1: Dec-2003 Dec-2004 Dec-2005 Dec-2006 Dec-2007 Dec-2008 Dec-2009 Dec-2010
- ------------------------------------ -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Scheduled Adjustment:
Calendar Year Adj (Appendix Q - Column 2) 0 0 0 0 0 0 0 0
Contract Year Adj (Appendix Q - Column 4) 0 0 0 1,650,000 2,850,000 4,050,000 5,250,000 6,450,000
Net Calendar Year Adjustment 0 0 0 275,000 1,850,000 3,050,000 4,250,000 5,450,000
Contingent Adjustment:
Levelized Adjustment - Contract Yr 0 0 0 0 0 0 0 0
Maximum Adjustment Cap - Contract Yr 0 0 0 0 0 0 0 0
Unrecovered Amount - Contract Yr 0 0 0 0 0 0 0 0
Carry Over Adjustment - Contract Yr 0 0 0 0 0 0 0 0
Contingent Adjustment - Contract Yr 0 0 0 0 0 0 0 0
Net Calendar Year Adjustment 0 0 0 0 0 0 0 0
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year Ended Year Ended
Capacity Adjustments - Amendment #1: Dec-2011 Dec-2012
- ------------------------------------ -------- --------
<S> <C> <C>
Scheduled Adjustment:
Calendar Year Adj (Appendix Q - Column 2) 0 0
Contract Year Adj (Appendix Q - Column 4) 7,650,000 8,850,000
Net Calendar Year Adjustment 6,650,000 7,850,000
Contingent Adjustment:
Levelized Adjustment - Contract Yr 0 0
Maximum Adjustment Cap - Contract Yr 0 0
Unrecovered Amount - Contract Yr 0 0
Carry Over Adjustment - Contract Yr 0 0
Contingent Adjustment - Contract Yr 0 0
Net Calendar Year Adjustment 0 0
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
Capacity Adjustments - Amendment #1: Dec-2013 Dec-2014 Dec-2015 Dec-2016 Dec-2017 Dec-2018 Dec-2019
- ------------------------------------ -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Scheduled Adjustment:
Calendar Year Adj (Appendix Q - Column 2) 0 0 0 0 0 0 0
Contract Year Adj (Appendix Q - Column 4) 10,050,000 11,250,000 12,450,000 13,650,000 14,850,000 16,050,000 17,250,000
Net Calendar Year Adjustment 9,050,000 10,250,000 11,450,000 12,650,000 13,850,000 15,050,000 16,250,000
Contingent Adjustment:
Levelized Adjustment - Contract Yr 0 0 0 0 0 0 0
Maximum Adjustment Cap - Contract Yr 0 0 0 0 0 0 0
Unrecovered Amount - Contract Yr 0 0 0 0 0 0 0
Carry Over Adjustment - Contract Yr 0 0 0 0 0 0 0
Contingent Adjustment - Contract Yr 0 0 0 0 0 0 0
Net Calendar Year Adjustment 0 0 0 0 0 0 0
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year Ended Year Ended
Capacity Adjustments - Amendment #1: Dec-2020 Dec-2021
- ------------------------------------ -------- --------
<S> <C> <C>
Scheduled Adjustment:
Calendar Year Adj (Appendix Q - Column 2) 0 0
Contract Year Adj (Appendix Q - Column 4) 18,450,000 0
Net Calendar Year Adjustment 17,450,000 15,375,000
Contingent Adjustment:
Levelized Adjustment - Contract Yr 0 0
Maximum Adjustment Cap - Contract Yr 0 0
Unrecovered Amount - Contract Yr 0 0
Carry Over Adjustment - Contract Yr 0 0
Contingent Adjustment - Contract Yr 0 0
Net Calendar Year Adjustment 0 0
</TABLE>
<PAGE>
Panda-Brandywine L.P.
230MW PEPCO Project
Gas Supply Income Statement
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
Dec-1996 Dec-1997 Dec-1998 Dec-1999 Dec-2000 Dec-2001 Dec-2002
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
FGRR (Unit #1) 1,443,217 8,017,460 8,346,535 8,675,610 9,034,600 9,393,591 9,752,582
FGMR (Unit #1) 342,036 2,144,352 3,550,871 4,157,164 4,883,200 5,741,242 5,891,987
IGR (Unit #2) 977,048 5,610,397 7,311,509 8,605,254 9,962,288 9,728,765 9,246,406
OR (Unit #2) 383,413 503,422 788,094 1,040,216 1,321,706 1,274,735 1,193,623
Firm Transportation Demand 420,603 2,561,473 2,599,895 2,638,893 2,678,477 2,718,654 2,759,434
3,566,316 18,837,104 22,596,903 25,117,136 27,880,271 28,856,987 28,844,031
Fuel Costs:
Firm Gas-Reserves(Unit #1) 1,117,283 6,289,569 6,553,093 6,831,337 7,125,181 7,362,630 7,711,235
Firm Gas - Market (Unit #1) 300,775 1,803,627 3,065,345 3,581,847 4,132,509 4,436,609 4,598,046
Interruptible Gas (Unit #2) 725,195 4,150,509 5,442,567 6,429,862 7,480,146 7,331,276 7,030,832
Delivered Fuel Oil (Unit #2) 356,314 473,256 743,664 984,892 1,256,097 1,208,896 1,136,065
Firm Transportation - Demand 420,603 2,561,473 2,599,895 2,638,893 2,678,477 2,718,654 2,759,434
Firm Transportation - Commodity 50,446 286,807 333,432 354,994 377,017 381,823 384,103
Firm Transportation - Fuel 47,785 277,891 326,339 353,351 382,020 400,493 418,044
Interruptible Transportation - Commodity 118,986 637,498 836,728 991,682 1,150,747 1,084,434 999,661
Interruptible Transportation - Fuel 23,729 145,740 189,830 223,516 259,327 254,469 244,445
IT Savings From FT Utilization - Commodity (118,986) (637,498) (836,728) (991,682) (1,150,747) (1,084,434) (999,661)
IT Savings From FT Utilization - Fuel (23,729) (145,740) (189,830) (223,516) (259,327) (254,469) (244,445)
Fuel Management Fee - Firm Gas 0 0 0 0 0 0 0
Fuel Management Fee - Interruptible Gas 0 0 0 0 0 0 0
WGL Balancing 2,678 2,740 13,216 16,868 20,709 21,532 21,595
Storage-In-Transit 0 0 0 0 0 0 0
Total Fuel Costs 3,021,079 15,845,872 19,077,551 21,192,044 23,452,156 23,861,913 24,059,354
</TABLE>
Year Ended Year Ended Year Ended
Dec-2003 Dec-2004 Dec-2005
Revenues:
FGRR (Unit #1) 9,961,993 10,171,404 10,350,900
FGMR (Unit #1) 5,985,727 6,077,962 6,921,373
IGR (Unit #2) 9,756,260 10,294,127 11,012,758
OR (Unit #2) 1,272,469 1,355,802 1,564,270
Firm Transportation Demand 2,800,825 2,842,837 2,885,480
29,777,275 30,742,132 32,734,781
Fuel Costs:
Firm Gas-Reserves(Unit #1) 8,053,712 8,412,742 8,703,927
Firm Gas - Market (Unit #1) 4,716,555 4,835,720 5,490,970
Interruptible Gas (Unit #2) 7,491,753 7,982,339 8,612,716
Delivered Fuel Oil (Unit #2) 1,214,719 1,298,436 1,503,260
Firm Transportation - Demand 2,800,825 2,842,837 2,885,480
Firm Transportation - Commodity 383,579 383,149 397,597
Firm Transportation - Fuel 433,330 449,187 481,233
Interruptible Transportation - Commodity 1,029,801 1,060,968 1,104,258
Interruptible Transportation - Fuel 259,582 275,668 297,038
IT Savings From FT Utilization - Commodity(1,029,801) (1,060,968) (1,104,258)
IT Savings From FT Utilization - Fuel (259,582) (275,668) (297,038)
Fuel Management Fee - Firm Gas 0 0 0
Fuel Management Fee - Interruptible Gas 0 0 0
WGL Balancing 21,684 21,780 24,345
Storage-In-Transit 0 0 0
Total Fuel Costs 25,116,157 26,226,190 28,099,529
<PAGE>
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
Dec-2006 Dec-2007 Dec-2008 Dec-2009 Dec-2010 Dec-2011 Dec-2012
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
FGRR (Unit #1) 10,560,311 10,769,722 11,009,049 11,218,461 11,427,872 4,852,276 0
FGMR (Unit #1) 7,375,187 7,573,864 7,805,664 8,050,360 8,574,761 16,665,144 23,559,238
IGR (Unit #2) 11,623,707 11,867,190 12,118,426 12,366,332 12,753,366 13,017,889 13,320,978
OR (Unit #2) 1,734,980 1,705,007 1,678,997 1,647,485 1,645,822 1,599,820 1,560,453
Firm Transportation Demand 2,928,762 2,972,694 3,017,284 3,062,543 3,108,481 3,155,109 3,202,435
34,222,948 34,888,477 35,629,420 36,345,181 37,510,302 39,290,239 41,643,104
Fuel Costs:
Firm Gas - Reserves (Unit #1) 8,924,606 9,320,286 9,732,854 10,163,042 10,522,178 4,568,567 0
Firm Gas - Market (Unit #1) 5,805,077 6,026,694 6,275,816 6,536,904 6,969,248 13,550,687 19,406,924
Interruptible Gas (Unit #2) 9,062,185 9,300,614 9,579,344 9,883,242 10,299,679 10,544,808 10,892,775
Delivered Fuel Oil (Unit #2) 1,646,396 1,611,505 1,586,921 1,561,810 1,564,903 1,516,435 1,484,468
Firm Transportation - Demand 2,928,762 2,972,694 3,017,284 3,062,543 3,108,481 3,155,109 3,202,435
Firm Transportation - Commodity 393,897 391,495 389,984 388,862 389,565 385,375 382,633
Firm Transportation - Fuel 499,529 520,448 542,853 566,252 592,892 613,778 645,162
Interruptible Transportation - Commodity 1,089,220 1,049,387 1,016,244 987,316 970,195 944,700 928,812
Interruptible Transportation - Fuel 311,864 319,707 328,961 339,092 353,114 361,526 373,482
IT Savings From FT Utilization - Commodity(1,089,220) (1,049,387) (1,016,244) (987,316) (970,195) (944,700) (928,812)
IT Savings From FT Utilization - Fuel (311,864) (319,707) (328,961) (339,092) (353,114) (361,526) (373,482)
Fuel Management Fee - Firm Gas 0 0 0 0 0 0 0
Fuel Management Fee - Interruptible Gas 0 0 0 0 0 0 0
WGL Balancing 23,811 22,769 22,052 21,524 21,692 20,265 19,411
Storage-In-Transit 0 0 0 0 0 0 0
Total Fuel Costs 29,284,264 30,166,505 31,147,108 32,184,179 33,468,638 34,355,024 36,033,808
</TABLE>
Year Ended Year Ended Year Ended
Dec-2013 Dec-2014 Dec-2015
Revenues:
FGRR (Unit #1) 0 0 0
FGMR (Unit #1) 24,504,792 25,971,074 26,843,104
IGR (Unit #2) 13,630,192 14,195,335 14,407,781
OR (Unit #2) 1,524,503 1,519,100 1,468,615
Firm Transportation Demand 3,250,472 3,299,229 3,348,717
42,909,958 44,984,738 46,068,217
Fuel Costs:
Firm Gas - Reserves (Unit #1) 0 0 0
Firm Gas - Market (Unit #1) 20,339,719 21,414,415 21,984,360
Interruptible Gas (Unit #2) 11,233,246 11,791,171 12,060,532
Delivered Fuel Oil (Unit #2) 1,453,512 1,451,951 1,407,343
Firm Transportation - Demand 3,250,472 3,299,229 3,348,717
Firm Transportation - Commodity 380,462 380,247 370,772
Firm Transportation - Fuel 676,343 712,213 731,260
Interruptible Transportation - Commodity 912,275 912,622 890,225
Interruptible Transportation - Fuel 385,201 404,399 413,707
IT Savings From FT Utilization - Commodity (912,275) (912,622) (890,225)
IT Savings From FT Utilization - Fuel (385,201) (404,399) (413,707)
Fuel Management Fee - Firm Gas 0 0 0
Fuel Management Fee - Interruptible Gas 0 0 0
WGL Balancing 18,513 18,610 17,225
Storage-In-Transit 0 0 0
Total Fuel Costs 37,352,266 39,067,835 39,920,209
<PAGE>
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Total Contract
Dec-2016 Dec-2017 Dec-2018 Dec-2019 Dec-2020 Dec-2021
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
FGRR (Unit #1) 0 0 0 0 0 0 144,985,582
FGMR (Unit #1) 27,812,826 28,857,807 29,966,410 31,582,358 32,731,962 28,042,023 381,612,487
IGR (Unit #2) 14,840,357 15,307,895 15,786,471 16,514,233 16,988,630 15,139,871 306,383,464
OR (Unit #2) 1,538,967 1,602,309 1,679,248 1,784,041 1,849,369 1,287,931 36,524,398
Firm Transportation Demand 3,398,948 3,449,932 3,501,681 3,554,207 3,607,520 3,051,360 76,815,945
47,591,098 49,217,943 50,933,810 53,434,838 55,177,481 47,521,185 946,321,876
Fuel Costs:
Firm Gas - Reserves (Unit #1) 0 0 0 0 0 0 121,392,244
Firm Gas - Market (Unit #1) 22,942,666 23,975,877 25,063,498 26,305,665 27,500,916 23,646,003 314,706,469
Interruptible Gas (Unit #2) 12,321,760 12,697,314 13,174,183 13,866,194 14,348,793 12,837,308 246,570,344
Delivered Fuel Oil (Unit #2) 1,456,571 1,508,946 1,584,975 1,688,102 1,754,289 1,218,062 34,671,789
Firm Transportation - Demand 3,398,948 3,449,932 3,501,681 3,554,207 3,607,520 3,051,360 76,815,945
Firm Transportation - Commodity 367,445 364,631 361,933 360,679 358,000 294,863 9,293,790
Firm Transportation - Fuel 763,141 797,517 833,705 875,035 914,805 793,646 14,648,250
Interruptible Transportation - Commodity 868,602 854,842 847,029 851,387 841,388 710,795 23,689,799
Interruptible Transportation - Fuel 422,189 434,556 450,385 473,536 489,482 441,264 8,475,810
IT Savings From FT Utilization - Commodity (868,602) (854,842) (847,029) (851,387) (841,388) (710,795) (23,689,799)
IT Savings From FT Utilization - Fuel (422,189) (434,556) (450,385) (473,536) (489,482) (441,264) (8,475,810)
Fuel Management Fee - Firm Gas 0 0 0 0 0 0 0
Fuel Management Fee - Interruptible Gas 0 0 0 0 0 0 0
WGL Balancing 15,267 13,775 12,687 12,294 11,036 11,076 449,153
Storage-In-Transit 0 0 0 0 0 0 0
Total Fuel Costs 41,265,798 42,807,991 44,532,662 46,662,176 48,495,357 41,852,318 818,547,984
</TABLE>
<PAGE>
Panda-Brandywine L.P.
230MW PEPCO Project
Gas Supply Assumptions
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
Dec-1996 Dec-1997 Dec-1998 Dec-1999 Dec-2000 Dec-2001
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Dispatch Hours:
Unit #1
Summer Hours (Jun-Sept) 0 1,297 1,435 1,476 1,516 1,514
Shoulder Hours (Mar-May & Oct-Nov) 338 1,353 1,465 1,618 1,771 1,788
Winter Hours (Dec-Feb) 277 832 1,123 1,155 1,187 1,173
Total Unit #1 Hours 616 3,482 4,024 4,249 4,474 4,475
Unit #2
Summer Hours (Jun-Sept) 0 1,020 1,135 1,213 1,292 1,294
Shoulder Hours (Mar-May & Oct-Nov) 111 722 1,020 1,245 1,470 1,270
Winter Hours (Dec-Feb) 309 412 627 785 944 861
420 2,154 2,782 3,244 3,705 3,425
Gas & Fuel Oil Volumes (DT's):
Firm Transportation Fuel % Daily Yr 1
Demand Volumes at Wellhead - 24,824 1,510,138 9,060,827 9,060,827 9,060,827 9,060,827 9,060,827
Demand Volumes through ANR 0.00% 24,824 1,510,138 9,060,827 9,060,827 9,060,827 9,060,827 9,060,827
Demand Volumes through Columbia Gas 2.41% 24,240 1,474,600 8,847,600 8,847,600 8,847,600 8,847,600 8,847,600
Demand Volumes through CLNG & WGL 1.00% 24,000 1,460,000 8,760,000 8,760,000 8,760,000 8,760,000 8,760,000
Unit #1 - FGRR Supply 78% 75% 65% 62% 59% 58%
FGRR Volumes at Wellhead - 7,064 475,577 2,578,297 2,586,947 2,596,878 2,608,091 2,590,471
FGRR Volumes through ANR 0.00% 7,064 475,577 2,578,297 2,586,947 2,596,878 2,608,091 2,590,471
FGRR Volumes through Columbia Gas 2.41% 6,898 464,385 2,517,622 2,526,069 2,535,766 2,546,715 2,529,510
FGRR Volumes through CLNG & WGL 1.00% 6,829 459,787 2,492,696 2,501,058 2,510,660 2,521,500 2,504,465
Unit #1 - FGMR Supply 22% 25% 35% 38% 41% 42%
FGMR Volumes at Wellhead - 2,330 131,379 850,507 1,373,695 1,592,701 1,812,570 1,857,384
FGMR Volumes through ANR 0.00% 2,330 131,379 850,507 1,373,695 1,592,701 1,812,570 1,857,384
FGMR Volumes through Columbia Gas 2.41% 2,275 128,287 830,492 1,341,368 1,555,220 1,769,915 1,813,674
FGMR Volumes through CLNG & WGL 1.00% 2,253 127,017 822,270 1,328,087 1,539,822 1,752,391 1,795,717
Unit #2 - IGR Supply 80% 95% 94% 94% 93% 93%
IGR Volumes Dlvd Columbia - 5,451 329,985 1,989,501 2,544,385 2,956,990 3,370,350 3,151,621
IGR Volumes Dlvd to CLNG 2.41% 5,322 322,220 1,942,682 2,484,508 2,887,404 3,291,036 3,077,455
IGR Volumes Dlvd to Wash Gas 1.00% 5,270 319,030 1,923,447 2,459,909 2,858,816 3,258,452 3,046,985
IGR Volumes Dlvd to Brandywine 0.00% 5,270 319,030 1,923,447 2,459,909 2,858,816 3,258,452 3,046,985
Unit #2 - OR Supply 20% 5% 6% 6% 7% 7%
OR Volumes Delivered to Plant 77,398 103,488 157,119 196,898 237,770 219,322
</TABLE>
<PAGE>
Year Ended
Dec-2002
--------
Dispatch Hours:
Unit #1
Summer Hours (Jun-Sept) 1,511
Shoulder Hours (Mar-May & Oct-Nov) 1,806
Winter Hours (Dec-Feb) 1,159
Total Unit #1 Hours 4,476
Unit #2
Summer Hours (Jun-Sept) 1,297
Shoulder Hours (Mar-May & Oct-Nov) 1,070
Winter Hours (Dec-Feb) 778
3,145
Gas & Fuel Oil Volumes (DT's):
Firm Transportation
Demand Volumes at Wellhead 9,060,827
Demand Volumes through ANR 9,060,827
Demand Volumes through Columbia Gas 8,847,600
Demand Volumes through CLNG & WGL 8,760,000
Unit #1 - FGRR Supply 59%
FGRR Volumes at Wellhead 2,608,091
FGRR Volumes through ANR 2,608,091
FGRR Volumes through Columbia Gas 2,546,715
FGRR Volumes through CLNG & WGL 2,521,500
Unit #1 - FGMR Supply 41%
FGMR Volumes at Wellhead 1,837,033
FGMR Volumes through ANR 1,837,033
FGMR Volumes through Columbia Gas 1,793,802
FGMR Volumes through CLNG & WGL 1,776,042
Unit #2 - IGR Supply 93%
IGR Volumes Dlvd Columbia 2,885,476
IGR Volumes Dlvd to CLNG 2,817,572
IGR Volumes Dlvd to Wash Gas 2,789,676
IGR Volumes Dlvd to Brandywine 2,789,676
Unit #2 - OR Supply 7%
OR Volumes Delivered to Plant 197,552
<PAGE>
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
Dec-2003 Dec-2004 Dec-2005 Dec-2006 Dec-2007 Dec-2008 Dec-2009
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Dispatch Hours:
Unit #1
Summer Hours (Jun-Sept) 1,475 1,439 1,483 1,527 1,504 1,484 1,465
Shoulder Hours (Mar-May & Oct-Nov) 1,791 1,776 1,786 1,797 1,772 1,749 1,727
Winter Hours (Dec-Feb) 1,166 1,173 1,181 1,189 1,174 1,161 1,149
Total Unit #1 Hours 4,432 4,388 4,450 4,513 4,450 4,393 4,342
Unit #2
Summer Hours (Jun-Sept) 1,227 1,157 1,198 1,238 1,205 1,172 1,141
Shoulder Hours (Mar-May & Oct-Nov) 1,159 1,247 1,163 1,078 1,026 976 928
Winter Hours (Dec-Feb) 798 818 886 955 903 854 808
3,184 3,222 3,247 3,271 3,133 3,002 2,877
Gas & Fuel Oil Volumes (DT's):
Firm Transportation
Demand Volumes at Wellhead 9,060,827 9,060,827 9,060,827 9,060,827 9,060,827 9,060,827 9,060,827
Demand Volumes through ANR 9,060,827 9,060,827 9,060,827 9,060,827 9,060,827 9,060,827 9,060,827
Demand Volumes through Columbia Gas 8,847,600 8,847,600 8,847,600 8,847,600 8,847,600 8,847,600 8,847,600
Demand Volumes through CLNG & WGL 8,760,000 8,760,000 8,760,000 8,760,000 8,760,000 8,760,000 8,760,000
Unit #1 - FGRR Supply 59% 60% 58% 58% 59% 60% 61%
FGRR Volumes at Wellhead 2,618,663 2,629,876 2,616,100 2,579,258 2,590,151 2,601,043 2,611,936
FGRR Volumes through ANR 2,618,663 2,629,876 2,616,100 2,579,258 2,590,151 2,601,043 2,611,936
FGRR Volumes through Columbia Gas 2,557,039 2,567,987 2,554,536 2,518,561 2,529,197 2,539,833 2,550,469
FGRR Volumes through CLNG & WGL 2,531,721 2,542,562 2,529,244 2,493,625 2,504,156 2,514,686 2,525,217
Unit #1 - FGMR Supply 41% 40% 42% 42% 41% 40% 39%
FGMR Volumes at Wellhead 1,791,187 1,745,896 1,894,480 1,859,486 1,791,899 1,734,623 1,681,921
FGMR Volumes through ANR 1,791,187 1,745,896 1,894,480 1,859,486 1,791,899 1,734,623 1,681,921
FGMR Volumes through Columbia Gas 1,749,035 1,704,810 1,849,897 1,815,727 1,749,731 1,693,802 1,642,341
FGMR Volumes through CLNG & WGL 1,731,718 1,687,931 1,831,582 1,797,749 1,732,407 1,677,032 1,626,080
Unit #2 - IGR Supply 93% 93% 93% 92% 92% 92% 93%
IGR Volumes Dlvd Columbia 2,920,862 2,957,248 3,038,369 2,958,563 2,817,359 2,696,773 2,589,507
IGR Volumes Dlvd to CLNG 2,852,125 2,887,655 2,966,868 2,888,940 2,751,058 2,633,310 2,528,569
IGR Volumes Dlvd to Wash Gas 2,823,886 2,859,065 2,937,493 2,860,336 2,723,820 2,607,238 2,503,533
IGR Volumes Dlvd to Brandywine 2,823,886 2,859,065 2,937,493 2,860,336 2,723,820 2,607,238 2,503,533
Unit #2 - OR Supply 7% 7% 7% 8% 8% 8% 7%
OR Volumes Delivered to Plant 202,474 207,470 230,270 241,838 226,956 214,294 202,234
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
Dec-2010 Dec-2011 Dec-2012
-------- -------- --------
<S> <C> <C> <C>
Dispatch Hours:
Unit #1
Summer Hours (Jun-Sept) 1,450 1,434 1,420
Shoulder Hours (Mar-May & Oct-Nov) 1,708 1,678 1,651
Winter Hours (Dec-Feb) 1,140 1,112 1,086
Total Unit #1 Hours 4,297 4,224 4,157
Unit #2
Summer Hours (Jun-Sept) 1,110 1,101 1,093
Shoulder Hours (Mar-May & Oct-Nov) 883 852 821
Winter Hours (Dec-Feb) 764 717 672
2,757 2,669 2,586
Gas & Fuel Oil Volumes (DT's):
Firm Transportation
Demand Volumes at Wellhead 9,060,827 9,060,827 9,060,827
Demand Volumes through ANR 9,060,827 9,060,827 9,060,827
Demand Volumes through Columbia Gas 8,847,600 8,847,600 8,847,600
Demand Volumes through CLNG & WGL 8,760,000 8,760,000 8,760,000
Unit #1 - FGRR Supply 61% 26% 0%
FGRR Volumes at Wellhead 2,600,723 1,086,012 0
FGRR Volumes through ANR 2,600,723 1,086,012 0
FGRR Volumes through Columbia Gas 2,539,520 1,060,455 0
FGRR Volumes through CLNG & WGL 2,514,377 1,049,956 0
Unit #1 - FGMR Supply 39% 74% 100%
FGMR Volumes at Wellhead 1,671,559 3,111,349 4,138,784
FGMR Volumes through ANR 1,671,559 3,111,349 4,138,784
FGMR Volumes through Columbia Gas 1,632,222 3,038,130 4,041,387
FGMR Volumes through CLNG & WGL 1,616,062 3,008,049 4,001,373
Unit #2 - IGR Supply 93% 93% 93%
IGR Volumes Dlvd Columbia 2,515,142 2,423,102 2,357,074
IGR Volumes Dlvd to CLNG 2,455,953 2,366,079 2,301,605
IGR Volumes Dlvd to Wash Gas 2,431,637 2,342,653 2,278,817
IGR Volumes Dlvd to Brandywine 2,431,637 2,342,653 2,278,817
Unit #2 - OR Supply 7% 7% 7%
OR Volumes Delivered to Plant 194,316 180,540 169,463
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year Ended
Dec-2013 Dec-2014 Dec-2015 Dec-2016 Dec-2017 Dec-2018 Dec-2019 Dec-2020 Dec-2021
-------- -------- -------- -------- -------- -------- -------- -------- --------
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Dispatch Hours:
Unit #1
Summer Hours (Jun-Sept) 1,406 1,392 1,379 1,361 1,344 1,327 1,311 1,295 1,295
Shoulder Hours (Mar-May &
Oct-Nov) 1,627 1,607 1,589 1,552 1,519 1,489 1,462 1,439 1,079
Winter Hours (Dec-Feb) 1,064 1,044 1,027 1,011 995 980 965 951 634
Total Unit #1 Hours 4,097 4,043 3,996 3,925 3,858 3,796 3,739 3,685 3,008
Unit #2
Summer Hours (Jun-Sept) 1,084 1,076 1,068 1,046 1,024 1,002 981 960 960
Shoulder Hours (Mar-May &
Oct-Nov) 792 763 736 705 676 647 620 594 446
Winter Hours (Dec-Feb) 631 591 555 557 560 563 565 568 379
2,507 2,431 2,359 2,308 2,259 2,212 2,166 2,123 1,785
Gas & Fuel Oil Volumes (DT's):
Firm Transportation
Demand Volumes at Wellhead 9,060,827 9,060,827 9,060,827 9,060,827 9,060,827 9,060,827 9,060,827 9,060,827 7,550,689
Demand Volumes through ANR 9,060,827 9,060,827 9,060,827 9,060,827 9,060,827 9,060,827 9,060,827 9,060,827 7,550,689
Demand Volumes through
Columbia Gas 8,847,600 8,847,600 8,847,600 8,847,600 8,847,600 8,847,600 8,847,600 8,847,600 7,373,000
Demand Volumes through
CLNG & WGL 8,760,000 8,760,000 8,760,000 8,760,000 8,760,000 8,760,000 8,760,000 8,760,000 7,300,000
Unit #1 - FGRR Supply 0% 0% 0% 0% 0% 0% 0% 0% 0%
FGRR Volumes at Wellhead 0 0 0 0 0 0 0 0 0
FGRR Volumes through ANR 0 0 0 0 0 0 0 0 0
FGRR Volumes through
Columbia Gas 0 0 0 0 0 0 0 0 0
FGRR Volumes through
CLNG & WGL 0 0 0 0 0 0 0 0 0
Unit #1 - FGMR Supply 100% 100% 100% 100% 100% 100% 100% 100% 100%
FGMR Volumes at Wellhead 4,086,799 4,056,059 3,927,327 3,864,719 3,808,022 3,753,002 3,713,304 3,659,278 2,992,198
FGMR Volumes through ANR 4,086,799 4,056,059 3,927,327 3,864,719 3,808,022 3,753,002 3,713,304 3,659,278 2,992,198
FGMR Volumes through
Columbia Gas 3,990,625 3,960,608 3,834,906 3,773,771 3,718,408 3,664,683 3,625,919 3,573,165 2,921,784
FGMR Volumes through
CLNG & WGL 3,951,114 3,921,394 3,796,937 3,736,407 3,681,592 3,628,399 3,590,019 3,537,787 2,892,855
Unit #2 - IGR Supply 93% 94% 94% 94% 93% 93% 93% 93% 94%
IGR Volumes Dlvd Columbia 2,290,522 2,267,044 2,187,728 2,105,782 2,044,168 1,997,922 1,980,760 1,930,468 1,640,723
IGR Volumes Dlvd to CLNG 2,236,620 2,213,694 2,136,245 2,056,227 1,996,063 1,950,905 1,934,147 1,885,039 1,602,112
IGR Volumes Dlvd to Wash Gas 2,214,475 2,191,776 2,115,094 2,035,868 1,976,300 1,931,589 1,914,997 1,866,375 1,586,250
IGR Volumes Dlvd to Brandywine 2,214,475 2,191,776 2,115,094 2,035,868 1,976,300 1,931,589 1,914,997 1,866,375 1,586,250
Unit #2 - OR Supply 7% 6% 6% 6% 7% 7% 7% 7% 6%
OR Volumes Delivered to Plant 159,080 152,358 141,598 140,498 139,547 140,514 143,473 142,947 95,158
</TABLE>
<PAGE>
Panda-Brandywine L.P.
230MW PEPCO Project
Gas Supply Assumptions
<TABLE>
<CAPTION>
Year Ended
Dec1996 Dec1997 Dec1998 Dec1999 Dec2000 Dec2001 Dec-2002
--------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Fuel Compensation Price:
FGRR - PPI Oil and Gas Field Services
Fixed Contract Price Jun-94 May-96 Nov-96 $2.58 $2.68 $2.79 $2.90 $3.02 $3.14 $3.26
Adjusted Contract Price 103.20 115.80 117.81 $2.95 $3.06 $3.18 $3.31 $3.45 $3.58 $3.72
FGMR - Base Yr May-96
Commodity Index - Summer 6.46 0.00 4.00% 7.40 7.54 7.68 7.77 7.91 8.33 8.76
Commodity Index - Shoulder 6.46 0.00 4.00% 7.89 8.03 8.18 8.29 8.43 8.88 9.34
Commodity Index - Winter 6.46 0.00 4.00% 8.37 8.53 8.69 8.80 8.96 9.42 9.91
Transportation Index 129.9 156.6 3.00% 159.3 164.1 169.0 174.1 179.3 184.7 190.2
Contract Discount 1.206 90% 90% 90% 90% 92% 100% 100%
Calculated FGMR - Summer $2.29 $0.58 $2.35 $2.39 $2.44 $2.47 $2.56 $2.91 $3.05
Calculated FGMR - Shoulder $2.29 $0.58 $2.47 $2.51 $2.56 $2.59 $2.69 $3.06 $3.20
Calculated FGMR - Winter $2.29 $0.58 $2.59 $2.63 $2.68 $2.72 $2.82 $3.21 $3.36
IGR -
Calculated FGMR - Summer $2.29 $0.73 $2.61 $2.65 $2.70 $2.74 $2.79 $2.90 $3.03
Calculated FGMR - Shoulder $2.29 $0.73 $2.73 $2.78 $2.83 $2.87 $2.92 $3.04 $3.17
Calculated FGMR - Winter $2.29 $0.40 $2.90 $2.96 $3.01 $3.05 $3.11 $3.25 $3.41
OR -
Oil Index 151 179 178 184 195 206 215 224
Calculated OR $3.89 $4.60 $4.57 $4.73 $5.00 $5.28 $5.51 $5.75
Fuel Costs: Escalation
Firm Gas - Contract Price (Unit #1) 4.00% $2.43 $2.52 $2.62 $2.72 $2.83 $2.94 $3.06
Firm Gas - Market Price (Unit #1) Index Cost Options Option
Spot Price - Summer 1 - NGC - Columbia Gas 7 $1.90 $1.94 $1.98 $2.00 $2.04 $2.14 $2.25
Spot Price - Shoulder 2 - NGC - Tenn Gas 7 $2.05 $2.09 $2.13 $2.16 $2.20 $2.31 $2.43
Spot Price - Winter 3 - NGI - Columbia Gas 2 $1.99 $2.02 $2.06 $2.08 $2.12 $2.23 $2.35
FGMR Premium - Summer 4 - NGW - Columbia Gas $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
FGMR Premium - Shoulder 5 - Blended (Gulf & Appl) $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
FGMR Premium - Winter 6 - Gulf Coast Avg $0.55 $0.55 $0.55 $0.55 $0.55 $0.56 $0.56
Firm Gas Market Cost - Weighted Avg 7 - Appalachian Avg $2.12 $2.16 $2.20 $2.22 $2.26 $2.37 $2.49
Interruptible Gas (Unit #2) Option
Spot Price - Summer 7 $1.90 $1.94 $1.98 $2.00 $2.04 $2.14 $2.25
Spot Price - Shoulder 7 $2.05 $2.09 $2.13 $2.16 $2.20 $2.31 $2.43
Spot Price - Winter 7 $2.20 $2.24 $2.28 $2.31 $2.36 $2.48 $2.61
IGR Premium - Summer $0.05 $0.05 $0.05 $0.05 $0.05 $0.05 $0.05
IGR Premium - Shoulder $0.05 $0.05 $0.05 $0.05 $0.05 $0.05 $0.05
IGR Premium - Winter $0.05 $0.05 $0.05 $0.05 $0.05 $0.05 $0.05
Interruptible Gas Cost - Weighted Average $2.09 $2.13 $2.17 $2.19 $2.23 $2.35 $2.47
Delivered Fuel Oil (Unit #2) $4.60 $4.57 $4.73 $5.00 $5.28 $5.51 $5.75
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year Ended
Dec-2003 Dec2004 Dec-2005 Dec-2006 Dec-2007 Dec-2008 Dec-2009 Dec-2010 Dec-2011 Dec-2012
-------- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fuel Compensation Price:
FGRR -
Fixed Contract Price $3.33 $3.40 $3.46 $3.53 $3.60 $3.68 $3.75 $3.82 $3.90 $3.98
Adjusted Contract Price $3.80 $3.88 $3.95 $4.03 $4.11 $4.20 $4.28 $4.36 $4.45 $4.54
FGMR -
Commodity Index - Summer 9.22 9.70 10.20 11.05 11.96 12.91 13.92 14.98 15.96 17.00
Commodity Index - Shoulder 9.82 10.33 10.86 11.77 12.72 13.73 14.79 15.92 16.96 18.05
Commodity Index - Winter 10.43 10.96 11.52 12.48 13.49 14.55 15.67 16.85 17.95 19.11
Transportation Index 195.9 201.8 207.9 214.1 220.5 227.2 234.0 241.0 248.2 255.7
Contract Discount 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
Calculated FGMR - Summer $3.18 $3.32 $3.47 $3.72 $3.98 $4.25 $4.54 $4.85 $5.13 $5.43
Calculated FGMR - Shoulder $3.35 $3.50 $3.65 $3.91 $4.19 $4.48 $4.78 $5.10 $5.40 $5.72
Calculated FGMR - Winter $3.51 $3.67 $3.84 $4.11 $4.40 $4.70 $5.02 $5.36 $5.67 $6.01
IGR -
Calculated FGMR - Summer $3.16 $3.29 $3.43 $3.67 $3.91 $4.17 $4.44 $4.72 $4.99 $5.27
Calculated FGMR - Shoulder $3.31 $3.45 $3.60 $3.85 $4.10 $4.37 $4.66 $4.96 $5.24 $5.54
Calculated FGMR - Winter $3.57 $3.74 $3.91 $4.21 $4.52 $4.84 $5.19 $5.55 $5.89 $6.24
OR -
Oil Index 234 244 254 265 276 288 301 313 327 341
Calculated OR $6.00 $6.26 $6.53 $6.81 $7.10 $7.41 $7.72 $8.05 $8.40 $8.76
Fuel Costs:
- -----------
Firm Gas - Contract Price (Unit #1) $3.18 $3.31 $3.44 $3.58 $3.72 $3.87 $4.02 $4.18 $4.35 $4.53
Firm Gas - Market Price (Unit #1)
Spot Price - Summer $2.37 $2.49 $2.62 $2.84 $3.07 $3.31 $3.56 $3.83 $4.08 $4.34
Spot Price - Shoulder $2.55 $2.68 $2.82 $3.05 $3.29 $3.55 $3.82 $4.10 $4.37 $4.65
Spot Price - Winter $2.47 $2.60 $2.74 $2.97 $3.22 $3.48 $3.76 $4.05 $4.32 $4.60
FGMR Premium - Summer $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
FGMR Premium - Shoulder $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
FGMR Premium - Winter $0.57 $0.57 $0.58 $0.58 $0.59 $0.59 $0.60 $0.60 $0.61 $0.61
Firm Gas Market Cost - Weighted Average $2.61 $2.74 $2.88 $3.11 $3.35 $3.60 $3.87 $4.15 $4.41 $4.69
Interruptible Gas (Unit #2)
Spot Price - Summer $2.37 $2.49 $2.62 $2.84 $3.07 $3.31 $3.56 $3.83 $4.08 $4.34
Spot Price - Shoulder $2.55 $2.68 $2.82 $3.05 $3.29 $3.55 $3.82 $4.10 $4.37 $4.65
Spot Price - Winter $2.74 $2.88 $3.02 $3.27 $3.52 $3.79 $4.08 $4.38 $4.66 $4.96
IGR Premium - Summer $0.05 $0.05 $0.05 $0.05 $0.05 $0.05 $0.05 $0.05 $0.05 $0.05
IGR Premium - Shoulder $0.05 $0.05 $0.05 $0.05 $0.05 $0.05 $0.05 $0.05 $0.05 $0.05
IGR Premium - Winter $0.05 $0.05 $0.05 $0.05 $0.05 $0.05 $0.05 $0.05 $0.05 $0.05
Interruptible Gas Cost - Weighted Average $2.59 $2.72 $2.85 $3.08 $3.33 $3.58 $3.85 $4.13 $4.40 $4.67
Delivered Fuel Oil (Unit #2) $6.00 $6.26 $6.53 $6.81 $7.10 $7.41 $7.72 $8.05 $8.40 $8.76
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year Ended December
2013 2014 2015 2016 2017 2018 2019 2020 2021
---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fuel Compensation Price:
FGRR -
Fixed Contract Price $4.06 $4.14 $4.22 $4.30 $4.38 $4.46 $4.54 $4.62 $4.70
Adjusted Contract Price $4.63 $4.73 $4.82 $4.91 $5.00 $5.09 $5.18 $5.27 $5.37
FGMR -
Commodity Index - Summer 18.09 19.23 20.44 21.71 23.07 24.51 26.05 27.68 29.41
Commodity Index - Shoulder 19.21 20.42 21.69 23.04 24.48 26.00 27.62 29.35 31.18
Commodity Index - Winter 20.32 21.60 22.94 24.37 25.88 27.49 29.20 31.02 32.95
Transportation Index 263.3 271.2 279.4 287.8 296.4 305.3 314.4 323.9 333.6
Contract Discount 100% 100% 100% 100% 100% 100% 100% 100% 100%
Calculated FGMR - Summer $5.74 $6.07 $6.42 $6.78 $7.17 $7.58 $8.02 $8.49 $8.98
Calculated FGMR - Shoulder $6.05 $6.39 $6.76 $7.15 $7.56 $7.99 $8.45 $8.94 $9.46
Calculated FGMR - Winter $6.35 $6.72 $7.10 $7.51 $7.94 $8.40 $8.88 $9.40 $9.95
IGR -
Calculated FGMR - Summer $5.57 $5.87 $6.20 $6.54 $6.91 $7.29 $7.70 $8.14 $8.60
Calculated FGMR - Shoulder $5.85 $6.17 $6.51 $6.88 $7.26 $7.67 $8.10 $8.56 $9.04
Calculated FGMR - Winter $6.62 $7.01 $7.42 $7.86 $8.32 $8.81 $9.33 $9.89 $10.48
OR -
Oil Index 356 371 387 404 421 439 458 478 498
Calculated OR $9.14 $9.53 $9.94 $10.37 $10.81 $11.28 $11.77 $12.27 $12.80
Fuel Costs:
Firm Gas - Contract Price (Unit #1) $4.71 $4.89 $5.09 $5.29 $5.51 $5.73 $5.95 $6.19 $6.44
Firm Gas - Market Price (Unit #1)
Spot Price - Summer $4.61 $4.90 $5.21 $5.53 $5.87 $6.24 $6.63 $7.04 $7.48
Spot Price - Shoulder $4.94 $5.25 $5.57 $5.91 $6.28 $6.67 $7.08 $7.51 $7.98
Spot Price - Winter $4.90 $5.21 $5.54 $5.89 $6.26 $6.65 $7.07 $7.52 $7.99
FGMR Premium - Summer $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
FGMR Premium - Shoulder $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
FGMR Premium - Winter $0.62 $0.62 $0.63 $0.63 $0.64 $0.64 $0.65 $0.65 $0.66
Firm Gas Market Cost - Weighted Average $4.97 $5.28 $5.60 $5.94 $6.30 $6.68 $7.09 $7.52 $7.98
Interruptible Gas (Unit #2)
Spot Price - Summer $4.61 $4.90 $5.21 $5.53 $5.87 $6.24 $6.63 $7.04 $7.48
Spot Price - Shoulder $4.94 $5.25 $5.57 $5.91 $6.28 $6.67 $7.08 $7.51 $7.98
Spot Price - Winter $5.27 $5.59 $5.93 $6.30 $6.68 $7.09 $7.53 $7.99 $8.48
IGR Premium - Summer $0.05 $0.05 $0.05 $0.05 $0.05 $0.05 $0.05 $0.05 $0.05
IGR Premium - Shoulder $0.05 $0.05 $0.05 $0.05 $0.05 $0.05 $0.05 $0.05 $0.05
IGR Premium - Winter $0.05 $0.05 $0.05 $0.05 $0.05 $0.05 $0.05 $0.05 $0.05
Interruptible Gas Cost - Weighted Average $4.96 $5.27 $5.59 $5.93 $6.30 $6.68 $7.09 $7.52 $7.99
Delivered Fuel Oil (Unit #2) $9.14 $9.53 $9.94 $10.37 $10.81 $11.28 $11.77 $12.27 $12.80
</TABLE>
<PAGE>
Panda-Brandywine L.P.
230MW PEPCO Project
Gas Supply Assumptions
<TABLE>
<CAPTION>
Year Ended
Dec-1996 Dec-1997 Dec-1998 Dec-1999 Dec-2000 Dec-2001 Dec-2002
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Firm Transportation:
ANR Tariff Rates 1996 Rate Escalation
Demand $0.0000 0.00% $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
Commodity $0.0000 0.00% $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
Fuel % 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Columbia Gas Tarriff Rates
Demand $0.2632 1.50% $0.26 $0.27 $0.27 $0.28 $0.28 $0.28 $0.29
Commodity $0.0267 1.50% $0.03 $0.03 $0.03 $0.03 $0.03 $0.03 $0.03
Fuel % 2.41% 2.41% 2.41% 2.41% 2.41% 2.41% 2.41% 2.41%
CLNG & WGL Contract Rates
Demand - CLNG Only $0.0222 1.50% $0.02 $0.02 $0.02 $0.02 $0.02 $0.02 $0.02
Commodity - CLNG & WGL $0.0590 0.25% $0.06 $0.06 $0.06 $0.06 $0.06 $0.06 $0.06
Fuel % - CLNG Only 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%
Interruptible Transportation:
- -----------------------------
Columbia Gas Tarriff Rates 1996 Rate
Commodity - Summer $0.221 1.50% $0.22 $0.22 $0.23 $0.23 $0.23 $0.24 $0.24
Commodity - Shoulder $0.271 1.50% $0.27 $0.27 $0.28 $0.28 $0.29 $0.29 $0.30
Commodity - Winter $0.310 1.50% $0.31 $0.31 $0.32 $0.32 $0.33 $0.33 $0.34
Fuel % 2.41% 2.41% 2.41% 2.41% 2.41% 2.41% 2.41% 2.41%
Columbia (Cove Point)
LNG Tarriff Rates
Commodity - Summer $0.023 1.50% $0.02 $0.02 $0.02 $0.02 $0.02 $0.02 $0.03
Commodity - Shoulder $0.023 1.50% $0.02 $0.02 $0.02 $0.02 $0.02 $0.02 $0.03
Commodity - Winter $0.023 1.50% $0.02 $0.02 $0.02 $0.02 $0.02 $0.02 $0.03
Fuel % 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%
Washington Gas Contract Rates
Commodity - Summer $0.050 0.00% $0.05 $0.05 $0.05 $0.05 $0.05 $0.05 $0.05
Commodity - Shoulder $0.050 0.00% $0.05 $0.05 $0.05 $0.05 $0.05 $0.05 $0.05
Commodity - Winter $0.050 0.00% $0.05 $0.05 $0.05 $0.05 $0.05 $0.05 $0.05
Fuel % 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Management Fee & SIT:
- ---------------------
Fuel Management Fee -
Firm Gas $0.000 0.00% $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
Fuel Management Fee -
Interruptible Gas $0.000 0.00% $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
WGL Balancing $0.050 2.50% $0.05 $0.05 $0.05 $0.05 $0.06 $0.06 $0.06
Storage-In-Transit $0.050 2.50% $0.05 $0.05 $0.05 $0.05 $0.06 $0.06 $0.06
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year Ended
Dec-2003 Dec2004 Dec-2005 Dec-2006 Dec-2007 Dec-2008 Dec-2009 Dec-2010 Dec-2011 Dec-2012
-------- ------- -----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Firm Transportation:
ANR Tariff Rates
Demand $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
Commodity $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
Fuel % 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Columbia Gas Tarriff Rates
Demand $0.29 $0.30 $0.30 $0.31 $0.31 $0.31 $0.32 $0.32 $0.33 $0.33
Commodity $0.03 $0.03 $0.03 $0.03 $0.03 $0.03 $0.03 $0.03 $0.03 $0.03
Fuel % 2.41% 2.41% 2.41% 2.41% 2.41% 2.41% 2.41% 2.41% 2.41% 2.41%
CLNG & WGL Contract Rates
Demand - CLNG Only $0.02 $0.03 $0.03 $0.03 $0.03 $0.03 $0.03 $0.03 $0.03 $0.03
Commodity - CLNG & WGL $0.06 $0.06 $0.06 $0.06 $0.06 $0.06 $0.06 $0.06 $0.06 $0.06
Fuel % - CLNG Only 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%
Interruptible Transportation:
Columbia Gas Tarriff Rates
Commodity - Summer $0.25 $0.25 $0.25 $0.26 $0.26 $0.26 $0.27 $0.27 $0.28 $0.28
Commodity - Shoulder $0.30 $0.30 $0.31 $0.31 $0.32 $0.32 $0.33 $0.33 $0.34 $0.34
Commodity - Winter $0.34 $0.35 $0.35 $0.36 $0.36 $0.37 $0.38 $0.38 $0.39 $0.39
Fuel % 2.41% 2.41% 2.41% 2.41% 2.41% 2.41% 2.41% 2.41% 2.41% 2.41%
Columbia (Cove Point) LNG Tarriff Rates
Commodity - Summer $0.03 $0.03 $0.03 $0.03 $0.03 $0.03 $0.03 $0.03 $0.03 $0.03
Commodity - Shoulder $0.03 $0.03 $0.03 $0.03 $0.03 $0.03 $0.03 $0.03 $0.03 $0.03
Commodity - Winter $0.03 $0.03 $0.03 $0.03 $0.03 $0.03 $0.03 $0.03 $0.03 $0.03
Fuel % 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%
Washington Gas Contract Rates
Commodity - Summer $0.05 $0.05 $0.05 $0.05 $0.05 $0.05 $0.05 $0.05 $0.05 $0.05
Commodity - Shoulder $0.05 $0.05 $0.05 $0.05 $0.05 $0.05 $0.05 $0.05 $0.05 $0.05
Commodity - Winter $0.05 $0.05 $0.05 $0.05 $0.05 $0.05 $0.05 $0.05 $0.05 $0.05
Fuel % 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Management Fee & SIT:
Fuel Management Fee - Firm Gas $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
Fuel Management Fee - Interruptible Gas $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
WGL Balancing $0.06 $0.06 $0.06 $0.06 $0.07 $0.07 $0.07 $0.07 $0.07 $0.07
Storage-In-Transit $0.06 $0.06 $0.06 $0.06 $0.07 $0.07 $0.07 $0.07 $0.07 $0.07
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year Ended
Dec-2013 Dec-2014 Dec-2015 Dec-2016 Dec-2017 Dec-2018 Dec-2019 Dec-2020 Dec-2021
-------- ----------------------------------- ----------------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Firm Transportation:
ANR Tariff Rates
Demand $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
Commodity $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
Fuel % 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Columbia Gas Tarriff Rates
Demand $0.34 $0.34 $0.35 $0.35 $0.36 $0.37 $0.37 $0.38 $0.38
Commodity $0.03 $0.03 $0.04 $0.04 $0.04 $0.04 $0.04 $0.04 $0.04
Fuel % 2.41% 2.41% 2.41% 2.41% 2.41% 2.41% 2.41% 2.41% 2.41%
CLNG & WGL Contract Rates
Demand - CLNG Only $0.03 $0.03 $0.03 $0.03 $0.03 $0.03 $0.03 $0.03 $0.03
Commodity - CLNG & WGL $0.06 $0.06 $0.06 $0.06 $0.06 $0.06 $0.06 $0.06 $0.06
Fuel % - CLNG Only 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%
Interruptible Transportation:
Columbia Gas Tarriff Rates
Commodity - Summer $0.28 $0.29 $0.29 $0.30 $0.30 $0.31 $0.31 $0.32 $0.32
Commodity - Shoulder $0.35 $0.35 $0.36 $0.36 $0.37 $0.38 $0.38 $0.39 $0.39
Commodity - Winter $0.40 $0.40 $0.41 $0.42 $0.42 $0.43 $0.44 $0.44 $0.45
Fuel % 2.41% 2.41% 2.41% 2.41% 2.41% 2.41% 2.41% 2.41% 2.41%
Columbia (Cove Point)
LNG Tarriff Rates
Commodity - Summer $0.03 $0.03 $0.03 $0.03 $0.03 $0.03 $0.03 $0.03 $0.03
Commodity - Shoulder $0.03 $0.03 $0.03 $0.03 $0.03 $0.03 $0.03 $0.03 $0.03
Commodity - Winter $0.03 $0.03 $0.03 $0.03 $0.03 $0.03 $0.03 $0.03 $0.03
Fuel % 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%
Washington Gas Contract Rates
Commodity - Summer $0.05 $0.05 $0.05 $0.05 $0.05 $0.05 $0.05 $0.05 $0.05
Commodity - Shoulder $0.05 $0.05 $0.05 $0.05 $0.05 $0.05 $0.05 $0.05 $0.05
Commodity - Winter $0.05 $0.05 $0.05 $0.05 $0.05 $0.05 $0.05 $0.05 $0.05
Fuel % 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Management Fee & SIT:
Fuel Management Fee -
Firm Gas $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
Fuel Management Fee -
Interruptible Gas $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
WGL Balancing $0.08 $0.08 $0.08 $0.08 $0.08 $0.09 $0.09 $0.09 $0.09
Storage-In-Transit $0.08 $0.08 $0.08 $0.08 $0.08 $0.09 $0.09 $0.09 $0.09
</TABLE>
<PAGE>
January 10, 1997
Panda Funding Corporation
Panda Interfunding Corporation
4100 Spring Valley, Suite 1001
Dallas, TX 75244
SUBJECT: Independent Panda-Brandywine Pro Forma Projections
Dear Sirs:
On July 26, 1996, ICF Resources issued the report
Independent Panda-Brandywine Pro Forma Projections (the "July
Brandywine Pro Forma Report"). Between July 26, 1996 and January
10, 1997, certain events have occurred that have affected the
assumptions on which the pro forma projections in July Brandywine
Pro Forma Report were based.
This Update Report describes how certain assumptions bearing
on the Panda-Brandywine pro forma projections have been updated
and provides the results of the updated pro forma model. This
Update Report discusses only those assumptions that have been
changed since the completion of the July Brandywine Pro Forma
Report. We refer the reader to that report for a full
description of the assumptions in the pro forma model.
In the preparation of this Update Report and the opinions
that follow, we have made certain assumptions with respect to
conditions that may exist or events that may occur in the future.
Although we believe these assumptions to be reasonable for the
purpose of this Update Report, they are dependent on future
events, and actual conditions may differ from those assumed. In
addition, we have used and relied upon certain information
provided to us by sources that we believe to be reliable;
however, we make no assurances as to the accuracy of any such
information or any conclusions based thereon. To the extent
that actual future conditions differ from those assumed herein,
the actual results will vary from those forecast. This Update
Report summarizes our work up to the date hereof; changed
conditions occurring or becoming known after such date could
affect the material presented.
Updated Assumptions
Project Assumptions
1. Brandywine's capacity payments are fixed at 5.54 percent
above the schedule provided in the PPA, Appendix L, based on the
actual escalation of the Gross National Product ("GNP") between
June 1, 1994 and the Actual Commercial Operation Date.
2. The capacity payment adjustment factor based upon 12-year T-
Bill rates is fixed at 7.94 percent using the 12-year T-Bill rate
on October 6, 1994, GECC's initial commitment date for permanent
financing. Brandywine is currently in a dispute with PEPCO over
the T-Bill rate which should be used for this adjustment factor.
PEPCO's position on this issue designates a T-Bill rate of 6.40
percent which was the effective rate on the closing date of the
conversion to permanent financing in the form of a leveraged
lease. If the rate was established in favor of PEPCO ("the PEPCO
Scenario") it would have a material adverse effect on the amount
of capacity payments received by the project and the net cash
flow from the Project (see conclusion).
3. Commercial operations under the Brandywine Construction
Contract with Raytheon occurred on September 30, 1996. Under
such assumptions bonuses paid during 1997 will be $2.12 million
greater than in the July 26, 1996 report; however, Raytheon would
not be entitled to the early completion bonus of $880,000 that it
claims and Brandywine disputes which would be payable during
1997.
4. PEPCO's system peak load exceeds the threshold level of
5,697 MW in 1997. PEPCO's (unadjusted) system peak load was
5,732 MW in August 1995. It should be noted that PEPCO's
forecasted weather-normalized peak load does not reach the
threshold level until the year 2000.
5. Changes associated with the proposed PEPCO/Baltimore Gas &
Electric merger for the purposes of determining PEPCO's peak
capacity, will not affect the pro forma's assumptions regarding
the capacity payment adjustment.
Operating Assumptions
1. Brandywine will be dispatched as projected in the updated
ICF Resources Dispatchability Analysis.
2. Brandywine's fuel costs will be consistent with those used
in our updated ICF Resources Dispatchability Analysis.
3. Balancing costs and capacity release revenues will be
consistent with those described in Panda-Brandywine, L.P.
Generating Facility Fuel Consultant's Report dated July 2, 1996
with a Supplement Update dated January 10, 1997, prepared by: C C
Pace Resources, Inc.
4. Brandywine's Firm Gas Reserve Rate ("FGRR") has been fixed
at 8.53 percent above the fixed price stream provided in Appendix
M of the PPA based on the actual escalation of the Producer Price
Index ("PPI") for Oil and Gas Field Services between June 1, 1994
and the October 1996.
5. Unit availability will be consistent with the availability
estimates confirmed in the PES Report, Independent Engineer's
Report: Panda-Brandywine Cogeneration Project dated July 22,
1996, and supplemented by an Update Report dated January 10,
1997 (as so supplemented the "Brandywine Engineering Report").
6. The Consumer Price Index escalator used for the
transportation portion of Brandywine's Firm Gas Market Rate
("FGMR") and Interruptible Gas Rate ("IGR") is 158.3 as of
October 1, 1996 (versus 129.9 in June 1990). The Project Pro
Forma assumes a 3.0 percent annual escalator after May 31, 1996.
7. Brandywine operating expenses will be consistent with its
updated 1996-1997 operating budget, inflated annually, where
appropriate, by the change in the GNP escalator.
8. Brandywine will maintain an additonal $1 million in spare
parts inventory purchased in 1997, consistent with the
recommendations of PES.
Steam Sales Assumptions
1. Brandywine Water Company's sales will occur on average 150
days per year.
Financing Assumptions
1. The lease payments reflect the closing of the leveraged
lease transaction with GE Capital effective December 30, 1996 and
the schedule of lease payments included in the lease agreement.
2. The interest rate on Brandywine's reserve balances will be 5
percent.
Conclusions
Set forth below are the principal opinions that we have
reached regarding our review of the Project. For a complete
understanding of the estimates, assumptions and calculations upon
which these opinions are based, this letter, including the
attached Project Pro Forma, and the July Brandywine Pro Forma
Report should be read in their entirety. On the basis of our
review and analyses of the Project and the assumptions set forth
in this Report, we are of the opinion that:
1. The financial projections in the Project Pro Forma provide a
reasonable reflection of the Project's expected costs, revenues
and cash flows.
2. The energy and capacity revenue calculations contained in
the Project Pro Forma are appropriate and consistent with the
PPA., and are not dependent upon the outcome of the current
dispute between Brandywine and PEPCO regarding the basis for the
determination of PEPCO's system peak load.
3. The Project's net cash flow will average approximately $24.4
million per year, reflecting a range of $6.6 million in 1998 to
$43.0 million in 2016. Under the PEPCO Scenario, the Project's
net cash flow will average approximately $19.6 million per year,
reflecting a range of $1.7 million in 1998 to $40.5 million in
2016.
4. The estimated lease obligation coverage ratios (i.e., the
ratio of earnings before income taxes to lease payments) are
presented in Table ES-1 (such lease obligation coverages under
the PEPCO Scenario are presented in Table ES-2). During the 20-
year term of the GECC lease, the Project's lease obligation
coverages will range from 2.23:1.0 in 1998 to 1.88:1.0 in 2015.
On average, the Project's lease coverage will be 1.95:1.0. Under
the PEPCO Scenario, the Project's lease coverage will range from
1.76 :1 in 1997 to 2.08 : 1 in 2016 with an average coverage
ratio of 1.77 : 1.
<PAGE>
TABLE ES-1
SUMMARY PRO FORMA PROJECTIONS
<TABLE>
=========================================================================================================
Other
Year Total Fuel Operating Annual Lease Lease
Ended Revenues Expenses Expenses EBIT Payments Coverages
(a) (b) (c) (d) (e) = b - (c+d) (f) (e)/(f)
=========================================================================================================
<S> <C> <C> <C> <C> <C> <C>
1996 4,201 3,482 1,030 (311) 0 -
- ---------------------------------------------------------------------------------------------------------
1997 50,598 19,697 7,736 23,166 10,442 2.22
- ---------------------------------------------------------------------------------------------------------
1998 52,009 21,054 7,777 23,179 10,412 2.23
- ---------------------------------------------------------------------------------------------------------
1999 69,711 21,881 7,774 40,056 19,976 2.01
- ---------------------------------------------------------------------------------------------------------
2000 71,766 22,725 7,768 41,274 20,660 2.00
- ---------------------------------------------------------------------------------------------------------
2001 85,699 24,969 7,837 52,894 27,265 1.94
- ---------------------------------------------------------------------------------------------------------
2002 89,241 27,219 7,905 54,116 27,938 1.94
- ---------------------------------------------------------------------------------------------------------
2003 88,515 26,574 7,784 54,158 27,907 1.94
- ---------------------------------------------------------------------------------------------------------
2004 87,055 25,816 7,738 53,501 27,456 1.95
- ---------------------------------------------------------------------------------------------------------
2005 90,038 28,345 7,944 53,750 27,602 1.95
- ---------------------------------------------------------------------------------------------------------
2006 92,803 29,829 8,155 54,820 28,188 1.94
- ---------------------------------------------------------------------------------------------------------
2007 96,772 30,331 8,260 58,180 30,071 1.93
- ---------------------------------------------------------------------------------------------------------
2008 98,337 30,925 8,387 59,024 30,529 1.93
- ---------------------------------------------------------------------------------------------------------
2009 100,470 31,553 8,518 60,398 31,285 1.93
- ---------------------------------------------------------------------------------------------------------
2010 104,917 32,427 8,654 63,836 33,212 1.92
- ---------------------------------------------------------------------------------------------------------
2011 108,926 31,542 8,775 68,609 35,922 1.91
- ---------------------------------------------------------------------------------------------------------
2012 116,747 31,304 8,902 76,541 40,437 1.89
- ---------------------------------------------------------------------------------------------------------
2013 119,555 31,475 9,036 79,044 41,855 1.89
- ---------------------------------------------------------------------------------------------------------
2014 121,746 31,967 9,177 80,602 42,739 1.89
- ---------------------------------------------------------------------------------------------------------
2015 118,458 31,805 9,326 77,327 41,168 1.88
- ---------------------------------------------------------------------------------------------------------
2016 111,118 32,900 9,521 68,697 31,934 2.15
- ---------------------------------------------------------------------------------------------------------
2017 114,483 34,158 9,723 70,602 14,584 4.84
- ---------------------------------------------------------------------------------------------------------
2018 118,291 35,552 9,930 72,809 14,584 4.99
- ---------------------------------------------------------------------------------------------------------
2019 122,827 37,269 10,144 75,415 14,584 5.17
- ---------------------------------------------------------------------------------------------------------
2020 126,739 38,757 10,364 77,618 14,584 5.32
- ---------------------------------------------------------------------------------------------------------
2021 107,868 33,030 8,983 65,855 10,938 6.02
=========================================================================================================
</TABLE>
<PAGE>
TABLE ES-2
SUMMARY PRO FORMA PROJECTIONS-PEPCO SCENARIO
<TABLE>
=========================================================================================================
Other
Year Total Fuel Operating Annual Lease Lease
Ended Revenues Expenses Expenses EBIT Payments Coverages
(a) (b) (c) (d) (e) = b - (c+d) (f) (e)/(f)
=========================================================================================================
<S> <C> <C> <C> <C> <C> <C>
1996 4,201 3,482 1,030 (311) 0 -
- ---------------------------------------------------------------------------------------------------------
1997 45,777 19,697 7,736 18,344 10,442 1.76
- ---------------------------------------------------------------------------------------------------------
1998 47,138 21,054 7,777 18,307 10,412 1.76
- ---------------------------------------------------------------------------------------------------------
1999 64,759 21,881 7,774 35,104 19,976 1.76
- ---------------------------------------------------------------------------------------------------------
2000 66,771 22,725 7,768 36,279 20,660 1.76
- ---------------------------------------------------------------------------------------------------------
2001 80,660 24,969 7,837 47,855 27,265 1.76
- ---------------------------------------------------------------------------------------------------------
2002 84,156 27,219 7,905 49,032 27,938 1.76
- ---------------------------------------------------------------------------------------------------------
2003 83,380 26,574 7,784 49,023 27,907 1.76
- ---------------------------------------------------------------------------------------------------------
2004 81,868 25,816 7,738 48,314 27,456 1.76
- ---------------------------------------------------------------------------------------------------------
2005 84,804 28,345 7,944 48,516 27,602 1.76
- ---------------------------------------------------------------------------------------------------------
2006 87,493 29,829 8,155 49,509 28,188 1.76
- ---------------------------------------------------------------------------------------------------------
2007 91,416 30,331 8,260 52,824 30,071 1.76
- ---------------------------------------------------------------------------------------------------------
2008 92,936 30,925 8,387 53,623 30,529 1.76
- ---------------------------------------------------------------------------------------------------------
2009 95,024 31,553 8,518 54,952 31,285 1.76
- ---------------------------------------------------------------------------------------------------------
2010 99,433 32,427 8,654 58,352 33,212 1.76
- ---------------------------------------------------------------------------------------------------------
2011 103,440 31,542 8,775 63,124 35,922 1.76
- ---------------------------------------------------------------------------------------------------------
2012 111,259 31,304 8,902 71,053 40,437 1.76
- ---------------------------------------------------------------------------------------------------------
2013 114,066 31,475 9,036 73,555 41,855 1.76
- ---------------------------------------------------------------------------------------------------------
2014 116,254 31,967 9,177 75,110 42,739 1.76
- ---------------------------------------------------------------------------------------------------------
2015 113,478 31,805 9,326 72,347 41,168 1.76
- ---------------------------------------------------------------------------------------------------------
2016 108,707 32,900 9,521 66,285 31,934 2.08
- ---------------------------------------------------------------------------------------------------------
2017 112,072 34,158 9,723 68,192 14,584 4.68
- ---------------------------------------------------------------------------------------------------------
2018 115,882 35,552 9,930 70,400 14,584 4.83
- ---------------------------------------------------------------------------------------------------------
2019 120,419 37,269 10,144 73,006 14,584 5.01
- ---------------------------------------------------------------------------------------------------------
2020 124,332 38,757 10,364 75,211 14,584 5.16
- ---------------------------------------------------------------------------------------------------------
2021 105,862 33,030 8,983 63,850 10,938 5.84
=========================================================================================================
</TABLE>
<PAGE>
1/3/97 PANDA-BRANDYWINE L.P. BRANDY-1.XLS-SCHEDULE A
230MW PEPCO PROJECT Page 1 of 3
INCOME STATEMENT
<TABLE>
<CAPTION>
1 2 3 4 5
Year Ended Year Ended Year Ended Year Ended Year Ended
Dec-1996 Dec-1997 Dec-1998 Dec-1999 Dec-2000
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales Revenue:
Capacity Revenue (1) $0 $26,878,878 $26,418,245 $43,020,081 $43,883,932
Energy Sales - Unit #1 2,247,247 12,335,863 13,063,601 13,467,031 13,978,187
Energy Sales - Unit #2 1,390,760 7,973,892 8,738,588 9,165,628 9,603,410
Energy - Variable O&M 501,742 2,921,953 3,104,449 3,188,704 3,273,583
Distilled Water Sales 3,000 18,000 18,000 18,000 18,000
Firm Transportation Capacity
Release 29,005 210,937 186,426 187,346 188,326
Interest Income 28,854 258,899 479,848 664,205 820,944
--------------------------------------------------------------
Total Revenues 4,200,608 50,598,422 52,009,156 69,710,995 71,766,383
Fuel Expenses:
Fuel Cost - Unit #1 1,960,982 10,839,710 11,514,019 11,920,797 12,329,220
Fuel Cost - Unit #2 1,086,253 6,210,345 6,853,239 7,233,568 7,628,071
Firm Transportation 434,618 2,646,824 2,686,526 2,726,824 2,767,727
--------------------------------------------------------------
Total Fuel Expenses 3,481,854 19,696,879 21,053,784 21,881,189 22,725,017
Operating Expenses:
Water Usage 115,284 671,437 705,609 715,662 725,617
Water Discharge & Chemical Usage 79,801 468,400 496,083 507,091 518,181
Distilled Water Operating Costs 56,553 339,316 349,495 359,980 370,780
O&M Contract Costs 254,800 1,581,190 1,628,626 1,677,484 1,727,809
Consumables 27,364 587,352 604,973 623,122 641,815
Administrative Expenses 39,700 403,200 415,296 427,755 440,588
Insurance 95,733 488,600 503,258 518,356 533,906
Purchased Electricity 77,350 470,888 485,015 499,565 514,552
Letters of Credit Fee 17,500 105,000 105,000 105,000 105,000
Property Taxes 266,000 2,620,500 2,483,407 2,339,772 2,189,399
Depreciation & Amortization 0 0 0 0 0
--------------------------------------------------------------
Total Operating Expenses 1,030,085 7,735,884 7,776,762 7,773,788 7,767,647
EBIT (311,331) 23,165,659 23,178,610 40,056,018 41,273,718
Annual Lease Payments 0 10,442,037 10,411,906 19,975,918 20,660,454
--------------------------------------------------------------
Net Income ($311,331) $12,723,623 $12,766,704 $20,080,100 $20,613,264
--------------------------------------------------------------
--------------------------------------------------------------
UNDER PEPCO SCENARIO
(1) Capacity Revenue $0 $22,057,384 $21,546,894 $38,068,287 $38,888,920
<CAPTION>
6 7 8 9 10
Year Ended Year Ended Year Ended Year Ended Year Ended
Dec-2001 Dec-2002 Dec-2003 Dec-2004 Dec-2005
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales Revenue:
Capacity Revenue (1) $54,129,836 $54,955,411 $55,625,567 $55,709,532 $55,622,785
Energy Sales - Unit #1 16,043,523 17,404,168 17,309,925 17,178,247 18,232,421
Energy Sales - Unit #2 10,808,443 11,903,802 10,720,713 9,435,532 11,139,565
Energy - Variable O&M 3,621,366 3,912,660 3,718,100 3,510,789 3,850,304
Distilled Water Sales 18,000 18,000 18,000 18,000 18,000
Firm Transportation Capacity
Release 134,091 87,041 161,379 237,628 192,410
Interest Income 943,792 959,428 961,243 965,509 982,980
---------------------------------------------------------------
Total Revenues 85,699,050 89,240,510 88,514,927 87,055,237 90,038,466
Fuel Expenses:
Fuel Cost - Unit #1 13,549,824 14,802,309 14,977,419 15,135,711 16,158,953
Fuel Cost - Unit #2 8,609,867 9,565,222 8,702,096 7,742,292 9,203,946
Firm Transportation 2,809,242 2,851,381 2,894,152 2,937,564 2,981,627
--------------------------------------------------------------
Total Fuel Expenses 24,968,934 27,218,912 26,573,667 25,815,568 28,344,527
Operating Expenses:
Water Usage 781,032 837,913 786,318 733,157 775,511
Water Discharge & Chemical Usage 562,144 607,843 574,927 540,310 576,068
Distilled Water Operating Costs 381,903 393,360 405,161 417,316 429,835
O&M Contract Costs 1,779,643 1,833,033 1,888,024 1,944,664 2,003,004
Consumables 661,070 680,902 701,329 722,369 744,040
Administrative Expenses 453,805 467,419 481,442 495,885 510,762
Insurance 549,924 566,421 583,414 600,916 618,944
Purchased Electricity 529,989 545,888 562,265 579,133 596,507
Letters of Credit Fee 105,000 105,000 105,000 105,000 105,000
Property Taxes 2,032,074 1,867,581 1,695,695 1,599,555 1,583,926
Depreciation & Amortization 0 0 0 0 0
---------------------------------------------------------------
Total Operating Expenses 7,836,584 7,905,360 7,783,574 7,738,306 7,943,597
EBIT 52,893,533 54,116,237 54,157,685 53,501,364 53,750,342
Annual Lease Payments 27,265,071 27,938,252 27,906,988 27,456,191 27,602,191
---------------------------------------------------------------
Net Income $25,628,463 $26,177,985 $26,250,698 $26,045,172 $26,148,152
---------------------------------------------------------------
---------------------------------------------------------------
UNDER PEPCO SCENARIO
(1) Capacity Revenue $49,090,875 $49,871,035 $50,490,985 $50,521,911 $50,388,637
</TABLE>
<PAGE>
1/3/97 PANDA-BRANDYWINE L.P. BRANDY-1.XLS-SCHEDULE A
230MW PEPCO PROJECT Page 2 of 3
INCOME STATEMENT
<TABLE>
<CAPTION>
11 12 13 14 15
Year Ended Year Ended Year Ended Year Ended Year Ended
Dec-2006 Dec-2007 Dec-2008 Dec-2009 Dec-2010
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales Revenue:
Capacity Revenue (1) $56,267,003 $59,983,960 $61,229,005 $63,065,410 $66,689,832
Energy Sales - Unit #1 18,679,732 18,752,137 18,883,190 18,979,218 19,340,994
Energy Sales - Unit #2 12,563,328 12,672,731 12,800,534 12,919,888 13,229,399
Energy - Variable O&M 4,062,009 4,063,946 4,074,169 4,087,597 4,153,451
Distilled Water Sales 18,000 18,000 18,000 18,000 18,000
Firm Transportation Capacity
Release 190,915 220,600 246,986 271,927 290,338
Interest Income 1,022,412 1,060,490 1,084,750 1,127,659 1,195,268
---------------------------------------------------------------
Total Revenues 92,803,400 96,771,863 98,336,634 100,469,698 104,917,281
Fuel Expenses:
Fuel Cost - Unit #1 16,519,819 16,887,439 17,295,205 17,712,082 18,216,727
Fuel Cost - Unit #2 10,283,142 10,372,200 10,512,376 10,676,801 10,997,895
Firm Transportation 3,026,352 3,071,747 3,117,823 3,164,591 3,212,060
---------------------------------------------------------------
Total Fuel Expenses 29,829,313 30,331,386 30,925,404 31,553,474 32,426,682
Operating Expenses:
Water Usage 819,069 809,994 801,772 794,457 787,908
Water Discharge & Chemical Usage 613,274 611,327 609,971 609,262 609,107
Distilled Water Operating Costs 442,730 456,012 469,693 483,783 498,297
O&M Contract Costs 2,063,094 2,124,987 2,188,737 2,254,399 2,322,031
Consumables 766,361 789,352 813,033 837,424 862,546
Administrative Expenses 526,085 541,867 558,123 574,867 592,113
Insurance 637,512 656,638 676,337 696,627 717,526
Purchased Electricity 614,402 632,834 651,819 671,374 691,515
Letters of Credit Fee 105,000 105,000 105,000 105,000 105,000
Property Taxes 1,567,032 1,532,315 1,512,427 1,491,130 1,468,376
Depreciation & Amortization 0 0 0 0 0
---------------------------------------------------------------
Total Operating Expenses 8,154,560 8,260,327 8,386,911 8,518,323 8,654,419
EBIT 54,819,527 58,180,150 59,024,319 60,397,900 63,836,180
Annual Lease Payments 28,188,414 30,071,266 30,528,635 31,284,930 33,212,359
---------------------------------------------------------------
Net Income $26,631,113 $28,108,884 $28,495,684 $29,112,971 $30,623,822
---------------------------------------------------------------
---------------------------------------------------------------
UNDER PEPCO SCENARIO
(1) Capacity Revenue $50,956,347 $54,628,214 $55,828,128 $57,619,330 $61,205,964
<CAPTION>
16 17 18 19 20
Year Ended Year Ended Year Ended Year Ended Year Ended
Dec-2011 Dec-2012 Dec-2013 Dec-2014 Dec-2015
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales Revenue:
Capacity Revenue (1) $70,441,722 $77,606,660 $80,403,019 $81,867,003 $78,751,619
Energy Sales - Unit #1 19,821,007 20,665,931 20,885,543 21,560,181 21,776,725
Energy Sales - Unit #2 12,916,275 12,640,803 12,384,800 12,352,001 12,006,864
Energy - Variable O&M 4,103,535 4,071,895 4,049,422 4,109,050 4,074,948
Distilled Water Sales 18,000 18,000 18,000 18,000 18,000
Firm Transportation Capacity
Release 329,986 363,393 395,328 418,023 460,250
Interest Income 1,295,514 1,379,908 1,419,220 1,421,486 1,369,882
---------------------------------------------------------------
Total Revenues 108,926,038 116,746,590 119,555,333 121,745,743 118,458,288
Fuel Expenses:
Fuel Cost - Unit #1 17,553,643 17,436,740 17,727,164 18,151,375 18,185,087
Fuel Cost - Unit #2 10,728,017 10,558,168 10,389,253 10,406,250 10,159,351
Firm Transportation 3,260,240 3,309,144 3,358,781 3,409,163 3,460,300
---------------------------------------------------------------
Total Fuel Expenses 31,541,901 31,304,052 31,475,198 31,966,788 31,804,738
Operating Expenses:
Water Usage 770,618 755,077 741,487 729,883 720,780
Water Discharge & Chemical Usage 600,551 593,205 587,258 582,772 580,200
Distilled Water Operating Costs 513,246 528,643 544,503 560,838 577,663
O&M Contract Costs 2,391,692 2,463,442 2,537,346 2,613,466 2,691,870
Consumables 888,423 915,075 942,528 970,803 999,927
Administrative Expenses 609,876 628,172 647,018 666,428 686,421
Insurance 739,051 761,223 784,060 807,581 831,809
Purchased Electricity 712,260 733,628 755,637 778,306 801,655
Letters of Credit Fee 105,000 105,000 105,000 105,000 105,000
Property Taxes 1,444,116 1,418,298 1,390,870 1,361,777 1,330,965
Depreciation & Amortization 0 0 0 0 0
---------------------------------------------------------------
Total Operating Expenses 8,774,833 8,901,765 9,035,705 9,176,854 9,326,290
EBIT 68,609,304 76,540,773 79,044,429 80,602,101 77,327,260
Annual Lease Payments 35,922,147 40,437,452 41,855,210 42,739,415 41,168,222
---------------------------------------------------------------
Net Income $32,687,157 $36,103,321 $37,189,220 $37,862,686 $36,159,038
---------------------------------------------------------------
---------------------------------------------------------------
UNDER PEPCO SCENARIO
(1) Capacity Revenue $64,956,064 $72,119,042 $74,913,344 $76,375,068 $73,770,910
</TABLE>
<PAGE>
1/3/97 PANDA-BRANDYWINE L.P. BRANDY-1.XLS-SCHEDULE A
230MW PEPCO PROJECT Page 3 of 3
INCOME STATEMENT
<TABLE>
21 22 23 24 25 26
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Total
Dec-2016 Dec-2017 Dec-2018 Dec-2019 Dec-2020 Dec-2021 Contract
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Sales Revenue:
Capacity Revenue (1) $70,338,312 $72,477,742 $74,697,153 $76,946,583 $79,235,876 $67,684,934 $1,553,930,099
Energy Sales - Unit #1 22,335,104 22,934,808 23,550,046 24,536,466 25,130,212 21,412,060 480,503,567
Energy Sales - Unit #2 12,705,511 13,463,457 14,276,427 15,348,777 16,215,493 13,795,743 303,172,364
Energy - Variable O&M 4,205,986 4,347,556 4,495,983 4,717,294 4,866,079 4,162,468 99,249,036
Distilled Water Sales 18,000 18,000 18,000 18,000 18,000 15,000 450,000
Firm Transportation Capacity
Release 466,355 469,212 469,724 463,130 463,916 389,552 7,524,224
Interest Income 1,049,092 771,791 784,007 796,589 809,549 408,062 24,061,379
----------------------------------------------------------------------------------------------
Total Revenues 111,118,361 114,482,566 118,291,338 122,826,839 126,739,125 107,867,819 4,022,820,767
Fuel Expenses:
Fuel Cost - Unit #1 18,760,524 19,377,851 20,005,903 20,732,878 21,394,956 18,274,862 417,421,199
Fuel Cost - Unit #2 10,627,669 11,215,058 11,927,892 12,862,987 13,634,071 11,601,748 249,787,780
Firm Transportation 3,512,205 3,564,888 3,618,361 3,672,637 3,727,726 3,153,035 79,375,540
----------------------------------------------------------------------------------------------
Total Fuel Expenses 32,900,398 34,157,797 35,552,156 37,268,502 38,756,753 33,029,645 746,584,519
Operating Expenses:
Water Usage 734,680 749,686 765,553 782,336 800,180 675,713 19,086,734
Water Discharge & Chemical Usage 596,228 613,397 631,531 650,696 671,040 571,358 14,662,028
Distilled Water Operating Costs 594,993 612,842 631,228 650,165 669,669 574,800 12,312,804
O&M Contract Costs 2,772,626 2,855,805 2,941,479 3,029,724 3,120,615 2,678,528 57,368,119
Consumables 1,029,925 1,060,823 1,092,648 1,125,427 1,159,190 994,971 21,242,792
Administrative Expenses 707,014 728,224 750,071 772,573 795,750 683,019 14,603,472
Insurance 856,763 882,466 908,940 936,208 964,294 827,686 17,744,192
Purchased Electricity 825,705 850,476 875,990 902,270 929,338 797,682 17,086,044
Letters of Credit Fee 105,000 105,000 105,000 105,000 105,000 87,500 2,625,000
Property Taxes 1,298,375 1,263,949 1,227,626 1,189,346 1,149,042 1,091,590 40,415,143
Depreciation & Amortization 0 0 0 0 0 0 0
----------------------------------------------------------------------------------------------
Total Operating Expenses 9,521,308 9,722,668 9,930,066 10,143,744 10,364,120 8,982,846 217,146,327
EBIT 68,696,655 70,602,101 72,809,116 75,414,592 77,618,252 65,855,328 3,059,089,921
Annual Lease Payments 31,933,556 14,583,866 14,583,866 14,583,866 14,583,866 10,937,900 656,273,975
----------------------------------------------------------------------------------------------
Net Income $36,763,099 $56,018,234 $58,225,250 $60,830,726 $63,034,386 $54,917,428 $2,402,815,946
----------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------
UNDER PEPCO SCENARIO
(1) Capacity Revenue $67,927,123 $70,067,562 $72,288,012 $74,538,467 $76,828,783 $65,679,242 $1,553,930,099
</TABLE>
<TABLE>
1/3/97 PANDA-BRANDYWINE L.P. BRANDY-1.XLS-Schedule B
230MW PEPCO PROJECT Page 1 of 3
CASH FLOW STATEMENT
1 2 3 4 5
Year Ended Year Ended Year Ended Year Ended Year Ended
Dec-1996 Dec-1997 Dec-1998 Dec-1999 Dec-2000
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net Income $ (311,331) $12,723,623 $12,766,704 $20,080,100 $20,613,264
+ Depreciation & Amortization 0 0 0 0 0
+ Lease Payments 0 10,442,037 10,411,906 19,975,918 20,660,454
----------- ----------- ----------- ----------- -----------
Cash Flow Available for
Lease Payment (311,331) 23,165,659 23,178,610 40,056,018 41,273,718
Lease Payments 0 (10,442,037) (10,411,906) (19,975,918) (20,660,454)
Reserves:
Overhaul Reserve/Cap Ex (125,000) (2,615,000) (1,418,610) (2,245,573) (1,841,232)
Lease Reserve 0 (2,805,953) (4,782,006) (342,268) (3,302,308)
+ Contingency/Raytheon (3) 7,986,000 1,091,000 0 0 0
----------- ----------- ----------- ----------- -----------
Total Reserves 7,861,000 (4,329,953) (6,200,616) (2,587,840) (5,143,540)
NET CASH FLOW (1)(3) $7,549,669 $7,513,670 $6,566,088 $17,492,259 $15,469,724
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
LEASE COVERAGES (2)(3) 2.22 2.23 2.01 2.00
UNDER PEPCO SCENARIO
(1) Net Cash Flow $7,549,669 $3,572,177 $1,694,736 $12,540,465 $10,474,712
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
(2) Lease Coverages 1.76 1.76 1.76 1.76
(3) In the event Raytheon receives the full disputed amount of its bonus,
additions to reserves could be $0.88 million more in 1997, resulting in Net
Cash Flow of $6,613,670 for Year Ended Dec-1997. The size of the Raytheon
Bonus does not affect Lease Coverages.
<CAPTION>
6 7 8 9 10
Year Ended Year Ended Year Ended Year Ended Year Ended
Dec-2001 Dec-2002 Dec-2003 Dec-2004 Dec-2005
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net Income $25,628,463 $26,177,985 $26,250,698 $26,045,172 $26,148,152
+ Depreciation & Amortization 0 0 0 0 0
+ Lease Payments 27,265,071 27,938,252 27,906,988 27,456,191 27,602,191
----------- ----------- ----------- ----------- -----------
Cash Flow Available for
Lease Payment 52,893,533 54,116,237 54,157,685 53,501,364 53,750,342
Lease Payments (27,265,071) (27,938,252) (27,906,988) (27,456,191) (27,602,191)
Reserves:
Overhaul Reserve/Cap Ex (2,190,936) (1,515,589) (953,234) (1,049,415) (3,622,816)
Lease Reserve (336,591) 15,632 225,398 (73,000) (293,111)
+ Contingency/Raytheon (3) 0 0 0 0 0
----------- ----------- ----------- ----------- -----------
Total Reserves (2,527,527) (1,499,956) (727,836) (1,122,415) (3,915,928)
NET CASH FLOW (1) $23,100,936 $24,678,029 $25,522,862 $24,922,757 $22,232,224
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
LEASE COVERAGES (2) 1.94 1.94 1.94 1.95 1.95
UNDER PEPCO SCENARIO
(1) Net Cash Flow $18,061,975 $19,593,654 $20,388,280 $19,735,137 $16,998,075
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
(2) Lease Coverages 1.76 1.76 1.76 1.76 1.76
</TABLE>
<PAGE>
<TABLE>
1/3/97 PANDA-BRANDYWINE L.P. BRANDY-1.XLS-Schedule B
230MW PEPCO PROJECT Page 2 of 3
CASH FLOW STATEMENT
11 12 13 14 15
Year Ended Year Ended Year Ended Year Ended Year Ended
Dec-2006 Dec-2007 Dec-2008 Dec-2009 Dec-2010
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net Income $26,631,113 $28,108,884 $28,495,684 $29,112,971 $30,623,822
+ Depreciation & Amortization 0 0 0 0 0
+ Lease Payments 28,188,414 30,071,266 30,528,635 31,284,930 33,212,359
----------- ----------- ----------- ----------- -----------
Cash Flow Available for
Lease Payment 54,819,527 58,180,150 59,024,319 60,397,900 63,836,180
Lease Payments (28,188,414) (30,071,266) (30,528,635) (31,284,930) (33,212,359)
Reserves:
Overhaul Reserve/Cap Ex (3,816,916) (1,090,355) (1,857,606) (1,166,166) (2,812,214)
Lease Reserve (941,426) (228,685) (378,147) (963,714) (1,354,894)
+ Contingency/Raytheon (3) 0 0 0 0 0
----------- ----------- ----------- ----------- -----------
Total Reserves (4,758,342) (1,319,039) (2,235,754) (2,129,880) (4,167,108)
NET CASH FLOW (1) $21,872,771 $26,789,845 $26,259,930 $26,983,090 $26,456,713
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
LEASE COVERAGES (2) 1.94 1.93 1.93 1.93 1.92
UNDER PEPCO SCENARIO
(1) Net Cash Flow $16,562,115 $21,434,099 $20,859,053 $21,537,010 $20,972,846
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
(2) Lease Coverages 1.76 1.76 1.76 1.76 1.76
<CAPTION>
16 17 18 19 20
Year Ended Year Ended Year Ended Year Ended Year Ended
Dec-2011 Dec-2012 Dec-2013 Dec-2014 Dec-2015
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net Income $32,687,157 $36,103,321 $37,189,220 $37,862,686 $36,159,038
+ Depreciation & Amortization 0 0 0 0 0
+ Lease Payments 35,922,147 40,437,452 41,855,210 42,739,415 41,168,222
----------- ----------- ----------- ----------- -----------
Cash Flow Available for
Lease Payment 68,609,304 76,540,773 79,044,429 80,602,101 77,327,260
Lease Payments (35,922,147) (40,437,452) (41,855,210) (42,739,415) (41,168,222)
Reserves:
Overhaul Reserve/Cap Ex (2,828,729) (1,373,678) (1,334,019) (5,825,052) (1,426,826)
Lease Reserve (2,257,653) (708,879) (442,103) 785,597 1,725,718
+ Contingency/Raytheon (3) 0 0 0 0 0
----------- ----------- ----------- ----------- -----------
Total Reserves (5,086,381) (2,082,557) (1,776,122) (5,039,455) 298,892
NET CASH FLOW (1) $27,600,776 $34,020,764 $35,413,098 $32,823,230 $36,457,930
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
LEASE COVERAGES (2) 1.91 1.89 1.89 1.89 1.88
UNDER PEPCO SCENARIO
(1) Net Cash Flow $22,115,118 $28,533,145 $29,923,422 $27,331,295 $31,477,220
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
(2) Lease Coverages 1.76 1.76 1.76 1.76 1.76
</TABLE>
<PAGE>
<TABLE>
1/3/97 PANDA-BRANDYWINE L.P. BRANDY-1.XLS-Schedule B
230MW PEPCO PROJECT Page 3 of 3
CASH FLOW STATEMENT
21 22 23 24 25 26
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Total
Dec-2016 Dec-2017 Dec-2018 Dec-2019 Dec-2020 Dec-2021 Contract
----------- ----------- ----------- ----------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Income $36,763,099 $56,018,234 $58,225,250 $60,830,726 $63,034,386 $54,917,428 $2,402,815,946
+ Depreciation & Amortization 0 0 0 0 0 0 0
+ Lease Payments 31,933,556 14,583,866 14,583,866 14,583,866 14,583,866 10,937,900 656,273,975
----------- ----------- ----------- ----------- ----------- ----------- --------------
Cash Flow Available for
Lease Payment 68,696,655 70,602,101 72,809,116 75,414,592 77,618,252 65,855,328 3,059,089,921
Lease Payments (31,933,556) (14,583,866) (14,583,866) (14,583,866) (14,583,866) (10,937,900) (656,273,975)
Reserves:
Overhaul Reserve/Cap Ex (5,372,541) (1,526,110) (1,681,291) (4,780,564) (1,798,482) 5,324,714 (50,943,239)
Lease Reserve 11,566,460 0 0 0 0 7,291,933 2,400,000
+ Contingency/Raytheon (3) 0 0 0 0 7,000,000 0 16,077,000
----------- ----------- ----------- ----------- ----------- ----------- --------------
Total Reserves 6,193,919 (1,526,110) (1,681,291) (4,780,564) 5,201,518 12,616,647 (32,466,239)
NET CASH FLOW (1) $42,957,018 $54,492,125 $56,543,959 $56,050,162 $68,235,905 $67,534,075 $2,370,349,707
----------- ----------- ----------- ----------- ----------- ----------- --------------
----------- ----------- ----------- ----------- ----------- ----------- --------------
LEASE COVERAGES (2) 2.15 4.84 4.99 5.17 5.32 6.02
UNDER PEPCO SCENARIO
(1) Net Cash Flow $40,545,829 $52,081,945 $54,134,818 $53,642,046 $65,828,812 $65,528,383 $2,143,742,565
----------- ----------- ----------- ----------- ----------- ----------- --------------
----------- ----------- ----------- ----------- ----------- ----------- --------------
(2) Lease Coverages 2.08 4.68 4.83 5.01 5.16 5.84
</TABLE>
<PAGE>
1/3/97 BRANDY-1.XLS-Schedule C
Page 1 of 1
PANDA-BRANDYWINE L.P.
230MW PEPCO PROJECT
DEVELOPMENT ASSUMPTIONS
LEASE FINANCING:
Leased Amount $215,000,000
Lease Term (Years) 20
Average Life 14.9
Implicit rate (Pre-tax) 10.20%
Treasury Bond Rate (Base) 7.38%
Treasury Bond Rate (Current) 6.40%
OTHER FINANCING ASSUMPTIONS:
Debt Service Reserve $2,400,000
Letters of Credit (PEPCO, Fuel Supplier, etc.) $7,000,000
Annual Letter of Credit Fee 1.50%
Interest Income Rate 5.00%
12 Year Treasury Bill Rate (Capacity Adjustment) (1) 7.94%
Annual GNP Deflator 3.00%
Actual Commercial Operations Date Oct-96
Months of Operation During 1996 (1st calendar year) 2
Months of Operation During 2021 (last calendar year) 10
Escalator Base Month Jun-94
Annual CPI Deflator 3.00%
TAX ASSUMPTIONS:
Federal Tax Rate 35.00%
State Tax Rate 5.00%
Tax Depreciation Rate (Declining Value) 150.00%
Tax Depreciation Period 20
Amortization Period - Transaction Costs 20
UNDER PEPCO SCENARIO
(1) 12 Year Treasury Bill Rate (Capacity Adjustment) 6.40%
PROJECT COSTS
Cogen Construction Costs 119,884,197
Distilled Water Construction Costs 3,400,000
Electrical Transmission Line & Fiber Optics 4,005,843
Effluent Water Pipeline 9,791,490
Columbia Gas Pipeline Expansion 9,058,249
PEPCO - Electrical Interconnect 2,785,269
PEPCO - RTU/AGC Communications 92,403
Sales Tax on 10% of Construction Costs 156,033
Water Wells on Site 401,825
Building Permit 287,297
Builder's Risk Insurance 594,645
Other Construction Costs 58,682
Land Purchase Costs (Including Title Insurance) 3,914,213
Right-of Way Payments 1,020,270
Outside Engineering Costs 2,505,267
Permitting & Regulatory Costs 1,654,055
Legal Costs 2,732,018
Public Relations 326,076
Interest During Development/Construction 17,564,142
Other Financing Costs 10,141,274
Management & Administrative Costs 4,203,859
Natural Gas Reserves Development 3,165,981
Furniture & Office Equipment 419,879
O&M Contractor 1,079,261
Fuel Purchased During Construction (272,413)
General Liability Insurance 91,338
Spare Parts Inventory 1,369,672
Fuel Oil Inventory 1,516,187
Initial Lease Reserve (Cash) 2,400,000
Initial O&M Reserve (Cash) 1,000,000
Initial Warranty Reserve (Cash) 750,000
Contingency 8,902,988
-----------
Total Project Costs 215,000,000
-----------
-----------
<PAGE>
1/3/97 PANDA-BRANDYWINE LP. BRANDY-1.XLS-SCHEDULE D
230MW PEPCO PROJECT Page 1 of 6
OPERATING ASSUMPTIONS
<TABLE>
1 2 3 4 5
Year Ended Year Ended Year Ended Year Ended Year Ended
Dec-1996 Dec-1997 Dec-1998 Dec-1999 Dec-2000
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING ASSUMPTIONS:
Capacity in Kilowatts 230,000 230,000 230,000 230,000 230,000
Weighted Average Energy Output - Unit #1 120,040 118,280 117,840 117,600 117,340
Weighted Average Energy Output - Unit #2 120,040 118,280 117,840 117,600 117,340
Firm Dispatch Energy Production 99,000 99,000 99,000 99,000 99,000
Hours Per Year Running Unit #1 (Full Load) 809 4,565 4,664 4,624 4,581
Hours Per Year Running Unit #2 (Full Load) 491 2,895 3,061 3,094 3,129
Availability Factor 96.5% 96.5% 96.4% 96.4% 96.4%
Contract Heat Rate (BTU/KWH) 8,461 8,461 8,461 8,461 8,461
Weighted Average Heat Rate - Unit #1 (BTU/KWH) 7,939 8,048 8,075 8,106 8,141
Weighted Average Heat Rate - Unit #2 (BTU/KWH) 7,863 7,954 7,984 8,011 8,041
Actual Annual Energy - Unit #1 (MWH) 97,149 539,966 549,547 543,799 537,563
Actual Annual Energy - Unit #2 (MWH) 58,921 342,452 360,677 363,899 367,155
Annual Fuel Usage - Unit #1 (DT's) 771,263 4,345,650 4,437,592 4,408,031 4,376,297
Annual Fuel Usage - Unit #2 (DT's) 463,298 2,723,860 2,879,648 2,915,191 2,952,292
ELECTRICITY REVENUES - CAPACITY:
Capital Costs/KW Month (Unadjusted Contract Year) $13.74 $13.92 $14.12 $14.33 $16.97
Capital Costs/KW Year $27.48 $165.24 $167.44 $169.86 $177.24
Capital Costs Per KWH $0.03396 $0.03620 $0.03590 $0.03673 $0.03869
GNP Deflator Adjustment/KW Year $1.52 $9.16 $9.28 $9.42 $9.83
GNP Deflator Adjustment Per KWH $0.00188 $0.00201 $0.00199 $0.00204 $0.00215
Interest Rate Adjustment/KW Year(1) ($0.13) ($0.78) ($0.79) ($0.80) ($0.81)
Interest Rate Adjustment Per KWH(1) ($0.00016) ($0.00017) ($0.00017) ($0.00017) ($0.00018)
Scheduled Adjustment/KW Year ($30.30) ($65.22) ($69.57) $0.00 ($4.35)
Scheduled Adjustment Per KWH ($0.03744) ($0.01429) ($0.01492) $0.00000 ($0.00095)
Contingent Adjustment/KW Year $0.00 $0.00 $0.00 $0.00 $0.00
Contingent Adjustment Per KWH $0.00000 $0.00000 $0.00000 $0.00000 $0.00000
Total Capacity Rate/KW Year ($1.42) $108.41 $106.37 $178.48 $181.91
Total Capacity Rate/KW Month ($0.12) $9.03 $8.86 $14.87 $15.16
Total Capacity Rate Per KWH ($0.00176) $0.02375 $0.02281 $0.03860 $0.03971
ELECTRICITY REVENUES - ENERGY: ESCALATION
Energy Rate Per KWH (Weighted Average) $0.02331 $0.02302 $0.02395 $0.02493 $0.02607
Variable O&M Rate Per KWH 3.00% $0.00321 $0.00331 $0.00341 $0.00351 $0.00362
Total Energy Rate Per KWH $0.02652 $0.02633 $0.02736 $0.02845 $0.02968
TOTAL ELECTRICITY REVENUES - CAPACITY & ENERGY $0.02477 $0.05007 $0.05017 $0.06704 $0.06939
DISTILLED WATER REVENUES:
Water Delivery (Days/Year) 25 150 150 150 150
Daily Distilled Water Sales Volume (Gal) 80,000 80,000 80,000 80,000 80,000
Distilled Water Sales Price ($/000 Gal) $1.50 $1.50 $1.50 $1.50 $1.50
CONTRACT FUEL RATES (ENERGY REVENUE):
FGRR - Firm Gas Reserve Rate ($/DT) $2.80 $2.91 $3.03 $3.15 $3.28
FGMR - Firm Gas Market Rate ($/DT) $2.62 $2.69 $2.81 $2.93 $3.06
IGR - Interruptible Gas Rate ($/DT) $2.41 $2.49 $2.60 $2.72 $2.89
OR - Oil Rate ($/DT) $4.28 $4.19 $4.31 $4.43 $4.55
<CAPTION>
6 7 8 9 10
Year Ended Year Ended Year Ended Year Ended Year Ended
Dec-2001 Dec-2002 Dec-2003 Dec-2004 Dec-2005
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING ASSUMPTIONS:
Capacity in Kilowatts 230,000 230,000 230,000 230,000 230,000
Energy Production Capacity - Unit #1 118,840 117,940 117,690 117,450 120,000
Energy Production Capacity - Unit #1 118,840 117,940 117,690 117,450 120,000
Energy Production Capacity - Unit #1 118,840 117,940 117,690 117,450 120,000
Weighted Average Energy Output - Unit #1 118,840 117,940 117,690 117,450 120,000
Energy Production Capacity - Unit #2 118,840 117,940 117,690 117,450 120,000
Energy Production Capacity - Unit #2 118,840 117,940 117,690 117,450 120,000
Energy Production Capacity - Unit #2 118,840 117,940 117,690 117,450 120,000
Weighted Average Energy Output - Unit #2 118,840 117,940 117,690 117,450 120,000
Firm Dispatch Energy Production 99,000 99,000 99,000 99,000 99,000
Hours Per Year Running Unit #1 (Full Load) 4,841 5,098 4,920 4,742 4,791
Hours Per Year Running Unit #2 (Full Load) 3,336 3,544 3,070 2,598 2,859
Availability Factor 96.4% 96.4% 96.5% 96.7% 96.6%
Contract Heat Rate (BTU/KWH) 8,461 8,461 8,461 8,461 8,461
Actual Unit #1 Heat Rate (BTU/KWH) 8,086 8,141 8,174 8,209 8,166
Actual Unit #1 Heat Rate (BTU/KWH) 8,086 8,141 8,174 8,209 8,166
Actual Unit #1 Heat Rate (BTU/KWH) 8,086 8,141 8,174 8,209 8,166
Weighted Average Heat Rate - Unit #1 (BTU/KWH) 8,086 8,141 8,174 8,209 8,166
Actual Unit #2 Heat Rate (BTU/KWH) 8,024 8,053 8,077 8,103 8,131
Actual Unit #2 Heat Rate (BTU/KWH) 8,024 8,053 8,077 8,103 8,131
Actual Unit #2 Heat Rate (BTU/KWH) 8,024 8,053 8,077 8,103 8,131
Weighted Average Heat Rate - Unit #2 (BTU/KWH) 8,024 8,053 8,077 8,103 8,131
Actual Annual Energy - Unit #1 (MWH) 575,269 601,249 579,052 556,957 574,883
Actual Annual Energy - Unit #2 (MWH) 396,414 418,016 361,319 305,119 343,023
Summer Fuel Usage - Unit #1 (DT's) 1,443,222 1,575,031 1,450,050 1,325,449 1,445,682
Shoulder Fuel Usage - Unit #1 (DT's) 2,077,245 2,121,548 2,116,196 2,111,134 1,989,633
Winter Fuel Usage - Unit #1 (DT's) 1,131,162 1,198,186 1,166,923 1,135,476 1,259,181
Annual Fuel Usage - Unit #1 (DT's) 4,651,629 4,894,765 4,733,169 4,572,059 4,694,496
Summer Fuel Usage - Unit #2 (DT's) 1,011,912 1,091,110 990,297 889,913 980,521
Shoulder Fuel Usage - Unit #2 (DT's) 1,491,837 1,504,765 1,225,460 946,416 972,888
Winter Fuel Usage - Unit #2 (DT's) 677,074 770,412 702,613 636,048 835,714
Annual Fuel Usage - Unit #2 (DT's) 3,180,823 3,366,286 2,918,370 2,472,377 2,789,122
ELECTRICITY REVENUES - CAPACITY:
Capital Costs/KW Month (Unadjusted Contract Year) $18.03 $18.27 $18.27 $18.26 $18.26
Capital Costs/KW Year $205.76 $216.84 $219.24 $219.22 $219.12
Capital Costs Per KWH $0.04251 $0.04253 $0.04456 $0.04623 $0.04574
GNP Deflator Adjustment/KW Year $11.41 $12.02 $12.16 $12.16 $12.15
GNP Deflator Adjustment Per KWH $0.00236 $0.00236 $0.00247 $0.00256 $0.00254
Interest Rate Adjustment/KW Year(1) ($0.81) ($0.82) ($0.83) ($0.84) ($0.84)
Interest Rate Adjustment Per KWH(1) ($0.00017) ($0.00016) ($0.00017) ($0.00018) ($0.00018)
Scheduled Adjustment/KW Year $8.70 $0.00 $0.00 $0.00 $0.00
Scheduled Adjustment Per KWH $0.00180 $0.00000 $0.00000 $0.00000 $0.00000
Contingent Adjustment/KW Year $0.00 $0.00 $0.00 $0.00 $0.00
Contingent Adjustment Per KWH $0.00000 $0.00000 $0.00000 $0.00000 $0.00000
Total Capacity Rate/KW Year $225.05 $228.04 $230.57 $230.54 $230.43
Total Capacity Rate/KW Month $18.75 $19.00 $19.21 $19.21 $19.20
Total Capacity Rate Per KWH $0.04649 $0.04473 $0.04686 $0.04862 $0.04810
Contract Capacity Rate $18.03 $18.27 $18.27 $18.26 $18.26
GNP Deflator Adjustment (Monthly) $1.00 $1.01 $1.01 $1.01 $1.01
GNP Adjusted Capacity Rate $19.03 $19.28 $19.28 $19.27 $19.27
T-Bill Adjustment ($0.07) ($0.07) ($0.07) ($0.07) ($0.07)
T Bill Adjusted Capacity Rate $18.96 $19.21 $19.21 $19.20 $19.20
Treasury Bill Adjustment per Schedule $1.14 $1.15 $1.16 $1.17 $1.19
ELECTRICITY REVENUES - ENERGY:
Energy Rate Per KWH (Weighted Average) $0.02763 $0.02875 $0.02981 $0.03087 $0.03200
Variable O&M Rate Per DT $0.44 $0.45 $0.47 $0.48 $0.50
Variable O&M Rate Per KWH $0.00373 $0.00384 $0.00395 $0.00407 $0.00419
Total Energy Rate Per KWH $0.03136 $0.03259 $0.03376 $0.03494 $0.03619
TOTAL ELECTRICITY REVENUES - CAPACITY & ENERGY $0.07785 $0.07733 $0.08062 $0.08356 $0.08429
DISTILLED WATER REVENUES:
Water Delivery (Days/Year) 150 150 150 150 150
Daily Distilled Water Sales Volume (Gal) 80,000 80,000 80,000 80,000 80,000
Distilled Water Sales Price ($/000 Gal) $1.50 $1.50 $1.50 $1.50 $1.50
CONTRACT FUEL RATES (ENERGY REVENUE):
FGRR - Firm Gas Reserve Rate ($/DT) $3.41 $3.54 $3.61 $3.69 $3.76
FGMR - Firm Gas Market Rate ($/DT) $3.18 $3.31 $3.45 $3.59 $3.74
IGR - Interruptible Gas Rate ($/DT) $3.28 $3.42 $3.55 $3.70 $3.85
OR - Oil Rate ($/DT) $4.73 $4.91 $5.10 $5.30 $5.50
</TABLE>
<PAGE>
1/3/97 PANDA-BRANDYWINE LP. BRANDY-1.XLS-SCHEDULE D
230MW PEPCO PROJECT Page 2 of 6
OPERATING ASSUMPTIONS
<TABLE>
1 2 3 4 5
Year Ended Year Ended Year Ended Year Ended Year Ended
Dec-1996 Dec-1997 Dec-1998 Dec-1999 Dec-2000
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
UNIT #1 - FUEL COST:
FGRR (Reserves) % 80% 57% 56% 57% 58%
FGMR (Market) % 20% 43% 44% 43% 42%
Blended Unit #1 Rate ($/DT) $2.71 $2.70 $2.81 $2.93 $3.08
Blended Unit #1 Rate ($/KWH) $0.02150 $0.02170 $0.02266 $0.02372 $0.02504
UNIT #2 - FUEL COST:
IGR (Spot Gas) % 92% 94% 94% 94% 95%
OR (Fuel Oil) % 8% 6% 6% 6% 5%
Blended Unit #2 Rate ($/DT) $2.74 $2.78 $2.90 $3.02 $3.14
Blended Unit #2 Rate ($/KWH) $0.02158 $0.02215 $0.02316 $0.02419 $0.02526
WATER USAGE:
Gallons Per Hour - Cooling Towers & Distilled Water 90,000 90,000 90,000 90,000 90,000
Gallons Per Hour - Boiler Makeup 0 0 0 0 0
Charles County Waste Water Rate ($/000 Gallons) $1.97 $2.00 $2.03 $2.06 $2.09
WSSC Water Usage Rate ($/000 Gallons) $0.00 $0.00 $0.00 $0.00 $0.00
WATER DISCHARGE & CHEMICAL USAGE:
Gallons Per Hour - Cooling Towers & Distilled Water 17,000 17,000 17,000 17,000 17,000
Gallons Per Hour - Boiler Makeup 21 21 21 21 21
WSSC Water Discharge Rate ($/000 Gallons) $5.12 $5.22 $5.32 $5.43 $5.54
Chemical Usage Rate ($/000 Gallons) $2.10 $2.16 $2.22 $2.29 $2.36
DISTILLED WATER COSTS:
Annual Operating Costs $56,553 $339,316 $349,495 $359,980 $370,780
FIXED OPERATING EXPENSES:
Firm Transportation $434,618 $2,646,824 $2,686,526 $2,726,824 $2,767,727
O&M Contract Costs $254,800 $1,581,190 $1,628,626 $1,677,484 $1,727,809
Consumables $27,364 $587,352 $604,973 $623,122 $641,815
Administrative Expenses $39,700 $403,200 $415,296 $427,755 $440,588
Insurance $95,733 $488,600 $503,258 $518,356 $533,906
Purchased Electricity $77,350 $470,888 $485,015 $499,565 $514,552
Property Taxes $266,000 $2,620,500 $2,483,407 $2,339,772 $2,189,399
TURBINE OVERHAUL RESERVE:
Overhaul Reserve - Beginning of Year $1,000,000 $1,125,000 $1,625,000 $2,375,000 $3,875,000
Additions to Reserve $125,000 $1,500,000 $1,418,610 $2,245,573 $1,841,232
Turbine Overhauls $0 ($1,000,000) ($668,610) ($745,573) ($716,232)
Reserve Disbursement $0 $0 $0 $0 $0
Overhaul Reserve - End of Year $1,125,000 $1,625,000 $2,375,000 $3,875,000 $5,000,000
LEASE RESERVE:
Lease Reserve - Beginning of Year $2,400,000 $2,400,000 $5,205,953 $9,987,959 $10,330,227
Additions to Reserve $0 $2,805,953 $4,782,006 $342,268 $3,302,308
Reserve Disbursement $0 $0 $0 $0 $0
Lease Reserve - End of Year $2,400,000 $5,205,953 $9,987,959 $10,330,227 $13,632,535
(1) See Schedules A and B for the effect of the PEPCO
Scenario on Capacity Revenue, Net Cash Flow and
Lease Coverage Ratios
<CAPTION>
6 7 8 9 10
Year Ended Year Ended Year Ended Year Ended Year Ended
Dec-2001 Dec-2002 Dec-2003 Dec-2004 Dec-2005
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
UNIT #1 - FUEL COST:
FGRR (Reserves) % 54% 52% 53% 56% 54%
FGMR (Market) % 46% 48% 47% 44% 46%
Blended Unit #1 Rate ($/DT) $3.30 $3.43 $3.54 $3.65 $3.75
Blended Unit #1 Rate ($/KWH) $0.02670 $0.02791 $0.02891 $0.02993 $0.03060
UNIT #2 - FUEL COST:
IGR (Spot Gas) % 94% 94% 93% 93% 92%
OR (Fuel Oil) % 6% 6% 7% 7% 8%
Blended Unit #2 Rate ($/DT) $3.27 $3.42 $3.56 $3.71 $3.88
Blended Unit #2 Rate ($/KWH) $0.02626 $0.02752 $0.02876 $0.03008 $0.03158
WATER USAGE:
Gallons Per Hour - Cooling Towers & Distilled Water 90,000 90,000 90,000 90,000 90,000
Gallons Per Hour - Boiler Makeup 0 0 0 0 0
Charles County Waste Water Rate ($/000 Gallons) $2.12 $2.15 $2.19 $2.22 $2.25
WSSC Water Usage Rate ($/000 Gallons) $0.00 $0.00 $0.00 $0.00 $0.00
WATER DISCHARGE & CHEMICAL USAGE:
Gallons Per Hour - Cooling Towers & Distilled Water 17,000 17,000 17,000 17,000 17,000
Gallons Per Hour - Boiler Makeup 21 21 21 21 21
WSSC Water Discharge Rate ($/000 Gallons) $5.65 $5.76 $5.88 $5.99 $6.11
Chemical Usage Rate ($/000 Gallons) $2.43 $2.50 $2.58 $2.66 $2.74
DISTILLED WATER COSTS:
Annual Operating Costs $381,903 $393,360 $405,161 $417,316 $429,835
FIXED OPERATING EXPENSES:
Firm Transportation $2,809,242 $2,851,381 $2,894,152 $2,937,564 $2,981,627
O&M Contract Costs $1,779,643 $1,833,033 $1,888,024 $1,944,664 $2,003,004
Consumables $661,070 $680,902 $701,329 $722,369 $744,040
Administrative Expenses $453,805 $467,419 $481,442 $495,885 $510,762
Insurance $549,924 $566,421 $583,414 $600,916 $618,944
Purchased Electricity $529,989 $545,888 $562,265 $579,133 $596,507
Property Taxes $2,032,074 $1,867,581 $1,695,695 $1,599,555 $1,583,926
TURBINE OVERHAUL RESERVE:
Overhaul Reserve - Beginning of Year $5,000,000 $5,150,000 $5,304,500 $5,463,635 $5,627,544
Additions to Reserve $2,190,936 $1,515,589 $953,234 $1,049,415 $3,622,816
Turbine Overhauls ($2,040,936) ($1,361,089) ($794,099) ($885,506) ($3,453,990)
Reserve Disbursement $0 $0 $0 $0 $0
Overhaul Reserve - End of Year $5,150,000 $5,304,500 $5,463,635 $5,627,544 $5,796,370
Hours of Operation 4,088 4,321 3,995 3,670 3,825
Effective Hours (Adj for Starts) 5,792 6,025 5,699 5,374 5,529
Cumulative Hours 28,849 34,874 40,573 45,947 51,476
Maintenance Requirements 40,000 48,000 56,000 64,000 72,000
Maintenance Dollars $0 $0 $0 $0 $0
Amount Per Turbine Hour $0 $0 $0 $0 $0
Maintenance Costs ($000) per PES $2,041 $1,361 $794 $886 $3,454
Contract Reserve Requirements $0 $0 $0 $0 $0
Inflated Reserve Requirements $0 $0 $0 $0 $0
LEASE RESERVE:
Lease Reserve - Beginning of Year $13,632,535 $13,969,126 $13,953,494 $13,728,096 $13,801,095
Additions to Reserve $336,591 $0 $0 $73,000 $293,111
Reserve Disbursement $0 ($15,632) ($225,398) $0 $0
Lease Reserve - End of Year $13,969,126 $13,953,494 $13,728,096 $13,801,095 $14,094,207
(1) See Schedules A and B for the effect of the PEPCO
Scenario on Capacity Revenue, Net Cash Flow and
Lease Coverage Ratios
</TABLE>
<PAGE>
1/3/97 PANDA-BRANDYWINE LP. BRANDY-1.XLS-SCHEDULE D
230MW PEPCO PROJECT Page 3 of 6
OPERATING ASSUMPTIONS
<TABLE>
11 12 13 14 15
Year Ended Year Ended Year Ended Year Ended Year Ended
Dec-2006 Dec-2007 Dec-2008 Dec-2009 Dec-2010
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING ASSUMPTIONS:
Capacity in Kilowatts 230,000 230,000 230,000 230,000 230,000
Energy Production Capacity - Unit #1 118,120 117,760 117,530 117,270 118,400
Energy Production Capacity - Unit #1 118,120 117,760 117,530 117,270 118,400
Energy Production Capacity - Unit #1 118,120 117,760 117,530 117,270 118,400
Weighted Average Energy Output - Unit #1 118,120 117,760 117,530 117,270 118,400
Energy Production Capacity - Unit #2 118,120 117,760 117,530 117,270 118,400
Energy Production Capacity - Unit #2 118,120 117,760 117,530 117,270 118,400
Energy Production Capacity - Unit #2 118,120 117,760 117,530 117,270 118,400
Weighted Average Energy Output - Unit #2 118,120 117,760 117,530 117,270 118,400
Firm Dispatch Energy Production 99,000 99,000 99,000 99,000 99,000
Hours Per Year Running Unit #1 (Full Load) 4,838 4,728 4,626 4,531 4,443
Hours Per Year Running Unit #2 (Full Load) 3,121 3,027 2,937 2,852 2,771
Availability Factor 96.5% 96.5% 96.5% 96.5% 96.5%
Contract Heat Rate (BTU/KWH) 8,461 8,461 8,461 8,461 8,461
Actual Unit #1 Heat Rate (BTU/KWH) 8,051 8,085 8,119 8,153 8,118
Actual Unit #1 Heat Rate (BTU/KWH) 8,051 8,085 8,119 8,153 8,118
Actual Unit #1 Heat Rate (BTU/KWH) 8,051 8,085 8,119 8,153 8,118
Weighted Average Heat Rate - Unit #1 (BTU/KWH) 8,051 8,085 8,119 8,153 8,118
Actual Unit #2 Heat Rate (BTU/KWH) 8,029 7,997 7,997 8,021 8,045
Actual Unit #2 Heat Rate (BTU/KWH) 8,029 7,997 7,997 8,021 8,045
Actual Unit #2 Heat Rate (BTU/KWH) 8,029 7,997 7,997 8,021 8,045
Weighted Average Heat Rate - Unit #2 (BTU/KWH) 8,029 7,997 7,997 8,021 8,045
Actual Annual Energy - Unit #1 (MWH) 571,503 556,780 543,639 531,401 526,078
Actual Annual Energy - Unit #2 (MWH) 368,668 356,443 345,215 334,409 328,056
Summer Fuel Usage - Unit #1 (DT's) 1,497,696 1,425,555 1,360,148 1,302,162 1,253,764
Shoulder Fuel Usage - Unit #1 (DT's) 1,779,450 1,765,273 1,753,892 1,741,968 1,735,750
Winter Fuel Usage - Unit #1 (DT's) 1,324,025 1,310,741 1,299,766 1,288,378 1,281,191
Annual Fuel Usage - Unit #1 (DT's) 4,601,171 4,501,569 4,413,806 4,332,509 4,270,705
Summer Fuel Usage - Unit #2 (DT's) 1,020,207 951,841 892,545 839,412 799,219
Shoulder Fuel Usage - Unit #2 (DT's) 948,143 924,867 908,132 893,073 889,247
Winter Fuel Usage - Unit #2 (DT's) 991,689 973,764 960,010 949,813 950,747
Annual Fuel Usage - Unit #2 (DT's) 2,960,039 2,850,472 2,760,688 2,682,297 2,639,213
ELECTRICITY REVENUES - CAPACITY:
Capital Costs/KW Month (Unadjusted Contract Year) $19.10 $19.10 $19.18 $20.02 $20.57
Capital Costs/KW Year $220.80 $229.20 $229.36 $231.84 $241.34
Capital Costs Per KWH $0.04564 $0.04848 $0.04959 $0.05116 $0.05432
GNP Deflator Adjustment/KW Year $12.24 $12.71 $12.72 $12.86 $13.38
GNP Deflator Adjustment Per KWH $0.00253 $0.00269 $0.00275 $0.00284 $0.00301
Interest Rate Adjustment/KW Year (1) ($0.86) ($0.87) ($0.87) ($0.88) ($0.89)
Interest Rate Adjustment Per KWH (1) ($0.00018) ($0.00018) ($0.00019) ($0.00019) ($0.00020)
Scheduled Adjustment/KW Year $1.20 $8.04 $13.26 $18.48 $23.70
Scheduled Adjustment Per KWH $0.00025 $0.00170 $0.00287 $0.00408 $0.00533
Contingent Adjustment/KW Year $0.00 $0.00 $0.00 $0.00 $0.00
Contingent Adjustment Per KWH $0.00000 $0.00000 $0.00000 $0.00000 $0.00000
Total Capacity Rate/KW Year $233.38 $249.09 $254.47 $262.29 $277.53
Total Capacity Rate/KW Month $19.45 $20.76 $21.21 $21.86 $23.13
Total Capacity Rate Per KWH $0.04824 $0.05268 $0.05501 $0.05788 $0.06246
Contract Capacity Rate $19.10 $19.10 $19.18 $20.02 $20.57
GNP Deflator Adjustment (Monthly) $1.06 $1.06 $1.06 $1.11 $1.14
GNP Adjusted Capacity Rate $20.16 $20.16 $20.24 $21.13 $21.71
T-Bill Adjustment ($0.07) ($0.07) ($0.07) ($0.07) ($0.07)
T Bill Adjusted Capacity Rate $20.09 $20.09 $20.17 $21.06 $21.64
Treasury Bill Adjustment per Schedule $1.20 $1.21 $1.22 $1.23 $1.23
ELECTRICITY REVENUES - ENERGY:
Energy Rate Per KWH (Weighted Average) $0.03323 $0.03441 $0.03565 $0.03684 $0.03813
Variable O&M Rate Per DT $0.51 $0.53 $0.54 $0.56 $0.57
Variable O&M Rate Per KWH $0.00432 $0.00445 $0.00458 $0.00472 $0.00486
Total Energy Rate Per KWH $0.03755 $0.03886 $0.04023 $0.04156 $0.04300
Total Electricity Revenues - Capacity & Energy $0.08579 $0.09154 $0.09524 $0.09945 $0.10546
DISTILLED WATER REVENUES:
Water Delivery (Days/Year) 150 150 150 150 150
Daily Distilled Water Sales Volume (Gal) 80,000 80,000 80,000 80,000 80,000
Distilled Water Sales Price ($/000 Gal) $1.50 $1.50 $1.50 $1.50 $1.50
CONTRACT FUEL RATES (ENERGY REVENUE):
FGRR - Firm Gas Reserve Rate ($/DT) $3.83 $3.91 $3.99 $4.07 $4.15
FGMR - Firm Gas Market Rate ($/DT) $3.89 $4.05 $4.22 $4.39 $4.58
IGR - Interruptible Gas Rate ($/DT) $4.01 $4.18 $4.36 $4.53 $4.72
OR - Oil Rate ($/DT) $5.72 $5.93 $6.16 $6.40 $6.64
<CAPTION>
16 17 18 19 20
Year Ended Year Ended Year Ended Year Ended Year Ended
Dec-2011 Dec-2012 Dec-2013 Dec-2014 Dec-2015
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING ASSUMPTIONS:
Capacity in Kilowatts 230,000 230,000 230,000 230,000 230,000
Energy Production Capacity - Unit #1 117,860 117,620 117,380 119,240 118,000
Energy Production Capacity - Unit #1 117,860 117,620 117,380 119,240 118,000
Energy Production Capacity - Unit #1 117,860 117,620 117,380 119,240 118,000
Weighted Average Energy Output - Unit #1 117,860 117,620 117,380 119,240 118,000
Energy Production Capacity - Unit #2 117,860 117,620 117,380 119,240 118,000
Energy Production Capacity - Unit #2 117,860 117,620 117,380 119,240 118,000
Energy Production Capacity - Unit #2 117,860 117,620 117,380 119,240 118,000
Weighted Average Energy Output - Unit #2 117,860 117,620 117,380 119,240 118,000
Firm Dispatch Energy Production 99,000 99,000 99,000 99,000 99,000
Hours Per Year Running Unit #1 (Full Load) 4,324 4,218 4,126 4,050 3,992
Hours Per Year Running Unit #2 (Full Load) 2,628 2,492 2,366 2,246 2,134
Availability Factor 96.5% 96.6% 96.6% 96.6% 96.7%
Contract Heat Rate (BTU/KWH) 8,461 8,461 8,461 8,461 8,461
Actual Unit #1 Heat Rate (BTU/KWH) 8,151 8,183 8,216 8,134 8,053
Actual Unit #1 Heat Rate (BTU/KWH) 8,151 8,183 8,216 8,134 8,053
Actual Unit #1 Heat Rate (BTU/KWH) 8,151 8,183 8,216 8,134 8,053
Weighted Average Heat Rate - Unit #1 (BTU/KWH) 8,151 8,183 8,216 8,134 8,053
Actual Unit #2 Heat Rate (BTU/KWH) 8,020 8,049 8,067 8,087 8,108
Actual Unit #2 Heat Rate (BTU/KWH) 8,020 8,049 8,067 8,087 8,108
Actual Unit #2 Heat Rate (BTU/KWH) 8,020 8,049 8,067 8,087 8,108
Weighted Average Heat Rate - Unit #2 (BTU/KWH) 8,020 8,049 8,067 8,087 8,108
Actual Annual Energy - Unit #1 (MWH) 509,582 496,163 484,358 482,917 471,025
Actual Annual Energy - Unit #2 (MWH) 309,709 293,132 277,719 267,858 251,833
Summer Fuel Usage - Unit #1 (DT's) 1,234,799 1,220,663 1,206,592 1,199,357 1,162,166
Shoulder Fuel Usage - Unit #1 (DT's) 1,700,948 1,673,550 1,651,282 1,637,417 1,587,162
Winter Fuel Usage - Unit #1 (DT's) 1,217,859 1,165,886 1,121,610 1,091,273 1,043,836
Annual Fuel Usage - Unit #1 (DT's) 4,153,606 4,060,098 3,979,484 3,928,047 3,793,163
Summer Fuel Usage - Unit #2 (DT's) 772,930 753,942 734,798 729,585 705,312
Shoulder Fuel Usage - Unit #2 (DT's) 830,729 783,583 738,614 707,933 661,867
Winter Fuel Usage - Unit #2 (DT's) 880,205 821,898 766,945 728,649 674,686
Annual Fuel Usage - Unit #2 (DT's) 2,483,864 2,359,423 2,240,357 2,166,167 2,041,865
ELECTRICITY REVENUES - CAPACITY:
Capital Costs/KW Month (Unadjusted Contract Year) $22.79 $23.35 $23.63 $22.69 $18.83
Capital Costs/KW Year $251.28 $274.60 $280.76 $281.68 $264.56
Capital Costs Per KWH $0.05812 $0.06510 $0.06804 $0.06955 $0.06628
GNP Deflator Adjustment/KW Year $13.93 $15.23 $15.57 $15.62 $14.67
GNP Deflator Adjustment Per KWH $0.00322 $0.00361 $0.00377 $0.00386 $0.00368
Interest Rate Adjustment/KW Year(1) ($0.89) ($0.89) ($0.89) ($0.89) ($0.80)
Interest Rate Adjustment Per KWH(1) ($0.00020) ($0.00021) ($0.00021) ($0.00022) ($0.00020)
Scheduled Adjustment/KW Year $28.91 $34.13 $39.35 $44.57 $49.78
Scheduled Adjustment Per KWH $0.00669 $0.00809 $0.00954 $0.01100 $0.01247
Contingent Adjustment/KW Year $0.00 $0.00 $0.00 $0.00 $0.00
Contingent Adjustment Per KWH $0.00000 $0.00000 $0.00000 $0.00000 $0.00000
Total Capacity Rate/KW Year $293.24 $323.07 $334.79 $340.98 $328.21
Total Capacity Rate/KW Month $24.44 $26.92 $27.90 $28.41 $27.35
Total Capacity Rate Per KWH $0.06782 $0.07659 $0.08113 $0.08419 $0.08222
Contract Capacity Rate $22.79 $23.35 $23.63 $22.69 $18.83
GNP Deflator Adjustment (Monthly) $1.26 $1.29 $1.31 $1.26 $1.04
GNP Adjusted Capacity Rate $24.05 $24.64 $24.94 $23.95 $19.87
T-Bill Adjustment ($0.07) ($0.07) ($0.07) ($0.07) ($0.03)
T Bill Adjusted Capacity Rate $23.98 $24.57 $24.87 $23.87 $19.84
Treasury Bill Adjustment per Schedule $1.23 $1.23 $1.23 $1.23 $0.54
ELECTRICITY REVENUES - ENERGY:
Energy Rate Per KWH (Weighted Average) $0.03996 $0.04220 $0.04366 $0.04517 $0.04674
Variable O&M Rate Per DT $0.59 $0.61 $0.63 $0.65 $0.67
Variable O&M Rate Per KWH $0.00501 $0.00516 $0.00531 $0.00547 $0.00564
Total Energy Rate Per KWH $0.04497 $0.04736 $0.04897 $0.05064 $0.05237
Total Electricity Revenues - Capacity & Energy $0.11279 $0.12394 $0.13010 $0.13484 $0.13460
DISTILLED WATER REVENUES:
Water Delivery (Days/Year) 150 150 150 150 150
Daily Distilled Water Sales Volume (Gal) 80,000 80,000 80,000 80,000 80,000
Distilled Water Sales Price ($/000 Gal) $1.50 $1.50 $1.50 $1.50 $1.50
CONTRACT FUEL RATES (ENERGY REVENUE):
FGRR - Firm Gas Reserve Rate ($/DT) $4.23 $4.32 $4.41 $4.49 $4.58
FGMR - Firm Gas Market Rate ($/DT) $4.74 $4.91 $5.09 $5.27 $5.45
IGR - Interruptible Gas Rate ($/DT) $4.89 $5.06 $5.24 $5.43 $5.62
OR - Oil Rate ($/DT) $6.89 $7.16 $7.43 $7.72 $8.02
</TABLE>
<PAGE>
1/3/97 PANDA-BRANDYWINE LP. BRANDY-1.XLS-SCHEDULE D
230MW PEPCO PROJECT Page 4 of 6
OPERATING ASSUMPTIONS
<TABLE>
11 12 13 14 15
Year Ended Year Ended Year Ended Year Ended Year Ended
Dec-2006 Dec-2007 Dec-2008 Dec-2009 Dec-2010
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
UNIT #1 - FUEL COST:
FGRR (Reserves) % 54% 56% 57% 58% 59%
FGMR (Market) % 46% 44% 43% 42% 41%
Blended Unit #1 Rate ($/DT) $3.86 $3.98 $4.10 $4.21 $4.33
Blended Unit #1 Rate ($/KWH) $0.03108 $0.03214 $0.03326 $0.03432 $0.03515
UNIT #2 - FUEL COST:
IGR (Spot Gas) % 91% 90% 90% 90% 90%
OR (Fuel Oil) % 9% 10% 10% 10% 10%
Blended Unit #2 Rate ($/DT) $4.06 $4.23 $4.41 $4.59 $4.79
Blended Unit #2 Rate ($/KWH) $0.03262 $0.03386 $0.03528 $0.03683 $0.03852
WATER USAGE:
Gallons Per Hour - Cooling Towers & Distilled Water 90,000 90,000 90,000 90,000 90,000
Gallons Per Hour - Boiler Makeup 0 0 0 0 0
Charles County Waste Water Rate ($/000 Gallons) $2.29 $2.32 $2.36 $2.39 $2.43
WSSC Water Usage Rate ($/000 Gallons) $0.00 $0.00 $0.00 $0.00 $0.00
WATER DISCHARGE & CHEMICAL USAGE:
Gallons Per Hour - Cooling Towers & Distilled Water 17,000 17,000 17,000 17,000 17,000
Gallons Per Hour - Boiler Makeup 21 21 21 21 21
WSSC Water Discharge Rate ($/000 Gallons) $6.24 $6.36 $6.49 $6.62 $6.75
Chemical Usage Rate ($/000 Gallons) $2.82 $2.90 $2.99 $3.08 $3.17
DISTILLED WATER COSTS:
Annual Operating Costs $442,730 $456,012 $469,693 $483,783 $498,297
FIXED OPERATING EXPENSES:
Firm Transportation $3,026,352 $3,071,747 $3,117,823 $3,164,591 $3,212,060
O&M Contract Costs $2,063,094 $2,124,987 $2,188,737 $2,254,399 $2,322,031
Consumables $766,361 $789,352 $813,033 $837,424 $862,546
Administrative Expenses $526,085 $541,867 $558,123 $574,867 $592,113
Insurance $637,512 $656,638 $676,337 $696,627 $717,526
Purchased Electricity $614,402 $632,834 $651,819 $671,374 $691,515
Property Taxes $1,567,032 $1,532,315 $1,512,427 $1,491,130 $1,468,376
TURBINE OVERHAUL RESERVE:
Overhaul Reserve - Beginning of Year $5,796,370 $5,970,261 $6,149,369 $6,333,850 $6,523,866
Additions to Reserve $3,816,916 $1,090,355 $1,857,606 $1,166,166 $2,812,214
Turbine Overhauls ($3,643,025) ($911,247) ($1,673,125) ($976,150) ($2,616,498)
Reserve Disbursement $0 $0 $0 $0 $0
Overhaul Reserve - End of Year $5,970,261 $6,149,369 $6,333,850 $6,523,866 $6,719,582
Hours of Operation 3,980 3,877 3,781 3,692 3,607
Effective Hours (Adj for Starts) 5,684 5,581 5,485 5,396 5,311
Cumulative Hours 57,160 62,741 68,226 73,622 78,933
Maintenance Requirements 80,000 88,000 96,000 104,000 112,000
Maintenance Dollars $0 $0 $0 $0 $0
Amount Per Turbine Hour $0 $0 $0 $0 $0
Maintenance Costs ($000) per PES $3,643 $911 $1,673 $976 $2,616
Contract Reserve Requirements $0 $0 $0 $0 $0
Inflated Reserve Requirements $0 $0 $0 $0 $0
LEASE RESERVE:
Lease Reserve - Beginning of Year $14,094,207 $15,035,633 $15,264,318 $15,642,465 $16,606,179
Additions to Reserve $941,426 $228,685 $378,147 $963,714 $1,354,894
Reserve Disbursement $0 $0 $0 $0 $0
Lease Reserve - End of Year $15,035,633 $15,264,318 $15,642,465 $16,606,179 $17,961,073
(1) See Schedules A and B for the effect of the PEPCO
Scenario on Capacity Revenue, Net Cash Flow and
Lease Coverage Ratios
<CAPTION>
16 17 18 19 20
Year Ended Year Ended Year Ended Year Ended Year Ended
Dec-2011 Dec-2012 Dec-2013 Dec-2014 Dec-2015
------------------------------------------------------------------
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UNIT #1 - FUEL COST:
FGRR (Reserves) % 25% 0% 0% 0% 0%
FGMR (Market) % 75% 100% 100% 100% 100%
Blended Unit #1 Rate ($/DT) $4.63 $4.93 $5.10 $5.29 $5.48
Blended Unit #1 Rate ($/KWH) $0.03770 $0.04033 $0.04194 $0.04301 $0.04410
UNIT #2 - FUEL COST:
IGR (Spot Gas) % 90% 90% 90% 91% 91%
OR (Fuel Oil) % 10% 10% 10% 9% 9%
Blended Unit #2 Rate ($/DT) $4.96 $5.13 $5.31 $5.50 $5.69
Blended Unit #2 Rate ($/KWH) $0.03976 $0.04130 $0.04285 $0.04446 $0.04613
WATER USAGE:
Gallons Per Hour - Cooling Towers & Distilled Water 90,000 90,000 90,000 90,000 90,000
Gallons Per Hour - Boiler Makeup 0 0 0 0 0
Charles County Waste Water Rate ($/000 Gallons) $2.46 $2.50 $2.54 $2.58 $2.61
WSSC Water Usage Rate ($/000 Gallons) $0.00 $0.00 $0.00 $0.00 $0.00
WATER DISCHARGE & CHEMICAL USAGE:
Gallons Per Hour - Cooling Towers & Distilled Water 17,000 17,000 17,000 17,000 17,000
Gallons Per Hour - Boiler Makeup 21 21 21 21 21
WSSC Water Discharge Rate ($/000 Gallons) $6.88 $7.02 $7.16 $7.31 $7.45
Chemical Usage Rate ($/000 Gallons) $3.27 $3.37 $3.47 $3.57 $3.68
DISTILLED WATER COSTS:
Annual Operating Costs $513,246 $528,643 $544,503 $560,838 $577,663
FIXED OPERATING EXPENSES:
Firm Transportation $3,260,240 $3,309,144 $3,358,781 $3,409,163 $3,460,300
O&M Contract Costs $2,391,692 $2,463,442 $2,537,346 $2,613,466 $2,691,870
Consumables $888,423 $915,075 $942,528 $970,803 $999,927
Administrative Expenses $609,876 $628,172 $647,018 $666,428 $686,421
Insurance $739,051 $761,223 $784,060 $807,581 $831,809
Purchased Electricity $712,260 $733,628 $755,637 $778,306 $801,655
Property Taxes $1,444,116 $1,418,298 $1,390,870 $1,361,777 $1,330,965
TURBINE OVERHAUL RESERVE:
Overhaul Reserve - Beginning of Year $6,719,582 $6,921,169 $7,128,804 $7,342,669 $7,562,949
Additions to Reserve $2,828,729 $1,373,678 $1,334,019 $5,825,052 $1,426,826
Turbine Overhauls ($2,627,141) ($1,166,043) ($1,120,155) ($5,604,772) ($1,199,938)
Reserve Disbursement $0 $0 $0 $0 $0
Overhaul Reserve - End of Year $6,921,169 $7,128,804 $7,342,669 $7,562,949 $7,789,837
Hours of Operation 3,476 3,355 3,246 3,148 3,063
Effective Hours (Adj for Starts) 5,180 5,059 4,950 4,852 4,767
Cumulative Hours 84,113 89,172 94,122 98,974 103,741
Maintenance Requirements 120,000 128,000 136,000 144,000 152,000
Maintenance Dollars $0 $0 $0 $0 $0
Amount Per Turbine Hour $0 $0 $0 $0 $0
Maintenance Costs ($000) per PES $2,627 $1,166 $1,120 $5,605 $1,200
Contract Reserve Requirements $0 $0 $0 $0 $0
Inflated Reserve Requirements $0 $0 $0 $0 $0
LEASE RESERVE:
Lease Reserve - Beginning of Year $17,961,073 $20,218,726 $20,927,605 $21,369,707 $20,584,111
Additions to Reserve $2,257,653 $708,879 $442,103 $0 $0
Reserve Disbursement $0 $0 $0 ($785,597) ($1,725,718)
Lease Reserve - End of Year $20,218,726 $20,927,605 $21,369,707 $20,584,111 $18,858,393
(1) See Schedules A and B for the effect of the PEPCO
Scenario on Capacity Revenue, Net Cash Flow and
Lease Coverage Ratios
</TABLE>
<PAGE>
1/3/97 PANDA-BRANDYWINE LP. BRANDY-1.XLS-SCHEDULE D
230MW PEPCO PROJECT Page 5 of 6
OPERATING ASSUMPTIONS
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Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
Dec-2016 Dec-2017 Dec-2018 Dec-2019 Dec-2020 Dec-2021
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OPERATING ASSUMPTIONS:
Capacity in Kilowatts 230,000 230,000 230,000 230,000 230,000 230,000
Energy Production Capacity - Unit #1 117,750 117,540 117,300 118,680 117,950 117,740
Energy Production Capacity - Unit #1 117,750 117,540 117,300 118,680 117,950 117,740
Energy Production Capacity - Unit #1 117,750 117,540 117,300 118,680 117,950 117,740
Weighted Average Energy Output - Unit #1 117,750 117,540 117,300 118,680 117,950 117,740
Energy Production Capacity - Unit #2 117,750 117,540 117,300 118,680 117,950 117,740
Energy Production Capacity - Unit #2 117,750 117,540 117,300 118,680 117,950 117,740
Energy Production Capacity - Unit #2 117,750 117,540 117,300 118,680 117,950 117,740
Weighted Average Energy Output - Unit #2 117,750 117,540 117,300 118,680 117,950 117,740
Firm Dispatch Energy Production 99,000 99,000 99,000 99,000 99,000 99,000
Hours Per Year Running Unit #1 (Full Load) 3,961 3,935 3,909 3,886 3,866 3,206
Hours Per Year Running Unit #2 (Full Load) 2,190 2,250 2,314 2,379 2,447 2,046
Availability Factor 96.6% 96.6% 96.6% 96.5% 96.5% 96.5%
Contract Heat Rate (BTU/KWH) 8,461 8,461 8,461 8,461 8,461 8,461
Actual Unit #1 Heat Rate (BTU/KWH) 8,085 8,118 8,148 8,091 8,139 8,167
Actual Unit #1 Heat Rate (BTU/KWH) 8,085 8,118 8,148 8,091 8,139 8,167
Actual Unit #1 Heat Rate (BTU/KWH) 8,085 8,118 8,148 8,091 8,139 8,167
Weighted Average Heat Rate - Unit #1 (BTU/KWH) 8,085 8,118 8,148 8,091 8,139 8,167
Actual Unit #2 Heat Rate (BTU/KWH) 8,008 7,968 7,986 8,006 8,026 8,002
Actual Unit #2 Heat Rate (BTU/KWH) 8,008 7,968 7,986 8,006 8,026 8,002
Actual Unit #2 Heat Rate (BTU/KWH) 8,008 7,968 7,986 8,006 8,026 8,002
Weighted Average Heat Rate - Unit #2 (BTU/KWH) 8,008 7,968 7,986 8,006 8,026 8,002
Actual Annual Energy - Unit #1 (MWH) 466,466 462,470 458,482 461,164 455,980 377,437
Actual Annual Energy - Unit #2 (MWH) 257,906 264,476 271,386 282,326 288,622 240,948
Summer Fuel Usage - Unit #1 (DT's) 1,172,594 1,185,264 1,198,900 1,217,005 1,231,816 1,233,853
Shoulder Fuel Usage - Unit #1 (DT's) 1,557,338 1,528,810 1,499,177 1,475,378 1,445,130 1,158,016
Winter Fuel Usage - Unit #1 (DT's) 1,041,446 1,040,254 1,037,632 1,038,895 1,034,276 690,658
Annual Fuel Usage - Unit #1 (DT's) 3,771,378 3,754,328 3,735,708 3,731,278 3,711,223 3,082,527
Summer Fuel Usage - Unit #2 (DT's) 723,491 747,664 778,717 822,110 852,151 848,091
Shoulder Fuel Usage - Unit #2 (DT's) 681,441 707,405 739,792 784,744 816,949 650,445
Winter Fuel Usage - Unit #2 (DT's) 660,380 652,276 648,780 653,448 647,378 429,529
Annual Fuel Usage - Unit #2 (DT's) 2,065,312 2,107,345 2,167,289 2,260,302 2,316,479 1,928,064
ELECTRICITY REVENUES - CAPACITY:
Capital Costs/KW Month
(Unadjusted Contract Year) $19.14 $19.48 $19.83 $20.19 $20.58 $0.00
Capital Costs/KW Year $226.58 $230.36 $234.46 $238.68 $243.06 $205.80
Capital Costs Per KWH $0.05720 $0.05855 $0.05999 $0.06142 $0.06287 $0.06420
GNP Deflator Adjustment/KW Year $12.56 $12.77 $13.00 $13.23 $13.48 $11.41
GNP Deflator Adjustment Per KWH $0.00317 $0.00325 $0.00333 $0.00341 $0.00349 $0.00356
Interest Rate Adjustment/KW Year(1) ($0.39) ($0.39) ($0.39) ($0.39) ($0.39 ($0.32)
Interest Rate Adjustment Per KWH(1) ($0.00010) ($0.00010) ($0.00010) ($0.00010) ($0.00010 ($0.00010)
Scheduled Adjustment/KW Year $55.00 $60.22 $65.43 $70.65 $75.87 $66.85
Scheduled Adjustment Per KWH $0.01388 $0.01530 $0.01674 $0.01818 $0.01963 $0.02085
Contingent Adjustment/KW Year $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
Contingent Adjustment Per KWH $0.00000 $0.00000 $0.00000 $0.00000 $0.00000 $0.00000
Total Capacity Rate/KW Year $293.75 $302.96 $312.51 $322.18 $332.02 $283.74
Total Capacity Rate/KW Month $24.48 $25.25 $26.04 $26.85 $27.67 $23.64
Total Capacity Rate Per KWH $0.07415 $0.07700 $0.07995 $0.08291 $0.08588 $0.08851
Contract Capacity Rate $19.14 $19.48 $19.83 $20.19 $20.58 $0.00
GNP Deflator Adjustment (Monthly) $1.06 $1.08 $1.10 $1.12 $1.14 $0.00
GNP Adjusted Capacity Rate $20.20 $20.56 $20.93 $21.31 $21.72 $0.00
T-Bill Adjustment ($0.03) ($0.03) ($0.03) ($0.03) ($0.03 $0.00
T Bill Adjusted Capacity Rate $20.17 $20.53 $20.90 $21.28 $21.69 ($0.09)
Treasury Bill Adjustment per Schedule $0.54 $0.54 $0.54 $0.54 $0.54 $1.54
ELECTRICITY REVENUES - ENERGY:
Energy Rate Per KWH (Weighted Average) $0.04837 $0.05007 $0.05183 $0.05365 $0.05553 $0.05694
Variable O&M Rate Per DT $0.69 $0.71 $0.73 $0.75 $0.77 $0.80
Variable O&M Rate Per KWH $0.00581 $0.00598 $0.00616 $0.00634 $0.00654 $0.00673
Total Energy Rate Per KWH $0.05418 $0.05605 $0.05799 $0.05999 $0.06206 $0.06367
Total Electricity Revenues - Capacity & Energy $0.12833 $0.13305 $0.13794 $0.14290 $0.14795 $0.15218
DISTILLED WATER REVENUES:
Water Delivery (Days/Year) 150 150 150 150 150 125
Daily Distilled Water Sales Volume (Gal) 80,000 80,000 80,000 80,000 80,000 80,000
Distilled Water Sales Price ($/000 Gal) $1.50 $1.50 $1.50 $1.50 $1.50 $1.50
CONTRACT FUEL RATES (ENERGY REVENUE):
FGRR - Firm Gas Reserve Rate ($/DT) $4.67 $4.75 $4.84 $4.93 $5.01 $5.10
FGMR - Firm Gas Market Rate ($/DT) $5.65 $5.85 $6.06 $6.27 $6.50 $6.73
IGR - Interruptible Gas Rate ($/DT) $5.83 $6.03 $6.25 $6.47 $6.71 $6.95
OR - Oil Rate ($/DT) $8.32 $8.64 $8.98 $9.32 $9.68 $10.05
</TABLE>
<PAGE>
1/3/97 PANDA-BRANDYWINE LP. BRANDY-1.XLS-SCHEDULE D
230MW PEPCO PROJECT Page 6 of 6
OPERATING ASSUMPTIONS
<TABLE>
21 22 23 24 25 26
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
Dec-2016 Dec-2017 Dec-2018 Dec-2019 Dec-2020 Dec-2021
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<S> <C> <C> <C> <C> <C> <C>
UNIT #1 - FUEL COST:
FGRR (Reserves) % 0% 0% 0% 0% 0% 0%
FGMR (Market) % 100% 100% 100% 100% 100% 100%
Blended Unit #1 Rate ($/DT) $5.67 $5.88 $6.09 $6.31 $6.53 $6.77
Blended Unit #1 Rate ($/KWH) $0.04586 $0.04770 $0.04960 $0.05103 $0.05318 $0.05530
UNIT #2 - FUEL COST:
IGR (Spot Gas) % 91% 91% 92% 92% 92% 94%
OR (Fuel Oil) % 9% 9% 8% 8% 8% 6%
Blended Unit #2 Rate ($/DT) $5.89 $6.09 $6.30 $6.52 $6.75 $6.94
Blended Unit #2 Rate ($/KWH) $0.04714 $0.04853 $0.05033 $0.05221 $0.05416 $0.05554
WATER USAGE:
Gallons Per Hour - Cooling Towers &
Distilled Water 90,000 90,000 90,000 90,000 90,000 90,000
Gallons Per Hour - Boiler Makeup 0 0 0 0 0 0
Charles County Waste Water Rate ($/000 Gallons) $2.65 $2.69 $2.73 $2.78 $2.82 $2.86
WSSC Water Usage Rate ($/000 Gallons) $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
WATER DISCHARGE & CHEMICAL USAGE:
Gallons Per Hour - Cooling Towers &
Distilled Water 17,000 17,000 17,000 17,000 17,000 17,000
Gallons Per Hour - Boiler Makeup 21 21 21 21 21 21
WSSC Water Discharge Rate ($/000 Gallons) $7.60 $7.75 $7.91 $8.07 $8.23 $8.39
Chemical Usage Rate ($/000 Gallons) $3.79 $3.90 $4.02 $4.14 $4.26 $4.39
DISTILLED WATER COSTS:
Annual Operating Costs $594,993 $612,842 $631,228 $650,165 $669,669 $574,800
FIXED OPERATING EXPENSES:
Firm Transportation $3,512,205 $3,564,888 $3,618,361 $3,672,637 $3,727,726 $3,153,035
O&M Contract Costs $2,772,626 $2,855,805 $2,941,479 $3,029,724 $3,120,615 $2,678,528
Consumables $1,029,925 $1,060,823 $1,092,648 $1,125,427 $1,159,190 $994,971
Administrative Expenses $707,014 $728,224 $750,071 $772,573 $795,750 $683,019
Insurance $856,763 $882,466 $908,940 $936,208 $964,294 $827,686
Purchased Electricity $825,705 $850,476 $875,990 $902,270 $929,338 $797,682
Property Taxes $1,298,375 $1,263,949 $1,227,626 $1,189,346 $1,149,042 $1,091,590
TURBINE OVERHAUL RESERVE:
Overhaul Reserve - Beginning of Year $7,789,837 $8,023,532 $8,264,238 $8,512,165 $8,767,530 $9,030,556
Additions to Reserve $5,372,541 $1,526,110 $1,681,291 $4,780,564 $1,798,482 $3,976,759
Turbine Overhauls ($5,138,846) ($1,285,404) ($1,433,364) ($4,525,199) ($1,535,456) ($3,705,842)
Reserve Disbursement $0 $0 $0 $0 $0 ($9,301,473)
Overhaul Reserve - End of Year $8,023,532 $8,264,238 $8,512,165 $8,767,530 $9,030,556 $0
Hours of Operation 3,076 3,092 3,111 3,132 3,156 2,626
Effective Hours (Adj for Starts) 4,780 4,796 4,815 4,836 4,860 4,330
Cumulative Hours 108,521 113,317 118,133 122,969 127,829 132,159
Maintenance Requirements 160,000 168,000 176,000 184,000 192,000 200,000
Maintenance Dollars $0 $0 $0 $0 $0 $0
Amount Per Turbine Hour $0 $0 $0 $0 $0 $0
Maintenance Costs ($000) per PES $5,139 $1,285 $1,433 $4,525 $1,535 $3,706
Contract Reserve Requirements $0 $0 $0 $0 $0 $0
Inflated Reserve Requirements $0 $0 $0 $0 $0 $0
LEASE RESERVE:
Lease Reserve - Beginning of Year $18,858,393 $7,291,933 $7,291,933 $7,291,933 $7,291,933 $7,291,933
Additions to Reserve $0 ($0) $0 $0 $0 $0
Reserve Disbursement ($11,566,460) $0 $0 $0 $0 ($7,291,933)
Lease Reserve - End of Year $7,291,933 $7,291,933 $7,291,933 $7,291,933 $7,291,933 $0
(1) See Schedules A and B for the effect of the PEPCO
Scenario on Capacity Revenue, Net Cash Flow and
Lease Coverage Ratios
</TABLE>
[ICF Resources Letterhead]
Officer's Certificate
I, B.S. Venkateshwara, Vice President of ICF Resources
Incorporated, DO HEREBY CERTIFY that:
Since January 10, 1997, to our knowledge, no event
affecting our reports entitled "Independent Panda-Brandywine
Pro Forma Projections," dated July 26, 1996 As
Supplemented and Modified by the Update Report dated January 10,
1997 and "Summary of the Consolidate Pro Formas of Panda-Rosemary and
Panda Brandywine Power Projects" dated January 10, 1997
(the "Pro Forma Reports") or the matters referred to therein
has occurred which makes untrue or incorrect in any
material respect, as of the date hereof, any information or
statement contained in the Pro Forma Reports or in the Prospectus
relating to the offering of Pooled Project Bonds, Series
A-1 due 2012 by Panda Funding Corporation (the "Prospectus")
under the captions "Consolidating Engineer's Pro Forma
Report" and "Independent Pro Forma Analysis - Brandywine" in the
Prospectus Summary.
WITNESS my hand this 5th day of February, 1997.
/s/ B. S. Venkateshwara
Name: B.S. Venkateshwara
Title: Vice President
APPENDIX G
PANDA-BRANDYWINE COGENERATION PROJECT
INDEPENDENT ENGINEER'S REPORT
Dated July 22, 1996
Updated January 10, 1997
Prepared for
PANDA-BRANDYWINE L.P.
Prepared by
PACIFIC ENERGY SYSTEMS, INC.
Portland, Oregon
PREFACE
Panda Energy International, Inc., retained Pacific Energy Systems, Inc., to
independently review available technical information on the design,
construction, and expected operation of the Panda-Brandywine Cogeneration
Project (the Project). The Project is being developed by Panda Energy
International through its affiliate, Panda-Brandywine Limited Partnership, and
is being designed and constructed by Raytheon Engineers & Constructors.
This report is intended for use in the Offering Circular for the issuance of
Pooled Project Bonds offered by Panda Funding Corporation for the Project.
Pacific Energy Systems understands that ICF Resources, Inc., will use the
technical information in this report to develop project projections. Pacific
Energy Systems, Inc., has not examined and makes no representations with
respect to any other document contained in the Offering Circular.
This review is intended to determine whether the Project is technically
feasible and based on competent engineering and construction practices. It is
not intended to check the detailed design nor to identify engineering design
errors. The review includes a number of documents prepared by others. Pacific
Energy Systems, Inc., cannot guarantee the accuracy of the information
contained in them. The ultimate success of the Project will depend not only
on the engineering design and construction, but also on the subsequent
operation, maintenance, management, and renewal of equipment as required in
the completed plant. Pacific Energy Systems, Inc., has no control over design,
construction, startup, operation, or maintenance of the plant and provides no
warranty, express or implied, concerning its success.
TABLE OF CONTENTS
Page
Section 1 INTRODUCTION. . . . . . . . . . . . . . . . . G-1
Section 2 EXECUTIVE SUMMARY AND CONCLUSIONS . . . . . . G-4
Introduction. . . . . . . . . . . . . . . . . G-4
Current Assessment of Project Status. . . . . G-5
Summary of Due Diligence. . . . . . . . . . . G-8
Facility Description. . . . . . . . . . . . . G-13
Facility Performance. . . . . . . . . . . . . G-15
Permits and Licenses. . . . . . . . . . . . . G-17
Construction Status . . . . . . . . . . . . . G-17
Ancillary Facilities. . . . . . . . . . . . . G-17
Section 3 ENGINEERING . . . . . . . . . . . . . . . . . G-19
Overall Plant Description . . . . . . . . . . G-19
Design Concepts and Technology Assessment . . G-20
Major Equipment Selection and
Vendor/Supplier Qualifications. . . . . . . G-22
Specifications. . . . . . . . . . . . . . . . G-22
Systems and Equipment Descriptions. . . . . . G-23
Civil/Structural/Architectural. . . . . . . . G-31
Section 4 ANCILLARY FACILITIES. . . . . . . . . . . . . G-31
Effluent Water Supply Line. . . . . . . . . . G-32
230-kV Electrical Transmission Line . . . . . G-32
Natural Gas Line. . . . . . . . . . . . . . . G-32
Distilled-Water Plant . . . . . . . . . . . . G-34
Betty Boulevard . . . . . . . . . . . . . . . G-34
Section 5 COST AND SCHEDULE ESTIMATES . . . . . . . . . G-35
Capital Costs . . . . . . . . . . . . . . . . G-35
Startup Costs . . . . . . . . . . . . . . . . G-36
ICF Projections . . . . . . . . . . . . . . . G-40
Schedule. . . . . . . . . . . . . . . . . . . G-45
Section 6 PERMITS AND LICENSES. . . . . . . . . . . . . G-45
Federal Approvals . . . . . . . . . . . . . . G-45
State Approvals . . . . . . . . . . . . . . . G-47
Right-of-Way Easements. . . . . . . . . . . . G-48
Section 7 CONTRACTS & AGREEMENTS. . . . . . . . . . . . G-50
Power Purchase Agreement. . . . . . . . . . . G-50
Engineering, Procurement, and Construction
Contract . . . . . . . . . . . . . . . . . . G-57
Treated Effluent Water Purchase Agreement . . G-62
Steam Sales Agreement . . . . . . . . . . . . G-63
Natural Gas Agreements. . . . . . . . . . . . G-65
Owner's Engineer. . . . . . . . . . . . . . . G-67
Effluent Line Construction. . . . . . . . . . G-68
Transmission Line Construction. . . . . . . . G-68
Section 8 OPERATIONS AND MAINTENANCE. . . . . . . . . . G-68
Operating Experience. . . . . . . . . . . . . G-68
Operations and Maintenance Costs. . . . . . . G-69
O&M Agreement . . . . . . . . . . . . . . . . G-71
Termination . . . . . . . . . . . . . . . . . G-73
Other Provisions. . . . . . . . . . . . . . . G-73
Section 9 PERFORMANCE GUARANTEES AND TESTING. . . . . . G-76
Completion Guarantees . . . . . . . . . . . . G-76
Performance Guarantees. . . . . . . . . . . . G-76
Plant Performance Testing . . . . . . . . . . G-79
Liquidated Damages and Bonuses. . . . . . . . G-80
Appendix A DOCUMENT LIST . . . . . . . . . . . . . . . . G-83
Appendix B PROJECT DRAWINGS. . . . . . . . . . . . . . . G-98
Appendix C LIST OF ABBREVIATIONS . . . . . . . . . . . . G-101
Appendix D PANDA GATECYCLE SUMMARY . . . . . . . . . . . G-105
List of Tables 1-1 Project Relationships . . . . . . . . . G-3
5-1 Capital Budget Details. . . . . . . . . G-38
5-2 Similar Gas Turbine Projects. . . . . . G-39
5-3 Commissioning Budget. . . . . . . . . . G-40
5-4A Unit 1. . . . . . . . . . . . . . . . . G-42
5-4B Unit 2. . . . . . . . . . . . . . . . . G-43
5-5 Maintenance Requirement . . . . . . . . G-44
7-1 PEPCO Dispatch Segments . . . . . . . . G-53
8-1 Operations and Maintenance Costs. . . . G-70
8-2 Comparisons of O&M Budgets for Gas
Turbine Projects. . . . . . . . . . . G-71
9-1 Performance Guarantees. . . . . . . . . G-76
9-2 Design Base Conditions for Plant
Operation . . . . . . . . . . . . . . G-77
9-3 Summary of Raytheon's Liquidated
Damages and Bonuses . . . . . . . . . G-81
List of Figures 8-1 Organization Chart. . . . . . . . . . . G-75
Section 1
INTRODUCTION
At the request of Panda Energy International (Panda), Pacific Energy Systems,
Inc., reviewed the Panda-Brandywine Cogeneration Project, which is located
south of Brandywine, Maryland, in Prince George's County. The Project is to
be built on industrialzoned property by the owner, Panda-Brandywine, L.P. It
is being developed by Panda Energy International, Inc. (Panda), of Dallas,
Texas, an affiliate of the owner. Steam from the cogeneration project will
be supplied to the adjacent distilled-water plant owned by Brandywine Water
Company, an affiliate of Panda Energy. The review included:
An examination of the available Project documents (listed in
Appendix A) and the Project drawings (listed in Appendix B)
Construction monitoring since April 1995,including monthly site
inspections and approval of funding draws
Several meetings at GE Capital in Stamford, Connecticut, to discuss
Project details, contract issues, pro forma development, and permit
issues
A detailed list of Project participants and their relationships to the Project
is presented in Table 1-1. An engineering, procurement, and construction (EPC)
contractor, Raytheon Engineers & Constructors (Raytheon), is responsible for
the Project design, engineering, procurement, and construction. The
cogeneration plant and the distilled-water plant will be operated by Ogden
Brandywine Operations, Inc. (operator), a subsidiary of Ogden Power
Corporation.
Panda Energy hired Gilbert/Commonwealth, Inc., as the owner's engineer to
review the engineering and design work performed by Raytheon. C.H. Guernsey
and Companyreviewed the electrical interconnect of the plant and will assist
Panda-Brandywine in the startup and testing of the facility.
General Electric Capital Corporation (GE Capital) has provided a $215 million
construction loan to the Project and has committed to provide long-term
financing under a single-investor lease with the owner.
The power plant is designed to deliver 230,000 kilowatts (kW)(1) of
electricity to Potomac Electric Power Company (PEPCO). The plant is a
combined-cycle cogeneration facility that, in addition to its electrical
output, will also provide up to 34,000 pounds per hour (lb/hr) of steam to
Brandywine Water for use in the distilled-water process. The primary fuel is
natural gas, but the plant will also be capable of burning oil during gas
curtailment periods.
Pacific Energy Systems has independently reviewed the areas of Project
engineering, cost, schedule, permits, contracts, operations and maintenance,
and performance estimates for completeness, risk, variation from practices
typical in the industry, and the ability of the Project to perform as
intended.
Because Panda-Brandywine is a partnership with no employees, Panda Energy
International (the developer) is supplying a project manager, project
engineer, and other key individuals on behalf of Panda-Brandywine. In order
to make this report easier to read, the term "Panda" is used in a generic
sense to mean both owner and developer. Where clarification is important,
specific terms or "owner" and "developer" will be used.
- -----------------------------
(1) A list of technical abbreviations used in this report may be found in
Appendix C.
Table 1-1
PROJECT RELATIONSHIPS
Party Project Remarks
Affiliation
- -------------------------------------------------------------------------------
Panda-Brandywine Project name Project is located south of
Cogeneration Brandywine, Maryland, in
Prince George's County.
Panda-Brandywine, L.P. Owner The limited partnership set
up to hold all project
assets.
Panda Energy International Developer The principal developer of
the project and an affiliate
of the owner.
Brandywine Water Steam host An affiliate of Panda Energy
International. Will
purchase steam to distill
water and sell it to local
users of highly pure water.
Ogden Brandywine Operator Will operate and maintain
Operations, Inc. the project under contract
with Panda-Brandywine, L.P.,
and is a subsidiary of
Ogden Power Corporation.
Gilbert/Commonwealth, Inc. Owner's Has responsibility for
engineer detailed design review and
construction quality
control on behalf of the
owner.
Raytheon Engineers EPC United Engineers &
Constructors contractor Constructors, Inc., dba
Raytheon Engineers &
Constructors, has a turnkey
contract for engineering,
procurement, and
construction of the
cogeneration facility.
General Electric Lender GE Capital has provided a
Capital Corporation $215 million construction
loan and a 20-year lease
commitment for long-term
financing.
Potomac Electric Power PEPCO has contracted to
Power Company purchaser purchase up to 230 MW of
dispatchable capacity and
associated energy from the
cogeneration plant.
Mattawoman Wastewater Cooling MWWTP will supply water for
Treatment Plant (MWWTP) water supply cooling tower makeup and
will operate the 17-mile
pipeline and pumping plant.
The MWWTP is part of the
Washington Suburban Sanitary
Commission (WSSC) and
provides treatment
requirements for Prince
George's County and Charles
County.
Public Service Permitting The Maryland Public Service
Commission (PSC) agency Commission has the primary
and exclusive right to
permit the project under a
Certificate of Public
Convenience and Necessity.
Power Plant Research Permitting The PPRP is part of the
Program (PPRP) support Maryland Department of
Natural Resources (DNR),
which provided key analysis
for the PSC during the
permitting process and
will have broad reporting
and review rights over the
operating plant.
Air and Radiation Permitting The ARMA is part of the
Management Administration support Maryland Department of
(ARMA) Environment, which
provided key analysis for
the PSC during the
permitting process and will
have broad reporting and
review rights over the
operating plant.
Southern Maryland Local SMECO will supply power for
Electrical Coop (SMECO) utility construction and for
operation of auxiliaries
during shutdown periods.
</PAGE>
Section 2
EXECUTIVE SUMMARY AND CONCLUSIONS
INTRODUCTION
PROJECT BACKGROUND
The Panda-Brandywine Cogeneration Project is located on industrial-zoned
property south of Brandywine, Maryland, in Prince George's County. The Project
is a combined-cycle cogeneration facility designed to deliver 230,000 kilowatts
(kW) of electricity to Potomac Electric Power Company (PEPCO), and will supply
up to 34,000 lb/hr of steam to Brandywine Water for distilling water. Natural
gas is the primary fuel, but fuel oil may be used during gas curtailments. The
distilled-water plant is necessary as a steam host to ensure the Project's
status as a qualifying facility (QF).
Panda-Brandywine, L.P., is the project owner and Panda Energy, an affiliate of
the owner, is the developer. Ogden Brandywine Operations, Inc., a subsidiary
of Ogden Power Corporation, will operate both the cogeneration facility and
the distilled-water plant. Raytheon is responsible for the design,
engineering, procurement, and construction of the Project. GE Capital
provided construction financing to the Project and will provide long-term
financing under a single-investor lease with the owner. A list of Project
participants and their relationships to the Project appears in Table 1-1.
INDEPENDENT ENGINEER'S WORK
Pacific Energy Systems was retained by GE Capital to perform a due diligence
review of the Project. The review culminated in a Technical Review dated March
1995. The Technical Review included:
- An examination of the available Project documents (see listing
in Appendix A) and the Project drawings (listed in Appendix B)
- A visit to the proposed Project site
- Several meetings at GE Capital in Stanford, Connecticut to discuss
Project details, contract issues, pro forma development, and
permit issues
- Several conference calls among GE Capital, Panda Energy, Pacific
Energy Systems, and various legal counsels
Since March 1995, Pacific Energy Systems has monitored construction of the
Project. The latest visit to the Project site by Pacific Energy Systems
occurred June 19, 1996 (see photographs in Appendix F).
INDEPENDENT ENGINEER'S QUALIFICATIONS
Pacific Energy Systems has provided engineering services to approximately 50
power plants over the last seven years. Services included technical review,
construction monitoring, performance testing and certification, and operation
and maintenance audits. Approximately half of these plants utilized
combined-cycle combustion turbine technology with cogeneration, as does the
Panda-Brandywine Cogeneration Project.
Pacific Energy Systems served as the independent engineer on the Panda-
Brandywine Project for GE Capital. David G. Young and John R. Martin, who
performed that work, have over 50 years combined experience in power plant
design, siting, permitting, review, and evaluation.
STRUCTURE OF THIS REPORT
This report is based on the due diligence activities previously completed by
Pacific Energy Systems, as well as its ongoing construction monitoring of the
Project. The Executive Summary follows the format of the scope of work provided
by Panda Energy. Details and relevant documents are attached as appropriate.
CURRENT ASSESSMENT OF PROJECT STATUS
CONCLUSIONS AND RECOMMENDATIONS
On the basis of Pacific Energy Systems' review of available information,
Pacific Energy Systems concludes that the Panda-Brandywine Cogeneration
Project is technically feasible and that its design is similar to that of
several successfully operated combined-cycle gas turbine plants. The design
appears to be adequate to meet the contractual commitments specified in the
Power Purchase Agreement (PPA) with PEPCO and Steam Sales Agreement (SSA)
with Brandywine Water Company, environmental permit conditions, and qualifying
facility requirements.
The majority of the equipment components can be considered commercially
available and are widely used in similar utility and industrial applications.
If constructed, operated, and maintained according to the design criteria and
manufacturers' recommendations; and if critical parts are properly renewed and
replaced, the plant will perform as anticipated and with a projected life that
exceeds the 25-year primary term of the PPA.
CONSTRUCTION SCHEDULE
In the Construction Agreement, Raytheon guarantees that commercial operation
of the plant will occur no later than the Guaranteed Completion Date of October
31, 1996. Based on this completion date, construction is ahead of schedule.
As of July 15, 1996, construction was approximately 90 percent complete.
It is reasonable to expect commercial operation by the end of September 1996.
Final acceptance, is expected in April 1997, as scheduled.
CONSTRUCTION BUDGET
The budget for development of the Project is $215 million. This total includes
plant construction by Raytheon, the construction of a water supply line and
transmission line, and work performed by others. The $215 million budget also
includes interest during construction and other financing costs. Details of
the original budget are shown in Table 5-1. Cost overruns have occurred in
some budget items while other items have been completed under budget.
Overall, construction is expected to be completed at approximately $200,000 to
$300,000 below the original Project budget which included approximately $8.7
million for contingencies. As shown in Table 5-1, almost all the contingency
remains unspent.
Panda Energy budgeted $5.8 million for its expenses during startup and
commissioning. This budget is consistent with experience at other projects.
TECHNICAL PERFORMANCE
After its 1994-95 review of the Project design and the selected equipment,
Pacific Energy Systems concluded that all performance standards required under
the Construction Contract, including power and heat rate, could be met. The
guaranteed net power output is 230,000 kW. The guaranteed heat rate is 7,124
Btu/kWh (LHV). That conclusion remains valid.
AIR EMISSIONS
In the Construction Agreement, Raytheon guarantees air emissions from the plant
will meet the emission limits of the U.S. Environmental Protection Agency
(EPA), Prevention of Significant Deterioration (PSD) permit, the Certificate of
Public Convenience and Necessity (CPCN), and Maryland Public Services
Commission (PSC).
The Project, as originally designed, was capable of meeting the air emission
standards of the EPA and the Maryland PSC. Nothing has changed since the
design phase that would diminish this capability. General Electric Power
Systems has provided a letter guaranteeing that the turbines will meet CPCN
standards. Other projects that use similar GE turbines have complied with air
emission standards similar to those required of this Project.
POWER PURCHASE AGREEMENT
The PPA provides for a monthly capacity payment and a monthly energy payment.
Pacific Energy Systems has reviewed the sample calculations in the PPA for the
respective payments and found them to be correct based on the assumptions used
in the PPA. However, the actual payments will be based on the actual operation
of the plant in the future.
A "Joint Operating Procedure" has been agreed to by Panda and PEPCO. It
provides for coordination of dispatching and provides procedures for resolving
disagreements that may arise under the PPA during operation.
QUALIFYING FACILITY STATUS
To be a Qualifying Facility under PURPA, five percent of the useful energy
(i.e., the sum of the generated electrical energy plus the thermal energy sent
to a host) from a power plant must serve a thermal load. The thermal load for
this Project is a water distillation plant that is being constructed by
Raytheon under the Construction Agreement. Raytheon is contractually
committed to have the distilled-water plant ready for commercial operation
at the time the power plant begins commercial operation. The quantity of
steam exported to the distilled water plant is to average 34,000 lb/hr which
will ensure the five percent requirement is met.
The distilled water also must be used beneficially. The U.S. Navy, at its
Indian Head Naval Facility, has signed a purchase order for all the distilled
water produced by the plant.
A QF must also meet an efficiency standard that requires the net electric
energy plus half of the useful thermal energy to equal or exceed 45 percent of
the energy in the fuel. For this Project, the guaranteed heat rate limit of
7,124 Btu/kWh (LHV) equates to an efficiency of 48 percent. The efficiency
standard for QF status is, therefore, satisfied regardless of the thermal load.
SUMMARY OF DUE DILIGENCE
CONTRACTS
Pacific Energy Systems reviewed the six agreements described below in the
course of its due diligence work.
Power Purchase Agreement
Under the PPA, PEPCO has agreed to purchase all of the electricity generated by
the Project. The PPA places several restrictions and requirements on Panda and
allows for extensive monitoring of the Project before and during its operation.
If Panda fails to meet the requirements of the PPA, the agreement allows for
reduced payments or cancellations.
The plant will be fully dispatchable to meet PEPCO's requirements except for
the production of 99 MW for 60 hours per week which PEPCO must take from the
plant.
Under the PPA, the following deposits and reserves are required. All are in
place through letters of credit provided by GE Capital:
- Development Security ensures the Commercial Operation Date is met.
- Interconnection Security ensures PEPCO is paid for costs associated
with the interconnection facilities between the Project and the
PEPCO system.
- Performance Security covers damages resulting from termination of
the PPA after the Commercial Operation Date.
- Maintenance Reserve covers major overhaul costs incurred by the
Project.
Construction Agreement
The Amended and Restated Turnkey Cogeneration Facility Agreement between
Panda-Brandywine, L.P. and Raytheon is also referred to as the Construction
Agreement or the EPC Contract. The EPC contract is for a fixed fee of $118
million. It includes design, engineering, project management, labor, equipment,
and materials to construct, start up, and carry out performance tests (for
the power plant and distilled-water plant only) of the following project
components.
- The power plant and supporting facilities within the main fence
area
- A section of Betty Boulevard (an access road to the industrial
park)
- The distilled-water plant
- The fuel-oil storage tank
Utility support systems outside the fence (including the electric transmission
lines, effluent pipeline, and the gas supply line) are outside of Raytheon's
scope of work. The transmission line was constructed by C.W. Wright
Construction Company, Inc., and is complete. PEPCO has issued a letter stating
it will accept the line.
The effluent pipeline and the gas supply line are complete. The associated
pump station is 85 percent complete and is expected to be operational by the
anticipated commercialization date.
Completion of the plant and acceptance by Panda have the following two key
milestone dates:
- Commercial operation is scheduled to occur by October 31, 1996.
It occurs when the plant has passed the 48-hour test outlined
in Section 19.5.1 of Raytheon's scope of work. Penalties apply
for not passing the test on schedule. It is anticipated that
Raytheon will begin commercial operation by the end of September
1996.
- Final acceptance is anticipated by the end of April 1997.
In order to meet final acceptance, Raytheon must complete the
following:
- Pass performance tests and correct deficiencies
- Build the plant to final specifications
- Synchronize the plant to the PEPCO grid
- Complete all work affecting normal plant operation
- Ensure that punchlist work will not interrupt plant
operations
- Ensure that steam is going to the steam host
- Obtain a completion certificate from the owner
- Certify that construction is in accordance with
governmental requirements
The Construction Contract is a fixed turnkey agreement that provides for
liquidated damages to ensure Raytheon meets all performance guarantees and
bonuses if performance exceeds guarantees by specified amounts. It is expected
that guaranteed completion date of October 31, 1996, will be met and the
project will be completed within budget. Performance guarantees under the
Construction Contract are discussed in the sub-section entitled "Facility
Performance" in Section 2 of this report.
Liquidated damages are provided to ensure Raytheon's diligence in meeting all
guarantees. The contract provides for an $80,000 per day penalty for delay of
completion after October 31, 1996, up to a maximum penalty of $14.4 million.
The contract provides for performance bonuses if performance exceeds guarantees
by specified amounts.
The Construction Contract commits Raytheon to provide or obtain limited spare
parts, building occupancy permits, limited warranties against deficiencies, and
manuals and training for O&M personnel. Provisions are made for the
arbitration of disputes arising under the Construction Contract.
Operation and Maintenance Agreement
Panda-Brandywine, L.P. and Ogden Brandywine Operations, Inc., signed an
Operation and Maintenance Agreement on November 21, 1994. Ogden Brandywine
Operations is a wholly-owned subsidiary of Ogden Power Corporation which is a
subsidiary of Ogden Environmental and Energy Services of Fairfax, Virginia,
which is a wholly- owned subsidiary of Ogden Corporation (Ogden).
Ogden is a technical services company with more than $2 billion in annual sales
and more than 1,300 employees who operate and maintain power projects including
waste-to-energy, hydroelectric, and geothermal projects. Gas turbine operation
is relatively new to Ogden, but it has hired sufficiently skilled home-office
personnel to support the Project. Local hiring has been completed and the
experience level is substantially higher than Pacific Energy Systems has seen
in most other facilities.
The annual O&M budget for the Project is approximately 20 percent lower than
budgets for other recently-constructed gas turbine projects with which Pacific
Energy Systems is familiar. However, the budget is reasonable. Economies of
scale might explain, in part, its magnitude in comparison to other projects.
After the Actual Commercial Operation Date, operator compensation is fixed at
$117,750 per month, adjusted for performance, plus all reimbursable costs
incurred under the agreement. Performance adjustments are allowed for the
equivalent availability factor (EAF) and for the capacity performance.
The O&M Agreement provides for termination under several conditions Pacific
Energy Systems believes are reasonable. It also contains reasonable provisions
for force majeure, arbitration, renegotiation in case of substantial changes to
the facilities, and Owner oversight over unbudgeted purchase orders in excess
of $1,000.
Steam Sales Agreement
A steam sales agreement was entered into on March 30, 1995 between Panda-
Brandywine, L.P. and Brandywine Water Company. Panda will sublease the
distilled-water plant to Brandywine Water Co. Panda will sell steam (thermal
energy), cooling water, and feed water to Brandywine Water Co. Panda also will
provide operating, maintenance, and wastewater disposal services for the
distilled-water plant. Brandywine Water Co. will sell distilled water and must
purchase enough steam to maintain the Project's QF status. Panda has not
guaranteed any specific amounts or periods of time for thermal energy delivery.
Pacific Energy Systems believes that the SSA is sufficient to ensure the
continued QF status of the Project.
Water Purchase Agreement
A Treated Effluent Water Purchase Agreement between the county commissioners of
Charles County, Maryland, and Panda-Brandywine, L.P. was signed September 13,
1994. It allows the project to receive 2.7 million gallons of treated effluent
per day (mgd). The Agreement commits Panda to construct the 17-mile pipeline at
its own expense. The Project budget contains approximately $10.6 million for
this purpose. Upon completion, the portion of the pipeline in Charles County
is to be turned over to the county. The capacity of the line is to be 3.0 mgd.
Effluent not needed by the Project may be provided to other customers with
which the county may contract.
The Water Purchase Agreement is for a term of 25 years with options for three
5-year extensions. Panda will pay $1.00 per thousand gallons of effluent used
for the first 10 years with escalation occurring thereafter in accordance with
the Consumer PriceIndex. Panda must also pay certain fixed expenses associated
with maintaining the pipeline and its right-of-way. The effluent pipeline was
built by Flippo Construction Company. It has been completed from the wastewater
treatment plant to the cooling tower.
The pump station for pumping effluent through the pipeline is being built at
the sewage treatment plant by J.L.W. Construction. It is 85 percent complete.
Completion is expected by early August.
Natural Gas Agreements
A detailed study of the gas contracts has not been a part of Pacific Energy
Systems' past due diligence activities on the Project. C.C. Pace Resources,
Inc., conducted an independent review of the Project's fuel supply plan.
The required gas transmission line for the Project, which interconnects into
the Washington Gas and Light (WGL) system, is complete.
DESIGN FEASIBILITY
The basic plant design, gas-fired combined-cycle, has been used in numerous
similar installations and is well established in the utility industry.
PROJECT COSTS
The capital budget for the Project was $215 million including a contingency of
approximately $8.7 million. Details of the budget are shown in Table 5-1.
Actual capital expenditures are expected to be $200,000 to $300,000 less than
the budgeted amount. Cost overruns on some budgeted items have been more than
compensated for through savings on other cost items.
The ICF projections appear to reflect reasonable expectations of Project
expenses. Agreements for operating and maintaining the plant; for purchasing
fuel and water; and for selling electricity are structured to provide for
contingencies in a manner that is consistent with good practice in this
industry.
PERMITS
All required permits and licenses either have been obtained or are reasonably
expected to be obtained within a time frame that will not delay the planned
operation of the Project.
FACILITY DESCRIPTION
SITE
The Project is located in an industrial park south of Brandywine, Maryland in
Prince George's County. The site is located 2,000 feet east of Highway 301 on
Cedarville road, adjacent to the Conrail railroad tracks on the east, bounded
on the west by Betty Boulevard, which will be built as part of the Project.
Some of the site is in a wetland. All appropriate permits for use of that
area have been obtained.
FACILITY COMPONENTS
Mechanical Systems and Steam Generators
The project will use two GE-supplied PG7111EA combustion turbinegenerators,
each matched with its own three-pressure-level heat recovery steam generator
(HSRG). Each turbine-generator will have an output of 81.3 MW. The steam
from the two HSRGs will be used in a single GE steam turbine with a capacity
of 83.7 MW. The steam turbine can operate using steam from either of the HRSGs
individually or from both HSRGs. The combustion turbine-generators will fire
on natural gas with No. 2 fuel oil as an auxiliary fuel. The balance of plant
equipment includes a condenser, four-cell evaporative cooling tower, water
treatment system and fuel oil handling system.
Process steam to the distilled-water plant will be supplied from the low-
pressure section of the HRSGs and can be supplemented with steam turbine
extraction steam.
The exhaust steam from the steam turbine is condensed in a surface condenser.
Cooling tower makeup water will be supplied via a 17 mile pipeline from the
Mattawoman Wastewater Treatment Plant. Well water is available onsite as a
backup.
The gross plant electrical capacity is 246.3 MW during steam export to the
distilled-water plant at the rate of 34,000 pounds per hour (lb/hr) (i.e.,
two times 81.3 MW plus 83.7 MW). The guaranteed net output is 230 MW which
accounts for in-plant use of electric power and derating due to hot and humid
atmospheric conditions.
Gas will be supplied via a pipeline. Backup fuel oil will be stored in a tank
located adjacent to the site.
The design of the plant is proven in the electric utility industry. Design
features such as redundancy and backup that are in accordance with industry
practice have been included.
One notable feature of the plant is that it is highly dispatchable and will be
started and stopped frequently. Several features could be added to the plant
now or after startup that would make the cycling of the plant more reliable
and less costly. The current design, however, is sufficient to achieve the
performance assumed in the pro forma.
The plant is expected to be heavily dispatched by PEPCO from a minimum
guarantee dispatch of 99 MW on a 12-hour daily cycle, 5day week to full load at
230 MW.
Environmental Controls
The major air pollutant of concern is NOx. The turbines use dry, low-NOx
technology. Water injection will be required only when the plant is operating
on oil. No duct burners, gas compressors, or selective catalytic reduction
(SCR) is required now, but it can be added later if needed.
The project has obtained a CPCN from the Maryland PSC. To obtain a CPCN,
emissions were reviewed in accordance with PSD requirements. All associated
approvals have been obtained.
In developing the CPCN, the Maryland PSC included input from all other state
agencies and local governments that deal with environmental regulation, and
all permits required to date have been received. It is anticipated there will
be no problems obtaining other required permits.
Electrical Intertie
The interconnection of the Project to the PEPCO system is included in the PPA.
At Panda's expense, PEPCO will provide all required interconnection equipment,
safety devices, and metering at its Burches Hill Substation.
C. W. Wright has constructed a 7-mile long 230 kV transmission line from the
plant to the Burches Hill Substation. Ownership of the line will be
transferred to PEPCO. The transmission line has been completed and is
energized, and it is backfeeding the switch gear at the power plant. PEPCO
has issued a letter stating it will accept the transmission line.
FACILITY PERFORMANCE
POWER AND HEAT RATE
Under Article 5.0 of the EPC contract, Raytheon guarantees a net power output of
230,000 kW and a net heat rate of 7,124 Btu/kWh (LHV). These performance
parameters are to be met under a set of conditions including the export of
34,000-lb/hr steam. Pacific Energy Systems evaluated the plant using
"Gatecycle," a power plant design and performance software package. The
evaluation predicts the guarantees can be met. Nothing has changed during
construction to alter this conclusion.
The heat rate of 7,124 Btu/kWh (LHV) and capacity of 230,000 kW are for a new,
clean plant. Performance degrades during operation until the prime equipment
is overhauled and key parts are repaired or replaced. This is common for all
mechanical systems. As discussed in Section 5, Pacific Energy Systems provided
ICF with our estimates of the heat rate and plant output capacity for each
year from 1996 through 2021 for use in its Project projections. Pacific
Energy Systems' estimates are based on dispatch estimates provided by ICF
Resources and on performance degradation curves provided by General Electric
Power Systems. Our estimates are consistent with common industry practice.
However, they are dependent on the information provided by others and on
operating conditions and maintenance practices.
EMISSIONS
The turbines use dry, low- NOx control technology which is stateof-the-art for
this type of application. The Project has undergone review for PSD standards
and has been duly permitted.
Under the Construction Agreement, Raytheon guarantees that air emissions from
the plant will meet the emissions limits of the U.S. EPA PSD permit and the
permits by the Maryland CPCN proceedings. General Electric Power Systems has
issued a letter guaranteeing its turbines will meet these emission limits.
Emission limits for some power plants necessitate the use of SCR to control
NOx. SCR is not required for this project and is not included in the current
design. However, if needed in the future it can be added to the HRSGs.
RELIABILITY
Net power output, heat rate, emissions, and noise limits are guaranteed by
Raytheon and are achievable with the Project's technology and construction
standards.
The following plant performance tests for the Project will be completed before
final acceptance:
- 48-hour net electrical output performance test
- Net plant heat rate test
- 200-hour capacity test
- Stack test
- Noise test
The Operation and Maintenance Agreement promotes reliability by providing for
a full-time owner's representative to administer Panda-Brandywine's
responsibilities, to monitor the operation of the plant, and to direct
economic and financial matters.
Raytheon warrants, under the Construction Agreement, that the plant will be
free from defects or deficiencies until the later of: (a) one year from
commercial operation; or (b) one year from discovery or repair of defect or
deficiency, but no later than the second anniversary of final acceptance.
Furthermore, for any item that is repaired, replaced, or renewed more than
once, Raytheon will undertake a technical analysis of the problem and clear
the "root cause" of the problem. GE-supplied equipment is exempted from this
warranty and is the responsibility of Panda.
The factors given above and the soundness of the Project design lead Pacific
Energy Systems to conclude that the Project will perform as assumed in the pro
forma and with a reliability that is typical of similar successful plants of
its type.
AVAILABILITY
The PPA is based on a target availability in the range of 88 percent to 92
percent. Based on the design of the Project, Pacific Energy Systems believes
this is a reasonable target. The PPA provides for an increase in monthly
payments if the actual availability, as measured by the EAF is greater than 92
percent.
The PPA provides for a decrease in monthly payments if the EAF is less than 88
percent. Likewise, the O&M contract provides for bonuses and penalties if the
EAF falls outside of the targeted range.
The review of the Gas Supply Agreement by C.C. Pace presents a generally
favorable conclusion regarding the security of the gas supply.
USEFUL LIFE
The term of the PPA is 25 years. The anticipated useful life of projects
similar to this project is often 25 years or longer. If the plant is operated,
maintained, and renewed according to manufacturers' recommendations and
standard industry practices, Pacific Energy Systems expects it to have a
useful life of at least 25 years.
PERMITS AND LICENSES
All necessary permits and licenses have been obtained or can be obtained on a
schedule that will not delay commercial operation of the Project.
CONSTRUCTION STATUS
Construction is expected to be completed on time and within budget.
Construction is approximately 90 percent complete as of July 15, 1996. The
plant is in the preliminary startup phase. The expected completion date is the
end of September 1996.
Based on the construction progress report dated June 30, 1996 the construction
status of major components is as follows:
- Piping - 98.2 percent complete
- Control cable terminations - 94.1 percent complete
- Instrument installation - 94.7 percent complete
ANCILLARY FACILITIES
Five ancillary, or offsite, facilities either have been built or are under
construction. They are described in Section 4 of this report. A summary of
the current status of each follows.
Effluent Water Supply Line
A 16-inch-diameter 17-mile long pipeline will carry effluent from the
Mattawoman Wastewater Treatment Plant to the Facility. The treated wastewater
will be used as cooling water for the power plant and as feed water for the
distilled-water plant. The pipeline is currently complete from the wastewater
treatment plant to the cooling tower of the power plant.
The pump station that is being constructed at the wastewater treatment plant
is 85 percent complete.
230-kV Electrical Transmission Line
A 230-kV transmission line is needed to connect the project's dead-end tower to
PEPCO's Burches Hill Substation. The transmission line is complete and
energized.
Natural Gas Line
Washington Gas Light Company (WGL) is obligated to provide gas distribution
facilities from the interstate pipeline at Cove Point to the power plant. The
provision of metering, regulating, and appurtenant facilities required on the
project site are included in WGL's commitments.
The WGL pipeline is currently complete to the plant meter. Work on controls
is in progress and is expected to be finished by July 1, 1996.
One section of pipeline is being built by Columbia Pipeline Company at a cost
of $6.8 million. Completion is expected prior to commercialization of the
plant. However, if it is not complete by that time, gas is available from
other sources. Delays on this section of pipeline will not delay startup of
the Project.
Distilled-Water Plant
To maintain status as a QF, at least 5 percent of the useful energy output
from a power plant must be used by a thermal host. The thermal host for the
Project is a distilled-water plant owned by Brandywine Water, an affiliate of
Panda Energy. The distilledwater plant will start up with the power plant.
Raytheon is committed to accomplish this and Pacific Energy Systems believes
it is a reasonable expectation.
Betty Boulevard
Prince George's County requires Panda to construct the section of Betty
Boulevard that fronts the Project site. Construction is included in the EPC
contract and will be completed some time after commercialization of the
plant. Completion of Betty Boulevard is not crucial to the operation of the
plant and no major problems are anticipated.
Section 3
ENGINEERING
OVERALL PLANT DESCRIPTION
The Panda-Brandywine Cogeneration Project is a combined-cycle power plant
located south of Brandywine, Maryland, in Prince George's County, 2,000 feet
east of Highway 301 on Cedarville Road. The plant is adjacent to the Conrail
railroad tracks on the east and will be bounded on the west by Betty
Boulevard, which is to be built as part of the project.
The EPC contractor has guaranteed a net electrical output of 230 MW from the
plant, corrected to 92 degrees F dry bulb, 50 percent relative humidity, with
34,000 lb/hr saturated process steam at 15 pounds per square inch gauge (psig)
at the point of interconnection with 80 percent of the condensate returned and
no boiler blowdown. The plant will be dispatched daily by PEPCO at a minimum
of 12 hours per day during weekdays. There will be substantial additional
dispatch during high demand periods. Partial load operation of each gas turbine
will not drop below 80 percent of rated output.
The plant will use GE-supplied PG7111EA combustion turbinegenerators, equipped
with dry, low-NOx combusters as the plant's prime movers. It is capable of
being fired with either natural gas or No. 2 fuel oil. The Frame 7 has an
output of 81.3 MW at 59 degrees F ambient temperature without inlet
conditioning. The combustion turbine exhaust is routed from each unit through
separate three-pressure-level, unfired HRSGs. Each HRSG will have its own
stack.
A single steam turbine-generator, supplied by General Electric, will take steam
from the two HRSGs to produce an additional 83.7 MW. Process steam to the
distilled-water plant will be supplied from the low-pressure section of the
HRSGs, supplemented with steam turbine extraction steam. The exhaust steam
from the steam turbine is condensed in a surface condenser. Cooling tower
makeup will be from the MWWTP effluent and will require a 17-milelong pipeline.
Electricity from the plant will be transmitted over a 7.1-mile, 230-kV
transmission line built by the project and tying into the PEPCO system at the
Burches Hill Substation. The plant does not have black-starting capabilities
but receives startup power from backfeed through the 230-kV transmission line.
SMECO will provide auxiliary and startup power through the backfeed during
periods when the gas turbines are not operating. The maintenance and
administration buildings will be connected to SMECO by a feed from its local
distribution system at all times.
DESIGN CONCEPTS AND TECHNOLOGY ASSESSMENT
The Panda-Brandywine facility is being designed as a dispatchable
combined-cycle power plant. The GE frame units have very successfully met
utility needs for peaking in simple-cycle configuration and in base-loaded
combined-cycle configuration. The GE Frame 7s to be used at Panda-Brandywine
are heavy-duty, industrial-grade, packaged combustion turbine-generators
with a proven record of reliability in electric generation service. Overall,
it is Pacific Energy Systems' opinion that, if the plant is built as specified
in the EPC scope document, it will be capable of meeting all operating and
dispatch requirements. However, Pacific Energy Systems also believes that,
because of the daily cycling of the combustion and steam turbines, additional
design modifications could be made to enhance the operation and reliability of
the plant while lowering long-term operation and maintenance costs.
Pacific Energy Systems representatives have observed the use of several of the
following design modifications to enhance combinedcycle plants that are started
and stopped on a daily basis:
- Dampers in the HRSG stack to hold temperature in the HRSG overnight
- Sealing steam provided to the steam turbine from a small
auxiliary boiler
- Increased insulation on the HRSG outlet duct and stack to
where the damper is located
- Mechanical vacuum pump for condenser to pull vacuum quicker
and hold vacuum overnight
- Steam sparger to the condenser to assist in pulling vacuum
and warming up
- Auxiliary circulating water pump to hold vacuum on condenser
when plant is down
- Drainable superheater coils
- Steam or electric heat on steam turbine casing
- Use of more 100 percent capacity redundant pumps and
auxiliary equipment
Pacific Energy Systems believes that some or all of the above changes would
make operation and maintenance of a daily-cycled plant easier, less expensive,
and more reliable. If Panda decides after startup (as others have) that
installation of these items is cost effective in fuel savings, most of them can
be added at a later time.
The gas turbines are being equipped with GE's dry, low-NOx burners, which are
state of the art for primary emissions control technology. Early reports from
plants using these burners on similar Frame 7 units indicate that the gas
turbine can meet the permit requirements for NOx and carbon monoxide (CO)
emissions of 35 lb/hr [9 parts per million by volume, dry (ppmvd)] and 50
lb/hr, respectively. Oil firing requires some water injection to keep NOx
emissions at or under the 239 lb/hr (54 ppmvd) limit. The fuel oil burned in
the combustion turbines shall contain no more than 0.05 percent sulfur by
weight. All emissions are controlled without the use of an SCR system or
ammonia injection.
In order to prevent depletion of groundwater in Prince George's and Charles
Counties, Panda Energy has elected to use effluent from the MWWTP for cooling
tower makeup. While this is not a common practice throughout the industry, it
is done frequently enough that no major problems are anticipated with the use
of wastewater effluent. If setbacks at the MWWTP prevent use of the effluent
for periods of time, the plant has sufficient onsite well water capacity.
Most of the remaining plant equipment at Panda-Brandywine shows proper
redundancy and a conservative design philosophy. Most pump applications are
designed with three 50 percent capacity units, and critical applications, such
as the boiler feedwater, have two 100 percent capacity units. Contrary to
common practice in most combined-cycle cogeneration plants, no standby diesel
generator is included. Since auxiliary power will normally come from the
Southern Maryland Electrical Coop (SMECO) while the plant is off-line, it can
be backfed through the 230-kV intertie with PEPCO; therefore, a standby diesel
generator is not an important issue for redundancy. The design criteria for the
uninterruptible power supply (UPS) and battery system appear satisfactory to
meet any safety concerns required to shut down the plant safely should a total
loss of power (transmission line outage) occur. A modification in the design,
made shortly before financial closing, removed the alternate connection from
SMECO to the UPS. This could potentially hamper reclosing to the transmission
system if the batteries were to run down during the shutdown. Panda is
reviewing this and will correct it.
Overall, the Panda-Brandywine plant appears to have an adequate design
philosophy, uses technology and equipment that are consistent with most
combined-cycle cogeneration plants, and can be expected to operate as intended
to meet contract requirements. The design modifications discussed above would
improve the plant's operability and maintainability, but if they are not
implemented, the plant can still perform at a level consistent with that
anticipated in the ICF projections.
MAJOR EQUIPMENT SELECTION AND VENDOR/SUPPLIER QUALIFICATIONS
The suppliers of major equipment components are as follows:
Gas turbine(s) General Electric
Steam turbine General Electric
HRSG Nooter/Ericksen
Cooling tower Hamon Cooling
Distributed control system Westinghouse Electric Corp.
Water treatment system EMCO Engineering
Boiler feed, condensate and
circulating water pumps Byron Jackson Pumps
Main step-up transformer Schneider Canada (Federal Pioneer
Division)
All of the above suppliers are well recognized in the industry for supplying
reliable and high-quality equipment.
SPECIFICATIONS
Pacific Energy Systems reviewed several key specifications for equipment to be
supplied on the Panda-Brandywine project and found them to be adequate to
obtain the required equipment. Specification information and filled-in
manufacturers' data were used as the basis for the mass and energy balance
model of the plant, which is discussed in greater detail in Appendix D.
SYSTEMS AND EQUIPMENT DESCRIPTIONS
MECHANICAL SYSTEMS AND EQUIPMENT
Combustion Turbine
As previously stated, the Panda-Brandywine plant uses two GE PG7111EA
(Frame 7) combustion turbines as the prime movers. The Frame 7 is a
heavy-duty, single-shaft, simple-cycle gas turbine with a nominal capacity
of 84.6 MW.
The turbine uses natural gas as its primary fuel and No. 2 fuel oil as an
auxiliary fuel. Dry, low-NOx combusters are included to minimize NOx emissions
when firing natural gas. Water injection is used to reduce NOx emissions when
the gas turbine is operating on No. 2 fuel oil. The gas turbine-generator has
the capability to switch fuels while synchronized to the transmission system,
but not necessarily at full load. The natural gas fuel conditioning skid and
fuel oil system with dual fuel oil filters are included as part of the turbine.
Several similar installations using GE's dry, low-NOx combusters have had
serious combustion damage when transferring from gas to oil firing. GE has
traced these problems to a primary liquid purge air check valve that has stuck
in the open position during long periods of operation on gas prior to the
switch to oil. GE has proceeded to make a number of hardware, software, and
operational changes to units with the dry, low-NOx combuster. Pacific Energy
Systems does not consider this to be a major risk to the project. GE has
upgraded the check valve in all operating units, but is continuing to pursue
(with check valve suppliers) a lasting and durable check valve design.
A specific concern is that GE is requesting dual-fueled units with dry, low-
NOx combusters to switch to oil at least weekly for a short run on oil. This
may have an affect on a number of items at Panda-Brandywine, including
emission limits, hours available to operate on oil, and operating schedules.
The GE gas turbine-generator is furnished as a complete, packaged unit. It
includes a closed, force-fed lubricating and hydraulic oil system; electric
motor starting system; off-line compressor wash system; complete control
system; and an automatic, selfcleaning, inlet air filtration system in an
up-and-over orientation. Inlet evaporative coolers are provided on each gas
turbine.
Under normal conditions, the gas turbines will be operated in a cyclic mode,
being dispatched on and off daily, or more frequently if required by PEPCO.
Hourly dispatches between 80 and 100 percent full load on each gas turbine are
also expected.
Heat Recovery Steam Generators
Two HRSGs produce steam for use in the steam turbine-generator and for the
thermal host, using the waste heat in the gas turbine exhaust. A single HRSG
is matched to a single gas turbine. Each HRSG is a three-pressure-level,
water tube, natural circulation boiler. Each HRSG includes a high-pressure
superheater, evaporator steam drum, and economizer; an intermediate-pressure
evaporator, steam drum, and high-pressure/intermediate-pressure (HP/IP)
economizer; a low-pressure (LP) evaporator and steam drum; inlet and outlet
duct; interconnecting piping; and a stack. A spool for future SCR installation
is also included.
The HRSG has wall boxes and provisions for future installation of soot blowers
or a high-pressure water wash system. Sampling ports for the continuous
emissions monitoring system (CEMS) are included in the stack. The exhaust
gases from the HRSG exit through a 15-foot-diameter, free-standing stack that
is 165 feet above grade level.
The control of the HRSG is completely integrated with the distributed control
system.
Steam Turbine
One GE steam turbine with a nominal design output of 84 MW is used. The steam
turbine is an axial flow, base-mounted condensing steam turbine with two
uncontrolled admissions and one uncontrolled extraction designed for normal
inlet throttle steam conditions of 1,215 pounds per square inch (psia),
965 degrees F, exhausting to 2.9 inches mercury absolute (Hga).
The turbine is packaged complete with lube and hydraulic oil system, local
gauge board, gland seal system with condenser and exhauster, and a GE Mark V
Simplex control system.
Condenser
The condenser, supplied by Ecolaire Corporation, is designed to meet Heat
Exchange Institute (HEI) standards and American Society of Mechanical Engineers
(ASME) Boiler and Pressure Vessel Code. The water boxes are full-access,
bolted cover-plate type with inspection access provided to inlet and outlet
water boxes. The condenser is designed to maintain backpressure required by
the steam turbine guarantee rating (2.9 inches HgA) while operating with
circulating water temperatures based on cooling tower performance at design
ambient conditions of 92 degrees F dry bulb and 78 degrees F wet bulb.
The condenser also is capable of condensing full steam production from the HRSG
HP, IP, and LP sections (with steam turbine offline) while maintaining the
condenser pressure and temperature within the turbine manufacturer's limits for
operation. The system is designed for a steam turbine bypass as well as for
meeting startup and shutdown requirements.
The condenser system includes a single steam surface condenser and
accessories, such as 304SS-22 BWG condenser tubes, steam jet air ejectors for
normal operation, and hogging ejectors for startup with inter- and after-
condensers.
Cooling Tower and Closed Cooling System
The cooling tower provides the means for rejecting waste heat from the steam
turbine cycle and servicing plant equipment cooling loads. The cooling tower
is a four-cell, induced-draft, counterflow evaporation tower. It is designed
to operate under winter freezing conditions and to minimize the impact of
fogging and drift emissions on the adjacent roadways. The cooling tower will
operate on treated wastewater effluent. Circulating water is pumped by three
50 percent circulating water pumps.
The closed cooling system serves equipment cooling loads, such as lube oil
coolers, gas compressor intercooler, generator coolers, pump-bearing coolers,
and other equipment coolers. The closed cooling water system uses makeup
water from the condensate system and is pumped by two 100 percent capacity
cooling water pumps. Two 100 percent capacity heat exchangers are used for
heat rejection to the circulating water system.
Condensate-Feedwater System
The condensate-feedwater system consists of a single external deaerator and
six (three per train) boiler feed pumps.
The deaerator unit is a pressure-type, spray-tray deaerator with a horizontal
storage tank. The storage tank is sized to contain, at 85 percent level, a
volume of water to operate without makeup for a minimum of 10 minutes at
maximum design feedwater rate.
The feed pumps are horizontal, centrifugal, multistage, horizontally split
type. Each pump has an intermediate-pressure feedwater tap. One pump in each
train is arranged to supply feedwater to either HRSG.
Raw Water System
The raw water system consists of two deep wells and a 420,000gallon combined
raw water storage/fire protection tank. Each well has the capacity to provide
sufficient water to operate the entire plant, including cooling tower makeup.
The project is permitted to remove 64,000 gallons per day (gpd) from the ground
for non-cooling tower process needs, and it may use up to 1,322,000 gpd for
short-term periods if the MWWTP pipeline is unavailable. Of the raw water
storage capacity, 312,000 gallons are reserved for the fire protection system.
Boiler Water Makeup System
Raw water from the raw water tank is transferred to two 100 percent makeup
demineralizer trains by two 100 percent capacity makeup water pumps. The
demineralizer treats the raw water to achieve a purity level acceptable for use
in the HRSG. The demineralizer contains several components that perform the
water treatment process, including arbon filter units, cation units, anion
units, and mix-bed units. After treatment in the demineralizer, the water is
routed to and stored in a 100,000gallon demineralized water tank. Two 100
percent capacity demineralized water transfer pumps pump water to the deaerator
for boiler makeup, provide regeneration water for the demineralizer, and
provide dilution water for neutralization in the wastewater neutralization
process. Two 100 percent capacity condensate polishers remove iron, copper,
and residual hardness from condensate returned from the steam host.
Wastewater Disposal System
Boiler blowdown, boiler drains, neutralization tank effluent, washdown,
miscellaneous building waste, and sample lines are all routed to the cooling
tower basin through an oil/water separator. Blowdown from the cooling tower and
sanitary waste are disposed of through the tie to the local sewer
interconnection, which is tied to the MWWTP. Drainage from outdoor paved areas
is treated in a separate oil/water separator and disposed of through the
sanitary sewer. Local drainage is routed to a settlement pond and then to an
adjacent wetland area.
Fuel Gas Compressors
No fuel gas compressors are required for this project.
Auxiliary Systems
Fire Protection System. The fire protection system for the Panda-Brandywine
facility consists of a main fire loop, an automatic sprinkler system, two 100
percent capacity pumps, 312,000 gallons of deaerated water storage, and a
carbon dioxide (CO2) system. Each hydrant is rated at 500 gallons per minute
(gpm), and the system is sized to provide maximum demand to any fixture,
supplemented with 500 gpm from the nearest hydrant.
The automatic sprinkler system is supplied from the main fire loop. Areas
protected by the automatic sprinkler system include all buildings, areas of
building, and individual equipment systems, as required by NFPA 850. This
includes all transformers, lube oil equipment and piping, steam turbine
bearings, cooling tower, fire pump building, control room, maintenance
building, and fuel oil storage tank.
Pressure for the main fire loop is maintained by a single, electrically driven
jockey pump. One diesel-driven fire pump and one electrically driven pump
maintain the firewater flow rate during system use. The pumps are located in a
separate pumphouse adjacent to the raw water tank.
Two automatically activated CO2 fire suppression systems are part of the fire
protection system. One CO2 system protects the electrical and control
cabinets in the distributed control system (DCS) equipment room. The other
protects each of the gas turbinegenerators.
Fuel Oil Facilities. The No. 2 fuel oil facilities store and transfer fuel
oil to the gas turbines. Fuel oil is stored in a 2,000,000-gallon tank. The
tank is surrounded by a concrete containment dike designed to hold one and
one-half times the volume of the tank. A tanker-truck unloading station is
provided that is capable of unloading twice the maximum hourly fuel consumption
of the gas turbine. The fuel oil transfer and unloading pumps are located
inside the containment dike.
Miscellaneous. The plant includes other necessary auxiliary systems, such as
building heating, ventilating, and air conditioning (HVAC) and service and
instrument air systems; a 5,000-square-foot maintenance shop; and an
administration building containing approximately 15 offices, conference rooms,
and other support facilities, such as the control room, battery room, UPS room,
and other areas.
ELECTRICAL SYSTEMS AND EQUIPMENT
Generators
A combustion turbine-generator (CTG) is included as part of each GE PG7111EA
package. It has a synchronous machine enclosure for outdoor installation and
an open-ventilated air cooling system, and is rated at 13.8 kV, three-phase, 60
hertz (Hz), 3,600 revolutions per minute (rpm). The gross output of the
turbine-generator is 81.3 MW under International Standards Organization (ISO)
conditions.
The steam turbine-generator (STG) is also supplied by GE. It is a 13.8-kV,
three-phase synchronous machine with brushless excitation, neutral resistance
grounding, and surge protection. The generator is rated 96 MVA at 0.85 power
factor lagging. The generator rating is sufficient to support the steam
turbine rating of 47.1 MW.
Both generators are capable of producing rated megawatts at power factors
ranging from 0.85 lagging to 0.95 leading.
Both the CTG and the STG may be synchronized automatically or manually to the
PEPCO system from the control room.
High-Voltage System
The substation at the plant interconnects the 230-kV high-side windings of
each of the three generator transformers through separate 230-kV circuit
breakers and 230-kV air break switches to a common bus. From there one
230-kV circuit breaker connects the plant generators through a new 230-kV
airbreaker switch to a new 230-kV transmission line to PEPCO.
During normal operation, the plant auxiliary load will be supplied through the
two-unit auxiliary transformer with a 13.8kV primary and 4.16-kV secondary.
Exceptions are the maintenance and administration building which will be
supplied directly from SMECO. Standby power from SMECO will be backfed from
the PEPCO substation through the 230-kV transmission line.
Switchgear and Motor Control Centers
Auxiliary power will be distributed through 4,160-V metalclad switchgear and
4,160-V motor control centers. All large motors will be 4,160 V, including
boiler feed pumps and circulating water pumps. 480-V secondary unit
substations will supply the 480-V motor control centers. Both 4,160-V and
480-V systems will contain spare parts and provisions for future expansion.
Battery UPS System
A 125-V, direct current (dc) system and UPS will be provided to power circuits
required for startup, shutdown, emergency shutdown, and normal plant operation.
The batteries will be capable of safely shutting down the plant under emergency
conditions without a source of auxiliary power or station service power and of
continuing to operate critical systems for 1 hour following emergency shutdown.
The UPS will be sized to supply power for 110 percent of the plant's critical
120-V alternating current (ac) loads.
As previously described, Panda will receive standby and startup power from
SMECO via the PEPCO transmission line to the auxiliary power transformers,
and SMECO will supply the maintenance and administration buildings directly.
There is no backup to the UPS or battery charger. Therefore, if the plant
comes off-line because of a problem associated with the transmission line,
the balance of the plant has no power. Once the batteries are pulled down,
the plant has no way to recharge the 125-kV breaker system. This could cause
several problems, including the inability to reclose the 230-kV breakers in
the plant's switchyard.
Instrumentation and Control Systems
The integrated control of all plant systems is accomplished using a
distributed control system (DCS) that is designed to keep the number of plant
operators to a minimum (normally two), while providing sufficient monitoring
and control capabilities for continued safe and reliable plant operation.
The DCS alerts the operator to any abnormal conditions or situations that
require timely manual intervention; and its interlocks and safety systems
precipitate preplanned actions for those cases where unsafe conditions develop
faster than the modulating controls or the operator can be expected to
respond.
All instrumentation and control equipment is of recent proven design, selected
to achieve the highest level of plant availability, ease of maintenance, and
standardization throughout the project. The DCS is designed to provide
automatic supervisorycontrol of the combined-cycle cogeneration plant and the
distilled-water plant, as well as to initiate manual commands. The primary
functions of the DSC are as follows:
- Manage supervisory controls
- Monitor plant process operations
- Monitor plant operating conditions
- Advise (by display) operating personnel of plant's current
operating status
- Enable operators to operate plant manually from control room
The DCS will interface with package equipment to perform some or all of the
above functions for the gas turbines, steam turbine, HRSG, air compressor,
sampling and chemical injection, condensate polisher, and water treatment as
well as for the distilled-water plant, which in most cases will have local
control panels or control panels in the control room.
The project has a continuous emissions monitoring system (CEMS) for NOx and
oxygen (O2) installed, certified, and operational within 180 days of plant
startup. Installation, operation, and testing procedures must be submitted to
the Maryland Air and Radiation Management Administration (ARMA) and the
Maryland Power Plant Research Program (PPRP) at least 180 days before purchase
of the CEMS.
TELECOMMUNICATIONS
The Power Purchase Agreement requires telecommunications, such as an automatic
generation control (AGC) between the plant and PEPCO's control center. The
AGC will allow PEPCO to send a "desired generation" signal directly to the
plant's coordinated control system. Volt ampere reactive (VAR) loads will
also be sent by the AGC, which will monitor a number of other plant systems
as well.
ELECTRIC AND MAGNETIC FIELDS
In order to minimize Radio Frequency Interference (RFI) impact of the U.S. Air
Force's Globecom communication facility, which is located nearby, Panda had Met
Laboratories, Inc., review various systems within the plant that might be
modified to lower the potential for RFI. No modifications were required.
The use of bundled conductors on the transmission line is expected to minimize
RFI on the 230-kV transmission line even though it passes within 1000 feet of
the Globecom facility.
CIVIL/STRUCTURAL/ARCHITECTURAL
The project is located in a designated industrial park in Prince George's
County southeast of Washington, D.C. The facility will be served by a new
county road, to be built by the project along the project frontage.
Major buildings are the administration/maintenance building, gas turbine
enclosure, and steam turbine building. The remaining structures on the site
will include several small buildings such as the fire pumphouse and fuel oil
pumphouse, large tanks, distilled-water plant, and cooling tower. Building
siding will be steel wall panels with insulation between the exterior surface
panel and the interior surface panel. All buildings will have circulating
air ventilation fans and be fully heated during the winter. Administration
areas and offices also will be air conditioned and heated.
A security fence will be built along the perimeter of the main plant site and
around the switchyard. Motorized gates, video cameras, and a two-way voice
communication system will be at each of the two main entrances to the plant.
Freeze protection is designed to prevent water from freezing in pipes down to
minus 25 degrees C (-13 degrees F) with wind blowing at 15 miles per hour and
the plant completely shut down. Freeze protection will be by electric, self-
limiting, parallel heat-tracing cable along the pipes to be protected.
A cathodic protection system has been provided for underground carbon steel,
stainless steel, brass, and copper piping; the bottoms of bed-mounted steel
tanks; and the surface of the condenser and auxiliary cooling water heat
exchangers on the circulating water side.
Landscaping is provided to enhance the visual appearance of the site from
Betty Boulevard and to provide sound and visual protection for nearby
residences on the south and east.
Section 4
ANCILLARY FACILITIES
The Panda-Brandywine site was chosen because of the availability of the
property within a designated industrial zone more than because of its
convenience to water, fuel, power lines, or a steam host. Therefore, the
facilities required to sustain the project have taken on more importance.
Permitting, engineering, construction, operation, and budget are more
significant for these ancillary facilities than they might be for similar
cogeneration plants.
This section of the report will look at each of the five ancillary facilities:
effluent water supply line, electrical transmission line, natural gas line,
distilled-water plant, and Betty Boulevard. In this way, each facility can be
analyzed independently of the cogeneration facility for risks, alternatives,
and potential mitigation.
EFFLUENT WATER SUPPLY LINE
Cooling water and raw water for the distilled-water plant will be supplied to
the project through a 16-inch-diameter, ductile-iron pipe approximately 17
miles (91,000 feet) long. The line will carry treated effluent water from the
Mattawoman Wastewater Treatment Plant to the cogeneration plant's cooling
tower basin. The agreement between the project and the Charles County
commissioners requires the pipeline to be designed and sized to supply 3.0
million gallons per day (mgd). The project is entitled to use 2.7 mgd of
effluent. The mass and energy balance indicates that about 1.8 mgd is
actually required under continuous 230 MW production.
Quality control of the effluent will be closely monitored by both the county
and the Project. An intermediate chlorination point is planned near the end of
the pipeline. Control of the pipeline will be by telemetry to the
county-owned facility. A low pressure signal will start up the pumps as the
valves are opened at the cooling tower.
The project is responsible for permitting, design, and construction of the
pumping station at MWWTP, the 17-mile pipeline, the chlorination station, and
the intermediate pumping plants. Charles County will operate and maintain the
pipeline and associated facilities.
The Pipeline route follows the Navy railroad right-of-way east for about 10
miles, where it interconnects with the Conrail railroad and proceeds north to
the project site.
230-kV ELECTRICAL TRANSMISSION LINE
The project has built 7.1 miles of 230-kV transmission line from the project's
dead-end tower to PEPCO's Burches Hill Substation. The transmission line
facility was designed by Gilbert/Commonwealth, Inc., and constructed by C.W.
Wright. The line was permitted as part of the Phase II CPCN for the Project
(see Section 6). PEPCO has established general requirements for the line under
the PPA and has the right to review and approve the final design and
construction.
PEPCO will assume title to the transmission line upon the Schedule Commencement
Date (first energy generation by the plant) provided Panda has demonstrated
that the line meets all of PEPCO's requirements. These requirements include:
that its construction is consistent with prudent utility practices, all permits
have been received, and all rights-of-way have been obtained.
Only 4.3 miles of the line require new right-of-way, and nearly all of that is
along the Conrail railroad right-of-way. For the remainder of the 7.1 miles,
the transmission line will be added to towers on PEPCO's Burches Hill-Talbot
270-kV transmission line, which was designed for a double circuit but has one
side open. The transmission line was examined during the CPCN hearing process
to determine the impact it might have on homes, schools, and businesses along
the right-of-way. By raising the singlepole structures carrying the line along
the railroad right-of-way by 10 feet, Panda was able to demonstrate that
electric and magnetic fields at the edge of the right-of-way were reduced to
levels of one-fourth to one-fifth of any state regulations. The transmission
line was found to have little or no impact on wetlands and property values.
C. W. Wright's budget to build the transmission line was $3,425,807. The
transmission line was completed within that budget. Although it is not part of
the transmission line, SMECO will interconnect with the Project in several
places. It will provide construction power to Raytheon during the
construction period. SMECO will also interconnect with the cogeneration
facility to supply power to the administration/maintenance building during
normal operation. The distilled-water plant will also be directly
interconnected to SMECO for all electric power needs. Finally, all startup
and standby power requirements will be met by SMECO through a wheeling
agreement with PEPCO to backfeed the plant through the main transmission line.
NATURAL GAS LINE
In order to provide natural gas to the project site, Panda-Brandywine will
cause the construction of several looped sections of Columbia Gas'
transmission line and the local connection to the site by WGL.
Columbia Gas will loop three sections of their existing gas transmission line
in West Virginia. The new gas pipeline, 3 sections will total about
6.8 miles. Columbia Gas is presently building these sections, which are more
than 60 percent complete. The line should be completed by August 1996.
Startup gas to the project is not dependent on completion of the gas pipeline
by Columbia Gas.
WGL has completed the connection between its main transmission line and the
project site. Presently it is completing the metering controls and adding a
return line to its systems. WGL will complete the balance of its work by
July 1, 1996, several weeks before Raytheon will need gas for first fire.
DISTILLED-WATER PLANT
The steam host for the Panda-Brandywine project is a distilled-water plant
that will provide high-quality distilled water for use in industrial processes.
The distilled-water facility will be owned by Brandywine Water, an affiliate
of Panda Energy.
The heart of the distilled-water plant is a spray film evaporator, which uses
spray nozzles to uniformly distribute the makeup feed over a horizontal steam
tube bundle. Evaporation takes place as the steam inside the tubes condenses.
The vapor is condensed in a water-cooled condenser. The equipment and process
are used in a number of applications, including making distilled water. This
is a standard industrial process and represents no technological risk. Water
from the circulating water system will be used as makeup feed to the system.
The 220,000-gallon distilled-water tank provided has approximately 72 hours of
storage. A truck fill station will fill 6,000- to 8,000-gallon tanker trucks
in 20 to 30 minutes. Operation of the distilled-water plant will be through
the DCS in the main control room of the cogeneration plant. Ogden
Brandywine, the operator, will make daily checks on the equipment. The truck
fill station will be operated by the truck drivers.
The U.S. Navy has signed a purchase order for the entire output of the
distilled water plant. The distilled water will be used at the Indian Head
Naval Facility.
BETTY BOULEVARD
As part of the development process of the industrial park in which the project
is located, Prince George's County requires that each participant set aside
money for building an access road through the industrial park. Panda,
instead, arranged to build the section of Betty Boulevard that fronts the
project property. This allows the plant to complete its access road early and
provide for the trucks required to bring fuel oil to the site and to ship
ultra-pure water from the distilled-water plant.
Betty Boulevard will be built under the EPC contract according to Prince
George's County plans and specifications. In order to prevent mud and dust
problems and to ease congestion, the county required that the Project build a
temporary access road to the site. This temporary access road has become part
of the intersection of Cedarville Road and Betty Boulevard.
Section 5
COST AND SCHEDULE ESTIMATES
The project capital and startup budgets were reviewed for completeness and
accuracy and, where possible, were compared with those of similar projects.
The project schedule was reviewed to identify areas that were too optimistic
and areas where float requires close monitoring for changes that could affect
the required completion dates.
CAPITAL COSTS
The total project capital budget for permitting, design, construction,
startup, and financing is $215 million. A detailed budget breakdown is
presented in Table 5-1. On the basis of the project design guarantee of
230 MW, the cost is approximately $935 per kilowatt.
A comparison of similar gas turbine projects' costs is shown in Table 5-2.
Because there are so many variables associated with each project, a true
comparison of projects is virtually impossible. Pacific Energy Systems has
attempted only limited adjustments to correct these numbers for differences.
However, Table 5-2 does give a reasonable picture of the costs to build
similar projects. All costs in Table 5-1 were escalated at 3.5 percent
annually from the on-line date of the Panda-Brandywine project. Where
practical, the EPC scopes of all projects are nearly the same and include
adjustments for preliminary engineering, interconnection costs, and gas
pipelines.
The price per kilowatt for the EPC cost and project cost is the lowest of any
similar plant studied in this review, primarily for three reasons. First,
this is a two-gas-turbine plant, while plants A through D are all
single-gas-turbine plants. The savings in scale comes from making some of the
major equipment larger, rather than duplicating it. This includes the steam
turbine, cooling tower, water treatment plant, and support facilities.
Second, the other two-gas-turbine plant, E, is very complex and includes
several large diesel generator sets, an auxiliary boiler, and dry cooling
instead of a cooling tower. All of these items add substantially to the
capital and construction costs of Plant E.
Third, much of the Panda-Brandywine equipment was committed early and may have
missed some of the escalation in cost that has been used to bring the numbers
in Table 5-2 to a common year.
Nevertheless, the cost of developing Panda-Brandywine is low, whether it is
compared with similar projects or with any new power plant. This low cost
will give Panda-Brandywine an advantage in the future when PEPCO makes
economic dispatch decisions.
Pacific Energy Systems believes that the Panda-Brandywine capital budget is
adequate to build the project, and careful administration of the Raytheon
contract has held change orders to a minimum.
The contingency of $8,760,000 is about 4 percent of the overall project cost.
Again, through careful administration of the project, Panda has been able to
hold the contingency about the same. With nearly 81 percent of the budget
expended, there are no areas foreseen at this time that would be significant to
draw this number down.
STARTUP COSTS
The EPC contractor, Raytheon, is required to supply all labor, equipment, and
materials to test, start up, and commission the plant. The exceptions to this
include the operator's labor cost (O&M employees are available to assist and
receive training during startup, not to replace EPC contractor labor) and the
cost of natural gas and fuel oil starting with the first actual or attempted
performance test. All fuel needed in connection with the installation,
adjustment, and testing of the plant after the initial actual or attempted
performance test, will be paid for by Raytheon under terms of the EPC contract.
Operator training is to be provided by Raytheon, along with all O&M manuals.
The operator takes over care, custody, and control of the plant when the plant
reaches commercial operation (when it passes the 48hour test, not the
electrical output test).
The owner has established a budget for its expenses during commissioning, as
shown in Table 5-3. These costs appear to be consistent with other projects
similar in size and type of equipment.
<PAGE>
<TABLE>
<CAPTION>
Table 5-1
CAPITAL BUDGET DETAIL
Original Budget Current Budget 1
<S> <C> <C>
Raytheon - Cogeneration Facility 71,499,816 72,060,000
Raytheon - GE Equipment 46,759,000 46,759,000
Raytheon - Distilled Water Facility 3,400,000 3,400,000
Raytheon - Change Orders 0 0
Electrical Transmission Line &
Fiber Optics 4,411,007 4,026,000
Effluent Water Pipeline 10,639,600 10,327,000
Columbia Gas Pipeline Expansion 8,560,725 9,020,952
PEPCO - Electrical Interconnect 2,200,000 2,650,000
PEPCO - RTU/AGC Communications 250,000 87,500
Sales Tax on 10% of Construction Costs 434,000 234,000
Water Wells on Site 348,095 413,437
Building Permit 180,668 299,999
Builder's Risk Insurance 579,645 611,948
Other Construction Costs 50,000 23,142
------------ -----------
Construction Costs 149,312,556 149,966,465
Land Purchase Costs 4,620,883 4,914,810
Gilbert - Owner's Engineer 1,476,067 1,326,067
Gilbert - Transmission Line Design 103,392 103,392
Eagleton - Gas & Water Pipeline Design 317,079 317,079
Greenhorne - Surveying & Pipeline Design 773,081 841,970
Environ - Site Environmental Engineering 41,061 41,061
Met Labs - RFI Engineering Review 22,500 22,500
Others Engineering Costs 163,374 163,374
----------- -----------
Engineering Costs 2,896,553 2,815,443
Permitting & Regulatory Costs 1,670,176 1,670,176
Project Legal Costs 2,380,914 2,576,168
Public Relations Costs 331,131 331,132
Construction Loan Interest 18,103,841 16,849,669
GE Capital Commitment &
Financing Fees 5,534,370 5,555,359
Closing Costs 2,066,757 2,227,340
Mortgage, Recording Tax 2,832,000 2,984,269
------------ ------------
Financing Costs 28,536,968 27,738,522
Project Management &
Development Costs 4,227,576 4,203,859
PEPCO Security Deposits 0 0
Natural Gas Reserves Development 3,165,981 3,165,981
Furniture & Office Equipment 102,820 121,831
O&M Contractor During Construction 1,006,200 1,006,200
Fuel Purchase During Construction, net 550,000 550,000
General Liability Insurance 88,838 88,838
Initial Spare Parts Purchases 2,000,000 1,700,000
Initial Fill of Fuel Oil Tank 1,200,000 1,200,000
Initial Lease Reserve 2,400,000 2,400,000
Initial O&M Reserve 1,000,000 1,000,000
Initial Warranty Reserve 750,000 250,000
Contingency 8,759,404 8,700,274
----------- ----------
Other Project Costs 21,023,243 20,283,125
TOTAL PROJECT COST 215,000,000 215,000,000
</TABLE>
1. Budget estimate as of June 2, 1996, with 81 percent actual expended.
<PAGE>
<TABLE>
<CAPTION>
Table 5-2
SIMILAR GAS TURBINE PROJECTS
Plant Unit Cycle Number MW On- EPC Cost EPC Project Project
Type Type of Gas Line ($1996x000's) Cost Cost Cost
Turbines Date Escalated $/kW ($1996x $/kW
at 3.5% 000's)
Escalated
at 3.5%
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
A Frame 7 Combined 1 117 1992 79,122 676 123,733 1,058
B Frame 7 Combined 1 137 1993 96,892 707 150,786 1,101
C Frame 7 Combined 1 120.6 1994 86,387 716 140,166 1,162
D Frame 7 Combined 1 126 1995 85,660 679 144,900 1,150
E Frame 7 Combined 2 240 1994 163,561 682 348,150 1,451
Brandy-
wine Frame 7 Combined 2 230 1996 118,800 517 215,000 935
</TABLE>
Table 5-3
COMMISSIONING BUDGET
Furniture and office equipment $ 102,820
O&M Contractor 1,006,200
Fuel purchased during construction 1,500,000
Spare parts inventory 2,000,000
Fuel oil inventory 1,200,000
-----------
Total commissioning costs $5,809,020
ICF PROJECTIONS
Pacific Energy Systems reviewed the technical assumptions used in the ICF
Projections and as noted below, found them to be consistent with those of
similar projects and reflective of the equipment being used and the
requirements of the PPA. Because the project uses equipment that is similar to
that used in many other projects, estimates for capital costs, availabilities,
capacities, and operation and maintenance can be made with a relatively high
degree of confidence. Pacific Energy Systems' analyses of various assumptions
that went into the ICF Projections follow:
- Since the plant is dispatched, availability becomes a concern only if
the plant fails to meet PEPCO's dispatch requirements. While
starting and stopping equipment frequently will have a long-term
impact on the equipment, under PEPCO's dispatch plans there is
sufficient downtime for routine maintenance. Pacific Energy Systems
anticipates that the Panda-Brandywine project will have a high
availability in meeting the dispatch requirements of PEPCO. Pacific
Energy Systems believes the availability projected by ICF is a
reasonable assumption.
- Capacity payments are tied to twice-yearly demonstrated output
testing. On the basis of the results of Pacific Energy Systems'
modeling (see Appendix D), if the plant is operated and maintained as
specified by the equipment manufacturers and according to normal
industry practices, the project will have no difficulty meeting the
twice-yearly capacity test at the full 230 MW or more.
- Our estimate of the heat rate uses weighted averages based on a
model that considers the facility as a new, clean design that is
free of manufacturing and erection errors. Our estimate is also
based on average weather conditions and on the implementation of
operation and maintenance practices recommended by manufacturers and
typical of good industrial practice. Actual year-to-year heat rates
and capacities may vary from the model performance if operating
conditions are different from the assumptions used.
- For the purposes of this report, Pacific Energy Systems has
developed an estimate of the heat rate and capacity for each year
from 1996 through 2021. These are shown in Tables 5-4A and 5-4B.
Pacific Energy Systems, in the past, has employed the methodology of
converting each start cycle to an equivalent number of operating
hours with degradation, inspections, and maintenance intervals based
on the equivalent hours. General Electric no longer supports this
approach, but has developed a methodology based on independent
counts of starts and hours.
Because GE is the original equipment manufacturer (OEM) and will be
the primary advisor and technical support group to Panda during the
operation of the Brandywine units, Pacific Energy Systems has
chosen to use GE's methodology in determining the degradation and
maintenance schedules for the Panda-Brandywine gas turbines. The
anticipated maintenance schedules are shown in Table 5-5.
Notes on Tables 5-4A, 5-4B, and 5-5:
1. Assume 200 hours of oil firing per year on Unit 2 only
2. Uses GE's methodology on determining equivalent hours
3. Uses the greater of equivalent hours based on GE's
calculation of starts or hours
4. Assumes 5 forced outages per year
5. Steam turbine maintenance based on time, not hours of
operation
<PAGE>
<TABLE>
<CAPTION>
Table 5-4A
UNIT 1
Dispatched* Equivalent Annual Annual
Year Hours Fired Hours Average Average
Heat Rate Power
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1996 650 790 7,939 120,040
1997 3,869 4,769 8,048 118,280
1998 4,227 5,127 8,075 117,840
1999 4,434 5,334 8,106 117,600
2000 4,494 5,394 8,141 117,340
2001 4,653 5,553 8,086 118,840
2002 4,665 5,565 8,141 117,940
2003 4,616 5,516 8,174 117,690
2004 4,566 5,466 8,209 117,450
2005 4,646 5,546 8,166 120,000
2006 4,723 5,623 8,051 118,120
2007 4,671 5,571 8,085 117,760
2008 4,624 5,524 8,119 117,530
2009 4,584 5,484 8,153 117,270
2010 4,553 5,453 8,118 118,400
2011 4,489 5,389 8,151 117,860
2012 4,433 5,333 8,183 117,620
2013 4,384 5,284 8,216 117,380
2014 4,341 5,241 8,134 119,240
2015 4,308 5,208 8,053 118,000
2016 4,243 5,143 8,085 117,750
2017 4,184 5,084 8,118 117,540
2018 4,129 5,029 8,148 117,300
2019 4,079 4,979 8,091 118,680
2020 4,033 4,933 8,139 117,950
2021 3,400 4,300 8,167 117,740
</TABLE>
* Based on Table ES-1 from ICF Resources Incorporated, May 1996 report
"Independent Assessment of the Dispatchability of the Panda-Brandywine
Project."
<PAGE>
<TABLE>
<CAPTION>
Table 5-4B
UNIT 2
Dispatched* Equivalent Annual Annual
Year Hours Fired Hours Average Average
Heat Rate Power
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1996 450 778 7,863 120,040
1997 2,295 3,303 7,954 118,280
1998 2,973 3,961 7,984 117,840
1999 3,472 4,498 8,011 117,600
2000 3,972 4,980 8,041 117,340
2001 3,661 4,660 8,024 118,840
2002 3,353 4,361 8,053 117,940
2003 3,401 4,409 8,077 117,690
2004 3,450 4,458 8,103 117,450
2005 3,485 4,493 8,131 120,000
2006 3,484 4,492 8,029 118,120
2007 3,195 4,203 7,997 117,760
2008 3,195 4,203 7,997 117,530
2009 3,061 4,069 8,021 117,270
2010 2,933 3,941 8,045 118,400
2011 2,839 3,847 8,020 117,860
2012 2,751 3,759 8,049 117,620
2013 2,665 3,673 8,067 117,380
2014 2,584 3,592 8,087 119,240
2015 2,507 3,515 8,108 118,000
2016 2,452 3,460 8,008 117,750
2017 2,398 3,406 7,968 117,540
2018 2,347 3,355 7,986 117,300
2019 2,297 3,305 8,006 118,680
2020 2,250 3,258 8,026 117,950
2021 1,900 2,908 8,002 117,740
</TABLE>
* Based on Table ES-1 from ICF Resources Incorporated, May 1996 report
"Independent Assessment of the Dispatchability of the Panda-Brandywine
Project."
<PAGE>
<TABLE>
<CAPTION>
Table 5-5
MAINTENANCE REQUIREMENTS
Required
Unit 1 Unit 2 Steam Balance of
Year Required Required Turbine Plant
Maintenance Maintenance Maintenance Maintenance
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1996 NO
1997 CI CI VI YES
1998 CI CI YES
1999 CI CI VI YES
2000 CI CI YES
2001 HS HS VI YES
2002 CI CI MO YES
2003 CI CI YES
2004 CI CI VI YES
2005 MO CI YES
2006 CI MO VI YES
2007 CI CI YES
2008 CI CI MO YES
2009 CI CI YES
2010 HS CI VI YES
2011 CI HS YES
2012 CI CI VI YES
2013 CI CI YES
2014 MO CI MO YES
2015 CI CI YES
2016 CI MO VI YES
2017 CI CI YES
2018 CI CI VI YES
2019 HS CI MO YES
2020 CI CI YES
2021 CI HS VI YES
</TABLE>
VI = valve inspection, MO = major overhaul, CI - combustion inspection,
HS = hot section
Pacific Energy Systems believes that the heat rate and capacity estimates are
reasonable, consistent with common industry practice, and, when used in light
of the limitations given above, are properly reflected in the pro forma
provided by ICF Resources.
SCHEDULE
According to the PPA, the project must be completed before June 1, 1997, but
not before June 1, 1996. Both Raytheon and Panda have provided bar-chart
schedules (dated March 21, 1995, and March 27, 1995, respectively) that
indicate the project will become commercial on October 31, 1996. Some
initial activities were delayed between December 31, 1994, and April 10, 1995,
because of permitting and financing issues.
The project remains on schedule at this time with construction about 90 percent
complete as of July 15, 1996. Raytheon is presently targeting late September
1996 for commercial operation. This is approximately 5 to 6 weeks ahead of
schedule.
Section 6
PERMITS AND LICENSES
This section reviews the status and content of key environmental and regulatory
permits, licenses, approvals, rights-of-way, and authorizations required for
construction and operation of the Panda-Brandywine cogeneration project.
FEDERAL APPROVALS
FEDERAL ENERGY REGULATORY COMMISSION (FERC)
Qualifying Facilities (QF)
Initially, the Project filed for self-certification on December 1, 1993. In
order to enhance financing, FERC was later asked to certify the project.
Panda-Brandywine, L.P., received a FERC order granting its application for
certification as a qualifying cogeneration facility on May 23, 1994. Pacific
Energy Systems has reviewed the calculation on which certification was granted
and is of the opinion that, as long as the plant is operated in a manner
consistent with its design and that of the steam host, there should be little
problem in maintaining the Project's QF status.
Pipeline Permits
Because of the complex nature of the gas supply and transportation agreements,
a number of FERC approvals are required. Some of these approvals are for the
pipeline expansion project and are related only indirectly to the Panda-
Brandywine project; others require interconnection agreements and tariff
adjustments between utilities; still others relate to the takeover of a
pipeline from another utility. All applicable permits now have been applied
for and received. These permits include the required FERC approvals and
several state and county permits.
U.S. DEPARTMENT OF ENERGY (DOE)
Panda-Brandywine, L.P., has applied for and has received certification of
Compliance with the Power Plant and Industrial Fuel Use Act.
FEDERAL AVIATION ADMINISTRATION (FAA)
The project received FAA approval for stack height and location on September
16, 1993. A modification to the permit was required as a result of lowering
the baseline grade at the site. The top of the stack will be at the same
location, but the length of the stack will be greater.
U.S. ARMY CORPS OF ENGINEERS (COE)
On December 23, 1994, the U.S. Army Corps of Engineers authorized all proposed
work on the Panda-Brandywine project by a Nationwide Permit as required by
Section 10 of the Rivers and Harbors Act and Section 404 of the Clean Water
Act. This includes construction activities at the plant site and work on the
effluent water supply pipeline and electrical transmission line.
The permit contains all standard conditions for such work and operation, and
specifically ties all work and operation to all conditions required under the
state authorization as described below. Pacific Energy Systems finds the
conditions to be consistent with normal practices and does not believe that
project construction will be unduly affected by these conditions.
U.S. NAVY CATEGORICAL EXCLUSION
Panda has built a large portion of the effluent water supply pipeline along a
Navy-owned railroad. Approval by the U.S. Navy was required for the right-of-
way. As part of this approval, the Navy determined that the use of the right-
of-way was within National Environmental Policy Act (NEPA) limits in meeting
the criteria for Categorical Exclusion. The Categorical Exclusion was
obtained on November 28, 1994. It contains several recommendations to be
included in the right-of-way easement between the Navy and Panda. These are
discussed later in this section under Right-of-Way Easements.
STATE APPROVALS
CERTIFICATE OF PUBLIC CONVENIENCE AND NECESSITY (CPCN)
Unlike many states, Maryland has placed the environmental and social/economic
permitting of power plants under the authority of its Public Service Commission
(PSC) rather than allow various state agencies to handle permitting in a
fractured manner. The Maryland PSC has been empowered to issue a Certificate
of Public Convenience and Necessity (CPCN) to allow for the construction and
operation of power plants and transmission lines.
The PSC divided the permitting for Panda-Brandywine into two parts. Phase I
covers the air emission control and Prevention of Significant Deterioration
(PSD). Phase II covers the remaining social/economic aspects, including
groundwater use, noise impacts, endangered species, and other relevant areas.
The Phase I and Phase II CPCNs were issued on October 6 and October 27, 1994,
respectively.
Panda requested an amendment to the CPCN to correct some inconsistencies and
to allow for the fact that the gas pipeline permitted under the CPCN was no
longer being built by Panda or along the route it had permitted. These permit
changes appear to be consistent with Pacific Energy Systems' understanding of
present construction and operation plans. Pacific Energy Systems believes
that the changes are favorable to the project overall and that they lessen
the direct requirements on Panda. The amendment to the CPCN was granted on
December 15, 1994.
The original CPCN contains 65 licensing conditions. While many of the
conditions set operating limits and reporting procedures on the operation of
the plant, a large number require Panda to submit construction plans and
procedures to various state agencies before starting construction.
In developing the CPCN, the Maryland PSC included the input of all other state
agencies and local governments in such a way that many of the approvals
required before starting construction are primarily administrative and depend
on Panda to supply sufficient details for approval. Pacific Energy Systems
believes that Panda and its EPC contractor (and other subcontractors) have
obtained all necessary approvals in a timely manner to support construction
and operation.
PREVENTION OF SIGNIFICANT DETERIORATION
A review of PSD requirements and approval that the project meets PSD
requirements are contained in the Phase I approval of the CPCN.
STATE WETLAND PERMIT
The Department of Natural Resources (DNR) for the State of Maryland approved a
Conditional Letter of Authorization on December 23, 1994, for construction of
the plant, utility lines, and stormwater outfall. This permit contains a number
of "conditions," including:
- The U.S. Army Corps of Engineers standards
- The requirement to meet Best Management Practices for
Working on Non-Tidal Wetlands
- Filing plans with the state
- Obtaining a sediment control permit from the Prince George's
and Charles Conservation District
Pacific Energy Systems' review of all the conditions did not identify any
requirements that would cause undue delay in starting or completing the project
or any ancillary facilities.
RIGHT-OF-WAY EASEMENTS
A number of right-of-way easements are required before construction of the
various pipelines and transmission facilities. Because of their significance
to the project, two of these easements are discussed briefly below.
CONRAIL EASEMENTS
There are two easements, under two separate agreements, in the Conrail
right-of-way: one for the transmission line and one for the effluent water
supply line.
The agreement to build and operate the 230-kV transmission line in the Conrail
right-of-way is dated September 6, 1994. Under the terms of the easement,
Panda can occupy the space for 25 years (with a 15-year possible extension)
for a total price of $686,700. Panda assumes all responsibility for project
risk and indemnifies Conrail.
The agreement to build and operate the effluent water supply line in the
Conrail right-of-way is dated November 9, 1994. Under the terms of this
easement, Panda can occupy the space for 25 years (with a 15-year possible
extension) for a total price of $253,755. Again, Panda assumes all
responsibility for project risk and indemnifies Conrail.
The remaining terms and conditions in both easement agreements appear to be
consistent with those of other railroad easements and represent no major risk
to the project.
U.S. NAVY EASEMENT
Panda has completed negotiations on the U.S. Navy easement for the effluent
pipeline along a section of railroad owned by the Navy. Several unique items
pertaining to this easement should be noted and are discussed below.
Since the pipeline will be owned by Charles County after it is built, the
county will become a co-grantee with Panda on the easement. This will allow
the county to assume the agreement without renegotiating it.
Under the terms of the easement, the Navy also requires that the grantee (Panda
or the County) maintain the right-of-way. This includes annual cleanup and
semi-annual cutting of grass, weeds, and brush. Pacific Energy Systems
believes that Panda should turn this activity over to the county, with the
cost included in the maintenance fee Panda will be paying to the county. The
county is better equipped to perform this work since it performs similar
activities along road rights-of-way.
Where Panda's contractor cannot reach the right-of-way areas for construction
(or future maintenance) on existing roads, the Navy is requesting the railroad
be used. In addition, the Navy wants those sections of rail repaired to
facilitate Panda's use. Panda has not provided an estimate for the cost of
rail repair.
Section 7
CONTRACTS AND AGREEMENTS
This section of the report reviews the dominant contracts and agreements
associated with the Panda-Brandywine Cogeneration Project that have been
identified by Pacific Energy Systems as having a direct impact on the
construction, operation, and technical performance of the completed power
plant. These documents were reviewed from a technical standpoint to assess the
sufficiency of their terms, conditions, and scopes to meet the desired outcome
of the project.
Contracts were evaluated, in comparison with contracts for similar projects, to
determine their consistency with acceptable industry standards and good
engineering practices. Several of these contracts, including the EPC contract,
were modified during the due diligence period to make them more consistent with
acceptable standards and practices. The following discussion is based on
contract documents that exist as of June 28, 1996. Contracts reviewed include
the Power Purchase Agreement, EPC contract, Treated Effluent Water Purchase
Agreement, Natural Gas Supply and Transportation Agreements, Steam Sales
Agreement, Owner's Engineer Agreement, Effluent Line Construction Contract, and
Transmission Line Construction Contract.
POWER PURCHASE AGREEMENT
Under terms of this contract, PEPCO has agreed to purchase all the electricity
generated by the Panda-Brandywine cogeneration plant. Except for electric
production of 99 MW between 8:00 a.m. and 8:00 p.m. on weekdays, the plant will
be fully dispatched by PEPCO. The plant will be interconnected to the PEPCO
system by a 7-mile-long, 230-kV transmission line that will be built by Panda
and turned over to PEPCO to own and operate. PEPCO will dispatch the plant on
an as-needed basis according to the utility's economic dispatch regulations.
In its original form, the PPA was more restrictive than is typical. It placed
a number of requirements on the Project that required extensive monitoring and
reporting before, during, and after construction. It contains punitive damages
for failure to perform under the contract terms. The contract requires PEPCO
to be very proactive in all aspects of the development, construction, and
operation of the Panda-Brandywine facility. If Panda fails to perform, the
agreement allows for reduced payments, cancellations, or, as a last resort,
assumption of the project by PEPCO. However, many of the concerns expressed in
this paragraph have been made less onerous through an Operating Agreement
between Panda and PEPCO. The Operating Agreement provides for means of
resolving disagreements and for preventing disputes before they occur.
CONDITIONS AND OBLIGATIONS
In addition to PSC approval, the agreement requires Panda to obtain all
appropriate permits and government approvals. This was somewhat simplified by
the Maryland PSC when it ruled that Panda-Brandywine, L.P., was an electric
company and, therefore, required to obtain a CPCN before starting construction
of the facilities. (The CPCN is discussed in greater detail in Section 6 of
this report.)
PEPCO's obligation to purchase capacity and electric nergy from the Project
under this agreement is predicated on Panda meeting a number of conditions
precedent. The conditions precedent require submittal of a number of permits,
agreements, engineering reviews, plans, designs, drawings, schedules, and
other proofs that Panda is capable of moving ahead and is making progress
toward the contract completion date.
The agreement requires Panda to make several security deposits to assure PEPCO
that Panda is proceeding with a project that meets PEPCO's needs (including
schedule, capacity, and reliability). These security deposits represent some
financial assurances to PEPCO that, if Panda fails to perform, money would be
available to purchase replacement power from other sources. Also, the
security deposits are large enough to give Panda the incentive to meet PEPCO's
contract requirements. These security deposits are or three different
events, as follows:
- Development Security is to ensure that the Commercial Operation Date
is met as agreed upon in the contract. This deposit takes the form of
a series of payments that equal $3.45 million, or the equivalent of
$15/kW for the 230,000kW facility.
- Interconnection Security is to ensure that PEPCO is paid for costs
associated with the study, planning, engineering, procurement, and
construction of the interconnection facilities between the Panda-
Brandywine facility and the PEPCO system. Panda has made payments to
PEPCO for the interconnection in the amount of $2,650,000 to date.
- Performance Security is to cover damages resulting from termination of
the agreement after the Commercial Operation Date. This security
amounts to $2 million.
All three of these security deposits have been made through an irrevocable
letter of credit, as allowed under the terms of the PPA.
PEPCO has the right to interrupt or suspend deliveries from the plant under
emergency conditions if the interconnection and protective equipment is found
to be unsafe, poorly maintained, lacking in maintenance records, or in
noncompliance with PEPCO guidelines and performance standards for parallel
operation.
In addition, PEPCO has the right to declare two other types of emergency
conditions. During a minimum generation emergency, light load period, PEPCO
can suspend delivery from Panda for a cumulative 200 hours per year during the
limited dispatch portions in a year. This is nearly 6.5 percent of the time
PEPCO is required to operate at least one combustion turbine in combined-cycle
mode, first dispatch segment. The other emergency condition is referred to as
a maximum generation emergency. When such a condition is declared by PEPCO,
Panda is required to use all reasonable efforts to deliver the maximum
attainable net electrical output from the plant without exceeding
manufacturers' recommended operating limits. Failure to do so is considered
a default under the contract.
COMPENSATION AND PAYMENT
Calculation of the capacity and energy payments made under the terms of the
contract is very complicated because of all the correction factors that have
been used. Pacific Energy Systems' scope of work does not include
identification of the need for, the reasoning behind, and source of some
corrections. The PPA provides for a monthly capacity payment and a monthly
energy payment. Pacific Energy Systems has reviewed sample calculations for
the payments as provided in the PPA and has found them to be correct based on
the assumptions used in the PPA. However, actual payments will be based on the
actual operation of the plant in the future. The capacity and energy payments
are described briefly below.
ICF has used a single heat rate of 8,461 Btu kWh (HHV) as an effective minimum
to simplify the projected energy payments. Pacific Energy Systems believes
that this is a reasonable value based on its review of the PPA.
Capacity Payment
PEPCO is to pay the project monthly for the dependable capacity (230 MW) at an
annual rate set forth in Appendix L of the PPA. The capacity is corrected for
the facility's equivalent availability compared with a target availability.
Capacity payments will be increased if availability is above 92 percent or
decreased if it falls below 88 percent.
The capacity rate, as set for each year of operation in Appendix L of the
agreement, is then adjusted by the gross national product (GNP) deflator based
on the change between June 1, 1994, and the actual Commercial Operation Date
and is also adjusted by the Treasury Bond rate. In addition to the above
adjustments, PEPCO has included two additional modifications to the capacity
payment. These were made under Amendment No. 1 and appear to reflect PEPCO's
concern for overpayment of capacity should PEPCO's load growth be less than
initially assumed. The first is a capacity payment adjustment, as stated in
Appendix Q of the agreement, which is based on the year of initial operation.
The second is a modification of potential costs and is tied to PEPCO reaching
a specific load level by 1997.
Energy Payment
PEPCO will pay the project for startup energy based on a simple formula tied
to the interruptible fuel rate and an assumed heat rate of 8,461 Btu/kWh.
Test energy will be calculated in basically the same way as the monthly
energy payment.
The monthly energy payment is composed of two parts: the unit commitment
payment and the dispatch payment. In calculating the monthly energy payment,
the net electrical output will be assigned on an hourly basis among the
dispatch segments shown in Table 7-1.
<PAGE>
<TABLE>
<CAPTION>
Table 7-1
PEPCO DISPATCH SEGMENTS
Number of Combustion Cumulative MW
Dispatch Turbines Operating With (at 59
Segment the Steam Turbine Also degrees F
Operating Description and 50%
Relative
Humidity)
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
First 1 Up to minimum load 0 to 99 MW
Second 1 From minimum load to
full load 99 to 117 MW
Third 2 From full load with
one combustion turbine
operating to minimum
load with two combustion
turbines operating 117 to 199 MW
Fourth 2 From minimum load to
full load with two
combustion turbines
operating 199 to 237 MW
</TABLE>
The unit commitment payment associated with the first and third dispatch
segments is to be calculated using a formula that includes service hours in
both dispatch segments multiplied by the adjusted firm gas rate and
interruptible gas rate, respectively, and a variable operation and maintenance
rate. Service hours are corrected no-load and minimum-load fuel use and a heat
input adjustment is made based on average historical ambient conditions for
each billing period. The unit commitment payment is corrected for the cost of
fuel used for various startups during the month.
PEPCO will make a dispatch payment for the net electrical output associated
with the second and fourth dispatch segments. This payment is based on the
number of megawatt-hours generated above the first or third segments multiplied
by the incremental heat rate and the sum of the fuel cost for that segment and
the variable O&M costs.
The agreement provides formulas for the calculation of various correction
factors, firm and interruptible gas rates, and variable O&M rates as well as
sample calculations. As stated earlier, Pacific Energy Systems' scope of work
does not include the determination of how every correction factor was obtained
and its individual reasonableness. Taken as a whole, the formulas and the
results presented in the sample calculations appear to be reasonable.
COMMENCEMENT OF CONSTRUCTION AND OPERATION
Under the terms of the contract, Panda commenced construction onsite prior to
October 9, 1995, but actual commercial operation can be no sooner than June 1,
1996. During the construction and startup period, Panda provided additional
documentation to PEPCO, including schedules, design details, equipment
capability curves, and relay settings. PEPCO has the right to review the
plant design and to monitor plant construction, startup, testing, and
operation. The generation of electricity from the plant in parallel with
PEPCO will not take place until all interconnection safety devices specified
by PEPCO have been installed, inspected, and approved by PEPCO.
After the Actual Commercial Operation Date has been established, the contract
requires a Net Capability to be set semiannually (summer and winter). It is to
be based on temperature and humidity records for the last 15 years. Net
Capability sets the capacity payment for that period and can be less than or
equal to (but not greater than) 230,000 kW.
GENERATION DISPATCH
PEPCO is required to dispatch the limited-dispatch portion of the facility for
60 hours Monday through Friday (initially 8:00 a.m. to 8:00 p.m.). The
remaining block of power, the dispatchable portion of the project, will be
controlled at the sole discretion of the PEPCO dispatcher. PEPCO has made no
guarantee for any hourly generation levels beyond the 60 hours in the first
dispatch segment (see Table 7-1).
Through its operator, Panda-Brandywine must schedule maintenance outages with
PEPCO as well as meet certain notification requirements to support PEPCO's
system planning for routine maintenance and forced outages.
MAINTENANCE RESERVE
The project is required to establish a maintenance fund to pay for any repairs
or replacements that are necessary or appropriate to ensure that the facility
will continue to be operated and maintained in accordance with the performance
standards set forth in the agreement.
The lease requires that the project fund the maintenance reserve with an
initial payment of $1 million and increase at a rate of $125,000 per quarter
over the next two years and $375,000 per quarter for two years thereafter until
it reaches $5 million. If the project draws on the O&M reserve, it must also
replenish it to its required balance using up to 50 percent of the project's
available cash flow.
GE will provide, at a cost, a letter of credit to cover the minimum $5 million
required maintenance reserve under the PPA.
On Panda's request, Pacific Energy Systems has developed a model of expected
expenditures from the maintenance reserve account. Our estimate is to be
incorporated into the pro forma. It is based on "equivalent fired hours."
Equivalent fired hours accounts for time the plant is dispatched plus time
expended in starting and stopping equipment.
INTERCONNECTION
The interconnection of the plant to the PEPCO system is included in the PPA and
not in a separate agreement, which is more typical of the industry. The
agreement also covers the transmissionfacilities.
At Panda's expense, PEPCO will provide all required interconnection equipment,
safety devices, and metering at its Burches Hill Substation. Panda will
construct (to PEPCO's specifications) a transmission facility between the plant
and the Burches Hill Substation. Prior to the Actual Commercial Operation
Date, ownership of this transmission facility will be transferred to PEPCO.
Through the agreement and its appendixes, PEPCO has provided basic equipment,
safety, and meteringspecifications for the project. In addition, PEPCO has
the right of design review and testing to ensure that the plant, transmission
facility, and interconnections are safe to operate in parallel to the PEPCO
system.
OTHER CONDITIONS
Overall, the PPA appears to be complete in stating technical requirements,
administrative requirements, legal actions available, and general terms for
compliance. In addition to the agreement requirements already discussed,
several additional items should be highlighted. These are discussed below.
Default: There are more than a dozen ways for the Panda-Brandywine, L.P.,
plant to default under the agreement. Several important ways are as follows:
- Sale of any Dependable Capacity to any party except PEPCO
- Reduction of the Equivalent Availability below 50 percent or an
increase in the forced outage rate above 20 percent
- Closing date does not occur by October 1, 1995
- Failure to provide any of the security accounts or maintenance
reserves
- Failure to use supplemental methods or equipment to meet Dependable
Capacity.
Operating Committee: The agreement requires that an Operating Committee be
established, with one representative from each party, to facilitate
coordination and interaction between the two parties. The Operating Committee
must act only by unanimous agreement or consent.
Dispute Resolution: If a dispute arises under the agreement that cannot be
resolved by the Operating Committee, then the dispute shall be deferred to a
senior officer from each organization. Issues still unresolved are then to be
referred to the Maryland PSC.
Purchase Option: PEPCO has the right to purchase the project should Panda wish
to sell. If a third party wishes to purchase it, Panda must first give PEPCO
the option to purchase the project under the same terms being offered by the
third party.
Qualifying Facility: PEPCO is required to continue to make payments under the
contract if QF status is lost for less than 540 days. After 540 days, PEPCO
can terminate the contract. During the period that QF status is lost, PEPCO
will dispatch the full plant capacity under the Dispatch Portion requirement.
For that period, the Limited Dispatch Portion (60 hours per week) will not
exist. The four dispatch segments' pricing formulas will remain in effect.
Term: The term of the agreement is for 25 years from the Actual Commercial
Operation Date.
ENGINEERING, PROCUREMENT, AND CONSTRUCTION CONTRACT
The amended and restated EPC contract was signed on December 1, 1994, by
Panda-Brandywine, L.P., and Raytheon Engineers & Constructors, Inc. (The
original contract was signed on December 2, 1993, by Panda-Brandywine, L.P.,
and United Engineers & Constructors Inc., doing business as Raytheon Engineers
& Constructors, Inc.).
Raytheon has been around for many years, primarily as an engineer/constructor
in the petrochemicals field. In recent years, Raytheon has purchased several
engineering firms (EBASCO and United Engineers & Constructors) with well-known
track records in the power industry. The Panda-Brandywine project is being
engineered in Raytheon's Houston office.
The amended and restated EPC contract will be satisfactory for this project.
Following is a brief summary of the EPC contract as it now exists.
SCOPE
This is a turnkey, lump-sum, fixed-price contract with the EPC contractor
responsible for that part of the project which is considered to be within the
main fence area. Utility support systems outside the fence (including the
transmission lines, effluent pipeline, and gas line) do not fall within
Raytheon's scope. For convenience, the county road going past the plant, the
oil storage tank (which is outside the main plant area), and the distilled-
water plant have been added to Raytheon's scope. Raytheon is to supply the
design, engineering, project management, labor, equipment, and materials to
construct, start up, and carry out the performance tests on the power plant
and the distilled-water plant.
Raytheon is to perform all work in a proper, safe, and secure manner to
prevent loss, injury, or damage. All design, construction, operation, and
maintenance must be performed according to prudent utility practices. The
contractor is responsible for all risk of damage to or destruction of the
plant until commercial operation. Upon commercial operation, care, custody,
and control of the facility will pass to the owner.
Pacific Energy Systems has found that the responsibilities and scope of the
EPC contractor and those of the owner, as stated in the EPC contract, are
typical of similar combined-cycle cogeneration plants.
COMPENSATION AND PAYMENT
The work of the EPC contract is being performed on a turnkey basis for a fixed
fee of $118,258,816. This does not include the steam host distilled-water
plant, estimated at $3.4 million. The fixed fee also does not include other
construction contracts issued by Panda to build the transmission line intertie
with the utility, the 17-mile-long effluent water line, or the gas supply
pipeline.
The contractor is paid monthly for work completed during the preceding month
according to the milestone payment schedule (Exhibit D of the EPC contract).
The owner's and lender's independent engineers will review the documents
submitted to ensure that the invoice amount reflects the value of the work
indicated by the milestone payment schedule.
The contractor will provide a letter of credit equal to 10 percent of the
contract price. Panda will have the right to draw down on that letter 10
percent of the total milestone payments actually made at the time of the
drawdown. This replaces the retainage used in most construction contracts.
The value of the letter of credit may be reduced as specific milestones, such
as commercial operation and final acceptance, are reached.
Because of the nature of the milestone payment, the schedule allows for some
overpayment during the initial 9 months of the project. Raytheon has agreed
either to allow the drawdown to exceed 10 percent of the milestone schedule by
$3 million or to post a separate letter of credit for $3 million during this
period.
PERFORMANCE GUARANTEES
A detailed discussion of the plant performance, testing, and guarantees is
contained in Section 8 of this report. The performance guarantees are covered
by liquidated damages and performance bonuses. The liquidated damages are
sufficient to ensure the EPC contractor's diligence in meeting all guarantees.
Raytheon and the owner have elected to use a dead band tolerance of 4 percent
of the net plant heat rate guarantee. This is a plus or minus 2 percent
uncertainty band. If the actual corrected heat rate falls within the band,
neither a bonus nor liquidated damages will be paid. Bonuses or liquidated
damages will be calculated from the edge of the band not from the guaranteed
points. Instrument uncertainties will not be used.
The contractor has guaranteed that commercial operation of the plant will occur
no later than the Guaranteed Completion Date which is currently October 31,
1996. The contractor will pay a penalty of $80,000 per day for each day that
commercial operation of the plant occurs after the guaranteed completion date,
or a maximum of $14,400,000.
ACCEPTANCE
Completion of the plant by the EPC contractor and acceptance by Panda have two
key milestone dates as follows:
- Commercial operation occurs when the plant has passed the 48-hour
net electrical output performance test, as outlined in Section
19.5.1 of the scope of work and discussed in Section 8 of this
report. If the plant fails the 48-hour test, the contractor can
declare commercial operation by electing to make a contract
discount of $1,000 for each kilowatt that the test is below the net
power output guarantee. The net power output must exceed 210,000
kW in order for the contractor to declare commercial operation.
- Final acceptance occurs when:
- The performance test and other required tests have been
completed and all defects and deficiencies have been
corrected
- The plant has been built to the final plans and
specifications
- The plant has been synchronized to the PEPCO electrical
grid
- No work remains that would affect normal plant operation
or performance
- Punchlist work will not interrupt normal operation of
the plant
- Thermal energy is going to the steam host
- The owner issues a completion certificate
- The contractor has certified that the plant has been
constructed in accordance with all governmental
requirements identified either by the owner or the
contractor pursuant to the contract
OTHER CONTRACT CONDITIONS
Spare Parts
The EPC contractor is required to obtain an agreement with General Electric
that spare parts will be available for all GEsupplied equipment for a period of
at least 5 years. Raytheon must also attempt to obtain similar agreements from
other equipment suppliers or locate replacement part sources for those that do
not agree.
During construction, startup, and testing, the contractor is responsible for
obtaining and paying for all spare parts used. The contractor has the right
to use and replace any operating spare parts Panda may have on hand. The
current budget includes $1.7 million for the initial purchase of spare parts
(see Table 51).
The EPC contract requires the owner to have available at the plant, by the
commencement of plant startup operations, all spare parts that are required for
normal operation. Pacific Energy Systems has expressed a strong opinion that
this should be changed for two reasons:
- Failure by the owner to have any spare part needed by the
contractor during startup would allow the contractor to
declare a default and demand an extension of the Guaranteed
Completion Date until the replacement part can be obtained.
This is inconsistent with all other EPC contracts reviewed
by Pacific Energy Systems.
- Operating spare parts take time to evaluate, order, and receive.
It is not unusual for some spare parts to take a year to obtain
under normal circumstances. The O&M contractor will not have
sufficient employees onsite to order spare parts until near
commencement of startup.
Building Permits
The contractor is responsible for obtaining the standard building occupancy
permits. Panda will reimburse the EPC contractor for obtaining these permits
and for assisting in obtaining any of the owner-required permits.
Project Labor
The contract price reflects the use of union labor and the contractor, even
though required by the contract to use only workers in good standing with
their union, cannot seek a change order because of the use of union labor.
Warranties
The contractor warrants that the plant will be free from defects or
deficiencies until the later of: (a) 1 year from commercial operation or
(b) 1 year from discovery or repair of defect or deficiency, but no later than
the second anniversary of final acceptance. Furthermore, for any item that is
repaired, replaced, or renewed more than once, the contractor will undertake a
technical analysis of the problem and clear the "root cause" of the problem.
The contractor will promptly correct, repair, or replace such defect or
deficiency unless it occurs in the GE-supplied combustion turbine-generator
or steam turbinegenerator components, which will be at the owner's expense.
The GE exemption appears to result from the cost of a 1-year warranty from GE;
apparently, the owner decided the price was too high and elected to cover it.
Upon financial closing, GE Capital will establish an escrow account to hold
funds earmarked to cover any costs that might arise from a component failure.
There is no time limit on the Raytheon (not GE equipment) design and
engineering warranty.
Termination for Convenience
The owner may terminate the EPC contract, without cause, for convenience. As
mutually agreed upon andverified by supporting documents, the contractor will
be reimbursed for work completed under the milestone schedule, reasonable
demobilization costs, and cancellation costs for equipment and materials on
order.
Arbitration
Under the terms of the contract, all disputes or claims that cannot be resolved
must be submitted to binding arbitration. The disputes will be awarded on a
"winner takes all" basis. The losing party shall pay all costs, including the
winning party's attorneys' fees and arbitration expenses.
Manuals and Training
The contractor is responsible for supplying a complete set of O&M manuals for
each major piece of plant equipment and plant system. In addition, the
contractor is to provide a training program for O&M personnel that includes
classroom and field training, manuals, drawings, and other educational
materials necessary or desirable for the adequate training of O&M personnel.
Quality controls will be established to ensure that personnel are suitably
trained and capable of operating and maintaining the plant after commercial
operation.
TREATED EFFLUENT WATER PURCHASE AGREEMENT
On September 13, 1994, Panda-Brandywine, L.P., signed an agreement with the
county commissioners of Charles County for the Project to receive up to 2.7 mgd
of treated wastewater effluent from the Mattawoman Wastewater Treatment Plant.
Under terms of the agreement, Panda is required to:
- Build the 17-mile-long effluent pipeline and all related
facilities at its own expense
- Obtain all permits and rights-of-way, reimbursing the county
for any direct cost it might incur
- Design and size the pipeline to supply up to 3.0 mgd
- Upon completion of the pipeline, turn over to the county
(for operation at no cost) only that portion of the line
that is in Charles County, and retain ownership of the rest
of the line
The county will have the right to connect other customers and sell effluent,
provided it is at no cost to the operation of the Panda-Brandywine project and
in no way diminishes the amount of effluent transported to the Project.
WATER USAGE FEE
The project will pay a fee of $1.00 per 1,000 gallons of effluent used during
the initial 10 years of the project. Beginning in the 11th year, the price
will escalate according to the consumer price index, but no greater than 3
percent per year. In addition, the Project will make quarterly payments of all
actual and reasonable fixed expenses and variable expenses associated with
conveying the effluent to the project site. This does not include the cost of
conveying effluent to other users along the pipeline but does include
maintaining the U.S. Navy right-of-way as required in the Navy easement.
TERM
The term of the contract is parallel to the PEPCO PPA with an initial period of
25 years. Panda has the right to extend the agreement with 30 days written
notice for up to three successive 5-year terms.
WATER USAGE
Effluent supplied under this agreement will be closely monitored and must
comply with maximum discharge pollutant levels. Panda is to install a bypass
at the plant to return any effluent that does not meet minimum standards. The
bypass will be via the nearby sewer line that the project will use for all
wastewater and sewage from the plant.
Panda has developed a Risk Management Plan which addresses maintenance and
repair issues. The plan must be approved by the county commissioners.
STEAM SALES AGREEMENT
A Steam Sales Agreement was entered into as of March 30, 1995, between Panda-
Brandywine, L.P., and Brandywine Water Company. The purpose of this agreement
is to allow for the sale of thermal energy, cooling water, and feed water to
Brandywine Water from the project. A description of the distilled-water
facility can be found in Section 4 of the report.
SCOPE
As part of the EPC contract, Raytheon designed andis constructing a
distilled-water facility adjacent to the cogeneration facility which Panda will
lease to Brandywine Water. Panda will sell thermal energy, cooling water, and
feed water to Brandywine water as well as provide operating, maintenance, and
wastewater disposal services for the distilled-water plant. Raytheon is
committed to put the distilled-water plant into commercial operation before or
concurrent with the commercial operation of the power plant.
Brandywine Water is responsible for water sales and delivery from the onsite
storage tank to the customer. Brandywine Water must purchase enough steam to
maintain the cogeneration plant's QF status. Panda has not guaranteed any
specific amounts or periods of time for thermal energy delivery. At least one
of the HRSGs must be operating in order for Panda to deliver thermal energy to
the distilled-water plant.
As part of its agreement for the operation of the cogeneration plant, Ogden is
responsible for the day-to-day operation of the plant. No additional manpower
is expected to be required beyond the normal cogeneration staff.
Term
The sales agreement is for a term of 25 years eginning from the date of the
ontract. Panda can extend the term for additional 5year periods by notifying
Brandywine Water 30 days before the expiration of the prior term.
Price
Panda is responsible for metering all thermal energy, feed water, cooling
water, and wastewater quantities. Meters will be calibrated and maintained by
Ogden according to general practices. Brandywine Water will pay $1.00 per
1,000 pounds of thermal energy and $1.00 per 1,000 gallons of feed water and
cooling water. Brandywine Water will take title to all fluids at the intertie
point of the distilled water plant.
Other Contract Conditions
The SSA contains a number of terms and conditions covering various aspects such
as government approvals, insurance and indemnification, termination, default,
force majeure, and warranties. These terms and conditions are for the benefit
of GE Capital if it needs to take over operation of the distilled-water plant
or the power plant.
STEAM LEASE
Panda-Brandywine, L.P., and Brandywine Water will also enter into a sublease
allowing Panda to sublease the distilled-water facility to Brandywine Water.
(GE Capital will be leasing the entire project, including the distilled-water
plant, to Panda Brandywine, L.P., after construction and startup.) The term of
the Steam Lease expires on the earlier to occur of the expiration or
termination of the Facility Lease, the Site Sublease (as defined in the Steam
Lease, and the SSA.
NATURAL GAS AGREEMENTS
A detailed study of the gas contracts is not part of Pacific Energy Systems'
scope of work on this project. As part of Pacific Energy Systems' due
diligence, it is necessary to determine that gas can and will be delivered to
the project in sufficient quantities and at qualities (including pressures)
that will allow the project to meet its obligations under the PPA and SSA.
In addition to the scope described above, Pacific Energy Systems includes in
this section a brief description of the gas contracts to enhance the future use
of this report. Details of the Gas Agreements were evaluated for Panda by
C.C. Pace.
FUEL SUPPLY PLAN
Panda's fuel supply plan is to purchase natural gas from Cogen Development
Company under a Gas Sales Agreement (GSA) and transport that gas to the project
site via transportation agreements with Columbia Gas Transmission (CGT), Cove
Point LNG, L.P., and WGL. The GSA between Panda and Cogen Development Company
allows the flexibility needed in the fuel supply to meet the specific fuel
requirements of the dispatch plant. Panda can purchase up to 24,240 MMBtu per
day of "maximum daily firm quantity," or up to 24,240 MMBtu per day of
"maximum daily interruptible quantity."
Panda also has developed a Fuel Supply Management Agreement that stipulates
that Cogen Development will manage the purchase of the 8 million MMBtu per year
of natural gas, as well as the transportation of it to the project site as
needed. In addition, as fuel manager, Cogen Development will handle all
administrative services related to gas purchases and delivery; verify
quantities and qualities; advise on price hedging, marketing, and sale of
excess gas; and attempt to negotiate discount rates where available.
WGL can provide spot market merchant services and has the right to purchase
Panda's gas supply during peak periods to serve WGL's other loads.
TRANSPORTATION
Gas will be transported to the site under three pipeline transportation
contracts, with CGT, Cove Point LNG, L.P., and WGL. These contracts are
discussed below.
Columbia Gas Transmission
Panda has contracted CGT to transport up to 24,240 MMBtu/day of natural gas
between the Cogen Development delivery point and Cove Point LNG's pipeline.
This contract is for firm transportation services. In addition to
transportation costs, Panda will pay CGT a Contribution-in-Aid-of-Construction
of $6,772,590 per an amending agreement dated March 24, 1995, plus the
applicable gross-up for income tax.
This contribution will help CGT to parallel or rebuild three sections of its
pipeline to allow the increased flow for Panda. FERC has approved the pipeline
expansion, and CGT is currently obtaining local permits to start construction.
Cove Point LNG, L.P.
Panda has contracted Cove Point LNG, L.P., to transport Panda gas from the CGT
pipeline to the WGL pipeline.
Washington Gas Light Company
Panda has signed a 25-year agreement with WGL that has an initial term of 25
years from the Actual Commercial Operation Date under the PPA. This agreement
is for both gas transportation and gas supply. Under terms of the contract,
WGL will supplythe following services:
- It will construct a gas line from its interstate pipeline along
Highway 301 to the project site, a distance of less than 1 mile.
The line will contain all metering, regulating, and appurtenant
facilities necessary to serve the Panda plant.
- WGL will transport the daily nominated quantities of gas from
Cove Point LNG to the site on a firm basis.
- During peak gas use periods (as defined in the contract), WGL has
the right to use Panda's gas and the plant can run on oil. Various
cost adjustments are available to Panda.
- Panda can nominate a daily merchant quantity of gas from WGL,
which will then sell that gas to Panda at the agreedupon price.
- The final service that WGL supplies to Panda is a balancing
service. When Panda nominates for delivery too much or too little
gas to meet its needs, WGL will run an imbalance account, either
positive or negative. Its costs are resolved monthly by cash, by
making up volumes, or by carrying over portions of the balance as
agreed upon.
Gas supply arrangements for the Panda project are complex. It is our
understanding that C.C. Pace has provided a due diligence report on the
viability of the gas supplies, gas transmission, and management agreements.
Pacific Energy Systems believes that Panda has access to an adequate supply of
gas to meet the daily maximum full-load operation requirements and has
adequate flexibility to arrange for lesser quantities for periods that the
project is dispatched offline or operating only under the first dispatch
segment.
OWNER'S ENGINEER
During the course of developing this project, the owner used a number of
engineering and specialty firms. Pacific Energy Systems was not provided any
of these contracts for review or comment. While most of the work of these
various firms has been completed, the owner's engineer, Gilbert/Commonwealth,
Inc., has played and will continue to play a key role in the project.
Originally hired to review Raytheon's work as an "owner's engineer," Gilbert/
Commonwealth's activities have increased to include design of the transmission
line and a proactive role in the effluent pipeline design, estimate, and bid.
Gilbert/ Commonwealth also has provided a number of detailed design analyses
on behalf of Panda in negotiation change orders for the EPC contract.
Pacific Energy Systems believes that Gilbert/Commonwealth is a creditable,
well-established engineering firm that is capable of performing the services
it is supplying to Panda at a professional level.
EFFLUENT LINE CONSTRUCTION
The effluent line was designed by several firms, including Greenhorne & O'Mara
and Gilbert/Commonwealth. Pacific Energy Systems has received and reviewed
the sample construction contract that went out with the request for bids to
construct the pipeline and pumphouse.
TRANSMISSION LINE CONSTRUCTION
Panda has awarded the contract for construction of the 230-kV transmission
line to C. W. Wright Construction Company, Inc. The line was designed by
Gilbert/Commonwealth. The transmission line is complete and energized.
PEPCO has issued a letter of acceptance.
Section 8
OPERATIONS AND MAINTENANCE
Panda-Brandywine, L.P. (the owner) and Ogden Brandywine Operations, Inc. (the
operator) signed an Operation and Maintenance Agreement on November 21, 1994.
This section discusses Ogden Brandywine's experience, plant staffing, the O&M
Agreement, compensation and payments, and the term and termination of the
agreement.
OPERATING EXPERIENCE
Ogden Brandywine Operations, Inc., is a wholly owned subsidiary of Ogden Power
Corporation. Ogden Power is a subsidiary of Ogden Environmental and Energy
Services of Fairfax, Virginia, a wholly owned subsidiary of Ogden
Corporation. Ogden Corporation (Ogden) is a technical services company with
more than $2 billion in annual sales and more than 1,300 employees who operate
and maintain power projects, including waste energy, hydroelectric, and
geothermal projects.
Overall, Pacific Energy Systems believes that Ogden has an adequate base of
personnel experienced in heavy-frame, gas turbine dispatchable plants to
reliably operate and maintain the Panda-Brandywine project. Ogden plans to
use these experienced headquarters staff members to assist during the later
stages of construction and startup. Since theorganization is relatively
small, a key requirement is that the core staff be able to effectively hire,
train, and develop the additional personnel required to operate this plant.
PLANT STAFFING
Figure 8-1 is an overview of the management organization that will operate and
maintain the project. The plant staff consists of the following positions:
plant manager
1 operation supervisor
1 plant technician
1 maintenance supervisor
4 control room operators
4 equipment operators
1 relief operator
1 water plant technician
1 instrumentation and control (I&C) technician
1 mechanic
1 electrician
----
17 Total O&M staff members
Pacific Energy Systems believes that this level of staffing is adequate, with
the understanding that Panda also will be supplying a full-time owner's
representative and administrative assistant. The Panda personnel will be
responsible for purchasing and for other project administrative functions.
OPERATIONS AND MAINTENANCE COSTS
The annual pro forma O&M budget for the Panda-Brandywine Project is shown in
Table 8-1. The O&M costs shown are for 1997, which is the first full year of
operation.
Table 8-1
OPERATIONS AND MAINTENANCE COSTS
Fixed Costs 1997 $000
- --------------------------------------------------------------
O&M Agreement costs 1,473
Consumables 750
Administrative expenses 500
Insurance 500
Letter of Credit 90
Electricity purchase 411
Property taxes 2,621
VARIABLE COSTS
- --------------------------------------------------------------
Water usage 1,038
Water discharge & chemical usage 861
Distilled-water plant operating costs 200,000
PRO FORMA TOTAL $8,033
All of the O&M costs in Table 8-1 are annualized costs that increase according
to the assumed inflation rate, with the exception of the turbine overhaul
reserve. The annual contribution to the turbine overhaul reserve varies from
year to year. The cumulative reserve is projected to increase to approximately
$5 million by the year 2001 and remains at or above that level throughout the
life of the Project. The annualized equivalent of the annual reserve
contribution is about $1,585,000, assuming a 4 percent inflation rate.
Table 8-2 compares the O&M costs of Panda-Brandywine with those of other
gas-fired, combined-cycle power plants. Panda's overall O&M costs, while at
the low end of the range, appear to be reasonable for a plant of this scale.
<PAGE>
<TABLE>
<CAPTION>
Table 8-2
COMPARISONS OF O&M BUDGETS FOR GAS TURBINE PROJECTS
Number of On-Line Annualized Annualized
Gas Unit Cycle MW Date O&M O&M
Plant Turbines Type Type ($1997x000) ($19997/kW)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
A 1 LM250 Combined 34.5 1990 2,369 69
B 2 LM600 Combined 90.0 1993 5,319 59
C 2 LM600 Combined 106. 1994 5,924 56
D 2 LM600 Combined 95.1 1996 6,299 66
E 1 LM600 Combined 56.7 1996 4,810 85
F 1 LM600 Combined 49.9 1996 4,307 86
G 2 Frame7E Combined 240. 1994 12,629 53
H 1 Frame7E Combined 120. 1995 6,082 50
I 1 Frame7E Combined 126. 1995 6,266 50
J (Panda-
Brandywine) 2 Frame7E Combined 230. 1996 9,976 43
</TABLE>
O&M AGREEMENT
The O&M Agreement is for full-service operation and maintenance of the plant
on a cost-reimbursable-plus-fee basis for a 3-year term. Under the agreement,
Ogden Brandywine will provide O&M services during several phases of the
project, including: preparation of the facility for commercial operation;
testing and acceptance; startup; and operation and maintenance following
commercial operation.
SERVICES PROVIDED
Ogden Brandywine is responsible for hiring, training, and providing a plant
manager; full-time, onsite staff; and additional engineering support,
maintenance, and management personnel as needed to perform the requirements of
the agreement. OgdenBrandywine is responsible for operating and maintaining
the facility 7 days per week and 24 hours per day. Under the agreement, it
also will develop maintenance and safety plans and procedures, and will
prepare and keep O&M records for the project. Ogden Brandywine also is
required to prepare and furnish a monthly operations report to the owner.
Panda will provide an initial inventory of tools, spare parts, equipment,
consumables, and other materials. Panda is responsible for reimbursing Ogden
Brandywine for the replacement of tools that deteriorate from normal use,
replacing spare parts as necessary, purchasing additional spare parts as
approved, repairing or replacing equipment, purchasing and installing
additional equipment, and purchasing consumables. Panda also will reimburse
Ogden Brandywine for purchased parts, for the services of factory personnel or
personnel trained and qualified to perform manufacturers' recommended service
procedures, and for third-party contracts to clean up and remove hazardous and
solid waste (accepted as a result of negligence or fault of the operator).
The agreement provides for a full-time owner's representative to administer
Panda-Brandywine's responsibilities, to monitor the operation of the plant,
and to direct economic and financial matters.
COMPENSATION AND PAYMENT
Before the Actual Commercial Operation Date, Ogden Brandywine will be
compensated in three ways: a fixed monthly payment in accordance with a set
schedule; a reimbursement for all reimbursable costs under the agreement; and a
reimbursement for the compensation and actual expenses of all Ogden Brandywine
personnel who are permanently assigned full-time to the facility, or the home
office, or who perform service in direct support of the site personnel as
approved by the owner. The fixed monthly payment ranges from $5,000 per month
through June 1995 to $10,000 per month until the ActualCommercial Operation
Date.
After the Actual Commercial Operation Date, operator compensation is a fixed
price of $117,750 per month as adjusted for performance, plus all reimbursable
costs incurred under the agreement. There are two performance adjustments to
the contract price. One is for the EAF, and one is for capacity performance.
The maximum increase or decrease for the EAF is $3,000 per month. If the EAF
is greater than or equal to 92 percent, Ogden Brandywine's monthly fixed fee
is adjusted by the amount of $100,000 x (EAF - 0.92). There is no adjustment
to the fixed fee if the EAF is greater than 88 percent but less than or equal
to 92 percent. If the EAF is less than 88 percent, the contract price is
decreased by the amount of $50,000 x (0.88 minus EAF) per month.
The second performance adjustment, the capacity performance contract price
adjustment, compares the lant's actual or tested Net Capability with its
Dependable Capacity. If Net Capability is greater than Dependable Capacity,
Ogden Brandywine's fixed fee is increased by $2,000 per month for the term of
the applicable summer-winter period. If the Net Capability is less than the
required Dependable Capacity, the fixed fee is decreased by $2,000 per month.
Compensation is on a calendar-month basis.
TERMINATION
In the event the owner chooses to terminate the O&M Agreement without cause,
the agreement requires that Panda pay Ogden Brandywine for outstanding costs
under the agreement, reasonable costs incurred by the operator to support
termination, and reasonable severance costs. If the lender should terminate
the agreement, compensation is to be provided to the operator based on a fixed
schedule ranging from $25,000 to $50,000 per month.
Panda-Brandywine may terminate the agreement for cause on the basis of a
number of specific conditions, including:
- Failure of the operator to provide adequate qualified personnel;
failure to produce adequate thermal and electrical energy
- Failure to perform material service or obligation
- Appointment of a receiver, liquidator, or trustee for the
operator
- Failure to maintain the project's QF status
- Failure to maintain an equivalent availability factor of at
least 80 percent; failure to maintain an equivalent forced
outage rate of less than 10 percent
- Continuance of a force majeure for more time than allowed
- Failure to reach agreement by renegotiation as provided by
the O&M Agreement
OTHER PROVISIONS
Other, miscellaneous provisions of the O&M Agreement that should be noted are
as follows:
- The agreement contains a number of force majeure provisions that
are typical for a project of this type.
- Unresolved disputes are to be settled by arbitration.
- Ogden Brandywine may request a retrospective and/or prospective
renegotiation of the monthly fees if the owner's actions make a
substantive, material, and adverse change to the configuration
or operational ability of the project, and which have a
demonstrable effect of increasing Ogden Brandywine's direct onsite
labor, overhead, payroll, and other related costs.
- Ogden Brandywine is required to receive written authorization from
Panda-Brandywine's representative before issuing purchase orders in
excess of $1,000 or for any items not in the authorized budget.
Figure 8-1
Organization Chart
Section 9
PERFORMANCE GUARANTEES AND TESTING
The purpose of this section is to evaluate and summarize the plant performance
guarantees and the proposed performance testing program. This section also
reviews the liquidated damages that result from failure of the plant to meet
the performance guarantees and the bonuses that result when it exceeds the
guarantees.
COMPLETION GUARANTEES
Raytheon guarantees that commercial operation of the plant will occur no later
than the Guaranteed Completion Date, October 31, 1996, or as may be adjusted
in accordance with terms of the EPC contract.
PERFORMANCE GUARANTEES
Table 9-1 summarizes the plant performance guarantees required of Raytheon
under Article 5.0 of the EPC contract. These guarantees are based on the
specific design conditions as shown in Table 92.
<PAGE>
<TABLE>
<CAPTION>
Table 9-1
PERFORMANCE GUARANTEES
Conditions
-------------------------------------------------
Host Boiler
Ambient Steam Condensate Blowdown
Parameter Value (Degrees F/%RH) (lb/hr) Return (%) (%)
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Declaration of
Commercial 92 degrees not not not
Operation(1) 230,000 kW /50 applicable applicable applicable
Plant Net Power 92 degrees
Output - gas 230,000 kW /50 34,000 80 0
Plant Net Heat Rate - 92 degrees
gas (LHV) 7,124 Btu/kWh /50 34,000 80 0
Plant Net Power 92 degrees
Output - oil 230,000 kW /50 34,000 80 0
</TABLE>
Emissions compliance
Noise compliance(2)
(1) In accordance with the test procedure in Appendix D of the Power Purchase
Agreement.
(2) Compliance required "under all normal operating conditions in accordance
with Section 20.5 of the Scope of Work."
Table 9-2
DESIGN BASIS CONDITIONS FOR PLANT OPERATION
DESCRIPTION DESIGN CONDITIONS
- -----------------------------------------------------------------------------
Dry Bulb Temperature 92 degrees F
Wet Bulb Temperature 76.5 degrees F
Fuel Natural gas
Export Power - MW (net) 230 (minimum)
Process Condensate Return 80 percent
Export Steam 40,000 lb/hr
Boiler Blowdown 2 percent
Waterwell Makeup Water Tempature 45 degrees F
Graywater Temperature 80 degrees F
Barometric Pressure 14.68 psi
Site Elevation 215 feet above sea level
Average Annual Rainfall Per Asheville, NC, National
Climatic Center Standards for
the area
Basic Wind Load Per ASCE 7-88, 70 mph, 50-year
mean recurrence @ 10 meters
Seismic Factor Zone 0
Frost Penetration 13 inches
Snow Load ANSI, Ground - 25 lb/sf
Roof Live Load 20 lb/sf maximum
Winter Design Conditions +5 degrees F
NET POWER OUTPUT GUARANTEE
Raytheon guarantees that it will be able to declare commercial operation. As
defined by the PPA, commercial operation may be declared when the plant
establishes a Dependable Capacity of 230,000 kW under summer ambient
conditions of 92 degrees F and 50 percent relative humidity (RH).
Establishment of Dependable Capacity must be done in accordance with the test
procedures in Appendix D of the PPA which require a 12-hour test.
Raytheon also guarantees that the net power output of the plant will be
230,000 kW at commercial operation, corrected to 92 degrees F dry bulb and
50 percent relative humidity, with 34,000 lb/hr of saturated steam at 15 psig
at the process interface, with 80 percent of condensate returned, and with no
boiler blowdown.
NET PLANT HEAT RATE GUARANTEE
The net plant heat rate is guaranteed at 7,124 Btu/kWh (LHV) when firing
design basis natural gas, as determined by the net plant heat rate test,
corrected to 92 degrees F dry bulb and 50 percent relative humidity, with
34,000 lb/hr of saturated steam at 15 psig at the process interface, with
80 percent of condensate returned, and with no boiler blowdown.
EMISSIONS GUARANTEE
Raytheon guarantees that air emissions from the plant will meet the emissions
limits of the U.S. EPA PSD permit and the permits granted by the CPCN
proceeding.
NOISE GUARANTEE
Raytheon guarantees that, under all normal operating conditions for the plant,
noise levels at the property line will not exceed the requirements of the
state of Maryland and Prince George's County.
FUEL OIL NET POWER OUTPUT
Raytheon must demonstrate that the net power output when firing No. 2 fuel oil
is greater than or equal to the net power output under the same conditions
when firing on natural gas. The demonstration shall be a 6-hour test during
which the net power output is corrected to 92 degrees F dry bulb and 50
percent relative humidity, with 34,000 lb/hr of saturated steam at the
process interface, with 80 percent of condensate returned, and with no boiler
blowdown.
GUARANTEE EVALUATION
The net power output, heat rate, emissions, and noise guarantees described
above appear to be consistent with those of similar plants and should be
achievable. The guarantees provide adequate assurance that the plant will
operate as required by the PPA and are backed by a corporate guarantee from
Raytheon.
PLANT PERFORMANCE TESTING
The performance testing program for the Panda-Brandywine Cogeneration Project
consists of the following tests:
- 48-hour net electrical output performance test
- Net plant heat rate test
- 200-hour capacity test
- Stack test
- Noise test
These tests are described below.
48-HOUR NET ELECTRICAL OUTPUT PERFORMANCE TEST
This test will be performed to demonstrate the plant's net electrical output
for the following guarantees:
- Declaration of commercial operation
- Plant net power output - gas
- Plant net power output - oil
The tested net power output must be corrected to the guarantee conditions of
Article 5.04a of the EPC contract: ambient conditions of 92 degrees F dry bulb
and 50 percent relative humidity, with 34,000 lb/hr of saturated steam at the
process interface, with 80 percent of condensate returned, and with no boiler
blowdown. During this 48-hour test, Raytheon must maintain a net heat rate of
less than or equal to 7,836 Btu/kWh (LHV), corrected to the guarantee
conditions. In addition, the stack emissions must satisfy the requirements of
the applicable Maryland CPCN Permit for Air Emissions.
NET PLANT HEAT RATE TEST
The net plant heat rate will be tested during a 6-hour period while the plant
is being operated in its designed normal manner and in accordance with prudent
utility practices. The test results are to be corrected to the guarantee
conditions.
200-HOUR CAPACITY TEST
The 200-hour capacity test will be performed to demonstrate the plant's
ability to produce at least 42,782,000 kWh during a 200consecutive-hour
period. This corresponds to an output of 230,000 kW during 93 percent of the
test period. The plant is required to be tested in its normal manner and
mode, and in accordance with prudent utility practices, while maintaining a
heat rate of 7,836 Btu/kWh (LHV) corrected to guarantee conditions, and while
satisfying the requirements of the Maryland CPCN Permit for Air Emissions.
STACK TEST
Raytheon is to perform a stack emissions test using a certified
subcontractor. The emissions are not toexceed the requirements of the
Maryland CPCN Permit for Air Emissions. The emissions test protocol is to
be submitted to Panda forreview before the test.
NOISE TEST
The noise test will be performed to demonstrate compliance with the noise
abatement guarantee. As baseline reference data, Panda will provide Raytheon
with ambient background noise surveys taken before construction of the
facility. The noise test requires that Raytheon perform additional noise
surveys to determine the actual acoustical behavior of the facility under all
normal and abnormal operating conditions. Raytheon is required to provide, at
its own expense, any acoustic treatment required to bring the noise level of
the facility to within the specified levels.
LIQUIDATED DAMAGES AND BONUSES
The liquidated damages and bonuses specified in the EPC contract are
summarized in Table 9-3.
<PAGE>
<TABLE>
<CAPTION>
Table 9-3
SUMMARY OF RAYTHEON LIQUIDATED DAMAGES AND BONUSES
Guarantees Liquidated Damages Bonuses
- ------------------------------------------------------------------------------
<S> <C> <C>
Completion
Commercial Operation by $80,000/day to a None
the Completion Guaranteed maximum of
Date (June 1, 1996, or as $14,400,000.
adjusted)
Performance
Net Power Output - Gas $1,000/kW, $300/kW
210,000-kW minimum
Net Power Output - Oil $1,000/kW None
Net Plant Heat Rate - Gas $45,000/Btu/kWh if $22,500/Btu/kWh
more than 2% greater if more than
than the guarantee 2% less than
than the
guarantee
</TABLE>
COMPLETION
Raytheon is required to pay liquidated damages of $80,000 per day for each day
that commercialoperation of the plant occurs after the Guaranteed Completion
Date. This payment for late completion shall not exceed $14,400,000. Panda
has the right to offset this payment against any milestone payments, or to
draw upon the letter of credit. The Guaranteed Completion Date is June 1,
1996, or as adjusted. Raytheon earns no bonus for successful completion
before the Guaranteed Completion Date.
PERFORMANCE
Raytheon pays $1,000/kW for failure to achieve the guaranteed net power
output, whether firing on natural gas or No. 2 fuel oil. When firing on
natural gas, Raytheon must achieve a minimum net power output of 210,00 kW.
That is, buydown is only permitted to a minimum of 210,000 kW. In addition,
Raytheon must have achieved commercial operation. There is no bonus for
exceeding net power output on either natural gas or fuel oil.
Raytheon pays liquidated damages for failure to achieve the guaranteed net
plant heat rate. The amount is $44,000 per Btu/kWh when firing on natural
gas in excess of the net plant heat rate guarantee plus the dead-band
tolerance. The dead-band tolerance is defined as plus or minus 2 percent of
the guarantee. Raytheon earns a bonus on net plant heat rate in the amount
of $22,500/Btu/kWh that the net plant heat rate is less than the guarantee,
less the dead-band tolerance.
Appendix A
DOCUMENT LIST
GENERAL CORRESPONDENCE AND SUPPORT MATERIALS
CONTRACTS, AGREEMENTS, AND AMENDMENTS
Power Purchase Agreements
Constructio Agreements
Interconnection Agreements
Steam Supply Agreements
O&M Agreements
Fuel Supply Contracts
Other Contracts
PERMITS
Federal
State
Local
TECHNICAL
Scope of Work
Specifications
Heat Balance
DRAWINGS
GENERAL CORRESPONDENCE
- Letter August 29, 1994, (Hollon to Lorusso) re: transmitting
Brandywine permit schedule.
- G.E. letter of September 26, 1994, (Johnson to Lorusso) re:
GE gas turbine emission guarantees.
- Raytheon letter of October 12, 1994, (Jacobsohn to Hollon)
re: milestone payment schedule.
- Raytheon letter of November 15, 1994, (Jacobsohn to Hollon)
re: major sub-contractors and suppliers.
- Raytheon letter of November 15, 1994, (Jacobsohn to Hollon)
re: financial closing project schedule and approved budget.
- December 20, 1994, letter of transmittal of project summary
bar chart.
- Letter of transmittal of pro forma dated January 9, 1995,
from G.E. Capital.
- Letter January 12, 1995, (Jon Pawlow to various legal
counsels) re: transmitting updated Brandywine list of permits
and schedule-of-disclosure items on environmental matters.
- Pro formas dated - January 12, 1994
- January 14, 1994
- September 14, 1994
- January 6, 1995
- G.E. letter of January 10, 1995, (Johnson to Jacobsohn) re:
GE gas turbine emission guarantees.
- Project budgets with dates running through closing.
- Test case, increased capacity income statement, March 2, 1995.
- Owner's schedule with several updates through closing.
- Raytheon's Monthly Reports:
August 1994; issued September 27, 1994
October 1994; issued November 14, 1994
November 1994; issued December 12, 1995.
- Various issues of the Panda-Brandywine, L.P., 230-MW combined-cycle
power plant (BC-03 schedule) project activity scheduled.
- Various issues of the Raytheon Engineers & Constructors' project
milestone schedule.
- Various issues of the Raytheon milestones and schedule of values.
- Various issues of capital budget and pro formas.
CONTRACTS, AGREEMENTS AND AMENDMENTS
PPA AND INTERCONNECTION
- Order No. 70017, State of Maryland Public Service Commission, dated
July 21, 1992.
- Order No. 10077, State of Maryland Public Service Commission, dated
August 14, 1992.
- Order No. 10155, State of Maryland Public Service Commission, dated
February 1, 1993.
- Memo from Ted Hollon, May 11, 1993, listing all the PEPCO contract key
dates and payments.
- Power Purchase Agreement between Potomac Electric Power Company and
Panda-Brandywine, L.P., dated August 9, 1991.
- PEPCO letter of September 30, 1993, to Robert Carter re: confirmation of
scheduled deliverables to PEPCO from Panda.
- Operations and Maintenance Review by North American Energy Services dated
November 1993.
- First amendment to Power Purchase Agreement dated September 16, 1994.
- Operations and Maintenance Review update by North American Energy Services
dated October 1994.
- Panda letter October 19,1994, to Brian Ward re: available capacity
calculations.
- Letter from Ted Hollon to Mike Lorusso, December 9, 1994, re: PEPCO's
acceptance of the O&M Agreement with Ogden Brandywine Operations.
- PEPCO letter of December 8, 1994, as above.
- PEPCO letter December 26, 1994, re: Pacific Energy Systems' supplement to
Operations and Maintenance Review-update.
- PEPCO letter of November 1, 1995, re: North American's Operations and
Maintenance Review update.
- Power Purchase Agreement Appendixes:
Appendix A - Description of Facility and Site
Appendix B - Sample Calculations
Appendix C - Guidelines and Performance Standards for Parallel
Operation of Customer Generation Equipment on the
PEPCO system
Appendix D - Testing Procedures for Determining Net Capability
Appendix E - Metering Equipment
Appendix F - Interconnection and Communication Specification and
Revision A, July 22, 1993
Appendix G - Procedures for Determination of Fair Market Value of
Facility
Appendix H - Requirements with Respect to Fuel Supply Arrangements
Appendix I - Generating Unit Event Reporting
Appendix J - Summary Specification for 230-kV Overhead Transmission
Lines
Appendix K - Contributions to Maintenance Reserve Pursuant to
Subsection 8.7(b)(ii)
Appendix L - Capacity Rate
Appendix M - Natural Gas Reserve Commitment and Price
Appendix N - Equivalent Availability Factor ("EAF")
Appendix O - Equivalent Forced Outage Rate ("EFOR")
Appendix P - Valuation Procedures for PEPCO's Buy-out Right under
Subsection 18.6(b)(ii), including: Agreement with
respect to transfers of interests in Panda-Brandywine,
L.P., between Potomac Electric Power Company and Panda
Energy Company, and Panda-Brandywine Corporation,
dated August 8, 1991, with Appendix A.
CONSTRUCTION AGREEMENTS
EPC Contract
- Turnkey Cogeneration Facility Agreement between Panda-Brandywine, L.P.,
and United Engineers & Constructors, Inc.; dba Raytheon Engineers &
Constructors, date as of December 2, 1993. Includes Exhibit A through O.
- Simpson Thatcher & Bartlett EPC Contract markup of March 23, 1994; May, 12,
1994; May 16, 1994.
- GE Capital EPC contract word changes of April 15, 1994, and April 20, 1994.
- Panda word changes to Amendment No. 1 dated June 30, 1994.
- Raytheon letter August 2, 1994, to Ted Hollon, re: drafts of suggested
language changes to EPC contract.
- September 16, 1994, draft copy of the first amendment to the turnkey
Cogeneration Facility Agreement.
- EPC word changes from Raytheon dated September 16, 1994.
- Memo September 22, 1994, from Brian Dietz to Hollon, DeVoss, Young, and
Jacobsohn re: New York Technical meeting.
- EPC word changes from Raytheon dated October 6, 1994.
- Raytheon's October 13, 1994, Exhibit P, Scope of Work for Distilled-Water
Plant.
- Amended and Restated Turnkey Cogeneration Facility Agreement between
Panda-Brandywine, L.P., and Raytheon Engineers & Constructors, Inc., dated
as of December 1, 1994. Includes Exhibits A through R.
- Memo February 24, 1995, from Ted Hollon to Darrel DeVoss re: 16 pages of
changes to Raytheon EPC contract.
STEAM SUPPLY AGREEMENTS
- Letter of October 22, 1993 (Carter to Colonel Celmer), re: sales of water
to base for boiler makeup.
- Draft Steam Sales Agreements dated from May 26, 1994, to December 30,
1994, nine revisions in all.
- Brandywine Water Company Business Plan, January 4, 1995.
O&M AGREEMENTS
- ASME paper by William R. Alkema, "Operation of a Large Combined-Cycle
Facility as a Dispatchable Unit," 1991.
- Request for Proposal: Facility Operations and Maintenance Services, dated
July 22, 1994.
- Qualifications of Ogden Power, dated October 19, 1994.
- Operation and Maintenance Agreement between Panda-Brandywine, L.P., and
Ogden Brandywine Operations, Inc., dated November 21, 1994.
- Preliminary Operating Plan, December 16, 1994.
- Resumes of proposed plant manager dated December 22, 1994.
FUEL SUPPLY CONTRACTS
- Fuel Plan dated July 15, 1994, by Panda Energy Corporation for Panda-
Brandywine, L.P.
- Fuel Management Plan dated November 23, 1994.
- Gas Transportation and Supply Agreement between Panda-Brandywine, L.P.,
and Washington Gas Light Company dated November 1994.
- Letter of December 2, 1994, to Daniel Grahagan PSC of Maryland requesting
changes to the CPCN because of the Washington gas line extension replacing
Panda's approved gas line.
- Letter of December 2, 1994, to Daniel Grahagan PSC of Maryland from
Washington Gas Light Company requesting approval of the Gas Transportation
and Supply Agreement.
- Carmen D. Legato letter of December 6, 1994, re: burning LNG from Cove
Point.
- Simpson Thatcher & Bartlett memo of January 5,1995, re: consent and
agreement submitted to gas contractors.
- Ted Johnson (GE) letter dated January 17, 1995, re: burning out-of-spec
gas.
- Simpson Thatcher & Bartlett memo of February 17, 1995, updating January 5,
1995, memo.
- Precedent Agreement between Columbia Gas Transmission Corporation and
Panda-Brandywine, L.P., dated February 25, 1995.
- Gas Sales Agreements between Cogen Development Company and Panda-
Brandywine, L.P., dated March 1995.
- Fuel Supply Management Agreement between Cogen Development Company and
Panda-Brandywine, L.P., dated March 1995.
- Carmen D. Legato letter of March 19, 1995, re: use of gasified LNG.
- Prehm & Associates letter of March 22, 1995, re: gas processing plant for
LNG.
- C. C. Pace letter of March 24, 1995, re: Cover Point gas quality follow
up.
- Ted Johnson (GE) letter of March 30, 1995, re: thoughts on (out-of-spec)
LNG fuel.
OTHER CONTRACTS
Transmission Line
- Conrail Occupation Agreement dated September 6, 1994, for 230-kV
transmission line.
- Request for Proposal for furnishing and installing 230-kV transmission line
and alternate communications circuit for Panda-Brandywine, L.P.
- Gilbert/Commonwealth bid evaluation dated October 26, 1994.
- Contract dated November 17, 1994, with C. W. Wright Construction Company to
furnish and erect 230-kV transmission line.
Effluent Pipeline
- Treat Effluent Water Purchase Agreement between the County Commissioners of
Charles County, Maryland, and Panda-Brandywine, L.P.
- Conrail Occupancy Agreement, effluent pipeline, dated November 9, 1994.
- Panda letter of November 14, 1994, (Hollon to Lorusso) re: effluent line
right-of-way, Highway 301.
- Panda letter November 15, 1994, (Hollon to Lorusso) re: metes and bounds
description for Navy easement.
- Gilbert/Commonwealth February 28, 1995, conference notes/cost estimate.
- Panda letter of March 20, 1995, (Hollon to DeVoss) re: effluent line
budget.
- Draft Easement of pipeline right-of-way between Navy and Panda-Brandywine,
L.P., received March 21, 1995.
PERMITS
FEDERAL
- Wetlands Report by ECT, February 1993.
- Application for qualifying cogeneration facility dated December 28, 1993.
- FERC Notice of Application for QF status dated January 26, 1994.
- U.S. Army Corps of Engineers verification of delineation of wetlands,
April 29, 1994.
- Order granting certification as a qualifying cogeneration facility issued
May 23, 1994.
- Joint federal/state application for the alteration of any flood plain,
waterway, tidal, or nontidal wetland in Maryland, October 1994.
- Federal Notice of Qualification for Nationwide Permit #12, November 16,
1994.
- Categorical Exclusion for Easement and Installation of Effluent Wastewater
Pipeline along Naval Surface Warfare Center (NSWC) Indian Head Rail Line
Right-of-Way in Maryland, Navy memo November 28, 1994.
STATE
- Application for approval of a Prevention of Significant Deterioration
Source, September 1992.
- Letter of February 16, 1993, (ECT to DNR) re: wetland assessment.
- Letter of May 19, 1993, (DNR to ECT) re: wetland impact issues.
- Environmental Review Document for the Brandywine Cogeneration Facility
(application for CPCN) Volume 1 and Volume 2, August 1993.
- Letter to Joe Brinson from ECT, September 23, 1993, re: site walkover of
Jasper and Gemeny Properties.
- Phase I environmental site assessment of Gemeny site, October 18, 1993.
- Letter ECT to Joe Brinson, January 3, 1994, re: Phase I assessment efforts
at Jasper property.
- State recommendations for Panda-Brandywine's CPCN, June 17, 1994.
- Proposed order for CPCN Phase I, July 15, 1994.
- Proposed order for CPCN Phase II, August 3, 1994.
- Environmental Site Assessment of Conrail and military railroad right-
of-way, ECT September 1994.
- Phase II Reply Memorandum of Panda-Brandywine, L.P., September 21, 1994.
- Public Service Commission order approving the CPCN, Phase I, October 6,
1994.
- Public Service Commission order approving the CPCN, Phase II, October 27,
1994.
- Letter of December 6, 1994, (DNR to Brinson) re: eliminating several
license conditions as a result of Washington Gas to build & operate gas
line.
- Letter of December 14, 1994 (Brinson to DNR) re: erosion and sediment
control plans.
- State of Maryland Conditional Letter of Authorization to Construct
Utility Lines and Stormwater Outfall, December 23, 1994.
LOCAL
- Prince George's County approval of wetland delineations of site.
- Letter of June 15, 1993 (Thomas Haller to Joe Brinson) re: State and
County Noise Control regulations.
- Letter of August 6, 1993, (Thomas Haller to Joe Brinson) re: local
permitting requirements.
- Letter of November 2, 1993, (County to Carter) re: environmental concerns.
- Letter of November 10, 1993 (County to Brinson) re: additional data
request.
- Draft WSSC Discharge Application by ECT dated October 1994.
- Letter of October 19, 1994, (Hollon to Lorusso) transmitting soil
recycling certificate.
- Letter of November 10, 1994, Prince George's County Government, re: sewer
system capacity.
- Washington Suburban Sanitary Commission approval of 8,000 mg/1 maximum
daily limit date November 17, 1994.
- Application for Discharge Authorization Permit Application for Industrial
users, December 1994.
TECHNICAL
SCOPE OF WORK
- Exhibit A of the Turnkey Contract Agreement "Scope of Work" with
Appendixes A through J: various issues were received with dates between
December 1993 and March 1995.
- Change Order Requests for:
A-1 Agreement Amendment 04/11/94 Approved
001 RFI study 07/29/94 Approved
002 CTG lube oil reservoir and
transfer system 02/03/94 Voided
003 Differing subsurface conditions 05/09/94 Voided
004R2 Host facility guarantee impacts 10/10/94 Approved
005 Iron pretreatment 06/98/94 Approved
006R1 Increase cooling tower basin 06/27/94 Approved
007 Revise HRSG crossover walkway 07/12/94 Approved
008 Gas & gray water interface 09/30/94 Approved
009 Potable water supply source revised 08/29/94 Open
010 Schedule delay claim 08/09/94 Voided
011 PEPCO/SMECO interface 02/09/95 Approved
012 Clearing and grubbing 09/30/94 Approved
013 Temporary access road 11/16/94 Approved
014 Betty Boulevard upgrade 10/94 Open
015 Sample system changes 10/21/94 Approved
016 Circulation water intake screens 12/01/94 Approved
017 Fire protection changes 01/16/94 Approved
018 Well pump capacity 04/25/94 Open
019 PEPCO interfaces --- Open
020 Owner caused delay 03/22/95 Approved
SPECIFICATIONS
- GE Performance Specification for steam turbine-generator unit, July 1993.
- Contract Specification "Effluent Force Main," received October 12, 1994.
- Contract Specification "Effluent Pump Station and Secondary Chlorination,
" received October 12, 1994.
- Specification for "Heat Recovery Steam Generators," received October 12,
1994.
- Specification for "Deaerator," received October 12, 1994.
- Specification for a "Steam Turbine-Generator," received October 12, 1994.
- Specification for a "Cooling Tower," received October 12, 1994.
- Specification for a "Condenser and Accessories," received October 12, 1994.
- Specification for a "Combustion Turbine-Generator and accessories,"
received October 12, 1994.
GENERAL
- Technical Report on Feasibility Evaluation of Effluent for Cooling Water,
dated December 1993, by Greenhorne & O'Mara, Inc.
- Letter of February 17, 1994 (Brinson to SMECO), re: construction and
permanent power requirements.
- Subsurface exploration and geotechnical recommendations, dated March 1994.
- Panda letter of November 11, 1994, (Hollon to DeVoss) re: effluent line
routing.
- Panda letter of November 15, 1994, (Hollon to Lorusso) re: estimate for
zero discharge facility for Panda-Brandywine, L.P.
- November 18, 1994, Betz revised cooling tower blowdown waste
characterizations.
- PEPCO dispatch information, December 1994.
- The Prince George's County Government (DER) letter of December 9, 1994,
re: conditional acceptance of solid waste from a zero discharge system.
<PAGE>
<TABLE>
<CAPTION>
DRAWINGS
Number Rev Description Date
<S> <C> <C> <C>
17-SKE-003 - Water plant --
SK-12-01-01-301 - Betty Boulevard temporary
construction --
26-10-223 - P&ID distilled water plant --
SK11-10-302 - General arrangements distilled
water plant --
D00234-1 2 Nooter/Eriksen HP system P&ID 7/28/94
D00234-2 2 Nooter/Eriksen IP system P&ID 7/28/94
D00234-3 2 Nooter/Eriksen LP system P&ID 7/28/94
--- - Boundary survey of Jasper property 12/17/92
11-10-202 A General arrangement, steam turbine-
generator building --
11-10-301 A General arrangement, site plan 6/01/94
12-01-01-001 1 Civil, plot plan 7/08/94
17-01-20-001 P One-line diagram, 230 kV and 13.8 kV --
26-10-101 A Water balance --
26-10-102 P Process flow diagram, Sheet 1 of 3 --
26-10-103 A Process flow diagram, Sheet 2 of 3 --
26-10-104 A Process flow diagram, Sheet 3 of 3 --
26-10-201 A P&ID, symbol & nomenclature 5/26/94
26-10-202 A P&ID, high-pressure steam 5/26/94
26-10-203 A P&ID, intermediate-pressure steam 5/26/94
26-10-204 A P&ID, low-pressure & extraction steam 5/26/94
26-10-205 A P&ID, steam turbine & auxiliaries 5/26/94
26-10-206 A P&ID, condensate 5/25/94
26-10-207 A P&ID, feedwater 5/25/94
26-10-208 A P&ID, combustion turbine-generator A,
Sheet 1 5/25/94
26-10-209 A P&ID, combustion turbine-generator A,
Sheet 2 5/25/94
26-10-210 A P&ID, combustion turbine-generator B,
Sheet 1 5/25/94
26-10-211 A P&ID, combustion turbine-generator B,
Sheet 2 5/25/94
26-10-212 A P&ID, fuel gas and fuel oil 5/25/94
26-10-213 A P&ID, HRSG A vents & drains 5/25/94
26-19-214 A P&ID, HRSG B vents & drains 5/25/94
26-10-215 A P&ID, plant water 5/26/94
26-10-216 A P&ID, fire protection, Sheet 1 5/27/94
26-10-217 A P&ID, fire protection, Sheet 2 5/27/94
26-10-218 A P&ID, circulating & cooling water,
Sheet 1 5/26/94
26-19-219 A P&ID, circulating & cooling water,
Sheet 2 5/26/94
26-10-220 A P&ID, closed cooling water 5/27/94
26-10-221 A P&ID, condensate stor & transfer &
sampling 5/26/94
26-10-222 A P&ID, makeup water treatment 5/25/94
26-10-224 A P&ID, chemical feed 5/27/94
26-10-225 A P&ID, plant drains, Sheet 1 5/25/94
26-10-226 A P&ID, plant drains, Sheet 2 5/25/94
26-10-227 A P&ID, compressed air 5/25/94
54-DR-001 A Project Schedule, Sheets 1-8, (2 sets) 2/17/94
</TABLE>
Appendix B
PROJECT DRAWINGS
<PAGE>
<TABLE>
<CAPTION>
DRAWINGS
Number Rev Description Date
<S> <C> <C> <C>
17-SKE-003 - Water Plant --
SK-12-01-01-301 - Betty Boulevard temporary construction --
26-10-223 - P&ID distilled water plant --
SK11-10-302 - General arrangements distilled water
plant --
DOO234-1 2 Nooter/Eriksen HP system P&ID 07/28/94
DOO234-2 2 Nooter/Eriksen IP system P&ID 07/28/94
DOO234-3 2 Nooter/Eriksen LP system P&ID 07/28/94
--- - Boundary survey of Jasper property 12/17/92
11-10-202 A General arrangement, steam turbine-
generator building --
11-10-301 A General arrangement, site plan 06/01/94
12-01-01-001 1 Civil, plot plan 07/08/94
17-01-20-001 P One-line diagram, 230 kV and 12.8 kV --
26-10-101 A Water balance --
26-10-102 P Process flow diagram, Sheet 1 of 3 --
26-10-103 A Process flow diagram, Sheet 2 of 3 --
26-10-104 A Process flow diagram, Sheet 3 of 3 --
26-10-201 A P&ID, symbol & nomenclature 05/26/94
26-10-202 A P&ID, high-pressure steam 05/26/94
26-10-203 A P&ID, intermediate-pressure steam 05/26/94
26-10-204 A P&ID, low-pressure & extraction steam 05/26/94
26-10-205 A P&ID, steam turbine & auxiliaries 05/26/94
26-10-206 A P&ID, condensate 05/25/94
26-10-207 A P&ID, feedwater 05/25/94
26-10-208 A P&ID, combustion turbine-generator A,
Sheet 1 05/25/94
26-10-209 A P&ID, combustion turbine-generator A,
Sheet 2 05/25/94
26-10-210 A P&ID, combustion turbine-generator B,
Sheet 1 05/25/94
26-10-211 A P&ID, combustion turbine-generator B,
Sheet 2 05/25/94
26-10-212 A P&ID, fuel gas and fuel oil 05/25/94
26-10-213 A P&ID, HRSG A vents & drains 05/25/94
26-10-214 A P&ID, HRSG B vents & drains 05/25/94
26-19-215 A P&ID, plant water 05/26/94
26-10-216 A P&ID, fire protection, Sheet 1 05/27/94
26-10-217 A P&ID, fire protection, Sheet 2 05/27/94
26-10-218 A P&ID, circulating & cooling water,
Sheet 1 05/26/94
26-10-219 A P&ID, circulating & cooling water,
Sheet 2 05/26/94
26-19-220 A P&ID, closed cooling water 05/27/94
26-10-221 A P&ID, condensate store & transfer
& sampling 05/26/94
26-10-222 A P&ID, makeup water treatment 05/25/94
26-10-224 A P&ID, chemical feed 05/27/94
26-10-225 A P&ID, plant drains, Sheet 1 05/25/94
26-10-226 A P&ID, plant drains, Sheet 2 05/25/94
26-10-227 A P&ID, compressed air 05/25/94
54-DR-001 A Project Schedule, Sheets 1-8, (2 sets) 02/17/94
</TABLE>
Appendix C
LIST OF ABBREVIATIONS
LIST OF ABBREVIATIONS
ac alternating current
AGC automatic generation control
ARMA Air and Radiation Management Administration
ASCE American Society of Civil Engineers
ASME American Society of Mechanical Engineers
Btu British thermal unit
degrees C degree Centigrade
CEMS continuous emissions monitoring system
CO carbon monoxide
CO2 carbon dioxide
CPCN Certificate of Public Convenience and Necessity
CRT cathode ray tube
CT combustion turbine
CTG combustion turbine-generator
dBA decibel
dc direct current
DCS distributed control system
DNR Department of Natural Resources
EAF equivalent availability factor
EPC engineering/procurement/construction
EPA Environmental Protection Agency (U.S. unless noted)
degrees F degree Fahrenheit
FAA Federal Aviation Administration
FERC Federal Energy Regulatory Commission
gal gallon
GNP Gross National Product
gpd gallons per day
gpm gallons per minute
Hga mercury absolute
HHV higher heating value
HP high pressure
hp horsepower
hr hour(s)
HRSG heat recovery steam generator
HVAC heating, ventilating and air conditioning
Hz hertz
I&C instrumentation and control
in inch(es)
IP intermediate pressure
ISO International Standards Organization
kV kilovolt(s)
kVA kilovoltampere(s)
kW kilowatt(s)
kWh kilowatt-hour(s)
lb pound(s)
lb/hr pounds per hour
LHV lower heating value
LNG liquid natural gas
LP low pressure
mA milliampere(s)
MCC motor control center
MCR maximum continuous rating
mgd million gallons per day
MMBtu million British thermal units
MVA megavoltampere
MW megawatt(s)
MWa megawatt(s) average
MWe megawatt(s) electrical
MWh megawatt-hour
MWWTP Mattawoman Wastewater Treatment Plant
NO2 nitrogen dioxide
NEPA National Environmental Policy Act
NFPA National Fire Protection Association
NOx oxides of nitrogen
NSPS new source performance standards
O2 oxygen
O&M operation and maintenance
pf power factor
PM particulate matter
PM-10 particulate matter below 10 microns
ppm parts per million
ppmvd parts per million by volume, dry
PPRP Power Plant Research Program
PSC Public Service Commission
PSD Prevention of Significant Deterioration
psi pounds per square inch
psia pounds per square inch absolute
psig pounds per square inch gauge
PURPA Public Utility Regulatory Policy Act
QF qualifying facility
RH relative humidity
rpm revolutions per minute
scf standard cubic feet
SCR selective catalytic reduction
sf square foot
SMECO Southern Maryland Electrical Coop
SO2 sulfur dioxide
STG steam turbine-generator
TSP total suspended particulates
UL Underwriters Laboratory
UPS uninterruptible power supply
V volt
VAR volt ampere reactive
VOC volatile organic compounds
Appendix D
PANDA GATECYCLE SUMMARY
Appendix D
PANDA GATECYCLE SUMMARY
GATE CYCLE PROGRAM
Gate Cycle is a power plant design and analysis software package. It is used to
perform detailed steady-state design and off-design analysis of gas turbine,
combined-cycle, and conventional fossil fuel power systems. Gate Cycle can
be used to prepare complete plant heat and mass balances, perform
analytical checks on individual plant components, and predict the
effect of enhancements to existing plant systems.
DEVELOPMENT OF PANDA-BRANDYWINE GATE CYCLE MODEL
To use the Gate Cycle program for analysis of the Panda-Brandywine
cogeneration plant, a model of the plant was developed and entered into the
Gate Cycle program. The model includes all major plant components, such as
the gas turbines, HRSGs, steam turbine, condenser, and cooling tower. These
components are connected to represent the mass flows between them as in the
actual plant. Then, for each component, the design parameters are entered
into the model. From these, the Gate Cycle program develops the performance
of each component and mass flow relationships around the plant cycle. The
program then performs an iterative calculation process to achieve a complete
mass and energy balance for the plant model.
The design parameters used as inputs to the Gate Cycle model were obtained from
component specifications supplied by various vendors, and from the EPC
contract, project scope document and drawings by Raytheon, the project EPC
contractor.
The reference model developed for the Panda-Brandywine plant uses the guarantee
point conditions listed below:
Ambient Conditions
- 92 degrees F dry bulb temperature
- 14.59 psia barometric pressure
- 50 percent relative humidity
40,000 lb/hr process steam to host
80 percent condensate return
Natural gas fuel 20,845 Btu/lb (LHV)
CASE STUDIES
Three case studies were performed on the Panda-Brandywine plant using the Gate
Cycle program:
1. The first was the reference model-the plant modeled at the guarantee
conditions. The purpose was to check the plant net output and heat rate
at the guarantee point and compare these calculated results with the EPC
contract guarantees. This also serves as the basis for further off-design
case studies.
2. The first off-design case study was run to check the maximum power output
of the facility. The gas turbine exhaust temperature was allowed to rise
to 1,050 degrees F, approximately 40 degrees F above the base-load
condition. All other operating parameters remained unchanged.
3. The second off-design case study involved shutting down one of the two gas
turbines and checking the facility output and heat rate under this
operating scenario. The single operating gas turbine was run at 80
percent of rated load by modulating the inlet guide vanes. Two of the
cooling tower fans were operated at half speed because the condenser load
was only half of the reference case value. No other operating parameters
were changed.
SUMMARY OF RESULTS
The results of the three Gate Cycle case studies are presented below. The
reference case results, depicted graphically in Figure D-1, are compared with
the guarantee point results in Table D-1 below.
Table D-1
REFERENCE CASE RESULTS
Performance Measurements EPC Guarantee Gate Cycle Results
-------------------------------------------------------------------------------
Net Plant Output (MW) 230.0 238.27
Net Plant Heat Rate 7,124 7,041.6
(Btu/kWh) (LHV)
1. The reference model for the GateCycle calculation shows a margin of 3.5
percent in plant output over the guaranteed output. The calculated
results also show a margin of 1.2 percent below (favorable) the guaranteed
plant heat rate.
2. The first off-design case study (maximum power case) investigated the
potential maximum power output of the facility. At the elevated gas
turbine firing rate, the plant achieved 251.0 MW with a heat rate of
6,911.4 Btu/kWh (LHV). These calculated results can be considered
preliminary because no checks were made to see whether any component had
reached its maximum operating limit. This could be generator temperature
rise limits, STG steam flow rate limits, condenser limits, or a variety of
other component limits. This case study merely shows the plant to be
capable of elevated power output. The maximum power case results are
shown in Figure D-2.
3. Finally, the second off-design case study was performed with only a single
gas turbine operating at 80 percent of its base-load rating. At this
point, the combined-cycle plant output was 98.5 MW and a heat rate of
7,255 Btu/kWh (LHV). The single gas turbine 80 percent load case results
are shown in Figure D-3.
Figure D-1
PANDA-BRANDWYINE COGENERATION PLANT
DIAGRAM
Figure D-2
PANDA-BRANDWYINE COGENERATION PLANT
DIAGRAM
Figure D-3
PANDA-BRANDWYINE COGENERATION PLANT
DIAGRAM
January 10, 1997
Panda Funding Corporation
Panda Interfunding Corporation
4100 Spring Valley Road
Suite 1001
Dallas, Texas 75244
Ladies and Gentlemen:
This document has been prepared by Pacific Energy Systems, Inc.,
as an update to the July 22, 1996, Independent Engineer's Report
for the Panda-Brandywine Cogeneration Project. That report was
prepared in support of the Pooled Project Bonds, Series A due
2012, issued by Panda Funding Corporation on July 31, 1996. This
update is provided in connection with the offering by Panda
Funding Corporation of its Pooled Project Bonds, Series A-1 due
2012 in exchange for its Pooled Project Bonds, Series A due 2012.
Pacific Energy Systems' review, assessment, and update are based
on previously completed due diligence work, periodic construction
monitoring of the Panda-Brandywine facility, review of
significant project agreements, and witness of performance tests
conducted by others. This update was not written to stand on its
own but as part of the July 22 Independent Engineer's Report;
interested parties should read that report before this update.
PROJECT STATUS
The Panda-Brandywine Cogeneration Project, since the end of July,
has reached a number of key milestones and is now in Commercial
Operation. While final completion has not been declared because
of remaining punch list items, the facility is fully operational.
Ogden Brandywine Operations, Inc. (Ogden), has assumed its role
as operator and is responsible for day-to-day operation and
maintenance. Raytheon Engineering & Constructors (Raytheon)
employees remain onsite working on punchlist, completion, and
minor warranty items. Permanent financing through a
sale/leaseback pursuant to the Construction Loan Agreement and
Lease Commitment with General Electric Capital Corporation (GE
Capital) and Credit Suisse has taken place.
Panda-Brandywine, L.P. (Panda), declared the Actual Commercial
Operation Date under the Power Purchase Agreement to be October
31, 1996, and turned the plant over to Potomac Electric Power
Company (PEPCO) for dispatch at midnight on
October 30, 1996. PEPCO has dispatched the unit at the minimum
requirement of one gas turbine online, with the steam turbine
producing a combined net output of 99 MW 12 hours per day, on
weekdays. In late November, the plant suffered the loss of one
of the gas turbine-generator rotors. It was repaired and Panda
returned the unit to service Christmas Day so that it was
available for PEPCO's dispatch on December 26, 1996.
PLANT ASSESSMENT
On the basis of our review of the design, construction, and
performance tests, Pacific Energy Systems believes that the Panda-
Brandywine Cogeneration Project has been built and tested
consistent with industry standards and, with proper operation and
maintenance, is capable of meeting the contractual operating
requirements specified in the Power Purchase Agreement and Steam
Sales Agreement. The plant has a nominal rated capacity of 230
MW at 92 degrees Fahrenheit (degrees F) and 50 percent relative
humidity. In the opinion of Pacific Energy Systems, the Panda-
Brandywine plant has been subjected to a reasonable testing
program. The results of this program indicate that the plant
meets its contract guarantees.
All equipment components are widely used in similar utility and
industrial applications. The gas turbine is a field-proven
member of the General Electric Company (GE) line of gas turbines.
If operated and maintained according to design criteria and
manufacturers' recommendations, and if critical parts are
properly renewed and replaced, the plant will perform as
anticipated and last for its projected life.
CONSTRUCTION COMPLETION
As of mid-December, Raytheon has reduced its construction force
to about three or four people (supervisory, labor, and support
staff). Primary areas of work remaining are punch list items and
a few construction completion items. The punchlist has several
hundred items on it but is being reduced daily. Warranty items
are being handled as they occur. A few offsite items remain at
the effluent pumping plant, as well as some cleanup along the
pipeline right-of-way. Except for a few punchlist items, the
bulk of the remaining work should be completed in early January
and will not require any scheduled outages to complete.
As part of the loan conversion, a completion account of about
$5.3 million has been established to cover the remaining
construction, legal, and engineering costs. It will be managed
in the same way as the original construction loan, with monthly
draws certified by the Lender's engineer.
SPECIFIC ISSUES, CONCERNS, AND RESOLUTIONS
With any project of this size, a number of issues and concerns
tend to accumulate toward the end of the job. This section
describes such issues and concerns at Panda-Brandywine, including
how some were resolved and how Panda is likely to resolve the
remaining few issues. Pacific Energy Systems believes that none
of these issues represents any major impact (technically or
financially) to the future operation of the plant. These issues
and concerns are described below:
- - Combustion liner change
- - Steam turbine bearing and oil cooling
- - Disputed punchlist items
- - Substantial completion date, Raytheon's claim
- - Effluent line
- - Transmission line trees
- - Qualifying Facility status
- - Base-load operation
Combustion Liner Change
During the initial plant testing, the gas turbines failed to meet
guaranteed emissions. GE Power Systems corrected this by
modifying the firing curves which, in turn, lowered the units'
output. Although the units were then able to meet output, heat
rate, and emission guarantees, GE Power Systems, Panda, and
Raytheon all agreed that under normal wear, the units might not
pass PEPCO's net capability test in the future. GE Power Systems
agreed to install new combustion liners in the gas turbines if
Panda would buy the liners. Liners were scheduled for purchase
in August 1997 and GE deferred payment until that date.
Therefore, Panda had no out-of-pocket costs for the updated
design in liners. The liners were, therefore, installed during
October with subsequent testing confirming that the new liners
more than met the expected increase in output and decrease in
heat rate and emissions.
Steam Turbine Bearing and Oil Cooling
During initial operation, the steam turbine developed a vibration
that was considered excessive in the number one bearing, although
it was well below GE Power Systems' defined limits. During the
outage for the liner change, GE Power Systems installed a newly
designed bearing, which appears to have helped. The vibration on
the old bearing was made worse by high-temperature oil. During
cooler weather, it appears that this is easily controlled, but
warm temperatures next summer may cause additional problems. GE
Power Systems has stated that the hot oil is still within limits
and should not cause any problems. GE Power Systems has admitted
that the oil cooler is undersized and is developing a proposed
fix. This issue has not been resolved. Pacific Energy Systems
does not anticipate any short-term effects on plant operation but
does recommend resolution of this design deficiency, for which
Raytheon and GE Power Systems are both responsible.
Disputed Punchlist Items
At present, Raytheon disputes about 150 to 175 items on Panda's
punchlist, a number of which appear to be disputed because of
misunderstanding or a lack of communication. Panda and Raytheon
are working to resolve all of these items. Pacific Energy
Systems believes that most of the disputed punchlist items
ultimately will be performed by Raytheon. The remaining few will
be done by Raytheon under change orders or by Panda as betterment
items if Panda feels they are required. Funds are available in
the completion account to cover these items.
Substantial Completion Date, Raytheon Claims
As a result of the initial emission problems with the gas
turbines, an improperly installed continuous emissions monitoring
system (CEMS), and the timing of various tests, Panda and
Raytheon disagree on the specific date Substantial Completion and
Commercial Operation were reached. The disputed amount is
$880,000 in bonuses to Raytheon. If found to be payable, this
money would be paid in three equal installments from
distributable cash from operations, starting next spring. On the
basis of the 1997 budget and pro forma, there appears to be
sufficient cash available from distributable cash to cover these
bonuses if Raytheon prevails.
Raytheon has three outstanding claims: a force majeure for severe
winter storms; an owner-caused delay for effluent line flushing;
and an owner-caused delay for low gas pressure. These claims are
for a total of $124,093 and 11 schedule days.
Money has been retained in the completion account to cover the
monetary amount if Raytheon prevails. Pacific Energy Systems
believes that these claims are minor and should be resolved
without going to arbitration.
Effluent Line Problems, Claims, and Suits
A number of claims and lawsuits have resulted from the effluent
pipeline construction because of poor engineering and performance
by several subcontractors. Drilling under Highway 301 was the
catalyst for many of the problems. The drilling contractor, a
subcontractor to the pipeline contractor, had a number of
drilling problems. He ultimately terminated the casing outside
the right-of-way, which had been improperly surveyed. Poor
construction practices caused part of the highway's center median
to collapse. The owner of the adjacent property filed suit for
damages to his property outside the right-of-way, and the drilling
contractor was forced to redrill the line under the highway. The
contractor believes that the incorrect survey marks caused his problems
and wants to be paid for redrilling under the highway.
It is beyond Pacific Energy Systems' scope of work to assess any
specific responsibilities or the reasonableness of the various
claims. Funds have been set aside in the completion account for
this issue.
On the basis of tests and observations, the State Highway
Department believes that no further subsidence is expected in or
around Highway 301. Pacific Energy Systems sees no further
technical risk to the pipeline in this area, and nothing appears
to be hampering its operation to date.
Right-of-way restoration is being redone in several areas to meet
landowner and county requirements. One landowner has refused re-
access to her property to make repairs and may file some type of
legal action. Panda has repeatedly tried to resolve this
problem.
Transmission Line Trees
PEPCO has taken exception to several trees adjacent to the
transmission line right-of-way and Panda was unable to obtain
permission from the property owner to remove the trees. Panda
and PEPCO have worked out an agreement concerning responsibility
if these trees fall into the line at a later date. Pacific
Energy Systems believes the overall risk here is small and that
PEPCO is being overly cautious.
Qualifying Facility Status
Pacific Energy Systems has been informed by Ogden that the Panda-
Brandywine facility met the minimum Qualifying Facility (QF)
requirements of 5 percent useful thermal and 45 percent
efficiency in 1996. While Pacific Energy Systems has not had the
opportunity to review the data and calculations, it was
recognized that the plant did have the potential to overcome
initial problems associated with acid injection at the distilled-
water plant and sell enough steam to meet minimum QF
requirements. If Panda-Brandywine had not met these minimum
requirements, it had until August 1997 to make up the difference:
thereafter, the plant must be in compliance during each calendar
year. Pacific Energy Systems is of the opinion that the Panda-
Brandywine should be in QF compliance and should be able to
provide steam in sufficient quantities to remain in compliance.
Base-Load Operation
Pacific Energy Systems does not consider base-load operation a
problem at this time because of the dispatch arrangement with
PEPCO. If the plant were operated at base load (above 90 percent
capacity), however, the following three areas would need to be
monitored closely or corrected:
- - The present permit for water use from onsite wells is not
sufficient to maintain the boiler feedwater makeup at base load
year round. This could be corrected with a permit change; well
water conservation measures, such as changing the evaporation
coolers over to effluent water; or extending the Washington
Suburban Sanitary Commission (WSSC) industrial water supply line
to the site from Cedarville Road, a distance of about 1,500 feet.
Cooling tower needs are more than adequately met by the effluent
pipeline at any load, including base load.
- - The distilled-water plant is designed to use 40,000 lb/hr of
steam. At full load, the plant must sell about 42,000 lb/hr to
meet QF requirements. During the performance testing, it was
demonstrated that the distilled-water plant could use 42,000
lb/hr of steam. While this is sufficient, at base load there
would be no room for distilled-water plant outages without
reducing plant load. Monitoring of QF status will be very
important at base load.
- - Because output would nearly double under base-load
operation, the additional quantity of distilled water would
require Panda to upgrade its distilled-water sales program.
RECOMMENDATIONS
Although the previous section points out several issues that have
arisen over the last few months during startup, Pacific Energy
Systems believes them to be consistent with similar startups of
large power plants. It should be possible to resolve all issues
within the budget limits contained in the completion account.
Pacific Energy Systems also recommends the following changes to
improve plant operation. While the plant can operate without
these changes, they will improve the quality of operation and
likely will reduce long-term maintenance costs. Our
recommendations are as follows:
- - Ogden should prepare a written plan to protect the heat
recovery steam generators (HRSGs) from freezing if one or both
fail to operate during freezing weather. Panda needs to ensure
that necessary equipment and monitoring are in place to implement
the freeze protection plan.
- - Panda should purchase and install an online heat rate
program as part of the distributed control system (DCS). This
will ensure that optimal efficiencies and maximum income are
maintained at all times.
- - In the July 1996 Independent Engineer's Report, Pacific
Energy Systems made a number of suggestions for improved cyclic
operation; these should be reviewed to determine the cost
effectiveness of each. All can be readily retrofitted.
- - To improve distilled-water production, a recycle line should
be added. This will make the product more pure and likely
increase its value and market.
- - Panda needs to pursue (with GE Power Systems) the need to
replace the oil cooler on the steam turbine, as discussed earlier
in this document.
PLANT OPERATION
In order to strengthen its onsite staff, Ogden made several
changes to its supervisory staff just before Commercial
Operation; these changes were supported by Panda. Ogden was
fortunate to hire people from the local labor pool who have a
great deal of operation and maintenance experience in power
plants. This has made training easier and more thorough, which
will reduce the time needed for operators to become experienced
in the specific day-to-day operation of this particular plant.
Pacific Energy Systems has observed Ogden's operators during
plant checkout and testing and believes that they can safely
operate the facility. Time and ongoing training, including
annual reviews, will further sharpen these skills.
Ogden has the plant's maintenance support software (Datastream,
MP-2) on-line and functional. All spare parts and small tools
were ordered through this program. The completion punch list
items have been entered as work order items and are being tracked
as if they were normal work orders, saving both time and effort.
Panda-Brandywine has placed initial orders for spare parts
totaling approximately $1.2 million. Another $500,000 has been
spent on tools, vehicles, and other maintenance support
equipment. In addition, Panda has budgeted another $2 million in
combustion replacement parts to be delivered before the first
scheduled outage in September 1997. Additional funds remain in
the completion account if Panda or Ogden determine that other
spare parts or tools are needed during the next 6 months.
The operating plan for Panda-Brandywine is simple: Except for
electricity production of 99 MW between 8:00 a.m. and 8:00 p.m.
on weekdays, the plant will be fully dispatched by PEPCO. PEPCO
will dispatch the plant on an as-needed basis according to the
utility's economic dispatch regulations. Initial studies
indicate that Panda-Brandywine can expect about 4,000 to 5,000
fired hours per year for each of the two gas turbine-generators.
PEPCO and Panda have worked together to develop a joint operating
procedure and a joint performance procedure. These two documents
help clarify how the plant will respond under specific dispatch
requirements, when notification must be given, and how fuel needs
will be coordinated. Panda has also provided PEPCO with a fuel
management plan.
It should be noted that PEPCO is in the process of merging with
Baltimore Gas and Electric. While regional needs will remain the
same (PJM System electrical requirements), the new company will
have a different relationship with Panda than PEPCO does today.
Pacific Energy Systems cannot determine how that might affect the
operating plan.
FINANCES
The Panda-Brandywine Cogeneration Project was constructed with
funds provided by GE Capital under a conventional project
construction loan. The construction loan has been converted to
permanent financing through a sale/leaseback pursuant to the
Construction Loan Agreement and Lease Commitment. The purchase
price agreed to in advance was $217.5 million. Panda was able to
build the project and all ancillary facilities for less than the
capital budget of $215 million. Excess funds will ultimately be
distributed to Panda.
Pacific Energy Systems has reviewed the operating budget details
for the Panda-Brandywine 1996-97 budget and finds that it is
consistent with similar budgets of other plants. This budget
(upon which the pro forma is based) appears adequate to operate
and maintain the project according to the operating plan.
Pacific Energy Systems has also reviewed the various technical
assumptions used to develop the pro forma projections and
believes that such items as output, heat rate, degradation,
availability, startup times, fuel, water, chemical quantities,
maintenance reserves and schedules, and other expenses are
reasonable for the assumed hours of operation.
PERMITS
Like all power plants, the Panda-Brandywine Cogeneration Project
was required to obtain a substantial number of governmental
approvals before, during, and after construction. On the basis
of available information, Pacific Energy Systems believes that
Panda has carefully tracked government requirements, made timely
submittals, and obtained all permits, consents, approvals, and
actions needed to date. Remaining permits are primarily
administrative in nature and should be issued after timely
submittal of required data and information.
ACCEPTANCE TESTING
The Panda-Brandywine Cogeneration Project has been thoroughly
tested in accordance with the appropriate codes, standards, and
contract specifications. It is Pacific Energy Systems' opinion
that the project has demonstrated that it has been engineered,
designed, and constructed properly and is capable of meeting
guarantees under specified conditions.
Acceptance testing of Panda-Brandywine can be divided into three
types: construction, startup, and performance testing. These
are discussed below:
Construction Testing
Construction testing is generally aligned with quality assurance
rather than actual testing. Raytheon has provided routine
testing throughout the construction period to ensure that the
plant was built to meet the codes and standards specified in the
scope of work and in its detailed design. Construction testing
ranged from checking soil compaction and concrete strength to
boiler hydros.
Although Pacific Energy Systems' representatives were not present
throughout the entire construction period, they were onsite
enough to observe both construction and testing methods and are
satisfied that Raytheon demonstrated that codes and standards
were met.
Startup Testing
Startup testing is the checking, testing, and turnover of various
plant systems and pieces of equipment. The primary goal of
startup testing is to ensure that each system works the way it
should. Testing is performed with equipment both on-line and off-
line. Most startup testing is related to electrical and control
activities.
PEPCO has played an active role with Raytheon's startup group in
checking the transmission line, switchyard, and interconnection
equipment.
Pacific Energy Systems has monitored the ongoing efforts of the
startup group and is satisfied that Raytheon has properly checked
out and tested the Panda facility.
Performance Testing
For the purposes of this document, performance testing is
described in three categories:
- - Demonstration of dependable capacity
- - Guaranteed performance
- - Compliance testing
Dependable Capacity Test: To fulfill a PEPCO requirement before
PEPCO can accept energy and capacity from the Panda-Brandywine
cogeneration plant, Panda was required to demonstrate that the
plant could produce 230,000 kW continuously during a 2-hour
period. Output was to be corrected (by GE-supplied gas turbine
and steam turbine curves) to ambient conditions of 92 degrees F dry bulb
and 50 percent relative humidity, with 34,000 lb/hr of saturated
steam at 15 psig going to process (distilled-water plant) and 80
percent condensate returned.
This test was run on September 12, 1996, between 9:00 a.m. and
11:00 a.m. The corrected output during this period was 232,085
kW. While it was later determined that the plant was out of
compliance in nitrous oxides (NOx) emission by several parts per
million, tests on September 30 and October 30 demonstrated the
plant could produce more than the required 230 MW (corrected to
92 degrees F on 50 percent relative humidity and meet emission limits.
As a result of this test, Panda-Brandywine has met PEPCO's
Dependable Capacity Test as required under Article VIII
subsection 8.2(a) of the Power Purchase Agreement. Panda staff
completed the PEPCO-supplied PJM forms in accordance with the Net
Capability Test and supplied copies to the PEPCO engineers who
witnessed the test. In the future, the Dependable Capacity Test
will be run during the winter and summer peak seasons. Pacific
Energy Systems believes the facility should be able to meet
future tests, assuming proper operation and maintenance of the
facility.
Guaranteed Performances: The engineering, procurement, and
construction (EPC) contract guarantees the Panda-Brandywine
project will comply with a number of performance variables.
Output, efficiency, and reliability are the three most important
of these variables. These were tested in accordance with the EPC
Contract and Scope Document as a 48-hour net electrical output
test, a net plant heat rate test, and a 200-hour capacity test.
For a number of reasons, the initial performance testing at Panda-
Brandywine, performed in mid-September, did not provide adequate
results. The prescribed testing had to be modified to meet the
design condition of no boiler blowdown during the determination
of capacity and heat rate. Although a 48-hour test was run,
capacity and heat rate were determined by a 6-hour test during
the 48-hour test without boiler blowdown. GE Power Systems
supplied several sets of correction curves based on various
operating curves in the gas turbine control logic. Problems with
the CEM produced unreliable emission data during the 48-hour test
and actual emissions were determined to be out of compliance on
the basis of stack testing. In general, the 48-hour test run on
September 12, 1996, was not reliable. Raytheon will continue to
claim differently with Panda, since the earlier completion of
testing is worth about $720,000 in completion bonus to Raytheon.
After GE Power Systems made adjustments to the gas turbine firing
curves and Raytheon (with the help of the vendor) got the CEM to
operate correctly, a new test was run on September 30, 1996, that
demonstrated the plant could operate at or better than the
guaranteed output and heat rate.
A third test was run on October 30, 1996, after GE Power Systems
installed new combustion liners in the gas turbines and made
additional modifications to the firing curves. The results of
this test show that the net power output is 236,393 kW and the
net plant heat rate is 7,035 Btu/kWh (LHV) [7,804 Btu/kWh (HHV)]
when correct to design conditions and for degradation.
Compliance Testing: The EPC contract guarantees the Panda-
Brandywine project must be in compliance with a number of
conditions of the Certificate of Public Convenience and Necessity
(CPCN), including stack emission and noise, and must meet
specific performance guarantees and CPCN conditions while burning
oil.
Pacific Energy Systems has witnessed many of these tests, has
reviewed the final reports on most, and is of the opinion that
the plant is in compliance with CPCN requirements.
Raytheon has made no attempt to run the noise test to date.
Preliminary readings by Panda show the plant to be in compliance
during normal operation.
CONCLUSION
It is Pacific Energy Systems' opinion that the Panda-Brandywine
Cogeneration Project is substantially complete, capable of
meeting all commercial operating requirements under the Power
Purchase Agreement and Steam Sales Agreement, and has received or
is expected to receive all necessary operating permits. There is
no reason to believe that any necessary operation permit not yet
received will not be obtained.
Pacific Energy Systems has witnessed most key testing and is of
the opinion that the plant meets or exceeds all guarantees or
design conditions based on the information supplied during
testing by Raytheon, GE Power Systems, and others.
Pacific Energy Systems has independently reviewed the project
engineering, costs, construction, permits, contract, operation
and maintenance, and performance for completeness, risk,
variation from practices typical in the industry, and the ability
of the Panda-Brandywine facility to perform as intended.
Provided future operation and maintenance are performed according
to standard industry practices, Pacific Energy Systems can find
no technical constraints to prevent the facility from being able
to perform at a level consistent with that anticipated in Panda's
pro forma.
CONFIRMATION AND CONSENT
We confirm the accuracy of the information contained in our
Independent Engineer's Report dated July 22, 1996, as
supplemented by this letter.
We consent to the inclusion of the Independent Engineer's Report
dated July 22, 1996, and this update letter in the Registration
Statement of Panda Funding Corporation relating to its Pooled
Project Bonds, Series A-1 due 2012.
Sincerely,
/s/ David G. Young
David G. Young
Project Manager
DGY:lmt
[Pacific Energy Systems, Inc. Letterhead]
Officer's Certificate
I, John R. Martin, President of Pacific Energy Systems,
Inc., DO HEREBY CERTIFY that to the best of my knowledge and
belief since July 22, 1996, no event affecting our report
entitled "Independent Engineer's Report, Panda-Brandywine
Cogeneration Project," (the "Independent Engineer's
Report") or the matters referred to therein has occurred (i) which
makes untrue or incorrect in any material respect, as of the date
hereof, any information or statement contained in the
Independent Engineer's Report or in the Prospectus relating
to the offering of Pooled Project Bonds, Series A-1 due 2012
by Panda Funding Corporation (the "Prospectus") under the
caption "Independent Engineer's Report-Brandywine" in the
Prospectus Summary or (ii) which is not reflected in the
Prospectus but should be reflected therein in order to
make the statements and information contained in the Independent
Engineer's Report or in the Prospectus under the caption
"Independent Engineer's Report-Brandywine" in the Prospectus Summary,
in light of the circumstances under which they were made, not
misleading.
WITNESS my hand this 5th day of February, 1997.
/s/ John R. Martin
Name: John R. Martin, P.E.
Title: President
<PAGE>
APPENDIX H
CC PACE
R E S O U R C E S
PANDA-BRANDYWINE, L.P.
GENERATING FACILITY
FUEL CONSULTANT'S REPORT
Dated July 2, 1996
with a Supplemental Update
Dated January 10, 1997
Prepared by:
C.C. Pace Resources, Inc.
Legal Notice
This report is meant to be read as a whole. In preparing this report, Pace
relied on information and statements obtained from various sources, including
Pacific Energy Systems, Inc., and ICF Resources, Inc. Pace makes no
assurances as to the accuracy of any such information or any conclusions based
thereon. Additionally, neither Pace, nor any Pace employee, a) makes any
warranty, expressed or implied, with respect to the use of any information
or methods disclosed in this report; or b) assumes any liability with
respect to the use of any information or methods disclosed in this report.
TABLE OF CONTENTS
I. EXECUTIVE SUMMARY H-1
INTRODUCTION H-1
FUEL PLAN OVERVIEW H-1
KEY CHARACTERISTICS H-3
POWER PURCHASE AGREEMENT H-4
GAS SUPPLY H-6
GAS TRANSPORTATION H-9
BACKUP FUEL OIL H-11
FUEL MANAGEMENT H-12
II. PPA REQUIREMENTS H-13
OPERATIONAL REQUIREMENTS H-13
PAYMENTS H-16
PPA SECTION 11.2 H-21
AVAILABILITY REQUIREMENTS H-22
III. NATURAL GAS SUPPLY H-23
FUEL REQUIREMENTS H-23
GAS SUPPLY CONTRACT TERMS H-25
GAS SUPPLY SECURITY H-28
GAS COST LINKAGE WITH PPA ENERGY PAYMENTS H-34
PRO FORMA MODEL H-39
IV. NATURAL GAS TRANSPORTATION H-40
CONTRACTUAL ARRANGEMENTS H-40
SUFFICIENCY OF CONTRACTED CAPACITY H-43
TRANSPORTATION COSTS H-44
OPERATIONAL ISSUES H-46
PEAK PERIOD RELEASE H-48
PRO FORMA MODEL H-49
V. BACK-UP FUEL OIL H-52
FUEL OIL REQUIREMENTS H-52
FUEL OIL AVAILABILITY H-54
AIR PERMIT H-53
FUEL OIL PRICING H-53
PRO FORMA MODEL H-54
VI. FUEL MANAGEMENT H-55
FUEL MANAGEMENT AGREEMENT AND PLAN H-55
EXPERTISE OF CDC FUEL MANAGEMENT H-58
EXHIBIT A: STATISTICAL ANALYSIS OF GSA AND
PPA FUELRELATED INDICES H-59
PRICE DIFFERENTIAL BETWEEN LOUISIANA AND
APPALACHIA SUPPLY H-60
FGMR REVENUE VERSUS TIER 2 GAS COST H-62
EXHIBIT B: LNG GAS QUALITY ISSUES H-68
EXHIBIT C: PEAK PERIOD RELEASE DETAILS H-70
I. EXECUTIVE SUMMARY
Introduction
This report is an independent description by C.C. Pace Resources, Inc.
("Pace") of the fuel supply and transportation arrangements of an electric and
steam generating facility located near Brandywine, MD ("the Facility").(1)
Pace was retained to provide this report by Panda Energy International, Inc.
for Panda-Brandywine, L.P. ("Panda") in connection with a planned offering of
securities.
Currently under construction, the Facility is expected to commence
commercial operation in the Fall of 1996. The Facility consists of two
combustion turbine generators ("Unit 1" and "Unit 2"), two heat recovery
steam generators, and one steam turbine generator arranged in combined cycle
configuration with process steam being exported for off-site use.(2) Total
generating capacity will be 230 megawatts ("MW").
Electricity will be sold to Potomac Electric Power Company ("PEPCO")
according to the terms and conditions of a Power Purchase Agreement dated
August 9, 1991, and as amended by a First Amendment dated September 16, 1994
(the "PPA"). The PPA has a term of 25 years from the date of the start of
commercial operation.
Fuel Plan Overview
Figure I-1 provides a schematic representation of the basic fuel plan as
developed by Panda. The Facility will be fueled primarily by natural gas,
with No. 2 fuel oil as backup supply. Unit 1, which the PPA specifies will
be dispatched at certain times, will be fueled with firm gas supply and
transportation as required by the PPA. Unit 2 is dispatchable under the PPA
and will be fueled with gas purchased at short-term market rates.
Interruptible transportation arrangements for Unit 2 fuel are in place to be
used, if required. Due to the expected hours and frequency of Facility
operation, Panda expects to deliver gas to Unit 2 using pipeline balancing
services and provisions available under Unit 1's firm transportation
arrangements.
Firm gas supply will be provided by Cogen Development Company ("CDC"),the
fuel supply subsidiary of MCN Corporation ("MCN") under a long-term Gas Supply
- ----------------------------
(1) This report describes only portions of the relevant contracts and
documents as neededfor the discussion at hand. A complete description or
legal evaluation of the contracts and documents related to the Facility is
beyond the scope of this report. Additionally, electric market evaluation is
beyond the scope of this report and is not included in the scope of Pace's
engagement with Panda.
(2) Steam will be sold to a distilled water plant.
Agreement ("GSA"). CDC also has a long-term contract with Panda to be the fuel
manager for the Facility. The GSA includes a corporate warranty from MCN.
Gas will be priced in tiers which are intended to correspond to the fixed and
market based energy payment pricing under the PPA. A portion of the firm gas
supply is provided under a fixed price schedule, with the volumes designed to
match the portion of the energy payments under the PPA which are subject to a
fixed price schedule. The contract has a minimum term of 15 years, which
matches the time during which the PPA provides a fixed-price energy payment.
Required volumes of interruptible supply can be purchased from CDC or another
supplier.
Panda has executed 25-year firm transportation contracts with three
pipelines: Columbia Gas Transmission Corporation ("TCO"), Cove Point LNG
Limited Partnership ("CLNG"), and Washington Gas Light Company ("WGL"). These
contracts provide sufficient pipeline capacity rights to serve 100% of the
requirements of Unit 1. Commencement of service under the TCO contract is
subject to completion of construction that has commenced. Interruptible
transportation arrangements are in place for service to Unit 2, if required.(3)
Backup fuel oil will be used to operate the Facility during periods of
gas service interruption. A 2 million gallon on-site storage tank will
provide 6 days of supply at full dispatch of both units. Panda plans to
contract for firm supply and transportation of fuel oil before the start of
the winter heating season and ensure that on-site storage levels are kept full
during winter.
FIGURE I-1
BASIC FUEL PLAN
DIAGRAM
- ---------------------------
(3) Interruptible transportation service contracts have been executed with TCO
and with CLNG sufficient for Unit 2 volumes. The WGL agreement provides
volumes for both Unit 1 and Unit 2.
Key Characteristics
Pace has identified a number of fuel-related risks associated with the
Facility. These risks are summarized within the Executive Summary and
discussed fully in the body of this report.
Certain statements below in this section and elsewhere in the report are
forward-looking statements are based on current expectations and consequently
involve risks and uncertainties. Consequently, Panda's actual results could
differ materially from the expectations expressed in the forward-looking
statements. The various factors that could cause Panda's actual results to
differ materially from the expected results are discussed in the body of the
report and should be carefully considered.
Pace has observed the following key characteristics concerning the fuel
plan, which must be considered in conjunction with the full report:
1. CDC, an experienced gas supplier with reserves sufficient to support the
fixed-price portion of the GSA, is required annually under the GSA to
ensure that its reserves continue to be adequate to meet that obligation,
and has ongoing gas marketing operations more than sufficient to support
the remaining contractual obligations with Panda. MCN also has
substantial assets backing its corporate warranty of CDC's gas supply
obligations.
2. The market-based pricing provided under the PPA corresponds to the
pricing at which gas supplies are generally available, and is similar
to the pricing at which gas supplies are available from CDC.
3. Gas transportation arrangements are in place for firm transportation for
100% of the fuel supply requirements for Unit 1 for the PPA term, subject
to the obligation of Panda under limited circumstances to release to WGL
all of Panda's firm gas supply. The regulatory approvals for these
arrangements have been received. Construction is completed on CLNG and
WGL. On TCO, the required pipeline construction has commenced and should
be completed before commencement of commercial operations of the Facility,
according to information from TCO.
4. There is a strong linkage between changes in the Facility's expected
variable fuel-related costs and revenues.(4) Several potential
delinkages re mitigated by significant initial positive margins in
energy payment components.
- ----------------------------
(4) Variable fuel costs do not include pipeline reservation charges.
5. PEPCO has approved the fuel supply arrangements as fulfilling the
contractual requirements of the PPA at this time. Under reasonable
assumptions (including reasonable and prudent action by Panda), the fuel
supply arrangements should continue to fulfill the contractual
requirements of the PPA. This includes the requirements that Panda
maintain a reliable fuel supply and that the fuel supply arrangements can
reasonably be expected to result in variable fuel-related costs that are
less than energy payments under the PPA.
6. The gas supply and transportation operational requirements are flexible
enough to satisfy electric dispatch operational requirements, provided
sound fuel management is employed. CDC and its affiliates have fuel
management experience, and CDC's fuel management performance is backed by
a corporate warranty from MCN.
7. The backup fuel plan provides Panda the capability to meet dispatch
requirements, assuming firm fuel oil supply and transportation contracts
are in place before each heating season and the Facility's air permit
allows use of fuel oil.
8. The pro forma modeling of Facility reflects the Facility's fuel supply
arrangements, using the gas and oil price projections of ICF Resources,
Inc. ("ICF"). ICF is a recognized forecaster of gas and oil prices and
reports that it used the same forecasts in ICF's dispatch study of the
Facility. As a consequence of the expected dispatch of the Facility
projected by ICF, the pro forma modeling reflects significant benefits of
certain pipeline balancing provisions under the assumption that these
provisions will continue over the term of the PPA. These balancing
provisions are not contractual rights and there is no guarantee that these
provisions will continue over the entire pro forma modeling term.
Power Purchase Agreement
Dispatch Segments
The PPA partitions the capacity of the Facility into four Dispatch
Segments as summarized in Table I-1. PEPCO must dispatch the Facility in
sequence from Segment 1 to Segment 4. These Dispatch Segments are used to
determine the operational requirements and level of payment for the Facility.
<TABLE>
<CAPTION>
Table I-1. Dispatch Segments
- ------------------------------------------------------------------------------
SEGMENT UNIT OUTPUT DISPATCH
<S> <C> <C> <C>
Segment 1 Unit 1 0 - 99 MW Limited Dispatch*
Segment 1 Unit 1 0 - 99 MW Dispatchable
Segment 2 Unit 1 99 - 117 MW Dispatchable
Segment 3 Unit 1 & Unit 2 117 - 199 MW Dispatchable
Segment 4 Unit 1 & Unit 2 199 - 237 MW Dispatchable
</TABLE>
- ----------------------------------------
*For Segment 1 (Limited Dispatch), the PPA establishes 60 hours per week as
"must-run" hours of plant operation, from 8 a.m. - 8 p.m. on the days Monday
through Friday.
Monthly Energy Payment
Payments from PEPCO to the Facility include a Monthly Energy Payment
("MEP") for electric generation. The MEP is a calculated based on the
dispatch segment under which the power was generated as shown in Table I-2.(5)
During contract years 1-15, the payment for certain portions of Unit 1
generation is based on fixed prices (the Firm Gas Reserve Rate or "FGRR"),
while at other times the payment is based on prices adjusted by a market index
(the Firm Gas Market Rate or "FGMR"). Unit 2 generation is paid for based on
prices adjusted by either a gas market index (the Interruptible Gas Rate or
"IGR") or an oil market index (the Oil Rate or "OR"). After the 15th year the
payment for all generation from the Facility is solely based on the FGMR for
Unit 1 and IGR or OR for Unit 2.
<TABLE>
<CAPTION>
Table I-2. Dispatch Segment Energy Payment
- ------------------------------------------------------------------------------
SEGMENT UNIT ENERGY PAYMENT
<S> <C> <C>
Segment 1-Limited Dispatch Unit 1 year 1-15 FGRR, year 16-25 FGMR
Segment 1-Dispatchable Unit 1 FGMR
Segment 2 Unit 1 FGMR
Segment 3 Unit 2 IGR or OR
Segment 4 Unit 2 IGR or OR
</TABLE>
The FGRR is $2.58 per MMBtu in the first contract year and escalates
annually tospecified prices. The prices will be adjusted one time for
inflation at the start of commercial operations.
The FGMR is comprised of an initial commodity price of $1.62/MMBtu
indexed by four monthly reported published natural gas spot prices, two from
Appalachia and two from the Gulf Coast, and an initial transportation price of
$0.65/MMBtu adjusted each month by one-half the change in an inflation index.
The cost of transportation on CLNG, calculated on a 100% load factor basis, is
passed-through by the Facility by adding this charge to the FGMR.
- -----------------------
(5) A special rate applies if the steam turbine is not in operation.
The IGR is based on a market price index similar to the FGMR.
The OR is based on an index using No. 2 fuel oil prices in the Facility's
geographic area. Under certain conditions, the OR is used in place of the IGR
if oil is used for electric generation in Unit 2.
PPA Section 11.2
Generally speaking, PPA Section 11.2 requires Panda to maintain a
reliable fuel supply that includes firm gas supply and transportation
arrangements for Unit 1, interruptible supply and transportation for Unit 2,
and fuel arrangements that will enable Panda to recover its variable fuel costs
from the MEP. PEPCO has approved the fuel plan under the arrangements
described in this report and has provided in a Consent and Agreement dated
April 10, 1995, additional restrictions on the impact of any notice by PEPCO
in the future that it believes Panda is not meeting the requirements of
Section 11.2. In light of these PEPCO actions and under a reasonable
implementation related to Section 11.2, the Facility's fuel arrangements
should continue to meet the requirements of Section 11.2.
Gas Supply
Delivery Obligations
Under the GSA, CDC is obligated to provide up to 24,240 MMBtu of gas per
day (plus fuel use on TCO) on a firm basis and up to an additional 24,240
MMBtu of gas per day (plus fuel use on TCO) on an interruptible basis into
TCO at an interconnect with ANR Pipeline Company ("ANR").(6)
Based on information from Pacific Energy Systems, Inc., ("Pacific
Energy") each turbine requires a maximum of 961 MMBtu per hour when operating
at full load and Panda would require 23,064 MMBtu for each turbine for a full
day at maximum dispatch. This is 1,176 MMBtu per turbine less than Panda's
maximum quantity under the CDC contract.
- ----------------------------
(6) MCN has executed a firm transportation agreement with ANR providing
sufficient firm capacity to deliver the 24,240 MMBtu of gas per day into TCO.
GSA Tiers
The GSA divides quantities into four volume and pricing tiers:
1) Limited Dispatch Gas.
2) Scheduled Dispatch Gas.
3) Dispatchable Gas.
4) Interruptible Gas.
For clarity, we will refer to Limited Dispatch Gas as Tier 1, Scheduled
Dispatch Gas as Tier 2, Dispatchable Gas as Tier 3 and Interruptible Gas as
Tier 4.
Tier 1 volumes are the first 6,000-8,000 MMBtu/day of firm scheduled gas.
Panda must take or pay for an average of 6,300 MMBtu per day. The Tier 1
price is comprised of a fixed commodity charge, a demand charge, an "ANR"
charge, and a price credit. The total charge for Tier 1 volumes as of June 1,
1996, was $2.43/MMBtu.
Tier 2 volumes are a firm quantity of scheduled gas up to 24,240 MMBtu
less the Tier 1 quantity. Panda must take or pay for 80% of the beginning of
the month nominated quantity of Tier 2 gas. Price is set monthly on a
market-based index comprised of a price based on NYMEX natural gas futures
contract prices for the delivery month and a price ceiling based on three
published natural gas spot prices for Louisiana into ANR pipeline. The 1995
average of the Tier 2 price was $2.13/MMBtu.
Tier 3 volumes are a quantity of firm gas up to 24,240 MMBtu less the
Tier 1 and Tier 2 volumes. A quantity of interruptible gas up to 24,240 MMBtu
can be obtained at Tier 4 prices. The price for Tier 3 and Tier 4 volumes is
set by CDC when gas is purchased based on current market conditions. At
Panda's option, Tier 3 volumes may be bought at a market index of the average
of that day's published price for natural gas in Appalachia on TCO. Panda may
also obtain Tier 3 and 4 volumes from another supplier.
Energy Payment Linkage
The GSA tiers are intended to correspond with the fixed and market-based
pricing under the PPA. Table I-3 shows the intended correspondence.
<TABLE>
<CAPTION>
Table I-3. GSA Tiers and PPA Payment Categories
GSA PPA
Tiers Description Dispatch Payment Description
- ------- ----------- -------- ------- -----------
<S> <C> <C> <C> <C>
Tier 1 fixed price Limited Dispatch FGRR fixed price
Tier 2 market price Dispatchable FGMR market price
Tier 3 market price Dispatchable FGMR market price
Tier 4 market price Dispatchable IGR market price
</TABLE>
Statistical analysis reveals that the pricing structures and indices
under the GSA are strongly linked with the pricing structures and indices under
the PPA. However, there are variances between the GSA pricing tiers and PPA
terms. The pricing tiers under the GSA operate based on the amount of volume
taken, while the pricing tiers of the PPA operate on the basis of specified
time periods and megawatts of electric output. This difference creates a
potential for delinkage in terms of gas supply volumes and price with the
revenue mechanisms of the PPA.
To satisfy Limited Dispatch requirements, Pace estimates the Facility
needs a maximum of 9,957 MMBtu Monday through Friday and 0 MMBtu on the
weekend. Under the GSA, Tier 1 gas is designated as the first 6,000-8,000
MMBtu taken per day. Additionally, on weekends, the first 6,000 MMBtu per day
(at a minimum) will be priced at the fixed rate while all weekend dispatch
will be compensated at market-based gas rates.
From this potential volume delinkage a potential price delinkage occurs.
After the first 8,000 MMBtu is taken during a day, the remaining volumes will
be priced at a market rate. Additionally, on weekends the first 6,000 MMBtu
(at a minimum will be priced at the fixed rate while all weekend dispatch will
be compensated at a market-based rate. The market prices of Tier 2 and Tier 3
may not correspond with the FGRR.
Sound fuel management using the flexibility in the transportation
arrangements will be required to keep Tier 1 synchronized with the Limited
Dispatch portion of the PPA.
Performance by CDC
CDC currently has sufficient producing reserves to support its fixed-
priced volume commitments under the GSA. The GSA obligates CDC to continue to
maintain sufficient reserves to service its fixed price contracts over the
term of the GSA. The GSA provides for a dedication of a portion of CDC's
reserves if necessary to ensure CDC can meet its supply obligations.
Additionally, CDC's exploration and production prospects appear excellent in
Michigan and CDC is pursuing these prospects.
CDC's gas supply obligations are backed by a corporate warranty. Pace
has reviewed available public information and finds MCN to be well positioned
in the market and in excellent financial health. MCN has steadily increased
net income from $35.1 million in 1991 to $96.8 million in 1995. Over this same
period, assets have grown from $1,517 million to $2,899 million and operating
revenues have expanded from $1,276 million to $1,585 million.
Availability of Gas Supply Through the PPA Term
The GSA term covers the PPA fixed-price energy payment period, but does
not extend through the PPA term (25 years). After expiration of the PPA fixed-
price energy payment period, all energy payments are based on published
short-term gas market indices.
Assuming Panda takes reasonable and prudent actions, it should be able to
obtain a reliable fuel supply after the GSA expires. The market price indices
provided in the PPA track the price of short-term gas purchases. Additionally,
gas supply fundamentals are such that market-priced gas will likely be
generally available in an orderly commodity market.
Gas Transportation
Three pipelines form the gas transportation route for the Facility. Each
is discussed in turn below. The gas transportation contracts for each of
those pipelines extends through the full term of the PPA.
TCO
The first stage of the transportation route uses TCO from an
interconnection with ANR to the CLNG interconnection with TCO. Panda has
executed a 25-year agreement with TCO for 24,240 MMBtu per day of firm
transportation capacity under TCO's FTS-1 tariff rate schedule.
TCO Construction
For service to commence under the firm TCO contract, TCO needs to
install 6.3 miles of pipeline. The construction is comprised of replacing
several segments of 26-inch pipe with 36-inch pipe and also laying a second
pipe alongside existing pipe to add capacity.
The Federal Energy Regulatory Commission ("FERC") has approved the
expansion and authorized TCO to begin construction on all phases of the
expansion. TCO has reported to FERC that construction was initiated on
May 13, 1996.
Absent any unusual occurrence, a pipeline construction project of this
scope would take no more than two months. This indicates that firm service
under the TCO contract will be available before the end of Summer 1996. TCO
has obtained all rights-of-way for the expansion, but has not yet obtained
desired rights-of-way for construction access. Based on discussions with TCO
about the access details, this matter is not expected to delay completion
of the expansion.
Panda has arranged alternative firm gas transportation arrangements in
the event that the TCO expansion is not completed prior to November 1996.
CLNG
The second stage of transportation is on CLNG pursuant to an executed
firm service agreement under CLNG's FTS tariff. Service will be provided at
the maximum tariff rate. CLNG has reported to FERC that all construction
required to serve Panda (minor construction at a metering site) has been
completed.
Risk of LNG Operations
In the future, CLNG may become an import facility for liquefied natural
gas ("LNG"). Historically, LNG imports through the CLNG facilities have
resulted in gas quality changes that in turn resulted in additional costs to
customers. There are a number of considerations that indicate a reoccurrence
of the historical problems is unlikely.
WGL
The final transportation stage involves WGL, a local distribution
company. WGL will provide firm transportation to the Facility for a
$.05/MMBtu fee according to an executed agreement between Panda and WGL. WGL
has reported in writing that it has completed construction of the less than
one mile of new pipe required to service the Facility.
WGL may use, under very limited circumstances, Panda's firm gas supply
and transportation capacity up to 24,000 MMBtu/d ("Peak Period Release").
WGL is limited in exercising a Peak Period Release to extremely cold days, for
no more than two days in any seven-day period and a maximum of five days each
month in December, January, and February. These limitations combined with
Panda's reliable back-up fuel supply for the Facility provide assurance that a
Peak Period Release will not result in a failure to meet PEPCO dispatch
orders.
WGL Balancing Provisions
The balancing provisions provided by the WGL agreement are generally
very favorable to the Facility. However, use of the balancing provision when
the temperature is under 30 F could impose restrictions on the Facility's
ability to meet its electric dispatch obligations. Panda has informed Pace
that it plans to use the balancing rights on WGL when the average daily
temperature is less than 30 F only after exhausting all other options on TCO
and CLNG. Weather analysis indicates that this restriction will not
significantly affect the Facility's ability to appropriately manage its fuel
operations, assuming Panda implements its plan.
Backup Fuel Oil
Panda will construct a 2 million gallon storage tank to serve as backup
fuel supply for the Facility. Fuel oil will be used primarily to meet dispatch
of Unit 2 when interruptible gas supply and transportation is unavailable.
Oil also may be used in Unit 1 in the case of a WGL Peak Period Release.
Under the most extreme conditions of no gas service, full dispatch, and no
refill, the on-site storage would be depleted in 6.17 days. There are no
fuel oil contracts in place at this time.
Panda has stated it plans to contract for No. 2 low sulfur fuel oil with
major suppliers in the Baltimore/Richmond area approximately 60 days before
the start of operations or before each winter season. Panda reports that it
will contract for firm supply and transportation of fuel oil before the start
of each winter heating season and ensure that on-site storage levels are kept
full during winter.
Pace has found that fuel oil supply and transportation is readily
available in the area. There are over 25 major suppliers within a 60 mile
radius of the Facility with a combined storage capacity of No. 2 low sulfur
fuel oil in excess of 1 million barrels. Numerous fuel oil trucking firms are
available.
In light of the PPA requirements and the rights of WGL to use the
Facility's gas supply and transportation during certain periods, a reliable
supply of fuel oil at the Facility is important. Because of the ready
availability of fuel oil and transportation, Panda should be able to execute
its fuel oil plan.
Panda will need to purchase low sulfur No. 2 fuel oil while the PPA
indices are based on regular No. 2 fuel oil, which generally is less
expensive. This potential cost/revenue delinkage is mitigated by a significant
initial positive margin.
Fuel Management
Capable fuel management will be important for Panda to meet the PPA
requirements. While the Facility has sufficient and, indeed, redundant rights
and services available to reasonably match gas dispatch with electric dispatch,
pipeline scheduling, balancing, and flow rate requirements create a fuel
management challenge.
A fuel management contract between Panda and CDC provides for CDC to
perform fuel management, and Panda maintains the ability to make arrangements
on its own behalf. CDC and its affiliates have fuel management experience
commensurate in scope with the demands of the Facility. Additionally, CDC's
fuel management performance is backed by a corporate warranty from MCN.
Panda has developed a draft Fuel Management Plan and has advised Pace
that the Plan is currently being completed and that it will be implemented the
start of commercial operations. Completion and implementation of such a plan
should provide the guidelines for adequate fuel management.
II. PPA REQUIREMENTS
The PPA contains four key fuel-related operational/contractual
requirements. These requirements are:
- The Facility must run when dispatched. Consequences of not performing
include loss of payments and possibly default under the PPA.
- Limited Dispatch operation is compensated at fixed gas prices until the
15th contract year.
- PPA payments for dispatch operation contain components related to the
current market price of gas in the Appalachian and Gulf Coast producing
regions.
- Panda must maintain a reliable fuel supply and the fuel supply
arrangements must reasonably be expected to result in variable fuel-
related costs that are less than PPA energy payments.
Operational Requirements
Dispatch
The Facility's power output is divided into four segments according to
the PPA as shown in Table II-1. The fuel requirements and payments are
determined differently for each segment. The segments track the level of
electrical output of the Facility as PEPCO orders dispatch. PEPCO must
dispatch the segments in sequence (e.g., PEPCO cannot dispatch Segment 4
without first having dispatched Segments 1 through 3).
<TABLE>
<CAPTION>
Table II-1. Dispatch Segments
- -------------------------------------------------------------------------------
SEGMENT UNIT OUTPUT DISPATCH
------- ---- ------ --------
<S> <C> <C> <C>
Segment 1 Unit 1 0 - 99 MW Limited Dispatch*
Segment 1 Unit 1 0 - 99 MW Dispatchable
Segment 2 Unit 1 99 - 117 MW Dispatchable
Segment 3 Unit 1 & Unit 2 117 - 199 MW Dispatchable
Segment 4 Unit 1 & Unit 2 199 - 237 MW Dispatchable
</TABLE>
*See body of report for explanation of Limited Dispatch.
The PPA divides the 230 MW Facility into baseload and dispatchable
portions as follows. The Limited Dispatch portion is defined as 85% of the
maximum capacity of Unit 1 which equals 99 MW. The Dispatchable portion is
all capacity in excess of the limited dispatch portion, or 138 MW.
PEPCO is required to dispatch the Limited Dispatch portion of the
Facility's capacity for a total of 60 hours per week. The must run hours are
from 8 a.m. Monday to 8 p.m. Friday each week, except holidays. Assuming 50
weeks per year (10 days of holiday accounting for the other two weeks), Unit 1
would operate a minimum of 3,000 hours annually. This schedule is subject to
change by the Operating Committee.(7)
Table II-2 presents a summary of the dispatch forecast of the Facility
prepared by ICF in May 1996.(8) The capacity factor is the ratio of hours of
dispatch over total available hours. Run hours include the mandatory run time
for Limited Dispatch as well as operation based on economic dispatch as
calculated by ICF.
Based on the ICF projections, PEPCO will dispatch Unit 1 an average of
4,165 hours annually. Given that 3,000 of these hours are for Limited
Dispatch, PEPCO will dispatch Unit 1 an additional 1,165 hours on average per
year.
ICF projects that Unit 2 will run 2,782 hours per year on average. This
means that Unit 2 will be dispatched approximately 67% of the time Unit 1 is
operating.
In its pro forma assessment, ICF finds a possible range of 200 to 300
starts per year to be reasonable.(9)
- ---------------------------
(7) PPA Section 8.10 establishes an Operating Committee which includes a Panda
representative and can act only by unanimous agreement.
(8) Independent Assessment of the Dispatchability of the Panda-Brandywine
Project.
(9) Independent Panda-Brandywine Pro Forma Projections.
<PAGE>
<TABLE>
<CAPTION>
Table II-2. ICF Dispatch Projections(10)
- ------------------------------------------------------------------------------
YEAR UNIT 1 UNIT 2
----- ------- -------
Capacity Run Capacity Run
Factor (%) Hours Factor (%) Hours
------------------ ------------------
<S> <C> <C> <C> <C>
1996 42 616 29 420
1997 40 3482 25 2154
1998 46 4024 32 2782
1999 49 4249 37 3244
2000 51 4474 42 3705
2001 51 4475 39 3425
2002 51 4476 36 3145
2003 51 4432 36 3184
2004 50 4388 37 3222
2005 51 4450 37 3247
2006 52 4513 37 3271
2007 51 4450 36 3133
2008 50 4393 34 3002
2009 50 4342 33 2877
2010 49 4297 31 2757
2011 48 4224 30 2669
2012 47 4157 30 2586
2013 47 4097 29 2507
2014 46 4043 28 2431
2015 46 3996 27 2359
2016 45 3925 26 2308
2017 44 3858 26 2259
2018 43 3796 25 2212
2019 43 3739 25 2166
2020 42 3685 24 2123
2021 34 3008 20 1785
</TABLE>
Note: ICF projects 200 to 300 starts per year.
Heat Rates
Pacific Energy modeled the heat rate of the Facility on a weighted average
basis. The heat rate degrades over time due to wear on the turbines. On
average, Pacific Energy expects Unit 1 to require 8,119 Btu/kWh and Unit 2
8,025 Btu/kWh. The maximum heat rates forecast by Pacific Energy are 8,216
Btu/kWh for Unit 1 and 8,131 for Unit 2.
Pace has estimated the fuel requirements of the Facility for Limited
Dispatch only by increasing the heat rate provided by Pacific Energy by 200
Btu/kWh. This was done to consider partial dispatch of Unit 1 (i.e., 99 MW).
Pacific Energy did not calculate heat rates for partial dispatch. Pace's
analysis assesses the fuel requirements under both a Limited Dispatch scenario
using the adjusted heat rates and a full dispatch scenario using the Pacific
Energy heat rates.
- -----------------------------
(10) Pace has not performed independent analysis of these or any other
dispatch projections.
Steam Sales Obligations
Panda has a Steam Sales Agreement with Brandywine Water Company regarding
the sale of steam generated by the Facility. The Steam Sales Agreement
contains the following language: "Supplier shall be under no obligation to
supply Thermal Energy, cooling water and feed water to the extent it is not
operating one or both of its Heat Recovery Steam Generators; or such operation
is for repair or testing of the Facility."
The Steam Sales Agreement ensures that Panda will not be required to run
the Facility for the sole reason of supplying steam to the Brandywine Water
Company. This mitigates the potential need for additional fuel during plant
shut-down periods.
Payments
The two ongoing types of payments Panda will receive from PEPCO are a
Monthly Energy Payment and a Monthly Capacity Payment.(11)
Monthly Energy Payment
The Monthly Energy Payment ("MEP") to compensate Panda for electric
generationis comprised of the following types of payments:
- When in Combined Cycle Mode:
* Unit Commitment Payment
* Dispatch Payment
- When in Simple Cycle Mode:
* Simple Cycle Energy Payment
Table II-3 shows the correlation of the MEP variations to the dispatch
segments when the Facility is operated in combined cycle mode. The terms and
abbreviations are detailed in the remainder of this section.
- ------------------------
(11) Panda also will receive a Start-Up Energy Payment following a formula
based on the IFR.
<TABLE>
<CAPTION>
Table II-3. Dispatch Segment Energy Payments
- ------------------------------------------------------------------------------
SEGMENT UNIT MEP ENERGY COMPONENT
-------- ----- FORMULA COMPONENT TYPE
-------- --------- ----------
<S> <C> <C> <C> <C>
Segment 1-Limited Unit 1 UCP FGR FGRR, then FGMR*
Dispatch
Segment 1-Dispatchable Unit 1 UCP FGR FGMR
Segment 2 Unit 1 DP FGR FGMR
Segment 3 Unit 2 UCP IFR IGR or OR
Segment 4 Unit 2 DP IFR IGR or OR
</TABLE>
Note: Combined Cycle Mode.
*FGRR in years 1-15, FGMR in years 16-25.
Unit Commitment Payment
The Unit Commitment Payment ("UCP") is the formula for calculating the
MEP for Segment 1 and Segment 3 operation.(12) During Segment 1, a
component of the formula is the Firm Gas Rate ("FGR") which is meant to
reflect the cost of the Facility's reserves or firm gas contract costs.
During Segment 3, the formula includes an Interruptible Fuel Rate ("IFR"),
which is meant to reflect the cost of natural gas or oil obtained on the
spot market.
Dispatch Payment
The Dispatch Payment ("DP") is the formula for calculating the MEP for
Segments 2 and Segment 4 operation.(13) The FGR is part of the DP formula
during Segment 2. For power generation during Segment 4, the DP formula
includes the IFR.
Simple Cycle Energy Payment
PEPCO may dispatch the Facility when the steam turbine is not operating
only under a Maximum Emergency Generation Condition.(14) During such a
dispatch a Simple Cycle Energy Payment ("SCEP") will apply. A component of
the SCEP is the IFR.
- --------------------------
(12) PPA Section 6.2(b)(ii) presents the UCP formual payment.
(13) PPA Section 6.2(b) (iii) provides the DP formula payment
(14) Maximum Emergency Generation Condition is defined in the PPA as "A period
in which PEPCO has determined that it needs the maximum attainable Net
Electrical Output from the Facility as a result of an emergency shortage of
electric capacity or energy as declared by the PEPCO dispatcher or for such
other periods as the Parties may mutually agree on".
Firm Gas Rate
The FGR consists of two components: the Firm Gas Reserve Rate ("FGRR")
and the Firm Gas Market Rate ("FGMR").(15) The FGRR is a fixed rate, while
the FGMR is a market index based on reported gas prices. The must-run hours
will be priced entirely by the FGRR until the 16th contract year and then
must-run hours will be priced according to the FGMR.
Table II-4 shows how the rates are applied for the segments of Unit 1.
<TABLE>
<CAPTION>
Table II-4. FGR Components
- -----------------------------------------------------------------------------
1st Segment 2nd Segment
Limited Dispatch Dispatchable
----------------- -------------
<S> <C> <C> <C>
year 1-15 FGRR FGMR FGMR
year 16+ FGMR FGMR FGMR
</TABLE>
Firm Gas Reserve Rate
The FGRR is $2.58 per MMBtu in the first contract year and escalates
annually to specified prices. The escalation rate is 4% during the first
seven contract years, and then approximately 2% for the remaining years. The
prices specified in the PPA will be adjusted for the change in the Producer
Price Index for oil and gas fields for the period June 1994 to the start of
commercial operations. No other adjustment is made for inflation.
- -------------------------
(15) The original terms of the PPA envisioned Panda obtaining natural gas
reserves for fueling the limited dispatch portion of the power plant capacity.
Table II-5 presents the FGRR, with an estimated Adjusted FGRR.
<TABLE>
<CAPTION>
Table II-5. Unit 1 Fixed Price Gas Rate
- ----------------------------------------------------
Unadjusted Estimated
Contract FGRR Adjusted FGRR
Year ($/MMBtu) ($/MMBtu)
- ----------------------------------------------------
<S> <C> <C>
1 2.58 2.95
2 2.68 3.06
3 2.79 3.18
4 2.90 3.31
5 3.02 3.45
6 3.14 3.58
7 3.26 3.72
8 3.33 3.80
9 3.40 3.88
10 3.46 3.95
11 3.53 4.03
12 3.60 4.11
13 3.68 4.20
14 3.75 4.28
15 3.82 4.36
</TABLE>
- -----------------------------------------------
Note: The adjusted FGRR rates are estimated using June 1990 through May 1996
data and an inflation estimate through November 1996. The actual adjusted FGRR
will be calculated using data through the start of commercial operations.
Firm Gas Market Rate
The FGMR applies to all non-must-run hours during Segment 1 and all
Segment 2 hours.
The FGMR is calculated according to the following formula:
FGMR = FGMRi x [(.77 x CIf ) + (.23 x TIf)] x P
This formula adjusts the initial market rate of gas ("FGMRi") for changes
in the cost of gas and gas transportation over time. The factor "P" is .9 in
contract years 1 through 4 and 1.0 thereafter. This factor lowers the effect
of price increases on the calculated payment during the first four years of the
contract. The FGMRi is set at $2.27/MMBtu plus the firm displacement tariff,
not to exceed $0.20/MMBtu, on CLNG.(16)
- ----------------------
(16) The PPA defines MBtu as 1 million Btu. In this report, Pace uses MMBtu
to mean 1 million Btu.
The commodity index ("CI") is comprised of the following reported prices:
- Natural Gas Clearinghouse--Columbia Gulf, Onshore Laterals, LA
- Natural Gas Clearinghouse--Tennessee Gas Pipeline, Vinton, LA
- Natural Gas Intelligence--Columbia Gas Transmission, Appalachian
- Natural Gas Week--Columbia Gas Transmission, Broad Run, WV.
The June 1990 average of the four reported prices is the base of the
index. The June 1990 average was $1.62, implying that $0.65 was added for
transportation, or approximately 30% of the initial FGMR. The CI is comprised
of two prices from the Gulf Coast region and two prices from the Appalachian
region. Panda's gas supply cost will reflect either Gulf Coast gas prices or
Appalachia prices depending on Panda's nomination. This issue is addressed in
Chapter III and Exhibit A.
The Transportation Index ("TI") is intended to measure changes in
transportation costs. The formula to calculate the TI uses one-half of the
change in the Consumer Price Index for All Urban Consumers ("CPI") to
approximate escalation of transportation costs.
The CI is given a weight of 77% of the FGMR, while the TI is weighted at
23%. The effect of this weighting is addressed in Chapter III of this report.
The PPA provides a mechanism for the Operating Committee to review and
revise the calculation of the FGMR, the CI, and/or the TI by written notice
from either PEPCO or Panda during the period between 150 and 120 days prior to
the sixth anniversary of the Actual Commercial Operation Date and every third
anniversary thereafter.
Interruptible Fuel Rate
The IFR uses the IGR for hours of generation fueled by natural gas and
the OR for hours of generation fueled by oil in Unit 2.
Unit 2 operation on oil must meet certain requirements, such as
interruption of gas service on interstate pipelines, for the payment to be
based on the OI. As the IFR only applies to Unit 2, there is no provision for
payment by PEPCO for Unit 1 based on oil consumption.
As with the FGMR, the method for determining the IFR for natural gas and
for fuel oil can be reviewed and revised by the Operating Committee if proposed
within guidelines by either PEPCO or Panda. The Operating Committee shall in
good faith undertake a review of the IFR to determine the current market price
of fuel to comparable users and to revise components of the IFR as necessary to
reflect the market price.
Interruptible Gas Rate
The IGR is similar to the FGMR in that the IGR contains a commodity index
("CI") component linked to reported spot prices and a transportation index
("TI") component indexed to the CPI. The IGR for natural gas is initially set
at $2.27/MMBtu plus the firm displacement tariff on CLNG, not to exceed
$0.20/MMBtu--identical to the FGMR.
The CI and TI portions of the IGR are calculated the same way as for the
FGMR. The weighting is different, however. In the summer period from March to
November, the CI is weighted as 71% of the IGR and the TI as 29%. In the
winter period from December to February the CI is weighted as 84% of the IGR
and the TI as 16%.
Oil Rate
The initial OR is $3.89/MMBtu and is adjusted according to an Oil Index
("OI"). The OI is based on reported oil price for No. 2 fuel oil delivered to
Baltimore, Norfolk and Philadelphia. A separate component for local
transportation is not included in the OR. The linkage between revenues based
on reported prices of oil delivered to Baltimore, Norfolk and Philadelphia and
burnertip cost at the Facility is addressed in Chapter IV of this report.
Monthly Capacity Payment
In addition to the MEP, Panda receives a Monthly Capacity Payment ("MCP")
for standing ready to deliver energy to PEPCO. The MCP is paid to Panda based
on Panda's ability to deliver energy. The payment does not include any
components tied to the cost of fuel or transportation.
PPA Section 11.2
Generally speaking, Section 11.2 requires Panda to maintain a reliable
fuel supply that includes firm gas supply and transportation arrangements for
Unit 1, interruptible supply and transportation for Unit 2, and fuel
arrangements that will enable Panda to recover its variable operating costs
from the MEP. Concerning Limited Dispatch operations, Section 11.2 requires
Panda's purchase of natural gas to be through " a firm gas supply contract
equivalent to natural gas reserves."
PEPCO has the right under certain circumstances to take action if it
believes Panda is not meeting the requirements of PPA Section 11.2. PEPCO has
approved the fuel plan under the arrangements described in this report and has
provided in a Consent and Agreement dated April 10, 1995, additional
restrictions on the impact of any notice by PEPCO in the future that it
believes Panda is not meeting the requirements of Section 11.2. In light of
these PEPCO actions and under a reasonable implementation related to Section
11.2 the Facility's fuel arrangements should meet the requirements of Section
11.2.
Availability Requirements
The PPA states that Panda "shall sell and deliver to PEPCO and PEPCO
shall purchase and accept the Dependable Capacity and the Net Electrical
Output from the Facility..."(17) This obligation must be met or payments to
Panda are reduced.
In the event that Panda does not deliver, the Facility's availability
is lowered. The Facility's availability is used in the calculation of the MCP.
Hours of dispatch in which Panda fails to deliver, Force Majeure events not
withstanding, are counted against the availability of the Facility. In this
way, nonperformance by Panda results in lower energy payments.
Several PPA provisions will help Panda meet PEPCO dispatch orders,
including:
- 8.3 Schedule and Dispatch of Generation:
* PEPCO is required to furnish an estimated dispatch schedule for the
Facility and any changes at the times and in the manner that PEPCO
provides such estimated schedules for its own generating
facilities.
* PEPCO shall dispatch the Facility in accordance with Prudent
Utility Practices.
- 8.10 Operating Committee:
* Panda and PEPCO shall establish an Operating Committee of one
representative each to develop and implement suitable operating,
maintenance, outage and capability reporting, accounting, and
recordkeeping policies and procedures. The Operating Committee
shall act only by unanimous agreement.
Further, PEPCO cannot dispatch the Facility at its sole discretion. PEPCO
must take Panda's fuel supply and other contractual obligations into account
when arranging dispatch to comply with prudent utility practices.
Additionally, many of the procedures governing the operation of the Facility
will be arranged through the Operating Committee. Decisions from the type of
forms to use for invoices to the notification procedure PEPCO will follow when
dispatching the Facility will thus be made in concert with Panda's ability.
- -------------------------
(17) PPA Article 5.1
III. NATURAL GAS SUPPLY
The main issues addressed in this chapter are:
- Whether the GSA fulfills the PPA's operational and contractual
requirements.
- The security of gas supply.
- Linkage between gas supply costs and energy payment revenues.
Fuel Requirements
Full Dispatch
Pace has been informed that each turbine requires a maximum of 957 MMBtu
per hour when operating at full load.(18) Panda would require 22,968 MMBtu for
each turbine for a full day at maximum dispatch.
Limited Dispatch
Table III-1 provides calculations for required volumes of fixed price gas,
using the heat rates detailed in Chapter II.
Using a heat rate of 8,416 Btu/kWh gives an hourly requirement of 833
MMBtu/hour. Based on Limited Dispatch Panda would require 9,996 MMBtu per day
Monday-Friday, or 2,598,960 MMBtu on a yearly basis. On an average daily
basis, Panda would be receiving 7,120 MMBtu at the Facility.
Additional fuel would be required for pipeline retainage. Assuming fuel
loss of 3.14%(19) Panda would need 7,344 MMBtu into TCO on an average daily
basis.
- -----------------------
(18) As discussed in Chapter II, heat rates used in this report are provided by
Pacific Energy.
(19) 0% on WGL, 1% on CLNG, and 2.41% on TCO.
<TABLE>
<CAPTION>
Table III-1. Panda Limited Dispatch Gas Requirements
- -------------------------------------------------------------------------------
Heat Heat
Rate Rate
at Ave. at Ave.
Contract 117 MW MMBtu MMBtu Daily 99 MW MMBtu MMBtu Daily
Year Btu/kWh /hr 12 hours MMBtu Btu/kWh /hr 12 hours MMBtu
- ------- -------- ------ -------- ----- ------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 7,939 786 9,432 6,718 8,139 806 9,669 6,888
2 8,046 797 9,559 6,809 8,246 816 9,796 6,978
3 8,075 799 9,593 6,833 8,275 819 9,831 7,003
4 8,106 802 9,630 6,860 8,306 822 9,868 7,029
5 8,141 806 9,672 6,889 8,341 826 9,909 7,059
6 8,086 801 9,606 6,843 8,286 820 9,844 7,012
7 8,141 806 9,672 6,889 8,341 826 9,909 7,059
8 8,174 809 9,711 6,917 8,374 829 9,948 7,086
9 8,209 813 9,752 6,947 8,409 832 9,990 7,116
10 8,166 808 9,701 6,910 8,366 828 9,939 7,080
11 8,051 797 9,565 6,813 8,251 817 9,802 6,982
12 8,085 800 9,605 6,842 8,285 820 9,843 7,011
13 8,119 804 9,645 6,871 8,319 824 9,883 7,040
14 8,153 807 9,686 6,899 8,353 827 9,923 7,069
15 8,118 804 9,644 6,870 8,318 823 9,882 7,039
Ave. 8,107 803 9,631 6,861 8,307 822 9,869 7,030
</TABLE>
- -------------------------------------------------------------------------------
NOTES: Heat rates for full dispatch provided by Pacific Energy. Partial
dispatch heat rates estimated by adding 200 Btu/kWh.
The above calculations indicate that the GSA should provide for Panda to
be able to burn approximately 9,500 MMBtu per day Monday-Friday of fixed-price
gas of fixed-price gas, assuming PEPCO fully dispatches Unit 1. On an average
daily basis, this would mean Panda would take about 7,000 MMBtu per day of
fixed price gas.
Rates
The gas rates used for payments to Panda are detailed in Chapter II. The three
basic types of rates are the FGRR, the FGMR, and the IGR. In summary:
The FGRR, a fixed rate schedule for 15 years, is listed in Table II-5.
The FGMR is comprised of an initial commodity price indexed monthly by
published natural gas spot prices, two from Appalachia and two from the Gulf
Coast, and an initial transportation price adjusted monthly by one-half the
change in the CPI. The cost of transportation on CLNG, calculated on a 100%
load factor basis, is passed-through by the Facility.
The IGR is similar to the FGMR in that the IGR contains a commodity index
component linked to reported spot prices and a transportation index component
linked to the CPI, plus a CLNG component. The IGR has different summer and
winter weighting between commodity and transportation.
Gas Supply Contract Terms
Table III-2 provides an overview of the fundamental contract terms. The
GSA requires CDC to, provide up to 24,240 MMBtu of gas per day (plus fuel use
on TCO) on a firm basis, and up to an additional 24,240 MMBtu of gas per day
(plus fuel use on TCO) on an interruptible basis.
CDC wil deliver gas into TCO at the Monclova interconnect with ANR
pipeline in Ohio.(20)
The primary term of the GSA is 15 years, which corresponds to the PPA's
requirements for fixed price gas. The GSA will be extended for two additional
years, unless either party objects.
- --------------------------
(20) MCN has exeucted a firm transportation agreement with ANR providing
sufficient firm capacity to deliver the 24,240 MMBtu of gas per day into TCO
at Monclova.
Table III-2. GSA Basic Terms
- -----------------------------------------------------------------------------
Term Primary term of 15 years with up to 2 year extension if mutually agreed.
Volume Maximum Daily Firm Quantity ("MDFQ") = 24,240 MMBtu*
Maximum Daily Interruptible Quantity ("MDIQ") = 24,240 MMBtu*
* plus fuel use on Columbia Gas Transmission
MDFQ comprised of three tiers:
1. Limited Dispatch Gas = Scheduled gas of at least 6,000 MMBtu per day
and no more than 8,000 MMBtu per day.
2. Scheduled Dispatch Gas = Scheduled gas up to difference between 24,240
MMBtu per day plus fuel use and the quantity of Limited Dispatch Gas.
3. Dispatchable Gas = Scheduled gas up to difference between 24,240 MMBtu
plus fuel use and the sum of Limited Dispatch Gas and Scheduled
Dispatch Gas.
MDIQ: Interruptible Gas, up to 24,240 MMBtu per day + fuel use.
Price
Limited Dispatch Gas charge composed of 4 components:
1. Demand Charge (approximately $0.10/MMBtu on 7,000 MMBtu per day).
2. Commodity Charge of $2.33/MMBtu with 4% annual escalation.
3. An "ANR Charge" of $0.10 per MMBtu with annual escalation of $0.005
after the fifth contract year.
4. A price credit paid to Panda of $0.10 per MMBtu with annual escalation of
$0.005 after the fifth contract year.
These rates translate to $2.43 per MMBtu on a 100% load factor basis in
year 1.
Take or pay requirement of 2,299,500 MMBtu per year (2,305,800 MMBtu if leap
year). This is equivalent to an average daily requirement of 6,300
MMBtu/day.
Scheduled Dispatch Gas charge comprised of 3 components:
1. Index Price of the average of the NYMEX settlement price for the
delivery month contract for the last three trading days of the month
plus a margin of $0.50 per MMBtu.
2. The margin will escalate annually by $0.005 per MMBtu after year 5.
3. The price is capped by a Gas Market Price Ceiling of $0.60 plus 1.02 the
average of three published gas price indices available for month.
Take or pay requirement of 80% of the first of month nomination.
Dispatchable Gas charge comprised of 3 options:
1. Market price set by CDC at time of order.
2. Index price of the average of the high and low prices published by Gas
Daily for Columbia Gas pipeline in Appalachia on the day of order.
3. Purchase from a third-party supplier.
Interruptible Gas Charge set by CDC or purchase from third-party
supplier.
Supply Security
1. Replacement cost of fuel plus liquidated damages.
2. Potential reserve dedication
3. MCN Corporate Guaranty
- ----------------------------------------------------------------------------
GSA Volumetric Tiers
The GSA divides quantities into four volumetric and pricing tiers:
1) Limited Dispatch Gas.
2) Scheduled Dispatch Gas.
3) Dispatchable Gas.
4) Interruptible Gas.
For clarity, we will refer to Limited Dispatch Gas as Tier 1, Scheduled
Dispatch Gas as Tier 2, Dispatchable Gas as Tier 3 and Interruptible Gas as
Tier 4. Tiers 1 through 3 are designed to meet the entire firm requirements
of Unit 1. Tier 4 is designed to meet the interruptible requirements of
Unit 2, at Panda's option.
Tier 1 volumes are the first 6,000-8,000 MMBtu/day of firm scheduled gas.
Panda must take or pay for 2,299,500 MMBtu (2,305,800 MMBtu in a leap year)
each year, an average of 6,300 MMBtu per day. The Tier 1 price is comprised
of a fixed commodity charge, a demand charge, an "ANR" charge, and a price
credit. Total charge for Tier 1 volumes as of June 1, 1996 would be
$2.43/MMBtu.
The demand charge is $21,292 per month through year five, and thereafter
the demand charge escalates $1,064 each year. This charge translates into a
cost of approximately $0.10/MMBtu on 7,000 MMBtu per day. The initial
commodity charge is $2.33/MMBtu and applies to the quantity of gas delivered in
the month. The charge escalates annually by 4%. The ANR charge is
$0.10/MMBtu and escalates annually by $0.005 after the fifth contract year.
Panda receives a price credit of $0.10/MMBtu on the first 7,000 MMBtu taken
per day which offsets the demand charge. The price credit escalates by $0.005
after the fifth contract year.
Tier 2 volumes are a firm quantity of scheduled gas up to 24,240 MMBtu
less the Tier 1 quantity. Panda must take or pay for 80% of the beginning of
the month nominated quantity of Tier 2 gas. The price is set monthly based on
NYMEX futures prices for the delivery month and a price ceiling based on
Louisiana spot gas prices into ANR pipeline. The 1995 average of the Tier 2
price was $2.13/MMBtu.
The price is calculated by using the average NYMEX settlement price
during the last three days of trading for the delivery month contract, plus a
margin of $0.50 per MMBtu. This price is compared against the current price
ceiling. The price ceiling is established each month as $0.60 plus 1.02 times
the average of three published spot prices which are the following:
1. Natural Gas Clearinghouse, "Survey of Domestic Spot Market Prices"
for markets accessed by ANR Pipeline, Eunice, Louisiana;
2. Natural Gas Intelligence Gas Price Index, "Spot Gas Price" delivered
to pipelines, 30 day supply transactions for the South Louisiana
Region, contract index price for ANR pipeline; and
3. Natural Gas Week, "Spot Prices on Gas Pipeline Systems," ANR pipeline,
Southeast: Patterson, Louisiana, Bid Week.
Tier 3 volumes are a quantity of firm gas up to 24,240 MMBtu less the
Tier 1 and Tier 2 volumes. The price for Tier 3 volumes is set by CDC when
gas is purchased based on current market conditions. At Panda's option,
Tier 3 volumes may be purchased at a market index of the average of that day's
published price for natural gas in Appalachia on TCO as reported in Gas Daily.
Panda may also obtain Tier 3 volumes from another supplier.
Tier 4 volumes are a quantity Panda may purchase up to 24,240 MMBtu per
day on an interruptible basis. The price is that established by CDC for Tier 3
volumes, or Panda may decline and purchase from a third-party supplier.
Gas Supply Security
Essential elements constituting the Facility's gas supply security
include the following:
- Contractual commitments.
- MCN's financial and operational strength.
- Gas market fundamentals.
Each of these are discussed below.
Contractual Commitments
The GSA creates four major contractual commitments which strengthen
Panda's rights with regard to natural gas supply. These contractual
commitments are:
- Cost of Replacement Fuel.
- Cost of Replacement Contract.
- Reserve Dedication.
- MCN's Corporate Guaranty.
Cost of Replacement Fuel
In the event of a failure by CDC to deliver a portion of the MDFQ
quantities, which failure is not excused by a force majeure, Panda may obtain
replacement fuel, gas or oil, from another supplier. Or, in the event that
Panda could not obtain replacement fuel, Panda may recover any reduction in
payments from PEPCO.
CDC is liable for liquidated damages equal to one of the following two
options:
- Positive difference, if any, between (x) the cost Panda, or WGL in the
event of a Peak Period Release, paid for replacement fuel (including
transportation cost and any imbalance charges resulting from the failure
to deliver) and (y) the sum of the price applicable under the GSA that
Panda would have paid had CDC delivered that portion of the MDFQ plus
transportation cost.
- Positive difference, if any, between (x) the extent of the reduction in
payments from PEPCO to Panda (including the Monthly Capacity Payment and
Monthly Energy Payment) due to the failure to deliver natural gas and
(y) net expenses saved by Panda or not incurred due to not operating
the Facility as a result of the failure to deliver.
Cost of Replacement Contract
In the event of default, CDC is obligated to provide Panda with a lump
sum payment to cover the cost, if any, of replacing the GSA. The payment is
equal to the positive difference, if any, between (x) the cost of replacement
gas supply and (y) the aggregate contract price of the remaining contract
obligations. The cost of replacement gas supply shall include any
transportation cost, such as the cost of obtaining receipt point capacity on
a natural gas pipeline, or the cost of any option or swap Panda incurs as a
result of obtaining replacement gas supply.
Reserve Dedication
The GSA provides for the potential dedication by CDC of its natural gas
reserves. Annually, CDC is required to provide a statement to Panda that, for
the remaining term of the GSA, the expected future gas production from natural
gas reserves owned by CDC will be greater than CDC's firm, fixedprice natural
gas commitments. The letter will be based on a reserve report prepared by an
independent petroleum engineer.
In the event that the expected future gas production from CDC's reserves
does not exceed the firm, fixed-price gas commitments of CDC, CDC shall
dedicate to the GSA specific gas reserves sufficient to fulfill the
obligations of the Limited Dispatch Gas for the remaining term of the GSA.
There are numerous provisions governing the release of reserves from
dedication, sales and use of gas produced from the dedicated reserves,
encumbering the dedicated reserves, and rededicating reserves. Failure to
conform with the provisions regarding the dedication of reserves is deemed a
material breach of the GSA.
MCN's Corporate Guaranty
Through a separate agreement, MCN has agreed to unconditionally and
irrevocably guaranty the prompt and complete performance and payment of CDC's
obligations under the GSA.
MCN's Financial and Operational Strength
MCN is the holding company for Michigan Consolidated Gas Company
("MichCon"), Citizens Gas Fuel Company and MCN Investment Corporation
("MCNIC"). MCN appears to be in excellent financial health, based on
available public information. MCN has steadily increased net income from
$35.1 million in 1991 to $96.8 million in 1995. Over this same period, assets
have grown from $1,517 million to $2,899 million and operating revenues have
expanded from $1,276 million to $1,585 million.
MichCon, the largest natural gas distributor in Michigan and one of the
largest in the U.S., controls distribution, transmission, and storage of
natural gas serving more than 1.3 million customers (750 Bcf/year). Citizens
is a gas utility serving 12,000 customer in Michigan. MCNIC owns subsidiaries
involved in gas services, computer operations services, and natural gas
technology.
The diversified gas services interests held by MCNIC include: CoEnergy
Trading Company, the principal gas marketing subsidiary; CDC, a cogeneration
development subsidiary; Supply Development Group, an exploration and production
subsidiary; gas gathering and processing interests; and the Storage Development
Company. MCNIC remarketed 171 Bcf of gas in 1995, with a majority of these
sales attributable to CoEnergy Trading Company. CoEnergy's principal markets
are Michigan end-users, Canadian LDCs, cogeneration facilities, and recently
markets in the Northeastern U.S.
CDC owns 50% of a 123 MW gas-fueled cogeneration plant in Ludington,
Michigan, that commenced operations in October 1995. CDC is the gas supplier
for the facility, requiring approximately 9 Bcf/year. CDC also markets gas to
several small cogeneration facilities as well as the 30 megawatt Ada facility
in western Michigan of which CDC is the principal owner.
In existence since 1992, by the end of 1995 Supply Development Group
("SDG") had 858 Bcf of proved natural gas reserves with an additional 599 Bcf
of possible reserves. The company invested $575 million in reserve acquisition
and development between 1992 and 1995. The majority (80%) of SDG's reserves
are from Antrim shale formations in Michigan and low-risk Appalachian
formations; the remaining supply comes from the mid-continent and Gulf Coast
U.S. SDG has increased gas production to 31.4 Bcf in 1995 from 2.3 Bcf in
1993. The company expects to double production in 1996.
SDG has acquired ownership interests in 1,972 gas and oil wells. MCN has
proposed significant further capital expenditure on exploration and production
in excess of $1 billion over the next five years. SDG has the capability to
drill in excess of 2,000 new wells on 1.4 million undeveloped acres.
Long-term fixed price swap agreements are in place for a substantial portion
of SDG's anticipated production over the next ten years, hedging the risk of
future gas price fluctuations.
The above information indicates that CDC should be able to supply the gas
requirements for the Facility. Limited Dispatch requirements are
approximately 2.4 Bcf per year, and the total Unit 1 requirements are
approximately 8 Bcf per year. Under reasonable assumptions, CDC's production
goals can be expected to meet these requirements.
Gas Market Fundamentals
The GSA term covers the PPA fixed-price energy payment period, but does
not extend through the PPA term (25 years). After expiration of the PPA fixed-
price energy payment period, all energy payments are based on published
short-term gas market indices. At this time, Panda may need to negotiate with
producers for additional gas supplies.
Pace believes there will be a ready supply of natural gas available for
the life of the Facility. There is an abundant supply of technically and
economically recoverable natural gas in North America. The latest U.S.
government estimates of technically recoverable domestic natural gas resources
onshore and in state water areas exceeded 1,000 Tcf-- over 200 years of supply
at current rates of consumption.(21) Proved U.S. reserves are 153Tcf.
- -----------------------
(21) 1995 National Assessment of United States Oil and Gas Resources, United
States Geological Survey estimated national total for undiscovered technically
recoverable conventional gas to be 1,073.8 Tcf. Other recognized estimates
have concluced that the resource is even larger: the National Petroleum
Council's ("NPC") 1993 report concluded that nearly 1,300 Tcf was recoverable
in the lower-48 alone. Additionally, the Canadian gas resource base was
assessed by the NPC at 740 Tcf.
U.S. production has steadily increased since 1986 during the same time
that producers have been getting lower prices than in the early 1980's and
drilling fewer wells. The driving forces behind this result are the technology
enhancements and the efficiency improvements in the gas industry. Efficiency
is up and cost is down, allowing producers to profitably find and develop new
gas even while prices are falling.(22)
Examples of these technology enhancements and efficiency improvements
include:
1. Increased Recovery per Well -- Exploration and drilling
technologies such as 3D seismic and horizontal drilling have led
to significant increases in the amount of gas discovered per
exploratory well.
2. Improved Success Rates -- Success rates for deeper targets have
improved dramatically due to advancing technology.
3. Lower Well and Equipment Costs -- The numbers of rigs, crews, and
service units peaked in 1982 and has sense fallen drastically. For
example, in 1995 the number of oil and gas rigs in operation
averaged 723 compared to the peak of 3,970. Due to improved
exploration and drilling techniques, the industry can maintain the
same levels of production with a fraction of the equipment and
manpower.
4. Focus on Recompletions -- While the total number of gas wells
drilled has declined since the early 1980's peaks, the number of
recompletions (drilling into a new reservoir from an existing well)
has stayed nearly constant as producers focus on low cost options
for increasing reserves.
5. Focus on Location and Depth -- In response to low prices, producers
have shifted from lower productivity areas to higher recovery
reservoirs, and the percentage of wells surpassing 5,000 feet in
depth increased from 40% to 62%.
6. Focus on Existing Fields -- Producers have been highly successful
at adding reserves to existing fields, especially in the Gulf of
Mexico.
- -------------------------
(22) Non-associated gas resource costs peaked in 1982 at over $4.00/MMBtu.
Finding and development costs have since declined drastically, averaging
$1.50/MMBtu since 1987.
As a result of significant improvements in production technology and
management, the North American gas industry has become much more efficient
and able to provide an expanding resource base even in a flat and competitive
price environment. This has resulted in a trend in lower reserve to production
ratios ("R/P ratios") that is seen as a sign of a healthy, efficient natural
gas industry. In the past, the U.S. typically had R/P ratios of more than 10
years. Currently, the R/P ratio is 8.3 years.(23)
The R/P ratio trend is synonymous with the "just-intime" inventory
approach that has revolutionized many industries. In today's competitive
natural gas production industry it is not efficient for reserves to remain
undeveloped and non-producing for long periods of time. The current trend is
to monetize reserves by tying in reserves to production soon after discovery.
Gas Cost Linkage With PPA Energy Payments
Table III-3 shows the correspondence between the GSA tiers and the PPA
energy payments. Pace has found, through analysis, that the pricing structures
and indices under the GSA are strongly linked with the pricing structures and
indices under the PPA.
<TABLE>
<CAPTION>
Table III-3. GSA Tiers and PPA Payment Categories
- -----------------------------------------------------------------------------
GSA PPA
----- -----
Tiers Description Dispatch Payment Description
- ---- ------------ -------- ------- -----------
<S> <C> <C> <C> <C>
Tier 1 fixed price Limited Dispatch FGRR fixed price
Tier 2 market price Dispatchable FGMR market price
Tier 3 market price Dispatchable FGMR market price
Tier 4 market price Dispatchable IGR market price
</TABLE>
While the GSA satisfies the PPA operational and contractual requirements
in most respects, the four supply tiers create a few potential delinkages with
the PPA energy payments. These potential delinkages stem from several
operational and contractual factors, including the daily 6,000-8,000 MMBtu
volume limit on Tier 1 supply, the difference in Tier 2 and Tier 3 pricing
indices from the FGMR indices, and limited requirements on PEPCO to provide
advance notice of dispatch. The GSA tiers apply to the amount of volume
taken, while the PPA pricing tiers apply to specified time periods and
megawatts of electric output. These differences create a potential delinkage
in terms of gas supply volumes and price with the PPA's revenue mechanisms.
- --------------------
(23) The R/P ratio is a measure in years of the existing volumeof proved
reserves divided by the current production per year expressed as follows:
R/P ratio (years) = Proved Reserves (Bcf) / Current Production (Bcf/year).
Tier 1 and Limited Dispatch Operation
Figure III-1 compares the Tier 1 to Limited Dispatch requirements.
Pipeline imbalance service and fuel management will be required to keep gas
supply at the burnertip synchronized with electric dispatch. To satisfy
Limited Dispatch requirements, the Facility requires a maximum of 9,996 MMBtu
Monday through Friday, and zero MMBtu on the weekend. Under the GSA, the
Tier 1 gas is designated as the first 6,000-8,000 MMBtu taken per day.
Figure III-1. Limited Dispatch Consumption vs. Tier I Supply
BAR CHART
Rider 1
From this potential volume delinkage a potential price delinkage also
occurs. After the first 8,000 MMBtu is taken during a day, the remaining
volumes will be priced at a market rate under Tier 2 and Tier 3 that may not
correspond with the FGRR.
Tier 1 will cost $2.43/MMBtu in year 1, with approximately 4% annual
escalation (an additional charge of $0.10/MMBtu levied as an ANR Charge
escalates 1% annually after year 5). There is also a demand charge of $21,292
per month or $0.10/MMBtu (assuming 7,000 MMBtu/d), but this demand charge
should be canceled out by a Buyer's Credit of $0.10/MMBtu, which Panda
receives for each MMBtu up to 7,000 MMBtu/d.
Tier 1 prices escalate at a higher rate than the FGRR. Figure III-2
presents a comparison of the escalation rates.
FIGURE III-2. ESCALATION OF FGRR & TIER I
LINE CHART
Based on the most recent inflation data which will be used for a one-time
adjustment of the FGRR, the FGRR will provide a significant although declining
per unit margin over Tier 1 prices.(24) Although the FGRR energy payment
does not contain an explicit component for transportation costs, the FGRR
margin over Tier 1 prices should cover the Facility's variable transportation
costs associated with the fuel required for Limited Dispatch operation.
Figure III-3, a comparisonof the FGRR and Tier 1 supply prices, examines the
margin available to Panda to pay for variable transportation costs.
FIGURE III-3. FGRR & TIER 1 PRICES
BAR CHART
- ----------------------
(24) Pace calculated the inflation adjustment using data through May 1996.
The actual calculations will use data through the start of commercial
operations.
Rider 1
Total Weekly Consumption = 49,840 MMBtu/d
Total Weekly Supply at 6,000/day = 42,000 MMBtu/d
Total Weekly Supply at 8,000/day = 56,000 MMBtu/d
Total Weekly Supply at 7,120/day = 49,840 MMBtu/d
Tier 2 and Tier 3 and Dispatchable Operation
Table III-4 presents the indices that make up the PPA and GSA market-
based revenue and cost components. As shown, the indices used in the GSA do
not directly match indices used in the PPA. Analysis is required to show if
there is a linkage.
The major component of the FGMR will be current spot prices of natural
gas in Appalachia and the Gulf Coast. 77% of the FGMR's index and 70% of the
initial FGMR are comprised of monthly spot gas prices.
The cost of gas for dispatchable operation in Unit 1 will be based on
spot prices of natural gas in the Gulf Coast, plus a fixed margin for
transportation (Tier 2), or spot prices of natural gas in Appalachia (Tier 3).
On the most basic level, the energy payment indices and gas costs are linked.
Both costs and revenues will reflect the then current prices of natural gas in
the Appalachian and Gulf Coast regions.
Because the PPA and GSA indices are not the same, Pace evaluated their
historical relationships and price movements. Our analysis found a strong,
historical relationship between Appalachian and Gulf Coast market prices--both
generally and between the specific indices of the GSA's Tier 2 gas cost and the
PPA's FGMR payment.
<TABLE>
<CAPTION>
Table III-4. Cost And Revenue Index Comparison
- ------------------------------------------------------------------------------
GSA
IGR FGMR Non-Limited
Publication, Pipeline, Location Commodity Commodity Dispatch Gas
Index Index
Index Ceiling
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NGC, ANR, LA X1
NGC, Col. Gulf, Onshore Lats, La X X
NGC, Tennessee, Vinton, LA X X
NGI, ANR, South LA X1
NGI, TCO, Appalachia X X
NGW, ANR, Southeast LA X1
NGW, TCO, Broad Run, WV X X
GAS DAILY, TCO, Appalachia X2
IFERC, Col. Gulf, LA
NYMEX near month futures X3
- -------------------------------------------------------------------------------
Index Reopened Claue: 150-120 days 150-120 days If Commodity
index under
In what year(s)? prior to 3, prior to 6th, PPA changes
every third every third
thereafter thereafter
Who initiates? By either By either Panda
PEPCO or PEPCO or proposes
Panda Panda
Who decides? Operating Operating
Committee Committee
</TABLE>
- -------------------------------------------------------------------------------
1 Three indices averaged, then multiplied by 1.02, plus $.60.
2 Used for determining Dispatchable and Interruptible Gas price.
3 Average of settle price over last 3 trading days for contract for delivery
month plus $.50.
Exhibit A provides a detailed description of Pace's statistical
analysis. In summary, Pace's findings are the following:
- The cost and revenue indices appear to track closely based on historical
and statistical analysis. The correlation between the historical
prices of the cost and revenue indices is strong. Regression estimates
of the FGMR as a function of Panda's marginal burnertip cost and of the
commodity portion of the FGMR and the gas commodity cost both capture
98% of the variation in the payment, respectively. There is an obvious
close linkage between the two series with the desired result that
payments generally exceed costs.
- Small trend effects may be present that are working against the
project, but these effects should not be overstated. Recently,
increases in the Appalachia/Louisiana commodity index (revenue) have
been less than increases in the Louisiana index (cost), with the
positive margin of the revenue index eroding by one cent ($0.01) per
year. Fundamental market linkages between the indices should not allow
this erosion to continue indefinitely. Further, the apparent erosion
may itself be illusory due to imperfections in the statistical tests.
Pro Forma Model
The gas commodity costs used in Facility's pro forma model accurately
model Tier 1 gas prices and project other fuel commodity prices, including gas
commodity, based on forecasts by ICF. ICF is a recognized forecaster of
energy prices and reports that it used the same forecasts in ICF's dispatch
study of the Facility.
Pace's forecasts of gas and oil prices average lower than those of ICF
as used in the pro forma model. Because the model is designed to
"pass-through" gas commodity costs to the FGMR and IGR energy payments, the pro
forma model results should not be materially affected if Pace fuel price
forecasts were used for the market-based portion of the Facility's gas supply.
In actuality, fuel price is likely to be a determinant of dispatch and will
therefore likely be a factor in determining economic performance of the
Facility.
IV. NATURAL GAS TRANSPORTATION
Figure IV-1 depicts the Facility's gas transportation route. For Unit 1
supplies, the transportation plan entails:
- Long-haul, interstate, firm transportation on TCO.
- Interstate, firm transportation on CLNG.
- Local transportation on WGL.
Fuel management.
For Unit 2 supplies, the transportation plan involves:
- Interruptible transportation on TCO, CLNG, and local
transportation on WGL.
- Fuel management.
FIGURE IV-1. TRANSPORTATION ROUTE & RECEIPT POINTS
DIAGRAM
Contractual Arrangements
Panda has executed firm gas transportation contracts with two interstate
pipelines and a local distribution company: TCO, CLNG, and WGL. Panda has
also executed interruptible gas transportation contracts with TCO and CLNG.
WGL has agreed in its service contract with Panda to deliver to the Facility
on a firm basis all volumes delivered to it at the CLNG interconnect; thus no
interruptible contract with WGL is required.
TCO
The first stage of the transportation route uses the TCO pipeline from
the Monclova interconnection with ANR in Maumee, OH to the CLNG
interconnection in Loudoun, VA. Panda has executed a 25-year agreement with
TCO for 24,240 MMBtu per day of firm transportation capacity under FTS-1
tariff rates.
For service under the firm TCO contract to take effect, TCO needs to
construct facilities. A total of 6.3 miles of new pipe is required, comprised
of replacing several segments of 26-inch pipe with 36-inch pipe and also
laying a second pipe alongside existing pipe to add capacity.(25)
FERC has approved the expansion and authorized TCO to begin construction
on all phases of the expansion. TCO has reported to FERC that construction
was initiated on May 13, 1996. Absent any unusual occurrence, a pipeline
construction project of this scope would take no more than two months. This
indicates that firm service under the TCO contract will be available before
the end of Summer 1996.
TCO has not yet obtained all required rights-of-way for construction
access. One landowner is opposing TCO. According to documents filed with
FERC and discussions with TCO, TCO has initiated condemnation proceedings in
the Circuit Court of Braxton County, WV to obtain desired access routes. TCO
has informed Pace that it does not expect this matter to delay completion of
the expansion.
Alternate Arrangements
Panda has arranged alternative firm gas transportation arrangements in
the event that the TCO expansion is not completed prior to November 1996.
Panda has entered into letter agreements with CoEnergy Trading Company, an
affiliate of CDC, to provide an option for firm TCO capacity during the months
of August, September, and October 1996.
- -----------------------------
(25) TCO estimates the construction will cost approximately $11 million and
Panda will provide over 50% of the funding.
CLNG
Second stage transportation is on CLNG. CLNG connects with TCO in
Loudoun, VA and extends east to Cove Point, MD where it terminates at a
liquefied natural gas ("LNG") terminal. Panda has executed a FTS service
agreement with CLNG for service to the project for 24,000 MMBtu/d of capacity.
All CLNG start-up construction was completed by December 15, 1995,
according to a final construction/recommissioning report filed with FERC by
CLNG. The Loudoun interconnect has been in operation since September 1, 1995.
The CLNG facilities were mothballed until recently. The regulatory
process surrounding the recommissioning of CLNG is now complete. CLNG
accepted a FERC ruling and submitted a compliance filing on July 31, 1995,
in accordance with FERC regulations. On August 18, 1995, FERC accepted the
tariff sheets governing service on CLNG.
WGL Contract
The final transportation stage involves WGL. WGL will provide firm
transportation for Unit 1 and Unit 2 volumes to the Facility for a $.05/MMBtu
fee, with no reservation charges according to an executed Gas Transportation
and Supply Agreement ("GTSA") between Panda and WGL.
WGL needed to construct less than one mile of pipe from an existing WGL
pipeline along route 301 in Prince George's County Maryland to the Facility.
In a letter dated June 19, 1996, WGL reported to Panda that construction was
completed.
Key provisions of the GTSA concerning firm transportation on WGL are:
- Panda shall allow a "Peak Period Release" to WGL up to 24,000 Dth on
any day at or below 20o F (Washington National Airport reference for
gas day average temperature) in any December, January and February.
Such releases shall not exceed 15 days in any heating season, and
shall not result in a violation of Panda's Air Permit.(26) No more
than 2 days in any 7-day period and 5 days in a month may be
released. Because the climatic conditions required for WGL to
exercise a Peak Period Release are conditions which contribute to
capacity constraints on other gas pipelines used by Panda, during
these occasions Panda would rely on backup fuel oil to meet electric
dispatch.
- -------------------------
(26) Exception exists that a Panda negative gas imbalance on a day below 30
degrees F results in WGL being able to perfomr a Peak Period Release regardless
of Panda's air permit situation.
- WGL shall provide service for $0.05/Dth contingent upon 500 psig from
CLNG.
- WGL shall offer merchant service at a price equal to a Merchant Fee of
$.05 per Dth plus a Commodity Fee negotiated at least 5 days prior to
the beginning of each month. If a Commodity Fee cannot be agreed to,
no merchant service shall be provided for that month. Service will be
on a bestefforts basis from April to October, and as-available
November through March.
Sufficiency Of Contracted Capacity
In this section Pace reviews the sufficiency of the firm contracted
pipeline capacity, focusing on hourly and daily restrictions.
Hourly Flow Rates
Panda's supply and transportation contracts generally require Panda to
take gas in a manner that provides for uniform hourly flows. Panda has some
flexibility in hourly flow: WGL does not specify any requirements for even
hourly flow and CLNG's tariff provides for wide tolerances in hourly flow. A
uniform hourly flow rate over 24 hours is equivalent to burning 4.17% of the
daily volume each hour. As the Facility operates for less hours per day, the
ability to fuel the Facility with even hourly flows decreases. Based on
general industry standards, a 6% hourly burn rate should be used for planning.
Table IV-1 shows that the calculated burn rates for the Facility are under
6% except for 12-hour dispatch. Panda expects that Unit 1 will be dispatched
for periods longer than 12 hours.(27) The lack of hourly flow provisions on
WGLand the wide latitude for shippers on CLNG provide flexibility more than
sufficient to cover the amount by which a 12-hour operation exceeds a 6%
hourly consumption rate.
Daily Capacity
Panda's transporters can generally impose penalties for exceeding daily
scheduled volumes. Panda has a degree of flexibility in service on WGL and
CLNG: WGL does not restrict Panda's ability to run an imbalance on days when
the temperature is above 30 F, CLNG's tariff provides for 20,000 Dth/day
flexibility.
- -----------------------
(27) PEPCO is under no obligation to dispatch the Facility for more than 12
hours due to the defintiona of Must-Run Hours.
Table IV-1 shows that even under 24-hour dispatch, Panda will have
sufficient daily pipeline capacity. Panda has contracted for 24,240 Dth of
capacity on TCO and 24,000 Dth on CLNG and is unrestricted on WGL (whatever
volumes Panda has delivered to WGL will be delivered on a firm basis to the
Facility).
<TABLE>
<CAPTION>
Table IV-1. Panda Gas Consumption (Fully Degraded)
- -------------------------------------------------------------------------------
12 16 17 18 19 24
Hour Hour Hour Hour Hour Hour
Day Day Day Day Day Day
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Operation (961 Dth/h) 11,532 15,376 16,337 17,298 18,259 23,064
Start Up/Shut Down
(900 Dth) 900 900 900 900 900 0
Not Operating
(5 Dth/h) 60 40 35 30 25 0
TOTAL 12,492 16,316 17,272 18,228 19,184 23,064
Even Hourly Flow
(4.17%) 521 680 720 760 800 962
6% Hourly Flow 750 979 1,036 1,094 1,151 1,384
Hourly Consumption
Rate* 7.66% 5.87% 5.54% 5.25% 4.99% 4.15%
</TABLE>
- -------------------------------------------------------------------------------
* Based on scheduled quantity and Facility's hourly consumption rate.
Note: Assumes fully degraded heat rate as estimated by Pacific Energy.
Transportation Costs
Table IV-2 presents the current transportation charges under Panda's
firm and interruptible agreements with TCO, CLNG, and WGL. The total firm
transportation cost expressed on a per-unit basis is approximately
$0.35/MMBtu. Only approximately $0.08/MMBtu of the total cost is from usage
charges, with the bulk of the cost from reservation charges. Also shown are
the maximum tariff rates for interruptible service.
These transportation rates have been used in calculations presented in
Chapter III to assess Panda's ability to recoup fuel costs and variable
transportation costs from the PPA's energy payments. The analysis shows that
on a historical basis Panda would have accomplished this. An element of
whether this will remain the case in the future is whether the Facility's
transportation costs will remain less than the portion of the energy payment
revenues remaining after consideration of commodity costs.
Table IV-2. Panda-Brandywine, L.P. Gas Transportation Rates
- ------------------------------------------------------------------------------
FIRM INTERRUPTIBLE
-------------------- ------------------------
COLUMBIA GAS Max.
Tariff Per Dth Tariff Per Dth
Reservation Charge 100% LF Charge 100% LF
Winter Usage
Base $6.8400 $0.2249 (Nov.-Mar) $0.2384 $0.2384
TCRA $0.1840 $0.0060 $0.0355 $0.0355
EPCA $0.0300 $0.0010 $0.0030 $0.0030
SFS $0.2470 $0.0081 $0.0118 $0.0118
GRI $0.2600 $0.0085 $0.0088 $0.0088
Total $7.5610 $0.2485 Total $0.3097* $0.3097
Usage Summer Usage
(Apr.-Oct.)
Base $0.0128 $0.0128 $0.1635 $0.1635
TCRA $0.0032 $0.0032 $0.0247 $0.0247
EPCA. $0.0020 $0.0020 $0.0027 $0.0027
ACA $0.0022 $0.0022 $0.0022 $0.0022
GRI $0.0088 $0.0088 $0.0088 $0.0088
Total $0.0290 $0.0290 Total $0.2210* $0.2210
Total $0.2775
COVE POINT LNG
Reservation
Base $0.6764 $0.0222 Base $0.0222 $0.0222
Total $0.6764 $0.0222 $0.0222
Usage
Base $0.0009 $0.0009 $0.0009 $0.0009
ACA $0.0024 $0.0024 $0.0024 $0.0024
Total $0.0033 $0.0033 $0.0033 $0.0033
Total $0.0255 $0.0255
WASHINGTON GAS LIGHT
PANDA CONTRACT
Total $0.0500 $0.0500
TOTAL $0.3530 WINTER $0.3852
SUMMER $0.2965
AVERAGE $0.3409
- ------------------------------------------------------------------------------
* includes additional surcharges not separately listed.
There are several factors relevant to this issue.
First, the FGMR energy payment's TI component of $0.65/MMBtu contains a
large margin over current variable transportation costs.
Second, the TI is adjusted according to one-half the rate of change in
the CPI. In reality, transportation costs tend to move in "blocks" following
the regulatory procedure, and at any one particular moment the current rate may
deviate from the value that was based on a linear model of CPI. For long-run
modeling purposes, Pace has found one-half CPI to be a fair predictor of
regulated transportation costs.
Third, the design of pipeline rates between fixed and variable
components is subject to policy determinations by regulatory agencies. At
present, the federal policy is to include only actual variable pipeline costs
in calculating variable transportation rates. The rates of TCO and CLNG
reflect this policy. Our findings rely on the continuation of this policy.
Operational Issues
As detailed in Chapter III, Panda's actual minimum gas requirements are
approximately 9,500 MMBtu per day on Monday-Friday and zero MMBtu on
weekends. The GSA requires that Panda take at least 6,000 MMBtu per day and
no more than 8,000 MMBtu per day of Tier 1 fixed price gas. Panda will
require flexibility in its transportation services to avoid volumetric and
price delinkage.
Panda's transportation arrangements offer a combination of pipeline
services to mitigate potential delinkages between gas supply needs and
requirements and the attendant price delinkages.
Pipeline Balancing Services
Panda's Tier 1 supply will flow into TCO every day (due to the minimum
daily take requirement of 6,000 MMBtu), while the PPA specifies that the
Facility's Limited Dispatch hours occur only on weekdays. Panda will rely on
pipeline services to maintain an operational linkage between its gas dispatch
and electric dispatch. Specifically, the balancing services offered by TCO and
CLNG in their tariffs and the balancing service in WGL's service contract will
be used by Panda.
CLNG Balancing Service
The most attractive pipeline service is the liberal balancing provisions
on CLNG. CLNG's tariff contains extremely liberal balancing provisions. A
shipper may go out of balance (meaning that unequal volumes of gas are put into
the pipeline as are taken out) by up to 20,000 Dth in any hour and by up to
20,000 Dth total for the day. Generally on other pipelines, shippers are
required to take gas at an even flow--if 24,000 Dth were nominated for the
day, 1,000 Dth should be taken each hour.
Even if a shipper is out of balance according to the CLNG tariff, the
shipper is subject to only relatively minor penalties and possibly no penalties
at all. For each dekatherm a shipper is above or below the 20,000 Dth
tolerance explained above, a penalty of $5.00 may be assessed. A penalty will
only be assessed if other shippers on the CLNG line were harmed as a result of
the shipper going out of balance. This "no harm no foul" rule is unique to our
knowledge.
PEPCO, half owner of CLNG, has major reasons to want such liberal
balancing provisions. Historically, the largest volumes have flowed on hot
summer days when PEPCO used its peaking units which draw supply off the CLNG
line. CLNG personnel informed us that the balancing provisions were designed
around the PEPCO peaking units' consumption. CLNG believes that the pipeline
could absorb up to 20,000 Dth per hour or 20,000 Dth total for the day
imbalances and still maintain 600 pounds of pressure on the line. Maintaining
line pressure is critical to the CLNG's operation because the 80-mile pipeline
works without a compressor station through displacement.
CLNG's operational status is important as well. CLNG will be less than
half subscribed when service to Panda begins, providing up to 500 MMcf of
capacity for shippers to build imbalances.
CLNG system flexibility may decrease as a result of new services being
offered, such as a peaking service. If a large amount of peaking service was
expected, balancing flexibility might be limited during winter. CLNG officials
have informed Pace that even on peak winter days the balancing tolerances
provided in the tariff will be maintained. This is possible due to the nature
of the deliveries and the large amount of displacement to be used to provide
service.
WGL Balancing Service
Secondary to using the balancing arrangements on CLNG, Panda may use
balancing service from WGL as provided in the GTSA for a total fee of $.05 per
dekatherm: $.025/Dth injection charge and $.025/Dth withdrawal charge. The
service on WGL is part of the service contract with Panda.
The availability of balancing service on WGL is temperature dependent. If
the temperature is above 30 F balancing service is made available to Panda.
Between 20 and 30 F balancing service is availabl only at WGL's option. Below
20F, balancing service is not available.
The amount of imbalance is determined on a monthly basis, with actual
receipts and deliveries compared to nominated quantities. Panda can
"roll-over" any imbalance quantities less than 10% of the nominated quantity
to the next month. Imbalance quantities in excess of this 10% tolerance
must be paid for according to "Cash out" provisions--either a Commodity Fee
if in effect, or by an index based on Louisiana spot prices, with maximum
IT rates on Columbia Gulf, TCO and CLNG added. Volumes below the tolerance
level can be carried over into next month and possibly made up then.
TCO Balancing Service
Further upstream, Panda has a number of options on TCO, including Storage
in Transit ("SIT") service, to aid in mitigating any potential delinkages in
gas supply requirements and the attendant price delinkages.
SIT is a service provided in TCO's tariff for daily balancing on TCO.
The current cost is $.044/Dth injection fee and $.044/Dth withdrawal fee. A
limitation on SIT service is the need to balance the account twice every 30
days. This service is more expensive than WGL's and provides less flexibility.
Panda may also be able to access supply pools maintained by marketers on
TCO, third-party supply to the primary or secondary receipt points on TCO, and
interruptible transportation on TCO. Panda's primary receipt point, Monclova,
OH, is a major pipeline interconnect and could provide Panda access to numerous
suppliers without having to change to a lower priority, secondary receipt
point on TCO.
CLNG Pressure and LNG Issues
An important operational issue is the ability of CLNG to maintain at
least 500 psig of pressure on the pipeline. If pressure falls below 500 psig,
the obligation for WGL to delivergas is reduced from firm to a best efforts
basis.
Pace has reviewed correspondence from pipeline officials at TCO and CLNG
who assert that the operating pressure will be maintained well above the 500
psig threshold.
Peak Period Release
WGL has the ability under the GTSA to use all of Panda's firm gas
supply under a Peak Period Release. The volume of gas taken by WGL through a
Peak Period Release is entered into a banking account on Panda's behalf. This
banking account is resolved through Panda electing one of three options. It
is through banking account resolution that Panda receives revenues from WGL.
WGL may elect a Peak Period Release during the months of December,
January, and February. A maximum of five days per month, and no more than two
days in every seven may be elected by WGL. A Peak Period Release is further
restricted to only those days for which the average daily temperature at
Washington National Airport ("WNA") is predicted to be 20 F or below.
These provisions work to severely limit the occurrence of a Peak Period
Release. First, it is rare for WNA to record an average daily temperature
below 20 F, even during January and February. Normal average daily
temperatures at WNA are all above 30 F. January and February 1995 were
particularly cold with several winter storms.(28) Records show that for 6
days in January and 1 day in February the actual average daily temperature at
WNA was at or below 20 F.
Second, only up to 2 days in every 7 may be elected for a Peak Period
Release, further limiting eligible days and requiring WGL to husband Peak
Period Releases. For example, the 6 days below 20 F in January occurred
within a stretch of 7 days, and according to the terms of the contract, for
only 2 of these days WGL could have elected a Peak Period Release.
The contract contains a provision that Peak Period Releases by WGL will
not result in Panda violating its air permit as result of having to burn fuel
oil. This right is impaired by section 5.1(f), in which WGL may permit Panda
to incur a daily negative imbalance when the temperature is less than 30 F if
Panda does not obtain enough gas to meet the needs of the Facility. If Panda
does incur a negative imbalance, Panda forfeits its right to deny release up to
the imbalance quantity to WGL due to air permit restrictions. This could
result in periods of plant shut down. This matter concerning section 5.1(f)
is clearly limited by the numerous restrictions on WGL's ability to call a peak
period release.
Pro Forma Model
Transportation Rates
Pace has found that, in general, the Facility's pro forma model uses a
conservative forecast of transportation costs, from a lender's perspective.
Overall, Pace finds the pro forma model slightly overstates current pipeline
rates. The pro forma pipeline rate methodology is to escalate at 1/2 CPI the
- -------------------
(28) January 1995 was the coldest month since December 1989 and the coldest
January in 14 years.
base year rates, except for WGL rates which are kept constant according to
contract. Using an escalation factor of 1/2 CPI is a generally accepted
practice for forecasting pipeline rates, and as used in the pro forma model
is applied to certain components of the pipeline rates that may remain
constant or decline over time.(29)
Gas Balancing Charges
The pro forma model includes a charge on TCO for SIT service of
$0.044/MMBtu applied to each unit of firm gas shipped on TCO. SIT charges
include a $0.044/MMBtu injection fee and a $0.044/MMBtu withdrawal fee. Thus,
the model can be seen as applying a balancing charge to half of the Facility's
firm volumes.
Pace finds this to be a reasonable assumption as a proxy for balancing
charges. Pace believes that Facility will be able to make use of the liberal
shipping tolerances of CLNG to avoid significant balancing charges, provided
sound fuel management is employed.
Gas Transportation Volumes
The pro forma model reflects significant benefits of certain pipeline
balancing provisions, especially on CLNG, under the assumption that these
provisions will continue over the term of the PPA. The pro forma model assumes
that all of the gas to be consumed by Unit 2 is shipped using Unit 1's firm
transportation capacity. This modeling assumption saves Panda the cost
difference between the TCO IT transportation rate and the variable portion of
TCO firm transportation rates.
Based on the current pipeline tariffs, the Facility's contract with WGL,
and ICF's estimate of the number of hours of operation(30) and ICF's estimate
of the number of times PEPCO dispatches the Facility(31), the pro forma
assumption is reasonable.(32) In the future, the pipelines may tighten their
tolerances, subject to FERC approval. These balancing provisions are not
contractual rights, so there is no guarantee that these provisions will
continue over the entire modeling term and that the Facility will be able to
use Unit 1 transportation capacity to the extent modeled.
- -----------------------------
(29) For example, the TCRA surcharge on TCO is likely to decline significantly
over the next several years due to the eventual full recovery of gas supply
contract settlement costs.
(30) For example, in 1997 ICF projects 3,482 Unit 1 operational hours and
2,154 Unit 2 operational hours.
(31) For pro forma modeling, ICF assumes 200 starts per year.
(32) On average, ICF projects Unit 1 is dispatched less than 30% in winter,
below 40% in summer, and under 50% in shoulder months, and that Unit 2 is
dispatched only a portion of the time Unit 1 is operating. Based on an
assumption that these percentages also apply to each month (e.g. January
dispatch will average under 30%), there is opportunity currently for Panda to
manage its balancing accounts on the pipelines as in the pro forma model.
Review of the Facility's economic performance should consider the
potential impact of the need to increase reliance on IT transportation for Unit
2 at some point in the future. It is difficult to predict if and when the
current pipeline balancing provisions, especially on CLNG, might be tightened.
CLNG officials have maintained to Pace that the pipeline intends to maintain
its current liberal shipping tolerances indefinitely. Additionally, PEPCO, a
50% owner of CLNG, derives significant benefit from the use of CLNG's balancing
provisions. Nevertheless, there is no guarantee that the advantageous
balancing provisions wil continue.
Capacity Release
The pro forma model assumes that for firm TCO capacity that is not used,
Panda receives 50% of the then current maximum firm tariff rate as a result of
short-term capacity releases. Because short-term capacity releases will most
likely occur in the winter when dispatch is lowest and transportation capacity
is at its highest value, Pace finds this assumption reasonable, assuming active
and proficient fuel management.
V. BACK-UP FUEL OIL
Panda will operate Unit 2 on No. 2 fuel oil when interruptible gas
supply or transportation capacity is not available. Unit 1 will operate on
fuel oil when WGL exercises its Peak Period Release rights.(33) Fuel oil for
these operations will be drawn from a storage facility to be constructed on
the plant site with a capacity of 2,000,000 gallons. The Facility will be
able to fuel each unit separately and each unit will be capable of switching
from natural gas to fuel oil within a few minutes.
Panda plans to contract for fuel oil approximately 60 days before the
start of commercial operations, or before each winter season. Panda maintains
that it will contract for firm supply and transportation of fuel oil before the
start of each winter heating season and ensure that on-site storage levels are
kept full during winter.
Fuel Oil Requirements
The most common scenario for fuel oil usage would be for supplying Unit 2
due to a lack of interruptible gas service. At an 80% - 90% dispatch level,
Unit 2 would require 130,000-145,000 gallons of fuel oil per day. Consuming
oil at this rate would require 17 to 20 truckloads per day at 7,500 gallons
per truckload to keep pace with consumption. Panda would need three
dedicated trucks operating approximately 18 hours per day making six to seven
round trips each from Baltimore.
Under the most extreme conditions of maximum continuous dispatch, no gas
service, and no refill, the Facility would burn a maximum of 332,598 gallons
of oil per day, equivalent to 3,885 gallons per hour.(34) At this rate, the
Facility would draw down its oil storage to zero in 6.17 days. Theoretically,
the Facility could maintain fuel oil operation at this level of dispatch
because we estimate that the Facility can fill the storage tank at a rate of
15,000 gallons per hour.35 Because Unit 1 gas supplies are firm, Pace does not
envision such use of fuel oil occurring. However, the example shows that even
under extreme conditions, the Facility will have time to begin refilling
on-site storage tanks in the event that oil is required and fill the tank at
the rate of withdrawal if necessary.
- ----------------------------
(33) Fuel oil could also be used to operate the Facility in the event of
force majeure interruption of gas service or failure of Panda or its fuel
manager toschedule sufficient gas service. These occurrences can be expected
to be extremely rare.
(34) 961 MMBtu/turbine hour x 48 turbine hours/day x.13869 MMBtu/gallon
(EIA conversion).
(35) A tanker truck contains 7,500 gallons and we estimate 2 trucks could be
unloaded per hour.
Pace has calculated a worst-case scenario for No. 2 fuel oil
requirements. This scenario involves the Facility being dispatched
continuously at full capacity while IT is unavailable for natural gas supplies
and WGL elects peak period releases to the full extent possible.
During a week under this scenario, the Facility would require
approximately 1,496,690 gallons of fuel oil. This would leave the Facility
with approximately 503,310 gallons of fuel oil remaining in on-site storage
tanks.(36)
The remaining storage is substantial, but not sufficient to supply the
Facility if WGL elects a Peak Period Release for an additional two days during
the next seven-day period. An additional two days of release would require the
Facility to burn 665,196 gallons of fuel oil.(37)
The major cause for fuel oil operation will be TCO's restriction of
interruptible transportation service ("IT") to Unit 2. IT is available during
most periods of the year. Typically, TCO interrupts IT to the Northeast 30-45
days each winter. During harsh winters, such as the '95-'96 winter, IT
interruptions can be greater. Last winter, which was extremely cold, IT was
interrupted in TCO's zone 10 (Virginia and Maryland) a total of 83 times. The
days fell in a predictable pattern according to the severity of the weather:
November-- 13 days of interruption
December-- 24 days of interruption
January-- 22 days of interruption
February-- 15 days of interruption
March-- 9 days of interruption.
Despite such extreme possibilities, Panda should not require fuel oil
for more than 20-30 days per year for the following reasons: (1) Unit 2 is
expected to be dispatched approximately 50% of total availability, (2) Most of
Unit 2 dispatch is expected to occur during summer when gas service to Unit
2 should not be constrained, and (3) Panda may have other options to deliver
gas for Unit 2 operation when TCO IT service is unavailable.
Fuel Oil Availability
The harsh weather conditions likely to spur a WGL Peak Period Release
are also conditions most likely to create spikes in demand for fuel oil in
the area.
- ---------------------------
(36) 961 MMBtu/turbine hour x 216 turbine hours x .13869 MMBtu/gallon =
1,496,690 gallons. 503,310 gallons remaining assumes that 2,000,000 gallon
capacity on-site storage tanks are full at start of heating season.
(37) 961 MMBtu/turbine hour x 96 turbine hours x .13869 MMBtu/gallon.
Attempting to arrange for supply during such a demand spike could prove
difficult and costly. Despite the plentiful supply of fuel oil in the region,
interviews conducted by Pace with several suppliers suggest that during harsh
weather conditions, such as the winter storm in February 1994, supplies of fuel
oil were tight, making "off the rack" or spot purchases of fuel oil difficult.
Further, it helps service to have a standing relationship with suppliers.
Under normal conditions there should be no problem obtaining fuel oil
supply. Baltimore is a major supply and processing center for petroleum
products. The Fairfax and Newington centers in Virginia are smaller, but
still host substantial fuel oil suppliers. These three terminals would provide
the Facility with over 25 major resellers within a 60-mile radius; among them
are Crown, Exxon, Amerada Hess, Amoco, B.P., Chevron, and Texaco. Most
suppliers in Baltimore obtain fuel oil from Colonial Pipeline, and some also
have facilities to be supplied by tankers off the Chesapeake Bay. Pace
interviews with four major Baltimore resellers totaled their storage capacity
of low sulfur No. 2 fuel oil at 822,000 barrels. Fairfax and Newington's
total capacity of low sulfur No. 2 fuel oil is estimated by Pace at 200,000
barrels each, and all of these supplies are provided from Colonial Pipeline.
Transportation of fuel oil to the Facility will be accomplished by tanker
trucks. Baltimore offers many fuel oil trucking firms such as Fleet
Transportation, Baltimore Tanklines, and Carrol Independent.
Air Permit
Under normal conditions, the Facility would be able within its air permit
restrictions to combust fuel oil up to 1,200 turbine hours per year, or
8,098,637 gallons per year. Panda's maximum of 2,400 turbine hours per year of
No. 2 distillate oil use only applies if certain events, such as a PJM
Emergency Condition, are declared.
Fuel Oil Pricing
Panda is reimbursed for Unit 2's operation on regular fuel oil, assuming
the PPA conditions are met, based on No. 2 fuel oil published spot prices in
the major East Coast regional markets. To meet environmental restrictions,
Panda is required to purchase a higher grade of oil which is generally more
expensive than regular No. 2 oil. Additionally, there is no explicit
reimbursement for local fuel oil transportation charges, which may cost between
3-5 cents per gallon, although the initial oil rate provides a margin of
approximately 3.5 cents per gallon (25 cents per MMBtu).
A possibility does exist that TCO would be interrupted, forcing Panda to
use fuel oil, but IT service was available on Transcontinental Gas Pipeline
("Transco"). The PPA includes availability of IT on Transco as well as on TCO
for determining whether gas is available on an interruptible basis for fueling
Unit 2.
Pace's analysis of recent Baltimore harbor No. 2 Low Sulfur oil prices
and the OI suggests that Panda's per-unit cost for fuel oil will be higher than
the per-unit price in the payment formula for fuel oil operation (although the
total payment will exceed fuel oil cost). The difference between the payment
index and Pace's estimate of burnertip cost averaged $0.09/MMBtu in 1994.
Our analysis indicates the costs and revenues for fuel oil operation
should be highly linked in movement over time. Based on this linkage, Panda
should be able to obtain fuel oil at a price similar to the regional prices
used in the PPA for payments.
Pro Forma Model
The pro forma model treats oil indices as parallel in the calculation of
revenues and costs. This is a simplification that may understate costs,
because the Panda will need to purchase low sulfur No. 2 fuel oil and revenues
will be based on regular No. 2 fuel oil (which generally is less expensive).
For the following reasons, Pace finds the pro forma modeling of fuel oil
prices to be reasonable: (1) The historicalprice differences between oils
observed by Pace tend to narrow in the winter when Panda expects to operate
Unit 2 on oil, and (2) the index disparity estimated by Pace of approximately
$0.09/MMBtu appears to not be significant to overall financial projections.
VI. FUEL MANAGEMENT
Sound fuel management will be required to ensure that the Facility
effectively and economically matches gas dispatch with electric dispatch. The
importance of fuel management stems from operational requirements, such as
meeting pipeline nomination deadlines, and from contractual obligations with
PEPCO. The PPA requires the Facility to meet most if not all dispatch orders,
maintain a highly reliable fuel supply, and ensure that variable costs are
below the energy payments.
Panda has executed a contract with CDC to provide fuel management and
has drafted a fuel management plan.
Fuel Management Agreement And Plan
Panda and CDC have executed a Fuel Supply Management Agreement ("FSMA")
to provide fuel management for the Facility. CDC and Panda have also
prepared a Fuel Management Plan (the "plan") which is not yet final. Through
these agreements, CDC will act as fuel manager for the Facility, managing and
administering Panda's gas supply and transportation to the Facility. CDC's
performance is backed by a corporate warranty from MCN.
Capacity Release
The FSMA contains provisions for CDC to act as Panda's agent in arranging
for the release of Panda's firm capacity on the project's interstate gas
pipelines when the capacity is not needed by the Facility. CDC can only act
with Panda's approval and the contract stipulates that all capacity releases
will be on a recallable basis. CDC will receive a fee of 5% of the reservation
charge recovered from the release of pipeline capacity.
The plan calls for capacity release to be directed by Panda personnel.
Panda will monitor the use of its capacity and determine the amount to be
released after consultation with CDC. The plan further states that capacity
releases will be consistent with PEPCO's dispatch of the Facility. In addition,
releases of capacity will not exceed a certain number (that is not yet
specified in the draft plan) of days without lender approval. If implemented
as proposed, these restrictions should allow capacity release without material
risk to the Facility.
Excess Gas Sales
The FSMA provides that quantities of gas supply not needed at the
Facility to meet dispatch may be marketed and sold by CDC. CDC will collect
a fee of 25% of any positive difference between the sale price and Panda's
weighted average cost of gas.
The plan envisions excess gas sales resulting after direction from Panda
personnel. This will occur after consideration of alternative action such as
building a positive imbalance on the pipelines or reducing the volume of gas
received from suppliers.
Oil Purchase
The FSMA does not create a substantive obligation on CDC in making fuel
oil arrangements. CDC's only role is as credit enhancement to Panda to help
Panda arrange fuel oil supply contracts with suppliers.
Nominations/Balancing
CDC is required to use its best efforts to successfully nominate gas
volumes at each pipeline receipt and delivery point to meet electric
dispatch. CDC is required to use reasonable efforts to maintain a balance
between pipeline receipts and deliveries.
The plan specifies that all nomination and volume changes will be
directed by Panda. After receiving direction from Panda, CDC will notify
all suppliers and transporters of nominations, scheduled volumes and dates.
Gas Supply Nominations
Panda has a great deal of flexibility in nominating gas supply. This
flexibilityprovides Panda with tools to minimize the cost of gas required to
operate the Facility. Minimizing gas cost is particularly important in light
of the PPA's requirements that variable costs not exceed energy payments. The
GSA specifies the following procedures for nominating supply:
- Tier 1: Two days prior to the earliest of first-of-month pipeline
nomination deadlines, Panda must submit supply nominations for each
day of the following month. On 24-hours notice, Panda may change the
nomination for that day within the 6,000-8,000 MMBtu range. Panda
may request a change of quantity on shorter notice, and CDC is to use
reasonable efforts to satisfy such requests.
- Tier 2: Two days prior to the earliest of first-of-the-month pipeline
nomination deadlines, Panda must submit supply nominations for each
day of the following month. On 24-hours notice, Panda may change the
nomination. Panda may request a change of quantity on shorter notice,
and CDC is to use reasonable efforts to satisfy such requests.
- Tier 3: Panda needs to provide 24-hour notice prior to the day of
delivery. Panda may request a change of quantity on shorter notice,
and CDC is to use reasonable efforts to satisfy such requests.
These nomination requirements essentially allow Panda to take advantage
of intramonth swings in gas commodity prices. Although Panda needs to avoid
making changes that would result in triggering the take-or-pay clauses in the
GSA, Panda is free to switch monthly gas requirements between Tier 2 and Tier 3
to take advantage of a lower price.
There is also flexibility in Tier 1 nominations. Panda must always take
at least 6,000 MMBtu of Tier 1 gas, but may change its nomination between 6,000
- - 8,000 MMBtu on 24 hours notice. This flexibility provides Panda with
approximately 2 hours of supply for Unit 1 dispatch, which is additional
assurance that Panda will be able to obtain gas supply to meet the must-run
portion of the Facility. This flexibility also provides Panda with a mechanism
for taking advantage of changes in the market for natural gas.
To serve the must-run hours, the Facility requires a maximum of 49,840
MMBtu per week. An even daily take to build up to this quantity would be
7,120 MMBtu per day--a figure within the 6,000-8,000 MMBtu range. If natural
gas market prices spike, Panda may be able to use the flexibility to obtain
relatively cheap gas to serve other dispatch of the Facility or build a
positive imbalance for use at a later time. This flexibility should not be
overstated--the 2,000 MMBtu range is about 8% of the total daily requirements
for Unit 1 at full dispatch.
Pipeline Nominations
Nominating for pipeline service generally requires making an estimate of
daily volumes before the start of the month and then confirming these
quantities on a daily basis by a certain deadline. Panda's nomination
requirements are fairly flexible and do not impose an unusual burden on the
Facility obtaining gas supply to meet electric dispatch. Panda's earliest
deadline is on CLNGwhich requires that nomination be received by 3 p.m. for
the following day. Thedetails on daily nomination requirements follow below:
- - TCO
Rolling nomination schedule on TCO requires nominations by 4:00 p.m. for gas
to flow starting at 8:00 a.m. the next day. Nominations made at 8:00 a.m. will
be effective for gas flowing at 12:00 p.m. that day.
- - CLNG
Nominations must be made by 3:00 p.m. for next day delivery.
- - WGL
Nominations need to be made by 8:00 a.m. for delivery during that day. One
intra-day change is permitted to the nominated quantity during the day.
Expertise of CDC Fuel Management
Pace finds that CDC has the expertise needed to fulfill its fuel
management obligations for the Facility. CDC's experience with the Ludington
gas-fired 123 MW cogeneration facility, of which it is a 50% owner and fuel
supplier, should provide a further understanding of the fuel supply and
transportation requirements of gas-fired cogeneration projects. CDC also has
other, smaller cogeneration facilities in operation. CDC's gas marketing
operations are growing rapidly, topping 140 Bcf in 1994, and show every
appearance of being well-managed and well-placed in the market.
Respectfully Submitted,
/S/
C.C. PACE RESOURCES, INC.
EXHIBIT A: STATISTICAL ANALYSIS OF GSA AND PPA FUEL-RELATED INDICES
The PPA's energy payment corresponding to Panda's firm market-priced gas
supplies is based upon a combination of Appalachian and Gulf Coast prices.
Panda's actual cost for firm market-priced gas supplies is based on Gulf Coast
gas prices (i.e., the Henry Hub. LA NYMEX price).(38) A fundamental linkage
issue is how a revenue index based on half Appalachian and half Gulf Coast
prices will compare with a cost index based solely on Gulf Coast gas prices.
Pace analyzed the historical relationships and price movements of the
Appalachian and Gulf Coast spot gas markets. Pace's findings, in summary, are
the following:
- The cost and revenue indices appear to track closely based on
historical and statistical analysis. The correlation between the
historical prices of the cost and revenue indices is strong.
Regression estimates of the FGMR energy payment as a function of
Panda's marginal burnertip cost and of the commodity portion of the
FGMR energy payment and the gas commodity cost both capture 98% of
the variation in the payment, respectively. There is an obvious
close linkage between the two series with the desired result that
payments generally exceed costs.
- Small trend effects may be present that are working against the
project, but these effects should not be overstated. Recently,
increases in the Appalachia/Louisiana commodity index (revenue)
have been less than increases in the Louisiana index (cost), with
the positive margin of the revenue index eroding by one cent ($0.01)
per year. Pace believes the fundamental market linkages between the
indices will not allow this erosion to continue indefinitely and that
the index differential will stabilize. Further, the apparent
erosion may itself be illusory due to imperfections in the
statistical tests.
- --------------------------
(38) Panda's cost could be based on Appalachian prices if Panda chooses to
take Tier 3 supplies instead of Tier 2. This possibility does not present
additional risk because Panda has the operational flexibility to choose
Tier 3 gas only when it presents an economic benefit.
Price Differential between Louisiana and Appalachia Supply
A fundamental linkage question is how a revenue index based on half
Appalachian and half Gulf Coast prices will compare with a cost index based
solely on Gulf Coast gas prices.
Historically, gas prices in the Appalachian producing region have been
higher than Gulf Coast gas prices. There are a number of reason for this. The
quality of the gas is not a reason, as gas quality between the basins does not
vary significantly. One factor is that per-unit production costs are higher
in Appalachia than in the Gulf Coast region. More importantly, Appalachian
gas is closer to the major Northeastern and Mid-Atlantic market regions. From
a common market price, Appalachian producers have, in effect, a higher netback
price because transportation costs are less.
The price differential between the basins is not constant. To a large
degree, this reflects the volatility in the value of transportation.
Transportation capacity is a "use it or lose it" commodity of limited supply.
During periods of high demand (which can be seasonally, daily, or even hourly)
its value can rise quickly. When demand is less than available capacity, the
value of transportation can drop to variable costs.
Other factors in addition to transportation also can affect the price
differential. Examples of these factors are production requirements based
on reservoir characteristics, weather differences between the producing
regions, and demands in markets served from the Gulf Coast region but not
Appalachia (e.g., California and Florida). The differential exhibits
seasonal patterns reflecting the value of transportation in winter periods,
but can also widen or shrink in difficult-to-predict ways.
Figure A-1 graphically presents Appalachian and Gulf Coast prices.
Appalachian prices hold a fairly consistent margin above Gulf prices until late
1992. After this point the relationship between the two regions becomes more
complex. The prices track together at some periods, but also diverge at
times. This increase in volatility and overall decrease in the margin between
the two regions can be more readily seen in Figure A-2, which graphs the
percent that the two Appalachian prices comprise the sum of the PPA commodity
index. The late 1992 price differential drop is clear (including the only
point in the five-year history that Appalachian prices were lower than
Louisiana prices), as well as the narrower margin of Appalachian prices over
Louisiana since that point. The historic differential returns in February-May
1994. Appalachia prices soared above Louisiana prices this past winter due to
severe weather conditions along the east coast.
FIGURE A-1. PPA COMMODITY INDEX: GULF & APPALACHIAN PORTION
GRAPH
FIGURE A-2. PERCENT OF CI FROM APPALACHIAN
LINE CHART
Simple correlation of an average of three Louisiana prices(39) and the
FGMR commodity index average (CI) over the past five years is .98, a very
strong indicator of a relationship between the indices. The mean of the CI
price
- --------------------------
(39) We used the Inside F.E.R.C.'s Gas Market Report Louisiana price point
for the following three pipelines. Tennessee Gas Pipeline, Columbia Gulf
Pipeline, Texas Eastern Pipeline. We avoided the particular Louisiana points
used in the PPA FGMR commodity index to show that all Louisiana prices are
highly correlated.
series was $1.91, while the mean of the Louisiana price series was $1.76--an
average positive margin of $0.15. The standard deviations were nearly
identical, approximately $0.39, meaning the variance is distributed in nearly
identical fashion for both the price series.
More sophisticated statistical analysis reveals some possible concerns.
The simple exponential growth rate of the FGMR commodity index was only 6.6%
per year over the past five years, compared to 8% per year for the Louisiana
prices. Simply put, Louisiana prices are rising faster than the Appalachian
prices. Additional analysis, using logs of the two series, shows similar
results. Over the past five years, the percentage increase in the FGMR
commodity index lagged behind the percentage increase in the Louisiana index.
For every 10% increase in the Louisiana price, the FGMR commodity index
increased only 8.6%. Although this result is not favorable for the project,
it is not a significant concern for two reasons. First, the apparent lag in
Appalachian prices does not refute the primary finding that the two series are
closely linked. Second, these findings may be a function of the high degree
of correlation between the two series--what statisticians refer to as
autocorrelation. The primary message is that the series are linked and the
relationship appears to be stable. A variable for time returned an extremely
small coefficient and was not statistically significant.
The type of relationship illustrated by the graphs and the statistical
analysis is complex, but stable enough to suggest that the project would not
be at risk by contracting for supply based solely on Louisiana prices. The
five-year history of the two series would suggest that over the long term, the
margin (FGMR commodity index greater than Louisiana average) will gradually
erode at approximately 1 cent ($0.01) per year.
Stepping back from historical statistics and considering market
structures, Pace believes the erosion of the margin between the basins will
not continue indefinitely. In other words, Louisiana prices cannot
indefinitely continue to increase at a higher rate than Appalachian prices.
We believe the changes in the price differential predominately reflect the
market dynamics of the restructuring of the gas transportation industry, and
the addition of new transportation capacity. Over time, the price
differential should stabilize at a level a few cents less than the historic
differential.
FGMR Revenue Versus Tier 2 Gas Cost
This section examines the relationship between the PPA's FGMR energy
payment and Panda's marginal burnertip cost, and the relationship between the
CI, the commodity subcomponent of the FGMR, and the commodity portion of the
GSA Tier 2 price (NYMEX-based or Louisiana spot-price based if price ceiling
in effect).
The GSA Tier 2 gas price is set according to the nearmonth NYMEX futures
contract (average of last three days of contract settlement prices) with an
additional margin of $0.50/MMBtu. This price is capped by a ceiling based on
delivered spot gas prices into ANR pipeline in Louisiana. The price ceiling is
calculated as 1.02 times the simple average of the spot prices plus
$0.60/MMBtu. Because we expect the NYMEX price to approach the price for
Louisiana spot gas (NYMEX price is based at Henry Hub, Louisiana) we do not
expect the price ceiling to be in effect except for rare circumstances.
Historical analysis of the price ceiling and the NYMEX price confirm this
expectation. While the ANR prices are often a few cents less than the NYMEX
price, the total price ceiling has almost always been above the NYMEX price
plus $0.50/MMBtu. The tendency for the average of the ANR prices to be lower
than the NYMEX price probably reflects the value of gas at the Henry Hub, a
major U.S. market center. Figure A-3 shows the gas commodity components of the
gas price ceiling and the NYMEX based price index. Figure A-4 compares the
total Tier 2 price indices: the gas price ceiling and the NYMEX price plus
$0.50/MMBtu.
FIGURE A-3. GAS COMMODITY COMPONENTS
BAR CHART
FIGURE A-4. PRICE CEILING
BAR CHART
During the 1991- 1994 period, the Tier 2 gas price would have been almost
always the NYMEX plus $0.50/MMBtu price. Occasionally, such as in June 1994,
the price ceiling would have been in effect. Even in these instances, the
difference between the NYMEX plus $0.50/MMBtu price and the price ceiling is
only a few cents.
A point not illustrated on the graph is that historically, the last
three days of NYMEX futures trading are usually flat--the price generally does
not change. This provides some assurance that the futures market--at least
for the near month contracts--is robust and is not prone to wide fluctuations.
This past winter this pattern did not hold due to the extreme tightness of
supply on the east coast.
Figure A-5 illustrates the PPA's FGMR payment and the marginal burnertip
cost of gas, which is the effective gas price (either the NYMEX-based price or
the price ceiling) plus variable transportation cost. There is obviously a
close linkage between the two series, witg the desired result that the payments
generally exceed the costs. Additionally, the margin, or "gap," between the
revenue and cost appears to be increasing slightly over time, and the gap
appears to be larger during winter periods when both series rise.
FIGURE A-5. F G M R & MARGINAL BURNERTIP COST
GRAPH
Regression analysis of the gas cost plus variable transportation
(marginal cost at the burnertip) with the FGMR energy payment produced
statistically significant results suggesting strong linkage. The revenue
payment was modeled as a function of the marginal burnertip cost of Tier 2 gas,
with a time variable to detect trend effects, and a winter variable to detect
seasonal effects. The estimated equation is:
FGMR = -.03 + .004*TIME + .075*WINTER + 1.003*COST.
The R2 was quite high, .98, meaning that 98% of the variance in the
payment was explained by the equation. The coefficients by the variables are
interpreted to mean that there is a slight increase in the payment relative to
the cost over time and a slight increase in the payment relative to cost during
winter periods. However, these effects are barely present--note the small size
of the coefficients--and the dominant message is that the two series are
closely linked. Care should be taken when making inferences regarding the
trend variables. The FGMR and COST are so highly related that the variables
TIME and WINTER may be returning high values which are spurious due to
autocorrelation.
The widening gap between the FGMR and the burnertip cost may be due in
part to changes in transportation cost. In 1990, variable transportation cost
on Columbia Gas was in excess of $0.18 per MMBtu. Variable transportation cost
has fallen consistently since that time and is now only $0.03 per MMBtu. A
driving factor in this change has been FERC Order 636, which mandated a switch
to Straight Fixed Variable pipeline rate design, which shifts costs from the
variable charge to the demand charge.
Backing the analysis "upstream," we also examined the relationship
between the cost of Tier 2 gas before the margin is added and without
variable transportation cost, and the gas commodity component of the energy
payment, the CI.
Figure A-6 portrays the CI, the commodity portion of the FGMR, and the
GSA Tier 2 gas price (without the GSA margin or variable transportation
cost). From the graph we can see what appear to be two very closely related
indices. The CI appears to peak higher during winter periods and generally be
above the gas cost.
FIGURE A-6. CI & GAS COMMODITY COST
GRAPH
A regression estimate of the CI payment as a function of the gas cost, a
time variable and a variable to capture seasonal effects, produced
statistically significant results highly suggestive of linkage. The equation
is as follows:
CI = .24 - .001*TIME + .10*WINTER + .96*COST
The equation returned an R2 of .98 and the coefficient for the COST
variable was highly statistically significant. Interpreting the coefficients
on the trend variables of TIME and WINTER is dangerous due to their small size.
As mentioned above, when two series are trending together upward over time
conclusion about trend effects can be spurious.
Although caution should be used in drawing inferences, the trend effects
that are present would suggest that the CI is falling slightly over time, or
closing the gap in the margin, while during winter the CI gets an additional
boost over cost. However, the main point is that the two series are closely
related. Further, we can conclude that the GSA should provide Panda the
ability to fulfill the PPA requirement that variable costs for fuel be
recovered through the energy payment.
EXHIBIT B: LNG GAS QUALITY ISSUES
CLNG's operational history reveals some potential problems with the use
of regassified liquefied natural gas ("LNG"). CLNG acknowledges that the LNG
operations 14 years ago resulted in widespread problems due to the Btu content
of the imported gas. Burners needed to be retrofitted as far away as West
Virginia. (The problem was particularly aggravating to customers because LNG
operations were shortlived and retrofitting needed to be reversed.) CLNG
stated that the problem then was primarily caused by high ethane content in
the Algerian gas supply, which was not processed prior to shipment.
CLNG stated that it recognizes a significant additional burden on it would
exist in any future LNG certificate proceeding because, unlike 14 years ago,
there are customers receiving non-LNG service directly off of CLNG. While the
contracts are confidential, CLNG stated that WGL has executed a firm peaking
service contract (which provides for firm transportation service along with
peaking service) for 50,000 MMBtu/d; other peaking service customers have made
long-term commitments for 220,000 MMBtu/d; and that PEPCO is expected to make
commitments for the Chalk Point plant after the open-access tariff is
established (right now PEPCO receives service through WGL.)
CLNG stated that its strategy would be to require the gas supplier to
provide gas with specifications which allow LNG operations to deliver normal
pipeline quality gas. CLNG was confident that such supplies are available, and
noted that the Algerian source originally used is now processed to remove the
ethane. CLNG further pointed out that their LNG marketing is currently
dormant.
The current CLNG certificate applications and rulings specifically do
not provide CLNG with the authorization to provide LNG import services. While
import authority for the gas molecules resides with DOE, not FERC, FERC has
jurisdiction over the facilities used to perform the import. This means that
CLNG would need to receive a certificate from FERC and DOE to provide an LNG
import service.
Such a proceeding at FERC would provide a full litigation forum in which
the details of the service would be determined. Panda-Brandywine, L.P. would
receive notice of the initiation of such a certificate proceeding, and also
there would be public notice provided. Any party could intervene and
participate fully. The impact of the proposed service on existing customers
would be a directly relevant consideration of such a proceeding.
An indication of FERC policy in such a proceeding is provided by the
tariff currently in place and governing LNG import service by Distrigas in
Massachusetts. The tariff provides a cap on Btu contact and brackets the gas
constituents to specific ranges. It seems reasonable to Pace to expect a
similar outcome in any CLNG proceeding, and perhaps even a more rigid
requirement to ensure the safety of the residential and commercial customers
served by WGL directly off of CLNG.
Pace has spoken to parties directly involved with LNG operations and
confirmed the statements of CLNG that LNG supplies are available which can,
with appropriate operations, provide acceptable gas supplies. Algerian LNG is
provided at 1,075 to 1,082 Btu/cf and other supplies are at 1,070 to 1,120
Btu/cf. We were informed that significant Btu increase occurs mainly if
"heavy weatherization" occurs and that this means that storing the LNG for
approximately 1 year can increase the Btu content to the range of 1200 to 1250
Btu/cf. Appropriate cycling of the supplies avoids this.
In summary:
- - The Project has regulatory protection. CLNG would be required to obtain a
certificate from FERC to import LNG. That permit proceeding would provide the
Project and all other parties full rights of participation and litigation, with
the impact on existing service a relevant issue. A policy "marker" is
provided by the existing Distrigas facility in Massachusetts, which is subject
to tariff terms which limit the Btu content to a 1150 Btu/cf cap and the
constituents to specific ranges.
- - Other customers have the same interests as the Project. CLNG has other
significant long-term customers who have service interests parallel to the
Project's. This includes a significant WGL residential and commercial load
service through five WGL taps into CLNG, as well as peaking service customers.
- - LNG operations can be performed within acceptable specifications. The
problems that occurred 14 years ago were caused by both the LNG operational
details and the particular gas supply. Processed LNG is available which has
high Btu constituents reduced when compared to the gas originally used at CLNG.
In fact, this is true for the Algerian source used originally. Operationally,
sources directly involved with LNG ongoing operations have reported to Pace
that heating content is not a systemic problem, but one which occurs only with
long storage periods.
EXHIBIT C: PEAK PERIOD RELEASE DETAILS
This Exhibit details the costs Panda will incur and the payments Panda
will receive from WGL. An additional issueis examined concerning a fuel
supply failure during a Peak Period Release.
PANDA COSTS
Panda will pay the supplier for the gas taken by WGL under a Peak Period
Release according the terms of the gas supply contract. Up to 8,000 MMBtu will
be priced according to the Tier 1 portion of the GSA. The Tier 1 rate is fixed
with an annual 4% escalation. The remaining portion of the 24,000 MMBtu/day
Panda can receive on a firm basis will be priced according to either the Tier
2 or Tier 3 portion of the GSA. The Tier 2 rate is set by a market index of
monthly published gas prices, while the Tier 3 rate is a "market based" rate
determined solely by CDC.
If Panda is dispatched during a Peak Period Release, most likely Panda
will have to fuel the Facility on No. 2 fuel oil. If Unit 1 was fully
dispatched and Panda intended to burn 24,000 MMBtu, but WGL elected a Peak
Period Release, Panda would burn 24,000 MMBtu of fuel oil assuming that
interruptible gas supply and transportation were not available. Pace believes
that this is highly likely given that the same climatic conditions that are
requirements for a Peak Period Release also contribute to interruptions of
service in the Northeast market area by pipelines.
Under the PPA, Panda is paid for energy from Unit 1 based on gas price
indices. Even though Panda will be running on No. 2 fuel oil, Panda will be
paid for electricity produced as if Panda had been operating using gas.
PANDA REVENUES FROM WGL
Panda receives payment from WGL for Peak Period Releases through the
banking mechanism. Section 5.2 of the WGL contract details three options for
resolving banked quantities of gas Panda may build up in account with WGL as a
result of WGL exercising Peak Period Release.
By the date March 31 following the occurrence of a peak period release,
Panda must elect one of three options for resolving the credit in Panda's
account for the volumes released to WGL. Panda may for a portion or all of
the banked quantity:
(1) Elect to receive payment based on 1.5 times the Commodity Fee in
effect during the month of the peak period release, or if no
Commodity Fee was in effect, 1.5 times a published Louisiana gas
price plus maximum interruptible effective FERC gas transportation
rates on Columbia Gulf, TCO Gas and CLNG
(2) Elect to receive payment based on the actual cost of fuel oil used
during the day of the peak period release
(3) Elect to have WGL transport and deliver a quantity of gas 1.5 times
the banked quantity.
Option 2 has the clear benefit of being tied directly to the cost Panda
has incurred, although as discussed below it is not clear exactly how the oil
will be priced. Short-term market changes in the movement of oil and gas
prices could make Option 1 more economically beneficial at times. Option 3
is advantageous in the sense that Panda could substitute the Option 3
quantities for fuel oil when Unit 2 is dispatched but interruptible
transportation is unavailable. Utilizing Option 3 would save the project
from burning fuel oil in this case, actually allowing the project to come out
ahead due to providing 1.5 times the banked quantity.
Option 1
There is little or no linkage between the rates under Option 1 and the
rates Panda will pay for gas supply. The Commodity Fee is determined at least
five days before the month through mutual negotiation by Panda and WGL. The
alternative to the Commodity Fee is a price index set at the start of the month
for Louisiana supplies into Columbia Gulf plus interruptible maximum rates on
Columbia Gulf, TCO Gas, and CLNG.
This option may be of value, depending on the relationship of gas and
No. 2 low sulfur oil prices.
Although Pace has found a historical link between the prices of natural
gas and oil, short term delinkages are possible due to temporary market
changes. The recent drop in gas prices is illustrative. The price under the
alternative gas index would have been $2.10/MMBtu in December 1994, making
Option 1 unattractive (1.5 times $2.01 = $3.02, $0.58 less than the price of
No. 2 low sulfur oil in the Washington/Baltimore market).
Option 2
Option 2 ensures that Panda will recover fuel oil based costs for running
on fuel oil due to a peak period release. Pace believes some logistical
problems remain to be settled with this option as Panda may use fuel oil from
storage and not purchase fuel oil on a day of a peak period release. It is
unclear whether the cost to replace the fuel oil used during the day would be
used or how this cost would be determined.
Option 3
This option provides Panda with the ability to substitute gas in Unit 2
for fuel oil in the event that Unit 2 is dispatched and transportation is
interrupted or gas supply is unavailable. However, as is the case with Option
1, it does not directly tie WGL payments to Panda's costs. Option 3 is also
restricted as detailed below.
According to the GSA, Panda must take a minimum 6,000 MMBtu every day,
one fourth of the maximum daily firm quantity. While not specifically stated
in the contract, the wording of Option 3 implies that the entire banked
quantity must be taken in one day. Adding to the daily minimum take a
quantity 1.5 times the banked quantity would likely result in more gas than
Panda could burn on a day for Unit 1. By using this option, Panda may create
a positive imbalance in a segment of its transportation or would sell the
excess gas supply. Only if Unit 2 was dispatched and transportation or gas
supply was unavailable would Panda be likely to use the entire quantity.
Option 3 also includes a provision that it can only be exercised on a day
above 21 degrees F, making it unavailable on days when Panda is most likely to
need supply due to IT transportation and gas supply interruption.
Historically, transportation capacity becomes constrained, even when the
temperature is in the 30s. There may be opportunities then, for Panda to use
Option 3 when the temperature is above 21 degrees F.
SUPPLY FAILURE DURING PEAK PERIOD RELEASE
In the event of a Peak Period Release, Panda's account with WGL is
credited for the quantity of gas taken by WGL during such release. The supply
intended for use by WGL may not arrive due to nonperformance by CDC or a
transporter. There would be no "banked quantity" in such a case because there
would be no gas supply for WGL to take. Figure F-1 presents a flow chart
description of the possible outcomes under such a scenario and is discussed
below.
FIGURE F-1. PEAK PERIOD RELEASE
CHART
Without a banked quantity, Panda will not recover costs of running on
fuel il through the resolution options in section 5.2 of the WGL agreement.
Panda may look to CDC to make up the additional cost of operating on fuel oil
through the liquidated damages provisions in the gas supply contract in the
case where CDC's failure to deliver is unexcused. However, Panda's recovery
may be partially or totally subordinated to damages WGL incurs due to the
provision in the WGL agreement in Section 5.1(b). The limitation on damages
under the supply contract may limit Panda's recovery.
Nonperformance could be due to an event of force majeure. Since
Panda was anticipating being without its gas supply due to the Peak Period
Release, Panda possibly could not declare a force majeure event under the PPA,
and would therefore run if dispatched, incurring additional costs for fuel
oil. Restrictions on when a peak period release under the WGL agreement
can be called limit the possibility of such occurrences.
January 10, 1997
Panda Interfunding Corporation
Panda Funding Corporation
c/o Panda Energy International, Inc.
4100 Spring Valley Road
Suite 1001
Dallas, TX 75244
RE: Supplemental Update to the Panda-Brandywine, L.P. Generating
Facility Fuel Consultant's Report Dated July 2, 1996.
Ladies and Gentlemen:
This letter is a supplemental update by C.C. Pace Resources, Inc.
("Pace") of material changes that have occurred since issuance of
our July 2, 1996 "Panda-Brandywine, L.P. Generating Facility
Fuel Consultant's Report" (the "Report") used in the Prospectus
of Panda Funding Corporation relating to the offering of Pooled
Project Bonds, Series A-1 due 2012 by Panda Funding Corporation.
Unless otherwise noted, capitalized terms used herein are defined
as in the Report.
Pace confirms the information in the Report and that Pace's
fundamental findings contained in the Report have not changed, as
supplemental and updated by this letter. The rest of this letter
provides discussion of material changes since issuance of the
Report, organized as follows:
1. Completion of firm natural gas transportation construction.
2. Completion of a Final Fuel Management Plan.
3. Potomac Electric Power Corporation ("PEPCO") approval of Final Fuel
Management Plan.
4. Firm fuel oil supply and transportation contracts for the winter
heating season.
5. Pro forma modeling issues.
6. Payments from PEPCO.
Completion of Firm Natural Gas Transportation Construction
Pace observed in the Report that appropriate firm transportation
contractual arrangements were in place and that required
construction remained for one pipeline, Columbia Gas Transmission
Corporation ("TCO"). Since the Report, all pipeline construction
including TCO construction has been completed and all of the firm
natural gas transportation contracts of Panda-Brandywine, L.P.
("Panda") are in effect.
Completion Of A Final Fuel Management Plan
In the Report, Pace reviewed a draft Fuel Management Plan and found
it generally sound at that stage of development. Pace has since
reviewed Panda's Final Fuel Management Plan dated October 24,
1996 ("the Final Fuel Management Plan") and finds it to be sufficient,
if followed, to assure that the Project will operate in a manner
to meet PEPCO electric dispatch orders while maintaining compliance
with all fuel supply contract and tariff obligations.
PEPCO Approval Of Final Fuel Management Plan
In the Report, Pace reported that PEPCO had approved Panda's fuel
supply arrangements as fulfilling the contractual requirements of
the PPA, at that time. Since the Report, PEPCO has approved the
Final Fuel Management Plan.
Firm Fuel Oil Supply and Transportation Contracts For The Winter
Heating Season
In the Report, Pace observed that Panda's backup fuel plan
provided Panda the capability to meet dispatch requirements,
assuming firm fuel oil supply and transportation contracts are in
place before each winter heating season (November-March).
Since the Report, Panda has developed sufficient fuel oil
procurement procedures which are included in its Final Fuel
Management Plan. Under the Final Fuel Management Plan, Panda will
execute firm fuel oil supply and transportation contracts by
October 10 of each year for the next Winter Heating Period
(November - March). In terms of fuel oil contracts for the 1996-1997
Winter Heating Period, Panda has executed the following:
1. Fuel Oil Coordinator Agreement.
2. Fuel Oil Sales and Storage Agreement.
3. Fuel Oil Trucking Agreement.
Fuel Oil Coordinator Agreement
This is a best efforts contract for fuel oil procurement services
from ERK Energy, Inc. ("ERK"). ERK expertise may provide Panda
additional ability to obtain fuel oil as needed on a spot basis
(without prearranged contracts). Panda can at any time replace
ERK or purchase oil in any quantity from any other source.
Fuel Oil Sales and Storage Agreement
This is an agreement with Koch Refining Company, LP, ("Koch") for
storage of 1,000,000 gallons of low sulfur #2 fuel oil December
1, 1996 - February 28, 1997 at a Baltimore terminal with certain
requirements for Koch to refill the storage.
This agreement provides Panda access to an additional 1 million
gallons of fuel oil to supplement its 2 million gallon on-site
storage tank. The total of 3 million gallons corresponds to the
worst case oil usage scenario discussed by Pace in the Report of
a two week period of maximum PEPCO dispatch, constant curtailment
of IT service to Unit 2, and maximum Peak Period Release activity
by Washington Gas Light ("WGL") (2 days of WGL recall each week).
The term of the Koch agreement corresponds to the months in which
WGL may call a Peak Period Release.
Fuel Oil Trucking Agreement
This is a one year agreement effective October 1, 1996, with
Hardesty & Son ("Hardesty") providing Panda firm rights to a
maximum of 10 truckloads of oil per day March - November and 20
truckloads of oil per day December - February. Panda's maximum
requirements are for 40 truckloads per day for operating both
units or 20 truckloads per day for operating only Unit 2 on oil.
Hardesty is under best efforts to supply Panda with additional
truckloads.
This agreement provides firm rights to oil transportation to
enable Panda to keep pace with maximum oil consumption of one
turbine during December - February. Combined with the on-site
and off-site Koch storage and with the procurement assistance of
the Fuel Oil Coordinator, Panda should be able to meet all oil
needs at the Facility for the 1996-1997 Winter Heating Season.
Pro Forma Modeling Issues
Pace observed in the Report that the pro forma modeling of the Facility
reflected the Facility's fuel supply arrangements. Since the Report,
several changes have occurred which are reflected in the current pro
forma modeling of the Facility. The fuel-related pro forma changes
concern the following: 1) FGRR index adjustment, and 2) Market prices
of natural gas and No. 2 fuel oil.
FGRR Index Adjustment
More recent data is now available to forecast the one-time inflation
adjustment to the FGRR. The latest available data shows a 8.5% inflation
adjustment, a decrease from the assumption used previously in the pro forma
model. Table 1 provides the revised FGRR figures.
Table 1. Unit 1 Fixed Price Gas Rate
- -----------------------------------------
Unadjusted Estimated
Contract FGRR Adjusted FGRR
Year ($/MMBtu) ($/MMBtu)
- --------- ---------- -------------
1 2.58 2.80
2 2.68 2.91
3 2.79 3.03
4 2.90 3.14
5 3.02 3.27
6 3.14 3.41
7 3.26 3.54
8 3.33 3.61
9 3.40 3.69
10 3.46 3.75
11 3.53 3.83
12 3.60 3.91
13 3.68 3.99
14 3.75 4.07
15 3.82 4.15
- -----------------------------------------
Note: The adjusted FGRR rates are estimated using preliminary data for
October 1996. The actual adjusted FGRR will be calculated using final
data through the start of commercial operations.
Market Prices of Natural Gas and No. 2 Fuel Oil
In the Report, Pace found that the gas commodity costs used in the pro forma
model accurately reflect the Facility's gas prices based on forecasts by ICF
Resources, Inc. ("ICF"). Since the Preport, ICF has revised its commodity
price forecasts, lowering the annual average rate of real price increase to
near 1% for natural gas and the 1996 start price of natural gas by several
cents per MMBtu.
Pace finds that the market prices of natural gas and No. 2 fuel oil in the
model for 1996 do not reflect actual historical 1996 market prices. However,
for the following reasons, we find the pro forma model commodity prices
reasonable for long-term pro forma modeling purposes:
1. ICF is a recognized forecaster of energy prices.
2. ICF reports that it used the same forecasts in ICF's dispatch study
of the Facility.
3. The pro forma model is designed to "pass-through" gas commodity costs
to energy payments.
4. Changing the prices for 1996 would only affect 2 months of Facility
operations, since the Facility's declaration of commercial operation
occured on October 31, 1996.
Payments from PEPCO
Panda has received one payment invoice from PEPCO for commercial
operation of the Project (November 1996). In such invoice, PEPCO's
calculation of the November 1996 FGRR is $2.65/MMBtu compared to the rate
of $2.80/MMBtu calculated by Pace in the Report and supplemented in this
letter. A FGRR of $2.65/MMBtu could have a material adverse effect on the
financial results of the Project.
Panda has informed Pace that they do not agree with the FGRR used by
PEPCO and are currently investigating the discrepancy. Pace is not aware
of any reason why the FGRR determined by Pace should not match that
calculated by PEPCO in actual energy payment calculations. Pace has not
seen the underlying details of PEPCO's fuel rate calculations.
Respectfully Submitted,
/s/
C.C. PACE RESOURCES, INC.
[C.C. Pace Resources, Inc. Letterhead]
Officer's Certificate
I, Daniel E. White, Senior Vice President of C.C. Pace
Resources, Inc. ("Pace"), DO HEREBY CERTIFY that:
Except as set forth in our supplemental letter dated
January 10, 1997, to our knowledge, since July 2, 1996, no
event affecting our report entitled "Panda-Brandywine, L.P.
Generating Facility Fuel Consultant's Report" (the "Fuel
Consultant's Report") or the matters referred to therein has
occurred which makes untrue or incorrect in any material
respect, as of the date hereof, any information or statement
contained in the Fuel Consultant's Report used in the
Prospectus constituting part of the Registration Statement
on Form S-1 by Panda Funding Corporation.
Pace notes that since the January 10, 1997 supplemental
update letter, Panda-Brandywine, L. P. has received one
additional payment invoice from Potomac Electric Power Corporation
("PEPCO"). In such invoice, PEPCO's calculation of the December 1996
FGRR is $2.80/MMBtu, equal to the FGRR calculated by Pace. However,
Pace has not seen any underlying details of PEPCO's fuel rate
calculations or correspondence from PEPCO which confirms that the payment
discrepancy addressed in the January 10, 1997 supplemental
update letter has been resolved.
WITNESS my hand this 5th day of February, 1997.
/s/ Daniel E. White
Name: Daniel E. White
Title: Senior Vice President
No dealer, salesman or other
person has been authorized to
give any information or to make
any representations not
contained in this Prospectus, $105,525,000
and, if given or made, such
information or representations
must not be relied upon as
having been authorized by the [LOGO]
Company or the Issuer. This
does not constitute an offer to
sell, or a solicitation of an
offer to buy, the securities
offered hereby in any OFFER TO EXCHANGE
jurisdiction where, or to any
person to whom, it is unlawful 11-5/8% Pooled Project Bonds,
to make such offer or Series A-1 due 2012
solicitation. The delivery of which have been registered under
this Prospectus at any time and the Securities Act
any sale made hereunder does
not imply that the information for any and all outstanding
contained herein is correct as
of any time subsequent to the 11-5/8% Pooled Project Bonds,
date hereof. Series A due 2012
TABLE OF CONTENTS
of
Defined Terms i
Presentation of Financial
Information i PANDA FUNDING CORPORATION
Available Information i
Disclosure Regardig Forward- Fully and Unconditionally Guaranteed By
Looking Statements ii
Prospectus Summary 1 PANDA INTERFUNDING CORPORATION
Risk Factors 27
The Company, the Issuer, Panda
Interholding and Panda
International 38
Use of Proceeds 42 PROSPECTUS
Capitalization 43
Unaudited Pro Forma Combined
Financial Data 44
Selected Combined Financial The Exchange Agent is:
Data 47 BANKERS TRUST COMPANY
Management's Discussion and
Analysis of Financial Facsimile Transmission:
Condition and Results of (615) 835-3701
Operations 48 Confirmation by Telephone:
The Exchange Offer 53 (615) 835-3572
Certain U.S. Federal Income
Tax Considerations of the
Exchange Offer 60 By Overnight Courier or Certified Mail:
Business 61 BT Services Tennessee, Inc.
Description of the Projects 65 Corporate Trust & Agency Group
Legal Proceedings 84 Reorganization Unit
United States Regulation 86 648 Grassmere Park Road
Management 93 Nashville, TN 37211
Description of Outstanding
Project-Level Debt 95 By Hand Delivery:
Description of the Exchange Bankers Trust Company
Bonds 103 Corporate Trust & Agency Group
Old Bonds Registration Rights 127 Receipt & Delivery Window
Plan of Distribution 129 123 Washington Street, 1st Floor
Legal Matters 129 New York, NY 10006
Experts 129
Index to Financial Statements F-1 By Mail:
Defined Terms A-1 BT Services Tennessee, Inc.
Consolidated Pro Forma Report B-1 Reorganization Unit
Rosemary Engineering Report C-1 P.O. Box 292737
Rosemary Fuel Consultant's Nashville, TN 37229-2737
Report D-1
Brandywine Pro Forma Report E-1
Brandywine Engineering Report G-1
Brandywine Fuel Consultant's
Report H-1
February 14, 1997
Until May 15, 1997 (90 days after the
date of this Prospectus), all
dealers effecting transactions in
the securities offered hereby,
whether or not participating in
this distribution, may be required
to deliver a Prospectus. This
delivery requirement is in
addition to the obligations to
dealers to deliver a Prospectus
when acting as underwriters with
respect to their unsold allotments
or subscriptions.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following is a statement of estimated expenses to be incurred in
connection with the offering of the 11-5/8% Pooled Project Bonds, Series A-1
due 2012 of Panda Funding Corporation (the "Registrant") covered by this
Registration Statement, all of which will be paid by the Registrant and Panda
Interfunding Corporation (a "Co-Registrant"):
Securities and Exchange Commission Registration Fee $ 31,978
Accounting Fees and Expenses 90,000
Legal Fees and Expenses 60,000
Exchange Agent and Trustee Fees and Expenses 15,000
Independent Engineers' Fees and Expenses 25,000
Fuel Consultants' Fees and Expenses 15,000
Miscellaneous 13,022
Total $250,000
Item 14. Indemnification of Directors and Officers.
The Certificate of Incorporation of the Registrant and Panda Interholding
Corporation (a "Co-Registrant") and the Amended and Restated Certificate of
Incorporation of Panda Interfunding Corporation provide that to the fullest
extent permitted by the Delaware General Corporation Law, a director thereof
shall not be liable to such corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director. The Registrant's and each
Co-Registrant's Bylaws provide for mandatory indemnification to directors
(including independent directors) and officers of the corporation, except to
the extent prohibited by law, if such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interest of the corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was unlawful.
No person shall be indemnified in respect of any claim or matter as to which
such person has been adjudged to be liable to the corporation, unless otherwise
adjudged by the court.
Item 15. Recent Sales of Unregistered Securities
Information regarding the securities sold by the Registrant and each Co-
Registrant during the last three years is set forth below. None of such
securities have been registered under the Securities Act of 1933, as amended
(the "Securities Act").
Common Stock
On July 25, 1996, the Registrant issued 1,000 shares of its common stock to
Panda Interfunding Corporation for the consideration of $10. Exemption from
registration of the such shares of common stock is claimed under Section 4(2)
of the Securities Act.
On July 25, 1996, Panda Interholding Corporation issued 1,000 shares of its
common stock to Panda Interfunding Corporation for the consideration of $10.
Exemption from registration of the such shares of common stock is claimed under
Section 4(2) of the Securities Act.
On July 25, 1996, Panda Interfunding Corporation issued 1,000 shares of its
common stock to Panda Energy Corporation for the consideration of $10.
Exemption from registration of the such shares of common stock is claimed under
Section 4(2) of the Securities Act.
Series A Bonds and Guaranties
On July 31, 1996, the Registrant issued and sold for cash, at par, to
Jefferies & Company, Inc. $105,525,000 aggregate principal amount of its 11-
5/8% Pooled Project Bonds, Series A due 2012 (the "Series A Bonds"). Jefferies
& Company, Inc. placed the Series A Bonds with qualified institutional buyers
and institutional accredited investors. The Series A Bonds are unconditionally
guaranteed by Panda Interfunding Corporation and guaranteed in a limited amount
by Panda Interholding Corporation. The Registrant paid total commissions and
underwriting discounts equal to $2,110,500 to Jefferies & Company, Inc. in
connection with such transaction. Exemption from the registration of the Series
A Bonds and the guaranties thereof is claimed under Section 4(2) of the
Securities Act and Rule 144A promulgated thereunder.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits:
Exhibit
Number Exhibit Description
3.01 Certificate of Incorporation of Panda Funding Corporation. (1)
3.02 Bylaws of Panda Funding Corporation. (1)
3.03 Specimen of Panda Funding Corporation Common Stock Certificate. (1)
3.04 Amended and Restated Certificate of Incorporation of Panda
Interfunding Corporation. (1)
3.05 Bylaws of Panda Interfunding Corporation. (1)
3.06 Specimen of Panda Interfunding Corporation Common Stock Certificate.
(1)
3.07 Certificate of Incorporation of Panda Interholding Corporation. (2)
3.08 Bylaws of Panda Interholding Corporation. (2)
3.09 Specimen of Panda Interholding Corporation Common Stock Certificate.
(2)
4.01 Trust Indenture dated July 31, 1996, among Panda Funding Corporation,
Panda Interfunding Corporation and Bankers Trust Company, as Trustee.
(1)
4.02 First Supplemental Indenture to Trust Indenture, dated July 31, 1996,
among Panda Funding Corporation, Panda Interfunding Corporation and
Bankers Trust Company, as Trustee. (1)
4.03 Second Supplemental Indenture to Trust Indenture, dated January 6,
1997, among Panda Funding Corporation, Panda Interfunding Corporation
and Bankers Trust Company, as Trustee. (1)
4.04 Form of 11-5/8% Pooled Project Bonds, Series A due 2012 of Panda
Funding Corporation. (1)
4.05 Form of 11-5/8% Pooled Project Bonds, Series A-1 due 2012 of Panda
Funding Corporation. (1)
4.06 Registration Rights Agreement, dated July 31, 1996, among Panda
Funding Corporation, Panda Interfunding Corporation and Jefferies &
Company Inc. (1)
4.07 Collateral Agency Agreement, dated July 31, 1996, among Panda
Interfunding Corporation, Panda Funding Corporation and Bankers Trust
Company, as Trustee and Collateral Agent. (1)
4.08 Subrogation and Contribution Agreement, dated July 31, 1996, among
Panda Interfunding Corporation, Panda Funding Corporation and Panda
Interholding Corporation and each PIC U.S. Entity that is a signatory
thereto. (1)
4.09 Guaranty Agreement (PIC U.S. Entity Subsidiaries), dated July 31,
1996 by Panda Interholding Corporation in favor of Bankers Trust
Company, as Collateral Agent for the benefit of the Secured Parties.
(1)
5.00 Legal Opinion of Chadbourne & Parke LLP, counsel for the Registrant
and each Co-Registrant. (2)
10.01 PIC Loan Agreement, dated July 31, 1996, between Panda Funding
Corporation, as Lender, and Panda Interfunding Corporation, as
Borrower. (1)
10.02 Loan Agreement, dated July 31, 1996, between Panda Interfunding
Corporation, as Lender, and Panda Cayman Interfunding Company, as
Borrower. (1)
10.03 Promissory Note issued by Panda Interfunding Corporation on July 31,
1996 to Panda Funding Corporation in the original principal amount of
$105,525,000, endorsed to Bankers Trust Company, as Collateral Agent.
(1)
10.04 Security Agreement, dated July 31, 1996, between Panda Interfunding
Corporation and Bankers Trust Company, as Collateral Agent. (1)
10.05 Security Agreement, dated July 31, 1996, between Panda Funding
Corporation and Bankers Trust Company, as Collateral Agent. (1)
10.06 Security Agreement, dated July 31, 1996, between Panda Cayman
Interfunding Company, as Debtor, and Panda Interfunding Corporation,
as Secured Party. (1)
10.07 Stock Pledge Agreement (Panda Interfunding Corporation Stock), dated
July 31, 1996, between Panda Energy Corporation and Bankers Trust
Company, as Collateral Agent. (1)
10.08 Stock Pledge Agreement (Panda Funding Corporation and PIC Entity
Stock), dated July 31, 1996, between Panda Interfunding Corporation
and Bankers Trust Company, as Collateral Agent. (1)
10.09 Trust Indenture dated July 31, 1996, among Panda-Rosemary Funding
Corporation, Panda-Rosemary, L.P. and Fleet National Bank, As
Trustee. (1)
10.10 First Supplemental Indenture to Trust Indenture, dated July 31, 1996,
among Panda-Rosemary Funding Corporation, Panda-Rosemary, L.P. and
Fleet National Bank, as Trustee. (1)
10.11 Form of 8-5/8% First Mortgage Bonds due 2016 of Panda-Rosemary
Funding Corporation. (1)
10.12 Deposit and Disbursement Agreement, dated July 31, 1996, among Panda-
Rosemary Funding Corporation, Panda-Rosemary, L.P., Fleet National
Bank, as Collateral Agent, and Fleet National Bank, as Depositary
Agent. (1)
10.13 Collateral Agency and Intercreditor Agreement, dated July 31, 1996,
among Panda Rosemary Funding Corporation, Panda-Rosemary, L.P., The
L/C Issuer, The Trustee Under The Trust Indenture, The Depositary
Agent, The Collateral Agent and The Other Secured Parties Named
therein. (1)
10.14 Deed of Trust and Security Agreement, dated July 31, 1996, by Panda-
Rosemary, L.P., Grantor, Ross J. Smyth, Trustee, and Fleet National
Bank, as Collateral Agent, the Beneficiary. (1)
10.15 Security Agreement, dated July 31, 1996, by Panda-Rosemary, L.P. to
Fleet National Bank, as Collateral Agent. (1)
10.16 Security Agreement, dated July 31, 1996, by Panda-Rosemary Funding
Corporation to Fleet National Bank, as Collateral Agent. (1)
10.17 General Partner Pledge and Security Agreement, dated July 31, 1996,
by Panda-Rosemary Corporation to Fleet National Bank, as Collateral
Agent. (1)
10.18 Limited Partner Pledge and Security Agreement, dated July 31, 1996,
by PRC II Corporation to Fleet National Bank, as Collateral Agent.
(1)
10.19 Stock Pledge and Security Agreement, dated July 31, 1996, by Panda
Interholding Corporation to Fleet National Bank, as Collateral Agent.
(1)
10.20 Stock Pledge and Security Agreement, dated July 31, 1996, by Panda-
Rosemary, L.P. to Fleet National Bank, as Collateral Agent. (1)
10.21 Partnership Guaranty, dated July 31, 1996, by Panda-Rosemary, L.P. in
favor of Fleet National Bank, as Trustee. (1)
10.22 Reimbursement Agreement, dated July 31, 1996, between Panda-Rosemary,
L.P., Panda-Rosemary Funding Corporation and Bayerische Vereinsbank
AG, New York Branch. (1)
10.23 Irrevocable Direct Pay Letter of Credit issued by Bayerische
Vereinsbank AG. (1)
10.24 Construction Loan Agreement and Lease Commitment, dated March 30,
1996, between Panda-Brandywine, L.P. and General Electric Capital
Corporation. (1)
10.24.1 Participation Agreement, dated December 18, 1996, among Panda-
Brandywine, L.P., Panda Brandywine Corporation, General Electric
Capital Corporation, Fleet National Bank, First Security Bank,
National Association, and Credit Suisse. (1)
10.24.2 Letter of Credit Reimbursement Agreement, dated December 18, 1996,
among Panda-Brandywine, L.P., Panda Brandywine Corporation and
General Electric Capital Corporation. (1)
10.24.3 Equity Loan Facility Letter Agreement, dated December 18, 1996, among
Panda Brandywine Corporation, Panda Energy Corporation and General
Electric Capital Corporation. (1)
10.25 Bill of Sale and Severance Agreement, dated December 30, 1996,
between Panda-Brandywine, L.P., as Seller, and Fleet National Bank,
Owner Trustee, as Buyer. (1)
10.26 Facility Lease, dated December 18, 1996, between Fleet National Bank,
as Owner Trustee, and Panda-Brandywine, L.P. (1)
10.27 Steam Lease, dated as of December 18, 1996, between Panda-Brandywine,
L.P. and Brandywine Water Company. (1)
10.28 Amended and Restated Security Deposit Agreement, dated December 18,
1996, among Panda-Brandywine, L.P., Panda Brandywine Corporation,
General Electric Capital Corporation, Fleet National Bank, Credit
Suisse and First Security Bank, National Association. (1)
10.29 Amended and Restated Deed of Trust and Security Agreement, dated
December 18, 1996, by Panda-Brandywine, L.P. to Chicago Title
Insurance Company, Trustee for the benefit of Fleet National Bank, as
Security Agent, Beneficiary. (1)
10.30 Amended and Restated Steam Lessee Security Agreement, dated December
18, 1996, by Brandywine Water Company in favor of Fleet National
Bank, as Security Agent. (1)
10.31 Amended and Restated Security Agreement, dated December 18, 1996, by
Panda-Brandywine, L.P. in favor of Fleet National Bank, as Security
Agent. (1)
10.32 Amended and Restated Trust Agreement, dated December 18, 1996,
between General Electric Capital Corporation, as Owner Participant,
and Fleet National Bank, as Owner Trustee. (1)
10.33 Amended and Restated General Partner Pledge Agreement, dated December
18, 1996, by Panda Brandywine Corporation to Fleet National Bank, as
Security Agent. (1)
10.34 Amended and Restated Limited Partner Pledge Agreement, dated December
18, 1996, by Panda Energy Corporation to Fleet National Bank, as
Security Agent. (1)
10.35 Amended and Restated Stock Pledge Agreement, dated December 18, 1996,
by Panda Interholding Corporation to Fleet National Bank, as Security
Agent. (1)
10.36 Assumption Agreement and Release, dated July 31, 1996, by Panda
Interholding Corporation in favor of General Electric Capital
Corporation and Fleet National Bank. (1)
10.37 Power Purchase and Operating Agreement, dated January 24, 1989,
between Panda Energy Corporation and Virginia Electric and Power
Company. (1)
10.38 Amendment No. 1 to Power Purchase and Operating Agreement, dated
October 24, 1989, between Panda Energy Corporation and Virginia
Electric and Power Company. (1)
10.39 Amendment No. 2 to Power Purchase and Operating Agreement, dated July
30, 1993, between Panda-Rosemary, L.P. and Virginia Electric and
Power Company. (1)
10.40 Fuel Supply Management Agreement, dated October 10, 1990, between
Panda-Rosemary Corporation and Natural Gas Clearinghouse. (1)
10.41 Amendment No. 1 to Fuel Supply Management Agreement, dated March 5,
1991, between Panda-Rosemary Corporation and Natural Gas
Clearinghouse. (1)
10.42 Gas Purchase Contract, dated April 12, 1990, between Panda-Rosemary
Corporation and Natural Gas Clearinghouse. (1)
10.43 Amendment of Gas Purchase Contract between Panda-Rosemary Corporation
and Natural Gas Clearinghouse. (1)
10.44 Pipeline Operating Agreement, dated February 14, 1990, between Panda
Energy Corporation, Panda-Rosemary Corporation and North Carolina
Natural Gas Corporation. (1)
10.45 Amendment No. 1 to Pipeline Operating Agreement, dated May 7, 1990,
between Panda Energy Corporation, Panda-Rosemary Corporation and
North Carolina Natural Gas Corporation. (1)
10.46 Assignment Agreement, dated June 15, 1990, between Panda Energy
Corporation and Panda-Rosemary Corporation. (1)
10.47 Amendment No. 2 to Pipeline Operating Agreement, dated November 19,
1991, among Panda Energy Corporation, Panda-Rosemary Corporation and
North Carolina Natural Gas Corporation. (1)
10.48 Real Property Lease and Easement Agreement, dated June 9, 1989,
between The Bibb Company and Panda-Rosemary Corporation. (1)
10.49 First Amendment to Real Property Lease and Easement Agreement, dated
October 1, 1989, between The Bibb Company and Panda-Rosemary
Corporation. (1)
10.50 Second Amendment to Real Property Lease and Easement Agreement, dated
January 31, 1990, between The Bibb Company and Panda-Rosemary
Corporation. (1)
10.51 Leasehold and Real Property Assignment and Assumption Agreement,
dated January 6, 1992, between Panda-Rosemary Corporation and Panda-
Rosemary, L.P. (1)
10.52 Third Amendment to Real Property Lease and Easement Agreement, dated
March 15, 1996, between The Bibb Company and Panda-Rosemary, L.P. (1)
10.53 Cogeneration Energy Supply Agreement, dated January 12, 1989, between
Panda Energy Corporation and The Bibb Company. (1)
10.54 First Amendment to Cogeneration Energy Supply Agreement, dated
October 1, 1989, between Panda Energy Corporation, Panda-Rosemary
Corporation and The Bibb Company. (1)
10.55 Service Agreement, dated July 26, 1996, between Transcontinental Gas
Pipe Line Corporation and Panda-Rosemary, L.P. (1)
10.55.1 Form of Amendment to Service Agreement, effective January 1, 1997,
between Transcontinental Gas Pipe Line Corporation and Panda-
Rosemary, L.P. (1)
10.56 Service Agreement Applicable to Transportation of Natural Gas Under
Rate Schedule FT, dated August 20, 1996, between CNG Transmission
Corporation and Panda-Rosemary, L.P. (1)
10.57 Gas Transportation Agreement, dated August 1, 1996, between Texas Gas
Transmission Corporation and Panda-Rosemary, L.P. (1)
10.58 Assignment and Assumption Agreement, dated May 15, 1989, between
Panda Energy Corporation and Panda-Rosemary Corporation. (1)
10.59 Bill of Sale and Assignment and Assumption Agreement, dated January
6, 1992, between Panda-Rosemary Corporation and Panda-Rosemary, L.P.
(1)
10.60 Assignment and Assumption Agreement, dated January 6, 1992, between
Panda Energy Corporation and Panda-Rosemary Corporation. (1)
10.61 Power Purchase Agreement, dated August 9, 1991, between Panda-
Brandywine, L.P. and Potomac Electric Power Company. (1)
10.62 First Amendment to Power Purchase Agreement, dated September 16,
1994, between Panda-Brandywine, L.P. and Potomac Electric Power
Company. (1)
10.62.1 Present Assignment of Power Purchase Agreement, dated December 18,
1996, by Panda-Brandywine, L.P. to Fleet National Bank, as Owner
Trustee, for the benefit of General Electric Capital Corporation, as
Owner Participant. (1)
10.62.2 Amended and Restated Consent and Agreement, dated December 30, 1996,
among Potomac Electric Power Company, Panda-Brandywine, L.P., Fleet
National Bank, as Security Agent and Owner Trustee, General Electric
Capital Corporation, as the issuer of the Letters of Credit, the
Interest Hedging Counterparty and Owner Participant, First Security
Bank, National Association, as Indenture Trustee, and Credit Suisse,
as Administrative Agent. (1)
10.63 Amended and Restated Turnkey Cogeneration Facility Agreement, dated
March 30, 1995, between Panda-Brandywine, L.P. and Raytheon Engineers
& Constructors, Inc. (1)
10.64 Raytheon Parent Guaranty, dated May 18, 1994, between Raytheon
Company and Panda-Brandywine, L.P. (1)
10.65 Steam Sales Agreement, dated March 30, 1995, between Panda-
Brandywine, L.P. and Brandywine Water Company. (1)
10.66 Gas Sales Agreement, dated March 30, 1995, between Cogen Development
Company and Panda Brandywine, L.P. (1)
10.67 Precedent Agreement, dated February 25, 1994, between Columbia Gas
Transmission Corporation and Panda-Brandywine, L.P. (1)
10.68 Amending Agreement, dated March 24, 1995, between Columbia Gas
Transmission Corporation and Panda-Brandywine, L.P. (1)
10.69 Amended and Restated FTS Service Agreement, dated March 23, 1995,
between Columbia Gas Transmission Corporation and Panda-Brandywine,
L.P. (1)
10.70 FTS Service Agreement, dated of as March 30, 1995, between Cove Point
LNG Limited Partnership and Panda-Brandywine, L.P. (1)
10.71 Gas Transportation and Supply Agreement, dated November 10, 1994,
between Panda-Brandywine, L.P. and Washington Gas Light Company. (1)
10.72 Amended and Restated Site Lease, dated December 18, 1996, between
Panda-Brandywine, L.P. and Fleet National Bank, as Owner Trustee. (1)
10.73 Amended and Restated Site Sublease, dated December 18, 1996, between
Fleet National Bank, Owner Trustee, as Sublessor, and Panda-
Brandywine, L.P., as Sublessee. (1)
10.74 Purchase Agreement, dated July 26, 1996, between Panda Funding
Corporation and Jefferies & Company, Inc. (1)
10.75 Additional Projects Contract, dated July 31, 1996, among Panda Energy
International, Inc., Panda Energy Corporation, and Panda Interfunding
Corporation. (1)
10.76 Non-Petition Agreement, dated July 31, 1996, among Panda Interfunding
Corporation, Panda Interholding Corporation, Panda-Rosemary
Corporation, PRC II Corporation, Panda-Rosemary Funding Corporation
and Panda-Rosemary, L.P. (1)
10.77 Non-Petition Agreement, dated July 31, 1996, among Panda Funding
Corporation, Panda Interholding Corporation, Panda Interfunding
Corporation and Panda (Cayman) Interfunding Company. (1)
12.00 Computation of Ratio of Earnings to Fixed Charges. (1)
16.00 Price Waterhouse LLP Letter, dated January 10, 1997, Regarding Change
in Independent Accountants. (1)
21.00 Subsidiaries of Registrant and Co-Registrants. (2)
23.01 Consent of Deloitte & Touche LLP. (2)
23.02 Consent of Chadbourne & Parke LLP (contained in their Legal Opinion
filed as Exhibit 5.00).
23.03 Consent of ICF Resources, Incorporated. (2)
23.04 Consent of Burns & McDonnell Engineering Company, Inc. (2)
23.05 Consent of Benjamin Schlesinger and Associates, Inc. (2)
23.06 Consent of Pacific Energy Systems, Inc. (2)
23.07 Consent of C.C. Pace Resources, Inc. (2)
24.00 Powers of Attorney. (1)
25.00 Statement of Eligibility of Trustee under Indenture on Form T-1. (1)
27.00 Financial Data Schedule. (1)
99.01 Form of Transmittal Letter. (2)
99.02 Form of Notice of Guaranteed Delivery. (2)
- ---------------
(1) Previously filed.
(2) Filed herewith.
(b) Financial Statement Schedules: None.
Item 17. Undertakings
(a) The undersigned Registrant and each Co-Registrant hereby
undertake:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement; and
(iii) to include any material information with respect to the plan
of distribution previously disclosed in the Registration
Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
(b) The undersigned Registrant and each Co-Registrant hereby undertake
that, insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers, and controlling persons of
the Registrant and each Co-Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant and each Co-Registrant have been advised that in the
opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant or either Co-Registrant of expenses incurred or paid
by a director, officer or controlling person of the Registrant or such Co-
Registrant, as the case may be, in the successful defense of any action, suit
or proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant and each Co-
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Panda Funding Corporation has duly caused this Pre-Effective Amendment No. 2 to
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Dallas, State of Texas on February 13, 1997.
PANDA FUNDING CORPORATION
(Registrant)
By: /s/ Robert W. Carter
Robert W. Carter, President
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Pre-Effective Amendment No. 2 to Registration Statement has been signed by the
following persons in the capacities indicated on the dates indicated.
Signature Title Date
Chairman of the Board, Chief
/s/ Robert W. Carter Executive Officer and President February 13, 1997
Robert W. Carter (Principal Executive Officer)
Senior Vice President and
/s/ Marjean Henderson Chief Financial Officer February 13, 1997
Marjean Henderson (Principal Financial and
Accounting Officer)
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Panda Interfunding Corporation has duly caused this Pre-Effective Amendment No.
2 to Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Dallas, State of Texas on February
13, 1997.
PANDA INTERFUNDING CORPORATION
(Co-Registrant)
By: /s/ Robert W. Carter
Robert W. Carter, President
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Pre-Effective Amendment No. 2 to Registration Statement has been signed by the
following persons in the capacities indicated on the dates indicated.
Signature Title Date
Chairman of the Board, Chief
/s/ Robert W. Carter Executive Officer and President February 13, 1997
Robert W. Carter (Principal Executive Officer)
Senior Vice President and
/s/ Marjean Henderson Chief Financial Officer February 13, 1997
Marjean Henderson (Principal Financial and
Accounting Officer)
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Panda Interholding Corporation has duly caused this Pre-Effective Amendment No.
2 to Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Dallas, State of Texas on February
13, 1997.
PANDA INTERHOLDING CORPORATION
(Co-Registrant)
By:/s/ Robert W. Carter
Robert W. Carter, President
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Pre-Effective Amendment No. 2 to Registration Statement has been signed by the
following persons in the capacities indicated on the dates indicated.
Signature Title Date
Chairman of the Board, Chief
/s/ Robert W. Carter Executive Officer and President February 13, 1997
Robert W. Carter (Principal Executive Officer)
Senior Vice President and
/s/ Marjean Henderson Chief Financial Officer February 13, 1997
Marjean Henderson (Principal Financial and
Accounting Officer)
EXHIBIT 3.07
CERTIFICATE OF INCORPORATION
OF
PANDA INTERHOLDING CORPORATION
The undersigned, in order to form a corporation
pursuant to the provisions of the General Corporation Law of the
State of Delaware, certifies:
FIRST: The name of the Corporation is Panda
Interholding Corporation.
SECOND: The registered office of the Corporation in the
State of Delaware is located at 1209 Orange Street in the City of
Wilmington, County of New Castle, Delaware 19801. The name of
its registered agent at such address is The Corporation Trust
Company.
THIRD: The nature of the business of the Corporation
and its sole purposes are (a) to act as a holding company for
purposes of investing in and holding interests in entities
engaged in (i) the development, construction, equipping,
operation and management of, and ownership (whether direct or
indirect) of interests in, electric generating facilities,
sources of fuel, pipelines and other infrastructure projects,
(ii) the marketing of electric power, thermal energy and fuel and
(iii) financing any of the foregoing, (b) to engage in the
borrowing and lending of funds in connection with the purposes
described in clause (a) above, (c) to perform the Corporation's
obligations under all indentures, contracts and other agreements
entered into in connection with the purposes described in clauses
(a) and (b) above and (d) to engage in any other activities
related or incidental thereto, including without limitation
pledging all or part of the capital stock or partnership or other
equity interest owned by the Corporation in such entities as
security for the repayment of indebtedness of the Corporation or
any of such entities. Except as stated above, the Corporation
shall not engage in any business or activity whatsoever.
FOURTH: The total number of shares of all classes of
capital stock which the Corporation shall have authority to issue
is one thousand (1,000) shares of Common Stock, par value $0.01
per share.
FIFTH: The name and mailing address of the
incorporator is Cornelius J. Golden, Jr., Chadbourne & Parke LLP,
1101 Vermont Avenue, N.W., Washington, D.C. 20005.
SIXTH: For the management of the business and for the
conduct of the affairs of the Corporation, and in further
definition, limitation and regulation of the powers of the
Corporation and of its directors and stockholders, it is further
provided that:
1. The election of directors of the Corporation need
not be by written ballot unless the By-Laws of the
Corporation so require.
2. In furtherance and not in limitation of the powers
conferred by the laws of the State of Delaware, the Board of
Directors is expressly authorized:
(a) to adopt, amend or repeal the By-Laws of the
Corporation;
(b) without the assent or vote of the
stockholders, to authorize and issue debt securities of
the Corporation, secured or unsecured, and to include
therein such provisions as to redeemability,
convertibility or otherwise as the Board of Directors,
in its sole discretion, may determine; and
(c) to exercise all other powers of the
Corporation except those which by law or this
Certificate of Incorporation expressly require the
consent of the stockholders.
3. Any vote or votes of the stockholders authorizing
liquidation of the Corporation or proceedings for its
dissolution may provide, subject to the rights of creditors
and preferred stockholders, if any, for the distribution pro
rata among the stockholders of the Corporation of the assets
of the Corporation, wholly or in part, in cash or in kind,
whether such assets be in cash or in other property, and any
such vote or votes may authorize the Board of Directors of
the Corporation to determine the valuation of the different
assets of the Corporation for the purpose of such
liquidation and may divide or authorize the Board of
Directors to divide such assets or any part thereof among
the stockholders of the Corporation, in such manner that
every stockholder will receive a proportionate amount in
value (determined as aforesaid) of cash and/or property of
the Corporation upon such liquidation or dissolution even
though each stockholder may not receive a strictly
proportionate part of each such asset.
4. The number of directors of the Corporation shall
be fixed in the manner provided in the By-Laws of the
Corporation and, until changed in the manner provided in the
By-Laws, shall be one (1); provided, in addition, that at
all times the Corporation shall have one (1) individual
designated as the "Independent Director" who shall be
elected in the same manner as the directors and who shall
not have been, at the time of such Independent Director's
election, or at any time in the preceding five (5) years:
(a) a direct or indirect legal or beneficial
owner in the Corporation or any of its Affiliates or a
member of the immediate family of any such owner;
(b) a creditor, supplier, officer, director,
promoter, underwriter, manager or contractor of the
Corporation or any of its Affiliates or a member of the
immediate family of any such officer or director; or
(c) a person, or a member of the immediate family
of a person, who is employed by the Corporation (other
than in his capacity as Independent Director) or its
Affiliates or any creditor, supplier, employee,
stockholder, officer, director, promoter, underwriter,
manager or contractor of the Corporation or its
Affiliates; provided, that such Independent Director
may be an "independent director" of one or more other
single purpose, independent entities owned or
controlled by Panda Energy International, Inc. or any
of its Affiliates. As used herein, the term
"Affiliate" shall mean, with respect to any person or
entity, any other person or entity which directly or
indirectly through one or more intermediaries controls,
or is controlled by, or is under common control with,
such person or entity. The term "control" (including
the correlative term "controlled") means the
possession, directly or indirectly, of the power to
direct or cause the direction of the management and
policies of a person or entity, whether through the
ownership of voting stock, by contract or otherwise.
The Independent Director shall be entitled to all
rights and benefits of a director of the Corporation (i) in
respect of indemnification by the Corporation as provided in
this Certificate of Incorporation, the By-Laws and the
General Corporation Law of the State of Delaware and (ii)
under Article EIGHTH of this Certificate of Incorporation.
The Independent Director shall also be subject to all duties
imposed on a director of the Corporation by the General
Corporation Law of the State of Delaware.
5. Pursuant to Section 141(a) of the General
Corporation Law of the State of Delaware, the Corporation
and/or the Board of Directors of the Corporation shall not,
without the affirmative vote or written consent of all of
the directors of the Corporation and the Independent
Director:
(a) file a petition for relief under the United
States Bankruptcy Code, as amended, make an assignment
for the benefit of creditors, apply for the appointment
of a custodian, receiver or trustee for the Corporation
or any of the Corporation's property, consent to any
other bankruptcy or similar proceeding, consent to the
filing of such proceeding or admit in writing the
Corporation's inability to pay its debts generally as
they become due;
(b) commence the dissolution, liquidation,
consolidation, merger or sale of all or substantially
all of the assets of the Corporation;
(c) amend this Certificate of Incorporation,
including without limitation Article THIRD, in such a
manner as either to broaden the business purpose of the
Corporation or otherwise adversely to affect the
existence of the Corporation as a single purpose,
independent entity, or amend paragraph 4, 5, 6 or 7 of
this Article SIXTH; or
(d) engage in any business or activity other than
as set forth in Article THIRD of this Certificate of
Incorporation.
6. In no circumstance shall the Independent Director
be entitled to consider or vote on any matter proposed at
any meeting of the Board of Directors or committee thereof,
or consent to action on any such matter, other than the
matters set forth in paragraph 5 of this Article SIXTH. For
all other matters a quorum shall be determined without
taking the Independent Director into account.
7. The Corporation shall:
(a) ensure that (i) the Corporation's funds and
other assets are identifiable and are not commingled
with those of any other person or entity, (ii) the
Corporation maintains bank accounts, records and books
of account separate and apart from any other person or
entity, and (iii) the Corporation pays from its assets
all obligations and indebtedness of any kind incurred
by it;
(b) ensure that the assets and liabilities of the
Corporation are readily ascertainable and subject to
segregation without requiring substantial time or
expense to effect and account for such segregated
assets and liabilities;
(c) conduct the Corporation's business solely in
its own name (including without limitation by use of
its own stationery and business forms) so as not to
mislead others as to the identity of the entity with
which such others are concerned;
(d) not engage in any activities with the
Corporation's Affiliates (including without limitation
appointing any Affiliate of the Corporation an agent of
the Corporation) other than in connection with the
activities set forth in Article THIRD;
(e) not enter (or hold itself out as having
entered) into any agreement or arrangement to guarantee
or, in any way or under any condition, become obligated
or liable (or hold itself out as being obligated or
liable) for all or any part of any financial or other
obligation of another person or entity other than in
connection with the activities set forth in Article
THIRD;
(f) not make or permit to exist loans or advances
to another person or entity other than in connection
with the activities set forth in Article THIRD;
(g) conduct its business in accordance with all
requisite corporate procedures and formalities; and
(h) neither control the decisions with respect to
the daily affairs of any other person or entity nor
permit any person or entity not a director, officer or
stockholder of the Corporation to direct or participate
in the management of the Corporation.
SEVENTH: No stockholder shall have any preemptive
right to subscribe to an additional issue of stock or to any
security convertible into such stock.
EIGHTH: To the fullest extent permitted by the
Delaware General Corporation Law, as the same exists or may
hereafter be amended, a director of this Corporation shall not be
liable to the Corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director.
NINTH: Except as set forth in Article SIXTH, the
Corporation reserves the right to amend or repeal any provision
contained in this Certificate of Incorporation in the manner now
or hereafter prescribed by the laws of the State of Delaware, and
all rights herein conferred upon stockholders or directors are
granted subject to this reservation.
IN WITNESS WHEREOF, I subscribe this Certificate of
Incorporation and affirm that the statements made herein are true
under the penalties of perjury this 1st day of July 1996.
/s/ Cornelius J. Golden, Jr.
Cornelius J. Golden, Jr.
EXHIBIT 3.08
BY-LAWS
OF
PANDA INTERHOLDING CORPORATION
ARTICLE I
Offices
The registered office of the Corporation in the State
of Delaware is located at 1209 Orange Street, Wilmington,
Delaware 19801, and the name of the registered agent of the
Corporation at such office is The Corporation Trust Company. The
Corporation may also have offices at such other places, within or
without the State of Delaware, as the Board of Directors (the
"Board") may from time to time determine.
ARTICLE II
Meetings of Stockholders
Section 1. Annual Meeting. The annual meeting of the
stockholders of the Corporation for the election of directors and
for the transaction of such other business as may properly come
before the meeting shall be held in Dallas, Texas, or at such
other place within or without the State of Delaware as may be
specified in the notice of meeting or the waiver thereof.
Section 2. Special Meetings. A special meeting of the
stockholders of the Corporation may be called by the President
and shall be called by the President, the Secretary or an
Assistant Secretary when directed to do so by resolution of the
Board at a duly convened meeting of the Board, or at the request
in writing of a majority of the Board. Such request shall state
the purpose or purposes of the proposed meeting. Special
meetings shall be held in Dallas, Texas, or at such place within
or without the State of Delaware as may be specified in the
notice of meeting or waiver thereof. Business transacted at all
special meetings shall be confined to the purposes stated in the
notice of meeting.
Section 3. Notice of Meetings. Written notice of
every meeting of the stockholders shall be given by or under the
direction of the Secretary or an Assistant Secretary, either
personally or by mail, upon each stockholder of record entitled
to vote at such meeting, not less than ten (10) nor more than
sixty (60) days before the meeting. In the event of the death,
absence, incapacity or refusal of the specified officer, notice
of a meeting may be given by a person designated by the Secretary
or an Assistant Secretary, the person or persons requesting the
meeting or the Board. If mailed, the notice of a meeting shall
be directed to a stockholder at his address as it appears on the
records of the Corporation. The notice of every meeting of the
stockholders shall state the place, date and hour of the meeting
and the purpose or purposes for which the meeting is called.
Section 4. Quorum. At all meetings of stockholders, a
majority of the issued and outstanding stock entitled to vote
present in person or by proxy shall constitute a quorum. If such
quorum is not present, the stockholders present thereat may
adjourn the meeting from time to time without notice, other than
the announcement at the meeting of the date, time and place of
the adjourned meeting, until a quorum is present, and thereupon
any business may be transacted at the adjourned meeting which
might have been transacted at the meeting as originally called.
If the adjournment is for more than thirty (30) days, or if after
the adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
Section 5. Voting. At every meeting of the
stockholders, except as may be otherwise provided in the
Certificate of Incorporation, every stockholder of the
Corporation entitled to vote thereat shall be entitled to one (1)
vote for each share of stock entitled to vote standing in his
name on the books of the Corporation on the record date as
determined in accordance with Article V, Section 4 of these By-
Laws. Directors shall be elected by a plurality of the votes
cast at a meeting of stockholders (at which a quorum is present)
by the holders of shares entitled to vote in the election, except
as otherwise required by law or by the Certificate of
Incorporation of the Corporation. Whenever any corporate action,
other than the election of directors, is to be taken by vote of
the stockholders, it shall be authorized by a majority of the
votes cast at a meeting of stockholders (at which a quorum is
present) by the holders of shares entitled to vote thereon
(except as otherwise required by law, the Certificate of
Incorporation of the Corporation, these By-Laws or any
regulations of any security exchange). The stock ledger of the
Corporation shall be the only evidence as to who are the
stockholders entitled to examine such stock ledger, the list
required by Article II, Section 9 of these By-Laws or the books
of the Corporation, or to vote in person or by proxy at any
meeting of stockholders. Upon the demand of any stockholder
entitled to vote, the vote at any election of directors, or the
vote upon any question before a meeting, shall be by ballot, but
otherwise the method of voting shall be discretionary with the
presiding officer at the meeting.
Section 6. Presiding Officer and Secretary. At all
meetings of the stockholders, the Chairman of the Board, or if
such office be vacant or such person be absent, the President of
the Corporation, or in such person's absence a Vice President, or
if none be present the appointee of the meeting, shall preside.
The Secretary of the Corporation, or in such person's absence an
Assistant Secretary, or if none be present the appointee of the
Presiding Officer of the meeting, shall act as Secretary of the
meeting.
Section 7. Proxies. Any stockholder entitled to vote
at any meeting of stockholders may vote either in person or by
proxy, but no proxy shall be voted after three (3) years from its
date unless such proxy provides for a longer period. Every proxy
must be executed in writing by the stockholder himself or by his
duly authorized attorney, and dated, but need not be sealed,
witnessed or acknowledged. Proxies shall be delivered to the
Secretary of the meeting before the meeting begins or to the
Judges at the meeting. A duly executed proxy shall be
irrevocable if it states that it is irrevocable and if, and only
as long as, it is coupled with an interest sufficient in law to
support an irrevocable power. A proxy may be made irrevocable
regardless of whether the interest with which it is coupled is an
interest in the stock itself or an interest in the Corporation
generally.
Section 8. Judges. At each meeting of the
stockholders at which the vote for directors, or the vote upon
any question before the meeting, is taken by ballot, the polls
shall be opened and closed by, and the proxies and ballots shall
be received and taken in charge by, and all questions touching on
the qualifications of voters and the validity of proxies and the
acceptance and rejection of the same shall be decided by, two (2)
Judges. Such Judges may be appointed by the Board before the
meeting but if no such appointment shall have been made, they
shall be appointed by the meeting. If for any reason any Judge
previously appointed shall fail to attend or refuse or be unable
to serve, a Judge in his or her place shall be appointed by the
meeting. Any appointment of Judges by the meeting shall be by
per capita vote of the stockholders present and entitled to vote.
Section 9. List of Stockholders. At least ten (10)
days prior to every meeting of stockholders, a complete list of
the stockholders entitled to vote at such meeting, arranged in
alphabetical order and showing the address of each stockholder
and the number of shares registered in the name of each, shall be
prepared by the Secretary or an Assistant Secretary. Such list
shall be open to examination at a place within the city where the
meeting is to be held, which place shall be specified in the
notice of meeting, or, if not so specified, at the place where
the meeting is held and shall be open, during normal business
hours for a period of ten (10) days prior to the meeting, to the
examination of any stockholder for any purpose germane to the
meeting. The list shall also be produced and kept at the time
and place of the meeting during the whole time thereof and may be
inspected by any stockholder who is present.
Section 10. Consent of Stockholders in Lieu of
Meeting. Any action that may be taken at any annual or special
meeting of stockholders may be taken without a meeting, without
prior notice and without a vote if one or more consents in
writing, setting forth the action so taken and signed by the
holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon
were present and voted, are delivered to the Corporation by
delivery to its registered office in the State of Delaware by
hand or by certified or registered mail, return receipt
requested, or to its principal place of business, or to an
officer or agent of the Corporation having custody of the book in
which proceedings of meetings of stockholders are recorded.
Every written consent shall bear the date of signature of each
stockholder signing the consent and no written consent shall be
effective to take the corporate action referred to therein unless
written consents signed by a sufficient number of stockholders to
take the action are delivered to the Corporation, in the manner
required by law, within sixty (60) days of the earliest dated
consent so delivered. Prompt notice of the taking of such action
shall be given to each stockholder that did not consent in
writing.
ARTICLE III
Directors and the Independent Director
Section 1. Number and Election. The number of
directors may be increased or decreased from time to time by the
stockholders or by the Board; provided, in addition, that at all
times the Corporation shall have at least one (1) individual
designated as the "Independent Director" who shall possess only
those rights granted to, and be subject to those duties imposed
on, such Independent Director pursuant to this Article III and
the Certificate of Incorporation of the Corporation, who shall be
elected in the same manner as the directors and who shall not
have been at the time of such Independent Director's election or
at any time in the preceding five (5) years (a) a direct or
indirect legal or beneficial owner in the Corporation or any of
its Affiliates or a member of the immediate family of any such
owner, (b) a creditor, supplier, officer, director, promoter,
underwriter, manager or contractor of the Corporation or any of
its Affiliates or a member of the immediate family of any such
officer or director or (c) a person, or a member of the immediate
family of a person, who is employed by the Corporation (other
than in his capacity as Independent Director) or its Affiliates
or any creditor, supplier, employee, stockholder, officer,
director, promoter, underwriter, manager or contractor of the
Corporation or its Affiliates; provided, that such Independent
Director may be an "independent director" of one or more single
purpose, independent entities owned or controlled by Panda Energy
International, Inc. or any of its Affiliates. As used herein,
the term "Affiliate" shall mean, with respect to any person or
entity, any other person or entity which directly or indirectly
through one or more intermediaries controls, or is controlled by,
or is under common control with, such person or entity. The term
"control" (including the correlative term "controlled") means the
possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of a person or
entity, whether through the ownership of voting stock, by
contract or otherwise. The Independent Director shall be
entitled to all rights and benefits of a director of the
Corporation (i) in respect of indemnification by the Corporation
as provided in the Certificate of Incorporation, these By-Laws
and the General Corporation Law of the State of Delaware and (ii)
under Article EIGHTH of the Certificate of Incorporation. The
Independent Director shall also be subject to all duties imposed
on a director of the Corporation by the General Corporation Law
of the State of Delaware. Except as provided by law or these By-
Laws, the members of the Board and the Independent Director shall
be elected at each annual meeting of the stockholders. If for
any reason any annual election shall not be held on the day
designated by these By-Laws, the Board shall cause such election
to be held as soon thereafter as convenient. Except as otherwise
provided in the Certificate of Incorporation or these By-Laws, at
each meeting of the stockholders for the election of directors
and the Independent Director at which a quorum shall be present,
the persons (not exceeding the then authorized number of
directors) receiving a plurality of the votes cast shall be
elected directors or the Independent Director, as the case may
be. Except as otherwise provided by law, the term of office of
each director and the Independent Director shall be from the time
of his election and qualification until the annual meeting of
stockholders next succeeding his election and until his successor
shall have been duly elected and shall have qualified; provided,
that any director and the Independent Director may be removed
without cause before the expiration of his term by the vote of a
majority of the issued and outstanding stock entitled to vote at
any special meeting called for the purpose; provided, further,
that in the case of a removal of the Independent Director, a
successor Independent Director shall at the same time be elected
by the stockholders. A director need not be a stockholder.
Section 2. Vacancies. Any vacancy in the Board caused
by death, resignation, disqualification, removal, an increase in
the number of directors (caused by the Board or otherwise) or any
other cause may be filled by a majority of the directors then in
office although less than a quorum or by a sole remaining
director, or by the stockholders. If for any reason there is a
vacancy in the office of Independent Director, the stockholders
shall promptly cause the office to be filled. When one or more
directors shall resign from the Board effective at a future date,
a majority of the directors (but not the Independent Director)
then in office, including those who have so resigned, shall have
the power to fill such vacancy or vacancies, the vote thereon to
take effect when such resignation or resignations shall become
effective.
Section 3. Resignations. Any director and the
Independent Director may resign from his office at any time by
delivering his resignation in writing to the Corporation, and the
acceptance of such resignation, unless required by the terms
thereof, shall not be necessary to make such resignation
effective.
Section 4. Meetings. The Board may hold its meetings
in such place or places within or without the State of Delaware
as the Board from time to time by resolution may determine or as
shall be specified in the respective notices or waivers of notice
thereof, and the directors may adopt such rules and regulations
for the conduct of their meetings and the management of the
Corporation not inconsistent with these By-Laws or the
Certificate of Incorporation as they may deem proper. The Board
from time to time by resolution may fix a time and place (or
varying times and places) for the annual and other regular
meetings of the Board; provided, that unless a time and place is
so fixed for any annual meeting of the Board, the same shall be
held immediately following the annual meeting of the stockholders
at the same place at which such meeting shall have been held;
provided, further, that the Independent Director shall have no
right to notice of or to attend any meeting of the Board, except
that the Independent Director shall be entitled to notice of and
to attend that portion of any meeting of the Board at which any
matter is to be considered by the Board upon which the approval
of the Independent Director is required. No notice of the annual
or other regular meetings of the Board need be given. Other
meetings of the Board shall be held whenever called by the
Chairman of the Board or by the President or by one-third (1/3)
of the directors then in office, and the Secretary or an
Assistant Secretary shall give notice of each such meeting to
each director not later than the day before the day of the
meeting, personally or by mailing, telecopying or telephoning
such notice to him at his address as it appears on the books of
the Corporation or by leaving such notice at his residence or
usual place of business. No notice of a meeting need be given if
all the directors are present in person. Any business may be
transacted at any meeting of the Board, whether or not specified
in a notice of the meeting.
Section 5. Meetings by Conference Telephone. Members
of the Board, or any committee designated by the Board, and, when
required, the Independent Director, may participate in a meeting
of the Board or such committee by means of conference telephone
or similar communications equipment by which all persons
participating in the meeting can hear each other. Participation
in a meeting pursuant to this paragraph shall constitute presence
in person at such meeting. The Chairman of the Board or the
Secretary of the meeting shall make certain that all persons
participating in the meeting (i) can hear each other and (ii)
understand that their participation will constitute a meeting of
the Board or such committee.
Section 6. Unanimous Consent in Lieu of Meeting. Any
action required or permitted to be taken at any meeting of the
Board may be taken without a meeting if a written consent thereto
is signed by all of the members of the Board entitled to vote on
such action and, if required, the Independent Director, and such
written consent is filed with the minutes of proceedings of the
Board.
Section 7. Quorum. In no circumstance shall the
Independent Director be entitled to consider or vote on any
matter proposed at a meeting of the Board of Directors or
committee thereof, or consent to action on any such matter, other
than the matters set forth in Article SIXTH of the Certificate of
Incorporation and Article III, Section 8 of these By-Laws. For
all other matters a quorum shall be determined without taking the
Independent Director into account. If there be less than a
quorum at any meeting of the Board, a majority of those present
(or if only one (1) be present, then that one (1)) may adjourn
the meeting from time to time, and no further notice thereof need
be given other than announcement at the meeting which shall be so
adjourned of the time of, and the place to which, the meeting is
adjourned.
Section 8. Voting. Except as otherwise required by
law, the Certificate of Incorporation or these By-Laws, the vote
of a majority of the directors present at a meeting at which a
quorum is present shall be the act of the Board of Directors.
Notwithstanding the foregoing, pursuant to Section 141(a) of the
General Corporation Law of the State of Delaware, the Corporation
and/or the Board shall not, without the affirmative vote or
written consent of all of the directors and the Independent
Director:
(a) file a petition for relief under the United States
Bankruptcy Code, as amended, make an assignment for the
benefit of creditors, apply for the appointment of a
custodian, receiver or trustee for the Corporation or any of
the Corporation's property, consent to any other bankruptcy
or similar proceeding, consent to the filing of such
proceeding or admit in writing the Corporation's inability
to pay its debts generally as they become due;
(b) commence the dissolution, liquidation,
consolidation, merger or sale of all or substantially all of
the assets of the Corporation;
(c) amend the Certificate of Incorporation, including
without limitation Article THIRD thereof, in such a manner
as either to broaden the business purpose of the Corporation
or otherwise adversely to affect the existence of the
Corporation as a single purpose, independent entity, or
amend paragraph 4, 5, 6 or 7 of Article SIXTH of the
Certificate of Incorporation; or
(d) engage in any business or activity other than as
set forth in Article THIRD of the Certificate of
Incorporation.
Section 9. Compensation. The Board shall have
authority to fix the compensation of directors and the
Independent Director for acting in either their respective
capacity or any other capacity.
Section 10. Committees. The Board may from time to
time designate one or more committees, each committee to consist
of one or more of the directors of the Corporation. The Board
may designate one or more directors as alternate members of any
committee who may replace any absent or disqualified member at
any meeting of the committee. To the extent provided in any such
resolution, any such committee shall have and may exercise all
the powers and authority of the Board in the management of the
business and affairs of the Corporation, including the power to
authorize the seal of the Corporation to be affixed to all papers
which may require it, and the power and authority to declare
dividends and to authorize the issuance of stock; provided, that
no such committee shall have any power or authority to amend the
Certificate of Incorporation, to adopt any agreement of merger or
consolidation, to recommend to the stockholders the sale, lease
or exchange of all or substantially all of the assets and
properties of the Corporation, to recommend to the stockholders a
dissolution of the Corporation or revocation of a dissolution or
to amend these By-Laws. Any action required or permitted to be
taken at any meeting of a committee may be taken without a
meeting if a written consent thereto is signed by all members of
such committee and such written consent is filed with the minutes
of proceedings of the committee.
ARTICLE IV
Officers and Agents
Section 1. General Provisions. The officers of the
Corporation shall be a President, a Treasurer and a Secretary,
and may include a Chairman of the Board, one or more Vice
Presidents, one or more Assistant Vice Presidents, one or more
Assistant Treasurers and one or more Assistant Secretaries, all
of whom shall be appointed by the Board as soon as may be
practicable after the election of directors in each year. Any
two offices may be held by the same person, but no officer shall
execute, acknowledge or verify any instrument in more than one
capacity if such instrument is required by law or by these By-
Laws to be executed, acknowledged or verified by any two or more
officers. Each of such officers shall serve until the annual
meeting of the Board next succeeding his appointment and until
his successor shall have been chosen and shall have qualified.
The Board may appoint such officers, agents and employees as it
may deem necessary or proper who shall respectively have such
authority and perform such duties as may from time to time be
prescribed by the Board. All officers, agents and employees
appointed by the Board shall be subject to removal at any time by
the affirmative vote of a majority of the Board. Other agents
and employees may be removed at any time by the Board, by the
officer appointing them or by any other superior officer upon
whom such power of removal may be conferred by the Board. The
salaries of the officers of the Corporation shall be fixed by the
Board but this power may be delegated to any officer. The
Corporation may secure the fidelity of any or all of its officers
or agents by bond or otherwise.
Section 2. The Chairman of the Board. The Chairman of
the Board shall be a member of the Board and shall preside at its
meetings and at all meetings of stockholders. He shall keep in
close touch with the administration of the affairs of the
Corporation and supervise its general policies. He shall see
that the acts of the executive officers conform to the policies
of the Corporation as determined by the Board and shall perform
such other duties as may from time to time be assigned to him by
the Board.
Section 3. The President. The President shall,
subject to the direction and under the supervision of the Board,
be the principal executive officer of the Corporation and shall
have general charge of the business and affairs of the
Corporation and shall keep the Board fully advised. If the
office of Chairman of the Board be vacant or if the Chairman of
the Board be absent, the President shall preside at meetings of
the stockholders and of the Board. At the direction of the
Board, he shall have power in the name of the Corporation and on
its behalf to execute any and all deeds, mortgages, contracts,
agreements and other instruments in writing. He shall employ and
discharge employees and agents of the Corporation, except such as
shall hold their offices by appointment of the Board, but he may
delegate these powers to other officers as to employees under
their immediate supervision. He shall have such powers and
perform such duties as generally pertain to the office of
President as well as such further powers and duties as may be
prescribed by the Board.
Section 4. Vice Presidents. Each Vice President shall
have such powers and perform such duties as the Board or the
President may from time to time prescribe and shall perform such
other duties as may be prescribed in these By-Laws. In the
absence or inability to act of the President, the Vice President
next in order as designated by the Board or, in the absence of
such designation, senior in length of service in such capacity,
who shall be present and able to act, shall perform all the
duties and may exercise any of the powers of the President,
subject to the control of the Board. The performance of any duty
by a Vice President shall be conclusive evidence of his power to
act.
Section 5. The Treasurer. The Treasurer shall have
the care and custody of all funds and securities of the
Corporation which may come into his hands and shall deposit the
same to the credit of the Corporation in such bank or banks or
other depositary or depositaries as the Board may designate. He
may endorse all commercial documents requiring endorsements for
or on behalf of the Corporation and may sign all receipts and
vouchers for payments made to the Corporation. He shall render
an account of his transactions to the Board as often as it shall
require the same, shall at all reasonable times exhibit his books
and accounts to any director and shall cause to be entered
regularly in books kept for that purpose full and accurate
account of all moneys received and disbursed by him on account of
the Corporation. He shall, if required by the Board, give the
Corporation a bond in such sums and with such sureties as shall
be satisfactory to the Board, conditioned upon the faithful
performance of his duties and for the restoration to the
Corporation in case of his death, resignation, retirement or
removal from office of all books, papers, vouchers, money and
other property of whatever kind in his possession or under his
control belonging to the Corporation. He shall have such further
powers and duties as are incident to the position of Treasurer,
subject to the control of the Board. The Treasurer may also be
the Secretary.
Section 6. The Secretary. The Secretary shall record
the proceedings of meetings of the Board and of the stockholders
in a book kept for that purpose and shall attend to the giving
and serving of all notices of the Corporation. He shall have
custody of the seal of the Corporation and shall affix the seal
(if any) to all certificates of shares of stock of the
Corporation (if required by the form of such certificates) and to
such other papers or documents as may be proper and, when the
seal is so affixed, he shall attest the same by his signature
wherever required. He shall have charge of the stock certificate
book, transfer book and stock ledger, and such other books and
papers as the Board may direct. He shall, in general, perform
all duties of Secretary, subject to the control of the Board.
The Secretary may also be the Treasurer.
Section 7. Assistant Treasurers. In the absence or
inability of the Treasurer to act, any Assistant Treasurer may
perform all of the duties and exercise all of the powers of the
Treasurer, subject to the control of the Board. The performance
of any such duty shall be conclusive evidence of his power to
act. An Assistant Treasurer shall also perform such other duties
as the Treasurer or the Board may from time to time assign to
him.
Section 8. Assistant Secretaries. In the absence or
inability of the Secretary to act, any Assistant Secretary may
perform all of the duties and exercise all of the powers of the
Secretary, subject to the control of the Board. The performance
of any such duty shall be conclusive evidence of his power to
act. An Assistant Secretary shall also perform such other duties
as the Secretary or the Board may from time to time assign to
him.
Section 9. Other Officers. Other officers shall
perform such duties and have such powers as may from time to time
be assigned to them by the Board.
Section 10. Delegation of Duties. In case of the
absence of any officer of the Corporation, or for any other
reason that the Board may deem sufficient, the Board may confer,
for the time being, the powers and duties, or any of them, of
such officer upon any other officer or upon any director.
Section 11. Proxies in Respect of Securities of Other
Corporations. Unless otherwise provided by resolution adopted by
the Board, the President or any Vice President may from time to
time appoint an attorney or attorneys or an agent or agents to
exercise in the name and on behalf of the Corporation the powers
and rights which the Corporation may have as the holder of stock
or other securities in any other corporation to vote or to
consent in respect of such stock or other securities, and the
President or any Vice President may instruct the person or
persons so appointed as to the manner of exercising such powers
and rights, and the President or any Vice President may execute
or cause to be executed in the name and on behalf of the
Corporation and under its corporate seal, or otherwise, all such
written proxies, powers of attorney or other written instruments
as he may deem necessary in order that the Corporation may
exercise such powers and rights.
ARTICLE V
Capital Stock
Section 1. Certificates for Shares. Certificates for
shares of stock of the Corporation certifying the number and
class of shares owned shall be issued to each stockholder in such
form, not inconsistent with the Certificate of Incorporation and
these By-Laws, as shall be approved by the Board. The
certificates for the shares of each class shall be numbered and
registered in the order in which they are issued and shall be
signed by the Chairman of the Board or the President or a Vice
President and by the Secretary or an Assistant Secretary or the
Treasurer or an Assistant Treasurer. Any or all of the
signatures on a certificate may be a facsimile. In case any
officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed upon a certificate shall have
ceased to be such officer, transfer agent or registrar before
such certificate is issued, it may be issued by the Corporation
with the same effect as if he were such officer, transfer agent
or registrar at the date of issue. All certificates exchanged or
returned to the Corporation shall be canceled.
Section 2. Transfer of Shares of Stock. Transfers of
shares shall be made only upon the books of the Corporation by
the holder, in person or by his attorney lawfully constituted in
writing, and on the surrender of the certificate or certificates
for such shares properly assigned. The Board shall have the
power to make all such rules and regulations, not inconsistent
with the Certificate of Incorporation and these By-Laws, as it
may deem expedient concerning the issue, transfer and
registration of certificates for shares of stock of the
Corporation.
Section 3. Lost, Stolen or Destroyed Certificates.
The Board, in its discretion, may issue a new certificate of
stock in place of any certificate theretofore issued and alleged
to have been lost, stolen or destroyed, and may require the owner
of any certificate of stock alleged to have been lost, stolen or
destroyed, or his legal representative, to give the Corporation a
bond in such sum as the Board may direct to indemnify the
Corporation against any claim that may be made against it on
account of the alleged loss, theft or destruction of any
certificate or the issuance of such new certificate. Proper
evidence of such loss, theft or destruction shall be procured if
required by the Board. The Board in its discretion may refuse to
issue such new certificate save upon the order of a court having
jurisdiction in such matters.
Section 4. Record Date. In order that the Corporation
may determine the stockholders entitled to notice of or to vote
at any meeting of stockholders or any adjournment thereof, or to
express consent to corporate action in writing without a meeting,
or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise
any rights in respect of any change, conversion or exchange of
stock or for the purpose of any other lawful action, the Board
may fix, in advance, a record date, which shall not be more than
sixty (60) nor fewer than ten (10) days before the date of such
meeting, nor more than sixty (60) days prior to any other action.
If no record date is fixed:
(a) The record date for determining stockholders
entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the date
next preceding the day on which notice is given or, if
notice is waived, at the close of business on the day next
preceding the day on which the meeting is held.
(b) The record date for determining stockholders
entitled to express consent to corporate action in writing
without a meeting, when no prior action by the Board is
necessary, shall be at the close of business on the day on
which the first written consent is expressed.
(c) The record date for determining stockholders for
any other purpose shall be at the close of business on the
day on which the Board adopts the resolution relating
thereto.
A determination of stockholders of record entitled to notice of
or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, that the Board may fix a
new record date for the adjourned meeting.
ARTICLE VI
Indemnification
Section 1. Mandatory Indemnification of Officers,
Directors, the Independent Director, Employees and Agents.
Except to the extent prohibited by law and except as herein
provided, the directors, officers, employees, agents and the
Independent Director of the Corporation shall be entitled to the
following rights with respect to indemnification:
(a) The Corporation shall indemnify any person who was
or is a party or is threatened to be made a party to, or is
or may become involved in (as a party or otherwise), any
threatened, pending or completed action, suit or proceeding,
or any appeal taken therefrom, whether civil, criminal,
administrative or investigative (a "Proceeding") (other than
an action by or in the right of the Corporation), by reason
of the fact that he or she (i) is or was a director,
Independent Director or officer of the Corporation, (ii) is
or was a director, Independent Director or officer of the
Corporation and is or was serving any other corporation or
any partnership, joint venture, trust or other enterprise
(including service with respect to employee benefit plans)
in any capacity at the request of the Corporation or (iii)
is or was serving as a director, "independent director" or
officer of any other corporation or is or was serving any
partnership, joint venture, trust or other enterprise
(including service with respect to employee benefit plans)
in a comparable capacity, at the request of the Corporation,
against all expenses, liability and loss (including without
limitation fees and disbursements of attorneys, accountants
and expert witnesses, court costs, judgments, fines, ERISA
excise taxes or penalties and amounts paid or to be paid in
settlement) (collectively, "Expenses, Liability and Loss")
actually and reasonably incurred by such person in
connection with such Proceeding if such person acted in good
faith and in a manner such person reasonably believed to be
in or not opposed to the best interest of the Corporation
(or with respect to employee benefit plans, in a manner such
person reasonably believed to be in the best interest of the
participants and beneficiaries) and, with respect to any
criminal action or proceeding, had no reasonable cause to
believe his or her conduct was unlawful.
(b) Except as provided in Section 4(a), the
Corporation shall indemnify any person who was or is a party
or is threatened to be made a party to, or is or may become
involved in (as a party or otherwise), any threatened,
pending or completed action, suit or proceeding, or any
appeal taken therefrom by or in the right of the Corporation
to procure a judgment in its favor (a "Derivative Action")
by reason of the fact that he or she (i) is or was a
director, Independent Director or officer of the
Corporation, (ii) is or was a director, Independent Director
or officer of the Corporation and is or was serving as a
director or officer of any other corporation, or is or was
serving any partnership, joint venture, trust or other
enterprise (including service with respect to employee
benefit plans) in a comparable capacity, at the request of
the Corporation or (iii) is or was serving as a director,
"independent director" or officer of any other corporation,
or is or was serving any partnership, joint venture, trust
or other enterprise (including service with respect to
employee benefit plans) in a comparable capacity, at the
request of the Corporation, against expenses (including fees
and disbursements of attorneys, accountants and expert
witnesses and court costs) actually and reasonably incurred
by such person in connection with the defense or settlement
of such action or suit if such person acted in good faith
and in a manner he or she reasonably believed to be in or
not opposed to the best interest of the Corporation (or with
respect to employee benefit plans, in a manner such person
believed to be in the best interest of the participants and
beneficiaries).
(c) The right of each director, Independent Director
and officer of the Corporation to indemnification hereunder
(x) shall pertain both as to action or omission to act in
his or her official capacity and as to action or omission to
act in another capacity while holding such office, (y) shall
be a contract right and (z) shall include the right to be
paid by the Corporation the expenses incurred in any such
Proceeding or Derivative Action in advance of the final
disposition of such Proceeding or Derivative Action upon
delivery to the Corporation of an undertaking, by or on
behalf of such person, to repay all amounts so advanced if
it should be ultimately determined that such person is not
entitled to indemnification hereunder or otherwise.
(d) The right of each employee or agent of the
Corporation serving as a director or officer of any other
corporation or any partnership, joint venture, trust or
other enterprise (including service with respect to employee
benefit plans) in a comparable capacity, at the request of
the Corporation, to indemnification hereunder (x) shall
pertain both as to action or omission to act in his or her
official capacity and to action or omission to act in
another capacity with respect to the entity of which he or
she is a director or officer and no other entity, (y) shall
be a contract right and (z) shall include the right to be
paid by the Corporation the expenses incurred in any such
Proceeding or Derivative Action in advance of the final
disposition of such proceeding or Derivative Action upon
delivery to the Corporation of an undertaking, by or on
behalf of such person, to repay all amounts so advanced if
it should be ultimately determined that such person is not
entitled to indemnification hereunder or otherwise.
Section 2. Additional (Permissive) Indemnification of
Employees and Agents. Except to the extent prohibited by law and
except as herein provided, the Corporation shall have the
authority (but not the obligation) to grant the following
indemnification to employees and agents of the Corporation and
employees and agents of other entities if serving as such at the
request of the Corporation:
(a) In addition to the indemnification provided in
Section 1(a)(iii) and Section 6, the Corporation may
indemnify (but shall not be required to indemnify) any
person who was or is a party or is threatened to be made a
party to, or is or may become involved in (as a party or
otherwise) any Proceeding (other than an action by or in the
right of the Corporation) by reason of the fact that he or
she (i) is or was an employee or agent of the Corporation or
(ii) is or was an employee or agent of the Corporation and
is or was serving as an employee or agent of any other
corporation or any partnership, joint venture, trust or
other enterprise (including service with respect to employee
benefit plans) at the request of the Corporation, against
all Expenses, Liability and Loss actually and reasonably
incurred by such person in connection with such Proceeding
if such person acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best
interest of the Corporation (or with respect to employee
benefit plans, in a manner such person reasonably believed
to be in the best interest of the participants and
beneficiaries) and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her
conduct was unlawful.
(b) In addition to the indemnification provided in
Section 1(b)(iii) and Section 6, but subject to Section
4(a), the Corporation may indemnify (but shall not be
required to indemnify) any person who was or is a party or
is threatened to be made a party to or is or may become
involved in (as a party or otherwise) any Derivative Action
by reason of the fact that he or she (i) is or was an
employee or agent of the Corporation or (ii) is or was an
employee or agent of the Corporation and is or was serving
as an employee or agent of any other corporation or any
partnership, joint venture, trust or other enterprise
(including service with respect to employee benefit plans)
at the request of the Corporation, against expenses
(including fees and disbursements of attorneys, accountants
and expert witnesses and court costs) actually and
reasonably incurred by such person in connection with the
defense or settlement of such action or suit if such person
acted in good faith and in a manner he or she reasonably
believed to be in or not opposed to the best interest of the
Corporation (or with respect to employee benefit plans, in a
manner such person reasonably believed to be in the best
interest of the participants and beneficiaries).
(c) The power of the Corporation to indemnify each
employee and agent pursuant to Section 2(a) hereunder (x)
shall pertain both as to action or omission to act in such
person's official capacity and as to action or omission to
act in another capacity while holding such office and (y)
shall include the power (but not the obligation) to pay the
expenses incurred in any Proceeding or Derivative Action in
advance of the final disposition of such Proceeding or
Derivative Action upon such terms and conditions, if any, as
the Board of Directors of the Corporation deems appropriate.
Section 3. Right of Claimant to Bring Suit. If the
Corporation receives a written claim under Section 1 or Section 6
which it has not paid in full within the Applicable Period, as
hereafter defined, after the Corporation receives such claim, the
claimant may at any time thereafter bring an action against the
Corporation to recover the unpaid amount of the claim and, if
successful in whole or in part, the claimant shall be entitled to
recover also the expense of prosecuting such claim. It shall be
a defense to any such action (other than an action brought to
enforce a claim for expenses incurred in connection with (a) any
Proceeding or Derivative Action in advance of its final
disposition where the required undertaking has been tendered to
the Corporation or (b) any Proceeding or Derivative Action in
which the claimant was successful on the merits or otherwise)
that the claimant has not met the applicable standards of conduct
set forth herein for the Corporation to indemnify the claimant
for the amount claimed, but the burden of proving such defense
shall be on the Corporation. Neither the failure of the
Corporation (including its Board, independent legal counsel or
its stockholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant
is proper in the circumstances because he or she has met the
applicable standards of conduct set forth herein nor an actual
determination by the Corporation (including its Board,
independent legal counsel or its stockholders) that the claimant
has not met such applicable standards of conduct shall be a
defense to the action or create a presumption that the claimant
has not met the applicable standards of conduct.
Section 4. Limitations on Indemnification.
(a) No person shall be indemnified under Section 1(b)
or Section 2(b) in respect of any claim, issue or matter as
to which such person shall have been adjudged to be liable
to the Corporation unless and only to the extent that the
Court of Chancery of the State of Delaware or the court in
which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court
shall deem proper.
(b) For purposes of Sections 1 and 2, the termination
of any action, suit or proceeding by judgment, order,
settlement, conviction or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption
that any person did not act in good faith and in a manner
which he reasonably believed to be in or not opposed to the
best interests of the Corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to
believe that his conduct was unlawful.
Section 5. Procedure for Obtaining Indemnification.
Except as set forth in Section 6, any indemnification under
Sections 1 and 2 (unless ordered by a court) shall be made by the
Corporation only as authorized in the specific case upon a
determination that indemnification of the director, Independent
Director, officer, employee or agent is proper in the
circumstances because he or she has met the applicable standard
of conduct set forth in Section 1 or 2 and, in the case of any
indemnification under Section 2, because the Board in its
discretion deems such indemnification to be appropriate. Subject
to Section 3, such determination shall be made (1) by the Board
by a majority vote of a quorum consisting of directors who were
not parties to such Proceeding or Derivative Action, (2) if such
a quorum is not obtainable, or, even if obtainable, if a quorum
of disinterested directors so directs, by independent legal
counsel in a written opinion, (3) by the stockholders or (4) by
any court having jurisdiction.
Section 6. Indemnification of Expenses. To the extent
that any person described in Section 1 or 2 hereof has been
successful on the merits or otherwise in defense of any
Proceeding or Derivative Action, or in defense of any claim,
issue or matter described therein, he or she shall be indemnified
by the Corporation against expenses (including fees and
disbursements of attorneys, accountants, expert witnesses and
court costs) actually and reasonably incurred by him or her in
connection therewith.
Section 7. Non-Exclusivity of Rights. The
indemnification and advancement of expenses provided by or
granted pursuant to the other Sections of this Article shall not
be deemed exclusive of any other rights to which those persons
seeking indemnification or advancement of expenses under this
Article might be entitled under any other bylaw, agreement, vote
of stockholders or vote of disinterested directors or otherwise,
both as to action in such person's official capacity and as to
action in another capacity while holding such office.
Section 8. Benefits of Article. The indemnification
and advancement of expenses provided by or granted pursuant to
this Article shall, unless otherwise provided when authorized and
ratified, continue as to a person who has ceased to be a
director, Independent Director, officer, employee or agent and
shall inure to the benefit of the heirs, executors,
administrators and other legal representatives of such person.
Section 9. Definitions.
(a) For purposes of Section 3 of this Article, the
"Applicable Period" shall be:
(i) with respect to claims arising under
Section 1(a) or Section 1(b), sixty (60) days; and
(ii) with respect to claims arising under
Section 1(c), Section 1(d) or Section 6, ten (10) days.
(b) For the purposes of this Article, references to
the "Corporation" include all constituent corporations
(including any constituent of a constituent) absorbed in a
consolidation or merger as well as the resulting or
surviving corporation so that any person who is or was a
director, "independent director", officer, employee or agent
of such a constituent corporation or is or was serving as a
director, "independent director", officer, employee or agent
of any other corporation, or is or was serving any
partnership, joint venture, trust or other enterprise
(including service with respect to employee benefit plans)
in a comparable capacity, at the request of such constituent
corporation, shall stand in the same position under the
provisions of this Article with respect to the resulting or
surviving corporation as he or she would if he or she had
served the resulting or surviving corporation in the same
capacity, but the Corporation shall be obligated to make
such indemnification only if and to the extent that such
director, "independent director", officer, employee or agent
would have had a right to indemnification against the
constituent corporation. The Corporation may indemnify a
director, "independent director", officer, employee or agent
of a constituent corporation if the Corporation would be
authorized to indemnify (or would be required to indemnify)
such director, "independent director", officer, employee or
agent under the provisions of this Article for acts or
omissions arising prior to such consolidation or merger.
Section 10. Severability. If any provision of this
Article, or portion thereof, or the application of any such
provision to any party or circumstance shall be determined by any
court of competent jurisdiction to be invalid or unenforceable to
any extent, the remainder of this Article or the application of
such provision to any person or circumstance other than those to
which it is so determined to be invalid and unenforceable shall
not be affected thereby, and each provision hereof shall remain
in full force and effect to the fullest extent permitted by law,
and any such invalidity in any jurisdiction shall not invalidate
or render unenforceable such provision in any other jurisdiction.
ARTICLE VII
Seal
The seal (if any) of the Corporation shall be circular
in form and shall contain the name of the Corporation, the year
of its incorporation and the words "Corporate Seal" and
"Delaware" inscribed thereon. The seal may be affixed to any
instrument by causing it, or a facsimile thereof, to be impressed
or otherwise reproduced thereon.
ARTICLE VIII
Waiver
Whenever any notice whatsoever is required to be given
by statute or under the provisions of the Certificate of
Incorporation or these By-Laws, a waiver thereof in writing,
signed by the person or persons entitled to said notice, whether
before or after the time stated therein, shall be deemed
equivalent thereto. Attendance of a person at a meeting shall
constitute a waiver of notice of such meeting except when the
person attends a meeting for the express purpose of objecting, at
the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened. Neither
the business to be transacted at nor the purpose of any regular
or special meeting of the stockholders, directors or members of a
committee of directors need be specified in any written waiver of
notice.
ARTICLE IX
Checks, Notes, Drafts, etc.
Checks, notes, drafts, acceptances, bills of exchange
and other orders or obligations for the payment of money shall be
signed by such officer or officers or person or persons as the
Board shall from time to time determine.
ARTICLE X
Amendments
These By-Laws or any of them may be amended or repealed
and new By-Laws may be adopted (a) by the stockholders, at any
annual meeting, or at any special meeting called for that
purpose, by the vote of a majority of the issued and outstanding
stock entitled to vote thereat or (b) by the Board at any duly
convened meeting, but any such action of the Board may be amended
or repealed by the stockholders at any annual meeting or any
special meeting called for that purpose; provided, that no
amendment may be made which will conflict with any provision of
law or of the Certificate of Incorporation.
EXHIBIT 3.09
INCORPORATED UNDER THE LAWS OF
THE STATE OF DELAWARE
No. 0001 Shares 1,000
This Certifies that PANDA INTERFUNDING CORPORATION is the
owner of ONE THOUSAND (1,000) shares of the Capital Stock of
PANDA INTERHOLDING CORPORATION
Common Stock
transferable only on the books of the Corporation by the
holder hereof in person only or by Attorney upon surrender of this
Certificate properly endorsed.
IN WITNESS WHEREOF, the said Corporation has caused
this Certificate to be signed by its duly authorized officers,
and has sealed with the Seal of the Corporation this 25th day of
July A.D., 1996.
/s/Janice Carter /s/Robert W. Carter
Janice Carter Robert W. Carter
EXHIBIT 5.00
[CHADBOURNE & PARKE LLP LETTERHEAD]
February 12, 1997
Panda Funding Corporation
Panda Interfunding Corporation
Panda Interholding Corporation
4100 Spring Valley Road
Suite 1001
Dallas, Texas 75244
Dear Sirs:
We have acted as counsel for Panda Funding Corporation, a
Delaware corporation (the "Company"), Panda Interfunding
Corporation, a Delaware corporation, and Panda Interholding
Corporation, a Delaware corporation, in connection with the
proposed issuance and sale by the Company of up to $105,525,000
in aggregate principal amount of 11 5/8% Pooled Project Bonds,
Series A-1 due 2012 (the "Bonds"), which are being registered
with the Securities and Exchange Commission on Form S-1
(Registration No. 333-14495) under the Securities Act of 1933, as
amended (the "Act"), Amendment No. 1 thereto filed on January 14,
1997, and Amendment No. 2 thereto which is proposed to a Trust
Indenture, dated as of July 341, 1996, among the Company, Panda
Interfunding Corporation and Bankers Trust Company, as trustee,
as amended and supplemented by a First Supplemental Indenture
dated as of July 31, 1996 and a Second Supplemental Indenture
dated as of January 6, 1997 (such Indenture, together with such
Supplemental Indentures, the "Indenture"), and are to be
exchanged for the Company's 11 5/8% Pooled Project Bonds, Series
A due 2012 (the "Old Bonds").
As such counsel, we have examined originals or copies certified
or otherwise identified to our satisfaction of the Certificate of
Incorporation and By-Laws of the Company, as amended to the date
hereof, the Indenture and resolutions adopted by the Company's
Board of Directors in connection with the authorization,
registration, issuance and sale of the Bonds. We also have
examined originals, or copies certified or otherwise identified
to our satisfaction, of such corporate records of the Company and
other instruments, certificates or appropriate public officials
and certificates of officers and representatives of the Company,
and other documents as we have deemed necessary as a basis for
the opinions hereinafter expressed. In such examination, we have
assumed the authenticity of all documents submitted to us as
originals, the conformity with the originals of all documents
submitted to us as copies, the genuineness of all signatures and
the legal capacity of natural persons.
On the basis of the foregoing, we are of the opinion that, when
the Registration Statement with respect tot he Bonds filed
pursuant to the Act has become effective under the Act, the
Indenture has been qualified under the Trust Indenture Act of
1939, as amended, and the Bonds will be legally and validly
issued and will constitute the valid and binding obligations of
the Company.
We are members of the bar of the State of New York and with your
approval do not herein express any opinion as to any matters
governed by any law other than the laws of the State of New York,
the General Corporation Law of the State of Delaware and the
federal laws of the United States.
We hereby consent to the filing of this opinion as an exhibit to
the Registration Statement and to the reference made to this firm
under the caption "Legal Matters" in the prospectus constituting
part of the Registration Statement.
Very truly yours,
/s/Chadbourne & Parke LLP
Chadbourne & Parke LLP
EXHIBIT 21.00
SUBSIDIARIES OF PANDA INTERFUNDING CORPORATION
Name of Entity Jurisdiction of Organization
Panda Funding Corporation Delaware
Panda Cayman Interfunding Cayman Islands, B.W.I.
Corporation
Panda Interholding Delaware
Corporation
Panda-Rosemary Corporation Delaware
PRC II Corporation Delaware
Panda-Rosemary, L.P. Delaware
Panda-Rosemary Funding Delaware
Corporation
Panda Brandywine Corporation Delaware
Panda Energy Corporation Delaware
Brandywine Water Company Delaware
Panda-Brandywine, L.P. Delaware
SUBSIDIARIES OF PANDA INTERHOLDING CORPORATION
Name of Entity Jurisdiction of Organization
Panda-Rosemary Corporation Delaware
PRC II Corporation Delaware
Panda-Rosemary, L.P. Delaware
Panda-Rosemary Funding Delaware
Corporation
Panda Brandywine Corporation Delaware
Panda Energy Corporation Delaware
Brandywine Water Company Delaware
Panda-Brandywine, L.P. Delaware
SUBSIDIARIES OF PANDA FUNDING CORPORATION
None.
EXHIBIT 23.01
INDEPENDENT ACCOUNTANTS' CONSENT
We consent to the use in this Pre-Effective Amendment No. 2
to Registration Statement No. 333-14495 of Panda Funding
Corporation, Panda Interfunding Corporation and Panda Interholding
of our report dated January 10, 1997 (which expresses an unqualified
opinion and includes an explanatory paragraph relating to
the restatement of such financial statements) on the
consolidated financial statements of Panda Interfunding
Corporation appearing in the Prospctus, which is a part of
such Registration Statement, and to the reference to us
under the heading "Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
Dallas, Texas
February 13, 1997
EXHIBIT 23.03
[ICF Resources Incorporated Letterhead]
February 5, 1997
Panda Interfunding Corporation
Panda Funding Corporation
c/o Panda Energy International, Inc.
4100 Spring Valley Road
Suite 1001
Dallas, TX 75244
RE: Consultant's Report
Ladies and Gentlemen:
We consent to the use of (i) our report entitled
"Independent Panda-Brandywine Pro Forma Projections" and our
Update Report, dated January 10, 1997, and Officer's Certificate
dated February 5, 1997 related thereto, and (ii) our report entitled
"Summary of the Consolidated Pro Formas of the Panda Rosemary and
Panda Brandywine Power Projects" dated January 10, 1997 in the
Prospectus (the "Prospectus") relating to the offering of Pooled
Project Bonds, Series A-1 due 2012 offered by Panda Funding
Corporation and included in the registration statement on Form S-1 by
Panda Interfunding Corporation and the inclusion of such reports and
certificates as Appendices to the Prospectus.
We also consent to the statements by Burns & McDonnell in
their report (and the summary thereof) included in the
Prospectus, that they have relied on our report entitled
"Independent Assessment of the Dispatchability of the Panda-
Rosemary Project," as updated.
We also consent to the statements by C.C. Pace Resources,
Inc., in their report included in the Prospectus, that they have
relied on our reports referenced above.
We also consent to the statements by Pacific Energy Systems,
Inc., in their report included in the Prospectus, that they have
relied on our reports referenced above.
We also hereby consent to being referred to (i) under the
term "Consolidating Engineer" provided that it is understood that
ICF Resources Incorporated did not perform engineering services
in connection with its work relating to the Prospectus, and (ii)
as experts under the heading "Experts -- Independent Engineers and
Consultants" in the Prospectus.
All of the above-referenced ICF Resources Incorporated
reports were prepared pursuant to the terms of Consulting
Agreement(s) between ICF Resources and Panda Energy International.
ICF RESOURCES, INCORPORATED
By: /s/ B.S. Venkateshwara
Name: B.S. Venkateshwara
Title: Vice President
EXHIBIT 23.04
[BURNS & MCDONNELL LETTERHEAD]
February 5, 1997
Panda Interfunding Corporation
Panda Funding Corporation
c/o Panda Energy International, Inc.
4100 Spring Valley Road
Suite 1001
Dallas, Texas 75244
Re: Independent Engineer's Report
Ladies and Gentlemen:
We consent to the use of our report entitled "Panda-Rosemary
Cogeneration Condition Assessment Report for Potential
Investors at the Request of Panda Energy Corporation" and
the Update Report dated January 10, 1997, and Officer's
Certificate dated February 5, 1997, related thereto
in the Prospectus (the "Prospectus") relating to the
offering of Pooled Project Bonds, Series A-1 due 2012
offered by Panda Funding Corporation and included in the
registration statement on Form S-1 by Panda Interfunding
Corporation and Panda Funding Corporation, and to the
inclusion of such report, update and certificate as an Appendix
to the Prospectus.
We also consent to the statements by ICF Resources,
Incorporated in their reports (and the summaries thereof)
included in the Prospectus, that they have relied on our
report referenced above, and we authorize such reliance.
We also hereby consent to the reference to us as experts
under the heading "Experts-Independent Engineers and
Consultants" in the Prospectus.
BURNS & MCDONNELL ENGINEERING COMPANY, INC.
By: /s/ Michael W. McComas
Name: Michael W. McComas
Title: Vice President
EXHIBIT 23.05
[BENJAMIN SCHLESINGER AND ASSOCIATES, INC. LETTERHEAD]
February 5, 1997
Panda Interfunding Corporation
Panda Funding Corporation
c/o Panda Energy International, Inc.
4100 Spring Valley Road
Suite 1001
Dallas, Texas 75244
Re: Fuel Consultant's Report
Ladies and Gentlemen:
We consent to the use of our report entitled "Assessment of
Fuel Price, Supply and Delivery Risks for the Panda-Rosemary
Cogeneration Project" and the Officer's Certificate, of even
date herewith, related thereto in the Prospectus (the
"Prospectus") relating to the offering of Pooled Project
Bonds, Series A-1 due 2012 offered by Panda Funding Corporation
and included in the registration statement on Form S-1 by
Panda Interfunding Corporation and Panda Funding Corporation,
and to the inclusion of such report and certificate as an
Appendix to the Prospectus.
We also hereby consent to the reference to us as experts
under the heading "Experts-Independent Engineers and
Consultants" in the Prospectus.
BENJAMIN SCHLESINGER AND ASSOCIATES, INC.
By: /s/ Benjamin Schlesinger
Name: Benjamin Schlesinger, Ph.D.
Title: President
EXHIBIT 23.06
[PACIFIC ENERGY SYSTEMS, INC. LETTERHEAD]
February 5, 1997
Panda Interfunding Corporation
Panda Funding Corporation
c/o Panda Energy International, Inc.
4100 Spring Valley Road
Suite 1001
Dallas, Texas 75244
Re: Independent Engineer's Report
Ladies and Gentlemen:
We consent to the use of our report entitled "Independent
Engineer's Report, Panda-Brandywine Cogeneration Project",
our Update Report dated January 10, 1997, and Officer's
Certificate dated February 5, 1997, related thereto in the
Prospectus (the "Prospectus") relating to the
offering of Pooled Project Bonds, Series A-1 due 2012
offered by Panda Funding Corporation and included in the
registration statement on Form S-1 by Panda Interfunding
Corporation and Panda Funding Corporation, and to the
inclusion of such report, update and certificate as an Appendix
to the Prospectus.
We also consent to the statement by ICF Resources, Incorporated
in their reports (and the summaries thereof) included in the
Prospectus, that they have relied on our report above and we
authorize such reliance.
We also consent to the statement of C.C. Pace Resources, Inc.,
in their report included in the Prospectus, that they have
relied on our report referenced above and we authorize such
reliance.
We also hereby consent to the reference to us as experts
under the heading "Experts-Independent Engineers and
Consultants" in the Prospectus.
PACIFIC ENERGY SYSTEMS
By: /s/ John R. Martin
John R. Martin, P.E.
President
EXHIBIT 23.07
[C.C. PACE RESOURCES, INC. LETTERHEAD]
February 5, 1997
Panda Interfunding Corporation
Panda Funding Corporation
c/o Panda Energy International, Inc.
4100 Spring Valley Road
Suite 1001
Dallas, Texas 75244
Re: Fuel Consultant's Consent
Ladies and Gentlemen:
We consent to the use in the Prospectus constituting part of
the registration statement on Form S-1 by Panda Interfunding
Corporation and Panda Funding Corporation relating to the
offering of Pooled Project Bonds, Series A-1 due 2012 by
Panda Funding Corporation (the "Prospectus") of our report
dated July 2, 1996 entitled "Panda-Brandywine, L.P.
Generating Facility Fuel Consultant's Report" (the "Report")
and our supplemental update letter dated January 10, 1997 and
Officer's Certificate dated Feburary 5, 1997 related thereto,
which are included as an Appendix to the Prospectus, and to the
reference to us as experts under the heading "Experts-Independent
Engineers and Consultants" in the Prospectus.
We also consent to the statements by ICF Resources,
Incorporated in their reports included in the Prospectus,
that they have relied on the Report and we authorize such
reliance.
C.C. PACE RESOURCES, INC.
By: /s/ Daniel E. White
Daniel E. White
Title: Senior Vice President
EXHIBIT 99.01
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
MARCH 19, 1997, UNLESS EXTENDED (THE "EXPIRATION DATE").
TENDERS MAY BE WITHDRAWN PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON
THE EXPIRATION DATE.
PANDA FUNDING CORPORATION
4100 Spring Valley Road, Suite 1001
Dallas, Texas 75244
LETTER OF TRANSMITTAL
To Tender for Exchange
11-5/8% Pooled Project Bonds, Series A due 2012
Exchange Agent:
BANKERS TRUST COMPANY
Facsimile Transmission:
(615) 835-3701
Confirm by telephone:
(615) 835-3572
By Mail: By Hand Delivery:
BT Services Tennessee, Inc. Bankers Trust Company
Reorganization Unit Corporate Trust Agency Group
P. O. Box 292737 Receipt & Delivery Window
Nashville, TN 37229-2737 123 Washington Street, 1st Floor
New York, NY 10006
By Overnight Courier
or Certified Mail:
BT Services Tennessee, Inc.
Corporate Trust & Agency Group
Reorganiation U&nit
648 Grasssmere Park Road
Nashville, TN 37211
For Information Call:
(800) 735-7777
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER
THAN THE ONE LISTED ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
The undersigned acknowledges receipt of the Prospectus dated
February 14, 1997, (as the same may be amended or supplemented from
time to time, the "Prospectus") of Panda Funding Corporation, a
Delaware corporation (the "Issuer"), and this Letter of Transmittal
for 11-5/8% Pooled Project Bonds, Series A due 2012 which may be
amended from time to time (this "Letter of Transmittal"), which
together constitute the Issuer's offer (the "Exchange Offer") to
exchange $1,000 principal amount of its 11-5/8% Pooled Project Bonds,
Series A-1 due 2012 (the "Exchange Bonds") which have been registered
under the Securities Act of 1933, as amended (the "Securities Act")
for each $1,000 in principal amount of its outstanding 11-5/8% Pooled
Project Bonds, Series A due 2012 (the "Old Bonds") which were issued
and sold in a transaction exempt from registration under the
Securities Act. Each term used herein with its initial letter
capitalized and not otherwise defined herein shall have the meaning
assigned to such term in the Prospectus.
Only a registered holder of the Old Bonds may tender such Old
Bonds in the Exchange Offer. Any beneficial owner whose Old Bonds are
registered in the name of a broker, dealer, commercial bank, trust
company or other nominee and who wishes to tender should contact the
registered holder promptly and instruct such registered holder to
tender on such beneficial owner's behalf. To tender in the Exchange
Offer, a holder must, prior to the Expiration Date, either (a)
complete and sign this Letter of Transmittal (or a facsimile thereof),
in accordance with the instructions contained herein and in the
Prospectus, and deliver such Letter of Transmittal, together with any
signature guarantees and any other documents required by this Letter
of Transmittal, to the Exchange Agent at its address set forth on the
cover page of this Letter of Transmittal and the tendered Old Bonds
must either be (i) physically delivered to the Exchange Agent or (ii)
transferred by book-entry to the account maintained by the Exchange
Agent at The Depository Trust Company ("DTC") and a confirmation of
such book-entry transfer must be received by the Exchange Agent prior
to the Expiration Date, or (b) comply with the guaranteed delivery
procedures set forth under the caption "The Exchange Offer -
Guaranteed Delivery Procedures" in the Prospectus (see Instruction 3)
in the event a holder's Old Bonds are not immediately available, or
time will not permit such holder's Old Bonds or any other required
documents to reach the Exchange Agent prior to the Expiration Date.
To be validly tendered, the Old Bonds, together with a properly
completed Letter of Transmittal (or facsimile thereof), executed by
the holder of record thereof, and any other documents required by this
Letter of Transmittal, must be received by the Exchange Agent at the
address set forth on the cover page of this Letter of Transmittal
prior to 5:00 p.m., New York City time, on the Expiration Date, except
as otherwise provided under the guaranteed delivery procedures.
Upon satisfaction or waiver of the conditions of the Exchange
Offer, the Issuer will accept for exchange any and all Old Bonds which
are properly tendered and not withdrawn prior to the Expiration Date.
For purposes of the Exchange Offer, the Issuer shall be deemed to have
accepted properly tendered Old Bonds when, as and if the Issuer has
given oral or written notice thereof to the Exchange Agent. The
Exchange Agent will act as agent for the tendering holders of Old
Bonds for the purpose of receiving the Exchange Bonds from the Issuer
and transmitting the Exchange Bonds to each holder exchanging Old
Bonds.
The Instructions included with this Letter of Transmittal must be
followed in their entirety. Questions and requests for assistance or
for additional copies of the Prospectus or this Letter of Transmittal
may be directed to the Exchange Agent, at the address listed above, or
William C. Nordlund, General Counsel of the Issuer, at (972) 980-7159,
4100 Spring Valley Road, Suite 1001, Dallas, Texas 75244.
PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL, INCLUDING THE
INSTRUCTIONS TO THIS LETTER OF TRANSMITTAL, CAREFULLY
BEFORE COMPLETING ANY BOX BELOW
List in Box 1 below the Old Bonds of which you are the registered
holder. If the space provided in Box 1 is inadequate, list the
certificate numbers and principal amount of Old Bonds on a separate
signed schedule and affix that schedule to this Letter of Transmittal.
Holders tendering Old Bonds represented by a certificate must provide a
DTC account number for delivery of the Exchange Bonds issued in exchange
therefor.
TO BE COMPLETED BY ALL TENDERING HOLDERS
BOX 1
DESCRIPTION OF OLD BONDS TENDERED
(Attach additional signed pages, if necessary)
Aggregate
Name(s) and address(es), and if Principal Aggregate
applicable DTC account numbers, of Certificate Amount Principal
Registered Holder(s) of Old Bonds Number(s) Represented Amount
exactly as name(s) appear(s) on of Old Bonds(1) by Certicate(s) Tendered(2)
Old Bonds Certificate(s)
Totals:
(1) Need not be completed if Old Bonds are being
tendered by book-entry transfer.
(2) Unless otherwise indicated, the entire principal
amount of Old Bonds represented by a certificate or
book-entry confirmation delivered to the Exchange Agent
will be deemed to have been tendered. All tenders must
be in integral multiples of $1,000 of principal amount.
BOX 2
BENEFICIAL OWNER(S)
State of Principal Residence of Principal Amount of Tendered Old Bonds
Each Beneficial Owner of Tendered Held for Account of Beneficial Owner
Old Bonds
Ladies and Gentlemen:
The undersigned hereby tenders the Old Bonds described in Box 1
above pursuant to the terms and conditions described in the Prospectus
and this Letter of Transmittal. The undersigned is the registered
owner of all the tendered Old Bonds and the undersigned represents
that it has received from each beneficial owner of tendered Old Bonds
a duly completed and executed form of "Instruction to Registered
Holder from Beneficial Owner" accompanying this Letter of Transmittal,
instructing the undersigned to take the action described in this
Letter of Transmittal. Subject to, and effective upon, the acceptance
for exchange of the Old Bonds tendered with this Letter of
Transmittal, the undersigned exchanges, assigns and transfers to, or
upon the order of, the Issuer all right, title and interest in and to
the Old Bonds tendered.
The undersigned hereby irrevocably constitutes and appoints the
Exchange Agent the agent and attorney-in-fact of the undersigned (with
full knowledge that the Exchange Agent also acts as the agent of the
Issuer) with respect to the tendered Old Bonds, with full power of
substitution, to: (a) deliver certificates for such Old Bonds to or
for the order of the Issuer; (b) deliver Old Bonds and all
accompanying evidence of transfer and authenticity to, or upon the
order of, the Issuer, upon receipt by the Exchange Agent, as the
undersigned's agent, of the Exchange Bonds to which the undersigned is
entitled upon the acceptance by the Issuer of the Old Bonds tendered
in the Exchange Offer; and (c) receive all benefits and otherwise
exercise all rights of beneficial ownership of the Old Bonds, all in
accordance with the terms of the Exchange Offer. The power of attorney
granted in this paragraph shall be deemed irrevocable and coupled with
an interest.
The undersigned hereby represents and warrants that the
undersigned has full right, power and authority to tender, exchange,
assign and transfer the Old Bonds tendered hereby and that the Issuer
will acquire good and unencumbered title thereto, free and clear of
all liens, restrictions, charges and encumbrances and not subject to
any adverse claim. The undersigned will, upon request, execute and
deliver any additional documents deemed by the Issuer to be necessary
or desirable to complete and give effect to the transactions
contemplated hereby.
The undersigned agrees that acceptance of any tendered Old Bonds
by the Issuer and the issuance of Exchange Bonds (together with the
guaranty of Panda Interfunding Corporation (the "Company") with
respect thereto) in exchange therefor shall constitute performance in
full by the Issuer and the Company of their obligations under the
Registration Rights Agreement (as defined in the Prospectus) and that,
upon the issuance of the Exchange Bonds, the Issuer and the Company
will have no further obligations or liabilities thereunder (except in
certain limited circumstances as set forth therein). By tendering Old
Bonds, the undersigned certifies, acknowledges and agrees that (a) the
Exchange Bonds to be acquired by the undersigned and any beneficial
owner(s) of such Old Bonds ("Beneficial Owner(s)") in connection with
the Exchange Offer are being acquired by the undersigned and such
Beneficial Owner(s) in the ordinary course of business of the
undersigned and any Beneficial Owner(s); (b) the undersigned (other
than a broker-dealer referred to clause (g) below) and each Beneficial
Owner are not participating and do not intend to participate in the
distribution (within the meaning of the Securities Act) of the
Exchange Bonds; (c) the undersigned and each Beneficial Owner have no
arrangement or understanding with any person to participate in the
distribution (within the meaning of the Securities Act) of the
Exchange Bonds; (d) the undersigned and each Beneficial Owner
acknowledge and agree that any person participating in the Exchange
Offer for the purpose of distributing the Exchange Bonds must comply
with the registration and prospectus delivery requirements of the
Securities Act in connection with a secondary resale transaction of
the Exchange Bonds acquired by such person and cannot rely on the
position of the staff of the Commission that is discussed under "The
Exchange Offer - Resales of Exchange Bonds" in the Prospectus; (e) the
undersigned and each Beneficial Owner understand that a secondary
resale transaction described in clause (d) above should be covered by
an effective registration statement containing the selling security
holder information required by Item 507 of Regulation S-K of the
Commission; (f) neither the undersigned nor any Beneficial Owner is an
"affiliate" (within the meaning of Rule 405 promulgated under the
Securities Act) of the Company, the Issuer or Panda Interholding
Corporation, or if it is an affiliate, it will comply with
the registration and prospectus delivery requirements of the
Securities Act to the extent applicable; and (g) each broker-dealer that
receives Exchange Bonds for its own account in exchange for Old Bonds,
where such Old Bonds were acquired by such broker-dealer as a result of
market making activities or other trading activities, will deliver a
prospectus in connection with any resale of such Exchange Bonds. By so
acknowledging and by delivering a prospectus, a broker-dealer will not
be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act.
The undersigned acknowledges that the tender of Old Bonds in the
Exchange Offer will constitute a binding agreement between the
undersigned and the Issuer upon the terms and subject to the
conditions of the Exchange Offer. The undersigned understands that
the Issuer may accept the undersigned's tender by giving oral or
written notice of acceptance to the Exchange Agent, at which time the
undersigned's right to withdraw such tender will terminate. All
authority conferred or agreed to be conferred by this Letter of
Transmittal shall survive the death or incapacity of the undersigned,
and every obligation of the undersigned under this Letter of
Transmittal shall be binding upon the undersigned's heirs, personal
representatives, successors and assigns. Tenders may be withdrawn
only in accordance with the procedures set forth in the Instructions
contained in this Letter of Transmittal.
Unless otherwise indicated in Box 4 or 5 below, the Exchange
Agent will issue and deliver (a) Exchange Bonds to the undersigned by
crediting the undersigned's account maintained at DTC and (b) if applicable,
any Old Bonds not tendered or exchanged but represented by a certificate
also encompassing Old Bonds which are tendered or exchanged) to the
undersigned at the address set forth in Box 1 above, or if tenders are
made by book-entry transfer, by crediting the undersigned's account
maintained at DTC.
The undersigned acknowledges that the Exchange Offer is subject
to the more detailed terms set forth in the Prospectus and, in case of
any conflict between the terms of the terms of the Prospectus and this
Letter of Transmittal, the Prospectus shall prevail.
___ CHECK HERE IF TENDERED OLD BONDS ARE ENCLOSED HEREWITH.
___ CHECK HERE IF TENDERED OLD BONDS ARE BEING DELIVERED BY BOOK-
ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE
AGENT WITH DTC AND COMPLETE THE FOLLOWING:
Name of Tendering Institution
Account Number
Transaction Code Number
___ CHECK HERE IF TENDERED OLD BONDS ARE BEING DELIVERED PURSUANT TO
A NOTICE OF GUARANTEED DELIVERY ENCLOSED HEREWITH AND COMPLETE
THE FOLLOWING:
Name(s) of Registered Holder(s)
Date of Execution of Notice of Guaranteed Delivery
Window Ticket Number (if available)
Name of Institution which Guaranteed Delivery
Account Number (if delivered by book-entry transfer)
___ CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10
ADDITIONAL COPIES OF THE PROSPECTUS AND ANY AMENDMENTS OR
SUPPLEMENTS THERETO.
Name
Address
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
TO BE COMPLETED BY ALL TENDERING HOLDERS
BOX 3
PLEASE SIGN HERE
WHETHER OR NOT OLD BONDS ARE BEING
PHYSICALLY TENDERED HEREBY
This box must be signed by registered holder(s) of Old Bonds
as their name(s) appear on certificate(s) for Old Bonds, or
by person(s) authorized to become registered holder(s) by
endorsement and documents transmitted with this Letter of
Transmittal. If signature is by a trustee, executor,
administrator, guardian, officer or other person acting in a
fiduciary or representative capacity, such person must set
forth his or her full title below. (See Instruction 4)
X
X
Signature(s) of Owner(s) or Authorized Signatory
Date:
Name(s):
(Please Print)
Capacity:
Address:
(Include Zip Code)
Area Code and Telephone No.:
PLEASE COMPLETE SUBSTITUTE FORM W-9 HEREIN
SIGNATURE GUARANTEE (See Instruction 4)
Certain Signatures Must Be Guaranteed by an Eligible
Institution
(Name of Eligible Institution Guaranteeing Signatures)
(Address (including zip code) and Telephone Number
(including area code) of Firm)
(Authorized Signature)
(Title)
(Printed Name)
Date:
PAYOR'S NAME: PANDA FUNDING CORPORATION
SUBSTITUTE
FORM W-9
Part 1-Please Social Security Number
Provide Your
TIN in the Box at OR
Right and Certify
Department of the by Signing and Employer ID Number
Treasury Internal Dating Below
Revenue Service
Payor's Request for Part 2-Certification-Under Penalties Part 3-
Taxpayer of Perjury, I certify: Awaiting
Identification
Number (TIN) (1) The number shown on TIN
this form is my correct
Taxpayer Identification
Number (or I am waiting for
a number to be issued to
me), and
(2) I am not subject to
back withholding because
(a) I am exempt from backup
withholding, (b) I have not
been notified by the
Internal Revenue Service
(the "IRS") that I am
subject to backup
withholding as a result of
a failure to report all
interest or dividends, or
(c) the IRS has notified me
that I am no longer subject
to backup withholding.
Certification Instructions -
You must cross out item (2)
above if you have been
notified by the IRS that you
are subject to backup
withholding because of under
reporting interest or
dividends on your tax return.
However, if after being
notified by the IRS that you
were subject to backup
withholding you received
another notification from the
IRS stating that you are no
longer subject to backup
withholding, do not cross out
item (2).
SIGNATURE DATE
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN
BACKUP WITHHOLDING OF 31% OF ANY PAYMENT MADE TO YOU PURSUANT TO
THE EXCHANGE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR
CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE
FORM W-9 FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU
CHECKED THE BOX IN PART 3 OF SUBSTITUTE FORM W-9
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer
identification number has not been issued to me, and either
(a) I have mailed or delivered an application to receive a
taxpayer identification number to the appropriate Internal
Revenue Service Center or Social Security Administration
Office or (b) I intend to mail or deliver such an
application in the near future. I understand that if I do
not provide a taxpayer identification number within sixty
(60) days, 31% of all reportable payments made to me
thereafter will be withheld until I provide such a number.
Signature Date
BOX 4 BOX 5
SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 6 and 7) (See Instructions 6 and 7)
To be completed ONLY if To be completed ONLY if
certificates for Old Bonds in certificates for Old Bonds in
a principal amount not a principal amount not
exchanged, or Exchange Bonds, exchanged are to be sent to
are to be issued in the name someone other than the person
of someone other than the whose signature appears in Box
person whose signature 3 or to an address other than
appears in Box 3, or in the that shown in Box 1.
case of Old Bonds delivered
by book-entry transfer which
are not exchanged, are to be
credited to an account
maintained at DTC other than
the account indicated above.
Issue: Deliver:
(check appropriate boxes) (check appropriate boxes)
Old Bonds not tendered to: Old Bonds not tendered to:
Exchange Bonds to: Exchange Bonds to:
(Please Print) (Please Print)
Name: Name:
Address: Address:
Credit DTC Account Number (if
applicable):
Please complete the Substitute Please complete the Substitute Form W-9
Substitute Form W-9
Tax Identification or Social Tax Identification or Social
Security Number: Security Number:
INSTRUCTIONS TO LETTER OF TRANSMITTAL
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. Delivery of this Letter of Transmittal and Certificates.
Certificates for Old Bonds or a confirmation of book-entry transfer,
as the case may be, as well as a properly completed and duly executed
Letter of Transmittal and any other documents required by this Letter
of Transmittal, must be received by the Exchange Agent at its address
set forth herein prior to 5:00 p.m., New York City time, on the
Expiration Date.
THE METHOD OF DELIVERY OF THE OLD BONDS AND THIS LETTER OF
TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS
AT THE ELECTION AND RISK OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL,
IT IS RECOMMENDED THAT HOLDERS USE AN OVERNIGHT OR HAND DELIVERY
SERVICE. IF DELIVERY IS TO BE MADE BY MAIL, IT IS SUGGESTED THAT THE
HOLDER USE PROPERLY INSURED, REGISTERED MAIL WITH RETURN RECEIPT
REQUESTED, AND THAT THE MAILING BE MADE SUFFICIENTLY IN ADVANCE OF THE
EXPIRATION DATE. DELIVERY WILL BE DEEMED MADE WHEN ACTUALLY RECEIVED
BY THE EXCHANGE AGENT. NO LETTER OF TRANSMITTAL OR THE OLD BONDS
SHOULD BE SENT TO THE ISSUER OR THE COMPANY.
2. Beneficial Owner Instructions to Registered Holders. Any
Beneficial Owner whose Old Bonds are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and
who wishes to tender should contact the registered holder promptly and
instruct such registered holder to tender on such Beneficial Owner's
behalf. See "Instructions to Registered Holder from Beneficial
Owner" accompanying this Letter of Transmittal.
3. Guaranteed Delivery Procedures. If a holder of Old Bonds
desires to tender such Old Bonds and if the Old Bonds are not
immediately available, or time will not permit such holder's Old Bonds
or any other required documents to reach the Exchange Agent before
5:00 p.m., New York City time, on the Expiration Date, a tender for
exchange may be effected if: (a) the tender for exchange is made by
or through an Eligible Institution; (b) prior to 5:00 p.m., New York
City time, on the Expiration Date, the Exchange Agent has received
from such Eligible Institution a properly completed and duly executed
Notice of Guaranteed Delivery (by facsimile transmission, mail or hand
delivery) setting forth the name and address of the holder of the Old
Bonds and the principal amount of Old Bonds tendered for exchange,
stating that tender is being made thereby and guaranteeing that,
within five Business Days after the Expiration Date, the duly executed
Letter of Transmittal, properly completed and validly executed,
together with the Old Bonds in proper form for transfer (or
confirmation of book-entry transfer of such Old Bonds into the
Exchange Agent's account with DTC), and any other documents required
by this Letter of Transmittal and the instructions thereto, will be
deposited by the Eligible Institution with the Exchange Agent; and (c)
such properly completed and executed Letter of Transmittal, as well as
the certificate(s) representing all tendered Old Bonds in proper form
for transfer (or confirmation of book-entry transfer of such Old Bonds
into the Exchange Agent's account with DTC) and all other documents
required by this Letter of Transmittal, are received by the Exchange
Agent within five Business Days after the Expiration Date.
4. Signatures on this Letter of Transmittal; Guarantee of
Signatures; Bond Powers. If this Letter of Transmittal is signed by
the holder(s) of Old Bonds tendered hereby, the signature must
correspond with the name(s) as written on the face of the
certificate(s) for such Old Bonds, without alteration, enlargement or
any change whatsoever. If any of the Old Bonds tendered hereby are
owned by two or more joint owners, all owners must sign this Letter of
Transmittal. If any tendered Old Bonds are held in different names on
several certificates, it will be necessary to complete, sign and
submit as many separate copies of this Letter of Transmittal as there
are names in which certificates are held.
Signatures on a Letter of Transmittal must be guaranteed unless
the Old Bonds tendered pursuant thereto are (a) tendered by a
registered holder of the Old Bonds who has not completed the Box 4
entitled "Special Issuance Instructions" or Box 5 entitled "Special
Delivery Instructions" in this Letter of Transmittal or (b) tendered
for the account of an Eligible Institution (as defined below). In the
event that signatures on a Letter of Transmittal are required to be
guaranteed, such guarantee must be by a firm that is a member of a
registered national securities exchange or a member of the National
Association of Securities Dealers, Inc. or by a commercial bank or
trust company having an office or correspondent in the United States,
or by an entity that is otherwise an "eligible guarantor institution"
within the meaning of Rule 17Ad-15 under the Securities Exchange Act
of 1934, as amended (an "Eligible Institution").
If this Letter of Transmittal is signed by a person other than
the registered holder of any Old Bonds listed therein, such Old Bonds
must be endorsed by the registered holder or accompanied by a properly
completed bond power or other written instrument of transfer in form
satisfactory to the Issuer in its sole discretion, signed by such
registered holder as such registered holder's name appears on such Old
Bonds. If this Letter of Transmittal is signed by the registered
holder and (a) the entire principal amount of the holder's Old Bonds
is tendered or (b) untendered Old Bonds are to be issued to the
registered holder, then the registered holder need not endorse any
certificates for tendered Old Bonds or provide a separate bond power.
In any other case, the registered holder must transmit a separate bond
power with this Letter of Transmittal.
If this Letter of Transmittal or any Old Bonds or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-
fact, officers of corporations or others acting in a fiduciary or
representative capacity, such persons should so indicate when signing,
and proper evidence satisfactory to the Issuer of their authority to
so act must be submitted.
5. Tax Identification Number. Unless an exemption applies
under the applicable law and regulations concerning "backup
withholding" of federal income tax, the Exchange Agent will be
required to withhold, and will withhold, 31% of the gross proceeds
otherwise payable to a holder pursuant to the Exchange Offer if the
holder does not provide his or her taxpayer identification number
(social security number or employer identification number) and certify
that such number is correct. Each tendering holder should complete and
sign the Substitute Form W-9 included as part of this Letter of
Transmittal so as to provide the information and certification
necessary to avoid backup withholding, unless an applicable exemption
exists and is proved in a manner satisfactory to the Issuer and the
Exchange Agent. See the enclosed "Guidelines for Certification of
Taxpayer Identification Number on Substitute Form W-9" for additional
instructions.
The Issuer reserves the right in its sole discretion to take
whatever steps it deems necessary to comply with the Issuer's
obligation regarding backup withholding.
6. Partial Tenders; Withdrawals. If less than the entire
principal amount of any Old Bond is tendered, the tendering holder
must fill in the principal amount tendered in the fourth column of Box
1 above. The entire principal amount of Old Bonds represented by a
certificate delivered to the Exchange Agent or transferred by book-
entry to the Exchange Agent will be deemed to have been tendered
unless otherwise indicated. In the case of Old Bonds tendered by
delivery of a certificate, a certificate for Old Bonds in a principal
amount not accepted for exchange or not tendered will be issued to and
sent to the holder, unless otherwise provided in Box 4 or 5, as soon
as practicable after the Expiration Date. In the case of Old Bonds
tendered by a book-entry transfer, the principal amount not accepted
for exchange or not tendered will be credited to the account
maintained by the holder with DTC, unless otherwise provided in Box 4,
as soon as practicable after the Expiration Date.
Tenders of Old Bonds may be withdrawn at any time prior to the
Expiration Date. Thereafter, such tenders are irrevocable. To withdraw
a tender of Old Bonds in the Exchange Offer, a written notice of
withdrawal, delivered by hand, mail or facsimile transmission, must
(a) be received by the Exchange Agent prior to 5:00 p.m., New York
City time, on the Expiration Date at the address set forth on the
cover hereof, (b) specify the name of and be signed by the registered
holder of such Old Bonds in the same manner as the applicable Letter
of Transmittal (including any required signature guarantees) as set
forth in "The Exchange Offer - Procedures for Tendering" in the
Prospectus, (c) specify the name of the person identified in this
Letter of Transmittal as having tendered the Old Bonds to be withdrawn
and (d) specify the aggregate principal amount represented by such
withdrawn Old Bonds. If Old Bonds have been tendered pursuant to the
procedures for book-entry transfer as set forth herein, any notice of
withdrawal must also specify the name and number of the account at DTC
to be credited with the withdrawn Old Bonds. Withdrawals of tenders
of Old Bonds may not be rescinded, and any Old Bonds withdrawn will
thereafter be deemed not validly tendered for purposes of the Exchange
Offer; provided, however, that withdrawn Old Bonds may be re-tendered
by again complying with the procedures for tendering Old Bonds
described herein at any time prior to 5:00 p.m., New York City time,
on the Expiration Date.
All questions as to the validity, form and eligibility (including
time of receipt) of notices of withdrawal will be determined by the
Issuer, such determination to be final and binding. None of the
Company, the Issuer, the Exchange Agent or any other person will be
under any duty to give notification of any defects or irregularities
in any notice of withdrawal of Old Bonds or incur any liability for
failure to give any such notification.
7. Special Issuance and Delivery Instructions. Tendering
holders must indicate in Box 4 or 5, as applicable, the name and
address to which the Exchange Bonds or certificates for principal
amounts of Old Bonds not tendered or not accepted for exchange are to
be issued and/or sent, if different from the name and address of the
person signing this Letter of Transmittal. In the case of issuance in
a different name, the tax identification number of the person named
must also be indicated. Holders tendering Old Bonds by book-entry
transfer may request that principal amounts of Old Bonds not tendered
or not accepted for exchange be credited to such account maintained at
DTC as such holder may designate. Any transfer of a beneficial
interest in a Bond must be made in accordance with the provisions of
the Indenture.
8. Transfer Taxes. The Issuer will pay all transfer taxes, if
any, applicable to the transfer of Old Bonds to it or its order
pursuant to the Exchange Offer. If, however, the Exchange Bonds or
Old Bonds not exchanged are to be delivered to, or are to be issued in
the name of, any person other than the record holder, or if tendered
certificates are recorded in the name of any person other than the
person signing this Letter of Transmittal, or if a transfer tax is
imposed by any reason other than the transfer of Old Bonds to the
Issuer or its order pursuant to the Exchange Offer, then the amount of
such transfer taxes (whether imposed on the record holder or any other
person) will be payable by the tendering holder. If satisfactory
evidence of payment of taxes or exemption from taxes is not submitted
with this Letter of Transmittal, the amount of transfer taxes will be
billed directly to the tendering holder.
Except as provided in this Instruction 8, it will not be
necessary for transfer tax stamps to be affixed to the certificates
listed in this Letter of Transmittal.
9. Validity of Tenders. All questions as to the validity,
form, eligibility (including time of receipt) and acceptance of Old
Bonds tendered for exchange will be determined by the Issuer in its
sole discretion, whose determination will be final and binding. The
Issuer reserves the absolute right to reject any or all tenders that
are not in proper form or the acceptance of which would, in the
opinion of the Issuer or counsel for the Issuer, be unlawful. The
Issuer also reserves the right to waive certain of the conditions to
the Exchange Offer or any irregularities or defects in the tender of
Old Bonds. The Issuer's interpretation of the terms and conditions of
the Exchange Offer (including the instructions in this Letter of
Transmittal) will be final and binding on all persons. Unless waived,
any irregularities in connection with tenders of Old Bonds must be
cured within such time as the Issuer shall determine. Neither the
Company, the Issuer, the Exchange Agent nor any other person shall be
under any duty to give notifications of defects or irregularities in
such tenders or shall incur any liability for failure to give such
notification. Tenders of Old Bonds will not be deemed to have been
made until any defects with respect to such tenders have been cured or
waived.
10. Waiver of Conditions. The Issuer reserves the absolute
right to amend or waive any of the specified conditions in the
Exchange Offer in the case of any Old Bonds tendered.
11. Mutilated, Lost, Stolen or Destroyed Certificates. Any
holder whose certificates for Old Bonds have been mutilated, lost,
stolen or destroyed should contact the Exchange Agent at (800) 735-7777
for further instructions.
12. Requests for Assistance or Additional Copies. Questions
relating to the procedure for tendering, as well as requests for
additional copies of the Prospectus or this Letter of Transmittal, may
be directed to the Exchange Agent at the address listed above, or
William C. Nordlund, General Counsel of the Issuer, at (972) 980-7159,
4100 Spring Valley Road, Suite 1001, Dallas, Texas 75244.
IMPORTANT: This Letter of Transmittal (together with certificates
representing tendered Old Bonds or a confirmation of a book-entry
transfer and all other required documents) must be received by the
Exchange Agent prior to 5:00 p.m., New York City time, on the
Expiration Date.
EXHIBIT 99.02
NOTICE OF GUARANTEED DELIVERY
for tender of
11-5/8% Pooled Project Bonds, Series A due 2012
of
Panda Funding Corporation
This form or one substantially equivalent hereto must be used to
accept the Exchange Offer (as defined below) if the 11-5/8% Pooled Project
Bonds, Series A due 2012 (the "Old Bonds") of Panda Funding Corporation
(the "Issuer") are not immediately available or if the procedure for book-
entry transfer cannot be completed on a timely basis or time will not
permit all required documents to reach the Exchange Agent prior to the
Expiration Date (as defined below) as set forth in the Prospectus dated
February 14, 1997 (as the same may be amended or supplemented from time to
time, the "Prospectus") of the Issuer under the caption "The Exchange Offer
- - Procedures for Tendering" and in the Letter of Transmittal. Such form
may be delivered by hand or transmitted by telegram, telex, facsimile
transmission or letter to the Exchange Agent. Each term used herein with
its initial letter capitalized and not otherwise defined shall have the
meaning assigned to such term in the Prospectus.
TO:
BANKERS TRUST COMPANY
(the "Exchange Agent")
Facsimile Transmission:
(615) 835-3701
Confirm by telephone to:
(615) 835-3572
By Certified Mail: By Hand Delivery:
BT Services Tennessee, Inc. Bankers Trust Company
Reorganization Unit Corporate Trust & Agency Group
P.O. Box 292737 Receipt & Delivery Window
Nashville, TN 37229-2737 123 Washington Street, 1st Floor
New York, NY 10006
By Overnight Courier
or Certified Mail:
BT Services Tennessee, Inc.
Corporate Trust & Agency Group
Reorganization Unit
648 Grassmere Park Road
Nashville, TN 37211
For Information Call:
(800) 735-7777
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN THE ONE
LISTED ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
Ladies and Gentlemen:
The undersigned hereby tenders to the Issuer, upon the terms and conditions
set forth in the Prospectus and the Letter of Transmittal (which together
constitute the "Exchange Offer"), receipt of which are hereby acknowledged,
the principal amount of Old Bonds set forth below pursuant to the
guaranteed delivery procedures described in the Prospectus and the Letter
of Transmittal.
The undersigned understands and acknowledges that the Exchange Offer will
expire at 5:00 p.m., New York City time, on March 19, 1997, unless
extended by the Issuer. With respect to the Exchange Offer, "Expiration
Date" means such time and date, or if the Exchange Offer is extended, the
latest time and date to which the Exchange Offer is so extended by the
Issuer.
All authority herein conferred or agreed to be conferred by this Notice of
Guaranteed Delivery shall survive the death or incapacity of the
undersigned and every obligation of the undersigned under this Notice of
Guaranteed Delivery shall be binding upon the heirs, personal
representatives, executors, administrators, successors, assigns, trustees
in bankruptcy and other legal representatives of the undersigned.
Name(s) of Record Holders: Principal amount of Old Bonds tendered:
$
Certificate Nos. of Old Bonds (if available):
(Please Type or Print)
Address:
IF OLD BONDS WILL BE DELIVERED BY BOOK
Area Code and ENTRY TRANSFER, CHECK BOX AND PROVIDE THE
Telephone No.: DEPOSITORY TRUST COMPANY ACCOUNT
NUMBER:
Capacity (full title), if signing
in a representative capacity:
Account No.:
Tax Payer Identification
or Social Security Number:
SIGNATURES
Signature of Record Holder
Signature of Record Holder (if more than one)
Dated:
GUARANTEE OF DELIVERY
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a member of a registered national securities exchange or a
member of the National Association of Securities Dealers, Inc. or a
commercial bank or trust company having an office or correspondent in the
United States or an entity that is otherwise an "eligible guarantor
institution" within the meaning of Rule 17Ad-15 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), hereby guarantees
(a) that the above-named person(s) own(s) the above-described securities
tendered hereby within the meaning of Rule 10b-4 under the Exchange Act,
(b) that such tender of the above-described securities complies with Rule
10b-4, and (c) that delivery to the Exchange Agent of securities tendered
hereby, in proper form for transfer, or confirmation of book-entry transfer
of such securities into Exchange Agent's account at The Depository Trust
Company pursuant to the procedure for book-entry transfer, in either case
with delivery of a properly completed and duly executed Letter of
Transmittal and any other required documents, is being made within five
Business Days after the Expiration Date.
(Name of Firm) (Authorized Signature)
Address:
Title:
Name:
(please type or print)
Area Code and
Telephone No.:
Date:
Fax No.:
NOTE: DO NOT SEND CERTIFICATES REPRESENTING OLD BONDS WITH THIS NOTICE.
OLD BONDS MUST BE SENT TO THE EXCHANGE AGENT WITH A PROPERLY COMPLETED AND
DULY EXECUTED LETTER OF TRANSMITTAL.
