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 September 30, 2000
Commission File No. 333-89521
CE Generation, LLC
(Exact name of registrant as specified in its charter)
Delaware 47-0818523
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
302 South 36th Street, Suite 400 Omaha, NE 68131
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (402) 341-4500
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 Merchant Energy Company as of October 31,
2000.
<PAGE>
TABLE OF CONTENTS
Part I ....................................................................... 1
Item 1. Financial Statements............................................. 1
Item 2. Management's Discussions and Analysis of Financial Condition and
Results of Operations......................................... 9
Part II.......................................................................16
Item 1. Legal Proceedings................................................16
Item 2. Changes in Securities and Use of Proceeds........................16
Item 3. Defaults on Senior Securities ...................................16
Item 4. Submission of Matters to a Vote of Security Holders..............16
Item 5. Other Information ...............................................16
Item 6. Exhibits and Reports on Form 8-K.................................16
Signatures....................................................................17
Exhibit Index.................................................................18
<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 September 30, 2000, and the related
consolidated statements of operations for the three and nine month periods ended
September 30, 2000 and 1999 and of cash flows for the nine month periods ended
September 30, 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 auditing standards generally
accepted in the United States of America, the consolidated balance sheet 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
October 21, 2000
<PAGE>
CE GENERATION, LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
(Unaudited)
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 68,930 $ 29,120
Restricted cash 13,790 6,776
Accounts receivable 76,554 40,688
Prepaid expenses and other assets 46,996 30,195
Due from affiliates --- 3,794
Deferred income taxes 9,256 9,256
Total current assets 215,526 119,829
Restricted cash 22,092 25,836
Properties, plants, contracts and equipment, net 1,360,027 1,017,342
Equity investments --- 118,637
Excess of cost over fair value of net assets acquired, net 278,692 285,888
Note receivable from related party 140,520 140,520
Deferred financing charges and other assets 12,630 17,359
Total assets $ 2,029,487 $ 1,725,411
LIABILITIES AND MEMBERS' EQUITY
Liabilities:
Accounts payable and other accrued liabilities $ 71,167 $ 41,314
Notes payable to related parties 13,000 ---
Due to affiliates 5,697 ---
Current portion of long term debt 52,988 51,520
Total current liabilities 142,852 92,834
Project loan 208,077 60,173
Salton Sea notes and bonds 532,078 543,948
Senior secured bonds 383,300 389,600
Deferred income taxes 249,767 246,576
Total liabilities 1,516,074 1,333,131
Minority interest 70,819 ---
Commitments and contingencies (Note 3)
Members' equity 442,594 392,280
Total liabilities and equity $ 2,029,487 $ 1,725,411
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
CE GENERATION, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in Thousands)
Unaudited
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30,
2000 1999 2000 1999
---- ---- ---- ----
Revenue:
<S> <C> <C> <C> <C>
Sales of electricity and steam $ 146,522 $ 90,028 $ 348,955 $ 231,613
Equity earnings in subsidiaries --- 5,381 --- 17,718
Interest and other income 3,236 4,702 7,778 17,665
Total revenues 149,758 100,111 356,733 266,996
Cost and Expenses:
Plant operations 61,748 29,281 157,355 84,848
General and administrative 1,182 1,338 4,036 3,333
Depreciation and amortization 20,564 14,474 59,661 43,400
Interest expense 21,992 19,611 66,793 58,343
Less interest capitalized (74) (1,569) (4,291) (2,614)
Total expenses 105,412 63,135 283,554 187,310
Income before provision for income taxes 44,346 36,976 73,179 79,686
Provision for income taxes 8,490 14,162 11,627 30,520
Income before minority interest and
extraordinary item 35,856 22,814 61,552 49,166
Minority interest 4,447 --- 11,238 ---
Income before extraordinary item 31,409 22,814 50,314 49,166
Extraordinary item, net of tax --- --- --- (17,478)
Net income $ 31,409 $ 22,814 $ 50,314 $ 31,688
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
CE GENERATION, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
Unaudited
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
2000 1999
Cash flows from operating activities:
<S> <C> <C>
Net income $ 50,314 $ 31,688
Adjustments to reconcile to cash flows from
operating activities:
Extraordinary item, net of tax --- 17,478
Depreciation and amortization 59,661 43,400
Provision for deferred income taxes 3,191 10,108
Distribution from equity investments in excess of related
equity earnings --- 5,123
Distributions to minority interest in excess of related income (5,688) ---
Changes in other items, net of Saranac conversion:
Accounts receivable (20,767) 5,658
Due from affiliates 7,257 ---
Accounts payable and other accrued liabilities 20,660 20,547
Other assets (6,125) 14,784
Net cash flows from operating activities 108,503 148,786
Cash flows from investing activities:
Capital expenditures (45,534) (135,322)
Consolidation of former equity investment's cash 2,559 ---
Change in restricted cash 11,222 66,122
Net cash flows from investing activities (31,753) (69,200)
Cash flows from financing activities:
Repayment of Salton Sea notes and bonds (22,552) (28,918)
Proceeds from related party notes 13,000 ---
Proceeds from Senior Secured bonds --- 400,000
Repayment of note payable to related party --- (269,300)
Repayment of project loans (27,343) (10,701)
Distributions to MEHC, net of advances --- (122,080)
Change in restricted cash (45) 9,620
Net cash flows from financing activities (36,940) (21,379)
Net increase in cash and cash equivalents 39,810 58,207
Cash and cash equivalents at beginning of period 29,120 25,774
Cash and cash equivalents at end of period $ 68,930 $ 83,981
Supplemental disclosure:
Interest paid $ 66,793 $ 37,620
Income taxes paid $ 8,720 $ 9,125
See note 2 regarding conversion of Saranac from equity investment to consolidated subsidiary.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<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 September 30, 2000 and the results of operations for the three
and nine months ended September 30, 2000 and 1999 and cash flows for the nine
months ended September 30, 2000 and 1999. The results of operations for the
three and nine months ended September 30, 2000 and 1999 are not necessarily
indicative of the results to be expected for the full year.
The unaudited consolidated financial statements should 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 increased to 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 (in thousands):
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 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.
<PAGE>
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 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
filed motions to dismiss and oral arguments on those motions were heard on March
2, 1998 and again on March 3, 1999. On September 30, 2000 the District Court
granted the motions to dismiss. NYSEG filed a Notice of Appeal on October 25,
2000 appealing the decision to the United States Court of Appeals for the Second
Circuit. The Saranac Partnership believes that NYSEG's claims are without merit
for the same reasons described in the FERC's order and the District Court's
decision.
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 PURPA. 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. New Borrowings:
On May 26, 2000, CE Generation issued a $6.5 million 10% note due June 15,
2005, in favor of MidAmerican Energy Holdings Company and a $6.5 million 10%
note due June 15, 2005 in favor of El Paso Merchant Energy Company. The notes
were prepaid, without premium or penalty, on October 16, 2000.
On July 21, 1995, Salton Sea Funding Corporation obtained a $15 million
seven year revolving credit agreement between Credit Suisse as bank and agent
and other lenders. The interest rate is at the Adjusted Base Rate plus .375% or
at the LIBOR rate plus 100 basis points. On May 26, 2000, Salton Sea Funding
Corporation borrowed $15 million under its revolving credit agreement. The loan
was repaid in two installments, $5 million on July 26, 2000 and $10 million on
August 28, 2000.
5. Yuma Power Purchase Agreement Termination:
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>
6. Related Party Transactions:
Salton Sea Power LLC ("Salton Sea Power"), a Salton Sea Guarantor, and El
Paso Merchant Energy L.P. ("EPME") entered into a power marketing agreement
commencing June 13, 2000 and ending on June 30, 2000. Under the terms of the
agreement, EPME purchased and Salton Sea Power sold all available power from the
Salton Sea Unit V project. EPME sold the available power into the bulk power
market. The purchase price of the available power is the value of the cash
actually received by EPME for the sale of such power, plus any realized
renewable premiums.
On June 9, 2000, Salton Sea Power, entered into an agreement to sell all
available power from the Salton Sea Unit V project to EPME. Under the terms of
the agreement commencing on July 1, 2000 and ending on September 30, 2000, EPME
purchased up to 25 MW of available power for $53 per MWh, together with any
premiums related to such power. EPME also marketed any available power which
exceeded 25 MW on behalf of Salton Sea Power.
On September 29, 2000, Salton Sea Power LLC and CE Turbo LLC entered into an
agreement to sell all available power from the Salton Sea Unit V and CE Turbo
projects to EPME. Under the terms of the agreement, commencing October 1, 2000
and ending September 30, 2001, EPME will purchase all available power and sell
available power, on behalf of Salton Sea Power, into the PX or California ISO
markets. The purchase price for the available power shall be equivalent to the
value actually received by EPME for the sale of such power, including renewable
premiums.
<PAGE>
Item 2. 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's ("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.
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.
Business
MidAmerican completed a strategic restructuring in conjunction with its
acquisition in March 1999 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 its subsidiaries and 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
(1) The Salton Sea V Project and the CE Turbo Project commenced commercial
operation in the third quarter of 2000.
<PAGE>
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 the
total quantity of electricity sold by the product of the project's capacity and
the total hours in the year. Each plant possesses an operating margin which
allows for production in excess of the amounts 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 5.6 cents per kilowatt-hour
during the nine months ended September 30, 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.
<PAGE>
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 SO4 Agreements. The energy payments for each of the first ten year
periods, which periods expired in April 2000 and February 1999 for Salton Sea II
and Salton Sea III, respectively, were 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. Currently, the monthly
energy payments are 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.
Salton Sea Unit V Project will sell approximately one-third of its net
output to a zinc facility, which is owned by a subsidiary of MidAmerican and is
expected to commence operation in the fourth quarter of 2000. The remainder of
the Salton Sea Unit V output is sold through the California Power Exchange (the
"PX") or in other market transactions. The PX was created to establish markets
for the sale of power on a daily and hourly basis. Thus, PX prices are expected
to have the characteristics of short term spot prices and to fluctuate from time
to time in a manner that cannot be predicted with accuracy.
For the nine months ended September 30, 2000 and 1999, Edison's average
price paid for energy was 4.6 cents and 2.9 cents, respectively per
kilowatt-hour. Estimates of Edison's future avoided cost of energy vary
substantially from year to year and therefore cannot be predicted with accuracy.
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 nine months ended September 30, 2000 totaled 2.47 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 7.4 cents per
kilowatt-hour for the nine months ended September 30, 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 nine months ended
September 30, 2000 were $3.4 million per month and 3.16 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.
<PAGE>
The Yuma Project sells electricity to 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").
Results of Operations
Sales of electricity and steam increased to $146.5 million for the three
months ended September 30, 2000 from $90.0 million for the same period in 1999.
$43 million of this increase was a result of a change in ownership in the
Saranac Project, which resulted in full consolidation of the Project's financial
results versus equity accounting in 1999. $7.7 million of the increase reflects
the addition of Salton Sea Unit V and CE Turbo Projects. $3.3 million of this
increase is attributed to higher SRAC rates in the third quarter of 2000. For
the nine months ended September 30, 2000, sales of electricity and steam
increased to $349.0 million from $231.6 million for the same period in 1999.
$128.4 million of this increase was a result of the change in ownership of the
Saranac Project. $10.1 million of the increase is the result of the additional
operations of the Salton Sea Unit V and CE Turbo Projects. This increase was
partially offset by the expiration of fixed price periods for the Salton Sea
Units II and 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 Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
Overall capacity factor 90.1% 101.3% 82.0% 97.3%
Megawatt-hours produced 642,300 597,800 1,557,500 1,704,500
Capacity (net megawatts)
(weighted average) 323.0 267.4 288.7 267.4
The overall capacity factor for the Imperial Valley Projects decreased for the
three and nine months ended September 30, 2000 compared to the same periods in
1999 due to the scheduled and more extensive overhauls in 2000 than in 1999. The
megawatt hours produced for the three months ended September 30, 2000 increased
from 1999 due to the addition of Salton Sea Unit V and the CE Turbo project.
<PAGE>
The following operating data represents the aggregate capacity and
electricity production of the Gas Projects:
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
Overall capacity factor 91.9% 85.5% 89.6% 87.0%
Megawatt-hours produced 994,034 1,076,200 2,886,413 3,260,600
Capacity (net megawatts)(average) 490 570 490 570
The overall capacity factor of the Gas Projects reflects the effect of
contractual curtailments. The capacity factors adjusted for these contractual
curtailments during the nine months ended September 30, 2000 and 1999 were
relatively consistent at 94.9% and 96.6%, respectively. The decreases in
capacity and megawatt-hours produced are due to the transfer of the NorCon
Project to GE Capital in December 1999.
The decrease in equity earnings of subsidiaries for the three and nine
months ended September 30, 2000 from the same periods 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 $3.2 million during the three months
ended September 30, 2000 from $4.7 million for the same period in 1999. Interest
and other income decreased to $7.8 million during the nine months ended
September 30, 2000 from $17.7 million for the same period in 1999. These
decreases are primarily the result of the recognition of East Mesa royalty
income in the first quarter of 1999 and lower interest earned due to lower cash
balances as construction funds were expended.
Plant operating expenses increased during the three months ended September
30, 2000 to $61.7 million from $29.3 million for the same period in 1999. $21.9
million of this increase was due to fully consolidating the Saranac Project
results versus equity reporting in 1999. For the nine month period ended
September 30, 2000 operating expenses increased to $157.4 million from $84.8
million in 1999. $64.5 million of the increase was primarily due to fully
consolidating the Saranac Project results versus equity reporting in 1999. These
costs include operating, maintenance, resource, fuel and other plant operating
expenses.
General and administrative expenses decreased to $1.2 million during the
three months ended September 30, 2000 from $1.3 million for the same period in
1999. For the nine months ended September 30, 2000 general and administrative
costs increased to $3.7 million from $3.3 million in 1999. These costs include
administrative services provided to CE Generation, including executive,
financial, legal, tax and other corporate functions. The year to date increase
is primarily due to increased legal and accounting services.
Depreciation and amortization increased to $20.6 million during the three
months ended September 30, 2000 from $14.5 million for the same period in 1999.
For the nine months ended September 30, 2000 depreciation and amortization
increased to $59.7 million from $43.4 million in 1999. The increases were
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 Units II and 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 September 30, 2000 to $21.9 million from $18.0 million for the same
period in 1999. For the nine months ended September 30, 2000 interest, less
amounts capitalized, increased to $62.5 million from $55.7 million in 1999. The
increases 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
year to date higher capitalized interest due to the construction of Salton Sea
Unit V and CE Turbo.
<PAGE>
The provision for income taxes decreased to $8.5 million during the three
months ended September 30, 2000 from $14.2 million for the same period in 1999.
For the nine months ended September 30, 2000, the provision for income tax
decreased to $11.6 million from $30.5 million in 1999. The changes from year to
year in the effective rate are due primarily to the generation of energy tax
credits related to the capital expenditures for CE Turbo and Salton Sea Unit V.
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 $68.9 million at September 30, 2000 as
compared to $29.1 million at December 31, 1999. In addition, restricted cash was
$35.9 million and $32.6 million at September 30, 2000 and December 31, 1999,
respectively.
On May 26, 2000, CE Generation issued a $6.5 million 10% note due June 15,
2005, in favor of MidAmerican Energy Holdings Company and a $6.5 million 10%
note due June 15, 2005 in favor of El Paso CE Generation Holding Company. The
notes were prepaid without premium or penalty on October 16, 2000.
On July 21, 1995, Salton Sea Funding Corporation obtained a $15 million
seven year revolving credit agreement between Credit Suisse as bank and agent
and other lenders. The interest rate is at the Adjusted Base Rate plus .375% or
at the LIBOR rate plus 100 basis points. On May 26, 2000, Salton Sea Funding
Corporation borrowed $15 million under its revolving credit agreement. The loan
was repaid in two installments, $5 million on July 26, 2000 and $10 million on
August 28, 2000.
Salton Sea Power LLC, one of CE Generation's indirect wholly-owned
subsidiaries, completed construction and began operations of Salton Sea Unit V
in the third quarter of 2000. Salton Sea Unit V is a 49 net megawatt geothermal
power plant which will sell approximately one-third of its net output to a zinc
facility, which is owned by a MidAmerican subsidiary and is currently under
construction. The remainder is being sold through the PX or in other market
transactions.
CE Turbo LLC, one of CE Generation's indirect wholly-owned subsidiaries,
completed construction and began operation of the CE Turbo Project in the third
quarter of 2000. The CE Turbo Project has a capacity of 10 net megawatts. The
net output of the CE Turbo Project is being sold to the zinc facility or sold
through the PX 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.
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.
<PAGE>
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.
Certain information included in this report contains forward-looking
statements made pursuant to the Private Securities Litigation Reform Act of 1995
("Reform Act"). Such statements are based on current expectations and involve a
number of known and unknown risks and uncertainties that could cause the actual
results and performance of the Company to differ materially from any expected
future results or performance, expressed or implied, by the forward-looking
statements. In connection with the safe harbor provisions of the Reform Act, the
Company has identified important factors that could cause actual results to
differ materially from such expectations, including development and construction
uncertainty, operating uncertainty, acquisition uncertainty, uncertainties
relating to doing business outside of the United States, uncertainties relating
to geothermal resources, uncertainties relating to domestic and international
economic and political conditions and uncertainties regarding the impact of
regulations, changes in government policy, industry deregulation and
competition. Reference is made to all of the Company's SEC filings, incorporated
herein by reference, for a description of such factors. The Company assumes no
responsibility to update forward-looking information contained herein.
<PAGE>
Part II Other Information.
Item 1 - 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
None.
<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 Des Moines,
State of Iowa, on this 14th day of November, 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 19
