SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15 (d) of
the Securities Exchange Act of 1934
For the quarter ended March 31, 2000
Commission File No. 333-89521
CE Generation, LLC.
(Exact name of registrant as specified in its charter)
Delaware 47-0818523
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(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
302 South 36th Street, Suite 400 Omaha, NE 68131
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (402) 341-4500
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Securities registered pursuant to Section 12(b) of the Act: N/A
Securities registered pursuant to Section 12(g) of the Act: N/A
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 _____
The members equity accounts are held 50% by MidAmerican Energy Holdings
Company and 50% by El Paso CE Generation Holding Company as of April 30, 2000.
<PAGE>
TABLE OF CONTENTS
Part I ........................................................................1
Financial Statements.........................................................1
Management's Discussions and Analysis of Financial Condition and
Results of Operations..................................................7
Part II.......................................................................13
Item 1. Legal Proceedings................................................13
Item 2. Changes in Securities and Use of Proceeds........................13
Item 3. Defaults on Senior Securities ...................................13
Item 4. Submission of matters to a vote of Security Holders..............13
Item 5. Other Information ...............................................13
Item 6. Exhibits and reports on Form 8-K.................................13
Signatures....................................................................14
Exhibit Index ................................................................15
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors
CE Generation, LLC
We have reviewed the accompanying consolidated balance sheet of CE
Generation, LLC (the "Company") as of March 31, 2000, and the related
consolidated statements of operations and cash flows for the three months ended
March 31, 2000 and 1999. These financial statements are the responsibility of
the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and of making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with auditing standards generally accepted in the United States of
America, the objective of which is the expression of an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express such an
opinion.
Based on our review, we are not aware of any material modifications
that should be made to such financial statements for them to be in conformity
with accounting principles generally accepted in the United States of America.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheets of CE Generation, LLC as of
December 31, 1999, and the related statements of operations, members' equity and
cash flows for the year then ended (not presented herein); and in our report
dated January 25, 2000 we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying consolidated balance sheet as of December 31, 1999 is fairly
stated, in all material respects, in relation to the consolidated balance sheet
from which it has been derived.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
April 21, 2000
<PAGE>
<TABLE>
CE GENERATION, LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands)
<CAPTION>
March 31, December 31,
2000 1999
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(unaudited)
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 55,427 $ 29,120
Restricted cash 13,139 6,776
Accounts receivable 39,434 40,688
Prepaid expenses and other assets 46,687 30,195
Due from affiliates 3,828 3,794
Deferred income taxes 9,256 9,256
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Total current assets 167,771 119,829
Restricted cash 21,596 25,836
Properties, plants, contracts and equipment, net 1,370,523 1,017,342
Equity investments --- 118,637
Excess of cost over fair value of net assets acquired,
net 283,490 285,888
Note receivable from related party 140,520 140,520
Deferred financing charges and other assets 17,275 17,359
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Total assets $ 2,001,175 $ 1,725,411
================ ================
LIABILITIES AND EQUITY
Liabilities:
Accounts payable and other accrued liabilities $ 65,809 $ 41,314
Current portion of long term debt 62,570 51,520
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Total current liabilities 128,379 92,834
Project loan 223,436 60,173
Salton Sea notes and bonds 543,948 543,948
Senior secured bonds 389,600 389,600
Deferred income taxes 246,674 246,576
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Total liabilities 1,532,037 1,333,131
Minority interest 74,892 ---
Commitments and contingencies (Note 3)
Members equity 394,246 392,280
---------------- ----------------
Total liabilities and equity $ 2,001,175 $ 1,725,411
================ ================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
CE GENERATION, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in Thousands)
(Unaudited)
Three Months Ended
March 31,
2000 1999
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Revenue:
Sales of electricity and steam $ 91,977 $ 68,661
Equity earnings in subsidiaries --- 6,202
Interest and other income 2,493 8,102
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Total revenues 94,470 82,965
Cost and Expenses:
Plant operations 47,619 26,797
General and administrative 977 1,099
Depreciation and amortization 19,375 14,452
Interest expense 22,395 18,504
Less interest capitalized (2,351) (400)
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Total expenses 88,015 60,452
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Income before provision for income taxes 6,455 22,513
Provision for income taxes 388 7,886
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Income before minority interest and extraordinary item 6,067 14,627
Minority interest 4,101 ---
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Income before extraordinary item 1,966 14,627
Extraordinary item, net of tax --- (17,478)
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Net income (loss) $ 1,966 $ (2,851)
============= =============
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
CE GENERATION, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
2000 1999
---- ----
Cash flows from operating activities:
<S> <C> <C>
Net income (loss) $ 1,966 $ (2,851)
Adjustments to reconcile to cash flows from
operating activities:
Extraordinary item, net of tax --- 17,478
Depreciation and amortization 19,375 14,452
Provision for deferred income taxes 98 2,791
Distribution from equity investments in excess of
equity earnings --- 2,340
Distributions to minority interest in excess of income (1,615) ---
Changes in other items:
Accounts receivable 16,353 22,246
Due from affiliates (2,268) (7,065)
Accounts payable and other accrued liabilities 15,302 16,610
Other assets (10,180) 19,908
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Net cash flows from operating activities 39,031 85,911
Cash flows from investing activities:
Capital expenditures (20,823) (52,670)
Consolidation of equity investment's cash 2,559 ---
Decrease (increase) in restricted cash 11,718 (25,224)
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Net cash flows from investing activities (6,546) (77,894)
Cash flows from financing activities:
Proceeds from Senior Secured bonds --- 400,000
Repayment of note payable to related party --- (269,300)
Repayment of project loans (6,784) (3,567)
Distributions to MEHC, net of advances --- (122,080)
Decrease in restricted cash 606 21,096
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Net cash flows from financing activities (6,178) 26,149
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Net increase in cash and cash equivalents 26,307 34,166
Cash and cash equivalents at beginning of period 29,120 25,774
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Cash and cash equivalents at end of period $ 55,427 $ 59,940
============= =============
Supplemental disclosure:
Interest paid $ 6,079 $ 9,425
============= =============
Income taxes paid $ 46 $ 505
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</TABLE>
See note 2 regarding conversion of Saranac from equity investment to
consolidated subsidiary.
The accompanying notes are an integral part of these financial statements.
<PAGE>
CE GENERATION, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. General:
In the opinion of the management of CE Generation, LLC the accompanying
unaudited consolidated financial statements contain all adjustments (consisting
only of normal recurring accruals) necessary to present fairly the financial
position as of March 31, 2000 and the results of operations and cash flows for
the three months ended March 31, 2000 and 1999. The results of operations for
the three months ended March 31, 2000 and 1999 are not necessarily indicative of
the results to be expected for the full year.
The unaudited combined financial statements shall be read in
conjunction with the financial statements included in CE Generation, LLC's
annual report on Form 10-K for the year ended December 31, 1999.
2. Equity Investment in Saranac:
CE Generation indirectly holds noncontrolling general and limited
partnership interests in Saranac Power Partners, L.P. ("Saranac") which was
formed to build, own and operate natural gas fired combined cycle cogeneration
facilities. Under the Saranac partnership agreement, the economic interests of
the partners flip after certain limited partners achieve fixed rates of return.
In January 2000, TPC Saranac, a limited partner, achieved an after tax return of
8.35%. Following this achievement, CE Generation's economic interest in the
partnership is approximately 64%. Effective January 2000, the Saranac Project
investment is no longer reported as an equity investment but is fully
consolidated into CE Generation financial results. The following is summarized
financial information for Saranac as of December 31, 1999:
Cash and investments $2,559
Restricted cash 7,223
Accounts receivable 15,099
Property, plant and equipment, net 349,105
Other assets 13,683
Current liabilities 9,022
Project loans 181,108
Due to affiliates 2,223
Total equity 195,316
CE Generation will have an approximate 80% economic interest in the
partnership after General Electric Capital Company, another Saranac limited
partner, achieves an after tax return of approximately 7.252%.
3. Commitments and Contingencies
On February 14, 1995, NYSEG filed with the FERC a Petition for a
Declaratory Order, Complaint, and Request for Modification of Rates in Power
Purchase Agreements Imposed Pursuant to the Public Utility Regulatory Policies
Act of 1978 ("Petition") seeking FERC (i) to declare that the rates NYSEG pays
under the Saranac PPA, which was approved by the New York Public Service
Commission (the "PSC"), were in excess of the level permitted under PURPA and
(ii) to authorize the PSC to reform the Saranac PPA. On March 14, 1995, the
Saranac Partnership intervened in opposition to the Petition asserting, inter
alia, that the Saranac PPA fully complied with PURPA, that NYSEG's action was
untimely and that the FERC lacked authority to modify the Saranac PPA. On April
12, 1995, the FERC by a unanimous (5-0) decision issued an order denying the
various forms of relief requested by NYSEG and finding that the rates required
under the Saranac PPA were consistent with PURPA and the FERC's regulations. On
May 11, 1995, NYSEG requested rehearing of the order and, by order issued July
19, 1995, the FERC unanimously (5-0) denied NYSEG's request. On June 14, 1995,
NYSEG petitioned the United States Court of Appeals for the District of Columbia
Circuit (the "Court of Appeals") for review of FERC's April 12, 1995 order. FERC
moved to dismiss NYSEG's petition for review on July 28, 1995. On October 30,
1996, all parties filed final briefs and the Court of Appeals heard oral
arguments on December 2, 1996. On July 11, 1997, the Court of Appeals dismissed
NYSEG's appeal from FERC's denial of the petition on jurisdictional grounds.
On August 7, 1997, NYSEG filed a complaint in the U.S. District Court
for the Northern District of New York against the FERC, the PSC (and the
Chairman, Deputy Chairman and the Commissioners of the PSC as individuals in
their official capacity), the Saranac Partnership and Lockport Energy
Associates, L.P. ("Lockport") concerning the power purchase agreements that
NYSEG entered into with Saranac Partners and Lockport. NYSEG's suit asserts that
the PSC and the FERC improperly implemented PURPA in authorizing the pricing
terms that NYSEG, the Saranac Partnership and Lockport agreed to in those
<PAGE>
contracts. The action raises similar legal arguments to those rejected by the
FERC in its April and July 1995 orders. NYSEG in addition asks for retroactive
reformation of the contracts as of the date of commercial operation and seeks a
refund of $281 million from the Saranac Partnership. The Saranac Partnership and
other parties have filed motions to dismiss and oral arguments on those motions
were heard on March 2, 1998 and again on March 3, 1999. The Saranac Partnership
believes that NYSEG's claims are without merit for the same reasons described in
the FERC's orders.
In February 1998, Del Ranch and Elmore ("plaintiffs") filed an action
for breach of contract, fraud and unlawful discrimination relating to the
long-term contracts between plaintiffs and Edison for purchase and sale of
geothermal power. Among other claims, plaintiffs contend that Edison failed to
pay the correct "forecast" price for energy purchased from plaintiffs during
1998. Plaintiffs seek compensatory damages of about $6 million and additional
punitive damages. Edison's demurrer to the frauds claim was recently overruled
by the Superior Court. In September 1999, the plaintiffs settled with Edison for
approximately $3.7 million including accrued interest, subject to approval by
the California Public Utilities Commission.
CE Generation's geothermal and cogeneration facilities are qualifying
facilities under the Public Utility Regulatory Policies Act of 1978 (PURPA) and
their contracts for the sale of electricity are subject to regulations under
PURPA. In order to promote open competition in the industry, legislation has
been proposed in the U.S. Congress that calls for either a repeal of PURPA on a
prospective basis or the significant restructuring of the regulations governing
the electric industry, including sections of the Public Utility Regulatory
Policies Act. Current federal legislative proposals would not abrogate, amend,
or modify existing contracts with electric utilities. The ultimate outcome of
any proposed legislation is unknown at this time.
4. Subsequent Event:
On April 11, 2000, Yuma Cogeneration Associates ("YCA") and San Diego
Gas and Electric Company ("SDG&E") entered into a termination agreement for the
termination of the Standard Offer No. 2 Power Purchase with a Firm Capacity
Qualifying Facility ("YCA PPA"), subject to the approval of the California
Public Utilities Commission ("CPUC"). If CPUC approval is received, an affiliate
of El Paso Energy Corporation ("El Paso") has agreed to purchase the Project.
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
The following is management's discussion and analysis of significant
factors which have affected CE Generation, LLC ("CE Generation" or the
"Company") financial condition and results of operations during the periods
included in the accompanying statements of operations. The Company's actual
results in the future could differ significantly from the historical results.
Recent Events
Effective January 2000, CE Generation's economic ownership in the
Saranac Project increased to approximately 64%. This increase resulted from TPC
Saranac achieving an after tax return of 8.35%. This achievement resulted in
lower cash flows to TPC Saranac and higher cash flows to CE Generation. Due to
the increased ownership, the project is now fully consolidated into CE
Generation's results of operations. The project was previously accounted for as
an equity investment.
Business
MidAmerican completed a strategic restructuring in conjunction with its
acquisition of MHC Inc. (formerly MidAmerican Energy Holdings Company) in which
MidAmerican's common stock interests in Magma Power Company ("Magma"), Falcon
Seaboard Resources, Inc. ("FSRI") and CalEnergy Development Company ("CEDC"),
and their subsidiaries (which own the geothermal and natural gas-fired combined
cycle cogeneration facilities described below), were contributed by MidAmerican
to CE Generation. This restructuring was completed in February 1999.
The consolidated financial statements reflect the consolidated
financial statements of Magma and subsidiaries (excluding wholly-owned
subsidiaries retained by MidAmerican), FSRI and subsidiaries and Yuma
Cogeneration Associates ("YCA"), each a wholly-owned subsidiary. The
consolidated financial statements present CE Generation's financial position,
results of operations and cash flows as if CE Generation were a separate legal
entity for all periods presented. The basis in assets and liabilities have been
carried over from MidAmerican. All material intercompany transactions and
balances have been eliminated in consolidation.
The following table sets out information concerning CE Generation
Projects:
PROJECT FUEL COMMERCIAL CAPACITY LOCATION
OPERATION
Vulcan Geothermal 1986 34 MW California
Del Ranch Geothermal 1989 38 MW California
Elmore Geothermal 1989 38 MW California
Leathers Geothermal 1990 38 MW California
CE Turbo Geothermal 2000(1) 10 MW California
Salton Sea I Geothermal 1987 10 MW California
Salton Sea II Geothermal 1990 20 MW California
Salton Sea III Geothermal 1989 49.8 MW California
Salton Sea IV Geothermal 1996 39.6 MW California
Salton Sea V Geothermal 2000(1) 49 MW California
Power Resources Gas 1988 200 MW Texas
Yuma Gas 1994 50 MW Arizona
Saranac Gas 1994 240 MW New York
<PAGE>
(1) The CE Turbo and Salton Sea V Project are under construction and
are expected to commence commercial operation by the summer of 2000.
The Vulcan Project, Del Ranch Project, Elmore Project, Leathers Project
and CE Turbo Project are referred to as the Partnership Projects. The Salton Sea
I Project, Salton Sea II Project, Salton Sea III Project, Salton Sea IV Project
and Salton Sea V Project are referred to as the Salton Sea Projects. The
Partnership Projects and the Salton Sea Projects are collectively referred to as
the Imperial Valley Projects. The Power Resources Project, Yuma Project and
Saranac Project are collectively referred to as the Gas Projects.
Factors Affecting Results of Operations
The capacity factor for a particular project is determined by dividing
total quantity of electricity sold by the product of the project's capacity and
the total hours in the year. The capacity factors for Vulcan Project, Hoch (Del
Ranch) Project, Elmore Project and Leathers Project plants are based on capacity
amounts of 34, 38, 38 and 38 net megawatts, respectively. The capacity factors
for Salton Sea Unit I Project, Salton Sea Unit II Project, Salton Sea Unit III
Project and Salton Sea Unit IV Project plants are based on capacity amounts of
10, 20, 49.8 and 39.6 net megawatts, respectively. The capacity factors for the
Saranac Project, Power Resources Project and Yuma Project plants are based on
capacity amounts of 240, 200 and 50 net megawatts, respectively. Each plant
possesses an operating margin which allows for production in excess of the
amount listed above. Utilization of this operating margin is based upon a
variety of factors and can be expected to vary throughout the year under normal
operating conditions. The amount of revenues received by these projects is
affected by the extent to which they are able to operate and generate
electricity. Accordingly, the capacity and capacity factor figures provide
information on operating performance that has affected the revenues received by
these projects.
Power Purchase Agreements
Imperial Valley Projects. The operating Partnership Projects sell all
electricity generated by the respective plants under four long-term SO4
Agreements between the Partnership Projects and Southern California Edison
Company ("Edison"). These SO4 Agreements provide for capacity payments, capacity
bonus payments and energy payments. Edison makes fixed annual capacity and
capacity bonus payments to the Partnership Projects to the extent that capacity
factors exceed benchmarks set forth in the agreements. The price for capacity
and capacity bonus payments is fixed for the life of the SO4 Agreements. Energy
is sold at increasing scheduled rates for the first ten years after firm
operation and thereafter at rates based on the cost that Edison avoids by
purchasing energy from the Imperial Valley Partnership Projects instead of
obtaining the energy from other sources.
The scheduled energy price periods of the Partnership Projects'
long-term agreements extended until February 1996, December 1998, December 1998
and December 1999 for each of the Vulcan Project, Del Ranch Project, Elmore
Project and Leathers Project, respectively. For 2000, the Partnership Projects
are receiving Edison's avoided cost of energy pursuant to their respective SO4
Agreements.
Salton Sea Unit I Project sells electricity to Edison under a 30-year
negotiated power purchase agreement, which provides for capacity and energy
payments. The energy payment is calculated using a base price which is subject
to quarterly adjustments based on a basket of indices. The time period weighted
average energy payment for Salton Sea Unit I was 5.4 cents per kilowatt-hour
during the three months ended March 31, 2000. As the Salton Sea Unit I Power
Purchase Agreement ("PPA") is not a SO4 Agreement, the energy payments do not
revert to payments based on the cost that Edison avoids by purchasing energy
from Salton Sea Unit I instead of obtaining the energy from other sources. The
capacity payment is approximately $1.1 million per annum.
Salton Sea Unit II Project and Salton Sea Unit III Project sell
electricity to Edison under 30-year modified SO4 Agreements that provide for
capacity payments, capacity bonus payments and energy payments. The price for
contract capacity and contract capacity bonus payments is fixed for the life of
the modified standard offer no. 4 agreements. The energy payments for each of
<PAGE>
the first ten year periods, which periods expire in April 2000 for Salton Sea II
and expired in February 1999 for Salton Sea III, are levelized at a time period
weighted average of 10.6 cents per kilowatt-hour and 9.8 cents per kilowatt-hour
for Salton Sea Unit II and Salton Sea Unit III, respectively. Thereafter, the
monthly energy payments will be based on the cost that Edison avoids by
purchasing energy from Salton Sea Unit II or III instead of obtaining the energy
from other sources. For Salton Sea Unit II only, Edison is entitled to receive,
at no cost, 5% of all energy delivered in excess of 80% of contract capacity
through September 30, 2004. The annual capacity and bonus payments for Salton
Sea Unit II and Salton Sea Unit III are approximately $3.3 million and $9.7
million, respectively.
Salton Sea Unit IV Project sells electricity to Edison under a modified
SO4 Agreement which provides for contract capacity payments on 34 megawatts of
capacity at two different rates based on the respective contract capacities
deemed attributable to the original Salton Sea Unit I PPA option (20 megawatts)
and to the original Fish Lake PPA (14 megawatts). The capacity payment price for
the 20 megawatts portion adjusts quarterly based upon specified indices and the
capacity payment price for the 14 megawatts portion is a fixed levelized rate.
The energy payment (for deliveries up to a rate of 39.6 megawatts) is at a fixed
rate for 55.6% of the total energy delivered by Salton Sea Unit IV and is based
on an energy payment schedule for 44.4% of the total energy delivered by Salton
Sea Unit IV. The contract has a 30-year term but Edison is not required to
purchase the 20 megawatts of capacity and energy originally attributable to the
Salton Sea Unit I PPA option after September 30, 2017, the original termination
date of the Salton Sea Unit I PPA.
For the three months ended March 31, 2000, Edison's average price paid
for energy was 3.2 cents per kilowatt-hour. Estimates of Edison's future avoided
cost of energy vary substantially from year to year. The Company cannot predict
the likely level of energy prices under the SO4 Agreements and the modified SO4
Agreements at the expiration of the scheduled payment periods. If the Leathers
Project received avoided cost of energy rates in 1999 rather than the contract
energy prices, revenues would have decreased from $13.8 million to $2.7 million
in the three month period ended March 31, 1999.
Gas Projects. The Saranac Project sells electricity to NYSEG under the
Saranac PPA, which provides for capacity and energy payments. Capacity payments,
which for the three months ended March 31, 2000 totaled 2.5 cents per
kilowatt-hour, are received for electricity produced during "peak hours" as
defined in the Saranac PPA and escalate at approximately 4.1% annually for the
remaining term of the contract. Energy payments, which averaged 7.2 cents per
kilowatt-hour for the three months ended March 31, 2000, escalate at
approximately 4.4% annually for the remaining term of the Saranac PPA. The
Saranac PPA expires in June of 2009.
The Power Resources Project sells electricity to Texas Utilities
Electric Company under the Power Resources PPA, which provides for capacity and
energy payments. Capacity payments and energy payments, which for the three
months ended March 31, 2000 were $3.4 million per month and 3.3 cents per
kilowatt-hour, respectively, escalate at 3.5% annually for the remaining term of
the Power Resources PPA. The Power Resources PPA expires in September 2003.
The Yuma Project sells electricity to San Diego Gas & Electric Company
("SDG&E") under the Yuma PPA. The energy is sold at a price based on the cost
that SDG&E avoids by purchasing energy from the Yuma Project instead of
obtaining the energy from other sources and the capacity is sold to SDG&E at a
fixed price for the life of the Yuma PPA. The power is delivered to SDG&E over
transmission lines constructed and owned by Arizona Public Service Company
("APS"). On April 11, 2000, Yuma Cogeneration Associates ("YCA") and San Diego
Gas and Electric Company ("SDG&E") entered into a termination agreement for the
termination of the Standard Offer No. 2 Power Purchase with a Firm Capacity
Qualifying Facility ("Yuma PPA"), subject to the approval of the California
Public Utilities Commission ("CPUC"). If CPUC approval is received, an affiliate
of El Paso Energy Corporation ("El Paso") has agreed to purchase the Project.
<PAGE>
Results of Operations
Sales of electricity and steam increased to $92 million for the three
months ended March 31, 2000 from $68.7 million for the same period in 1999, a
34% increase. $43.4 million of this increase was a result of a change in
ownership of the Saranac Project, which resulted in full consolidation of the
Project's financial results versus equity accounting in 1999. This increase was
partially offset by the expiration of fixed price periods for the Salton Sea
Unit III and Leathers Projects and reduced production at the Imperial Valley
Projects.
The following operating data represents the aggregate capacity and
electricity production of the Imperial Valley Projects:
Three Months Ended
March 31,
2000 1999
Overall capacity factor 65.5% 96.5%
Megawatt-hours produced 382,500 557,500
Capacity (net megawatts)(average) 267.4 267.4
The overall capacity factor for the Salton Sea Projects decreased for
the three months ended March 31, 2000 compared to the same period in 1999 due to
the scheduled but more extensive overhauls in 2000 than in 1999.
The following operating data represents the aggregate capacity and
electricity production of the Gas Projects:
Three Months Ended
March 31,
2000 1999
Overall capacity factor 90.1% 84.6%
Megawatt-hours produced 964,351 1,041,024
Capacity (net megawatts)(weighted average) 490 570
The overall capacity factor of the Gas Projects reflects the effect of
contractual curtailments. The capacity factors adjusted for these contractual
curtailments during the three months ended March 31, 2000 and 1999 were 98.0%
and 94.9%, respectively. The decrease in overall capacity is due to the transfer
of the NorCon Project to GE Capital in December 1999.
The decrease in equity earnings of subsidiaries for the three months
ended March 31, 2000 to $0 from $6.2 million for the same period in 1999,
reflects the change in the reporting of Saranac Project results from the equity
method in 1999 to full consolidation in 2000.
Interest and other income decreased to $2.5 million during the three
months ended March 31, 2000 from $8.1 million for the same period in 1999. This
decrease is primarily the result of the recognition of East Mesa royalty income
in the first quarter of 1999.
Plant operating expenses increased during the three months ended March
31, 2000 to $47.6 million from $26.8 million for the same period in 1999. These
costs include operating, maintenance, resource, fuel and other plant operating
expenses. The increase was primarily due to fully consolidating the Saranac
Project results versus equity reporting in 1999.
<PAGE>
General and administrative expenses decreased to $1.0 million during
the three months ended March 31, 2000 from $1.1 million for the same period in
1999. These costs include administrative services provided to CE Generation,
including executive, financial, legal, tax and other corporate functions.
Depreciation and amortization increased to $19.4 million during the
three months ended March 31, 2000 from $14.5 million for the same period in
1999. The increase was primarily due to the full consolidation of the Saranac
Project results in 2000, partially offset by reduced step up depreciation after
the end of the fixed price periods for the Leathers and Salton Sea Unit III
Projects as a result of greater value being assigned to the scheduled price
periods for the contracts relating to these projects at the time of acquisition.
Interest expense, less amounts capitalized, increased during the three
months ended March 31, 2000 to $20.0 million from $18.1 million for the same
period in 1999. The increase resulted from CE Generation's issuance of the
senior secured notes in March of 1999 and the consolidation of Saranac's
interest expense. These variances were partially offset by lower interest
expense resulting from the paydown of Salton Sea Funding Corporation and Power
Resources Project debt and higher capitalized interest due to the continued
construction of Salton Sea Unit V.
The provision for income taxes decreased to $.4 million during the
three months ended March 31, 2000 from $7.9 million for the same period in 1999.
The changes from year to year in the effective rate are due primarily to the
generation and utilization of energy tax credits and depletion deductions.
The extraordinary item of $17.5 million in 1999 reflects the premium
paid and deferred finance costs associated with the repayment of its 9 7/8%
limited recourse senior secured notes.
Liquidity and Capital Resources
Cash and cash equivalents were $55.4 million at March 31, 2000 as
compared to $29.1 million at December 31, 1999. In addition, restricted cash was
$34.7 million and $32.6 million at March 31, 2000 and December 31, 1999,
respectively. The increase in restricted cash was primarily due to the full
consolidation of the Saranac Project balance sheet in 2000 versus equity
accounting in 1999, partially offset by the use of restricted cash for
construction at the Imperial Valley.
Salton Sea Power LLC, one of CE Generation's indirect wholly-owned
subsidiaries, is constructing the Salton Sea Unit V Project. The Salton Sea Unit
V Project is a 49 net megawatt geothermal power plant which will sell
approximately one-third of its net output to the zinc facility, which was
retained by MidAmerican not owned by CE Generation. The remainder will be sold
through the California power exchange or in other market transactions.
The Salton Sea Unit V Project is being constructed pursuant to a date
certain, fixed price, turn-key engineering, procurement and construction
contract by Stone & Webster Engineering Corporation. Salton Sea Unit V Project
is scheduled to commence commercial operation in mid-2000. Total Project costs
of the Salton Sea Unit V Project are expected to be approximately $119.1 million
which is being funded by $76.3 million of debt from Salton Sea Funding
Corporation and $42.8 million from equity contributions. Salton Sea Power has
incurred approximately $89.1 million of these costs through March 31, 2000.
CE Turbo LLC, one of CE Generation's indirect wholly-owned
subsidiaries, is constructing the CE Turbo Project. The CE Turbo Project will
have a capacity of 10 net megawatts. The net output of the CE Turbo Project will
be sold to the zinc facility or sold through the California power exchange or in
other market transactions.
The Partnership Projects have upgraded the geothermal brine processing
facilities at the Vulcan and Del Ranch Projects with the brine facilities
construction.
<PAGE>
The CE Turbo Project is being and the brine facilities construction has
been constructed by Stone & Webster pursuant to a date certain, fixed price,
turn-key engineering, procurement and construction contract. The CE Turbo
Project is scheduled to commence initial operations in mid 2000 and the brine
facilities construction is in operation. Total Project costs for both the CE
Turbo Project and the brine facilities construction are expected to be
approximately $63.7 million which will be funded by $55.6 million of debt from
Salton Sea Funding Corporation and $8.1 million from equity contributions. The
Company has incurred approximately $50.0 million of these costs through March
31, 2000.
The EPC contractor's parent, Stone & Webster, Incorporated, has
recently announced that it is having current liquidity problems and intends to
sell substantially all of its assets to Jacobs Engineering Group, Inc. in
exchange for an immediate $50 million secured revolving credit facility,
assumption of substantially all of Stone & Webster's balance sheet liabilities,
and $150 million in cash and stock, and subsequently intends to seek bankruptcy
court approval of the asset sale and credit agreement. As the work on the
construction projects are expected to be completed this summer, the Company does
not believe there will be any material adverse effect on the final completion of
those projects or the Company.
The net revenues, equity distributions and royalties from the
Partnership Projects are used to pay principal and interest payments on
outstanding senior secured bonds issued by the Salton Sea Funding Corporation,
the final series of which is scheduled to mature in November 2018. The Salton
Sea Funding Corporation debt is guaranteed by subsidiaries of Magma and secured
by the capital stock of the Salton Sea Funding Corporation. The proceeds of the
Salton Sea Funding Corporation debt were loaned by the Salton Sea Funding
Corporation under loan agreements and notes to subsidiaries of Magma and used
for construction of the Salton Sea Unit V Project and the CE Turbo Project,
refinancing of indebtedness and other purposes. Debt service on the Imperial
Valley loans is used to repay debt service on the Salton Sea Funding Corporation
debt. The Imperial Valley loans and the guarantees of the Salton Sea Funding
Corporation debt are secured by substantially all of the assets of the
guarantors, including the Imperial Valley Projects, and by the equity interests
in the guarantors.
The proceeds of Series F of the Salton Sea Funding Corporation debt are
being used in part to construct the zinc facility, and the direct and indirect
owners of the zinc facility are among the guarantors of the Salton Sea Funding
Corporation debt. MidAmerican has guaranteed the payment by the zinc guarantors
of a specified portion of the scheduled debt service on the Imperial Valley
loans described in the preceding paragraph, including the current principal
amount of $140.5 million and associated interest.
Inflation
Inflation has not had a significant impact on CE Generation's cost
structure.
<PAGE>
Part II Other Information.
Item I - Legal proceedings
Neither CE Generation nor its subsidiaries are parties to any material
legal matters except those described in Footnote 3 of CE Generation's financial
statements.
Item 2 - Changes in Securities
Not applicable.
Item 3 - Default on Senior Securities
Not applicable.
Item 4 - Submission of matters to a vote of Security Holders.
Not applicable.
Item 5 - Other information
Not applicable.
Item 6 - Exhibits and reports on Form 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule
(b) Report on Form 8-K
Not applicable.
<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, in the City of Omaha, State
of Nebraska, on this 12th day of May, 2000.
CE Generation, LLC
/s/ Joseph M. Lillo
By: Joseph M. Lillo
Vice President and Controller
<PAGE>
EXHIBIT INDEX
Exhibit Page
No. No.
27 Financial Data Schedule 16
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