SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
_X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT
OF 1934__ For the fiscal year ended December 31, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE
ACT OF 1934__ For the transition period from _________ to _________
Commission File No. 0-24143
RIDGEWOOD ELECTRIC POWER TRUST V
(Exact Name of Registrant as Specified in Its Charter)
Delaware 22-3437351
(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation or Organization)
c/o Ridgewood Power Corporation, 947 Linwood Avenue, Ridgewood, New Jersey
07450
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (201) 447-9000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Investor Shares of Beneficial Interest
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.[X]
There is no market for the Shares. The aggregate capital contributions made
for the Registrant's voting Shares held by non-affiliates of the Registrant at
April 14, 2000 was $93,288,750.
Exhibit Index is located on page [ ].
<PAGE>
PART I
Item 1. Business.
Forward-looking statement advisory
This Annual Report on Form 10-K, as with some other statements made by the Trust
from time to time, has forward-looking statements. These statements discuss
business trends, year 2000 remediation and other matters relating to the Trust's
future results and the business climate and are found, among other places, at
Items 1(c)(3), 1(c)(4), 1(c)(6)(ii) and 7. In order to make these statements,
the Trust has had to make assumptions as to the future. It has also had to make
estimates in some cases about events that have already happened, and to rely on
data that may be found to be inaccurate at a later time. Because these
forward-looking statements are based on assumptions, estimates and changeable
data, and because any attempt to predict the future is subject to other errors,
what happens to the Trust in the future may be materially different from the
Trust's statements here.
The Trust therefore warns readers of this document that they should not
rely on these forward-looking statements without considering all of the things
that could make them inaccurate. The Trust's other filings with the Securities
and Exchange Commission and its Confidential Memorandum discuss many (but not
all) of the risks and uncertainties that might affect these forward-looking
statements.
Some of these are changes in political and economic conditions, federal or
state regulatory structures, government taxation, spending and budgetary
policies, government mandates, demand for electricity and thermal energy, the
ability of customers to pay for energy received, supplies of fuel and prices of
fuels, operational status of plant, mechanical breakdowns, availability of labor
and the willingness of electric utilities to perform existing power purchase
agreements in good faith. Some of these cautionary factors that readers should
consider are described below at Item 1(c)(4) - Trends in the Electric Utility
and Independent Power Industries.
By making these statements now, the Trust is not making any commitment to
revise these forward-looking statements to reflect events that happen after the
date of this document or to reflect unanticipated future events.
(a) General Development of Business.
Ridgewood Electric Power Trust V, the Registrant hereunder (the "Trust"),
was organized as a Delaware business trust on March 12, 1996 to participate in
the development, construction and operation of independent power generating
facilities
("Independent Power Projects" or "Projects") and similar capital projects
(also, "Projects"). Ridgewood Energy
Holding Corporation ("Ridgewood Holding"), a Delaware corporation, is the
Corporate Trustee of the Trust.
The Trust sold whole and fractional shares of beneficial interest in the
Trust ("Investor Shares") at $100,000 per Investor Share, and terminated its
private placement offering on April 15, 1998. It raised approximately
$93,000,000. Net of offering fees, commissions and expenses, the offering
provided approximately $76,000,000 for investments in the development and
acquisition of Independent Power Projects and operating expenses. The Trust has
approximately 1,611 holders of Investor Shares (the "Investors"). As described
below in Item 1(c)(4), as of December 31, 1999 the Trust had invested
approximately $55.9 million of its funds in the acquisition of interests in four
sets of Independent Power Projects and five other Projects and is actively
seeking additional Projects for investment.
The Trust is organized to be similar to a limited partnership. Ridgewood
Power LLC(the "Managing Shareholder"), a Delaware corporation, is the Managing
Shareholder of the Trust. For information about the merger of the prior Managing
Shareholder , Ridgewood Power Corporation, into Ridgewood Power LLC, see Item
10(b) - Directors and Executive Officers of the Registrant - Managing
Shareholder.
In general, the Managing Shareholder has the powers of a general partner of
a limited partnership. It has complete control of the day-to-day operation of
the Trust and as to most acquisitions. The Trust also has an Independent Panel
which does not exercise general oversight of the Managing Shareholder. The
Independent Panel Members do not have any management or administrative powers
over the Trust or its property, but approval of a majority of the Independent
Panel Members is required for approval of transactions between the Trust and
other investment programs sponsored by the Managing Shareholder. The Corporate
Trustee acts on the instructions of the Managing Shareholder and is not
authorized to take independent discretionary action on behalf of the Trust. See
Item 10 - Directors and Executive Officers of the Registrant below for a further
description of the management of the Trust. The Managing Shareholder and the
Investors are collectively referred to as the "Shareholders."
The Managing Shareholder is controlled by Robert E. Swanson, who is its
controlling equity owner, sole manager and chief executive officer. The
following chart illustrates some of the important relationships among the Trust,
the Managing Shareholder and some of their affiliates. For additional
information, see Item 10 -- Directors and Executive Officers of the Registrant.
Ridgewood Electric Power Trust V and certain affiliates as of March 1, 2000
(some entities and relationships omitted)
Robert E. Swanson Family trusts
x x (Mr. Swanson has
Sole manager x x sole voting and
Chief executive officer x x investment power)
Owner of 46% of equity x x Owners of 54% of equity
_________________X__________________X______________________________
x x x x x x
x x x x x x
x x x x x x
Ridgewood Ridgewood Power Ridgewood Ridgewood Ridgewood Ridgewood
Securities Management LLC Power LLC Energy Power VI Capital
Corporation Holding LLC Management
Corporation LLC
Operates power Corporate Manager
Placement plants for five Managing Trustee Co-Managing of two
agent power trusts Shareholder for all Shareholder venture
("Ridgewood ("RPMCo") of six six trusts (dormant) capital
Securities") trusts x of the funds &
("Ridgewood x Growth Fund marketing
Power") x ("Power VI Co") affiliate
x x x ("Ridgewood
x x x Capital")
x x x x
______________________________x____________x_____________ x x
x x x x x x x x
x x x x x x x x
Ridgewood Ridgewood Ridgewood Ridgewood Ridgewood The Ridgewood x
Electric Electric Electric Electric Electric Power Growth x
Power Trust Power Trust Power Trust Power Trust Power Trust Fund x
I II III IV V (the x
("Power I") ("Power II") (Power III")("Power IV")(the "Trust") "Growth x
Fund") x
x
________________________________X__
x x
x x
Ridgewood Capital Ridgewood Capital
Venture Partners Venture Partners II
(the "Venture Capital Funds")
Ridgewood Power I through IV are referred to as the "Prior Programs."
(b) Financial Information about Industry Segments.
The Trust operates in only one industry
segment: independent power generation and similar projects.
(c) Narrative Description of Business.
(1) General Description.
The Trust was formed to participate in the development, construction and
operation of independent electric power projects that generate electricity for
sale to utilities and other users, and that might provide heat energy as well to
users. The Trust may also invest in other energy projects (but not in nuclear
facilities) or capital projects that have similar risk-return characteristics to
those of electric power projects. These projects or potential investments for
the Trust will be referred to as "Projects." The Trust has acquired significant
interests in four sets of electric power Projects to date.
The Maine Hydro Projects are 14 small hydroelectric projects located in
Maine. In December 1996 the Trust and an affiliate, Power IV, each acquired a
50% interest in the limited liability company owning the Projects. On July 1,
1997, the Trust and Power IV purchased a preferred membership interest in Indeck
Maine Energy, L.L.C., an Illinois limited liability company ("Indeck Maine")
that owns two electric power generating stations fueled by waste wood at West
Enfield and at Jonesboro, Maine (the "Maine Biomass Projects"). On June 4, 1999,
the Trust and The Ridgewood Power Growth Fund (the "Growth Fund"), a similar
investment program managed by Ridgewood Power LLC (the Managing Shareholder of
the Trust) entered into agreements with the stockholders of Combined Landfill
Projects Limited ("CLP"), of London, England, for a $13.6 million purchase of
100% of the equity interest in four operating landfill gas power plants and one
plant in the late stages of construction, as well as the rights to develop and
construct another 20 landfill gas plants in Great Britain (the "United Kingdom
Landfill Projects"). The transfer closed June 30, 1999.
The Trust and the Growth Fund have also funded Ridgewood Near East
Development, LLC, a New Jersey limited liability company that has invested a
total of $10.6 million through March 1, 2000 in developing electric generation
and distribution systems and water purification systems at Egyptian tourist
resort complexes on the coasts of the Red Sea and Sinai Peninsula (the "Egyptian
Projects"). Operations are expected to begin at one of the sites in March 2000.
For more information, see Item 1(c)(2) - The Trust's Investments, below.
The following chart summarizes some of these relationships:
Ridgewood Power
LLC
x
x Managing Shareholder
x
__________________________X___________
x x
Ridgewood Electric Ridgewood Electric Power
Power Trust IV Trust V
x x
x 50% x 50%
x x
x x
_________X__________________________________X______
x x x
x x x
x x x
Ridgewood Maine x Ridgewood Maine
Hydro Corporation x LLC
x x x
General x x Limited Member x
partner x x partners (50%) x Indeck Energy
(1%) x x (49.5% x Services, Inc.
x x each) x x (50%)
x x x x
Ridgewood Maine Hydro Partners, Indeck Maine Energy
L.P.(owner of Maine Hydro L.L.C.
Projects)
Historically, producers of electric power in the United States consisted of
regulated utilities, government agencies and industrial users that produced
electricity to satisfy their own needs. The independent power industry in the
United States was created by federal legislation passed in response to the
energy crises of the 1970s. The Public Utility Regulatory Policies Act of 1978,
as amended ("PURPA"), requires utilities to purchase electric power from
"Qualifying Facilities" (as defined in PURPA), including "cogeneration
facilities" and "small power producers," and also exempts these Qualifying
Facilities from most utility regulatory requirements. Under PURPA, Projects that
are Qualifying Facilities are generally not subject to federal regulation,
including the Public Utility Holding Company Act of 1935, as amended, and state
regulation. Furthermore, PURPA generally requires electric utilities to purchase
electricity produced by Qualifying Facilities at the utility's avoided cost of
producing electricity (i.e., the incremental costs the utility would otherwise
face to generate electricity itself or purchase electricity from another
source). The Maine Hydro Projects are Qualifying Facilities which have long-term
agreements with local utilities for the purchase of all of their output ("Power
Contracts") at fixed prices. The Maine Biomass Projects are also Qualifying
Facilities but do not have long-term Power Contracts.
The Trust has also invested in five Projects outside the independent power
industry: Santee River Rubber Company, which is building a facility in South
Carolina to recycle used auto and truck tires; Ridgewood WaterPure Corporation,
which is developing technologies to distill water efficiently; MetaSound, Inc.,
which is developing hardware and software to present unique programming for
persons who are on hold while calling businesses; Quantum Conveyor Systems,
Inc., which developed and marketed proprietary conveyor and package sorting
equipment; and Global Fiber Group, which is planning to construct a fiber optic
communications cable under the western portion of the Mediterranean Sea (the
"Mediterranean Fiber Optic Project").
The Trust's Investments.
(i) Maine Hydro Projects
On December 23, 1996, the Trust purchased from Consolidated Hydro, Inc.
a 50% interest in 14 small hydroelectric projects located in Maine. In order to
increase diversification of the Trust's investments, the remaining 50% interest
was purchased by Power V, a similar investment program organized in 1996 by the
Managing Shareholder. Each Trust paid approximately $6,700,000 for its interest
The jointly owned partnership that acquired the Project also assumed a lease
obligation in the amount of $1,005,000.
The 14 hydroelectric projects have an aggregate rated capacity of 11.3
megawatts. All electricity generated by the projects over and above their own
requirements is sold to either Central Maine Power Company or Bangor Hydro
Company under long-term power purchase contracts. Eleven of the contracts expire
at the end of 2008 and the remaining three expire in 2007, 2014 and 2017. Most
of the contracts are subject to price redeterminations in 2000 based on the
Maine Public Utilities Commission's computations of avoided cost. The Trust
anticipates that the prices payable under those contracts will fall by an
average of 7.5%, thus reducing net Project revenues by approximately $350,000
per year beginning in 2000.
The Trust's net equity in the income of the Maine Hydro Projects for 1999
was $849,000 (a 15.0% return on equity), up from $658,000 in 1998.
The Trusts have entered into a five year operating and maintenance
agreement with CHI Energy, Inc. under which a subsidiary of CHI Energy will
manage and administer the projects for a fixed annual fee of $307,500 (adjusted
upwards for inflation), plus an annual incentive fee equal to 50% of the excess
of aggregate net cash flow over a target amount of $1.875 million per year. The
maximum incentive fee is $112,500 per year; to the extent the annual net cash
flow exceeds $2.1 million, the excess will be carried forward to future years;
to the extent that the annual net cash flow is less than $1.875 million, the
deficit will be carried forward to future years. In addition, the operator will
be reimbursed for certain operating and maintenance expenses. In 1999, the
operator was paid a total of $323,000 for operating and incentive fees, down
from $429,000 in 1997. The agreements has a five-year term, expiring on June 30,
2001, and can be extended for two additional five-year terms by mutual consent.
(ii) Maine Biomass Projects
On July 1, 1997, the Trust and Power IV purchased a preferred membership
interest in Indeck Maine Energy, L.L.C., an Illinois limited liability company
("Indeck Maine") that owns two electric power generating stations fueled by
waste wood at West Enfield and at Jonesboro, Maine. The Trust and Power IV
purchased the interest through a limited liability company owned equally by
each. The Trust's share of the purchase price was $7,298,000 and Power IV
provided an equal amount of the total purchase price.
The junior membership interest in Indeck Maine is owned by Indeck Energy
Services, Inc. ("Indeck"). The preferred membership interest entitles the Trust
and Power IV to receive all net cash flow from operations each year until they
receive a 18% annual cumulative return on their capital contributions to Indeck
Maine. Any additional net operating cash flow in that year is paid to Indeck
until the total paid to it equals the amount of the 18% preferred return for
that year, without cumulation. Any remaining net operating cash flow for the
year is payable 25% to the Trust and Power IV together and 75% to Indeck unless
the Trust and Power IV recover their capital contributions from proceeds of a
capital event. Thereafter, these percentages change to 50% each. All
non-operating cash flow, such as proceeds of capital events, is divided equally
between (a) the Trust and Power IV and (b) Indeck.
Under Indeck Maine's amended operating agreement, if the Trust and Power IV
did not receive annual distributions at least equal to the 18% preferred return
requirement or if Indeck Maine after a cure period failed to make distributions
to them in accordance with the operating agreement, they had the right to
designate a majority of the managers of Indeck Maine. Under that arrangement,
until March 1999, Indeck Operations, Inc., an affiliate of Indeck, managed the
plant and was reimbursed for its costs. In addition, the three managers
nominated by the original Indeck Maine members received aggregate annual fees of
$300,000 and certain other fees were payable to Indeck affiliates. The
management agreement could be terminated on notice if the Trust and Power IV
obtained the right to designate a majority of the managers of Indeck Maine.
The Trust, Power IV and Indeck agreed, effective March 1, 1999, to
terminate the arrangements described above and to transfer operating control of
the Projects to the Trust and Power IV. This has occurred and the Trust and
Power IV have engaged RPMCo to operate the two Projects. RPMCo is doing so and
charges its expenses to Indeck Maine at its cost.
Each of the projects has a 24.5 megawatt rated capacity and uses steam
turbines to generate electricity. The fuel is waste wood chips, bark, brush and
similar biomass. Both projects are Qualifying Facilities. The Maine Biomass
Projects are members of the New England Power Pool ("NEPOOL"), an association of
New England generators, transmission utilities, distribution utilities, power
marketers and others. NEPOOL's function is to run the New England electric grid
in the most reliable way possible and to reduce electric costs and
uncertainties. NEPOOL's control and market regulation responsibilities are
managed by ISO-New England, Inc., an independent, non-profit management company.
Under current economic conditions, the Maine Biomass Projects would not be
profitable if they were operated as "base load" plants that run most of the
time. Instead, they are operated as peak load plants on those few days per year
(typically during summer heat waves) when there are power and reserve shortages
in New England. During the rest of the year, the Projects are shut down but are
capable of being restarted on five to ten days' advance notice. Because the
Projects are capable of providing electricity, they are entitled to sell their
"installed capability," a measurement of the rated ability of a generating plant
to create electric power. Plants are credited with installed capability whether
or not they run. For an additional discussion of installed capability and other
concepts related to electricity pricing, see (3) - Plant Operation, below. Each
distribution utility that is a member of NEPOOL must own or purchase installed
capability on a monthly basis that at least equals its expected load for the
month (the maximum amount of power that its customers may demand) plus mandated
reserves. Generating facilities may enter into contracts to sell installed
capability or may auction it through the ISO. The Maine Biomass plants sold
installed capability throughout 1999 under short-term bilateral contracts and
thus earned revenues (approximately $1.4 million) without generating material
amounts of electric power. Prices for installed capability have tended to
decline from the area of $1.50 to $1.75 per kilowatt per month in February 1999
to $1.25 to $1.75 per kilowatt per month in February 2000. In April 2000, the
ISO announced that it believed that unnamed generators and market participants
had engaged in short-term manipulation of the installed capability market and
had caused artificial shortages of installed capability in January 2000. This
was despite the startup or anticipated startup of several new generating
stations in New England, which would increase the supply of installed
capability. Several market participants have called for the ending of the
installed capability market by June 2000, which would materially reduce revenues
to the Maine Biomass Projects. The ISO has announced its intention to phase the
market out by the end of 2002.
In addition, the Maine Biomass Projects operated on apporximately seven
days in June, July, October and December 1999 on dispatch by the ISO. As
described below at Item 1(c)(3) - Plant Operation, the Projects claim that the
ISO owes them approximately $14 million for the electricity products they
provided on those days and the ISO has claimed that no material revenues are due
to the Projects. A description of these disputes is found below.
The cost to the owners of Indeck Maine for maintaining the facilities in
operable condition and for fixed costs such as taxes and insurance was
approximately $2.7 million for both projects in 1999. Additional variable costs
were incurred to run the Projects on the days they were dispatched by the ISO
and on days on which capability or air quality tests were run.
Indeck Maine funded the approximately $2.2 million difference between
the Maine Biomass projects' revenues and operating expenses by borrowing from
its members. The Trust provided 25% of the loans ($525,000 in 1998), Power IV
also provided an equal 25% and the remaining 50% was provided by Indeck, all on
the same terms. Indeck Maine issued demand promissory notes bearing interest at
5% per year to evidence the indebtedness.
Neither Indeck nor its affiliates are affiliated with or has any
material relationship with the Trust, Power IV, their Managing Shareholder or
their affiliates, directors, officers or associates of their directors and
officers.
(iii) Santee River Rubber Company
The Trust and Power IV have purchased preferred membership
interests in Santee River Rubber Company, LLC, a South Carolina limited
liability company ("Santee River"). Santee River is building a waste tire and
rubber processing facility (the "Santee River Project") located in Berkeley
County, South Carolina approximately 90 miles north of Charleston, South
Carolina. The Trust and Power IV purchased the interest through a limited
liability company owned two-thirds by the Trust and one-third by Power IV. The
Trust's share of the $13,470,000 purchase price for the membership interest in
Santee River was $8,980,000 and Power IV provided the remaining $4,490,000 of
the price.
The Santee River Project is designed to receive and process waste tires
and other waste rubber products and produce fine crumb rubber of various sizes.
The Project basically freezes the tires, using liquid nitrogen obtained from a
nearby air-processing plant, shatters the frozen rubber into small pieces, and
grinds and processes the pieces to remove tire cord, steel belts and other
non-rubber materials. The product is crumb-like pieces of rubber. The processing
system includes both ambient and cryogenic processing equipment using liquid
nitrogen. In addition, magnets and other screening equipment will be used to
separate and remove ferrous material and fibers from the rubber. Santee River
believes that the final crumb rubber product will be fine enough for use in
manufacturing new tires or to replace virgin rubber in many applications. At
full production, the Project, which is being constructed on an approximately
30-acre site (the "Site") in Berkeley County, South Carolina owned by Santee
River, will produce approximately 100 million pounds per year of usable crumb
rubber. The Site is mortgaged as security for the bonds issued for the Project.
The Santee River Project is being constructed by Bateman Engineering,
Inc. (the "Contractor") pursuant to a turnkey construction agreement between the
Contractor and Santee River for a fixed price of $30.5 million. The Contractor
is responsible for assuring that the Project meets specified design,
construction and performance criteria. The Contractor's obligations under the
construction contract are guaranteed by its affiliate, Bateman Project Holdings
Limited, a South African company. Pursuant to the construction contract, the
Contractor has agreed to defer $4.5 million of its fixed construction price and
to receive such amount during the initial 4 years of Project operation.
Initial construction was substantially completed at the end of 1999.
Testing in January and February 2000 uncovered material design and performance
inadequacies that will require five to six months or more of sequential
alterations and additional work to be paid for by the Contractor. The Project is
being operated at approximately 18% of capacity while work is being done so that
it can supply an existing tire manufacturing customer. If the alterations are
completed on schedule in September 2000, the Project will then undergo
performance testing for approximately one month. If the tests are successful,
operation at full capacity is expected to begin no earlier than early October
2000. If the tests are not successful or if additional deficiencies are found or
if the contractor takes longer to complete the planned series of modifications,
operation would be further delayed. The Project's financial plan assumed full
operation by summer 2000 and if operations are delayed significantly, the
Project could require additional cash.
Until January 2000, Santee River paid the Trust and Power IV a fixed
distribution of 12% per year on $11,000,000 of the total they contributed. The
Trust and Power IV are entitled to a cumulative annual distribution preference
equal to 12% of contributed capital from January 2000 until operations begin.
The Trust does not anticipate any payment of that preference until the Project
has significant cash flow from operations. After operations begin, the preferred
membership interest entitles the Trust and Power IV to receive all available
operating cash flow annually from Santee River after payment of debt service and
other obligations until they receive a cumulative 20% annual return on its
capital investment. Thereafter, the Trust and Power V are entitled to receive
25% of any remaining operating cash flow available for distribution in that year
from Santee River. All non-operating cash flow, such as proceeds of capital
events, is divided equally between (a) the Trust and Power IV and (b)the other
owner of Santee River. All amounts and tax items the Trust and Power IV receive
from Santee River are shared two-thirds by the Trust and one-third by Power IV,
with neither having any preference over the other. The Trust and Power IV have
the joint right to designate two of the five managers of Santee River and have
the further right to remove a third manager and designate a successor in the
event of certain defaults under Santee River's Operating Agreement.
The remaining equity interest in Santee River is owned by a
wholly-owned subsidiary of Environmental Processing Systems, Inc. ("EPS") of
Garden City, New York. EPS is the developer of the Facility. EPS contributed the
contracts, permits, plans and other intangible property for the construction of
the Project that EPS generated prior to this transaction. Until a default, EPS
has the right to designate three managers of Santee River.
Santee River estimates that approximately $52,680,000 will be needed to
construct the Project and begin operations. After paying costs of the financing
(which included a $333,000 payment to the Trust and a $167,000 payment to Power
IV from Santee River to defray the trusts' transaction costs), Santee River had
approximately $16,500,000 available. At the same time as it sold the Trust and
Power IV their membership interest, Santee River borrowed $16,000,000 through
tax-exempt revenue bonds sold to institutional investors and another $16,000,000
through taxable convertible bonds sold to qualified institutional purchasers. As
mentioned above, $4,500,000 of the Contractor's price is deferred over a four
year period.
Because bringing the Project to full operation will be delayed, EPS
informed the Managing Shareholder in late March 2000 the Project may run short
of working capital during the second quarter of 2000. This might result in a
shutdown of the Project and other material adverse consequences. The Managing
Shareholder and the Trust refused to contribute additional capital. EPS is
attempting to provide additional capital or obtain additional financing for the
Project; the Managing Shareholder has not approved any such plan.
Santee River has entered into long-term agreements for supply of its
requirements of waste tires and other waste rubber as its raw material, of
liquid nitrogen for cryogenic processing and of electricity (from a local
electricity cooperative). Santee River intends to sell the crumb rubber
manufactured at the Facility to various companies in the tire, plastics, rubber,
building products, adhesives and paint industries.
EPS on behalf of Santee River has obtained short term crumb rubber
sales contracts for approximately 30% of the Facility's expected output with
several major rubber products manufacturers. Santee River is currently supplying
crumb rubber under one of these contracts to a tire manufacturer at about 18% of
the Project's anticipated capacity. Each contract is contingent upon successful
testing of the Facility's output.
EPS will provide administrative services to Santee River during the
construction and operation of the Facility at its cost (including direct and
indirect costs and allocable overhead). Neither Santee River nor EPS is
affiliated with or has any material relationship with the Trust, Power IV, their
Managing Shareholder or their affiliates, directors, officers or associates of
their directors and officers.
(iv) Quantum Conveyor Systems, LLC
Quantum Conveyor Systems, LLC ("Quantum"), a company located in Northvale,
New Jersey, had developed a process of integrating control technology, software
and conveying equipment into a modular, cost-effective conveying system. By
December 1999 Quantum had nearly exhausted its capital and was requesting
additional funds from its members or bank lenders. The Managing Shareholder
concluded that Quantum's progress was insufficient to justify an additional
investment. The two managers of Quantum's five member board of managers that
were appointed by the Trust's subsidiary, as well as Quantum's chief financial
officer, an employee of the Managing Shareholder, resigned. At December 31,
1999, the Trust's equity in Quantum's losses for 1999 was $346,000 and Quantum
had a negative net worth of over $4.7 million.
In September 1998, the Trust had capitalized a subsidiary, which lent
Quantum $2,985,000 and purchased a 15% equity interest in Quantum for $15,000.
The subsidiary had and exercised an option, to invest an additional $1.99
million as a loan on the same terms and to purchase an additional 10% equity
interest in Quantum for $10,000 in connection with the additional loan. Two
venture capital funds organized and managed by Ridgewood Capital LLC (Ridgewood
Capital Venture Partners, LLC and Ridgewood Institutional Venture Partners, LLC)
provided the capital for the additional $1.99 million loan and $10,000 equity
investment. The two venture capital funds participated in the subsidiary in
proportion to the capital they contributed on the same terms as the Trust. The
Independent Panel Members of the Trust, at their November 1998 meeting,
authorized a co-investment in Quantum with the two venture capital funds. In
July 1999, the subsidiary purchased an additional 2% membership interest in
Quantum for $100,000.
The Trust is considering various means to realize proceeds from its
investment in Quantum. These options include, but are not limited to, selling
all or a portion of its loans and equity interest to a possible buyer of Quantum
or recovering its investment through liquidation proceedings.
Quantum intends to produce equipment and controls for two primary
markets: (i) package handling -- consisting of boxed or bagged packages that are
generally sized for finished goods in a manufacturing or distribution operation;
and (ii) small product handling and sorting -- consisting of mail order, video
and cassette distribution, bulk mailings, overnight mail, software and books.
The originators of the Quantum systems were Matthew Mulhern, Hans J.
Lem and Henry Pahl, who had organized a corporation named Quantum Conveyor
Systems, Inc. ("Old Quantum") to develop and manufacture the systems. The Trust
organized Quantum in August 1998. In early September 1998, Old Quantum and its
shareholders contributed substantially all of Old Quantum's assets to Quantum in
exchange for a 37.2% equity interest in Quantum. Mr. Lem, who owned certain key
patents and intellectual property, was also issued a 37.2% equity interest in
exchange for those patents and intellectual property. In addition, Quantum
assumed Old Quantum's indebtedness to Mr. Mulhern, who received Quantum's note
for $3.75 million secured by all of Quantum's property. Mr. Mulhern received
$250,000 at the closing and Mr. Lem was given a $250,000 loan from Quantum. Mr.
Mulhern and Mr. Lem also entered into three-year executive employment contracts
with Quantum, terminable for cause and renewable for up to two additional years
at Quantum's option.
The existing loans are also secured by all of Quantum's property and under
an intercreditor arrangement with Mr. Mulhern, the subsidiary's note will share
pro rata with Mr. Mulhern's in any repayments or recoveries.
(v) MetaSound Systems, Inc.
MetaSound Systems, Inc. is developing "digital audio marketing" systems
tied into the Internet. The systems are designed to provide digital-quality
messages, music and sound information to telephone callers on hold or in a
call-center queue while they wait or to shoppers, visitors and others in retail
stores and waiting areas. MetaSound's products feature 100% digital sound, the
ability to update and modify messages either at the call site or from a central
broadcast location through the Internet or telephone lines and the ability to
broadcast content from many sources economically. Other features include
superior abilities for the customer to mix voice messages, music and broadcast
content and the ability of the customer to manage multiple installations
world-wide from a single point.
MetaSound is striving to offer a complete product by integrating three
separate elements: content, distribution and customer-level hardware and
software. Currently, most on-hold and similar systems play messages or music
from audiocassettes made or purchased by the customer. Updates require recording
a new cassette. Some large media companies provide music and information by
telephone to the customer but do not provide fully variable content. Because
MetaSound's systems can efficiently rebroadcast content provided through the
Internet, MetaSound has negotiated a non-exclusive content license with
CNN-On-Hold to provide news to and through MetaSound systems. MetaSound is
exploring other similar arrangements. In addition, MetaSound itself provides
broadcast application services allowing customers to create and produce their
own broadcasts and a library of music and sounds to support those broadcasts.
MetaSound has also signed distribution partnerships with
telecommunications companies, hardware "original equipment manufacturers" and
resellers such as GTE Network Services, SBC Communications and Iwatsu. These
will allow Metasound to offer both hardware sales and support and economical
distribution of content to customers. Finally, MetaSound is continuing to
develop its hardware and software to appeal to both small and large businesses
and to give its customers maximum ability to create custom messages. MetaSound
is installing its systems at 700 Office Depot locations (with a 36 month service
contract) , Compaq Computer Corp. (250 units), AT&T Corp. (50 units), McKesson
Water Products Inc. (50 units) and Aveda Corp. (180 units) and is actively
negotiating additional and repeat business.
MetaSound believes that its competitive advantages are its high-quality
audio, its ability to create alliances and partnerships to give its customers a
complete solution, and its ability to download electronically digital,
broadcast-quality, real-time messages to any telephone system with MetaSound
equipment. MetaSound's products have won the Call Center Solutions magazine's
1998 "Editor's Choice Award," the 1998 and 1997 Teleconnect Magazine "Best of CT
Expo" awards, and the 1997 "Product of the Year" awards by Teleconnect Magazine
and Computer Telephony Magazine.
MetaSound was organized in September 1996 and has developed four
related audio broadcast systems for customer use as well as a package for
customers to create messages and sound tracks.
In December 1998, Ridgewood Power Corporation and the Manager created
Ridgewood MetaSound, LLC. Ridgewood MetaSound received initial funding of
approximately $2,500,000 from the Trust At that time Ridgewood MetaSound
acquired approximately 4,676,000 shares of the Series C Preferred Stock at a
price of $.54 per share (totalling $2,525,000) and received a warrant to
purchase up to 4,676,000 additional shares which was exercised at the same price
based on MetaSound's having met required sales and product development targets.
Those targets included firm contracts for or completed sales of at least 800
systems, many of which must be with large businesses, execution of the license
agreement with CNN-On-Line at a fee not exceeding 30% of revenues, and execution
of at least two remarketing agreements. An additional warrant for 2 million
shares of Series C Preferred Stock was also granted to Ridgewood MetaSound at
the same price, expiring in 2003. Ridgewood MetaSound also has received a
warrant to purchase 50,000 shares of MetaSound's Series B Preferred Stock at
$.52 per share in connection with temporary financing that was rolled into the
purchase of the Series C Preferred Stock. The Preferred Stock owned by Ridgewood
MetaSound, if converted, would be equivalent to 42% of the total common stock of
Metasound.
The $2,525,000 funding for Ridgewood MetaSound's anticipated May 1999
exercise of the 4,676,000 share warrant was provided by the first set of
Ridgewood Capital Venture Funds, through an investment by them in Ridgewood
MetaSound. The Trust and the venture capital fund group own undivided interests
in Ridgewood Metasound in proportion to the capital they contribute and none has
preferences over another.
After the December 1998 transactions, MetaSound has three series of
preferred stock (A, B and C), all of which particpate pro rata and none of which
has a preference over the others, although all preferred stock is senior to the
Common Stock. The Series C Preferred Stock has an annual dividend amount of
$.00432 per share and a liquidation amount of $.54 per share. There are
approximately 320,000 shares of Series A Preferred Stock having an annual,
non-cumulative preferred dividend of $.08 per share and 4,751,000 currently
outstanding shares of Series B Preferred Stock with an annual, non-cumulative
preferred dividend of $.0416 per share. In the event of liquidation, each share
of preferred stock is entitled to receive declared but unpaid dividends plus $1
per share (Series A), $.52 per share (Series B) and $.54 per share (Series C). A
merger of MetaSound that does not give the holders of all of MetaSound's stock a
majority of the voting power of the successor company, or a sale of substanially
all of its assets, will trigger the liquidation rights. The preferred
liquidation amounts are senior to the Common Stock but if the available assets
are insufficient to fund all preferred liquidation amounts, the preferred
stockholders of all classes share pro rata with no class having any preference
over another.
Each share of the Series B and C Preferred Stock is convertible into
one share of Common Stock and each share of the Series A Preferred Stock is
convertible into four shares of Common Stock. Conversion is automatic if the
Company closes an underwritten public offering of Common Stock for at least $7.5
million or if 2/3 of the preferred stock, voting as a single class, so
determines. All classes of preferred stock have customary anti-dilution
protections except that no protection is given for exercise of employee stock
options or benefits (but no more than 3,500,000 shares may be issued for that
purpose). The consent of a majority of the holders of all classes of preferred
stock, voting together as a single class, is needed for any amendment to the
terms of any class of preferred stock, the creation of stock senior to the
preferred stock, or other actions materially and adversely affecting the holders
of preferred stock. For that reason, if the warrant expiring May 31, 1999 is not
exercised, holders of classes of preferred stock other than the Series C
Preferred Stock may be able to adversely change the terms or position of the
Series C Preferred Stock. So long as there are at least 4 million shares of
Series C Preferred Stock outstanding, (a) the holders of the Series C Preferred
Stock are entitled to elect two directors, if the number of directors is six or
fewer, (b) they may elect three directors, if there are seven or eight directors
in total, (c) they may elect four directors, if there are nine directors in
total and (d) the number of directors cannot be changed without the consent of a
majority of the holders of the Series C Preferred Stock, voting as a separate
class. The holders of the Series A and Series B Preferred Stock, voting
together, have the right to elect the remaining directors. Each share of the
preferred stock otherwise has the same voting power as attaches to the Common
Stock into which it can be converted, and is voted together with the Common
Stock as a single voting class.
Ridgewood MetaSound also received registration rights for the Common
Stock into which its preferred stock can be converted, subject to the right of
an underwriter of Metasound to require a 180 "lock-up" if the shares are to be
sold in an initial public offering of Metasound, the right to receive certain
financial information and limited first refusal rights with regard to certain
non-public and small public offerings of securities by MetaSound.
Condensed financial information for MetaSound is found in the notes to
financial statements. Audited financial statements for MetaSound for the year
ended March 31, 2000 will be included in an amended Form 10-K.
(vi) Ridgewood Waterpure
Ridgewood Waterpure Corporation ("Ridgewood Waterpure") is a 54% owned
subsidiary of the Trust that is developing an advanced water distillation system
that was previously developed by Superstill Corporation ("Superstill").
Superstill, located in California, became a debtor under Chapter 11 of the
Bankruptcy Code in 1997. In December 1998, Ridgewood Waterpure acquired
substantially all of the assets of Superstill (consisting primarily of patents,
intellectual property rights and in-process research and development) under a
plan of reorganization approved by the U.S. Bankruptcy Court for the Northern
District of California and Superstill's creditors.
The Trust invested $3,500,000 and acquired 54% of Ridgewood Waterpure's
common stock. Creditors and licensors of intellectual property to Superstill
received the remaining 46% of the common stock in exchange for their claims
against Superstill. The Trust's invested funds will be used by Waterpure to
design, develop and commercialize water distillation and purification systems
using the Superstill technology.
The Trust caused Ridgewood Waterpure to write off the entire amount of the
acquired in-process research and development asset ($1,970,000) based on
generally accepted accounting principles.
The Trust has leased manufacturing space in Oak Harbor, Ohio and has begun
initial construction of prototype water purification units. Completion of
prototypes and testing was completed in early 2000. The Trust intends to expand
into commercial production during 2000. During 1999, Waterpure incurred a net
loss, financed by the Trust, of $1,247,000.
(vii) United Kingdom Landfill Projects
The Trust and the Growth Fund are participating through a joint venture
in the United Kingdom Landfill Projects, which include owning five completed
landfill gas electric generation plants in Great Britain and developing up to 20
additional sites.
The estimated cost of the package of completed plants and the 20
developmental sites, if all the developmental plants are built, is $36 to $38
million. The Trust supplied the first $16 million of the purchase price and
developmental equity and the Growth Fund will supply the remainder of the
developmental equity. To the extent that the Growth Fund supplies capital, it
will receive an undivided interest in the entire package of operating and
developmental projects. Ridgewood Power V and the Growth Fund have organized
Ridgewood U.K. Limited, an English limited company ("Ridgewood U.K.") to act as
a holding company for the British projects.
The following five plants are currently in operation:
Project Location Current Price per Installed capacity
kWh (US$)
Chelson Meadow Devon, England 4.57 2.85 megawatts
United Mines . Cornwall, England 5.26 2.85 megawatts
Whinney Hill . Lancashire, England 5.28 3.10 megawatts
Bellhouse .... Essex, England 5.28 2.85 megawatts
Summerston ... Glasgow, Scotland 5.26 2.85 megawatts
Total capacity 14.5 megawatts
Each British plant has a 15-year long term power purchase contract with
the Non-Fossil Purchasing Agency Limited, a quasi-autonomous non-governmental
organization that purchases electricity generated by renewable sources (such as
landfill gas power plants) on behalf of all English utilities in order to meet
British environmental protection goals. The Summerston plant has a similar
15-year contract under the Scottish Renewables Order with Scottish utilties. The
electricity prices will be increased annually by a factor equal to any
percentage increase in the U.K. Retail Price Index.
The five projects named above (which include both the electricity
generating plants and the gas collection and cleaning systems) have been or will
be financed with a total of $16.6 million of long-term bank debt, in addition to
the equity interest purchased by the Trust. The loans are non-recourse against
Ridgewood U.K., the Trust, the Growth Fund and their intermediate subsidiaries.
The Trust and the Growth Fund have also organized Ridgewood CLP Management
Limited, an English company ("RW Management"), which will be responsible for
operating the five plants and any additional plants that are developed. The
principal stockholders of CLPS will own non-voting stock in RW Management. RW
Management will manage the plants at cost and will not be intended to earn any
profit. CLP Services Limited, a new company ("CLPS") organized by the
stockholders of CLP, will provide day-to-day services under subcontract to RW
Management. CLPS will be paid a flat fee of approximately 1.2 cents per
kilowatt-hour for those services (adjusted for increases in the Retail Price
Index) and will be eligible for bonus payments if a project's actual annual
electricity output exceeds 90% of its capacity. CLPS will also pay approximately
$88,000 per year (also adjusted for increases in the Retail Price Index) for
management services for the various companies owning the five existing projects.
The gas extraction and cleaning systems for the landfills will be operated by
CLPS for no additional cost. RW Management may terminate the subcontract with
CLPS if at the end of any year the projects in the aggregate have not produced
at least 90% of their capacity (adjusted for loss of time for scheduled
downtime, catastrophic failures not caused by CLPS or failures to receive
landfill gas not caused by CLPS), or at any time if it can be shown that it is
physically impossible for the plants as a whole to meet the 90% standard for the
current year.
CLPS will proceed to develop as many of the 20 remaining sites as may
be feasible and will bear the developmental costs itself. Its principal source
of funds for doing so will be approximately 4 million pounds sterling
contributed by its stockholders from the purchase price paid by Ridgewood U.K.
for the five plants described above. As each remaining plant is completed and
commissioned, Ridgewood U.K expects that the bank will provide long-term finance
for approximately 55% of the plant's reasonable cost, although the bank has not
yet committed to do so. If full bank financing is obtained for a plant,
Ridgewood U.K. will have the option to buy the equity interest from CLPS. The
Trust has provided the first $3 million of the additional equity capital
necessary for Ridgewood U.K to buy the plants. That $3 million was used to
develop two additional projects. If additional projects are successfully
completed, the additional money will be provided by the Growth Fund through
contributions of capital to Ridgewood U.K. By doing that, the Growth Fund will
obtain an economic interest in each of Ridgewood U.K.'s plants proportionate to
the share of Ridgewood U.K.'s total capital that it contributes. Ridgewood U.K.
expects to contract with RW Management to operate the additional plants using
CLPS on terms similar to those for the five existing plants.
The purchase price for the first five plants, 9,426,000 pounds
sterling, was determined by arms-length bargaining and was paid from proceeds of
the Trust's prior private placement offering. The price reflected the estimated
value of the cash flow from the five plants, assuming production meets the 90%
standard, plus estimated adjustments for the current assets acquired by
Ridgewood U.K, interest at 5.25% per year on those amounts from an assumed
purchase date of April 1, 1999, and retention amounts held against amounts due
for completion of the Chelson Meadow and Summerston plants. The purchase price
was adjusted to reflect actual results for the April - June 1999 period.
For the last six months of 1999, the Trust's equity in the United
Kingdom Landfill Projects' income totalled $180,000
The Trust funded its investment in Ridgewood U.K. from proceeds of its
completed offering of Investor Shares.
(viii) Egyptian Projects
In late 1998, the Managing Shareholder organized the predecessor of
Ridgewood International Development LLC ("RIDCo") to be a project developer for
the Trust and the Growth Fund. RIDCo is owned by Robert E. Swanson and family
trust of Mr. Swanson's and he is the sole manager of RIDCo. Like RPMCo, RIDCo
acts on behalf of the Trust, hires personnel for Projects and is reimbursed for
its costs and allocable overhead. The President and chief operating officer of
RIDCo, beginning in January 1999, is Donald Stewart, who from May 1994 through
December 1998 acted as an acquisition consultant to the Managing Shareholder.
Mr. Stewart is reimbursed for his expenses but does not draw a salary. Instead,
upon successful completion of a development Project, he receives a commission
based on Project cost.
Mr. Stewart has 25 years of experience in the field of independent
power generation and finance. Mr. Stewart spent the first ten years of his
business career as a Certified Public Accountant with KPMG, a major
international accounting firm. He also served as Chairman of Vermont Gas
Systems, a regulated public utility; Vice-Chairman of Consolidated Power
Company, a developer of large scale co-generation projects; and Chairman of
Hercules Engines, Inc., a manufacturer of industrial engines and electrical
generation equipment.
Mr. Stewart holds a Bachelor of Science degree in Engineering from Lehigh
University and is a Certified Public Accountant.
In the third quarter of 1999 the Trust and the Growth Fund organized an
Egyptian development company and have loaned approximately $10.6 million to the
company, secured by the company's stock. The Trust and the Growth Fund have
supplied this capital and as soon as governmental formalities are completed,
they will exchange the loans for all of the equity in the development company.
The capital has been used to purchase an existing electric and water
distillation plant and to expand it at the Le Meridien Hotel in Hurghada, Egypt.
Hurghada is a developing tourist resort on the western shore of the Red Sea in
southeastern Egypt distant from most population centers. RIDCo has entered into
an agreement with the hotel to provide an electricity and desalination plant
with a capacity of 5 megawatts and 142,000 gallons of fresh water per day and to
operate the plant for 40 years. The hotel pays for electricity at a variable
rate tied to fuel costs and pays for distilled water at a flat rate per gallon,
escalated annually. Total investment in the plant, which began operation in
March 2000, is approximately $8.25 million.
RIDCo is also developing five additional Projects or groups of
Projects. One Project is being constructed to supply electricity only (8
megawatts capacity) at the El Malha Touristic Association, a group of hotels and
developers building a resort community approximately 50 miles south of the
Egyptian-Israeli border on the Gulf of Aqaba. Estimated cost is $6 million and
operations are scheduled to begin in April 2000. A second project is located at
the tip of the Sinai Peninsula at Sharm-el-Sheikh, for desalinating water for
three hotels. Its estimated cost is $3.2 million and estimated capacity will be
3 million gallons per day. These projects are expected to be in operation by the
end of 2000.
A third group of Projects will also be located at Hurghada. Two
generating stations will provide 5.8 megawatts of electricity to two hotels, and
a series of desalination facilities will provide up to 3.4 million gallons per
day of water to those two hotels and three others. Estimated cost will be $8.5
million and completion is expected in 2000.
The remaining two projects are to be located at Ras Sidr and Marsa Alam
on the western shore of the Red Sea. The Ras Sidr project is for desalinating
water only while the Marsa Alam project will provide both water and electricity.
Estimated costs are $2.9 million and $3 million, respectively. These Projects
are in due diligence and it is uncertain whether they will proceed to
completion. The additional $23.6 million of capital needed to fund these
commitments will be provided by the Trust and the Growth Fund. The El Malha and
Sharm-el-Sheikh projects are supported by contracts with associations of resort
hotels organized under Egyptian law to develop new resort sites. The members of
each association are jointly responsible for the association's obligations,
which include amounts owed to the projects for electricity and water. Each
contract with the associations is for 10 years on terms similar to those of the
Le Meridien Hotel project.
The Trust's equity in the net losses of the Egyptian Projects for 1999
was $198,000.
(ix) Mediterranean Fiber Optic Project
In September 1999, the Trust and the Growth Fund organized Ridgewood
MedFiber LLC and each of them contributed $1.5 million to the joint venture on
equal terms. Ridgewood MedFiber then invested the $3 million in a 25% equity
interest in Global Fiber Group, a newly organized developer ("GFG"), which is
exploring a proposal to construct a 3,600 kilometer (2,200 mile) long underwater
fiber optic cable among Spain, Southern France and Italy via the Mediterranean
Sea. Ridgewood MedFiber or its designees have first refusal rights to invest in
future telecommunications facilities developed by GFG. GFG's original management
was comprised of former executives of AT&T Corp.'s underwater cable division.
In February 2000 the original management, which had been unable to
obtain additional equity financing for the Project, agreed to withdraw from the
venture. Ridgewood MedFiber informally agreed with the managers to provide some
compensation for their interest, contingent upon completion of financing for the
Project. Ridgewood MedFiber has searched for other equity investors to allow the
Project to proceed, but to date has been unsuccessful. There is a high risk that
it will be unable to find additional equity investors and that the Project
therefore will not be developed, in which case the Fund will lose its entire
investment.
GFG had entered into an agreement with Alcatel Submarine Networks, SARL
("ASN"), a subsidiary of Alcatel SA, a major European telephone equipment
manufacturer. Each of GFG and ASN owns one-half of a joint venture to construct
the Project. The joint venture was organized to enter into a turnkey
construction contract with ASN and to have ASN operate and market the Project.
The estimated cost of the Project is approximately $500 million. The
joint venture had obtained a commitment from a major European bank and an
investment bank to sell a approximately $350 million of senior secured debt in
the Project. The remaining $150 million was to be equity financing.
Approximately 60% of that equity financing would be provided as a preferred
("mezzanine") equity interest in the joint venture and the remaining 40% ($60
million) would be provided by GFG and ASN as common equity. Each of GFG and ASN
would also receive an unspecified amount of common equity in the joint venture
as developers' compensation.
The Trust and the Growth Fund had tentatively budgeted an additional
investment of $18 million through Ridgewood MedFiber in the Project for the
second quarter of 2000. That would be used to provide part of the $30 million
common equity investment by GFG. The Managing Shareholder expects that decisions
about financing and whether to proceed with the Project will be made by the end
of April 2000. Intensive negotiations are in progress with regard to the
financing and operation of the Project and there may be material changes to the
arrangements described here.
There are no current commitments or agreements to purchase the
communications capacity or facilities that the Project would provide. The
Project would be developed to meet the anticipated demand for high-speed global
communications links, but there is no assurance that there will be sufficient
demand to make it profitable, that other cables, wireless links, satellite
communications or landlines will not be developed under more favorable
conditions or that the developers and investors of this Project will have
sufficient resources to complete it if there are cost overruns, delays or
unanticipated events. The Project is thus highly speculative.
(x) Proposed Investments.
The Trust and the Growth Fund are in negotiations with Synergics Inc.
of Annapolis, Maryland for the purchase of nine small, operating, hydroelectric
Projects (and a minority interest in a tenth) located in California, Maine,
Nevada, New York, Rhode Island and Virginia. The Projects have a total
generating capacity of 21 megawatts and each is a Qualifying Facility with a
long-term Power Contract. The proposed purchase price is $30 million. The Trust
and the Growth Fund would each provide $10 million and the remaining $10 million
would be obtained from a long-term loan from their principal bank. The Trust
expects that a final decision on purchasing the Projects will be made by the end
of April 2000.
If investments in any of these Projects do not occur, the Managing
Shareholder is considering additional developments of landfill gas generating
plants in Europe, expansion of the Egyptian projects or other Near Eastern
projects.
The Trust is actively seeking additional Projects for investment,
either by itself or in conjunction with other programs sponsored by the Managing
Shareholder if such programs are authorized to do so.
If the Trust and another program with similar investment objectives have
funds available at the same time for investment in the same or similar Projects,
and a conflict of interest thus arises as to which program will make the
investment, the Managing Shareholder will review the investment portfolio of
each program. It will make the investment decision on the basis of such factors,
among others, as the effects of the investment on the diversification of each
program's portfolio, potential alternative investments, the effects investment
by either program would have on the program's risk-return profile, the estimated
tax effects of the investment on each program, the amount of funds available and
the length of time those funds have been available for investment. If more than
one program has funds available for investment and the factors discussed above
and other considerations indicate that the Project has approximately equal
benefit for each program, the Managing Shareholder will generally allocate the
opportunity to each program in order of its organization date. In that event,
the Managing Shareholder will cause the oldest program to commit all of its
reasonably available funds to that opportunity; if those funds are insufficient,
the remainder of the opportunity will be offered to each successive program with
reasonably available funds until the investment opportunity is exhausted. A
similar process would be followed for divestiture opportunities or competitive
electricity sales.
An additional conflict could arise where the entities make investments in
different forms, which would be the case where one entity's investment took the
form of equity and the other's took the form of debt. Although it anticipates
that this situation is unlikely to arise, the Managing Shareholder, if
practicable, would attempt to resolve any conflict of this type by reference to
the terms negotiated by other debt or equity participants in the relevant
Project or similar Projects. Although the Managing Shareholder believes these
practices may reduce potential conflicts of interest of this type, there can be
no assurance that the interests of the entities will not diverge.
(3) Project Operation.
The Maine Hydro Projects are Qualifying Facilities under PURPA and have
entered into long-term Power Contracts with their local distribution utilities.
Under the Power Contracts for the Maine Hydro Projects, the local utilities are
obligated to purchase the entire output of the Projects (up to rated levels)at
formula prices. The Maine Hydro Projects are managed by their former owner, CHI
Energy, Inc., which owns or operates other hydroelectric facilities in the
region.
The Maine Hydro Projects are licensed or operated as "run-of-river"
facilities, which means that the amount of water passing through the turbines is
directly dependent upon the fluctuating level of flow of the river or stream.
The Projects have a very limited ability to store water during high flows for
use at low flow periods. As a result, these Projects are unable to earn capacity
payments and are often unable to produce high output in the peak summer and
winter months when spot electricity rates are highest. Instead, they produce
electric energy and sell it as generated at the fixed rates provided in the
Power Contracts. No separate payments are made for capacity or capability.
The Maine Hydro Projects owned by the Trust use hydroelectric energy
and are not subject to fuel price changes or supply interruptions. Because the
Maine Hydro Projects are "run-of-river" hydroelectric plants, their output is
dependent upon rainfall and snowfall in the areas above the dams and output has
varied in the range of 30% over or 25% below the average output from 1987
through 1997. Output is generally lowest in the summer months and in the winter
and highest in the spring and fall.
Of the 14 Maine Hydro Projects, six operate under existing
hydroelectric project licenses from the Federal Energy Regulatory Commission
("FERC") and two have license applications pending. Changes to the six other,
unlicensed Projects (which are currently exempt from licensing) may trigger a
requirement for FERC licensing. FERC licensing requirements have become
progressively more stringent and often require that output of a Project that is
being licensed or relicensed be restricted in order to allow a more natural flow
of water, that archaeological and historical surveys be undertaken, that public
access to waterways be provided (sometimes requiring purchase of property rights
by the hydroelectric licensee) and that various site improvements be made. These
requirements can materially impair a project's profitability. See Item 1(c)(8) -
Business - Narrative Description of Business - Regulatory Matters.
The Maine Biomass Projects burn wood waste, including brush and chips
from woodcutting or processing of raw wood at paper mills or sawmills. The price
of wood waste fluctuates and is a primary determinant of whether the Projects
can run profitably or not. The major causes of the fluctuation are changes in
woodcutting or wood processing volumes caused by general economic conditions,
increases in the use of wood waste by paper mills for their own cogeneration
plants, changes in demand from competing generating plants using wood waste or
paper mill refuse and weather conditions. The cost of wood waste is currently
significantly in excess of that anticipated at the time the Maine Biomass
Projects were purchased.
Although the Maine Biomass Projects are Qualifying Facilities, they do
not have long-term Power Contracts and sell their capacity and output on the
market. In 1999, NEPOOL instituted a somewhat competitive market, managed by the
ISO, for generators to sell capacity and output to utilities and other entities
that distribute electricity ("loads"). Generators may sell directly to loads on
a bilateral basis, or they may sell to the ISO. The ISO dispatches generating
plants and takes their power in accordance with offers and its estimate of the
most economical means of providing sufficient reliable electricity. It computes
the clearing price for each electrical product on an hourly basis (monthly for
installed capability), bills loads for their shares of the products and is to
pay generators in accordance with the generators' offers and the market rules.
In 1999, seven "electrical products" were bought and sold on the ISO's market.
In addition to installed capability and energy (the power actually used by
consumers), the market included four types of reserves (basically, the ability
to turn on or increase the operating rate of electric generators within
specified times to provide additional power quickly) and automatic generation
control (a related ability).
The Maine Biomass Projects submitted offers to sell their electrical
products for the summer of 1999 at relatively high prices with the expectation
that the plants would called upon by ISO only in the most extreme conditions.
This strategy was necessary because of the relatively high costs of operating
the plants without a long-term base load contract. ISO dispatched the plants to
run on only three days during June 1999 when NEPOOL was short of resources and
accepted the Projects' offered prices, which would have entitled the Projects to
receive significant revenue for those three days.
In early July 1999, ISO informed NEPOOL members that it would pay lower
prices than those posted on its market Website on those three days in June.
After considering ISO's stated reasons for reducing the posted prices and ISO's
actions during June, RPMCo concluded that ISO was determined to intervene in the
markets and to prevent prices from rising to clearing levels during shortage
periods. This would prevent profitable operation of the Projects. Accordingly,
RPMCo revised its offer strategy to hold the Maine Biomass Projects off the
market for the remainder of the summer and made further revisions at the end of
September.
In early October 1999, ISO informed RPMCo that a scheduled transmission
outage for October 16 and 17 required ISO to activate all possible generation in
Maine. The Maine Biomass Projects, which had been shut down and which did not
have full crews available, had a pre-existing offer to supply electric energy at
an high price, reflecting the costs of restarting the plants, obtaining a crew
on short notice and covering fixed costs. ISO accepted the offer subject to its
market rules and conditions. The Maine Biomass Plants operated as dispatched by
ISO on October 16 and, if they were paid in accordance with their offer terms,
would have received between $2.2 million and $5.4 million. In November 1999, ISO
advised RPMCo that it would pay a total of $5,000 for the energy the Projects
produced on October 16. ISO has stated that in its opinion the Projects had
monopoly-like market power on October 16 and that under the existing market
rules it was only obligated to pay a rate based on variable costs unless the
Projects could cost-justify a higher rate.
RPMCo is vigorously disputing all elements of the ISO's arguments for
reducing the June and October payments and is preparing to bring a legal action
in the appropriate forum.
The Maine Biomass Projects ran on seven other days during 1999 in order
to undergo NEPOOL capacity testing, testing for air pollution control permit
requirements or modifications, and to meet ISO dispatch orders on three of those
days. On each of the days ISO cancelled the orders just before the plants would
have begun providing synchronized electricity to NEPOOL. As a result, the plants
had to be crewed and restarted but no revenues were earned. RPMCo is also
disputing these actions by the ISO.
Electricity produced by a Project is typically delivered to the
purchaser through transmission lines which are built to interconnect with the
utility's existing power grid, or in the case of the Maine Biomass Projects, via
utility lines owned by Bangor Hydro-Electric Company ("Bangor Hydro") to the
ISO's transmission facilities. Bangor Hydro's tariffs for transmission and for
electricity demand (incurred by the need for start-up electricity at the Maine
Biomass Projects) imposed a significant burden on their potential profitability.
After extended investigation, the Managing Shareholder and Indeck Operations,
Inc. concluded that the Projects were eligible under regulations of the New
England Power Pool and ISO-New England to be considered as directly connected to
the ISO's "pooled transmission facilities." That status would significantly
reduce transmission charges for the Projects. Indeck Maine petitioned the New
England Power Pool and ISO-New England to recognize the Projects as being
connected to pooled transmission facilities and when those petitions were
disapproved, brought administrative complaints in October 1998 before the
Federal Energy Regulatory Commission ("FERC") alleging that the failures to
recognize the Projects were anti-competitive, in violation of system rules
approved by FERC actions and in violation of FERC deregulatory orders. Those
complaints were rejected by FERC in February 2000 and RPMCo is considering
whether further proceedings with other similarly situated NEPOOL members will be
appropriate. Indeck Maine has negotiated a package of tariff amendments and
special facilities agreements with Bangor Hydro that would remove most of the
tariff disadvantages. Bangor Hydro filed a request for approval of the tariff
changes with FERC in March 2000. The special facilities agreements will also
require approval by the Maine Public Utility Commission.
The overall demand for electrical energy is somewhat seasonal, with demand
usually peaking in the summertime as a result of the increased use of air
conditioning. As described above, peak periods in New England generally are
limited to daytime and evening hours in the summer months (with a smaller peak
in Maine for light and heating during the winter) and power prices are
significantly higher during those periods.
The Santee River Project is under construction. When completed, the
primary raw materials for the Santee River Project will be used tires, which are
readily available, electricity (purchased from the local rural electric
cooperative) and liquid nitrogen for freezing the tires (which is available, as
described above, under a long-term contract from a producer of liquid oxygen).
Accordingly, the Santee River Project is not currently expected to be subject to
unexpected, adverse raw material price changes or supply interruptions.
The Ridgewood Waterpure Project is in testing and production planning.
For information about operations of MetaSound, the U.K. Landfill Projects and
the Egyptian Projects, see 1tem 1(c)(3) above.
Customers of Projects that accounted for more than 10% of annual revenues
from operating sources to the Trust in each of the last three fiscal years are:
Calendar year
1999 1998 1997
Central Maine Power Company n/m (1) 52% 80%
(Maine Hydro Projects)
Bangor Hydro-electric Co. n/m (1) 13% 20%
(Maine Hydro Projects)
Non-Fossil Purchasing Agency n/m (1) --- ---
Ltd. (U.K. Landfill Projects)
(1) Not meaningful. The Maine Hydro Projects earned $849,000 of revenues, net to
the Trust's interest, in 1999 and the U.K Landfill Projects earned $486,000 of
revenues, net to the Trust's interest, to the agency. However, total Trust
operating revenues, on an equity basis, were only $85,000.
The major costs of a Project while in operation will be debt service (if
applicable), fuel, taxes, maintenance and operating labor. The ability to reduce
operating interruptions and to have a Project's capacity available at times of
peak demand are critical to the profitability of a Project. Accordingly, skilled
management is a major factor in the Trust's business.
The technology involved in conventional power plant construction and
operations as well as electric and heat energy transfers and sales is widely
known throughout the world. There are usually a variety of vendors seeking to
supply the necessary equipment for any Project. So far as the Trust is aware,
there are no limitations or restrictions on the availability of any of the
components which would be necessary to complete construction and commence
operations of any Project. Generally, working capital requirements are not a
significant item in the independent power industry. The cost of maintaining
adequate supplies of fuel is usually the most significant factor in determining
working capital needs.
In order to commence operations, most Projects require a variety of permits,
including zoning and environmental permits. Inability to obtain such permits
will likely mean that a Project will not be able to commence operations, and
even if obtained, such permits must usually be kept in force in order for the
Project to continue its operations.
Compliance with environmental laws is also a material factor in the
independent power industry. The Trust believes that capital expenditures for and
other costs of environmental protection have not materially disadvantaged its
activities relative to other competitors and will not do so in the future.
Although the capital costs and other expenses of environmental protection may
constitute a significant portion of the costs of a Project, the Trust believes
that those costs as imposed by current laws and regulations have been and will
continue to be largely incorporated into the prices of its investments and that
it accordingly has adjusted its investment program so as to minimize material
adverse effects. If future environmental standards require that a Project spend
increased amounts for compliance, such increased expenditures could have an
adverse effect on the Trust to the extent it is a holder of such Project's
equity securities.
(4) Trends in the Independent Power and Other Industries
There are numerous references for further information on the electric
power industry. Interested persons may particularly wish to refer to the U.S.
Department of Energy's Annual Energy Outlooks and special studies, prepared by
the department's Energy Information Administration (the "EIA"). Much of this
information is available on EIA's World Wide Web site at http://www.eia.doe.gov
under the "Electric" heading. Neither the Department of Energy nor EIA nor any
other agency of the United States Government has endorsed or approved the Trust
or the Investor Shares and the Trust takes no responsibility for the preparation
or content of the Department of Energy's publications.
(i) Qualifying Facilities with long-term Power Contracts
The Trust is somewhat insulated from recent deregulatory trends in the
electric industry because the Maine Hydro Projects are Qualifying Facilities
with long-term formula- price Power Contracts. Each Power Contract now provides
for rates in excess of current short-term rates for purchased power. There has
been speculation that in the course of deregulating the electric power industry,
federal or state regulators or utilities would attempt to invalidate these power
purchase contracts as a means of causing owners of independent power plants to
bear some of the costs of deregulation. Further, there are federal
constitutional provisions restricting actions to impair existing contracts.
To date, the Federal Energy Regulatory Commission and state authorities
have ruled that existing Power Contracts will not be affected by their
deregulation initiatives. The regulators have so far rejected the requests of a
few utilities to invalidate existing Power Contracts. Instead, most state plans
for deregulation of the electric power industry (including those in Maine) treat
the value of long-term Power Contracts that are above current and anticipated
market prices as "stranded costs" of the utilities. The utilities are to be
allowed to recover those costs during a transition period. This is typically
done by imposing a transition fee or surcharge on rates that is paid to the
utility.
No material action has yet been taken by federal or state legislators to
date to impair independent power projects' existing power sales contracts, and.
There can not be any assurance, however, that the rapid changes occurring in the
industry and the economy as a whole would not cause regulators or legislative
bodies to attempt to change the regulatory structure in ways harmful to
Independent Power Projects or to attempt to impair existing contracts. In
particular, some regulatory agencies have urged utilities to construe Power
Contracts strictly and have required utilities to police independent power
projects' compliance with those Power Contracts (and in California, fuel supply
contracts) vigorously.
Predicting the consequences of any legislative or regulatory action is
inherently speculative and the effects of any action proposed or effected in the
future may harm or help the Trust. Because of the consistent position of the
regulatory authorities to date and the other factors discussed here, the Trust
believes that so long as it performs its obligations under the Power Contracts,
it will be entitled to the benefits of the contracts.
In recent years, many electric utilities have attempted to exploit all
possible means of terminating Power Contracts with independent power projects,
including requests to regulatory agencies and alleging violations of even
immaterial terms of the Power Contracts as justification for terminating those
contracts. If such an attempt were to be made, the Trust might face material
costs in contesting those utility actions. Other utilities have from time to
time made offers to purchase and terminate Power Contracts for lump sums. No
such offer has been suggested or made to the Trust, although the Trust would
entertain such an offer.
Finally, the Power Contracts are subject to modification or rejection in
the event that the utility purchaser enters bankruptcy. There can be no
assurance that the utility purchaser will stay out of bankruptcy.
After the Power Contracts for the Maine Hydro Projects expire at varying
times from 2008 to 2017 or those contracts terminate for other reasons, those
Projects under currently anticipated conditions would be free to sell their
output on the competitive electric supply market, either in spot, auction or
short-term arrangements or under long-term contracts if those Power Contracts
could be obtained. There is no assurance that the Projects could then sell their
output or do so profitably. The Maine Hydro Projects may have diseconomies of
small scale and, because they are run-of-river projects, they cannot commit to
producing fixed amounts of electricity on schedule. This might significantly
restrict demand for their output after their Power Contracts terminate. The
Trust is unable to anticipate whether the Maine Hydro Projects would have cost
disadvantages or advantages after their Power Contracts expire. It is thus
impossible to predict the profitability of those Projects after termination of
the Power Contracts.
(ii) Maine Biomass Projects and "Merchant Power Plants"
The Maine Biomass Projects do not have long-term Power Contracts and
are exposed to the newly-deregulating market for electricity generation. Those
Projects and other similar plants without long-term Power Contracts that the
Trust may acquire are sometimes described as "merchant power plants" because
they sell their output on the open market. As a consequence of federal and state
moves to deregulate large areas of the electric power industry and the
existence, spurred by PURPA, of private competitors to electric utilities in the
market for generating electricity, a number of interrelated trends are occurring
that will affect merchant power plants.
Continued Deregulation of the Generating Market
The Comprehensive Energy Policy Act of 1992 (the "1992 Energy Act")
encourages electric utilities to expand their wholesale generating capacity by
removing some, but not all, of the limitations on their ownership of new
generating facilities that qualify as "exempt wholesale generators" ("EWG's")
and on their ability to participate in merchant power plants. Many state
electric utility regulators are considering plans to further encourage
investment in wholesale generators and to facilitate utility decisions to spin
off or divest generating capacity from the transmission or distribution
businesses of the utilities. As a result, merchant power plants in the future
will face competition not only from other independent power plants seeking to
sell electricity on a wholesale basis but also from EWG's, electric utilities
with excess capacity and independent generators spun off or otherwise separated
from their parent utilities.
Wholesale-level Access to Transmission Capacity
The 1992 Energy Act empowered FERC to require electric utilities and
power pools to transmit electric power generated by other wholesale generators
to wholesale customers. This process is referred to as "wheeling" the electric
power. Essentially, the generator contributes power to a utility or power pool
and is credited with that contribution, and the utility or power pool serving
the wholesale customer makes available that amount of electric power to the
customer and debits the generator. Wheeling is effected between power pools on a
similar basis.
Without access to transmission capacity, an independent power plant or
other wholesale generator can only sell to the local electric utility or to a
facility on which it is located (or, in some states, which adjoins its
location). FERC has required that transmission capacity owners or the power
pools that operate transmission facilities (such as NEPOOL through the ISO)
provide transmission capacity to all generators and power marketers on a
non-discriminatory basis pursuant to "open-access" tariffs. FERC in its recent
Order 2000 has mandated improvements to the power pool systems. When combined
with the increased competition in the generating area, this is likely to create
an electricity supply market that may profoundly change the operations of
electric utilities, consumers and independent power plants.
On April 24, 1996 the Federal Energy Regulatory Commission adopted
Order 888, which requires electric utilities and power pools to provide
wholesale transmission facilities and information to all power producers on the
same terms, and endorses the recovery by utilities of uneconomic capital costs
from wholesale customers who change suppliers. The utilities would also be
required to furnish ancillary services, such as scheduling, load dispatch, and
system protection, as needed. These rights, however, would apply only to sales
of new electric power over and above existing utility supply arrangements.
Non-utility wholesale deliveries of electricity have grown vigorously and
according to the federal government grew at the rate of 21% per year in the ten
years from 1986 to 1996.
The Maine Biomass Projects are dependent on wheeling power in order to
sell their capacity or energy to purchasers other than Bangor Hydro, as
described above. Order 888 takes no action to modify existing Power Contracts.
The order intends to create a competitive national market in electricity
generation and thus may create additional pressure on electric utilities to seek
changes to long-term power purchase contracts, as described further below. State
public utility regulatory agencies must also review and approve certain aspects
of wholesale power deregulation, and those agencies are currently holding
proceedings and making determinations. In addition to the FERC order or other
Congressional or regulatory actions that may result in freer access to
transmission capacity, agreements with Canada, and to a lesser extent with
Mexico, are leading toward access for those countries' generators to U.S.
markets. In particular, certain Canadian suppliers, such as HydroQuebec (the
Quebec provincial utility) are already offering substantial amounts of
electricity in New England, and more may be offered if sufficient transmission
capacity can be approved and built. These agreements may also afford access to
those countries' markets in the future for independent power plants. As a
result, there is the possibility that a North American wholesale market will
develop for electricity, with additional competitive pressures on U.S.
generators.
Retail-level Competition
An even more radical prospect for the electric power industry is
retail-level competition, in which generators would be allowed to sell directly
to customers by using (and paying a fee for) the local utility's distribution
facilities. Retail-level competition presupposes the ability to wheel power in
the appropriate amounts at economic costs from the generating Project to the
electric utility whose wires link to the retail customer (typically a large
industrial, commercial or governmental unit) and the ability to use the local
utility's facilities to deliver the electricity to the customer. In addition to
the business and regulatory issues arising from wholesale wheeling, retail-level
competition raises fundamental concerns as to the ability of utilities to
recover stranded costs at the generating and distribution levels, the
possibility that smaller customers will have less ability to demand pricing
concessions, incentives for governmental agencies to act as intermediaries for
consumers and the functions of state-level regulatory agencies in a
price-competitive environment which may be inconsistent with their traditional
price-setting and service-prescribing roles. Maine, Massachusetts and
Connecticut are implementing retail competition in April 2000; Rhode Island has
already done so.
Although retail deregulation is being implemented currently on a
state-by-state basis, there are some common elements which are expected to be
included in the Maine and Massachusetts deregulation plans. First, most
deregulating states will require that local utilities will be the "suppliers of
last resort," which are required to serve any customers in their existing
territories who do not purchase generated electricity from another source and
which are required to obtain adequate generating capacity to meet those needs.
Second, most deregulating states are requiring that utilities and other
suppliers of electricity work through "independent system operators" such as the
ISO, which coordinate purchase, transmission and sale of electricity between
generators and distribution utilities. Independent system operators will have
significant responsibility for supply reliability.
Third, most deregulating states are requiring that utilities be
compensated for stranded costs (which include long-term Power Contracts with
Independent Power Projects that are above current and anticipated market prices)
for a transition period. This is typically done by imposing a transition fee or
surcharge on rates that is paid to the utility. In some states, utilities are
being encouraged or ordered to issue bonds or other financial instruments to
retire stranded cost assets or contracts, supported by transition charges.
Fourth, many states are requiring local utilities to divest a large portion or
all of their generating assets or to sell their rights under long-term Power
Contracts. The states have cited concerns such as the anti-competitive effects
of allowing the utilities, which retain a monopoly over the wires that take
electricity the last stages to the customer, to own generating assets. Further,
the sale of assets (or above-market Power Contracts) sets a market price for
those assets and allows a somewhat objective computation of the stranded costs
related to those assets or contracts. For example, the true stranded cost of a
nuclear plant is approximately the difference between the value assigned to it
under state regulation and the price someone will pay for it at auction.
Fifth, utilities having stranded costs are expected to mitigate those
costs by buying out contracts or selling costly assets. Finally, many states are
attempting to protect generators who use "renewable fuels" or that are
considered to have environmental or social benefits. As discussed below, Maine
and Massachusetts are doing so.
Price and Cost Pressures
The pricing pressures that retail and wholesale deregulation are
bringing are expected to decrease the marginal cost of electricity. Competition
will force utilities and generators to reduce overhead and administrative costs,
to trim operation and maintenance costs and to more efficiently buy and use
fuel. Further, wholesale and retail deregulation and new generating technologies
discussed below are expected to significantly reduce capital costs. For example,
electric utilities currently maintain large amounts of generating capacity in
reserve to meet peak loads (for example, to serve customers during a heat wave
in July). According to the federal government, competition may lead to pricing
strategies that reduce these peak loads. Competition may also force utilities to
stop maintaining high-cost reserve capacity and to take greater risks. The
widening wholesale market for electricity may increase efficiency by allowing
utilities and power consumers to obtain distant, lower-cost capacity for reserve
purposes rather than maintain local, higher cost, underutilized reserve
capacity. Finally, political and economic pressures may induce market regulators
such as the ISO to manipulate prices downward. For these and other reasons, the
federal government currently estimates that national average electricity rates
in real terms (adjusted for inflation) will decline to about 6.3 cents per
kilowatt-hour in 2015 from the 1996 average level of 7.1 cents per
kilowatt-hour.
As these trends continue, high-cost generators will be disadvantaged
and may fail. The Trust's small-scale generating plants have tended to have
higher per-kilowatt hour costs (except for fuel) than new, large scale
generating plants. The fuel cost advantages, if any, of landfill gas,
hydroelectricity or waste biomass are thus critical to the competitiveness of
the Trust's merchant power plants. To date, the cost of wood chips and other
biomass suitable for use at the Maine Biomass Projects is not low enough to
allow the Projects to compete for base load contracts.
Conversely, decreases in electricity costs may reduce Santee River's
production costs, although Santee River's business plan does not assume any such
decreases.
New Generating Technologies and New Industry Participants
Recent improvements in turbine technology, coupled with what is seen as
the ample supply and relative cheapness of natural gas, have made gas turbines
the favored technology for new electric generating plants. The federal
government estimates that 80% of the new electric generating capacity to be
added from 1995 to 2015 will be fueled by natural gas and that the amount of
generation fueled by natural gas will increase from the current 10% to 29%.
According to the federal government, new gas turbines only need 15 days per year
of maintenance, on the average, compared with 30 days a year for steam turbines.
Although gas turbines historically have been used to meet peak demand rather
than baseload demand, new "combined cycle" units (which use heat from the
turbine's exhaust to drive a second steam or gas turbine) have thermal
efficiencies approaching 60% (60% of the theoretical maximum heat from the
burning gas is converted to electricity) and can be used as baseload units. In
contrast, steam turbines fired by coal have efficiencies in the 36% range and
have operating and maintenance costs higher than those of combined cycle plants.
Further, natural gas-fired turbines emit relatively low levels of sulfur
dioxide, particulates and complex carbon compounds and thus may have lower
environmental compliance costs than coal-fired or oil-fired plants. The federal
government estimates that combined cycle gas turbine plants alone will account
from 96,000 to 143,000 Megawatts of the 319,000 Megawatts of additional capacity
to be added in the next 17 years.
The new emphasis on natural gas-fired generation is causing large
natural gas transmission or brokering companies to enter the electricity
generation market rapidly. They have access to large volumes of gas and have the
ability to raise large amounts of capital. Accordingly, most new investment in
combined cycle gas Projects and other large-scale gas turbine Projects is being
made by these natural gas/energy companies or by large utilities that are
entering the competitive generation industry.
A number of large participants in the independent generating industry
have announced their intentions to build large gas turbine merchant power plants
in Connecticut, Massachusetts and Maine in sizes from 250 to 750 Megawatts. The
capacity of the proposed plants exceeds one-half of the total deficit in
capacity caused by the shutdown of the Northeast Utilities nuclear power plants.
If all or many of the announced plants were built, there might be a material
increase in low-cost generation capacity in the New England area. There have
also been reports, especially from the northeastern states, that large
non-utility generating companies and utilities entering the competitive
generating market outside their existing service territories are buying large
numbers of older plants from local utilities with the intention of replacing
them on site with new, large, natural gas-fueled plants. It is unclear whether
many of the announced merchant power plants will actually be built, given the
uncertainties of the market for electricity and the possibility that there may
be insufficient gas pipeline capacity or supplies to fuel all of the recently
announced plants.
Many companies, including affiliates of fuel suppliers and utilities,
have applied to FERC to act as electric power marketers, because they anticipate
that if wholesale wheeling becomes significant there will be strong demand for
brokers or market makers in electric power. It is uncertain whether power
marketers will become significant factors in the electric power market. A
related development is the creation of derivative contracts for hedging of and
speculation in electricity supplies, which may offer generators, utilities and
large industrial or commercial consumers the ability to reduce the volatility of
competitive prices. To date, the effects of derivative contracts on the market
for electricity in the Northeast have not been material.
Renewable Power
The pressures of competition are expected to harm the "renewable power"
segment of the industry, which includes the Maine Biomass Projects. "Renewable
power" (often called "green power") is a catchphrase that includes Projects
(such as solar, wind, small hydroelectric, biomass, geothermal and landfill-gas)
that do not use fossil fuels or nuclear fuels. Renewable power plants typically
have high capital costs and often have total costs that are well above current
total costs for new gas-turbine production. Many observers believe that
renewable power plants without existing Power Contracts (with the possible
exception of biomass, hydroelectric and geothermal plants with very low or zero
fuel costs) will be non-competitive in the new markets unless they are given
governmental protection. A number of states, including Massachusetts,
Connecticut and Maine, are requiring that retailers of electricity purchase a
certain minimum amount of electricity (often between 5% to 30% of their total
requirements) from renewable power sources. Although the Massachusetts and
Connecticut requirements were to have gone into effect by spring 2000, delays in
writing regulations defining renewable sources have effectively suspended the
requirements. The Trust does not anticipate that Massachusetts and Connecticut
or the other New England states that are considering such requirements will have
requirements for loads to purchase renewable energy before 2001. Because there
is yet no substantial enforced demand for renewable energy, these state
requirements have not had a material effect on the price of renewable energy.
Renewable energy is currently priced almost identically to that of non-renewable
energy. It is possible that even after renewable energy requirements come into
effect that the price for renewable power will not increase enough to make the
Maine Biomass Projects profitable.
Initial Effects of Trends
Within the last 12 months, several negative trends have developed in
the independent power sector. There have been industry-wide moves toward
consolidation of participants. A number of utilities and equipment suppliers
have proposed or entered into joint ventures to reduce risks and mobilize
additional capital for the more competitive environment, while many electric
utilities are in the process of combining, either as a means of reducing costs
and capturing efficiencies, or as a means of increasing size as an
organizational survival tactic.
A second trend has been the continuing divestiture of generating assets
by utilities, creating a competitive generating market, especially in New
England. Most of the divested plants have been acquired by subsidiaries or
affiliates of utilities located outside New England. In effect, a game of
musical assets has occurred, with utilities in one area selling their generating
assets and using the proceeds, plus borrowings, to purchase the same types of
generating assets in different areas of the United States.
These pressures to acquire suddenly divested assets and to enlarge
organizations caused the prices of large generating stations or strategically
located generating stations to rise sharply. The Trust elected not to purchase
additional generating capacity in New England or elsewhere because the
anticipated rates of return at the inflated prices were too low. The Trust
currently believes that many owners of large generating stations in New England
are currently operating at marginal or negative margins and there is intense
pressure on prices for base load contracts as purchasers of power stations
attempt to keep their stations running. The competitive pressures have been
intensified by the importation of power at peak periods from HydroQuebec and the
New York Power Pool and by the construction of several large gas turbine power
plants in New England, which have increase base load capacity. The ISO's
decision to allow these imports to reduce perceived demand for electricity and
thus to depress quoted peak period prices for energy below the cost of the
imported electricity has exacerbated these pressures.
Finally, the ISO's actions to cap prices of reserve products and energy
during system peak demand periods have caused RPMCo to take the Maine Biomass
Projects offline and have caused at least one other generator company to remove
a power plant designed for peak usage periods from New England entirely.
Paradoxically, although there is more generation capacity in New England now for
non-emergency periods and prices for that capacity are depressed, there is less
capacity available for meeting emergency peaks because of the effects of the
capped prices. The Trust believes that continued interference with the power
market could start a vicious circle of failure and additional price regulation,
as emergency capacity shortages cause the ISO to add more controls and more
mandatory runtimes to meet reliability needs.
This may already be occurring. In response to the high prices offered
by the Trust and other generators for reserve products in the summer of 1999,
and in response to what the ISO believed were flaws in the markets, the ISO
requested and obtained approval from FERC in February 2000 to abolish the market
for operable capability, to cap the price for other reserves at the energy price
and to propose a restructuring of the electric products markets.
In the long term, there seem to be three primary strategies for
non-utility generating plants to succeed in the United States: first, Projects
that have existing, firm, long-term Power Contracts may do well for the life of
those Contracts so long as regulatory or legislative actions do not abrogate the
Contracts. Second, Projects that are low-cost producers of electricity, either
from efficiencies or good management or as the result of successful
technologies, will have advantages in the market. Third, the viability of small
Projects or Projects generating electricity from "renewable sources" will depend
on favorable legislative and regulatory action unless electricity prices climb
sharply.
(iii) Foreign operations.
Because yields on U.S. Independent Power Projects are currently
depressed, the Trust has committed a large amount of its capital to Independent
Power Projects in the United Kingdom and in Egypt. The electricity markets in
the United Kingdom were fully deregulated several years before deregulation
began in the U.S. Accordingly, the Trust, through Ridgewood U.K., is investing
in a niche area, landfill gas power plants. The Prior Programs already own
interests in two large landfill gas power plants in Rhode Island and California
and the technology and business are familiar to Ridgewood Power. Further,
because of the ecological benefits of landfill gas power plants, the U.K.
government has required utilities to enter into 15 year Power Contracts at
premium prices, through the Non-Fossil Fuels Purchasing Agency. The U.K.
Landfill Gas Projects enjoy a status similar to qualifying facilities in the
U.S. with long-term Power Contracts. They enjoy a guaranteed price and market
for their output and are not subject to price fluctuations for their fuel. The
major business risks and considerations are keeping operating costs at a minimum
through good design, preventative maintenance and attention to fuel quality,
governmental policy changes and exchange rate fluctuations affecting the
pound-denominated revenues from the Projects. Thus the Trust believes that these
investments in a stable Western European country with a guaranteed market for
the output have the potential for long-term, stable income. Because Ridgewood
U.K. is not providing any capital for development and buys Projects only after
they receive bank financing, most development risk is avoided. Ridgewood Power
is investigating hedging and other strategies to reduce exchange rate risk when
revenues from the U.K. Landfill Gas Projects become large enough to make these
strategies practical.
The Egyptian Projects are substantially riskier. These projects are
being developed at remote resort hotel sites on the Red Sea which are distant
from other electric and water sources. RIDCo is developing the Projects itself
using local engineering personnel and contractors. Environmental, construction,
legal, labor and geologic requirements are often unclear and can change
unpredictably at any time. RIDCo may find it difficult to enforce contracts and
other legal obligations against local suppliers or customers. RIDCo has not
engaged in substantial development work either in the U.S. or outside the U.S.
and has little experience in developing foreign Projects. There are no backup
facilities to provide electricity or water if the Projects fail or are unusable
for any period of time. Specifications for Projects have changed suddenly and
unpredictably and in some cases it has been necessary for RIDCo to construct
additional infrastructure. Cultural, language and political differences between
Egypt and the U.S. may impair communication with personnel, cause errors and
possibly cause hostile action against the Projects by employees, residents or
governmental agencies. There have been occasional terrorist incidents in Egypt
directed against Western tourists and tourist facilities. Further such incidents
might deter tourism and make the host hotel resorts unprofitable or might even
be directed against the Egyptian Projects or their personnel.
The Projects burn light fuel oil in diesel engines, which is brought in
by tanker truck. Supply interruptions, oil spills or fires are possible.
Although the Projects are exposed to world oil price variations, this risk is
mitigated because the Power Contracts contain price adjustments tied to fuel oil
prices that should substantially transfer the risk to the customers.
The customers of most of the Egyptian Projects are
governmentally-sponsored associations of resort hotels under 10-year long-term
Power Contracts with each Project. Each Project provides electricity or water or
both to the entire association and bills the association for the aggregate
amount. The association in turn bills its member hotels for their consumption
and their share of common consumption for services such as street lighting,
residential services for hotel employees, and services such as security. The
associations may not have substantial assets and thus may depend on prompt
payment by their members in order to meet their obligations to the Project.
Their ability to enforce payment obligations may be limited, and although the
Project has the ability to shut off water or power to a defaulting association
member, it may be practically difficult to do so over resistance by a major
employer. It is possible that the associations would fail to bill members
appropriately, that disputes between the associations and members for other
reasons might result in a failure to pay the associations, or that the
associations for political, economic or other reasons would fail to meet their
obligations to the Project. It is also possible that adverse events in the
tourist industry, such as labor disputes, airline problems, shortages of
personnel, changes in customer taste, environmental problems, overbuilding and
international political or cultural developments could depress tourist trade to
the point that the hotels or associations would be unable to pay. Other risks
include currency conversion and repatriation risks, exchange rate fluctuations,
taxation disputes, international hostilities, arbitrary governmental action,
religious tensions, anti-foreign sentiments and legal changes. In some cases, an
Egyptian Project will serve a single hotel under a 40 year contract. Although
risks caused by having an association as an intermediary do not apply to this
Project, the other risks discussed here will. Further, by serving a single
hotel, there is less diversification of risk.
Because of these risks and difficulties, it has been difficult to raise
capital for these Projects and there is a great local demand for similar
Projects. The prices for the electricity and water provided by the Projects
reflect these risks and others. The Managing Shareholder believes that these
risks are acceptable, because the Trust has been organized with the intention to
have a somewhat diversified portfolio of investments and because the Trust will
be investing in lower-risk, lower-return foreign and U.S. power Projects as
well.
(5). Competition
There are a large number of participants in the independent power industry.
Several large corporations specialize in developing, building and operating
independent power plants. Equipment manufacturers, including many of the largest
corporations in the world, provide equipment and planning services and provide
capital through finance affiliates. Many regulated utilities are preparing for a
competitive market, and a significant number of them already have organized
subsidiaries or affiliates to participate in unregulated activities such as
planning, development, construction and operating services or in owning exempt
wholesale generators or up to 50% of independent power plants. In addition,
there are many smaller firms whose businesses are conducted primarily on a
regional or local basis. Many of these companies focus on limited segments of
the cogeneration and independent power industry and do not provide a wide range
of products and services. There is significant competition among non-utility
producers, subsidiaries of utilities and utilities themselves in developing and
operating energy-producing projects and in marketing the power produced by such
projects.
The Trust is unable to accurately estimate the number of competitors
but believes that there are many competitors at all levels and in all sectors of
the industry. There are over 25 generating companies who are members of NEPOOL
and who compete against the Maine Biomass Projects. The largest of those are
Pacific Gas and Electric Company (approximately 4.5 gigawatts of capacity), NRG
Energy Inc. (2.4 gigawatts) and Sithe Energy LLC (2.0 gigawatts). By comparison,
the Trust's equity in the Maine Biomass Projects is approximately .026 gigawatt
(1/173 the size of Pacific Gas and Electric's capacity), and its equity in the
Maine Hydro Projects' capacity (which is sold under long-term Power Contracts
and thus is not competing with other generators) is approximately .007 gigawatt.
Please also review the discussion of changes in the industry above at (4) -
Trends in the Electric Utility and Independent Power Industries.
The Santee River Project is an innovative attempt to recycle old tires.
Its primary sales competition includes chemical and tire companies that produce
synthetic rubber. To date, there are no substantial competitors in the crumb
rubber market but if the Project proves profitable, there are few barriers to
entry. The U.K. Landfill Projects sell their output to a government agency and
are not subject to competition.
Currently, the Egyptian Projects are located in remote coastal areas
that are not linked to the national electric power network and thus are not
subject to substantial competition for providing electricity. The water Projects
do not face substantial competition except from trucked-in water. This also
means that there is no substantial backup for the Projects if they cannot
operate for any reason. It is possible that in future years the national network
may extend to some or all of the Project sites, in which case there might be
competition.
Please also review the discussion of changes in the industry above at (4) -
Trends in the Electric Utility and Independent Power Industries.
(6). Regulatory Matters.
Projects are subject to energy and environmental laws and regulations at
the federal, state and local levels in connection with development, ownership,
operation, geographical location, zoning and land use of a Project and emissions
and other substances produced by a Project. These energy and environmental laws
and regulations generally require that a wide 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
such permits and approvals.
(i) Energy Regulation.
(A) PURPA. The enactment in 1978 of PURPA and the adoption of regulations
thereunder by FERC provided incentives for the development of cogeneration
facilities and small power production facilities meeting certain criteria.
Qualifying Facilities under PURPA are generally exempt from the provisions of
the Public Utility Holding Company Act of 1935, as amended (the "Holding Company
Act"), the Federal Power Act, as amended (the "FPA"), and, except under certain
limited circumstances, state laws regarding rate or financial regulation. In
order to be a Qualifying Facility, a cogeneration facility must (a) produce not
only electricity but also a certain quantity of heat energy (such as steam)
which is used for a purpose other than power generation, (b) meet certain energy
efficiency standards when natural gas or oil is used as a fuel source and (c)
not be controlled or more than 50% owned by an electric utility or electric
utility holding company. Other types of Independent Power Projects, known as
"small power production facilities," can be Qualifying Facilities if they meet
regulations respecting maximum size (in certain cases), primary energy source
and utility ownership. Recent federal legislation has eliminated the maximum
size requirement for solar, wind, waste and geothermal small power production
facilities (but not for hydroelectric or biomass) for a fixed period of time.
In addition, PURPA requires electric utilities to purchase electricity
generated by Qualifying Facilities at a price equal to the purchasing utility's
full "avoided cost" and to sell back up power to Qualifying Facilities on a non
discriminatory basis. Avoided costs are defined by PURPA as the "incremental
costs to the 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." While public
utilities are not required by PURPA to enter into long-term Power Contracts to
meet their obligations to purchase from Qualifying Facilities, PURPA helped to
create a regulatory environment in which it has become more common for such
contracts to be negotiated until recent years.
The exemptions from extensive federal and state regulation afforded by
PURPA to Qualifying Facilities are important to the Trust and its competitors.
The Trust believes that the Maine Hydro and Maine Biomass Projects, which sell
electricity to public utilities, are Qualifying Facilities. Maintaining the
Qualified Facility status of an electric generating Project is of utmost
importance to the Trust. Such status may be lost if a Project does not meet the
operational or ownership requirements of PURPA. For small power production
facilities such as the Maine Hydro and Maine Biomass Projects, the requirements
are limited to maximum size, fuel use and ownership requirements that are
currently unlikely to be violated. If the Trust acquires interests in
cogeneration Projects that are Qualifying Facilities, those facilities must meet
more stringent requirements, such as minimum operating efficiency standards and
minimum use of thermal energy by customers of a cogeneration Project.
The Trust endeavors to comply with applicable PURPA requirements and does
not believe that the Maine Biomass and Maine Hydro Projects are subject to any
requirement that could jeopardize their statuses as Qualified Facilities. If the
Trust were to invest in cogeneration Projects or certain other types of
Qualifying Facilities, the PURPA standards could raise material compliance
questions. In any event, there can be no assurance that a Project will maintain
its Qualified Facility status. If a Project loses its Qualifying Facility
status, the utility can reclaim payments it made for the Project's
non-qualifying output to the extent those payments are in excess of current
avoided costs (which are generally substantially below the Power Contract rates)
or the Project's Power Contract can be terminated by the electric utility.
States may require utilities to institute monitoring systems under which
electric utilities continuously meter a cogeneration Project's performance.
(B) The 1992 Energy Act. The Comprehensive Energy Policy Act of 1992 (the "1992
Energy Act") empowered FERC to require electric utilities to make available
their transmission facilities to and wheel power for Independent power projects
under certain conditions and created an exemption for electric utilities,
electric utility holding companies and other independent power producers from
certain restrictions imposed by the Holding Company Act. Although the Trust
believes that the exemptive provisions of the 1992 Energy Act will not
materially and adversely affect its business plan, the act may result in
increased competition in the sale of electricity.
The 1992 Energy Act created the "exempt wholesale generator" category for
entities certified by FERC as being exclusively engaged in owning and operating
electric generation facilities producing electricity for resale. Exempt
wholesale generators remain subject to FERC regulation in all areas, including
rates, as well as state utility regulation, but electric utilities that
otherwise would be precluded by the Holding Company Act from owning interests in
exempt wholesale generators may do so. Exempt wholesale generators, however, may
not sell electricity to affiliated electric utilities without express state
approval that addresses issues of fairness to consumers and utilities and of
reliability.
(C) The Federal Power Act. The FPA grants FERC exclusive rate-making
jurisdiction over wholesale sales of electricity in interstate commerce. The FPA
provides FERC with ongoing as well as initial jurisdiction, enabling FERC to
revoke or modify previously approved rates. Such rates may be based on a
cost-of- service approach or determined through competitive bidding or
negotiation. While Qualifying Facilities under PURPA are exempt from the
rate-making and certain other provisions of the FPA, non-Qualifying Facilities
are subject to the FPA and to FERC rate-making jurisdiction.
Companies whose facilities are subject to regulation by FERC under the FPA
because they do not meet the requirements of PURPA may be limited in
negotiations with power purchasers. However, since such projects would not be
bound by PURPA's heat energy use requirement for cogeneration facilities, they
may have greater latitude in site selection and facility size. If any of the
Trust's electric power Projects failed to be a Qualifying Facility, it would
have to comply with the FPA.
The FPA also provides that any hydroelectric facility that is located on a
navigable stream or that affects public lands or water from a government dam may
not be constructed or be operated without a license from FERC. Certain
facilities that were operating before 1935 are exempt, if the waterway is
nonnavigable, or "grandfathered" and do not require licenses so long as the
facilities are not modernized or otherwise materially altered. Licenses are
granted for 30 to 50 year terms. All but six of the Maine Hydro Projects (with a
rated capacity of 2.1 Megawatts) are subject to licensing. Of these eight
Projects, six (with a rated capacity of 6.4 Megawatts) have current licenses
that expire from time to time between the years 2019 and 2037 and two (1.5
Megawatts) are currently in the licensing process, which can take from three to
five years. The Trust believes that it will obtain licenses for each of these.
The proposed conditions for one pending license, at the Pittsfield Project
on the Kennebec River (1.1 Megawatt), have been received. The Project will have
to provide upstream fish passages no earlier than 2002 or, if later, the time
when all dams further upstream have provided passage. The Project will also have
to provide interim fish passage both upstream and downstream to the extent
warranted by fishery studies; downstream mitigation measures may require the
Project to restrict flow through its turbines during certain spring peak flow
periods that could materially impair electricity output. Until studies are
complete, it is not possible to estimate the effects of these conditions.
Further, as noted above at Item 1(c)(3) - Business Narrative Description of
Business - Project Operation, the licenses may include other onerous conditions.
The Trust is a member of the Kennebec Hydro Developers Group, which has
negotiated with Maine agencies and environmental groups for watershed-wide
studies and remediation programs.
(D) Fuel Use Act. Projects that may be developed or acquired may also be subject
to the Fuel Use Act, which limits the ability of power producers to burn natural
gas in new generation facilities unless such facilities are also coal-capable
within the meaning of the Fuel Use Act.
(E) State Regulation. State public utility regulatory commissions have broad
jurisdiction over Independent Power Projects which are not Qualifying Facilities
under PURPA, and which are considered public utilities in many states. In states
where the wholesale or retail electricity market remains regulated, Projects
that are not Qualifying Facilities may be subject to state requirements to
obtain certificates of public convenience and necessity to construct a facility
and could have their organizational, accounting, financial and other corporate
matters regulated on an ongoing basis. Although FERC generally has exclusive
jurisdiction over the rates charged by a non- Qualifying Facility to its
wholesale customers, state public utility regulatory commissions have the
practical ability to influence the establishment of such rates by asserting
jurisdiction over the purchasing utility's ability to pass through the resulting
cost of purchased power to its retail customers. In addition, states may assert
jurisdiction over the siting and construction of non-Qualifying Facilities and,
among other things, issuance of securities, related party transactions and sale
and transfer of assets. The actual scope of jurisdiction over non-Qualifying
Facilities by state public utility regulatory commissions varies from state to
state.
(ii) Environmental Regulation.
The construction and operation of independent power projects and the
exploitation of natural resource properties are subject to extensive federal,
state and local laws and regulations adopted for the protection of human health
and the environment and to regulate land use. The laws and regulations
applicable to the Trust and Projects in which it invests primarily involve the
discharge of emissions into the water and air and the disposal of waste, but can
also include wetlands preservation and noise regulation. These laws and
regulations in many cases require a lengthy and complex process of renewing
licenses, permits and approvals from federal, state and local agencies.
Obtaining necessary approvals regarding the discharge of emissions into the air
is critical to the development of a Project and can be time-consuming and
difficult. Each Project requires technology and facilities which comply with
federal, state and local requirements, which sometimes result in extensive
negotiations with regulatory agencies. Meeting the requirements of each
jurisdiction with authority over a Project may require extensive modifications
to existing Projects.
The Clean Air Act Amendments of 1990 contain provisions which regulate the
amount of sulfur dioxide and oxides of nitrogen which may be emitted by a
Project. These emissions may be a cause of "acid rain." Qualifying Facilities
are currently exempt from the acid rain control program of the Clean Air Act
Amendments. However, non-Qualifying Facility Projects will require "allowances"
to emit sulfur dioxide after the year 2000. Under the Amendments, these
allowances may be purchased from utility companies then emitting sulfur dioxide
or from the EPA. Further, an Independent Power Project subject to the
requirements has a priority over utilities in obtaining allowances directly from
the EPA if (a) it is a new facility or unit used to generate electricity; (b)
80% or more of its output is sold at wholesale; (c) it does not generate
electricity sold to affiliates (as determined under the Holding Company Act) of
the owner or operator (unless the affiliate cannot provide allowances in certain
cases) and (d) it is non-recourse project-financed. The market price of an
allowance cannot be predicted with certainty at this time. In recent years,
supply of allowances has tended to exceed demand, primarily because of improved
control technologies and the increased use of natural gas.
Title V of the Clean Air Act Amendments added a new permitting requirement
for existing sources that requires all significant sources of air pollution to
submit new applications to state agencies. Title V implementation by the states
generally does not impose significant additional restrictions on the Trust's
Projects, other than requirements to continually monitor certain emissions and
document compliance. The Trust has filed Title V applications with the
appropriate states for the Maine Biomass Projects, and has been advised by EPS
that an application has been approved for the Santee River Project, which are
all the Projects that are required to file. The permitting process is voluminous
and protracted and the costs of fees for Title V applications, of testing and of
engineering firms to prepare the necessary documentation have increased. The
Trust believes that all of its facilities will be in compliance with Title V
requirements with only minor modifications such as the installation of an
additional catalytic converter on some engines.
In July 1997 the Environmental Protection Agency adopted more stringent
standards for levels of ozone and small particulate matter (particles less than
25 microns in diameter) in geographic areas. These new standards may cause some
areas in which Projects are located to be classified as non-attainment areas. If
so, states will be required to impose additional requirements for industries to
reduce emissions. It is uncertain whether or how any reductions would be applied
to small facilities such as the Trust's Projects. If reductions were required,
the Trust might have to make significant capital investments to install new
control technology or might have to reduce operations. In addition, many eastern
states, including Maine, have organized in the Ozone Transport Assessment Group
to require further restrictions on emissions of nitrogen oxides. The
Environmental Protection Agency is considering the Group's recommendations as
well as other proposals to reduce emissions of nitrogen oxides and other
ozone-forming chemicals. If adopted, new regulations could required the Trust to
install additional equipment to reduce those emissions or to change operations.
Nitrogen oxide reductions can be difficult to achieve with add-on equipment and
often require decreases in operating efficiency, both of which could cause
material cost to the Trust. It is not possible at this time to estimate whether
or not any potential regulatory changes would materially affect the Trust.
The Clean Air Act Amendments empower states to impose annual operating
permit fees of at least $25 per ton of regulated pollutants emitted up to
$100,000 per pollutant. To date, no state in which the Trust operates has done
so. If a state were to do so, such fees might have a material effect on the
Trust's costs of generation, in light of the relatively small size of the
Trust's facilities as opposed to large utility generation plants that might
benefit from the cap on fees.
The Trust's Projects must comply with many federal and state laws and
regulations governing wastewater and stormwater discharges from the Projects.
These are generally enforced by states under "NPDES" permits for point sources
of discharges and by stormwater permits. Under the Clean Water Act, NPDES
permits must be renewed every five years and permit limits can be reduced at
that time or under re-opener clauses at any time. The Projects have not had
material difficulty in complying with their permits or obtaining renewals. The
Projects use closed-loop engine cooling systems which do not require large
discharges of coolant except for periodic flushing to local sewer systems under
permit and do not make other material discharges.
The Trust's Projects are subject to the reporting requirements of the
Emergency Planning and Community Right-to-Know Act that require the Projects to
prepare toxic release inventory release forms. These forms list all toxic
substances on site that are used in excess of threshold levels so as to allow
governmental agencies and the public to learn about the presence of those
substances and to assess potential hazards and hazard responses. The Trust does
not anticipate that this requirement will result in any material adverse effect
on it.
Based on current trends, the Managing Shareholder expects that
environmental and land use regulation will become more stringent. The Trust and
the Managing Shareholder have developed limited expertise and experience in
obtaining necessary licenses, permits and approvals, which in the case of the
Maine Hydro Project are the responsibility of Consolidated Hydro, Inc. The Trust
will rely upon qualified environmental consultants and environmental counsel
retained by it or by Project sponsors to assist in evaluating the status of
Projects regarding such matters.
(d) Financial Information about geographic areas.
For 1999, revenues from customers not affiliated with the Trust from
sources inside and outside the United States and asset locations were as
follows:
Geographic
Location Income (loss) Assets
United States $(503,000) $ 40,743,000 (a)
United Kingdom 180,000 16,916,000
Egypt (198,000) 4,736,000
(a) Includes $1,497,000 investment in early development of Mediterranean Fiber
Optic Project principally expended for U.S. goods and services.
Long-lived assets indirectly owned by the Trust, based on the Trust's
equity interest as of December 31, 1999, were as follows:
Value as stated in
Country Description of asset financial statements
United States Investments in Projects and
Global Fiber Group $ 26,475,000(a)
United Kingdom Investment in Landfill Projects 16,916,000
Egypt Investment in Egyptian Projects 4,736,000
(a) Investment in early development of Mediterranean Fiber Optic Project
principally expended for U.S. goods and services.
Projects or investments located in one country do not have material
customers from any other country.
Disclosures of risks associated with these investments are found at
Item 1(c)(4) - Trends in the Independent Power and Other Industries.
(e) Employees.
The Trust has no employees. The persons described below at Item 5 -
Directors and Executive Officers of the Registrant serve as executive officers
of the Trust and have the duties and powers usually applicable to similar
officers of a Delaware corporation in carrying out the Trust business.
Ridgewood Waterpure has 2 employees located in Oak Harbor, Ohio. RIDCo has
approximately 10 employees located in Egypt.
Item 2. Properties.
Pursuant to the Management Agreement between the Trust and the Managing
Shareholder (described at Item 10(c)), the Managing Shareholder provides the
Trust with office space at the Managing Shareholder's principal office at The
Ridgewood Commons, 947 Linwood Avenue, Ridgewood, New Jersey 07450.
The following table shows the material properties (relating to Projects)
owned or leased by the Trust's subsidiaries.
Approximate
Square
Ownership Ground Approximate Footage of Description
Interests Lease Acreage Project of
Projects Location in Land Expiration of Land (Actual Project
or Projected)
Maine Hydro 14 sites
in Maine Owned n/a 24 n/a Hydro-
by joint electric
venture* facilities
Ridgewood Oak Harbor, Leased Design and
Waterpure Ohio building manufacturing
facility
U.K. England and Leased or 2014- less than n/a Landfill gas
Landfill Scotland licensed# 2015 10 acres fueled gene-
ration plants
Egyptian five sites Leased by n/a less than n/a Electric gen-
in Egypt joint 10 acres erating or
venture* water desali-
nation facil-
ties
*Joint venture equally owned by Trust and Power IV.
# Joint venture to be equally owned by Trust and Growth Fund.
The Trust owns less than 50% of the equity interest in the Maine Biomass,
Santee River, Mediterranean Fiber Optic, Quantum and Metasound investments.
The Trust believes that these properties are currently adequate for current
operations at those sites.
Item 3. Legal Proceedings.
In October 1998, Indeck Maine brought two administrative complaints
before FERC, naming ISO-New England and the New England Power Pool as
defendants, alleging that the defendants had violated their own rules and
applicable FERC orders in denying pooled transmission facility status for the
transmission links between Indeck Maine's two Projects and the ISO's other
transmission facilities. In February 1999, FERC rejected the complaints. Indeck
Maine is considering whether to bring a new action together with other NEPOOL
members based on new facts.
In March 2000 Indeck Maine intervened in a complaint before FERC,
Dighton Power Assoc., L.P. et. al. v. ISO-New England, Inc., Docket No.
EL00-40-000, in which several generators alleged that the ISO had improperly
capped operable capability prices during emergency conditions in NEPOOL. See
Item 1(c)(3)(ii) - Plant Operation - Maine Biomass Projects, above. The
complaint requests FERC to rule that the operable capability prices should be
based on the highest bids on those dates. If this were successful, the Maine
Biomass Projects might be entitled to substantial additional payments from the
ISO. The matter is in the preliminary stages of pleading and motion practice.
Indeck Maine intends to participate vigorously in the proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.
The Trust has not submitted any matters to a vote of its security holders
during the fourth quarter of 1999.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The Trust sold 932.8875 Investor Shares of beneficial interest in the Trust
in its private placement offering, which concluded on April 15, 1998. There is
currently no established public trading market for the Investor Shares and the
Trust does not intend to allow a public trading market to develop. As of the
date of this Annual Report on Form 10-K, all such Investor Shares have been
issued and are outstanding. There are no outstanding options or warrants to
purchase, or securities convertible into, Investor Shares.
Investor Shares are restricted as to transferability under the Declaration,
as well as under federal and state laws regulating securities. See Item 11(d) -
Description of Registrant's Securities to be Registered - Restrictions on
Transfer of Investor Shares. The Investor Shares have not been and are not
expected to be registered under the Securities Act of 1933, as amended (the
"1933 Act"), or under any other similar law of any state (except for certain
registrations that do not permit free resale) in reliance upon what the Trust
believes to be exemptions from the registration requirements contained therein.
Because the Investor Shares have not been registered, they are "restricted
securities" as defined in Rule 144 under the 1933 Act. As of the date of this
Registration Statement, no Investor Shares are sellable under Rule 144 because
the requirements of Rule 144(c) have not been met.
The Managing Shareholder is considering the possibility of a combination of
the Trust and five other investment programs sponsored by the Managing
Shareholder (Ridgewood Electric Power Trusts I, II, III and IV and the Ridgewood
Power Growth Fund) into a publicly traded entity. This would require the
approval of the Investors in the Trust and the other programs after proxy
solicitations complying with requirements of the Securities and Exchange
Commission, compliance with the "rollup" rules of the Securities and Exchange
Commission and other regulations, and a change in the federal income tax status
of the combined entity from a partnership (which is not subject to tax) to a
corporation. The process of considering and effecting a combination, if the
decision is made to do so, will be very lengthy. There is no assurance that the
Managing Shareholder will recommend a combination, that the Investors of the
Trust or other programs will approve it, that economic conditions or the
business results of the participants will be favorable for a combination, that
the combination will be effected or that the economic results of a combination,
if effected, will be favorable to the Investors of the Trust or other programs.
(b) Holders
As of the date of this Annual Report on Form 10-K, there are 1,611 record
holders of Investor Shares.
(c) Dividends
The Trust made distributions as follows in 1998 and 1999:
Year ended December 31,
1998 1999
Total distributions to Investors $4,089,130 $ 3,904,757
Distributions per Investor Share 4,383 4,186
Distributions to Managing Shareholder 41,304 39,412
Distributions have been made on a quarterly basis since April 1997. The
Trust's ability to make future distributions to Investors and their timing will
depend on the net cash flow of the Trust and retention of reasonable reserves as
determined by the Trust to cover its anticipated expenses. Because all Ridgewood
Power programs have converted their distribution schedule to a quarterly basis,
the Trust will continue quarterly distributions rather than moving to a monthly
basis as previously expected.
The Trust made distributions at the rate of 4.2% in 1999 and does not
anticipate that distributions during 2000 will be at a substantially higher
rate. This is because distributions from the Maine Hydro Projects during 1998
reflected higher than average water flows, which may not recur, because of the
7.5% decrease in the Maine Hydro Projects' electricity rates, because the Maine
Biomass Projects may continue to incur losses until at least 2001 and because
the Santee River Project is not anticipated to begin operation before late 2000
and may not show operating profits for some additional time after that. Further,
if adverse events were to occur, the Trust may be required to reduce
distributions from existing levels.
Occasionally, distributions may include funds derived from the release of
cash from operating or debt service reserves. Further, the Declaration of Trust
authorizes distributions to be made from cash flows rather than income, or from
cash reserves in some instances. For purposes of generally accepted accounting
principles, amounts of distributions in excess of accounting income may be
considered to be capital in nature. Investors should be aware that the Trust is
organized to return net cash flow rather than accounting income to Investors.
Item 6 Selected Financial Data.
The following data is qualified in its entirety by the financial statements
presented elsewhere in this Annual Report on Form 10-K.
<TABLE>
<CAPTION>
As of and for the
Period from Commencement
of Share Offering
As of and for the Years (April 12, 1996)
Ended December 31, through
1999 1998 1997 December 31, 1996
<S> <C> <C> <C> <C>
Interest income $1,476,695 $ 2,767,348 $ 1,003,276 $ 158,236
Total revenue (loss) (520,768) 3,020,949 844,877 257,460
Net income (loss) (4,975,059) (2,643,662) (1,345,153) (114,375)
Net assets (shareholders'
equity) 60,433,793 69,216,738 53,046,118 14,501,931
Investments 48,127,301 27,075,657 13,466,706 7,133,340
Total assets 62,395,597 71,735,025 54,469,925 14,945,301
Long-term obligations 0 0 0 0
Per Share of Trust
Interest:
Revenues (loss) (558) 3,238 1,108 1,418
Net income (loss) (5,333) (2,834) (1,763) (630)
Net asset value 64,983 74,303 69,342 79,856
Distributions to Investors 4,186 4,383 1,833 1,466
</TABLE>
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Introduction
The following discussion and analysis should be read in conjunction
with the Trust's consolidated financial statements and the notes thereto
presented below. Dollar amounts in this discussion are generally rounded to the
nearest $1,000.
The consolidated financial statements include the accounts of the Trust and
Ridgewood Waterpure Corporation. The Trust uses the equity method of accounting
for its investments in the Maine Hydro Projects, Maine Biomass Projects, Santee
River Rubber Project, Quantum Conveyor, MetaSound Systems, the United Kingdom
Landfill Projects, the Egypt Projects and the Mediterranean Fiber Optic
Project/GFG.
Outlook
The U.S. electricity markets are being restructured and there is a trend away
from regulated electricity systems towards deregulated, competitive market
structures. The states that the Trust's Projects operate in have passed or are
considering new legislation that would permit utility customers to choose their
electricity supplier in a competitive electricity market. The Maine Hydro
Projects are "Qualified Facilities" as defined under the Public Utility
Regulatory Policies Act of 1978 and currently sell their electric output to
utilities under long-term contracts. Eleven of the Maine Hydro Projects'
contracts expire in 2008 and the remaining three expire in 2007, 2014 and 2017.
During the term of the contracts, the utilities may or may not attempt to buy
out the contracts prior to expiration. At the end of the contracts, the Projects
will become merchant plants and may be able to sell the electric output at then
current market prices. There can be no assurance that future market prices will
sufficient to allow the Trust's Projects to operate profitably.
The Maine Hydro Projects have a limited ability to store water. Accordingly, the
amount of revenue from electricity generation from these Projects is directly
related to river water flows, which have fluctuated as much as 30% from the
average over the past ten years. It is not possible to accurately predict
revenues from the Maine Hydro Projects.
The Maine Biomass Projects sold electricity under short-term contracts during
the months of July, August, October, November and December 1997. The Projects
are currently shut down and will not be operated (except for required tests)
unless sales arrangements are obtained which would provide sufficient revenue to
cover the Projects' fixed and variable costs. Under current legislation, the
electricity market in the State of Maine will be deregulated on March 1, 2000.
If biomass fuel can be purchased at reasonable prices in the year 2000 and
beyond, the Maine Biomass Projects could be among the low cost producers of
electricity in Maine and could be able to operate profitably in a competitive
market environment. In the meantime, the Trust intends to keep the Projects in
an idle mode until market conditions become more favorable, and the Project
operator will seek short-term contracts to sell energy, installed capability and
operable capability.
All power generation projects currently owned by the Trust produce electricity
from renewable energy sources, such as hydropower and biomass ("renewable
power," and sometimes called "green power"). In the State of Maine, as a
condition of licensing, competitive generation providers and power marketers
will have to demonstrate that at least 30% of their generation portfolio is from
renewable power sources. Other states in the New England Power Pool have or are
expected to have similar renewable power licensing requirements, although the
percentage of renewable power generation may differ from state to state. These
renewable power licensing requirements should have a beneficial effect on the
future profitability of the Trust's Projects.
The Santee River Rubber Project, which is currently in the construction phase,
will process waste tires and generate high quality crumb rubber. Assuming that
the plant functions as specified and that the price received for the crumb
rubber from customers is as forecast, the Project should begin profitable
operations in third quarter of 2000.
Quantum Conveyor designs, manufactures and sells modular conveyor systems used
by post offices, distribution centers, warehouses and other material handling
facilities. The conveyor system market is very competitive and Quantum
Conveyor's strategy is to increase its sales and operating results by offering
capable, inexpensive conveyor systems that are easy to install.
WaterPure Corporation is a development stage company developing water
purification technology. WaterPure Corporation's strategy is to validate the
technology and manufacture water purification systems.
MetaSound Systems is developing digital audio marketing systems to provide
messages, music and sound information to telephone callers on hold or in a call
center queue. The audio marketing system market is very competitive and
MetaSound Systems' strategy is to increase its sales and operating results by
offering more flexible systems that offer superior sound quality.
The Trust and the Growth Fund are developing several projects that will sell
power and potable water to hotels in Egypt. The projects will have contracts
with the hotels with terms of 10 to 40 years. The first of these projects is
expected to begin operation in the first half of 2000.
The Trust and the Growth Fund also purchased a 25% interest in GFG. GFG expects
to be the co-developer of a large Mediterranean fiber optic project scheduled to
close in the second quarter of 2000. The Trust and Growth Fund expect to fund
approximately $18 million of this Mediterranean Fiber Optic project when it
closes.
The Trust, through a subsidiary, purchased five landfill gas fired plants in the
United Kingdom which have contracts to sell the electricity to a quasi
autonomous non-governmental organization an inflation adjusted price for 15
years. The Growth Fund is expected to provide additional funds to the subsidiary
to acquire additional plants as they are developed. To the extent that the
Growth Fund provides funds, it will receive an undivided interest in the entire
package of plants.
Additional trends affecting the independent power industry generally are
described at Item 1 - Business.
Results of Operations
The year ended December 31, 1999 compared to the year ended December 31, 1998.
In 1999, the Trust had a net loss of $4,975,0000 as compared to a net loss of
$2,644,000 in 1998. The 1999 and 1998 losses include the following results from
projects:
Project 1999 1998
- ---------------------------------------- ----------- -----------
Maine Hydro Projects ............ (2) $ 849,000 $ 658,000
Maine Biomass Projects .......... (2) (1,007,000) (694,000)
Santee River Rubber ............. (2) 98,000 363,000
MetaSound Systems ............... (2) (1,526,000) (61,000)
Quantum Conveyor ................ (2) (346,000) (12,000)
WaterPure Corporation ........... (1) (979,000) (1,881,000)
Egypt Projects .................. (2) (198,000) --
Mediterranean Fiber Optic Project (2) (49,000) --
United Kingdom Landfill Project . (2) 180,000 (131,000)
(1) Earnings, net of minority interest.
(2) Equity interest in income (loss) of the project.
The increase in income from the Maine Hydro Projects reflects higher revenues in
1999 compared to 1998. The improved revenues reflected higher-than-average
rainfall and snowfall, which increased water flow through the hydroelectric
dams.
The increase in the loss from the shutdown Maine Biomass Projects from 1998 to
1999 reflects the cost of periodically operating the plant more frequently in
1999 compared to 1998. As discussed at Item 1 - Buiness, the projects are in
dispute with the ISO/New England over the payment of certain revenues related to
the plants' operation in 1999. The disputed payments were not recorded as income
by the projects pending resolution of the disputes.
The Trust income from the Santee River Rubber project in 1999 was lower than in
1998 reflecting the Trust's share of the cost of marketing and administration as
the plant is constructed
The increase in the loss related to MetaSound Systems reflects the Trust's
ownership of its investment for a full year in 1999 compared to one month in
1998. MetaSound Systems' losses are a result of the marketing and sales costs of
introducing its digital audio marketing products.
The increase in the Trust's loss related to Quantum Conveyor primarily reflects
the Trust's ownership of its investment for a full year in 1999 compared to four
months in 1998 as well as more aggressively marketing its conveyor systems.
WaterPure's 1999 loss related to the research and development of the Superstill
water distillation technology. WaterPure Corporation's net loss for 1998
primarily reflected the cost of acquiring the assets of Superstill Corporation,
a company in Chapter 11 bankruptcy. Included in the assets acquired from
Superstill Corporation was in-process research and development with an estimated
fair value of $1,970,000. In accordance with generally accepted accounting
principles, this amount was written-off in the statement of operations.
The Trust recorded $198,000 of losses in 1999 related to its 50% interest in the
Egypt projects that are under development. The losses primarily relate to the
administrative costs of Ridgewood's Egyptian office.
The Trust recorded a loss of $49,000 in 1999 related to its investment in GFG.
The Trust and the Growth Fund own a 25% interest in GFG which expects to be the
co-developer of a large Mediterranean fiber optic project scheduled to close in
the second quarter of 2000. The Trust and Growth Fund expect to fund
approximately $18 million of the Mediterranean Fiber Optic when it closes.
The Trust recorded $180,000 of income from its June 1999 investment in five
United Kingdom landfill gas fired plants.
Interest income at the Trust level increased to $1,246,000 in 1999 from
$2,709,000 in 1998 as a result of the lower average cash balances on hand during
the year.
Excluding the $1,970,000 charge in 1998 discussed above related to the
acquisition of Waterpure Corporation, Trust-level expenses in 1999 were
consistent with 1998 levels. Although the management fee increased by $772,000
as a result of the fee being charged for a full year in 1999, reimbursements to
the Managing Shareholder decreased by $794,000. Investment fees declined by
$337,000 (98%) as a result of the termination of the share offering in April
1998.
The year ended December 31, 1998 compared to the year ended December 31, 1997.
In 1998, the Trust had a net loss of $2,644,000 as compared to a net loss of
$1,345,000 in 1997. The 1998 and 1997 losses include the following results from
projects:
Project 1998 1997
- ------------------------------------ ---------- -----------
Maine Hydro Projects . (2) $ 658,000 $ 522,000
Maine Biomass Projects (2) (694,000) (680,000)
Santee River Rubber .. (2) 363,000 --
MetaSound Systems .... (2) (61,000) --
Quantum Conveyor ..... (2) (12,000) --
WaterPure Corporation (1) (1,881,000) --
(1) Equity interest in income (loss) of the project.
(1) Loss, net of minority interest
The increase in income from the Maine Hydro Projects reflects the higher
revenues in 1998 compared to 1997. The improved revenues were a result of better
rainfall improving water flow through the hydroelectric dams.
The loss from the shutdown Maine Biomass Projects in 1998 was similar to the
loss incurred in 1997. However, the 1998 loss reflects twelve months of
operations compared to six months in 1997. The lower loss per month in 1998
reflects a reduction in expenses as well as the sale of installed capacity.
Income from the Santee River Rubber project reflects the Trust's share of
interest income earned on unexpended cash balances.
The loss incurred by MetaSound Systems primarily reflects the marketing and
sales costs of introducing its digital audio marketing products.
The loss incurred by Quantum Conveyor primarily reflects the costs of
aggressively marketing its conveyor systems.
WaterPure Corporation's net loss for 1998 primarily reflected the cost of
acquiring the assets of Superstill Corporation, a company in Chapter 11
bankruptcy. Included in the assets acquired from Superstill Corporation was
in-process research and development with an estimated fair value of $1,970,000.
In accordance with generally accepted accounting principles, this amount was
written-off in the statement of operations.
Interest income at the Trust level increased from $1,003,000 in 1997 to
$2,709,000 in 1998 as a result of the higher average cash balances on hand
during the year.
Excluding the $1,970,000 charge in 1998 discussed above related to the
acquisition of Waterpure Corporation, Trust-level expenses increased $1,478,000
from $2,190,000 in 1997 to $3,668,000 in 1998. The primary reason for the
increase was $1,606,000 of management fees charged by the Managing shareholder
beginning in April 1998. Reimbursements to the Managing Shareholder increased
from $393,000 in 1997 to $794,000 in 1998. These increases were partially offset
by a decrease in the 2% investment fee on capital contributions from $1,145,000
in 1997 to $337,000 in 1998 reflecting the decrease in capital contributions
caused by the closing of the Trust offering in April 1998. Due diligence
expenses related to unsuccessful potential investments increased to $831,000 in
1998 from $604,000 in 1997.
Liquidity and Capital Resources
In 1999, the Trust's operating activities used cash of $3,186,000 compared to
$2,782,000 in 1998 as a result of lower Trust interest income and increased
research and development costs at its consolidated WaterPure subsidiary. This
was partially offset by less use of cash in 1999 for working capital compared to
1998, when significant cash was used to pay down current liabilities.
In 1999, the Trust used $21,011,000 in its investing activities, primarily the
purchase of its interest in the United Kingdom Landfill Projects, the Egypt
Projects and the Mediterranean Fiber Optic Project/GFG. In 1998, the Trust used
$14,021,000 in its investing activities, primarily the purchase of its interest
in Santee River Rubber, Quantum Conveyor and MetaSound Systems.
In 1999, financing activities used $3,876,000 of cash compared to generating
$18,814,000 of cash in 1998. The 1998 financing activities included $22,945,000
of cash from net shareholders' contributions from the offering which ceased in
April 1998.
As of December 31, 1999, the Trust had $14,759,000 of cash on hand. The Trust
anticipates investing most of these funds in new projects in 2000.
During the fourth quarter of 1997, the Trust and Fleet Bank,N.A. (the "Bank")
entered into a revolving line of credit agreement, whereby the Bank provides a
three year committed line of credit facility of $750,000. Outstanding borrowings
bear interest at the Bank's prime rate or, at the Trust's choice, at LIBOR plus
2.5%. The credit agreement requires the Trust to maintain a ratio of total debt
to tangible net worth of no more than 1 to 1 and a minimum debt service coverage
ratio of 2 to 1. The credit facility was obtained in order to allow the Trust to
operate using a minimum amount of cash, maximize the amount invested in Projects
and maximize cash distributions to Investors. There were no borrowings under the
line of credit in 1999 or 1998.
Other than investments of available cash in power generation Projects,
obligations of the Trust are or will be generally limited to payment of Project
operating expenses, payment of a management fee to the Managing Shareholder,
payments for certain accounting and legal services to third persons and
distributions to shareholders of available operating cash flow generated by the
Trust's investments. The Trust's policy is to distribute as much cash as is
prudent to Shareholders. Accordingly, the Trust has not found it necessary to
retain a material amount of working capital. The amount of working capital
retained is further reduced by the availability of the line of credit facility.
The Trust anticipates that, during 2000, its cash flow from operations,
unexpended offering proceeds and line of credit facility will be adequate to
fund its obligations.
Year 2000 Remediation
The Managing Shareholder and its affiliates began year 2000 review and
planning in early 1997. After initial remediation was completed, a more
intensive review discovered additional issues and the Managing Shareholder began
a formal remediation program in late 1997. All remediation and testing were
completed by October 31, 1999 and no material malfunctions have been discovered
through the date of this filing.
The accounting, network and financial packages for the Ridgewood companies
are basically off-the-shelf packages that were remediated, where necessary, by
obtaining patches or updated versions. The Trust's allocable portion of the cost
of upgrades that were accelerated because of the Year 2000 problem was less than
$1,000.
The Managing Shareholder has two major systems affecting the Trust that
rely on custom-written software, the subscription/investor relations and
investor distribution systems, which maintain individual investor records and
effect disbursement of distributions to Investors. These were remediated in
1999, including the elements of those systems used to generate internal sales
reports and other internal reports. Although these were not designated
mission-critical, they were also successfully remediated by October 31, 1999.
Some subsystems are being remediated using the "sliding window" technique, in
which two digit years less than a threshold number are assumed to be in the
2000's and higher two digit numbers are assumed to be in the 1900's. Although
this will allow compliance for several years beyond the year 2000, eventually
those systems will have to be rewritten again or replaced. The Managing
Shareholder expects that the ordinary course of system upgrading will eventually
cure this problem.
The Trust's share of the incremental cost for Year 2000 remediation of this
custom written software and related items for 1998 and prior years was
approximately $12,250 and was approximately $11,500 for 1999.
Each of the Trust's electric generating facilities, as well as Waterpure
and the Egyptian developments, was reviewed in 1999 by RPMCo personnel to
determine if its electronic control systems contained software affected by the
Year 2000 problem or contain embedded components that contain Year 2000 flaws.
To date the Trust has discovered no systems having a material impact on output,
environmental compliance, recordkeeping or any other material impact that have
Year 2000 concerns. The Maine Biomass Projects contained certain embedded chips
that were replaced before December 31, 1999 at a nominal cost. The Trust's share
of the estimated costs of the review and of any minor upgrades or rehabilitation
was less than $25,000. The operators of the Santee River Project and the
management teams of MetaSound and Quantum have informed the Managing Shareholder
that their equipment and programs are year-2000 compliant and that they and
their customers and suppliers have not experienced any material year 2000
malfunctions.
The Managing Shareholder and its affiliates do not significantly rely on
computer input from suppliers and customers and thus are not directly affected
by other companies' Year 2000 compliance. No material adverse effects from
customers' or suppliers' Year 2000 problems have occurred.
Based on its internal evaluations and the risks and contexts identified by
the Commission in its rules and interpretations, the Trust believes that Year
2000 issues relating to its assets and remediation program will not have a
material effect on its facilities, financial position or operations, and that
the costs of addressing the Year 2000 issues will not have a material effect on
its future consolidated operating results, financial condition or cash flows.
However, this belief is based upon current information, and there can be no
assurance that unanticipated problems will not occur or be discovered that would
result in material adverse effects on the Trust.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Qualitative Information About Market Risk.
The Trust's investments in financial instruments are short-term investments
of working capital or excess cash. Those short-term investments are limited by
its Declaration of Trust to investments in United States government and agency
securities or to obligations of banks having at least $5 billion in assets.
Because the Trust invests only in short-term instruments for cash management,
its exposure to interest rate changes is low. The Trust has limited exposure to
trade accounts receivable and believes that their carrying amounts approximate
fair value.
The Trust's primary market risk exposure is limited interest rate risk
caused by fluctuations in short-term interest rates. The Trust does not
anticipate any changes in its primary market risk exposure or how it intends to
manage it. The Trust does not trade in market risk sensitive instruments.
Quantitative Information About Market Risk
This table provides information about the Trust's financial instruments
that are defined by the Securities and Exchange Commission as market risk
sensitive instruments. These include only short-term U.S. government and agency
securities and bank obligations. The table includes principal cash flows and
related weighted average interest rates by contractual maturity dates.
December 31, 1999
Expected Maturity Date
2000
(U.S. $)
Bank Deposits and Commercial
Paper $14,759,184
Average interest rate %5.6
Item 8. Financial Statements and Supplementary Data.
Index to Financial Statements
Report of Independent Accountants .............. F-2
Balance Sheets at December 31, 1999 and 1998 ... F-3
Statement of Operations for Years Ended
December 31, 1999, 1998 and 1997 ............. F-4
Statement of Changes in Shareholders' Equity for
Years Ended December 31, 1999, 1998 and 1997 . F-5
Statement of Cash Flows for
Years Ended December 31, 1999, 1998 and 1997
F-6
Notes to Financial Statements .................. F-7 to F-17
Financial Statements for Maine Hydro Projects
Financial Statements for Maine Biomass Projects
Financial Statements for U.K. Landfill Gas Projects
Financial Statements for MetaSound Systems, to be filed by amendment
All schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.
The financial statements are presented in accordance with generally
accepted accounting principles for operating companies, using consolidation and
equity method accounting principles. This differs from the basis used by three
prior independent power programs sponsored by the Managing Shareholder, which
present the Trust's investments in Projects on the estimated fair value method
rather than the consolidation and equity accounting method.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Neither the Trust nor the Managing Shareholder has had an independent
accountant resign or decline to continue providing services since their
respective inceptions and neither has dismissed an independent accountant during
that period. During that period of time no new independent accountant has been
engaged by the Trust or the Managing Shareholder, and the
Managing Shareholder's current accountants, PricewaterhouseCoopers LLP, have
been engaged by the Trust.
PART III
Item 10. Directors and Executive Officers of the Registrant.
(a) General.
As Managing Shareholder of the Trust, Ridgewood Power LLC has direct and
exclusive discretion in management and control of the affairs of the Trust
(subject to the general supervision and review of the Independent Trustees and
the Managing Shareholder acting together as the Board of the Trust). The
Managing Shareholder will be entitled to resign as Managing Shareholder of the
Trust only (i) with cause (which cause does not include the fact or
determination that continued service would be unprofitable to the Managing
Shareholder) or (ii) without cause with the consent of a majority in interest of
the Investors. It may be removed from its capacity as Managing Shareholder as
provided in the Declaration.
Ridgewood Holding, which was incorporated in April 1992, is the Corporate
Trustee of the Trust.
(b) Managing Shareholder.
Ridgewood Power Corporation was incorporated in February 1991 as a Delaware
corporation for the primary purpose of acting as a managing shareholder of
business trusts and as a managing general partner of limited partnerships which
are organized to participate in the development, construction and ownership of
Independent Power Projects. It organized the Trust and acted as managing
shareholder until April 1999. On or about April 21, 1999 it was merged into the
current Managing Shareholder, Ridgewood Power LLC. Ridgewood Power LLC was
organized in early April 1999 and has no business other than acting as the
successor to Ridgewood Power Corporation.
Robert E. Swanson has been the President, sole director and sole
stockholder of Ridgewood Power Corporation since its inception in February 1991
and is now the controlling member, sole manager and President of the Managing
Shareholder. All of the equity in the Managing Shareholder is or will be owned
by Mr. Swanson or by family trusts. Mr. Swanson has the power on behalf of those
trusts to vote or dispose of the membership equity interests owned by them.
The Managing Shareholder has also organized Ridgewood Electric Power Trust
I ("Ridgewood Power I"), Ridgewood Electric Power Trust II ("Ridgewood Power
II"), Ridgewood Electric Power Trust IV ("Ridgewood Power III"), Ridgewood
Electric Power Trust V ("Power IV") and The Ridgewood Power Growth Fund (the
"Growth Fund") as Delaware business trusts to participate in the independent
power industry. Ridgewood Power LLC is now also their managing shareholder. The
business objectives of these five trusts are similar to those of the Trust.
A number of other companies are affiliates of Mr. Swanson and Ridgewood
Power. Each of these also was organized as a corporation that was wholly-owned
by Mr. Swanson. In April 1999, most of them were merged into limited liability
companies with similar names and Mr. Swanson became the sole manager and
controlling owner of each limited liability company. For convenience, the
remainder of this Memorandum will discuss each limited liability company and its
corporate predecessor as a single entity.
The Managing Shareholder is an affiliate of Ridgewood Energy
Corporation("Ridgewood Energy"), which has organized and operated 48 limited
partnership funds and one business trust over the last 17 years (of which 25
have terminated) and which had total capital contributions in excess of $190
million. The programs operated by Ridgewood Energy have invested in oil and
natural gas drilling and completion and other related activities. Other
affiliates of the Managing Shareholder include Ridgewood Securities LLC
("Ridgewood Securities"), an NASD member which has been the placement agent for
the private placement offerings of the six trusts sponsored by the Managing
Shareholder and the funds sponsored by Ridgewood Energy; Ridgewood Capital
Management LLC ("Ridgewood Capital"), which assists in offerings made by the
Managing Shareholder and which is the sponsor of four privately offered venture
capital funds (the Ridgewood Capital Venture Partners and Ridgewood Capital
Venture Partners II funds); Ridgewood Power VI LLC ("Power VI"), which is a
managing shareholder of the Growth Fund, and RPMCo. Each of these companies is
controlled by Robert E. Swanson, who is their sole director or manager.
Set forth below is certain information concerning Mr. Swanson and other
executive officers of the Managing Shareholder.
Robert E. Swanson, age 53, has also served as President of the Trust since
its inception in November 1992 and as President of RPMCo, Ridgewood Power I,
Ridgewood Power II, Ridgewood Power III, Power IV and the Growth Fund, since
their respective inceptions. Mr. Swanson has been President and registered
principal of Ridgewood Securities and became the Chairman of the Board of
Ridgewood Capital on its organization in 1998. He also is Chairman of the Board
of the Ridgewood Capital Venture Partners I and II venture capital funds. In
addition, he has been President and sole or controlling owner of Ridgewood
Energy since its inception in October 1982. Prior to forming Ridgewood Energy in
1982, Mr. Swanson was a tax partner at the former New York and Los Angeles law
firm of Fulop & Hardee and an officer in the Trust and Investment Division of
Morgan Guaranty Trust Company. His specialty is in personal tax and financial
planning, including income, estate and gift tax. Mr. Swanson is a member of the
New York State and New Jersey bars, the Association of the Bar of the City of
New York and the New York State Bar Association. He is a graduate of Amherst
College and Fordham University Law School.
Robert L. Gold, age 41, has served as Executive Vice President of the
Managing Shareholder, RPMCo, Ridgewood Power I, the Trust, Ridgewood Power II,
Ridgewood Power III, Ridgewood Power IV and the Growth Fund since their
respective inceptions, with primary responsibility for marketing and
acquisitions. He has been President of Ridgewood Capital since its organization
in 1998. As such, he is President of the Ridgewood Capital Venture Partners I
and II funds. He has served as Vice President and General Counsel of Ridgewood
Securities Corporation since he joined the firm in December 1987. Mr. Gold has
also served as Executive Vice President of Ridgewood Energy since October 1990.
He served as Vice President of Ridgewood Energy from December 1987 through
September 1990. For the two years prior to joining Ridgewood Energy and
Ridgewood Securities Corporation, Mr. Gold was a corporate attorney in the law
firm of Cleary, Gottlieb, Steen & Hamilton in New York City where his experience
included mortgage finance, mergers and acquisitions, public offerings, tender
offers, and other business legal matters. Mr. Gold is a member of the New York
State bar. He is a graduate of Colgate University and New York University School
of Law.
Thomas R. Brown, age 45, joined the Managing Shareholder in November 1994
as Senior Vice President and holds the same position with the Trust, RPMCo and
each of the other trusts sponsored by the Managing Shareholder. He became Chief
Operating Officer of the Managing Shareholder, RPMCo and the Ridgewood Power I
through V trusts in October 1996, and is the Chief Operating Officer of the
Growth Fund. Mr. Brown has over 20 years' experience in the development and
operation of power and industrial projects. From 1992 until joining the Managing
Shareholder he was employed by Tampella Services, Inc., an affiliate of
Tampella, Inc., one of the world's largest manufacturers of boilers and related
equipment for the power industry. Mr. Brown was Project Manager for Tampella's
Piney Creek project, a $100 million bituminous waste coal fired circulating
fluidized bed power plant. Between 1990 and 1992 Mr. Brown was Deputy Project
Manager at Inter-Power of Pennsylvania, where he successfully developed a 106
megawatt coal fired facility. Between 1982 and 1990 Mr. Brown was employed by
Pennsylvania Electric Company, an integrated utility, as a Senior Thermal
Performance Engineer. Prior to that, Mr. Brown was an Engineer with Bethlehem
Steel Corporation. He has an Bachelor of Science degree in Mechanical
Engineering from Pennsylvania State University and an MBA in Finance from the
University of Pennsylvania. Mr. Brown satisfied all requirements to earn the
Professional Engineer designation in 1985.
Martin V. Quinn, age 52, assumed the duties of Chief Financial Officer of
the Managing Shareholder, the Trust, the prior four trusts organized by the
Managing Shareholder and RPMCo in November 1996 under a consulting arrangement.
He became a full-time officer of the Managing Shareholder and RPMCo in April
1997 and is now also Chief Financial Officer of the Growth Fund. He is also the
Chief Financial Officer of Ridgewood Capital and of Ridgewood Capital Venture
Partners, LLC and Ridgewood Institutional Venture Partners, LLC.
Mr. Quinn has 31 years of experience in financial management and corporate
mergers and acquisitions, gained with major, publicly-traded companies and an
international accounting firm. He formerly served as Vice President of Finance
and Chief Financial Officer of NORSTAR Energy, an energy services company, from
February 1994 until June 1996. From 1991 to March 1993, Mr. Quinn was employed
by Brown-Forman Corporation, a diversified consumer products company and
distiller, where he was Vice President-Corporate Development. From 1981 to 1991,
Mr. Quinn held various officer-level positions with NERCO, Inc., a mining and
natural resource company, including Vice President- Controller and Chief
Accounting Officer for his last six years and Vice President-Corporate
Development. Mr. Quinn's professional qualifications include his certified
public accountant qualification in New York State, membership in the American
Institute of Certified Public Accountants, six years of experience with the
international accounting firm of Price Waterhouse, and a Bachelor of Science
degree in Accounting and Finance from the University of Scranton (1969).
Mary Lou Olin, age 47, has served as Vice President of the Managing
Shareholder, RPMCo, Ridgewood Capital, the Trust, Ridgewood Power I, Ridgewood
Power II, Ridgewood Power III, Power IV and the Growth Fund since their
respective inceptions. She has also served as Vice President of Ridgewood Energy
since October 1984, when she joined the firm. Her primary areas of
responsibility are investor relations, communications and administration. Prior
to her employment at Ridgewood Energy, Ms. Olin was a Regional Administrator at
McGraw-Hill Training Systems where she was employed for two years. Prior to
that, she was employed by RCA Corporation. Ms. Olin has a Bachelor of Arts
degree from Queens College.
(c) Management Agreement.
The Trust has entered into a Management Agreement with the Managing
Shareholder detailing how the Managing Shareholder will render management,
administrative and investment advisory services to the Trust. Specifically, the
Managing Shareholder will perform (or arrange for the performance of) the
management and administrative services required for the operation of the Trust.
Among other services, it will administer the accounts and handle relations with
the Investors, provide the Trust with office space, equipment and facilities and
other services necessary for its operation and conduct the Trust's relations
with custodians, depositories, accountants, attorneys, brokers and dealers,
corporate fiduciaries, insurers, banks and others, as required. The Managing
Shareholder will also be responsible for making investment and divestment
decisions, subject to the provisions of the Declaration.
The Managing Shareholder will be obligated to pay the compensation of the
personnel and all administrative and service expenses necessary to perform the
foregoing obligations. The Trust will pay all other expenses of the Trust,
including transaction expenses, valuation costs, expenses of preparing and
printing periodic reports for Investors and the Commission, postage for Trust
mailings, Commission fees, interest, taxes, legal, accounting and consulting
fees, litigation expenses and other expenses properly payable by the Trust. The
Trust will reimburse the Managing Shareholder for all such Trust expenses paid
by it.
As compensation for the Managing Shareholder's performance under the
Management Agreement, the Trust is obligated to pay the Managing Shareholder an
annual management fee described below at Item 13 -- Certain Relationships and
Related Transactions.
The Board of the Trust (including both initial Independent Trustees) have
approved the initial Management Agreement and its renewals. Each Investor
consented to the terms and conditions of the initial Management Agreement by
subscribing to acquire Investor Shares in the Trust. The Management Agreement
will remain in effect until January 4, 2001 and year to year thereafter as long
as it is approved at least annually by (i) either the Board of the Trust or a
majority in interest of the Investors and (ii) a majority of the Independent
Trustees. The agreement is subject to termination at any time on 60 days' prior
notice by the Board, a majority in interest of the Investors or the Managing
Shareholder. The agreement is subject to amendment by the parties with the
approval of (i) either the Board or a majority in interest of the Investors and
(ii) a majority of the Independent Trustees.
(d) Executive Officers of the Trust.
Pursuant to the Declaration, the Managing Shareholder has appointed
officers of the Trust to act on behalf of the Trust and sign documents on behalf
of the Trust as authorized by the Managing Shareholder. Mr. Swanson has been
named the President of the Trust and the other executive officers of the Trust
are identical to those of the Managing Shareholder.
The officers have the duties and powers usually applicable to similar
officers of a Delaware business corporation in carrying out Trust business.
Officers act under the supervision and control of the Managing Shareholder,
which is entitled to remove any officer at any time. Unless otherwise specified
by the Managing Shareholder, the President of the Trust has full power to act on
behalf of the Trust. The Managing Shareholder expects that most actions taken in
the name of the Trust will be taken by Mr. Swanson and the other principal
officers in their capacities as officers of the Trust under the direction of the
Managing Shareholder rather than as officers of the Managing Shareholder.
(e) The Independent Panel Members.
The Declaration provides for an Independent Review Panel (the "Panel"),
with responsibility for independently reviewing and approving material
transactions ("Ridgewood Program Transactions") between the Trust and any other
investment programs sponsored by the Managing Shareholder or its Affiliates
("Ridgewood Programs").
All Ridgewood Program Transactions (which include material transactions
between the Trust or entities in which the Trust invests, on the one hand, and
other Ridgewood Programs or entities in which they invest or have control, on
the other), must be approved by a majority of the Panel Members (if there are
only two Panel Members, both must approve) or by a Majority of the Investors. In
reviewing and approving a Ridgewood Program Transaction, the Panel Members are
be guided by the provisions of Delaware law regarding the responsibilities of
directors of a business corporation who pass upon a transaction with an
affiliated corporation. In so doing, the Panel Members are subject to duties of
loyalty to the Trust and its Investors and care in reviewing the transaction,
and are obligated to consider the entire fairness of the transaction to the
Trust. There is no requirement, however, that the Trust participate in the
transaction on identical terms with the other Ridgewood Programs. The
Declaration specifies, in addition, that the Panel Members will be entitled to
the benefits of the "business judgment rule" of Delaware law, which exonerates
directors for their negligence or mistaken decisions in the absence of bad faith
or clear conflicts of interest.
The Independent Review Panel provisions were included in the Declaration in
recognition that the Trust's investment program anticipates significant
co-investment by the Trust in Projects in which other Ridgewood Programs will
invest. In particular, the investment in the Maine Hydro Projects involved a $7
million co- investment with Power IV and the investment in the Maine Biomass
Projects also involved a $7 million co-investment with Power IV. The Managing
Shareholder intends to have the Venture Funds co-invest in Quantum and in
MetaSound and it is possible that future projects might involve co-investment
with the Growth Fund or the Venture Fund. The Managing Shareholder concluded
that given the potential conflicts of interest and the additional complexities
and responsibilities that characterize co-investment decisions, the Trust should
create a mechanism for independent review and approval of co-investments.
The Managing Shareholder designated the initial Panel of two Panel Members.
All incumbent Panel Members must consent for the Panel to take action. A
majority of the Managing Shareholder and the incumbent Panel Members, acting
together, may authorize an increase to no more than eight Panel Members (or a
decrease to not fewer than two) and may fill vacancies on the Panel within 180
days. If there is no incumbent Panel Member, however, vacancies must be filled
by the Managing Shareholder with the approval of a Majority of the Investors. A
Panel Member may not be an Affiliate of the Trust and may not be an investment
advisor or underwriter for the Trust, a person beneficially owning five percent
or more of the Investor Shares, an entity in which the Trust beneficially owns
five percent or more of the outstanding equity securities, an agent or employee
of the Trust or its subsidiaries, a member of the immediate family of any
individual described above, or a person who served at any time after the
beginning of the second-to-last full calendar year as legal counsel to the Trust
or the Managing Shareholder, or a partner, principal or employee of that legal
counsel.
The Panel is not required to review other transactions that might involve
the Managing Shareholder or its Affiliates and the Trust, such as the Management
Agreement or temporary advances of funds by the Managing Shareholder to the
Trust. The Managing Shareholder, in its sole discretion, may refer such other
transactions to the Panel for advice, and the Panel, in its sole discretion, may
elect to review and report to the Managing Shareholder on the referred
transaction, or to decline to review it. Neither the Managing Shareholder nor
the Panel Members shall incur liability to the Trust or any Shareholder by their
decisions to refer or not to refer, or to review or not to review, any
transaction that is not a Ridgewood Program Transaction.
The Panel Members are not trustees of the Trust, have no general fiduciary
responsibility for the Trust's investments or operations, and have no continuing
oversight responsibilities for the Trust. The Panel meets only on the call of
the Managing Shareholder. Panel Members may resign and may be removed either for
cause by action of at least two-thirds of the remaining Panel Members or for any
reason by action of the holders of at least two-thirds of the Investor Shares.
Compensation of the Panel Members is set in the Declaration at $5,000 per
year, plus out-of-pocket expenses incurred.. If the Managing Shareholder
certifies in the Trust's records that there is no reasonable probability that
the Trust will engage in further Ridgewood Program Transactions, the Panel will
be suspended and will take no further action. During that period, the Panel
Members' compensation will cease. A suspended Panel may be reinstated by the
Managing Shareholder at any time.
The current Panel Members are Ralph O. Hellmold, Jonathan C. Kaledin, and
Joseph Ferrante, Jr. who also serve as independent trustees of two Prior
Programs, Ridgewood Power II and Ridgewood Power III. Both are independent power
programs sponsored by the Managing Shareholder. Independent panel members must
approve transactions between their program and the Managing Shareholder or
companies affiliated with the Managing Shareholder, but have no other
responsibilities. Neither Mr. Hellmold nor Mr. Kaledin nor Mr. Ferrante is
otherwise affiliated with the Trust, any of the Trust's officers or agents, the
Managing Shareholder, any other Trustee, any affiliates of the Managing
Shareholder and any other Trustees, or any director, officer or agent of any of
the foregoing.
Ralph O. Hellmold, age 59, is founder, sole shareholder and President of
Hellmold Associates, Inc., an investment banking firm and investment adviser
specializing in working with troubled companies or their creditors to raise
capital, divest businesses and restructure liabilities, whether in or outside
bankruptcy. Other financial advisory services provided by Hellmold Associates,
Inc. include mergers and acquisitions advice, valuations, fairness opinions and
expert witness testimony. In addition to working with troubled companies or
their creditors, Hellmold Associates, Inc. also acts as general partner of funds
which invest in the securities of financially distressed companies.
From 1987 to 1990, when he formed Hellmold Associates, Inc., Mr. Hellmold
was a Managing Director at Prudential-Bache Capital Funding, where he served as
co-head of the Corporate Finance Group, co-head of the Investment Banking
Committee and head of the Financial Restructuring Group. From 1974 to 1987, Mr.
Hellmold was a partner at Lehman Brothers and its successors, where he worked in
the General Corporate Finance Group and co-founded the Financial Restructuring
Group. Prior thereto, he was a research analyst at Lehman Brothers and at
Francis I. du Pont & Company. He received his undergraduate degree magna cum
laude from Harvard College and an M.I.A. from Columbia University. He is a
Chartered Financial Analyst and a member of the New York Society of Security
Analysts. Mr. Hellmold is the holder of one-half share in each of Ridgewood
Power I and Ridgewood Power III, a shareholder of one-half Share in the Trust
and a limited partner or shareholder in numerous limited partnerships and a
business trust sponsored by Ridgewood Energy to invest in oil and gas
development and related businesses. Mr. Hellmold is a director of Core Materials
Corporation, Columbus, Ohio and of International Aircraft Investors, Torrance,
California.
Jonathan C. Kaledin, age 42, has been New York Regional Counsel of The
Nature Conservancy, the international land conservation organization, since
September 1995. From 1990 to June 1995, he was the Executive Director of the
National Water Funding Council ("NWFC"), an advocacy and public affairs
organization representing municipalities, businesses, financial institutions and
others on the financial aspects of clean water infrastructure projects required
by the federal Clean Water Act and the federal Safe Drinking Water Act. Prior to
running the NWFC, Mr. Kaledin practiced law in both the private and public
sectors, specializing in environmental and real estate matters. Mr. Kaledin
received his undergraduate degree magna cum laude from Harvard College and a law
degree from New York University.
The Independent Trustees and the Managing Shareholder expanded the
number of Independent Trustees to three in January 2000 and elected Joseph
Ferrante, Jr. as the additional Independent Trustee. Mr. Ferrante, age 55, has
been a lawyer in private practice in Ridgewood, New Jersey for more than five
years specializing in business and taxation matters. He received a Juris Doctor
degree in law from the George Washington University in 1970 and his
undergraduate degree from the Johns Hopkins University. He advises a large
number of start-up and entrepreneurial companies.
(f) Corporate Trustee
The Corporate Trustee of the Trust is Ridgewood Holding. Legal title to
Trust property is now and in the future will be in the name of the Trust, if
possible, or Ridgewood Holding as trustee. Ridgewood Holding is also a trustee
of Ridgewood Power I, Ridgewood Power II, Ridgewood Power III, Power IV, the
Growth Fund and of an oil and gas business trust sponsored by Ridgewood Energy
and is expected to be a trustee of other similar entities that may be organized
by the Managing Shareholder and Ridgewood Energy. The President, sole director
and sole stockholder of Ridgewood Holding is Robert E. Swanson; its other
executive officers are identical to those of the Managing Shareholder. The
principal office of Ridgewood Holding is at 1105 North Market Street, Suite
1300, Wilmington, Delaware 19899.
(g) Section 16(a) Beneficial Ownership Reporting Compliance
All individuals subject to the requirements of Section 16(a) have complied
with those reporting requirements during 1999.
(h) RPMCo.
As discussed above at Item 1 - Business, RPMCo assumed day- to-day
management responsibility for the Maine Biomass Projects in March 1999. Like the
Managing Shareholder, RPMCo is wholly owned by Robert E. Swanson. It will enter
into an "Operation Agreement" with the Indeck Maine Energy, LLC under which
RPMCo, under the supervision of the Managing Shareholder, will provide the
management, purchasing, engineering, planning and administrative services for
the Providence Project. RPMCo will charge the Trust at its cost for these
services and for the Trust's allocable amount of certain overhead items. RPMCo
shares space and facilities with the Managing Shareholder and its affiliates. To
the extent that common expenses can be reasonably allocated to RPMCo, the
Managing Shareholder may, but is not required to, charge RPMCo at cost for the
allocated amounts and such allocated amounts will be borne by the Trust and
other programs. Common expenses that are not so allocated will be borne by the
Managing Shareholder.
Initially, the Managing Shareholder does not anticipate charging RPMCo for
the full amount of rent, utility supplies and office expenses allocable to
RPMCo. As a result, both initially and on an ongoing basis the Managing
Shareholder believes that RPMCo's charges for its services to the Trust are
likely to be materially less than its economic costs and the costs of engaging
comparable third persons as managers. RPMCo will not receive any compensation in
excess of its costs.
Allocations of costs will be made either on the basis of identifiable
direct costs, time records or in proportion to each program's investments in
Projects managed by RPMCo; and allocations will be made in a manner consistent
with generally accepted accounting principles.
RPMCo will not provide any services related to the administration of the
Trust, such as investment, accounting, tax, investor communication or regulatory
services, nor will it participate in identifying, acquiring or disposing of
Projects. RPMCo will not have the power to act in the Trust's name or to bind
the Trust, which will be exercised by the Managing Shareholder or the Trust's
officers.
The Operation Agreement does not have a fixed term and is terminable by
RPMCo, by the Managing Shareholder or by vote of a majority in interest of
Investors, on 60 days' prior notice. The Operation Agreement may be amended by
agreement of the Managing Shareholder and RPMCo; however, no amendment that
materially increases the obligations of the Trust or that materially decreases
the obligations of RPMCo shall become effective until at least 45 days after
notice of the amendment, together with the text thereof, has been given to all
Investors.
The executive officers of RPMCo are Mr. Swanson (President), Mr. Gold
(Executive Vice President), Mr. Brown (Senior Vice President and Chief Operating
Officer), Mr. Quinn (Senior Vice President and Chief Financial Officer) and Ms.
Olin (Vice President. Douglas V. Liebschner, Vice President - Operations, is a
key employee.
Douglas V. Liebschner, age 52, joined RPMCo in June 1996 as Vice President
of Operations. He has over 27 years of experience in the operation and
maintenance of power plants. From 1992 until joining RPMCo, he was employed by
Tampella Services, Inc., an affiliate of Tampella, Inc., one of the world's
largest manufacturers of boilers and related equipment for the power industry.
Mr. Liebschner was Operations Supervisor for Tampella's Piney Creek project, a
$100 million bituminous waste coal fired circulating fluidized bed ("CFB") power
plant. Between 1989 and 1992, he supervised operations of a waste to energy
plant in Poughkeepsie, N.Y. and an anthracite-waste-coal-burning CFB in
Frackville, Pa. From 1969 to 1989, Mr. Liebschner served in the U.S. Navy,
retiring with the rank of Lieutenant Commander. While in the Navy, he served
mainly in billets dealing with the operation, maintenance and repair of ship
propulsion plants, twice serving as Chief Engineer on board U.S. Navy combatant
ships. He has a Bachelor of Science degree from the U.S. Naval Academy,
Annapolis, Md.
Item 11. Executive Compensation.
The Trust reimburses RPMCo at cost for services provided by RPMCo's
employees and reimburses the Managing Shareholder at allocated cost for services
outside the scope of the Management Agreement; no such reimbursement per
employee exceeded $60,000 in 1998 or 1999. Information as to the fees payable to
the Managing Shareholder and certain affiliates is contained at Item 13 Certain
Relationships and Related Transactions.
As compensation for services rendered to the Trust, pursuant to the
Declaration, each Independent Panel Member is entitled to be paid by the Trust
the sum of $5,000 annually and to be reimbursed for all reasonable out-of-pocket
expenses relating to attendance at Board meetings or otherwise performing his
duties to the Trust. Accordingly in August 1996, January 1997 and following
years the Trust paid each Independent Panel Member $5,000 for his services. The
Independent Panel Members and the Managing Shareholder are entitled to review
the compensation payable to the Independent Panel Members annually and increase
or decrease it as they see reasonable. The consent of a majority of the Panel
Members and the consent of the Managing Shareholder is necessary for a change in
compensation. The Trust is not entitled to pay the Independent Panel Members
compensation for consulting services rendered to the Trust outside the scope of
their duties to the Trust without similar approval.
Ridgewood Holding, the Corporate Trustee of the Trust, is not entitled to
compensation for serving in such capacity, but is entitled to be reimbursed for
Trust expenses incurred by it which are properly reimbursable under the
Declaration.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The Managing Shareholder purchased for cash one full Investor Share. By
virtue of its purchase of Investor Shares, the Managing Shareholder is entitled
to the same ratable interest in the Trust as all other purchasers of Investor
Shares. No other Trustees or executive officers of the Trust acquired Investor
Shares in the Trust's offering. No person beneficially owns 5% or more of the
Investor Shares.
The Managing Shareholder was issued one Management Share in the Trust
representing the beneficial interests and management rights of the Managing
Shareholder in its capacity as the Managing Shareholder (excluding its interest
in the Trust attributable to Investor Shares it acquired in the offering). The
management rights of the Managing Shareholder are described in further detail
above at Item 1 - Business and below in Item 10. Directors and Executive
Officers of the Registrant. Its beneficial interest in cash distributions of the
Trust and its allocable share of the Trust's net profits and net losses and
other items attributable to the Management Share are described in further detail
below at Item 13 -- Certain Relationships and Related Transactions.
Item 13. Certain Relationships and Related Transactions.
The Declaration provides that cash flow of the Trust, less reasonable
reserves which the Trust deems necessary to cover anticipated Trust expenses, is
to be distributed to the Shareholders from time to time as the Trust deems
appropriate. The allocation of distributions between the Investors and the
Managing Shareholder is described at Item 11(a) - Description of Registrant's
Securities to be Registered - Distribution and Dissolution Rights.
The Trust made distributions to the Managing Shareholder (which is a member
of the Board of the Trust) and Investors in 1998 and 1999 as stated at Item 5 -
Market Price of and Dividends on the Registrant's Common Equity and Related
Stockholder Matters. The Trust paid fees to the Managing Shareholder and its
affiliates as follows:
Fee Paid to 1999 1998 1997 1996
Investment fee Managing
Shareholder $ --- $337,158 $1,145,212 $33,346
Placement agent fee Ridgewood
and sales commis- Securities
sions Corporation --- 277,008 572,606 166,673
Organizational, Managing
distribution and Shareholder
offering fee --- 1,448,944 3,435,636 1,000,038
Management fee Managing
Shareholder 2,377,941 1,606,269 --- ---
Due diligence Managing
expenses Shareholder 969,793 830,823 603,639 4,500
Reimbur- Managing
sements Shareholder --- 793,654 392,752 ---
The investment fee equaled 2% of the proceeds of the offering of Investor
Shares and was payable for the Managing Shareholder's services in investigating
and evaluating investment opportunities and effecting investment transactions.
The placement agent fee (1% of the offering proceeds) and sales commissions were
also paid from proceeds of the offering, as was the organizational, distribution
and offering fee (5% of offering proceeds) for legal, accounting, consulting,
filing, printing, distribution, selling, closing and organization costs of the
offering.
In addition to the foregoing, the Trust reimbursed the Managing Shareholder
and RPMCo at cost for expenses and fees of unaffiliated persons engaged by the
Managing Shareholder for Trust business and for certain expenses related to
management of Projects.
Other information in response to this item is reported in response to Item
12. Executive Compensation, which information is incorporated by reference into
this Item 13.
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K.
(a) Financial Statements.
See the Index to Financial Statements in Item 8 hereof.
(b) Reports on Form 8-K.
No Form 8-K was filed with the Commission by the Registrant during the
quarter ending December 31, 1999.
(c) Exhibits
3.A. Certificate of Trust of the Registrant. Incorporated by reference to
Exhibit 3.A of the Registrant's Registration Statement on Form 10, dated April
30, 1998.
3.B. Amended Declaration of Trust of
the Registrant. Incorporated by reference to Exhibit 3.B of the Registrant's
Registration Statement on Form 10, dated April 30, 1998.
3.C. Amendment No. 2 to Declaration of Trust. Incorporated by reference to
Exhibit 3.C of the Registrant's Registration Statement on Form 10, dated April
30, 1998.
3.D. Amendment No. 3 to Declaration of Trust. Incorporated by reference to
Exhibit 3.D of the Registrant's Registration Statement on Form 10, dated April
30, 1998.
10.A. Agreement of Merger, dated as of July 1, 1996, by and among
Consolidated Hydro Maine, Inc., CHI Universal, Inc., Consolidated Hydro, Inc.,
Ridgewood Maine Power Partners, L.P. and Ridgewood Maine Hydro Corporation.
Incorporated by reference to Exhibit 2.1 of the Current Report on Form 8-K filed
by Ridgewood Electric Power Trust IV (Commission File No.0-25430, CIK
0000930364) with the Commission on January 8, 1997.
10.B. Letter, dated November 15, 1996, amending Agreement of Merger.
Incorporated by reference to Exhibit 2.2 of Amendment No. 1 to the -Current
Report on Form 8-K filed by Ridgewood Electric Power Trust IV (Commission File
No. 0-25430, CIK 0000930364) with the Commission on January 9, 1997.
10.C. Letter, dated December 3, 1996, amending Agreement of Merger.
Incorporated by reference to Exhibit 2.3 of the Current Report on Form 8-K filed
by Ridgewood Electric Power Trust IV (Commission File No.0-25430, CIK
0000930364) with the Commission on January 8, 1997.
10.D. Operation, Maintenance and Administration Agreement, dated November
__, 1996, by and among Ridgewood Maine Hydro Partners, L.P., CHI Operations,
Inc. and Consolidated Hydro, Inc. Incorporated by reference to Exhibit 10 of the
Current Report on Form 8-K filed by Ridgewood Electric Power Trust IV
(Commission File No.0-25430, CIK 0000930364) with the Commission on January 8,
1997.
10.E. Management Agreement, dated as of April 12, 1996, between the
Registrant and Ridgewood Power Corporation. Page 172
10.F. Agreement to Purchase Membership Interests, dated as of June 11,
1997, by and between Ridgewood Maine, L.L.C. and Indeck Maine Energy, L.L.C.
Incorporated by reference to Exhibit 2.A. of Amendment No. 1 to Current Report
on Form 8-K filed by Ridgewood Electric Power Trust IV (Commission File
No.0-25430, CIK 0000930364), dated July 1, 1997.
10.G. Amended and Restated Operating Agreement of Indeck Maine Energy,
L.L.C., dated as of June 11, 1997. Incorporated by reference to Exhibit 2.B. of
Amendment No. 1 to Current Report on Form 8-K filed by Ridgewood Electric Power
Trust IV (Commission File No.0-25430, CIK 0000930364) dated July 1, 1997.
10.H. Omitted. No longer in force.
10.I. Limited Liability Company Agreement of Santee River Rubber Company,
LLC. Page
The Registrant agrees to furnish supplementally a copy of any omitted exhibit or
schedule to agreements filed as exhibits to the Commission upon request.
21. Subsidiaries of the Registrant Page
24. Powers of Attorney Page
27. Financial Data Schedule Page
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Signature Title Date
RIDGEWOOD ELECTRIC POWER TRUST V (Registrant)
By:/s/ Robert E. Swanson President and Chief April 14, 2000
Robert E. Swanson Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
By:/s/ Robert E. Swanson President and Chief April 14, 2000
Robert E. Swanson Executive Officer
By:/s/ Martin V. Quinn Senior Vice President and
Martin V. Quinn Chief Financial Officer April 14, 2000
By:/s/ Christopher I. Naunton Chief Accounting Officer April 14, 2000
Christopher I. Naunton
RIDGEWOOD POWER LLC Managing Shareholder April 14, 2000
By:/s/ Robert E. Swanson President
Robert E. Swanson
/s/ Robert E. Swanson * Independent Panel Member April 14, 2000
Ralph O. Hellmold
/s/ Robert E. Swanson * Independent Panel Member April 14, 2000
Jonathan C. Kaledin
/s/ Robert E. Swanson * Independent Panel Member April 14, 2000
Joseph Ferrante, Jr.
* As attorney-in-fact for the Independent Trustee
<PAGE>
Ridgewood Electric Power Trust V
Consolidated Financial Statements
December 31, 1999, 1998 and 1997
<PAGE>
Report of Independent Accountants
To the Shareholders and Trustee of
Ridgewood Electric Power Trust V:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, comprehensive loss, changes in
shareholders' equity and of cash flows present fairly, in all material respects,
the financial position of Ridgewood Electric Power Trust V (the "Trust") and its
subsidiaries at December 31, 1999 and 1998, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1999, in conformity with accounting principles generally accepted in the
United States. These financial statements are the responsibility of the Trust's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States,
which 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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, NY
March 24, 2000
<PAGE>
Ridgewood Electric Power Trust V
Consolidated Balance Sheet
- --------------------------------------------------------------------------------
December 31,
1999 1998
------------ ------------
Assets:
Cash and cash equivalents .................. $ 14,759,184 $ 42,832,241
Due from affiliates ........................ 675,185 1,165,140
Other current assets ....................... 404,351 262,489
------------ ------------
Total current assets ..................... 15,838,720 44,259,870
Investments:
Maine Hydro Projects ................... 5,663,505 6,217,289
Maine Biomass Projects ................. 5,825,271 6,306,817
MetaSound Systems ...................... 921,163 2,447,413
Quantum Conveyor ....................... 2,810,410 3,096,170
Santee River Rubber .................... 8,186,456 9,007,968
Egypt Projects ......................... 4,736,093 --
Mediterranean Fiber Optic Project/GFG .. 1,497,670 --
United Kingdom Landfill Projects ....... 16,916,309 --
Deferred due diligence costs ............... -- 399,498
------------ ------------
Total assets ............................. $ 62,395,597 $ 71,735,025
------------ ------------
Liabilities and shareholders' equity:
Liabilities:
Accounts payable and accrued expenses ...... $ 174,857 $ 194,531
Due to affiliates .......................... 449,178 593,582
------------ ------------
Total current liabilities ................ 624,035 788,113
------------ ------------
Minority interest .......................... 1,337,769 1,730,174
Commitments and contingencies
Shareholders' equity:
Shareholders' equity (932.8875 investor
shares issued and
outstanding) ........................ 60,644,421 69,429,387
Subscription receivable .................... (23,000) (113,500)
------------ ------------
Shareholders' equity, net ................ 60,621,421 69,315,887
Managing shareholder's accumulated deficit
(1 management share
issued and outstanding) ............. (187,628) (99,149)
------------ ------------
Total shareholders' equity ............... 60,433,793 69,216,738
------------ ------------
Total liabilities and shareholders' equity $ 62,395,597 $ 71,735,025
------------ ------------
See accompanying notes to the consolidated financial statements.
<PAGE>
Ridgewood Electric Power Trust V
Consolidated Statement of Operations
- --------------------------------------------------------------------------------
For the Year Ended December 31,
-----------------------------------------
1999 1998 1997
----------- ----------- -----------
Revenue:
Interest income .................. $ 1,476,695 $ 2,767,348 $ 1,003,276
Equity interest in incom
(loss) of:
Maine Hydro Projects ............ 849,456 657,989 521,710
Maine Biomass Projects .......... (1,006,796) (694,321) (680,109)
MetaSound Systems ............... (1,526,250) (61,227) --
Quantum Conveyor ................ (345,760) (12,191) --
Santee River Rubber ............. 98,488 363,351 --
Egypt Projects .................. (197,759) -- --
Mediterranean Fiber Optic
Project/GFG ..................... (49,163) -- --
United Kingdom Landfill Projects 180,321 -- --
----------- ----------- -----------
Total (loss) revenue ............. (520,768) 3,020,949 844,877
----------- ----------- -----------
Expenses:
Investment fee paid to the
managing shareholder ............ -- 337,158 1,145,212
Project due diligence costs ...... 969,793 830,823 603,639
Management fees .................. 2,377,941 1,606,269 --
Allocated management costs ....... -- 793,654 392,752
Accounting and legal fees ........ 100,104 59,719 30,130
Purchased research and development -- 1,969,951 --
Research and development ......... 1,258,816 -- --
Other expenses ................... 140,042 40,342 18,297
----------- ----------- -----------
Total expenses ................... 4,846,696 5,637,916 2,190,030
----------- ----------- -----------
Loss from operations ............. (5,367,464) (2,616,967) (1,345,153)
Minority interest in loss
(income) of consolidated
subsidiaries ................. 392,405 (26,695) --
----------- ----------- -----------
Net loss ......................... $(4,975,059) $(2,643,662) $(1,345,153)
----------- ----------- -----------
See accompanying notes to the consolidated financial statements.
<PAGE>
Ridgewood Electric Power Trust V
Consolidated Statement of Changes In Shareholders' Equity
For The Years Ended December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C>
Subscription Managing
Shareholders Receivable Shareholder Total
------------ ------------ ------------ ------------
Shareholders' equity, January
1, 1997 (181.6 investor
shares and 1 management share) $ 14,566,764 $ (61,000) $ (3,833) $ 14,501,931
Capital contributions, net
(581.2 investor shares) ........ 49,845,474 (8,543,653) -- 41,301,821
Cash distributions .............. (1,398,357) -- (14,124) (1,412,481)
Net loss for the year ........... (1,331,702) -- (13,451) (1,345,153)
------------ ------------ ------------ ------------
Shareholders' equity, December
31, 1997 (762.8 investor
shares and 1 management share) . 61,682,179 (8,604,653) (31,408) 53,046,118
Capital contributions, net
(170.0875 investor shares) ..... 22,944,716 8,491,153 -- 22,944,716
Cash distributions .............. (4,089,130) -- (41,304) (4,130,434)
Net loss for the year ........... (2,617,225) -- (26,437) (2,643,662)
------------ ------------ ------------ ------------
Shareholders' equity, December
31, 1998 (932.8875 investor
shares and 1 management share) . 69,429,387 (113,500) (99,149) 69,216,738
Capital contributions, net ...... (22,638) 90,500 -- 67,862
Cash distributions .............. (3,904,757) -- (39,412) (3,944,169)
Net loss for the year ........... (4,925,308) -- (49,751) (4,975,059)
Cumulative translation adjustment 67,737 -- 684 68,421
------------ ------------ ------------ ------------
Shareholders' equity, December
31, 1999 (932.8875 investor
shares and 1 management share) .. $ 60,644,421 $ (23,000) $ (187,628) $ 60,433,793
------------ ------------ ------------ ------------
</TABLE>
Ridgewood Electric Power Trust V
Consolidated Statement of Comprehensive
Loss
- --------------------------------------------------------------------------------
For the Year Ended December 31,
-----------------------------------------
1999 1998 1997
----------- ----------- -----------
Net loss ........................ $(4,975,059) $(2,643,662) $(1,345,153)
Cumulative translation adjustment 68,421 -- --
----------- ----------- -----------
Comprehensive loss .............. $(4,906,638) $(2,643,662) $(1,345,153)
----------- ----------- -----------
See accompanying notes to the consolidated financial statements.
<PAGE>
Ridgewood Electric Power Trust V
Consolidated Statement of Cash Flows
- --------------------------------------------------------------------------------
For the Year Ended December 31,
--------------------------------------------
1999 1998 1997
------------ ------------ ------------
Cash flows from operating
activities:
Net loss ..................... $ (4,975,059) $ (2,643,662) $ (1,345,153)
------------ ------------ ------------
Adjustments to reconcile
net loss to net cash used
in operating activities:
Charge for purchased
research and development .... -- 1,969,951 --
Minority interest in (loss)
income of subsidiary ....... (392,405) 26,695 --
Equity interest in (income)
loss of:
Maine Hydro Projects ....... (849,456) (657,989) (521,710)
Maine Biomass Projects ..... 1,006,796 694,321 680,109
MetaSound Systems .......... 1,526,250 61,227 --
Quantum Conveyor ........... 345,760 12,191 --
Santee River Rubber ........ (98,488) (363,351) --
Egypt Projects ............. 197,759 -- --
Mediterranean Fiber Optic
Project/GFG ............... 49,163 -- --
United Kingdom Landfill
Projects .................. (180,321) -- --
Changes in assets and
liabilities:
Increase in other current
assets .................... (141,862) (95,319) (137,170)
(Decrease) increase in
accounts payable and
accrued expenses .......... (19,674) (906,754) 703,381
Decrease (increase) in due
to/from affiliate, net .... 345,551 (879,613) 389,931
------------ ------------ ------------
Total adjustments ..... 1,789,073 (138,641) 1,114,541
------------ ------------ ------------
Net cash used in operating
activities .................. (3,185,986) (2,782,303) (230,612)
------------ ------------ ------------
Cash flows from investing
activities:
Investment in Hydro Projects . -- -- (265,952)
Investment in Biomass Projects (525,250) (383,276) (7,297,971)
Investment in MetaSound
Systems ..................... -- (2,508,640) --
Investment in Quantum Conveyor (60,000) (3,108,361) --
Investment in Santee River
Rubber ...................... -- (8,984,891) --
Investment in WaterPure
Corporation, net of cash
acquired .................... -- (266,472) --
Investment in Egypt Projects . (4,933,852) -- --
Investment in Mediterranean
Fiber Optic Project/GFG ..... (1,546,833) -- --
Investment in United Kingdom
Landfill Projects ........... (16,667,567) -- --
Distributions from Hydro
projects .................... 1,403,240 1,135,526 1,006,257
Distributions from Santee
River Rubber ............... 920,000 340,274 --
Deferred due diligence costs . 399,498 (245,480) 65,901
------------ ------------ ------------
Net cash used in
investing activities ........ (21,010,764) (14,021,320) (6,491,765)
------------ ------------ ------------
Cash flows from financing
activities:
Proceeds from shareholders'
contributions ............... 70,206 25,471,126 52,580,637
Selling commissions and
offering costs paid ......... (2,344) (2,526,410) (11,278,816)
Cash distributions to
shareholders ................ (3,944,169) (4,130,434) (1,412,481)
------------ ------------ ------------
Net cash (used in) provided
by financing activities ..... (3,876,307) 18,814,282 39,889,340
------------ ------------ ------------
Net (decrease) increase in
cash and cash equivalents ... (28,073,057) 2,010,659 33,166,963
Cash and cash equivalents,
beginning of year ........... 42,832,241 40,821,582 7,654,619
------------ ------------ ------------
Cash and cash equivalents,
end of year ................. $ 14,759,184 $ 42,832,241 $ 40,821,582
------------ ------------ ------------
See accompanying notes to the financial statements.
<PAGE>
Ridgewood Electric Power Trust V
Notes to the Consolidated Financial Statements
- --------------------------------------------------------------------------------
1. Organization and Purpose
Nature of Business
Ridgewood Electric Power Trust V (the "Trust") was formed as a Delaware business
trust in March 1996, by Ridgewood Energy Holding Corporation acting as the
Corporate Trustee. The managing shareholder of the Trust is Ridgewood Power LLC.
The Trust began offering shares on April 12, 1996 and discontinued its offering
on April 15, 1998. The Fund had no operations prior to the commencement of the
share offering.
The Trust has been organized to invest primarily in independent power generation
facilities, in the development of these facilities and in other projects. These
independent power generation facilities will include cogeneration facilities,
which produce both electricity and heat energy and other power plants that use
various fuel sources (except nuclear).
2. Summary Of Significant Accounting Policies
Principles of consolidation and accounting for investment in power generation
projects
The consolidated financial statements include the accounts of the Trust and an
affiliate owned more than 50%. All material intercompany transactions have been
eliminated.
The Trust uses the equity method of accounting for its investments in affiliates
in which the Trust has the ability to exercise significant influence over the
operating and financial policies of the affiliate but does not control the
affiliate. The Trust's share of the earnings of the affiliates is included in
the consolidated results of operations.
Use of estimates
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, and disclosure of
contingent 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 the estimates.
Cash and cash equivalents
The Trust considers all highly liquid investments with maturities when purchased
of three months or less to be cash and cash equivalents. Cash and cash
equivalents consist of commercial paper and funds deposited in bank accounts.
Income taxes
No provision is made for income taxes in the accompanying financial statements
as the income or losses of the Trust are passed through and included in the tax
returns of the individual shareholders of the Trust.
Offering costs
Costs associated with offering Trust shares (selling commissions, distribution
and offering costs) are reflected as a reduction of the shareholders' capital
contributions.
Due diligence costs relating to potential power projects
Costs relating to the due diligence performed on potential project investments
are initially deferred, until such time as the Trust determines whether or not
it will make an investment in the respective project. Costs relating to
completed projects are capitalized and costs relating to rejected projects are
expensed at the time of rejection.
These costs consist of payments for consultants and other unaffiliated parties
performing financial, engineering, legal and other due diligence procedures and
negotiations. It also includes travel and other out-of-pocket costs incurred by
employees of affiliates of the managing shareholder investigating potential
project investments.
Subscriptions receivable
Capital contributions are recorded upon receipt of the appropriate subscription
documents. Subscriptions receivable from shareholders are reflected as a
reduction of shareholders' equity.
Foreign Currency Translation
The financial statements of the Company's non-United States investments are
translated into United States dollars using current rates of exchange, with
gains or losses included as a cumulative translation adjustment account in the
shareholders' equity section of the balance sheet.
Reclassification
Certain items in previously issued financial statements have been reclassified
for comparative purposes.
3. Investments
The Trust has the following investments:
Accounting Investment at December 31,
-------------------------
Project Name Method 1999 1998
- -------------------------------- ------------- ----------- -----------
Maine Hydro Projects ........... Equity Method $ 5,663,505 $ 6,217,289
Maine Biomass Projects ......... Equity Method 5,825,271 6,306,817
MetaSound Systems .............. Equity Method 921,163 2,447,413
Quantum Conveyor ............... Equity Method 2,810,410 3,096,170
Santee River Rubber ............ Equity Method 8,186,456 9,007,968
Egypt Projects ................. Equity Method 4,736,093 --
Mediterranean Fiber Optic
Project/GFG ................... Equity Method 1,497,670 --
United Kingdom Landfill Projects Equity Method 16,916,309 --
WaterPure Corporation .......... Consolidation 1,570,424 2,031,073
----------- -----------
$48,127,301 $29,106,730
----------- -----------
Maine Hydro Projects
In 1996, Ridgewood Maine Hydro Partners, L.P. ("Ridgewood Hydro L.P.") was
formed as a Delaware limited partnership and acquired 14 hydroelectric projects,
located in Maine (the "Maine Hydro Projects"), from a subsidiary of Consolidated
Hydro, Inc. The assets acquired include a total of 11.3 megawatts of electrical
generating capacity. The electricity generated is sold to Central Maine Power
Company and Bangor Hydro Company ("BHC") under long-term contracts. The purchase
price was $13,628,395, including transaction costs. In addition, Ridgewood Hydro
L.P.
assumed a long-term lease obligation of $1,004,679.
The Trust owns a 50% limited partnership interest in Ridgewood Hydro L.P. and
50% of the outstanding common stock of Ridgewood Maine Hydro Corporation, which
is the sole general partner of Ridgewood Hydro L.P. The remaining 50% is owned
by Ridgewood Electric Power Trust IV ("Trust IV"). Ridgewood Power Corporation
is the managing partner of the Trust and Trust IV.
The Trust's 50% investment in the Maine Hydro Projects is accounted for under
the equity method of accounting. The Trust's equity in the earnings of the Maine
Hydro Projects has been included in the financial statements since acquisition.
The Maine Hydro Projects are operated by a subsidiary of CHI Energy, Inc..
(formerly Consolidated Hydro, Inc.), under an Operation, Maintenance and
Administrative Agreement. The annual operator's fee is $307,500, adjusted for
inflation, plus an annual incentive fee equal to 50% of the net cash flow in
excess of a target amount. The Maine Hydro Projects recorded $323,003, $429,714
and $429,430 of expense under this arrangement during the periods ended December
31, 1999, 1998 and 1997, respectively. The agreement has a five-year term and
can be renewed for two additional five-year terms by mutual consent.
Summarized financial information for the Maine Hydro Projects is as follows:
Balance Sheet Information
December 31, 1999 December 31, 1998
----------- -----------
Current assets .............. $ 1,573,177 $ 1,346,077
Electric power sales contract 10,105,173 11,165,469
Other non-current assets .... 1,270,396 1,057,892
----------- -----------
Total assets ................ $12,948,746 $13,569,438
----------- -----------
Current liabilities ......... $ 1,621,737 $ 438,443
Non-current liabilities ..... -- 696,418
Partners' equity ............ 11,327,009 12,434,577
----------- -----------
Total liabilities and equity $12,948,746 $13,569,438
----------- -----------
Statement of Operations Information
For the Year Ended December 31,
----------------------------------------
1999 1998 1997
----------- ----------- -----------
Revenue ................. $ 4,756,189 $ 4,511,361 $ 4,113,065
Total expenses .......... 3,002,245 3,217,846 2,952,589
Interest income (expense) (55,033) 22,464 (117,056)
----------- ----------- -----------
Net income .............. $ 1,698,911 $ 1,315,979 $ 1,043,420
----------- ----------- -----------
The Maine Hydro Projects qualify as small power production facilities under the
Public Utility Regulatory Policies Act ("PURPA"). PURPA requires that each
electric utility company operating at the location of a small power production
facility, as defined, purchase the electricity generated by such facility at a
specified or negotiated price. The Maine Hydro Projects sell substantially all
of their electrical output to two public utility companies, Central Maine Power
Company ("CMP") and Bangor Hydro-Electric Company ("BHC"), under long-term power
purchase agreements. Eleven of the twelve power purchase agreements with CMP
expire in December 2008 and are renewable for an additional five-year period.
The twelfth power purchase agreement with CMP expires in December 2007 with CMP
having the option to extend the contract for three more five-year periods. The
two power purchase agreements with BHC expire December 2014 and February 2017.
Maine Biomass Projects
On July 1, 1997, through a subsidiary, the Trust purchased a preferred
membership interest in Indeck Maine Energy, L.L.C. ("Maine Biomass Projects"),
which owns two electric power generating stations fueled by waste wood. The
aggregate purchase price was $7,297,971 and includes transaction costs of
$297,971. Each project has 24.5 megawatts of electrical generating capacity. The
Penobscot project is located in West Enfield, Maine and the Eastport project is
located in Jonesboro, Maine. The Maine Biomass Projects had a power sales
contract with the New England Power Pool, which expired on August 31, 1997. The
facilities were shut down in September 1997 and were reactivated in November
1997 to sell capacity and energy to BHC on a month-to-month basis. The
facilities were again shut down in January 1998. The facilities currently sell
installed capacity and are periodically restarted for testing or for the sale of
energy during peak periods of demand. The cost of maintaining the idled
facilities in good condition is approximately $100,000 per month.
The preferred membership interest entitles the Trust to receive an 18%
cumulative annual return on its $7,000,000 capital contribution to the Maine
Biomass Projects from the operating net cash flow from the projects. Trust IV
also purchased an identical preferred membership interest in Indeck Maine. After
payments in full to the preferred membership interests, up to $2,520,000 of any
remaining operating net cash flow during the year is paid to the other Maine
Biomass Project members. Any remaining operating net cash flow is payable 25% to
the Trust and Trust IV and 75% to the other Maine Biomass Project members.
In 1999 and 1998, the Trust loaned $525,250 and 375,000, respectively, to the
Maine Biomass Projects. The loan is in the form of demand notes that bear
interest at 5% per annum. Trust IV also made identical loans to the Maine
Biomass Projects. The other Maine Biomass Project members also loaned $1,050,500
and $750,000 to the Maine Biomass Projects with the same terms in 1999 and 1998,
respectively
The Trust's investment in the Maine Biomass Projects is accounted for under the
equity method of accounting. The Trust's equity in the loss of the Maine Biomass
Projects has been included in the financial statements since July 1, 1997.
The Penobscot and Eastport projects were operated by Indeck Operations, Inc., an
affiliate of the members of Indeck Maine. The annual operator's fee is $300,000,
of which $200,000 is payable contingent upon the Trusts receiving their
cumulative annual return. The management agreement had a term of one year and
automatically continued for successive one year terms, unless canceled by either
the Maine Biomass Projects or Indeck Operations, Inc. The Maine Biomass Projects
exercised their right to terminate the contract on March 1, 1999, because
certain preferred membership interest payments have not been made. Under an
Operating Agreement with the Trust, Ridgewood Power Management LLC ("Ridgewood
Management", formerly Ridgewood Power Management Corporation), an entity related
to the managing shareholder through common ownership, began providing
management, purchasing, engineering, planning and administrative services to the
Maine Biomass Projects. Ridgewood Management charges the projects at its cost
for these services and for the allocable amount of certain overhead items.
Allocations of costs are on the basis of identifiable direct costs, time records
or in proportion to amounts invested in projects.
From June thorough December 1999, the facilities periodically operated on
dispatch from ISO-New England, Inc. (the "ISO") and also submitted offers to the
ISO to run at high prices during power emergencies. The facilities claim the ISO
owes them approximately $14 million for the electricity products they provided
in those periods and the ISO has claimed that no material revenues are due to
the projects. The facilities have not recorded any of the disputed revenues in
their financial statements and it is too early to estimate the outcome of the
dispute.
Summarized financial information for the Maine Biomass Projects is as follows:
Balance Sheet Information
December 31, 1999 December 31, 1998
----------- -----------
Current assets ............. $ 1,103,266 $ 668,228
Non-current assets ......... 3,154,813 3,339,584
----------- -----------
Total assets ............... $ 4,258,079 $ 4,007,812
----------- -----------
Current liabilities ........ $ 4,394,990 $ 1,952,062
Members' equity ............ (136,911) 2,055,750
----------- -----------
Total liabilities and equity $ 4,258,079 $ 4,007,812
----------- -----------
Statement of Operations Information
For the period from
For the Year Ended For the Year Ended inception (April 1, 1997)
December 31, 1999 December 31, 1998 to December 31, 1997
----------- ----------- -----------
Revenue $ 1,391,039 $ 1,430,296 $ 2,991,793
Expenses 3,583,700 2,847,896 4,376,458
----------- ----------- -----------
Net loss $(2,192,661) $(1,417,600) $(1,384,665)
----------- ----------- -----------
MetaSound Corporation
In December 1998, through a subsidiary, the Trust purchased an interest in
MetaSound Systems, Inc. ("MetaSound Systems"), which is developing digital audio
marketing systems connected to the internet. The systems are designed to provide
digital quality messages, music and sound information to telephone callers on
hold or in a call center queue. For an aggregate purchase price of $2,508,640,
the Trust purchased 4,676,000 shares of Series C Preferred Stock, a warrant to
purchase up to 4,676,000 additional shares at $.54 per share expiring on May 31,
1999, and a second warrant to purchase up to 2,000,000 additional shares at $.54
per share expiring in 2003. The Series C Preferred Stock may be converted into
an equal number of shares of common stock at the Trust's option. The Series C
Preferred Stock automatically converts into common stock in the event of a
public offering of MetaSound Systems meeting certain requirements.
Ridgewood Capital Venture Partners, LLC and Ridgewood Capital Institutional
Venture Partners, LLC (collectively the "Venture Funds"), investment programs
sponsored by an affiliate of the managing shareholder, invested the $2,525,040
required for the May 1999 exercise of the 4,676,000 share warrant. The Trust and
the Venture Funds own undivided interests in MetaSound Systems in proportion to
the capital they contributed. The Trust and the Venture Funds own approximately
a 42% interest in MetaSound Systems.
The Trust's investment in MetaSound Systems is accounted for under the equity
method of accounting. The Trust's equity in the loss of MetaSound Systems has
been included in the financial statements since December 1,1998.
Summarized financial information for MetaSound Systems is as follows:
Balance Sheet Information
December 31, 1999 December 31, 1998
---------- ----------
Current assets ............. $2,012,000 $2,678,000
Other non-current assets ... 382,000 70,000
---------- ----------
Total assets ............... $2,394,000 $2,748,000
---------- ----------
Current liabilities ........ $1,486,000 $ 738,000
Non-current liabilities .... 482,000 641,000
Members' equity ............ 426,000 1,369,000
---------- ----------
Total liabilities and equity $2,394,000 $2,748,000
---------- ----------
Statement of Operations Information
For the Year Ended For the Period December 1, 199
December 31, 1999 to December 31, 1998
----------- -----------
Revenue $ 990,000 $ 28,000
Expenses 6,361,000 257,000
----------- -----------
Net loss $(5,371,000) $ (229,000)
----------- -----------
Quantum Conveyor
In September 1998, the Trust purchased a 15% membership interest in Quantum
Conveyor Systems, LLC, a newly organized Delaware limited liability company
("Quantum Conveyor") through a subsidiary of the Trust. At the same time,
Quantum Conveyor acquired substantially all of the assets and certain of the
liabilities of Quantum Conveyor Systems, Inc. Quantum Conveyor designs,
manufactures and sells modular conveyor systems used by post offices,
distribution centers, warehouses, and other material handling facilities.
At the same time as the Trust's subsidiary purchased its membership interest, it
made a secured loan of $2,985,000 to Quantum Conveyor. In addition, the Trust's
subsidiary had an option that expired on March 2, 1999, to purchase an
additional 10% membership interest for $10,000 which was exercised by the
Venture Funds in February 1999. The Trust's subsidiary extended a line of credit
to loan up to an addition $1,990,000 to Quantum Conveyor through June 1, 2003,
under the same terms as the $2,985,000 loan. The Venture Funds provided the
maximum $1,990,000 of loans under this line of credit in 1999. In July 1999, the
Trust and the Venture Funds purchased an additional 2% membership interest in
Quantum Conveyor for $100,000, funded $60,000 by the Trust and $40,000 by the
Venture Funds. The Trust and the Venture Funds own the subsidiary in proportion
to their capital contributions.
The remaining membership interests of Quantum Conveyor are owned by three
individuals. As part of the transaction, the president of Quantum Conveyor, who
owns a membership interest, accepted a $4,000,000 promissory note in
satisfaction of all indebtedness of Quantum Conveyor to him. The promissory note
has the same terms as the Trust's secured loan to Quantum Conveyor.
The secured loan and promissory note bear interest at 12% per year. From
September 1998 to August 2000, no interest payments by Quantum Conveyor are
required. From September 2000 to June 2003, Quantum Conveyor is required to make
quarterly payments of interest only. From July 2003 to September 2008, Quantum
Conveyor must make equal quarterly payments sufficient to fully repay the
principal and interest due under the note by September 2008.
The Trust's investment in Quantum Conveyor is accounted for under the equity
method of accounting. The Trust's equity in the loss of Quantum Conveyor has
been included in the financial statements since September 1998.
Summarized financial information for Quantum Conveyor is as follows:
Balance Sheet Information
December 31,
----------------------------
1999 1998
------------ ------------
Current assets ............. $ 1,691,186 $ 2,022,126
Non-current assets ......... 5,265,476 5,395,560
------------ ------------
Total assets ............... $ 6,956,662 $ 7,417,686
------------ ------------
Current liabilities ........ $ 1,349,781 $ 852,160
Non-current liabilities .... 10,291,596 7,260,336
Members' deficit ........... (4,684,715) (694,810)
------------ ------------
Total liabilities and equity $ 6,956,662 $ 7,417,686
------------ ------------
Statement of Operations Information
For the Year Ended December For the Period August 20, 1998
31, 1999 to December 31, 1998
----------- -----------
Revenue $ 2,619,559 $ 437,806
Expenses 6,621,965 1,222,616
----------- -----------
Net loss $(4,002,406) $ (784,810)
----------- -----------
Santee River Rubber
In August 1998, the Trust and Trust IV purchased preferred membership interests
in Santee River Rubber Company, LLC, a newly organized South Carolina limited
liability company ("Santee River Rubber"). Santee River Rubber is building a
waste tire and rubber processing facility located near Charleston, South
Carolina. The Trust and Trust IV purchased the interests through a limited
liability company owned two-thirds by the Trust and one-third by Trust IV. The
Trust's share of the purchase price was $8,979,639 and Trust IV's share of the
purchase price was $4,489,819.
Until January 2000 or until the facility begins operations, which ever occurs
first, Santee River Rubber will pay the Trust and Trust IV interest at 12% per
year on $11,000,000 of their investment. After operations begin, the Trusts are
entitled to receive all cash flow after payment of debt and other obligations
until the Trusts receive a cumulative 20% return on their total investment.
Thereafter, the Trusts receive 25% of any remaining cash flow available for
distribution. All cash distributions and tax allocations received from Santee
River Rubber are shared two-thirds by the Trust and one-third by Trust IV.
The Trusts have the right to designate two of the five members of the board of
directors of Santee River Rubber and have the further right to remove a third
member and designate a successor in the event of certain defaults under Santee
River Rubber's operating agreement. The remaining equity interest is owned by a
wholly-owned subsidiary of Environmental Processing Systems, Inc. of New York.
At the same time as the Trusts purchased their membership interests, Santee
River Rubber borrowed $16,000,000 through tax exempt revenue bonds and another
$16,000,000 through taxable convertible bonds. It also obtained $4,500,000 of
subordinated financing from the general contractor of the facility.
The project has been designed to receive and process waste tires and other waste
rubber products and produce fine crumb rubber of various sizes. The processing
will include both ambient and cryogenic processing equipment using liquid
nitrogen. Santee River Rubber anticipates that the final product will be fine
crumb rubber that can be used to manufacture new tires or to replace virgin
rubber in many applications.
Santee River Rubber has entered into long-term agreements for the supply of its
requirements for waste tires, electricity and liquid nitrogen. Santee River
Rubber has entered into short-term (ranging from one to three years) crumb
rubber sales contracts for a portion of the facility's output. The agreements
are contingent upon successful testing of the facility's output.
The Trust's investment in Santee River Rubber is accounted for under the equity
method of accounting. The Trust's equity in the loss of Santee River Rubber has
been included in the financial statements since August 19, 1998.
Summarized financial information for Santee River Rubber is as follows:
Balance Sheet Information
December 31, 1999 December 31, 1998
----------- -----------
Current assets ............. $ 1,910,190 $24,403,190
Construction in progress ... 32,899,358 15,392,656
Other non-current assets ... 4,685,995 4,761,119
----------- -----------
Total assets ............... $39,495,543 $44,556,965
----------- -----------
Liabilities ................ $34,576,964 $34,885,357
Members' equity ............ 4,918,579 9,671,608
----------- -----------
Total liabilities and equity $39,495,543 $44,556,965
----------- -----------
Statement of Operations Information
For the Period August
For the year ended December 19, 1998 to December
31, 1999 31, 1998
----------- -----------
Revenue $ 7,975 $ --
Expenses 3,547,208 2,085,911
----------- -----------
Net loss $(3,539,233) $(2,085,911)
----------- -----------
Egypt Projects
In 1999, the Trust and The Ridgewood Power Growth Fund (the "Growth Fund")
jointly formed a company to develop electric power and water purification plants
for resort hotels in Egypt. The first projects are expected to begin operation
in the first half of 2000. The Trust and the Growth Fund own undivided interests
in the Egypt projects in proportion to the capital they contributed. Through
December 31, 1999, the Trust and the Growth Fund each contributed $4,933,852 to
the Egypt Projects.
The Trust's investment in the Egypt Projects is accounted for under the equity
method of accounting. The Trust's equity in the loss of the Egypt Projects has
been included in the financial statements since the inception of the projects.
Summarized financial information for the Egypt Projects is as follows:
Balance Sheet Information
December 31, 1999
----------------------------
Current assets $ 719,794
Non-current assets 9,567,984
----------------------------
Total assets $ 10,287,778
----------------------------
Liabilities $ 815,592
Shareholders' equity 9,472,186
----------------------------
Liabilities and shareholders' equity $ 10,287,778
----------------------------
Statement of Operations Information
For the Year Ended December
31, 1999
----------------------------
Interest income $ 7,794
Expenses 403,312
----------------------------
Net loss $ (395,518)
----------------------------
Mediterranean Fiber Optic Project/GFG
In September 1999, the Trust and the Growth Fund made a joint investment of
$3,000,000 in Global Fiber Group ("GFG"), which is in the process of developing
an underwater fiber optic cable in the Western Mediterranean (the "Mediterranean
Fiber Optic Project"). The investment, which was funded equally by the Trust and
the Growth Fund, provides for a 25% ownership interest in GFG and the right to
invest in projects developed by GFG. The Trust and the Growth Fund anticipate
equally funding an $18,000,000 joint venture investment in the Mediterranean
Fiber Optic Project in the second quarter of 2000.
The Trust's investment in the Mediterranean Fiber Optic Project/GFG is accounted
for under the equity method of accounting. The Trust's equity in the loss of the
Mediterranean Fiber Optic Project/GFG has been included in the financial
statements since the inception of the projects.
Summarized financial information for GFG is as follows:
Balance Sheet Information
December 31, 1999
----------------------------
Current assets $ 90,030
Non-current assets 2,826,128
----------------------------
Total assets $ 2,916,158
----------------------------
Shareholders' equity $ 2,916,158
----------------------------
Statement of Operations Information
For the Three Months Ended
December 31, 1999
----------------------------
Revenues $ 346,059
Expenses 430,001
----------------------------
Net loss $ (83,942)
----------------------------
United Kingdom Landfill Projects
On June 30, 1999, a newly-created subsidiary of the Trust purchased 100% of the
equity in six landfill gas power plants located in Great Britain. The total
purchase price was $16,667,567, including $617,567 of acquisition costs. The
Trust has the right to develop and construct another 20 landfill gas plants in
Great Britain. The estimated cost of the package of completed plants and the 20
developmental sites, if all the developmental plants are built and the Trust
elects to acquire them, is $36 to $38 million. The Trust supplied the first
$16,050,000 of development equity and the Growth Fund will supply the remainder
of the development equity. To the extent that the Growth Fund supplies capital,
it will receive an undivided interest in the entire package of operating and
developmental projects. The Trust accounts for these projects using the equity
method because its ability to exercise control over the projects is expected to
be temporary due to the anticipated investment of the Growth Fund.
The first six plants have an installed capacity of 14.5 megawatts and sell the
electricity under a 15 year contract to a quasi-autonomous non-governmental
organization that purchases electricity generated by renewable sources on behalf
of all English utilities. The first six projects have been financed with a total
of $16.6 million of long-term bank debt, in addition to the equity interest
purchased by the Trust.
Summarized financial information for United Kingdom Landfill Plants is as
follows:
Balance Sheet Information
December 31, 1999
-----------------------
Current assets $ 6,089,003
Non-current assets 24,594,379
-----------------------
Total assets $ 30,683,382
-----------------------
Liabilities $ 13,767,073
Shareholders' equity 16,916,309
-----------------------
Liabilities and shareholders' equity $ 30,683,382
-----------------------
Statement of Operations Information
Six Months Ended
December 31, 1999
-----------------------
Revenues $ 2,862,290
Expenses 2,681,969
-----------------------
Net income $ 180,321
-----------------------
WaterPure Corporation
In August 1998, the Trust and two unrelated entities filed a revised
reorganization plan for Superstill Technology, Inc ("Superstill"). Superstill, a
California company, has been a debtor in Chapter 11 bankruptcy since July 1997.
The reorganization plan was approved by the bankruptcy court and Superstill's
creditors in December 1998. In accordance with the reorganization plan,
Ridgewood WaterPure Corporation ("WaterPure Corporation") acquired substantially
all the assets of Superstill and made certain payments to satisfy the claims
against Superstill. The purchase price was allocated to the assets and
liabilities acquired based upon their respective fair values. Of these assets,
$1,969,951 consisted of in-process research and development which has been
written-off in the statement of operations in accordance with generally accepted
accounting principles.
Superstill holds various patents and intellectual property rights to an energy
efficient water purification technology that it has developed. Superstill has
also designed and licensed distillation and desalinization equipment of various
sizes and capacities.
The Trust made an investment of $3,500,000 in WaterPure Corporation in exchange
for 5,400,000 shares of common stock representing a 54% equity interest in
WaterPure Corporation. The remaining equity interest in WaterPure Corporation
was issued to other creditors and license holders of Superstill in satisfaction
of their claims and to acquire certain licensing rights. WaterPure Corporation
will design, develop and commercialize water purification systems incorporating
the technology acquired from Superstill.
Summarized financial information for WaterPure Corporation, which is included in
these consolidated financial statements, is as follows:
Balance Sheet Information
December 31, 1999 December 31, 1998
---------- ----------
Current assets ..................... $2,867,283 $3,761,246
Non-current assets ................. 225,990 --
---------- ----------
Total assets ....................... $3,093,273 $3,761,246
---------- ----------
Liabilities ........................ $ 185,080 $ --
Shareholders' equity ............... 2,908,193 3,761,246
---------- ----------
Liabilities and shareholders' equity $3,093,273 $3,761,246
---------- ----------
Statement of Operations Information
For the Period
For the Year Ended December August 31, 1998 to
31, 1999 December 31, 1998
----------- -----------
Interest income ............................ $ 165,503 $ 58,121
Write-off purchased research and development -- 1,969,951
Other expenses ............................. 1,061,438 89
-----------
-----------
Net loss ................................... $ (895,935) $(1,911,919)
----------- -----------
4. Line of Credit Facility
During the fourth quarter of 1997, the Trust and its principal bank executed a
revolving line of credit agreement, whereby the bank will provide a three-year
committed line of credit facility of $750,000 for borrowings or letters of
credit. Outstanding borrowings bear interest at the bank's prime rate or, at the
Trust's choice, at LIBOR plus 2.5%. The credit agreement requires the Trust to
maintain a ratio of total debt to tangible net worth of no more than 1 to 1 and
a minimum debt service coverage ratio of 2 to 1. The Maine Hydro projects have
an outstanding standby letter of credit totaling $99,250 which is covered by the
line of credit facility. At December 31, 1999 and 1998, there were no borrowings
outstanding under the facility.
5. Fair Value of Financial Instruments
At December 31, 1999 and 1998, the carrying value of the Trust's cash,
receivables and accounts payable approximates their fair value.
6. Transactions With Managing Shareholder and Affiliates
The Trust pays to the managing shareholder a distribution and offering fee up to
6% of each capital contribution made to the Trust. This fee is intended to cover
legal, accounting, consulting, filing, printing, distribution, selling and
closing costs for the offering of the Trust. For the periods ended December 31,
1999, 1998 and 1997, the Trust paid fees for these services to the managing
shareholder of $2,100, $1,020,474 and $4,562,147, respectively. These fees are
recorded as a reduction in the shareholders' capital contribution.
The Trust also pays to the managing shareholder an investment fee up to 2% of
each capital contribution made to the Trust. The fee is payable to the managing
shareholder for its services in investigating and evaluating investment
opportunities and effecting transactions for investing the capital of the Trust.
For the period ended December 31, 1998 and 1997, the Trust paid investment fees
to the managing shareholder of $337,158 and $1,145,212, respectively.
The Trust entered into a management agreement with the managing shareholder
under which the managing shareholder renders certain management, administrative
and advisory services and provides office space and other facilities to the
Trust. As compensation to the managing shareholder for such services, the Trust
pays the managing shareholder an annual management fee equal to 2.5% of the
total capital contributions to the Trust payable monthly upon the closing of the
Trust which occurred in April 1998. For the year ended December 31, 1999 and
1998, the Trust paid management fees of $2,377,941 and $1,606,269, respectively.
In addition, the managing shareholder provides certain project management
services to the Trust. The managing shareholder charges the Trust at its cost
for the services and for the allocable amount of certain overhead items. For the
year ended December 31, 1998 and 1997, the managing shareholder charged $793,654
and $392,752, respectively, to the Trust.
The Trust reimburses the managing shareholder and affiliates for expenses and
fees of unaffiliated persons engaged by the managing shareholder for fund
business. The managing shareholder or affiliates originally paid all project due
diligence costs, accounting and legal fees and other expenses shown in the
statement of operation and were reimbursed by the Trust.
Under the Declaration of Trust, the managing shareholder is entitled to receive
each year 1% of all distributions made by the Trust (other than those derived
from the disposition of Trust property) until the shareholders have been
distributed each year an amount equal to 14% of their equity contribution.
Thereafter, the managing shareholder is entitled to receive 20% of the
distributions for the remainder of the year. The managing shareholder is
entitled to receive 1% of the proceeds from dispositions of Trust properties
until the shareholders have received cumulative distributions equal to their
original investment ("Payout"). After Payout, the managing shareholder is
entitled to receive 20% of all remaining distributions of the Trust.
Income is allocated to the managing shareholder until the profits equal
distributions to the managing shareholder. Then, income is allocated to the
investors, first among holders of Preferred Participation Rights until such
allocations equal distributions from those Preferred Participation Rights, and
then among Investors in proportion to their ownership of investor shares. If the
Trust has net losses for a fiscal period, the losses are allocated 99% to the
Investors and 1% to the managing shareholder.
Where permitted, in the event the managing shareholder or an affiliate performs
brokering services in respect of an investment acquisition or disposition
opportunity for the Trust, the managing shareholder or such affiliate may charge
the Trust a brokerage fee. Such fee may not exceed 2% of the gross proceeds of
any such acquisition or disposition. No such fees have been paid through
December 31, 1999.
The corporate trustee of the Trust, Ridgewood Energy Holding Corporation, an
affiliate of the managing shareholder through common ownership, received no
compensation from the Fund.
Amounts due to and from affiliates are non-interest bearing and are usually
settled within thirty days. Such amounts arise from the delay between when
expenses are paid by the Trust or affiliates and when reimbursement occurs.
The managing shareholder purchased one investor share of the Trust for $83,000
in 1996. Through December 31, 1999, Ridgewood Securities Corporation, an
affiliate of the managing shareholder, earned commissions and placement fees of
$1,016,287.
7. Preferred Participation Rights
Preferred Participation Rights were given to each shareholder whose subscription
was fully completed and paid for and accepted prior to October 31, 1996. Each
Preferred Participation Right entitles the holder to an aggregate distribution
priority of $1,000. The number of Preferred Participation Rights earned per
investor share was equal to the number of whole or partial months from the date
of the acceptance of the subscription to December 31, 1996.
A total of 865.08 Preferred Participation Rights were issued.
During 1996 and 1997, cash distributions were first allocated 99% to the holders
of Preferred Participation Rights and 1% to the managing shareholder until
shareholders received in each year distributions equal to $500 for each Right
earned.
8. Management Share
The Trust granted the managing shareholder a single Management Share
representing the managing shareholder's management rights and rights to
distributions of cash flow.
<PAGE>
Ridgewood Maine Hydro Partners, L.P.
Financial Statements
December 31, 1999, 1998 and 1997
<PAGE>
Report of Independent Accountants
To the Partners of
Ridgewood Maine Hydro Partners, L.P.:
In our opinion, the accompanying balance sheets and the related statements of
operations, changes in partners' equity and of cash flows present fairly, in all
material respects, the financial position of Ridgewood Maine Hydro Partners,
L.P. (the "Partnership") at December 31, 1999 and 1998, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States. These financial statements are the responsibility of the
Partnership's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States, which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, NY
March 24, 2000
<PAGE>
Ridgewood Maine Hydro Partners, L.P.
Balance Sheet
- ------------------------------------------------------------------------------
December 31,
---------------------------
1999 1998
------------ -----------
Assets:
Cash and cash equivalents .................... $ 408,835 $ 607,119
Accounts receivable, trade ................... 1,021,480 574,022
Due from affiliates .......................... -- 87,369
Prepaid and other current assets ............. 142,862 77,567
------------ ------------
Total current assets .................... 1,573,177 1,346,077
Property, plant and equipment ................ 1,349,024 1,089,248
Accumulated depreciation ..................... (78,628) (31,356)
------------ ------------
Property, plant and equipment, net ...... 1,270,396 1,057,892
------------ ------------
Electric power sales contracts ............... 13,311,374 13,311,374
Accumulated amortization ..................... (3,206,201) (2,145,905)
------------ ------------
Electric power sales contracts, net ..... 10,105,173 11,165,469
------------ ------------
Total assets ............................ $ 12,948,746 $ 13,569,438
------------ ------------
Liabilities and Partners' Equity:
Liabilities:
Accounts payable and accrued expenses ........ $ 38,285 $ 197,799
Due to affiliates ............................ 799,905 --
Current portion of long-term lease obligations 783,547 240,644
------------ ------------
Total current liabilities ............... 1,621,737 438,443
Non-current portion of long-term
lease obligations .......................... -- 696,418
------------ ------------
Commitments and contingencies
Partners' equity:
General partner .............................. 103,548 114,624
Limited partners ............................. 11,223,461 12,319,953
------------ ------------
Total partners' equity .................. 11,327,009 12,434,577
------------ ------------
Total liabilities and partners' equity .. $ 12,948,746 $ 13,569,438
------------ ------------
See accompanying notes to the financial statements.
<PAGE>
Ridgewood Maine Hydro Partners, L.P.
Statement of Operations
- -------------------------------------------------------------------------------
Year Ended December 31,
-----------------------------------------
1999 1998 1997
----------- ----------- -----------
Net sales ...................... $ 4,756,189 $ 4,511,361 $ 4,113,065
----------- ----------- -----------
Operating expenses:
Depreciation and amortization 1,107,568 1,089,969 1,062,838
Labor ....................... 565,015 592,812 549,289
Insurance ................... 177,333 194,458 246,665
Property taxes .............. 252,611 267,046 258,953
Contract management ......... 323,003 429,714 429,430
Other expenses .............. 576,715 643,847 405,414
----------- ----------- -----------
3,002,245 3,217,846 2,952,589
----------- ----------- -----------
Income from operations ......... 1,753,944 1,293,515 1,160,476
----------- ----------- -----------
Other income (expense):
Interest income ................ 42,852 153,983 30,812
Interest expense ............... (112,885) (131,519) (147,868)
Other income ................... 15,000 -- --
----------- ----------- -----------
Other income (expense), net (55,033) 22,464 (117,056)
----------- ----------- -----------
Net income ..................... $ 1,698,911 $ 1,315,979 $ 1,043,420
----------- ----------- -----------
See accompanying notes to the financial statements.
<PAGE>
Ridgewood Maine Hydro Partners, L.P.
Statement of Changes in Partners' Equity
For the Years Ended December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
Limited General
Partners Partner Total
------------ ------------ ------------
Partners' equity, January
1, 1997 ................. $ 13,692,976 $ 133,866 $ 13,826,842
Additional contributions . 531,906 -- 531,906
Cash distributions ....... (1,992,391) (20,125) (2,012,516)
Net income for the year .. 1,032,986 10,434 1,043,420
------------ ------------ ------------
Partners' equity, December
31, 1997 ................ 13,265,477 124,175 13,389,652
Cash distributions ....... (2,248,343) (22,711) (2,271,054)
Net income for the year .. 1,302,819 13,160 1,315,979
------------ ------------ ------------
Partners' equity, December
31, 1998 ................ 12,319,953 114,624 12,434,577
Cash distributions ....... (2,778,414) (28,065) (2,806,479)
Net income for the year .. 1,681,922 16,989 1,698,911
------------ ------------ ------------
Partners' equity, December
31, 1999 ................ $ 11,223,461 $ 103,548 $ 11,327,009
------------ ------------ ------------
See accompanying notes to the financial statements.
<PAGE>
Ridgewood Maine Hydro Partners, L.P.
Statement of Cash Flows
- --------------------------------------------------------------------------------
Year Ended December 31,
-----------------------------------------
1999 1998 1997
----------- ----------- -----------
Cash flows from operating
activities:
Net income ........................ $ 1,698,911 $ 1,315,979 $ 1,043,420
----------- ----------- -----------
Adjustments to reconcile net income
to net cash flows from operating
activities:
Depreciation and amortization .... 1,107,568 1,089,969 1,062,838
Changes in assets and liabilities:
(Increase) decrease in accounts
receivable ..................... (447,458) (105,371) 529,205
(Increase) decrease in prepaid
and other current assets ....... (65,295) 11,832 (41,716)
Decrease (increase) in due
to/from affiliates, net ........ 887,274 16,281 (303,259)
(Decrease) increase in accounts
payable and accrued expenses ... (159,514) 40,782 (505,122)
----------- ----------- -----------
Total adjustments ................. 1,322,575 1,053,493 741,946
----------- ----------- -----------
Net cash provided by operating
activities ....................... 3,021,486 2,369,472 1,785,366
----------- ----------- -----------
Cash flows from investing
activities:
Payments to purchase Maine
Hydro Projects ................... -- -- (323,217)
Capital expenditures .............. (259,776) (752,613) (336,635)
----------- ----------- -----------
Net cash used in investing
activities ....................... (259,776) (752,613) (659,852)
----------- ----------- -----------
Cash flows from financing
activities:
Cash contributed by partners ...... -- -- 531,906
Cash distributions to partners .... (2,806,479) (2,271,054) (2,012,516)
Return of deposits ............... -- 800,000 --
Payments to reduce long-term
lease obligations ................ (153,515) (134,894) (118,532)
----------- ----------- -----------
Net cash used in financing
activities ....................... (2,959,994) (1,605,948) (1,599,142)
----------- ----------- -----------
Net (decrease) increase in cash
and cash equivalents ............. (198,284) 10,911 (473,628)
Cash and cash equivalents,
beginning of year ................ 607,119 596,208 1,069,836
----------- ----------- -----------
Cash and cash equivalents, end
of year .......................... $ 408,835 $ 607,119 $ 596,208
----------- ----------- -----------
See accompanying notes to the financial statements.
<PAGE>
Ridgewood Maine Hydro Partners, L.P.
Notes to Financial Statements
- --------------------------------------------------------------------------------
1. Organization and Business Activity
On September 5, 1996, Ridgewood Maine Hydro Partners, L.P. was formed as a
Delaware limited partnership (the "Partnership"). Ridgewood Maine Hydro
Corporation, a Delaware Corporation ("RMHCorp"), is the sole general partner of
the Partnership and is owned equally by Ridgewood Electric Power Trust IV
("Trust IV") and Ridgewood Electric Power Trust V ("Trust V"), both Delaware
business trusts (collectively, the "Trusts"). The Trusts are equal limited
partners in the Partnership.
On December 23, 1996, in a merger transaction, the Partnership acquired 14
hydroelectric projects located in Maine (the "Maine Hydro Projects") from a
subsidiary of Consolidated Hydro, Inc. The assets acquired include a total of
11.3 megawatts of electrical generating capacity. The electricity generated is
sold to Central Maine Power Company and Bangor Hydro Company under long-term
contracts.
2. Summary of Significant Accounting Policies
Use of estimates
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, and disclosure of
contingent 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 the estimates.
Cash and cash equivalents
The Partnership considers all highly liquid investments with maturities when
purchased of three months or less as cash and cash equivalents.
Revenue recognition
Power generation revenue is recognized based on power delivered at rates
stipulated in the power sales contracts. Interest income is recorded when
earned.
Plant and equipment
Machinery and equipment, consisting principally of electrical generating
equipment, is stated at cost. Renewals and betterments that increase the useful
lives of the assets are capitalized. Repair and maintenance expenditures that
increase the efficiency of the assets are expensed as incurred.
Depreciation is recorded using the straight-line method over the useful lives of
the assets, which vary from 3 to 20 years. During the year ended December 31,
1999, 1998 and 1997, the Partnership recorded depreciation expense of $47,272,
$29,673 and $1,683, respectively.
Intangible asset
A portion of the purchase price of the Maine Hydro Projects was assigned to the
Electric Power Sales Contracts and is being amortized over the duration of the
contract (11 to 21 years) on a straight-line basis. Management periodically
reviews intangibles for potential impairment. During the periods ended December
31, 1999, 1998 and 1997, the Partnership recorded amortization expense of
$1,060,296, $1,060,296 and $1,061,155, respectively.
Income taxes
No provision is made for income taxes in the accompanying financial statements
as the income or loss of the Partnership is passed through and included in the
tax returns of the individual partners.
Reclassification
Certain items in previously issued financial statements have been reclassified
for comparative purposes.
3. Obligation Under Capital Lease
The Partnership assumed a hydroelectric facility leased pursuant to a long-term
lease agreement dated July 16, 1979, and as amended (the "Agreement"). Upon
proper notice, the Partnership has the right to purchase all the equipment
covered in the Agreement at Fair Market Value (as defined) or elect to extend
the terms of the Agreement for up to three five-year periods at a rental equal
to Fair Rental Value (as defined). In addition, the Partnership also has the
right to terminate the Agreement and purchase the hydroelectric facility upon
proper notice and payment of a scheduled close-out amount, which reduces to
$750,000 at April 30, 2000. This lease is accounted for as a capital lease, and
accordingly, the estimated lease obligation of $783,547 has been recorded in the
accompanying balance sheet.
4. Lease Commitments
The Partnership leases the sites of two of its hydroelectric projects under
operating leases expiring in June 2078. Total monthly payments in 1999 were the
greater of $1,236 or a percentage of the revenue from the hydroelectric project.
At December 31, 1999, the future minimum rental payments required under these
leases are as follows:
2000 $ 14,832
2001 14,832
2002 14,832
2003 14,832
2004 14,832
Thereafter 1,090,152
------------------
$ 1,164,312
------------------
5. Power Generation Contracts
The Partnership operates facilities which qualify as small power production
facilities under the Public Utility Regulatory Policies Act ("PURPA"). PURPA
requires that each electric utility company, operating at the location of a
small power production facility, as defined, purchase the electricity generated
by such facility at a specified or negotiated price. The Partnership sells
substantially all of its electrical output to two public utility companies,
Central Maine Power Company ("CMP") and Bangor Hydro-Electric Company ("BHC"),
pursuant to long-term power purchase agreements. Eleven of the twelve power
purchase agreements with CMP expire in December 2008 and are renewable for an
additional five year period. The twelfth power purchase agreement with CMP
expires in December 2007 with CMP having the option to extend the contract three
more five-year periods. The two power purchase agreements with BHC expire
December 2014 and February 2017. The Partnership is required to maintain a
standby letter of credit totaling $99,250 under the long-term power purchase
agreement.
6. Fair Value of Financial Instruments
At December 31, 1999 and 1998, the carrying value of the Partnership's cash,
accounts receivable and accounts payable approximates their fair value. The fair
value of the long-term capital lease obligations, calculated using current rates
for loans with similar maturities, also approximates its carrying value.
7. Management Agreement
The Maine Hydro Projects are operated by a subsidiary of CHI Energy, Inc.
(formerly Consolidated Hydro, Inc.), under an Operation, Maintenance and
Administrative Agreement. The annual operator's fee is $326,142 adjusted for
inflation, plus an annual incentive fee equal to 50% of the net cash flow in
excess of a target amount. The maximum incentive fee payable in a year is
$112,500. The Partnership recorded $323,003, $429,714 and $429,430 of expense
under this arrangement during the periods ended December 31, 1999, 1998 and
1997, respectively. The agreement has a five-year term expiring on June 30, 2001
and can be renewed for two additional five-year terms by mutual consent.
<PAGE>
Indeck Maine Energy, L.L.C.
Financial Statements
December 31, 1999, 1998 and 1997
<PAGE>
Report of Independent Accountants
To the Members of
Indeck Maine Energy, L.L.C.:
In our opinion, the accompanying balance sheets and the related statements of
operations, changes in members' (deficit) equity and of cash flows present
fairly, in all material respects, the financial position of Indeck Maine
Energy, L.L.C. (the "Company") at December 31, 1999 and 1998, and the results
of its operations and its cash flows for each of the two years in the period
ended December 31, 1999 and the period April 1, 1997 (inception) through
December 31, 1997, in conformity with accounting principles generally
accepted in the United States. These financial statements are the
responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted
our audits of these statements in accordance with auditing standards
generally accepted in the United States, which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
As discussed in Note 4 to the financial statements, the Company has
temporarily suspended operations and is dependent on the continuing financial
support of the Members.
PricewaterhouseCoopers LLP
New York, NY
March 24, 2000
<PAGE>
Indeck Maine Energy, L.L.C.
Balance Sheet
- --------------------------------------------------------------------------------
December 31,
--------------------------
1999 1998
----------- -----------
Assets:
Cash and cash equivalents ................ $ 656,442 $ 93,748
Accounts receivable ...................... 274,362 185,808
Inventories .............................. 145,198 278,704
Prepaid expenses ......................... 27,264 109,968
----------- -----------
Total current assets .................. 1,103,266 668,228
----------- -----------
Plant and equipment:
Land .................................. 158,000 158,000
Power generation facilities ........... 3,203,217 3,203,217
Equipment and other ................... 56,646 56,646
----------- -----------
3,417,863 3,417,863
Accumulated depreciation .............. (435,869) (264,380)
----------- -----------
2,981,994 3,153,483
----------- -----------
Intangible assets ........................ 206,577 206,577
Accumulated amortization ................. (33,758) (20,476)
----------- -----------
172,819 186,101
----------- -----------
Total assets ........................ $ 4,258,079 $ 4,007,812
----------- -----------
Liabilities and Members' (Deficit) Equity:
Liabilities:
Accounts payable and accrued expenses .... $ 426,001 $ 327,062
Due to affiliates ........................ 267,989 --
Management fee payable ................... 100,000 125,000
Notes payable to Members ................. 3,601,000 1,500,000
----------- -----------
Total current liabilities ........... 4,394,990 1,952,062
Commitments and contingencies
Total Members' (deficit) equity .......... (136,911) 2,055,750
----------- -----------
Total liabilities and members'
(deficit) equity ................... $ 4,258,079 $ 4,007,812
----------- -----------
See accompanying notes to the financial statement
<PAGE>
Indeck Maine Energy, L.L.C.
Statement of Operations
- --------------------------------------------------------------------------------
For the
period from
inception
For the For the April 1,
year ended year ended 1997) to
December December December
31, 1999 31, 1998 31, 1997
----------- ----------- -----------
Revenues .................. $ 1,391,039 $ 1,430,296 $ 2,991,793
Operating expenses ........ 3,478,842 2,800,185 4,399,670
----------- ----------- -----------
Loss from operations ... (2,087,803) (1,369,889) (1,407,877)
Other (expense) income, net (104,858) (47,711) 23,212
----------- ----------- -----------
Net loss ............... $(2,192,661) $(1,417,600) $(1,384,665)
----------- ----------- -----------
See accompanying notes to the financial statements.
<PAGE>
Indeck Maine Energy, L.L.C.
Statement of Changes in Members' (Deficit) Equity
For the Years Ended December 31, 1999 and 1998 and the period from inception
(April 1, 1997) to December 31, 1997
- --------------------------------------------------------------------------------
Indeck Energy Ridgewood
Services, Inc. Maine, LLC Total
----------- ----------- -----------
Initial contributions ............ $ 1,000 $ 4,857,015 $ 4,858,015
Net loss ......................... -- (1,384,665) (1,384,665)
----------- ----------- -----------
Members' equity, December 31, 1997 1,000 3,472,350 3,473,350
Net loss ......................... -- (1,417,600) (1,417,600)
----------- ----------- -----------
Members' equity, December 31, 1998 1,000 2,054,750 2,055,750
Net loss ......................... (1,000) (2,191,661) (2,192,661)
----------- ----------- -----------
Members' equity (deficit),
December 31, 1999 ............... $ -- $ (136,911) $ (136,911)
----------- ----------- -----------
See accompanying notes to the financial statements.
<PAGE>
Indeck Maine Energy, L.L.C.
Statement of Cash Flows
- --------------------------------------------------------------------------------
For the
period from
inception
For the For the April 1,
year ended year ended 1997) to
December December December
31, 1999 31, 1998 31, 1997
----------- ----------- -----------
Cash flows from operating
activities
Net loss ...................... $(2,192,661) $(1,417,600) $(1,384,665)
----------- ----------- -----------
Adjustments to reconcile net
loss to net cash flows
used in operating activities
Depreciation and amortization 184,771 184,771 100,085
Changes in assets and
liabilities:
(Increase) decrease in
accounts receivable ......... (88,554) 205,704 (391,512)
Decrease (increase) in
inventories ................. 133,506 71,955 (350,659)
Decrease (increase) in
prepaid expenses ............ 82,704 (91,424) (18,544)
Increase (decrease) in
accounts payable and accrued
expenses .................... 98,939 (560,621) 887,683
Increase in due to affiliates 267,989 -- --
(Decrease) increase in
management fee payable ...... (25,000) 100,000 25,000
----------- ----------- -----------
Total adjustments ............ 654,355 (89,615) 252,053
----------- ----------- -----------
Net cash used in operating
activities .................... (1,538,306) (1,507,215) (1,132,612)
----------- ----------- -----------
Cash flows from investing
activities
Capital expenditures ........... -- -- (604,757)
Acquisition of intangible assets -- -- (19,683)
----------- ----------- -----------
Net cash used in investing
activities .................... -- -- (624,440)
----------- ----------- -----------
Cash flows from financing
activities
Capital contributions .......... -- -- 4,858,015
Payment of note payable -
affiliate ..................... -- -- (3,300,000)
Issuance of notes payable ...... 2,101,000 1,500,000 300,000
----------- ----------- -----------
Net cash provided by financing
activities .................... 2,101,000 1,500,000 1,858,015
----------- ----------- -----------
Net increase (decrease) in cash
and cash equivalents .......... 562,694 (7,215) 100,963
Cash and cash equivalents,
beginning of period ........... 93,748 100,963 --
----------- ----------- -----------
Cash and cash equivalents,
end of period ................. $ 656,442 $ 93,748 $ 100,963
----------- ----------- -----------
Non-cash activities: On April 1, 1997, land, power generation facilities,
equipment and intangible assets were acquired from Indeck Power Overseas
Limited, a related entity, for $3,000,000 through the issuance of a note
payable.
See accompanying notes to the financial statements.
<PAGE>
Indeck Maine Energy, L.L.C.
Notes to Financial Statements
- --------------------------------------------------------------------------------
1. Description of Business
Indeck Maine Energy, L.L.C. (the "Company") is a limited liability company
formed on April 1, 1997 for the purpose of acquiring, operating and managing two
wood-fired electric generation facilities (the "Facilities"). The Facilities
commenced operations on June 10, 1997. On June 11, 1997, Ridgewood Maine, LLC
("Ridgewood") contributed $4,857,015 for a membership interest.
a. Ridgewood's Priority Return from Operations: Ridgewood's Priority Return
From Operations is an amount equal to 18% per annum of $14 million,
increased by the amount of any additional contribution made by Ridgewood
and reduced by the amount of distributions to Ridgewood of Net Cash Flow
From Capital Events, as defined.
b. Allocation of Profits and Losses: In accordance with the Operating
Agreement, profits and losses, as defined, are allocated as follows:
First, profits shall be allocated to each Member, other than Ridgewood, until
the cumulative amount of profits allocated is equal to the amount of
distributions made or to be made to each Member pursuant to the distributions
provisions of the Operating Agreement.
Second, all remaining profits and losses shall be allocated to Ridgewood. Also,
all depreciation shall be allocated to Ridgewood.
Losses and depreciation allocated to Members in accordance with the Operating
Agreement may not exceed the amount that would cause such members to have an
Adjusted Capital account Deficit, as defined, at the end of such year. All
losses and depreciation in excess of this limitation shall be allocated to the
remaining Members who will not be subject to this limitation, in proportion to
and to the extent of their positive Capital Account Balances, as defined.
Also, if in any fiscal year a Member unexpectedly receives an adjustment,
allocation or distribution as described in the Operating Agreement, and such
allocation or distribution causes or increases an Adjusted Capital Account
Deficit for such fiscal year, such Member shall be allocated items of income and
gain in an amount and manner sufficient to eliminate such Adjusted Capital
Account Deficit as quickly as possible.
c. Distributions of Net Cash Flows From Operations: For each Fiscal year, the
Company shall distribute Net Cash Flow From Operations, as defined, to the
Members as follows:
First, the Company shall distribute to Ridgewood 100% of Net Cash Flow From
Operations until Ridgewood has received the full amount of any unpaid portion of
Ridgewood's Priority Return From Operations, as defined, for any preceding
fiscal year,
Second, the Company shall distribute to Ridgewood 100% of Net Cash Flow From
Operations until Ridgewood has received Ridgewood's Priority Return From
Operations for the current fiscal year.
Third, the Company shall distribute 100% of Net Cash Flow From Operations to the
Members, other than Ridgewood, in accordance with the respective interests of
such Members until such Members have collectively received an amount equal to
the amount distributed to Ridgewood during the current fiscal year.
Fourth, the Company shall thereafter distribute any remaining balance of Net
Cash Flow From Operations 25% to Ridgewood and 75% to the remaining Members, in
accordance with the respective interest of such Members, until such time as
Ridgewood has received aggregate distributions equal to Ridgewood's Initial
Capital Contribution, as defined. At such time, the distribution percentages
shall be amended to 50% Ridgewood and 50% to the remaining Members.
d. Distributions of Net Cash Flow From Capital Events: The Company shall
distribute Net Cash Flow From Capital Events, as defined, 50% to Ridgewood
and 50% to the remaining Members, in accordance with the respective
interests of such Members.
2. Summary of Significant Accounting Policies
Use of estimates
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, and disclosure of
contingent 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 the estimates.
Cash and cash equivalents
The Company considers all highly liquid investments with maturities when
purchased of three months or less as cash and cash equivalents.
Revenue recognition
Revenue is recognized when the power is transmitted or the service is provided.
Interest income is recorded when earned.
Inventories
Inventories, consisting of wood and propane, are stated at cost, with cost being
determined on the first-in, first-out method.
Plant and equipment
Machinery and equipment, consisting principally of electrical generating
equipment, is stated at cost. Renewals and betterments that increase the useful
lives of the assets are capitalized. Repair and maintenance expenditures are
expensed as incurred.
Depreciation is recorded using the straight-line method over the estimated
useful life of the assets, ranging from 5 to 20 years. During the years ended
December 31, 1999 and 1998 and the period from inception (April 1, 1997) to
December 31, 1997, the Company recorded depreciation expense of $171,489,
$171,489 and $92,891, respectively.
Intangible assets
Intangible assets are amortized over 20 years on a straight-line basis. During
the years ended December 31, 1999 and 1998 and the period from inception (April
1, 1997) to December 31, 1997, the Company recorded amortization expense of
$13,282, $13,282 and $7,194.
Significant Customers
During 1999, the Company's three largest customers accounted for 41%, 22% and
19% of total revenues. Other customers individually accounted for less than 10%
of total revenues.
Income taxes
No provision is made for income taxes in the accompanying financial statements
as the income or loss of the Company is passed through and included in the tax
returns of the partners.
3. Notes Payable
Notes payable consist of the following at December 31, 1999:
Note payable to Indeck Energy Services,
Inc. (a Member), due on demand with
interest at 5% ........................ $1,800,500
Note payable to Ridgewood Maine, LLC
(a Member), due on demand with interest
at 5% ................................. 1,800,500
----------
$3,601,000
----------
4. Operating Status
Both projects have temporarily suspended operations; one in December 1997 and
the other in January 1998. It is management's intent not to operate these
facilities, except during periods of peak demand, until profitable power sales
contracts can be negotiated. Management is currently negotiating contracts with
various utility companies and expects to commence operations in late 2000 or
2001. Based on forecasts related to these contracts, management believes that
the Company will be able to recover the carrying value of its long-lived assets
and meet its financial obligations. The Members intend to continue providing the
necessary financial support to the Company for the foreseeable future and to not
demand payment, within the next twelve months, of the notes payable discussed in
Note 3.
5. Related Party transactions
The Company is required to pay certain Members a fee for management services of
$50,000 in 1997 and $100,000 per year thereafter. Additional management fees of
up to $200,000 per year may be payable contingent upon achieving Ridgewood's
Priority Return from Operations, as defined. No contingent management fee has
been accrued as of December 31, 1999 or 1998.
The Company incurred expenses of approximately $770,000 and $1,189,000 for the
year ended December 31, 1998 and for the period from inception (April 1, 1997)
through December 31, 1997, respectively, from Indeck Operations, Inc. and Indeck
Energy Services, Inc., companies affiliated through common ownership, for the
operation, maintenance and administration of the Company's facilities. At
December 31, 1998, approximately $57,000 of these charges were in accounts
payable.
Under an Operating Agreement with the Trusts, Ridgewood Power Management LLC
(formerly Ridgewood Power Management Corporation, "Ridgewood Management"), an
entity related to the managing shareholder of the Trusts through common
ownership, provides management, purchasing, engineering, planning and
administrative services to the Company. Ridgewood Management charges the Company
at its cost for these services and for the allocable amount of certain overhead
items. Allocations of costs are on the basis of identifiable direct costs, time
records or in proportion to amounts invested in projects managed by Ridgewood
Management. During the year ended December 31, 1999, Ridgewood Management
charged the Company $197,825 for overhead items allocated based on time records
and in proportion to the amount invested in projects managed. Ridgewood
Management also charged the Company for all of the remaining direct operating
and non-operating expenses incurred during the periods
6. Dispute with ISO
From June through December 1999, the Facilities periodically operated on
dispatch from ISO-New England, Inc. (the "ISO") and also submitted offers to the
ISO to run at high prices during power emergencies. The Facilities have claimed
the ISO owes them approximately $14 million for the electricity products they
provided in those periods and the ISO has claimed that no material revenues at
all are due to the projects. The Company has not recorded any of the disputed
revenues in the financial statements and it is too early to estimate the outcome
of the dispute.
<PAGE>
Ridgewood UK, LLC
Consolidated Financial Statements
December 31, 1999
<PAGE>
Report of Independent Accountants
To the Member of Ridgewood UK, LLC:
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations and comprehensive income, changes in
member's equity and of cash flows present fairly, in all material respects, the
financial position of Ridgewood UK, LLC (the "Company") and its subsidiaries at
December 31, 1999, and the results of their operations and their cash flows for
the period May 27, 1999 through December 31, 1999, in conformity with accounting
principles generally accepted in the United States. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States, which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
New York, NY
March 24, 2000
<PAGE>
Ridgewood UK, LLC
Consolidated Balance Sheet
- --------------------------------------------------------------------------------
December 31, 1999
------------
Assets:
Cash and cash equivalents ................................. $ 3,378,123
Accounts receivable, trade ................................ 1,389,285
Accounts receivable, other ................................ 1,321,594
------------
Total current assets ................................. 6,089,003
------------
Plant and equipment ....................................... 13,601,629
Less - Accumulated depreciation ........................... (272,870)
------------
Plant and equipment, net ............................ 13,328,759
------------
Electric power sales contract ............................. 11,637,924
Less - Accumulated amortization ........................... (372,303)
------------
Electric power sales contract, net ................. 11,265,621
------------
Total assets ......................................... $ 30,683,382
------------
Liabilities and Member's Equity:
Liabilities:
Current portion of long-term debt ......................... $ 481,898
Accounts payable and accrued expenses ..................... 4,122,728
------------
Total current liabilities ............................ 4,604,626
Long-term debt, less current portion ...................... 8,701,569
Deferred income taxes ..................................... 460,878
Commitments and contingencies
Member's equity ........................................... 16,916,309
------------
Total liabilities and member's equity ................ $ 30,683,382
------------
See accompanying notes to the consolidated financial statements.
<PAGE>
Ridgewood UK, LLC
Consolidated Statement of Operations and Comprehensive Income
- --------------------------------------------------------------------------------
For the Period From
May 27, 1999 to
December 31, 1999
-----------
Revenue .................................................. $ 2,862,290
Cost of sales ............................................ 1,595,189
-----------
Gross profit ............................................. 1,267,101
General and administrative expenses ...................... 539,811
-----------
Income from operations ................................... 727,290
Other income (expense):
Interest income ..................................... 30,708
Interest expense .................................... (271,522)
-----------
Income before taxes ...................................... 486,476
Provision for income taxes ............................... 306,155
-----------
Net income ............................................... 180,321
Cumulative translation adjustment ........................ 68,421
-----------
Comprehensive income ..................................... $ 248,742
-----------
See accompanying notes to the consolidated financial statements.
<PAGE>
Ridgewood UK, LLC
Consolidated Statement of Changes In Member's Equity
For the Period From May 27, 1999 to December 31, 1999
- --------------------------------------------------------------------------------
Initial capital contribution ............................. $16,667,567
Net income for the year .................................. 180,321
Cumulative translation adjustment ........................ 68,421
-----------
Member's equity, December 31, 1999 ....................... $16,916,309
-----------
See accompanying notes to the consolidated financial statements.
<PAGE>
Ridgewood UK, LLC
Consolidated Statement of Cash Flows
- --------------------------------------------------------------------------------
For the Period From
May 27, 1999 to
December 31, 1999
------------
Cash flows from operating activities:
Net income ................................................. $ 180,321
------------
Adjustments to reconcile net income to cash
flows from operating activities:
Depreciation and amortization ........................... 645,173
Changes in assets and liabilities, net of assets acquired
Increase in accounts receivable, trade ................ (371,375)
Increase in accounts receivable, other ................ (1,315,062)
Increase in accounts payable and accrued expenses ..... 3,652,266
Increase in deferred taxes ............................ 460,113
------------
Total adjustments ................................... 3,071,115
------------
Net cash provided by operating activities ........... 3,251,436
------------
Cash flows from investing activities:
Cash used to purchase landfill gas fired projects .......... (16,436,548)
------------
Net cash used in investing activities ............... (16,436,548)
------------
Cash flows from financing activities:
Payment of bank debt ....................................... (104,332)
Cash contributions ......................................... 16,667,567
------------
Net cash provided by financing activities ........... 16,563,235
------------
Net increase in cash and cash
equivalents and balance at end of period .................. $ 3,378,123
------------
See accompanying notes to the consolidated financial statements.
<PAGE>
Ridgewood UK, LLC
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
1. Organization and Business Activity
On May 27, 1999, Ridgewood UK, LLC was formed as a Delaware limited liability
company (the "Company"). Ridgewood Electric Power Trust V ("Trust V") is the
sole member of the Company.
On June 30, 1999, Trust V contributed $16,667,567 to the Company and the Company
purchased 100% of the equity of Combined Landfill Projects, Ltd. ("CLP") and its
subsidiaries which own six landfill gas power plants located in Great Britain.
The total purchase price was $16,436,548, including $617,567 of acquisition
costs.
The first six plants have an installed capacity of 14.5 megawatts and sell the
electricity under 15 year contracts to two quasi-autonomous non-governmental
organization that purchase electricity generated by renewable sources on behalf
of all British utilities.
2. Summary of Significant Accounting Policies
Principles of consolidation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All material intercompany transactions have been
eliminated.
Use of estimates
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, and disclosure of
contingent 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 the estimates.
Cash and cash equivalents
The Company considers all highly liquid investments with maturaties when
purchased of three months or less as cash and cash equivalents.
Revenue recognition
Power generation revenue is recognized based on power delivered at rates
stipulated in the power sales contract. Interest income is recorded when earned.
Foreign Currency Translation
The financial statements of the Company's non-United States subsidiaries are
translated into United States dollars using current rates of exchange, with
gains or losses included in the cumulative translation adjustment account in the
shareholders' equity section of the balance sheet.
Plant and equipment
Machinery and equipment, consisting principally of electrical generating
equipment, is stated at cost. Renewals and betterments that increase the useful
lives of the assets are capitalized. Repair and maintenance expenditures are
expensed as incurred.
Depreciation is recorded using the straight-line method over the estimated
useful life of the assets, which ranges from 3 to 15 years. During the period
from May 27, 1999 to December 31, 1999, the Company recorded depreciation
expense of $272,870.
Intangible asset
A portion of the purchase price of the Providence Project was assigned to the
Electric Power Sales Contracts and is being amortized over the 15 year life on
the contract on a straight-line basis. During the period from May 27, 1999 to
December 31, 1999, the Company recorded amortization expense of $372,303.
Income taxes
The Company utilizes the asset and liability method of accounting for income
taxes for its United Kingdom securities. The Company recorded a provision for
deferred United Kingdom income taxes of $306,155 for the period from May 27,
1999 to December 31, 1999.
No provision is made for United States income taxes in the accompanying
financial statements as the United States income or loss of the Company is
passed through and included in the tax returns of the partners.
3. Long-Term Debt
Following is a summary of long-term debt at December 31, 1999:
Bank loan payable $9,183,467
Less - Current maturity (481,898)
----------------------
Total long-term debt $8,701,569
----------------------
The bank loan is repayable in semi annual installments each March 31st and
September 30th through September 30, 2010. The loan bears interest at LIBOR plus
2.25% (7.5625% at December 31, 1999). The notes are secured by substantially all
of the assets of the projects.
Scheduled principal repayments of long-term debt for the next five years are as
follows:
Year Ended
December 31, Payment
2000 481,898
2001 533,358
2002 590,469
2003 653,388
2004 724,051
4. Fair Value of Financial Instruments
At December 31, 1999, the carrying values of the Company's cash, accounts
receivable and accounts payable approximate their fair values. The fair value of
the long-term debt, calculated using current rates for loans with similar
maturities, also approximates its carrying value.
5. Electric Power Sales Contract
The Company is committed to sell all of the electricity it produces to two
quasi-autonomous non-governmental organizations that purchase electricity
generated by renewable sources (such as landfill gas power plants) on behalf of
all British utilities in order to meet British environmental protection goals.
The electricity prices will be increased annually by a factor equal to the
percentage increase in the United Kingdom Retail Price Index.
7. Transactions with Affiliates
CLP Services Limited ("CLPS"), a new company organized by the previous owners of
CLP, provides day-to-day services to the projects. CLPS is paid a flat fee of
approximately 1.2 cents per kilowatt-hour for those services (adjusted for
increases in the Retail Price Index) and is eligible for bonus payments if a
project's actual annual electricity output exceeds 90% of its capacity. CLPS is
also paid approximately $88,000 per year (also adjusted for increases in the
Retail Price Index) for management services for the various companies owning the
five existing projects. The gas extraction and cleaning systems for the
landfills will be operated by CLPS for no additional cost. The Company may
terminate the contract with CLPS if at the end of any year the projects in the
aggregate have not produced at least 90% of their capacity (adjusted for loss of
time for scheduled downtime, catastrophic failures not caused by CLPS or
failures to receive landfill gas not caused by CLPS), or at any time if it can
be shown that it is physically impossible for the plants as a whole to meet the
90% standard for the current year.
8. Additional Projects
CLPS will proceed to develop as many as 20 additional landfill gas plants in
Great Britain as may be feasible and will bear the developmental costs itself.
As each remaining plant is completed and commissioned, the Company expects that
the bank will provide long-term finance for approximately 55% of the plant's
reasonable cost, although the bank has not yet committed to do so. If full bank
financing is obtained for a plant, the Company has the option to buy the equity
interest from CLPS. The estimated cost of the 20 developmental sites, if all the
developmental plants are built and the Company elects to acquire them, is $20 to
$22 million. The Company expects that The Ridgewood Power Growth Fund (the
"Growth Fund") will supply any remaining required development equity. To the
extent that the Growth Fund supplies capital, it will receive an undivided
interest in the entire package of operating and developmental projects.
Exhibit 21 - Subsidiaries of the RegistrantSubsidiary corporations serving as
general partners or managers of limited liability entities are listed with those
entities
Name of Subsidiary Type of entity Jurisdiction
of organization
Ridgewood/Maine Hydro Partners, L.P. limited partnership Delaware*
Ridgewood Maine
Hydro Corporation corporation Delaware*
Ridgewood Maine, L.L.C. limited liability co. Delaware*
Ridgewood Waterpure Corporation corporation Delaware
Ridgewood ZAP LLC limited liability co. Delaware
Ridgewood Santee River LLC limited liability co. Delaware**
Ridgewood U.K. Limited limited liability co. Delaware***
Ridgewood CLP Management Limited U.K. limited co. England***
Ridgewood Near East Development LLC limited liability co. Delaware***
Ridgewood Quantum LLC limited liability co. Delaware****
*50% owned by Registrant and 50% owned by Ridgewood Electric Power Trust IV.
**Two-thirds owned by Registrant and one-third owned by Ridgewood Electric
Power Trust IV.
***50% owned by Registrant and 50% owned by The Ridgewood Power Growth Fund.
**** Two-thirds owned by Registrant and one-third by Venture Fund I.
EXHIBIT 24 -- POWERS OF ATTORNEY POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, Joseph
Ferrante, appoints Robert E. Swanson and Martin V. Quinn, and each of them, as
his true and lawful attorneys-in-fact with full power to act and do all things
necessary, advisable or appropriate, in their discretion, to execute on his
behalf as an Independent Trustee of Ridgewood Electric Power Trust II, Ridgewood
Electric Power Trust III and Ridgewood Electric Power Trust V, the Annual
Reports on Form 10-K for the year ended December 31, 1999 for each of the
above-named trusts, and all amendments or documents relating thereto.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 18th day of March, 2000, at Aventura, Florida.
/s/Joseph Ferrante
Joseph Ferrante
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, Ralph
Hellmold, appoints Robert E. Swanson and Martin V. Quinn, and each of them, as
his true and lawful attorneys-in-fact with full power to act and do all things
necessary, advisable or appropriate, in their discretion, to execute on his
behalf as an Independent Trustee of Ridgewood Electric Power Trust II, Ridgewood
Electric Power Trust III and Ridgewood Electric Power Trust IV, the Annual
Reports on Form 10-K for the year ended December 31, 1999 for each of the
above-named trusts, and all amendments or documents relating thereto.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 18th day of March, 2000, at Aventura, Florida.
/s/Ralph Hellmold
Ralph Hellmold
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, Jonathan
Kaledin, appoints Robert E. Swanson and Martin V. Quinn, and each of them, as
his true and lawful attorneys-in-fact with full power to act and do all things
necessary, advisable or appropriate, in their discretion, to execute on his
behalf as an Independent Trustee of Ridgewood Electric Power Trust II, Ridgewood
Electric Power Trust III and Ridgewood Electric Power Trust V, the Annual
Reports on Form 10-K for the year ended December 31, 1999 for each of the
above-named trusts, and all amendments or documents relating thereto.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 18th day of March, 2000, at Aventura, Florida.
/s/Jonathan Kaledin
Jonathan Kaledin
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Registrant's audited financial statements for the year ended December 31, 1999
and is qualified in its entirety by reference to those financial statements.
</LEGEND>
<CIK> 0001060755
<NAME> RIDGEWOOD ELECTRIC POWER TRUST V
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 14,759,184
<SECURITIES> 46,556,877<F1>
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 15,838,720
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 62,395,597
<CURRENT-LIABILITIES> 624,035<F2>
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 60,433,793<F3>
<TOTAL-LIABILITY-AND-EQUITY> 62,395,597
<SALES> 0
<TOTAL-REVENUES> (520,768)
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,846,696
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (4,975,059)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,975,059)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,975,059)
<EPS-BASIC> (5,333)
<EPS-DILUTED> (5,333)
<FN>
<F1>Investments in power project partnerships.
<F2>Includes $449,178 due to affiliates.
<F3>Represents Investor Shares of beneficial interest
in Trust with capital accounts of $61,221,206 less
managing shareholder's accumulated deficit of $181,569.
</FN>
</TABLE>
