SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-368
OTTER TAIL POWER COMPANY
(Exact name of registrant as specified in its charter)
Minnesota 41-0462685
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
215 South Cascade Street, Box 496, Fergus Falls, Minnesota 56538-0496
(Address of principal executive offices) (Zip Code)
218-739-8200
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES X NO
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date:
August 1, 1994 - 11,180,136 Common Shares ($5 par value)
OTTER TAIL POWER COMPANY
INDEX
Part I. Financial Information Page No.
Item 1. Financial Statements
Consolidated Balance Sheets - June 30, 1994
and December 31, 1993 (Unaudited) 2 & 3
Consolidated Statements of Income - Three
and Six Months Ended June 30, 1994 and 1993 (Unaudited) 4
Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1994 and 1993 (Unaudited) 5
Notes to Consolidated Financial Statements
(Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7 & 8
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders 9
Item 6. Exhibits and Reports on Form 8-K 9
Signatures 10
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
OTTER TAIL POWER COMPANY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
-ASSETS-
June 30, December 31,
1994 1993
_______ ___________
(Thousands of Dollars)
PLANT:
<S> <C> <C>
Electric Plant in Service $685,214 $679,282
Other 35,991 34,626
________ ________
Total 721,205 713,908
Less Accumulated Depreciation and Amortization 280,564 270,385
________ _______
440,641 443,523
Construction Work in Progress 13,929 8,341
________ _______
Net Plant 454,570 451,864
________ _______
INVESTMENTS AND OTHER ASSETS: 43,068 43,853
________ _______
CURRENT ASSETS:
Cash and Cash Equivalents 1,529 3,808
Temporary Cash Investments 329 451
Accounts Receivable:
Trade - Net 24,817 19,531
Other 2,653 3,361
Materials and Supplies:
Fuel 3,754 3,667
Inventory, Materials and Operating Supplies 15,241 14,552
Deferred Income Taxes 4,300 4,482
Accrued Utility Revenues 3,146 4,368
Other 2,726 2,477
_______ _______
Total Current Assets 58,495 56,697
_______ _______
DEFERRED DEBITS:
Unamortized Debt Expense and Reacquisition Premiums 5,405 5,611
Other 5,559 5,880
_______ _______
Total Deferred Debits 10,964 11,491
_______ _______
TOTAL $567,097 $563,905
======== ========
See Accompanying Notes to Consolidated Financial Statements
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OTTER TAIL POWER COMPANY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
-LIABILITIES-
June 30, December 31,
1994 1993
_______ ________
(Thousands of Dollars)
CAPITALIZATION:
Common Shares, Par Value $5 Per Share - Authorized
25,000,000 Shares; Outstanding 1994 and 1993,
<S> <C> <C>
11,180,136 Shares $55,901 $55,901
Premium on Common Shares 30,335 30,336
Retained Earnings 87,948 84,209
_______ _______
Total 174,184 170,446
Cumulative Preferred Shares - Authorized 1,500,000
Shares Without Par Value; Outstanding 1994
and 1993, 388,311 Shares:
Subject to Mandatory Redemption 18,000 18,000
Other 20,831 20,831
Cumulative Preference Shares - Authorized 1,000,000
Shares Without Par Value; Outstanding - None -- --
Long-Term Debt 165,530 166,563
_______ _______
Total Capitalization 378,545 375,840
_______ _______
CURRENT LIABILITIES:
Short-Term Debt 800 --
Sinking Fund Requirements and Current Maturities 10,293 9,356
Accounts Payable 15,639 15,987
Federal and State Income Taxes Accrued 1,843 --
Other Taxes Accrued 8,458 11,187
Interest Accrued 3,489 3,522
Other 4,594 5,687
_______ _______
Total Current Liabilities 45,116 45,739
_______ _______
NONCURRENT LIABILITIES: 7,617 5,690
_______ _______
DEFERRED CREDITS:
Accumulated Deferred Income Taxes 93,477 92,940
Accumulated Deferred Investment Tax Credit 22,902 23,518
Regulatory Liability 16,151 16,046
Other 3,289 4,132
_______ _______
Total Deferred Credits 135,819 136,636
_______ _______
TOTAL $567,097 $563,905
======= =======
See Accompanying Notes to Consolidated Financial Statements
- 3 -
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OTTER TAIL POWER COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Six Months Ended
June 30 June 30
1994 1993 1994 1993
Restated Restated
____ ________ ____ ________
(Thousands of Dollars) (Thousands of Dollars)
OPERATING REVENUES
<S> <C> <C> <C> <C>
Electric $46,881 $45,848 $101,770 $99,665
Health Services 11,021 15,517 21,941 16,570
Diversified Operations 11,015 9,818 18,642 13,662
______ ______ _______ ______
Total Operating Revenues 68,917 71,183 142,353 129,897
OPERATING EXPENSES
Production Fuel 7,981 7,400 16,639 15,270
Purchased Power 7,404 7,565 14,117 15,293
Electric Operation Expenses 10,991 10,522 22,694 21,712
Electric Maintenance 3,920 3,987 6,957 6,747
Cost of Health Services Sold 7,799 10,255 15,222 10,255
Other Health Services Expenses 2,820 3,843 5,604 4,823
Diversified Cost of Goods Sold 6,561 6,463 11,364 8,431
Other Diversified Expenses 2,117 1,910 4,116 3,226
Depreciation and Amortization 5,314 5,060 10,547 9,838
Property Taxes 2,955 2,866 5,937 5,735
Income Taxes 2,788 2,874 8,542 7,872
______ ______ ______ ______
Total Operating Expenses 60,650 62,745 121,739 109,202
______ ______ _______ _______
OPERATING INCOME 8,267 8,438 20,614 20,695
Allowance For Equity (Other) Funds Used
During Construction 36 25 67 38
Other Income and Deductions
and Applicable Taxes 391 411 703 370
______ ______ ______ ______
INCOME BEFORE INTEREST CHARGES 8,694 8,874 21,384 21,103
Interest Charges 3,311 3,438 6,659 6,684
Allowance For Borrowed Funds Used
During Construction - Credit (14) (11) (28) (18)
______ ______ ______ ______
NET INCOME 5,397 5,447 14,753 14,437
Preferred Dividend Requirements 589 617 1,179 1,234
______ ______ ______ ______
EARNINGS AVAILABLE FOR COMMON SHARES $4,808 $4,830 $13,574 $13,203
====== ====== ======= =======
Earnings Per Average Common Share $0.43 $0.43 $1.21 $1.18
====== ====== ======= =======
Average Number of Common Shares Outstanding 11,180,136 11,180,136 11,180,136 11,180,136
Dividends Per Common Share $0.43 $0.42 $0.86 $0.84
See Accompanying Notes to Consolidated Financial Statements
-4-
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OTTER TAIL POWER COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
1994 1993
Restated
____ ________
Restated
(Thousands of Dollars)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net Income $14,753 $14,437
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization 12,603 11,313
Deferred Investment Tax Credit - Net (616) (614)
Deferred Income Taxes 1,187 1,620
Change in Deferred Debits and Other Assets 1,117 88
Change in Noncurrent Liabilities and Deferred Credits 785 4,980
Allowance for Equity (Other) Funds Used During
Construction (67) (38)
Loss on Disposal of Noncurrent Assets 68 243
Cash Provided by (Used for) Current Assets & Current Liabilities:
Change in Receivables, Materials and Supplies (5,004) (2,864)
Change in Other Current Assets 990 (2,824)
Change in Payables and Other Current Liabilities (4,034) (4,473)
Change in Interest and Income Taxes Payable 1,804 1,030
______ ______
Net Cash Provided by Operating Activities 23,586 22,898
CASH FLOWS FROM INVESTING ACTIVITIES:
Gross Capital Expenditures (16,169) (12,524)
Proceeds from Disposal of Noncurrent Assets 1,579
Purchase of Subsidiaries, Net of Cash Acquired (574) (3,964)
Change in Temporary Cash Investments 122 2,255
Change in Marketable Securities (618) (3,613)
_______ _______
Net Cash Used in Investing Activities (15,660) (17,846)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Issuance of Short-Term Debt 800 --
Proceeds from Issuance of Long-Term Debt 2,917 17,871
Payments for Retirement of Long-Term Debt (3,072) (13,662)
Payments for Debt Issuance Expenses (56) --
Dividends Paid (10,794) (10,625)
______ ______
Net Cash Used in Financing Activities (10,205) (6,416)
Net Change in Cash and Cash Equivalents (2,279) (1,364)
Cash and Cash Equivalents at Beginning of Year 3,808 8,369
______ ______
Cash and Cash Equivalents at June 30 $1,529 $7,005
====== ======
Supplemental Cash Flow Information
Cash Paid for Interest and Income Taxes:
Interest $6,458 $6,551
Income Taxes $6,630 $5,803
See Accompanying Notes to Consolidated Financial Statements
- 5 -
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OTTER TAIL POWER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The Company, in its opinion, has included all adjustments (including normal
recurring accruals) necessary for a fair presentation of the results of
operations for the periods. The financial statements for 1994 are subject to
adjustment at the end of the year when they will be audited by independent
accountants. The financial statements and notes thereto should be read in
conjunction with the financial statements and notes for the years ended
December 31, 1993, 1992 and 1991 included in the Company's 1993 Annual
Report to the Securities and Exchange Commission on Form 10-K.
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 112 - Employers' Accounting for
Postemployment Benefits and SFAS No. 115 - Accounting for Certain
Investments in Debt and Equity Securities. SFAS No. 112 establishes
standards of financial accounting and reporting for the estimated cost of
benefits provided by an employer to former or inactive employees after
employment but before retirement. SFAS No. 115 establishes standards of
financial accounting and reporting for investments in equity securities that
have readily determinable fair values and for all investments in debt
securities. The Company's marketable securities are classified as
available-for-sale and are included in Investments and Other Assets at the
fair value amount of $17,178,000. The cost basis of the investment is
$17,545,000 and the unrealized loss is $367,000. The adoption of SFAS No.
112 and SFAS No. 115 did not have a material impact on the Company's
financial statements.
On September 22, 1993, the North Dakota Public Service Commission entered an
Order approving an Agreement for Incentive Regulation for 1993. As part of
the Order, the Company is required to accrue the North Dakota portion of
unbilled revenue as of January 1, 1993, ($4.4 million) and to amortize it
over a 36-month period beginning in January 1993. The Company's financial
statements for the three and six-month periods ended June 30, 1993, have
been restated to reflect this change. The effects of the restatement are
considered immaterial.
Because of seasonal and other factors, the earnings for the three and six-
month periods ended June 30, 1994, should not be taken as an indication of
earnings for all or any part of the balance of the year.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Material Changes in Financial Position
Cash provided by operating activities of $23,586,000 as shown on the
Consolidated Statement of Cash Flows for the six months ended June 30, 1994,
together with Cash and Temporary Cash Investments on hand at December 31,
1993, allowed the Company to finance its construction program, pay
dividends, and invest in an additional nonutility business. At June 30,
1994, the Company had $17,178,000 in marketable securities included in
Investments and Other Assets which could be used to supplement cash needs.
The Company estimates that funds internally generated, combined with funds
on hand, will be sufficient to provide for all of its 1994-1998 electric
construction program expenditures (including allowance for funds used during
construction) and to meet all sinking fund payments for First Mortgage Bonds
in the next five years. Additional short or long-term financing could be
required in the period 1994-1998 in connection with the maturity of First
Mortgage Bonds and a Long-Term Lease Obligation ($21,000,000), in the event
the Company decides to refund or retire early any of its presently
outstanding debt or cumulative preferred shares, complete its common stock
repurchase program or for other corporate purposes.
The increase in Construction Work in Progress reflects new construction
related to electric utility operations, principally in production, general,
and distribution plant. The decrease in Cash and Cash Equivalents is
because the cash provided from operating activities was less than what was
used in investing and financing activities. The bulk of the increase in
Trade Accounts Receivable is due to increased seasonal subsidiary sales.
The decrease in Accrued Utility Revenue is due to normal changes in seasonal
demand for electricity.
The increase in the current liability for Federal and State Income Taxes
Accrued and decrease in Other Taxes Accrued were caused by the timing of tax
payments. Noncurrent Liabilities increased due primarily to an increase in
the accrual of postretirement benefits other than pensions costs. The
decrease in Other Deferred Credits is principally due to the amortizing of
the North Dakota unbilled revenue.
Material Changes in Results of Operations
The increase in Electric Operating Revenues was 2.3% and 2.1%, respectively
for the quarter and six months ended June 30, 1994, as compared to the same
periods in 1993. Revenues increased primarily due to an increase in retail
revenue (3.3% and 4.0%, respectively for the quarter and six months ended),
offset by a decrease in power pool sales (4.3% and 13.9%, respectively for
the quarter and six months ended). Retail revenue increased primarily due
to an increase in kwh sold. Most of the increase in retail revenue is due
to added load primarily in the commercial category. Power pool sales
decreased due to a reduction in kwh sold, offset by an increase in revenue
per kwh sold. The decrease in power pool kwh sales can be attributed to the
unusually high level of power pool sales in 1993.
The increase in Production Fuel for both the quarter and six months ended
June 30, 1994, as compared to the same periods in 1993, is primarily due to
an increase in generation which correlates to the increase in retail kwh
sales. The decrease in Purchased Power for the six months ended June 30,
1994, as compared to the six months ended June 30, 1993, is due to a 24.5%
decrease in kwh purchases for resale, which corresponds to the decrease in
power pool sales, offset by a 9.9% increase in cost per kwh. The cost per
kwh purchased increased because the lower cost plants in the power pool were
down for maintenance.
The decrease in Health Services Operating Revenues, Cost of Health Services
Sold, and Other Health Services Expenses for the quarter ended June 30,
1994, as compared to the quarter ended June 30, 1993, is primarily due to an
unusually large amount of equipment sales at one of the Health Services
subsidiaries in the second quarter of 1993. The increase in Health Services
Operating Revenues, Cost of Health Services Sold, and Other Health Services
Expenses for the six months ended June 30, 1994, as compared to the six
months ended June 30, 1993, is principally due to including the results of a
new Health Services subsidiary acquired by the Company toward the end of the
first quarter of 1993.
The increase in Diversified Operations Operating Revenues, Diversified Cost
of Goods Sold, and Other Diversified Expenses for the quarter ended
June 30, 1994, as compared to the quarter ended June 30, 1993, is primarily
due to the increase of existing product lines in the manufacturing
subsidiaries. The increase in Diversified Operations Operating Revenues,
Diversified Cost of Goods Sold, and Other Diversified Expenses in the first
six months of 1994, as compared to the same period in 1993, was primarily
caused by including six months of subsidiary operations in 1994, as compared
to only five months in 1993.
The majority of the increase in Depreciation and Amortization for the
quarter and six months ended June 30, 1994, as compared to the same periods
in 1993, is due to higher depreciation rates and more property placed in
service at the electric utility. The increase in Income Taxes for the six
months ended June 30, 1994, as compared to the same period in 1993, is
primarily due to higher taxable income, a SFAS 109 adjustment made in 1993,
and Federal tax law changes.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
The annual meeting of Shareholders of the Company was held on April 11,
1994, for the purpose of electing three nominees to the Board of
Directors with terms expiring in 1997, approving the appointment of
auditors, and amending the Company's Restated Articles of Incorporation
to increase the authorized common shares to 25,000,000 shares. Proxies
for the meeting were solicited pursuant to Section 14(a) of the
Securities Exchange Act of 1934, as amended, and there was no
solicitation in opposition to management's solicitations. All nominees
for directors as listed in the proxy statement were elected. The voting
results were as follows:
Shares Shares Voted
Election of Directors Voted For Withheld Authority
Thomas M. Brown 9,683,041 122,238
Maynard D. Helgaas 9,711,665 93,614
Robert N. Spolum 9,708,733 96,546
Shares Shares Shares
Approval of Auditors Voted For Voted Against Voted Abstain
Deloitte & Touche 9,519,877 71,917 213,485
Proposal to Increase 8,975,615 478,553 351,111
Common Shares
Item 6. Exhibits and Reports on Form 8-K.
a) Exhibits:
10 Purchased Power and Interconnection Agreement between the Company
and Potlatch Corporation dated June 8, 1994.
b) Report on Form 8-K.
No reports on Form 8-K were filed during the fiscal quarter ended June
30, 1994.
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.
OTTER TAIL POWER COMPANY
By: /s/A.E. Anderson
Andrew E. Anderson
Controller/Chief Accounting Officer
Authorized Officer
Dated: August 11, 1994
Exhibit Index
to
Quarterly Report
on Form 10-Q
For Quarter Ended June 30, 1994
Exhibit Number
10 Purchased Power and Interconnection Agreement between the
Company and Potlatch Corporation dated June 8, 1994.
Ex-10
PURCHASED POWER & INTERCONNECTION AGREEMENT
This Agreement is entered into as of the ______8th______________
day of _____June_______________, 1994____ by and between OTTER
TAIL POWER COMPANY, a corporation organized and existing under
the laws of the State of Minnesota ("Otter Tail") and POTLATCH
CORPORATION, a corporation organized and existing under the laws
of the State of Delaware ("Potlatch"), hereinafter sometimes
referred to collectively as "Parties" and individually as
"Party."
RECITALS
A. Potlatch owns and operates an oriented strand board mill
and a lumber mill located in Hubbard County, Minnesota (the
"Plants");
B. Potlatch has installed a wood waste disposal facility
("Facility") consisting in part of a 140,000 pound per hour wood
waste fired boiler and nominally rated 10 megawatt turbine
generator system.
C. Otter Tail, and Beltrami Electric Cooperative, a wholesale
customer of Minnkota Power Cooperative ("Minnkota"), are the
electric utilities providing retail electric power to the Plants,
and Potlatch wishes to remain a retail customer under a separate
service agreement.
D. Otter Tail and Minnkota have entered into a separate
agreement authorizing Otter Tail to act as Minnkota's agent in
completing an Agreement with Potlatch.
E. Potlatch will generate and wishes to sell, and Otter Tail
and Minnkota wish to purchase, electric power from the facility.
NOW THEREFORE, In consideration of the mutual covenants and
agreements hereinafter set forth, the Parties agree as follows:
1. Definitions.
Terms in this Agreement requiring definition are found in
Exhibit A or elsewhere in the Agreement. Capitalization of words
or phrases other than proper nouns indicates these words are
headings or defined terms.
2. Sale of Electric Power.
Potlatch agrees to sell and deliver, and Otter Tail and
Minnkota agree to purchase and accept delivery of, all of the
Energy and Capacity, each as hereinafter defined, of the Facility
in accordance with Paragraph 4 and in the approximate amounts
indicated below:
(A) Energy of 71,400,000 kilowatt-hours/year; and
(B) Capacity of 10,000 kilowatts
3. Term of Agreement.
This Agreement shall be binding upon execution and shall
remain in effect for two (2) years commencing at one minute after
midnight on June 8, 1994.
4. Purchase Price.
The price under which Otter Tail and Minnkota shall purchase
Capacity and Energy from Potlatch consists of two components:
(A) Capacity. For Capacity, Otter Tail and Minnkota shall pay
to Potlatch an aggregate amount each month equal to $8.20 per kW
for the first 200 kW and $6.95 per kW for the remainder of
Monthly Billing Capacity per month. The Station Service
Requirements of the Facility during maintenance and outage
periods will be measured by the metering for the oriented strand
board mill and will be included in the calculation of Monthly
Billing Capacity.
It is the intent of this Agreement that Otter Tail and
Minnkota shall pay for the Monthly Billing Capacity the rate
shown for primary service shown in Exhibit H, Retail Electric
Service Schedule for the Plants. If the retail demand charge
rate paid by Potlatch is changed during the period of this
Agreement, the rates paid by Otter Tail and Minnkota for the
Monthly Billing Capacity under this Agreement shall be changed in
the same manner.
(B) Energy. For Energy, Otter Tail and Minnkota shall pay to
Potlatch an aggregate amount equal to (i) 1.5515 cents per
kilowatt-hour, which includes compensation for Average System
Loss, for all kilowatt-hours up to the amount of retail
kilowatt-hours consumed by the Plants on a monthly basis, plus
(ii) 1.45 cents per kilowatt-hour for all kilowatt-hours
delivered to Otter Tail and Minnkota in excess of the amount
consumed by the Plants. The Station Service Requirements of the
Facility during maintenance and outage periods will be measured
by the metering for the oriented strand board mill and will be
included in the calculation of monthly retail kilowatt-hours.
5. Interconnection.
Potlatch has provided the facilities required to interconnect
the Facility to Otter Tail's system in order to assure proper
parallel operation thereof and to accommodate the delivery of
Energy and Capacity as required in Paragraphs 2 and 6.
6. Service Requirements.
In order to qualify for the purchase price in Paragraph 4,
Potlatch shall:
(A) Supply generating capability which can be credited to
Otter Tail and Minnkota in accordance with Section 5.2 (Use of
Generating Capability of Associate Participants or Other Electric
Suppliers) of the current Mid-Continent Area Power Pool
Engineering Handbook attached as Exhibit C; provided, however for
purposes of calculating the generating capability credited to
Otter Tail and Minnkota pursuant to Exhibit C, the supply of
electric power to the Plants shall be deemed to be a retail load
of Otter Tail and Minnkota and not part of the load of the
Facility.
(B) Be in compliance with Section 4 (System Design Standards)
of the current Mid-Continent Area Power Pool Engineering
Handbook, attached as Exhibit D, and allow Otter Tail and
Minnkota to satisfy obligations to the Mid-Continent Area Power
Pool under the same Section 4;
(C) Follow the procedures in Section J (MAPP Procedure for the
Uniform Rating of Generating Equipment) of the current
Mid-Continent Area Power Pool Engineering Handbook, attached as
Exhibit E, to determine the Facility rating;
(D) Provide Otter Tail with all necessary information and
performance data to satisfy reporting requirements of the
Mid-Continent Area Power Pool and any other regulatory agency
which Otter Tail and Minnkota are required to supply;
(E) Provide planned hourly generation scheduling to Otter
Tail's System Operations Center. Planned generation schedules
for any day shall be provided no later than noon of the previous
normal working day for Otter Tail personnel; provided, however
that failure to deliver as planned will not constitute a breach
of this Agreement; and
(F) Provide, at its own expense, an Otter Tail-approved
telemetered signal of its net Facility input into Otter Tail's
system to said System Operations Center.
7. Facility and Equipment Operation and Maintenance.
Potlatch shall operate and maintain the Facility and related
equipment according to those practices, methods, and procedures,
as changed from time to time, that are commonly used in prudent
electrical practice. Potlatch will also operate the Facility and
related equipment lawfully and with safety. Further, Potlatch
shall generate such Reactive Power as may be reasonably necessary
under Emergency or Abnormal Conditions to maintain voltage levels
as reasonably instructed by Otter Tail's system dispatcher or a
designated representative, so long as such emergency does not
prevent Potlatch from so doing. If Potlatch is unwilling to
provide such Reactive Power, Otter Tail may do so at Potlatch's
expense; provided that the provision of such Reactive Power by
Potlatch will not impose a hardship or danger of equipment damage
or failure to the Facility, and that the Facility is in operation
at the time such Reactive Power is needed. If Otter Tail
provides such Reactive Power, Potlatch shall pay to Otter Tail an
aggregate amount equal to the actual quantifiable cost to Otter
Tail to provide the Reactive Power, or in lieu of actual costs,
the cost of excess Reactive Power requirements as specified in
the retail rate, attached as Exhibit H, under which the Plants
receive electrical power. Potlatch shall generate such Energy as
may be reasonably necessary under Emergency or Abnormal
Conditions as reasonably directed by Otter Tail's system
dispatcher, so long as such emergency does not prevent Potlatch
from so doing. Potlatch must provide Otter Tail at least 30
days' prior notice, if practical, before scheduling Scheduled
Maintenance. Potlatch will coordinate Scheduled Maintenance with
Otter Tail's System Operations Department.
In the event the Facility experiences a major equipment
failure, Potlatch shall provide Otter Tail with sufficient
information to file Form L-1 Extended Accreditation Request,
attached as Exhibit F, to allow accreditation of the Facility's
Capacity Rating to continue even though the Facility is
unavailable due to the failure.
8. Reduction or Termination of Capacity Component.
It is intended that Potlatch operate the Facility with
dependability commensurate with typical baseload utility
generation resources. The monthly payment for Capacity shall be
subject to a Monthly Capacity Factor adjustment. The operational
goal for the Monthly Capacity Factor is 65%, excluding periods of
Scheduled Maintenance, Forced Outage, and Facility Modification.
The payment for capacity will be adjusted by the ratio of the
monthly Energy generated by the Facility, divided by the Capacity
Rating of the Facility multiplied by the Facility Availability
Hours, except that the ratio used for adjustment shall not exceed
1. Potlatch will provide Otter Tail with the number of hours the
Facility experienced due to Scheduled Maintenance, Forced Outage,
and Facility Modification.
In the event Capacity Rating of the Facility is no longer
credited to Otter Tail and Minnkota by the Mid-Continent Area
Power Pool, the Capacity component of the price in Paragraph 4
will no longer be in effect, unless the loss of credit of
Capacity Rating is due to negligence on the part of Otter Tail or
Minnkota.
9. System Compatibility.
The Facility output shall be at the voltage, frequency, and
phase relationship designated by Otter Tail, and at a power
factor as specified within the limits of the retail rate under
which the Plants are served, except when otherwise requested by
Otter Tail under Paragraph 6 or Paragraph 18. Otter Tail
reserves the right to disconnect the Facility from its system if
it causes Interference with the operation of Otter Tail's
equipment or that of its customers, or if it creates a hazard to
the integrity and reliability of Otter Tail's electrical system,
and Potlatch fails to eliminate the Interference. Otter Tail
shall notify Potlatch in writing of any Interference problems
created by the Facility. Potlatch shall have six weeks after
notification in which to correct any Interference problem caused
by the Facility; provided that the Interference does not create a
risk of equipment failure or cause disruption or interruption of
electrical power or the use of electrical power by Otter Tail or
its customers. The elimination or correction of an Interference
problem may occur after the six week period if Otter Tail and
Potlatch have reached agreement on a solution, and Otter Tail
agrees delaying the correction is acceptable.
10. Indemnity.
Each Party shall indemnify the other Party, its officers,
agents, and employees against all loss, damage, expense, and
liability to third persons for injury to or death of persons or
injury to property, proximately caused by the indemnifying
Party's construction, ownership, operation, or maintenance of, or
by failure of, any of such Party's works or facilities used in
connection with this Agreement. The indemnifying Party shall pay
all costs that may be incurred by the other Party in enforcing
this indemnity.
11. Land Rights.
Potlatch agrees to provide to Otter Tail, upon request, all
necessary rights of way, easements to install, operate, maintain,
replace, and remove Otter Tail's metering and other special
facilities, including adequate and continuing access rights on
property of Potlatch and Potlatch agrees to execute such
documents as Otter Tail may reasonably require to enable it to
record such rights of way and easements.
12. Facility and Equipment Design and Construction.
Potlatch agrees to change its Facility and associated
equipment as may be reasonably required by Otter Tail to maintain
compatibility with Otter Tail's facilities used to take delivery
of Capacity and Energy from Potlatch or to provide retail
electric power to Potlatch, provided that Otter Tail gives
Potlatch 30 days notice of any changes to Otter Tail's facilities
which may require Potlatch to make changes to its Facility and
associated equipment.
13. Deliveries.
Potlatch shall deliver the Energy or Energy and Capacity
designated in the Agreement, at the point where the Facility's
net kilowatt-hour output is metered by Otter Tail, located
between the generator and line circuit breakers, as indicated in
Exhibit B.
14. Meters.
All meters used to determine the billing hereunder shall be
sealed, and the seal shall be broken only upon occasions when the
meters are to be inspected, tested, or adjusted.
Otter Tail shall inspect and test all meters upon their
installation and at least once every two years thereafter. If
requested to do so by Potlatch, Otter Tail shall inspect or test
a meter more frequently than every two years, but the expense of
such inspection or test shall be paid by Potlatch, unless upon
being inspected or tested, the meter is found to register
inaccurately by more than 2% of full scale. Each party shall
give reasonable notice of the time when any inspection or test
shall take place to the other Party, and that Party may have
representatives present at the test or inspection.
If a meter fails to register, or if the measurement made by a
meter during a test varies by more than 2% from the measurement
made by the standard meter used in the test, adjustment shall be
made correcting all measurements made by the inaccurate meter
for:
(1) The actual period during which inaccurate measurements
were made, if the period can be determined, or if not
(2) The period immediately preceding the test of the meter
equal to one-half time from the date of the last previous test of
the meter; provided, that the period covered by the correction
shall not exceed six (6) months.
Each Party, after reasonable notice to the other Party, shall
have the right of access to all metering and related records.
15. Billing.
The retail meters serving the Plants shall be read by Otter
Tail as close to the 20th day of the month as possible. The
metering for the Facility will be read at the same time the
retail metering is read. Otter Tail shall provide meter reading
data to Potlatch by the fifth working day following the meter
reading date. The data will include peak metered demands and
energy usage for the Plants, and net Energy delivered to Otter
Tail and Minnkota by the Facility. Potlatch shall use the data
to compute charges for Energy or Energy and Capacity delivered to
Otter Tail and Minnkota. Potlatch shall then send a monthly
statement to Otter Tail which states the aggregate amount for all
Energy or Energy and Capacity charges. A sample procedure for
constructing the billing is attached as Exhibit G.
16. Payment.
Otter Tail shall make payment to Potlatch on or before the
fifteenth (15th) day after the billing statement is mailed to
Otter Tail.
17. Adjustments.
In the event adjustments to billing statements are required as
a result of corrective measurements made by inaccurate meters,
the Parties shall use the adjustments described in Paragraph 14
to recompute the amounts due from or to Otter Tail for the Energy
or Energy and Capacity delivered under this Agreement during the
period of inaccuracy. If the total amount, as recomputed, due
from a Party for the period of inaccuracy varies from the total
amount due as previously computed, and payment of the previously
computed amount has been made, the difference in the amounts
shall be paid to the Party entitled to it within 30 days after
the paying Party is notified of the recomputation.
18. Continuity of Service.
Otter Tail and Minnkota shall not be obligated to accept and
Potlatch shall not be obligated to deliver, and Otter Tail may
require Potlatch to and Potlatch may curtail, interrupt or reduce
deliveries of Energy or Energy and Capacity, in order to
construct, install, maintain, repair, replace, remove,
investigate, or inspect the Facility and related equipment or any
relevant part of Otter Tail's system, or if Otter Tail reasonably
determines that curtailment, interruption or reduction is
necessary because of emergencies, forced outages, operating
conditions on its system, or as otherwise required by prudent
electrical practices.
In the event of force majeure, as defined in Paragraph 19,
Potlatch shall not be obligated to deliver, and may curtail,
interrupt, or reduce deliveries of Energy to Otter Tail, and
Otter Tail shall not be obligated to accept and may require
Potlatch to curtail, interrupt, or reduce deliveries of Energy.
Except in case of emergency, the curtailing, interrupting, or
reducing Party shall give the other Party reasonable prior notice
of any curtailment, interruption, or reduction, the reason for
its occurrence, and its probable duration. Potlatch shall notify
Otter Tail promptly of any complete or partial Facility outage,
and the anticipated duration of the outage.
19. Force Majeure.
The term "force majeure" as used herein means unforeseeable
events beyond the reasonable control of and without the fault or
negligence of the Party claiming force majeure.
If either Party, because of force majeure, is rendered wholly
or partially unable to perform its obligations under this
Agreement, except for the obligation to make payments of money,
that Party shall be excused from whatever performance is affected
by the force majeure to the extent so affected provided that: (a)
the nonperforming Party gives the other Party oral notice as soon
as reasonably possible and written notice describing the
particulars of the occurrence within 48 hours after the
occurrence of the force majeure; (b) the suspension of
performance is of no greater scope and of no longer duration than
is required by the force majeure; and (c) the nonperforming Party
uses its best efforts to remedy its inability to perform. This
subparagraph shall not require the settlement of any strike,
walkout, lockout, or other labor dispute on terms which, in the
sole judgment of the Party involved in the dispute, are contrary
to its interest. It is understood and agreed that the settlement
of strikes, walkouts, or other labor disputes shall be entirely
within the discretion of the Party having the difficulty.
20. Liabilities.
Potlatch shall indemnify, defend and save harmless Otter Tail
from any liability, loss or expense arising from or growing out
of injury to persons, including death, or property damages for
persons other than the Parties, which may occur on the electric
system of Potlatch or in its Facility unless such loss is solely
due to the negligence of Otter Tail. Where such claim or loss is
caused by the concurrent negligence of Potlatch, its agents or
employees, and Otter Tail, its agents or employees, Potlatch
hereby agrees to indemnify, defend and save Otter Tail harmless
from all such claims or losses to the extent that such claim or
loss was caused by the negligence of Potlatch, its agents or
employees.
Otter Tail shall indemnify, defend and save harmless Potlatch
from any liability, loss or expense arising from or growing out
of injury to persons, including death, or property damages for
persons other than the Parties, which may occur on the electric
system of Otter Tail or in any of its facilities unless such loss
is solely due to the negligence of Potlatch. Where such claim or
loss is caused by the concurrent negligence of Otter Tail, its
agents or employees, and Potlatch, its agents or employees, Otter
Tail hereby agrees to indemnify, defend and save Potlatch
harmless from all such claims or losses to the extent that such
claim or loss was caused by the negligence of Otter Tail, its
agents or employees.
21. Several Obligations.
Except as where specifically stated in this Agreement to be
otherwise, the duties, obligations, and liabilities of the
Parties are intended to be several and not joint or collective.
Nothing contained in this Agreement shall ever be construed to
create an association, trust, partnership, or joint venture, or
impose a trust or partnership duty, obligation, or liability on
or with regard to either Party.
22. Waiver.
Any waiver at any time by either Party of its rights with
respect to a default under this Agreement, or with respect to any
other matters arising in connection with this Agreement, shall
not be deemed a waiver with respect to any subsequent default or
other matter.
23. Assignment.
Neither Party shall voluntarily assign its rights nor delegate
its duties under this Agreement or any such part of such rights
or duty, without the written consent of the other Party, except
in connection with the sale of the Plants by Potlatch or the
merger or sale of all or a substantial portion of either Party's
properties, and any such assignment or delegation made without
such written consent shall be null and void. Consent for
assignment shall not be withheld unreasonably. The sale of the
interconnection facilities described in this Agreement shall be
deemed to be a sale of a substantial portion of either Party's
properties for purposes of this Section 23.
24. Captions.
All indexes, titles, subject headings, section titles, and
similar items are provided for the purpose of reference and
convenience and are not intended to be inclusive, definitive, or
to affect the meaning of the contents or scope of this Agreement.
25. Choice of Laws.
This Agreement shall be construed and interpreted in
accordance with laws of the State of Minnesota, excluding any
choice-of-law rules which may direct the application of the laws
of another jurisdiction.
26. Governmental Jurisdiction and Authorization.
This Agreement is subject to the jurisdiction of those
governmental agencies having authority over either Party to this
Agreement, including the Federal Energy Regulatory Commission and
the Minnesota Public Utility Commission. This Agreement will
also be filed with the Rural Electrification Administration on
behalf of Minnkota. The Parties know of no other governmental
agencies having jurisdiction over this Agreement of the Parties
hereto. This Agreement shall not become effective until all
required governmental authorizations and permits are first
obtained and copies thereof are submitted to each Party; provided
that this Agreement shall not become effective unless it, and all
provisions thereof, is authorized and permitted by such
governmental agencies without material change or condition. The
Parties have obtained all required governmental authorizations
and permits and shared copies thereof with each other.
If, after this Agreement becomes effective, any governmental
agency having jurisdiction over this Agreement or either Party
requires any change in this Agreement or imposes any condition or
obligation on either Party, which either Party, in its sole and
absolute discretion, deems unreasonably burdensome, such Party
shall have six weeks following such change requirement in which
it may terminate this Agreement. Should this Agreement not be
terminated within the said six weeks, the change is deemed
acceptable.
27. Notices.
Any notice, demand, or request required or permitted to be
given by either Party to the other and any instrument required or
permitted to be tendered or delivered by either Party to the
other may be so given, tendered, or delivered as the case may be,
by depositing the same in any United States Post Office with
postage prepaid for transmission by certified or registered mail,
addressed to the Party, or personally delivered to the Party at
the address contained in this Agreement. Changes in such
designation may be made by notice similarly given.
Potlatch Corporation Otter Tail Power Company
Route #3 Box 455 215 South Cascade Street
Bemidji, MN 56601 Fergus Falls, MN 56537
Telephone: 218/751-1708 Telephone: 218/739-8269
Telecopy: 218/751-1709 Telecopy: 218/739-8218
28. Governance of Text over Exhibits in the Agreement.
Where there are differences between the text of this Agreement
and the exhibits attached hereto, the text shall govern.
IN WITNESS WHEREOF, The Parties hereto have caused this
Agreement to be executed by their duly authorized representatives
as of the last date hereinabove set forth.
POTLATCH CORPORATION OTTER TAIL POWER COMPANY
By:Kenneth W. Peterson By: John MacFarlane
Kenneth W. Peterson John MacFarlane
Vice President President & CEO
And:Ron S. Salisbury And: Ward Uggerud
Ron S. Salisbury Ward Uggerud
Plant Manager Vice President, Operations
EXHIBIT A
DEFINED TERMS
Agreement - This Electric Power Purchase and Interconnection
Agreement including all exhibits, attachments, and modifications
thereof.
Average System Loss - The average loss of electricity in the
transmission and distribution in the Otter Tail system, assumed
for purposes of this Agreement to be 7% of the total energy in
the system. The Average System Loss used in this Agreement is a
percentage increase applied to the rate paid for Energy produced
by the Facility up to the amount of electricity purchased by the
Plants from Otter Tail and Minnkota.
Billing Capacity - The lesser of the Monthly Billing Capacity
or the Capacity Rating.
Billing Period - The approximately one month (30 days) period
between meter readings, which are to take place about the
twentieth day of each month.
Capacity - A measure in kilowatts of the capability of the
Facility to produce Energy.
Capacity Rating - A measure of the electrical output
capability of the Facility, as defined by test according to
procedures of the Mid-Continent Area Power Pool (MAPP).
Emergency or Abnormal Conditions - A situation where the
normally configured electrical system used to serve Potlatch and
other retail customers has suffered a failure or is no longer
intact, and corrective procedures are required to prevent outages
of electrical service or damage to equipment of Potlatch or other
retail customers, or an emergency situation has been declared by
MAPP.
Energy - The electrical output of the Facility measured in
kilowatthours.
Facility Availability Hours - The number of hours during the
Billing Period the Facility was capable of operating. This is
calculated by subtracting the number of hours the Facility was in
Scheduled Maintenance, Forced Outage, and Facility Modification
from the total number of hours in the Billing Period.
Facility Modification - A major equipment addition,
conversion, or modification that is necessary for the Facility
and prevents the Facility from operating.
Forced Outage - A period in which the Facility is
non-operational due to mechanical failure, imminent mechanical
failure, or some other operational failure that prevents the
Facility from operating. Permit requirements and failure of the
underground or overhead electric distribution system are examples
of operational failures. Lack of fuel for the Facility would not
be considered a Forced Outage, unless such lack of fuel is the
result of force majeure. A Forced Outage period shall only last
as long as the time required to repair or correct the condition
causing the Forced Outage.
Interference - A condition that causes incorrect operation,
unsafe operation, or prevents operation of equipment owned by
Otter Tail or other utility customers, or causes the quality of
electricity being delivered by Otter Tail to other utility
customers to be in noncompliance with requirements of the
National Electric Safety Code or any governmental agency with
jurisdictional authority over Otter Tail. The normal period of
equipment adjustment typical with startup of new generating
facilities to finetune equipment settings shall not be considered
Interference; provided that it does not cause a safety hazard to
personnel or provide the potential for equipment damage, or cause
outages to customers of Otter Tail.
Monthly Billing Capacity - Monthly Billing Capacity is the sum
of the monthly Non-coincident Metered Demands of the Plants,
provided however the Monthly Billing Capacity shall not exceed
the Mid-Continent Area Power Pool (MAPP) Capacity Rating credited
to Otter Tail and Minnkota in accordance with Paragraph 6.
Monthly Capacity Factor - The ratio of the actual kilowatthour
output of the Facility compared to the maximum possible output of
the Facility during Facility Availability Hours. The value is
calculated by dividing the Billing Period Energy by the result of
multiplying the Capacity Rating by the Facility Availability
Hours.
Non-coincident Metered Demand - The maximum electrical metered
demand in kW during the Billing Period without consideration of
when the demand occurred during the Billing Period. The
Non-coincident Metered Demands of the Plants, served by two
separate metering systems, are used in the determination of the
Billing Capacity. The maximum metered demand registered by each
of the two metering systems for the Plants is added together,
even though the maximum demands are not likely to occur at the
same time.
Scheduled Maintenance - Periods when the Facility is
unavailable for operation due to periodic required maintenance of
the Facility and associated equipment that cannot be accomplished
with the Facility operating. Such periods are scheduled in
advance and are not caused by failure or imminent failure of
equipment or components of the Facility.
Reactive Power - Inductive or capacitive power measured in
kilovolt-amps-reactive. Such power does not do measurable work
such as kWh, but is necessary to control the voltage level of the
electrical system and for energizing electrical equipment such as
motors and transformers.
Station Service Requirements - Incremental electric power used
by the Facility for Facility service such as pumping, generator
excitation, cooling, and step-up transformation losses where
applicable.
EXHIBIT B
POINT OF DELIVERY
EXHIBIT C
SECTION 5 OF THE MID-CONTINENT AREA POWER POOL ENGINEERING
HANDBOOK
EXHIBIT D
SECTION 4 OF THE MID-CONTINENT AREA POWER POOL ENGINEERING
HANDBOOK
EXHIBIT E
EXHIBIT J OF THE MID-CONTINENT AREA POWER POOL ENGINEERING
HANDBOOK
EXHIBIT F
EXHIBIT L OF THE MID-CONTINENT AREA POWER POOL ENGINEERING
HANDBOOK
EXHIBIT G
PROCEDURE FOR DEVELOPING CAPACITY AND ENERGY BILLING
EXHIBIT H
RETAIL ELECTRIC SERVICE SCHEDULE FOR THE PLANTS
