CalEnergy Company, Inc.
302 South 36th Street, Suite 400
Omaha, NE 68131
April 2, 1996
VIA ELECTRONIC TRANSMISSION
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Attention: Filing Desk
Re: Current Report on Form 8-K of
CalEnergy Company, Inc.
Dear Sir or Madam:
CalEnergy Company, Inc., a Delaware corporation (the "Company")
herewith transmits for filing with the Securities and Exchange Commission
the Company's Current Report on Form 8-K dated April 2, 1996.
Please direct all comments and questions on these materials to the
undersigned at (402) 341-4500.
Very truly yours,
/s/ Douglas L. Anderson
Douglas L. Anderson
Assistant Secretary and
Assistant General Counsel
(U.S. and Corporate)
Enclosures
cc: John G. Sylvia
Steven A. McArthur
Greg Abel
Gary Yocum, Deloitte & Touche
<PAGE>
FORM 8-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
CURRENT REPORT
Pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): April 2, 1996
CalEnergy Company, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State of other jurisdiction of incorporation)
1-9874 94-2213782
(Commission File Number) (I.R.S. Employer Identification No.)
302 South 36th Street, Omaha, Nebraska 68131
(Address of principal executive offices)
Registrant's telephone number, including
area code: (402) 341-4500
Not Applicable
(Former name or former address, if changed since last report.)
Item 5. Other Events.
In connection with the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995 (the "Reform Act"), CalEnergy
Company, Inc. (the "Company") is hereby filing cautionary statements
identifying important factors that could cause the Company's actual results
to differ materially from those projected in forward-looking statements of
the Company made by or on behalf of the Company, whether oral or written.
The Company wishes to ensure that any forward-looking statements are
accompanied by meaningful cautionary statements in order to maximize to the
fullest extent possible the protections of the safe harbor established in
the Reform Act. Accordingly, any such statements are qualified in their
entirety by reference to, and are accompanied by, the following important
factors, among others, that could cause the Company's actual results to
differ materially from those projected in forward-looking statements of the
Company made by or on behalf of the Company.
The Company cautions that the following important factors, among
others (including but not limited to factors mentioned from time to time in
the Company's reports filed with the Securities and Exchange Commission),
could affect the Company's actual results and could cause the Company's
actual consolidated results to differ materially from those expressed in
any forward-looking statements of the Company made by or on behalf of the
Company. The factors included here are not exhaustive. Further, any
forward-looking statement speaks only as of the date on which such
statement is made, and the Company undertakes no obligation to update any
forward-looking statement or statements to reflect events or circumstances
after the date on which such statement is made or to reflect the occurrence
of unanticipated events. New factors emerge from time to time and it is
not possible for management to predict all of such factors, nor can it
assess the impact of each such factor on the business or the extent to
which any factor, or combination of factors, may cause actual results to
differ materially from those contained in any forward-looking statements.
Therefore, forward-looking statements should not be relied upon as a
prediction of actual future results.
1. Development Uncertainty. The Company is actively seeking to
develop, construct, own and operate new power projects utilizing geothermal
and other technologies, both domestically and internationally, the
completion of any of which is subject to substantial risk. The Company has
in development or under construction projects representing several times
the generating capacity of those currently in operation. Development can
require the Company to expend significant sums for preliminary engineering,
permitting, legal and other expenses in preparation for competitive bids
which the Company may not win or before it can be determined whether a
project is feasible, economically attractive or capable of being financed.
Successful development and construction is contingent upon, among other
things, negotiation on terms satisfactory to the Company of engineering,
construction, fuel supply and power sales contracts with other project
participants, receipt of required governmental permits and consents and
timely implementation of construction. Further, there can be no assurance
that the Company, which is substantially leveraged, will obtain access to
the substantial debt and equity capital required to continue to developed
and construct electric power projects or to refinance projects. The future
growth of the Company is dependent, in large part, upon the demand for
significant amounts of additional electrical generating capacity and its
ability to obtain contracts to supply portions of this capacity. There can
be no assurance that development efforts on any particular project, or the
Company's efforts generally, will be successful.
2. Development Uncertainty Outside the United States. The Company
has various projects under construction outside the United States and a
number of projects under award outside the United States. The financing
and development of projects outside the United States entail significant
political and financial risks (including without limitation uncertainties
associated with privatization efforts in the countries involved, currency
exchange rate fluctuations, currency repatriation restrictions, political
instability, civil unrest and expropriation) and other structuring issues
that have the potential to cause substantial delays in respect of or
material impairment of the value of the project being developed, which the
Company may not be capable of fully insuring against. The uncertainty of
the legal environment in certain foreign countries in which the Company is
developing and may develop or acquire projects could make it more difficult
for the Company to enforce its rights under agreements relating to such
projects. In addition, the laws and regulations of certain countries may
limit the ability of the Company to hold a majority interest in some of the
projects that it may develop or acquire. The Company's international
projects may, in certain cases, be terminated by the applicable foreign
governments.
3. Exploration, Development and Operation Uncertainties of
Geothermal Resources. Geothermal exploration, development and operations
are subject to uncertainties similar to those typically associated with oil
and gas exploration and development, including dry holes and uncontrolled
releases. Because of the geological complexities of geothermal reservoirs,
the geographic area and sustainable output of geothermal reservoirs can
only be estimated and cannot be definitively established. There is,
accordingly, a risk of an unexpected decline in the capacity of geothermal
wells and a risk of geothermal reservoirs not being sufficient for
sustained generation of the electrical power capacity desired. In
addition, geothermal power production poses unusual risks of seismic
activity. Accordingly, there can be no assurance that earthquake, property
damage or business interruption insurance will be adequate to cover all
potential losses sustained in the event of serious seismic disturbances or
that such insurance will be available on commercially reasonable terms.
The success of a geothermal project depends on the quality of the
geothermal resource and operational factors relating to the extraction of
the geothermal fluids involved in such project. The quality of a
geothermal resource is affected by a number of factors, including the size
of the reservoir, the temperature and pressure of the geothermal fluids in
such reservoir, the depth and capacity of the production and injection
wells, the amount of dissolved solids and noncondensible gases contained in
such geothermal fluids, and the permeability of the subsurface rock
formations containing such geothermal resource, including the presence,
extent and location of fractures in such rocks. The quality of a
geothermal resource may decline as a result of a number of factors,
including the intrusion of lower-temperature fluid into the producing zone.
An incorrect estimate by the Company of the quality of geothermal resource,
or a decline in such quality, could have a material adverse effect on the
Company's results of operations. In addition, both the cost of operations
and the operating performance of geothermal power plants may be adversely
affected by a variety of operating factors. Production and injection wells
can require frequent maintenance or replacement. Corrosion caused by high-
temperature and high-salinity geothermal fluids may compel the replacement
or repair of certain equipment, vessels or pipelines. New production and
injection wells may be required for the maintenance of current operating
levels, thereby requiring substantial capital expenditures.
4. Competition. The international power production market is
characterized by numerous strong and capable competitors, many of which
have more extensive and more diversified developmental or operating
experience (including international experience) and greater financial
resources than the Company. Many of these competitors also compete in the
domestic market. Further, in recent years, the domestic power production
industry has been characterized by strong and increasing competition with
respect to the industry's efforts to obtain new power sales agreements,
which has contributed to a reduction in prices offered by utilities. In
this regard, many utilities often engage in "competitive bid" solicitations
to satisfy new capacity demands. In the domestic market, the Energy Policy
Act of 1992 is expected to increase competition.
5. Present Dependence on Large Customer. The Company currently
relies on long-term power purchase "Standard Offer No. 4" contracts (each,
an "SO4 Agreement") with a single customer, Southern California Edison
Company ("Edison") to generate substantially all of its operating revenues.
Any material failure by Edison to fulfill its contractual obligations under
any of such contracts is likely to have a material adverse effect on the
Company's results of operations. Each of the Company's SO4 Agreements
provides for both capacity payments and energy payments for a term of
between 20 and 30 years. During the first ten years of the term of each
SO4 Agreement, energy payments are based on a pre-set schedule.
Thereafter, while the basis for the capacity payment remains the same, the
required energy payment is Edison's then-current published avoided cost of
energy ("Avoided Cost of Energy"), as determined by the California Public
Utility Commission ("CPUC").
Estimates of Edison's future Avoided Cost of Energy vary
substantially in any given year. The Company cannot predict the likely
level of Avoided Cost of Energy prices under its SO4 Agreements with Edison
at the expiration of the fixed-price periods. Edison's Avoided Cost of
Energy as determined by the CPUC is currently substantially below the
current energy prices under the Company's respective SO4 Agreements and is
currently expected to remain so. Thus, the revenues generated by each of
the Company's facilities operating under SO4 Agreements are likely to
decline significantly after the expiration of the fixed price period.
6. Impact of Environmental and other Regulations. The Company is
subject to a number of environmental and other laws and regulations
affecting many aspects of its present and future operations, including the
disposal of various forms of waste, the construction or permitting of new
facilities and the drilling and operation of new and existing wells. Such
laws and regulations generally require the Company to obtain and comply
with a wide variety of licenses, permits and other approvals. The Company
also remains subject to a number of complex and stringent laws and
regulations that both public officials and private individuals may seek to
enforce. There can be no assurance that existing regulations will not be
revised or that new regulations will not be adopted or become applicable to
the Company which could have an adverse impact on its operations. The
implementation of regulatory changes imposing more comprehensive or
stringent requirements on the Company, which would result in increased
compliance costs, could have a material adverse effect on the Company's
results of operations. In addition, regulatory compliance for the
construction of new facilities is a costly and time-consuming process, and
intricate and rapidly changing environmental regulations may require major
expenditures for permitting and create the risk of expensive delays or
material impairment of project value if projects cannot function as planned
due to changing regulatory requirements or local opposition.
7. Leverage. The Company is substantially leveraged. The
Company's substantial level of debt presents the risk that the Company
might not generate sufficient cash to service the Company's indebtedness or
that its leveraged capital structure could limit its ability to finance the
acquisition and development of additional projects, to compete effectively
or to operate successfully under adverse economic conditions.
8. Holding Company Structure. The Company is a holding company
which derives substantially all of its operating income from its
subsidiaries' and joint ventures' ownership interests in the projects owned
and operated by such entities. The Company expects that its future
development efforts will be similarly structured to involve operating
subsidiaries, joint ventures and partnerships. The Company must rely upon
dividends and other payments from its subsidiaries, partnerships and joint
ventures to generate the funds necessary to meet its obligations, including
the payment of principal, interest and premium, if any, on its debt
securities. Distributions from such entities are restricted under various
covenants and conditions contained in the financing documents by which they
are bound and pursuant to which the shares of stock or assets which are
owned by the Company in such entities is directly or indirectly pledged to
secure such financings. The availability of distributions from the
Company's projects are also subject to the satisfaction of various
covenants and conditions contained in the applicable project documents and
applicable shareholder, joint ventures, operating and partnership
agreements relating to certain projects. Furthermore, the Company is
currently structuring project documents and project financing arrangements
containing, and anticipates that future project level financings will
contain, certain conditions and similar restrictions on the distribution of
cash flow to the Company. Any right of the Company to receive any assets
of any of its subsidiaries or other affiliates upon any liquidation or
reorganization of the Company will be effectively subordinated to the
claims of any such subsidiary's or other affiliates' creditors (including
trade creditors and holders of debt issued by such subsidiary or other
affiliate).
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CalEnergy Company, Inc.
Dated: April 2, 1996 By: /s/ Steven A. McArthur
Steven A. McArthur
Senior Vice President
and General Counsel
