<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to _____________
Commission File No. 33-7591
--------------------
Oglethorpe Power Corporation
(An Electric Membership Corporation)
(Exact name of registrant as specified in its charter)
Georgia 58-1211925
------------------------------ ------------------
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
Post Office Box 1349
2100 East Exchange Place
Tucker, Georgia 30085-1349
--------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (770) 270-7600
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 registrant's
classes of common stock, as of the latest practicable date. The Registrant is a
membership corporation and has no authorized or outstanding equity securities.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
OGLETHORPE POWER CORPORATION
INDEX TO QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets as of September 30, 1998 (Unaudited)
and December 31, 1997 3
Condensed Statements of Revenues and Expenses and
Comprehensive Margin (Unaudited) for the Three Months
and Nine Months Ended September 30, 1998 and 1997 5
Condensed Statements of Cash Flows (Unaudited)
for the Nine Months Ended September 30, 1998 and 1997 6
Notes to the Condensed Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Oglethorpe Power Corporation
Condensed Balance Sheets
September 30, 1998 and December 31, 1997
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
(dollars in thousands)
1998 1997
Assets (Unaudited)
-------------------------
<S> <C> <C>
Electric plant, at original cost:
In service $4,900,356 $4,910,067
Less: Accumulated provision for depreciation (1,496,228) (1,412,287)
---------- ----------
3,404,128 3,497,780
Nuclear fuel, at amortized cost 83,310 90,423
Construction work in progress 17,410 13,578
---------- ----------
3,504,848 3,601,781
---------- ----------
Investments and funds:
Decommissioning fund, at market 107,699 105,817
Deposit on Rocky Mountain transactions, at cost 54,845 52,176
Bond, reserve and construction funds, at market 32,934 33,160
Investment in associated organizations, at cost 15,597 15,940
Other, at cost 4,940 4,641
---------- ----------
216,015 211,734
---------- ----------
Current assets:
Cash and temporary cash investments, at cost 71,905 63,215
Other short-term investments, at market 103,586 97,022
Receivables 127,242 105,993
Inventories, at average cost 74,916 65,528
Prepayments and other current assets 20,501 12,530
---------- ----------
398,150 344,288
---------- ----------
Deferred charges:
Premium and loss on reacquired debt, being amortized 211,136 196,583
Deferred amortization of Scherer leasehold 98,657 96,303
Deferred debt expense, being amortized 16,842 15,345
Other 39,462 43,823
---------- ----------
366,097 352,054
---------- ----------
$4,485,110 $4,509,857
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
3
<PAGE>
Oglethorpe Power Corporation
Condensed Balance Sheets
September 30, 1998 and December 31, 1997
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
(dollars in thousands)
1998 1997
Equity and Liabilities (Unaudited)
-------------------------
<S> <C> <C>
Capitalization:
Patronage capital and membership fees (including unrealized
gain (loss) of $2,854 at September 30, 1998 and ($107) at
December 31, 1997 on available-for-sale securities) $342,775 $ 330,509
Long-term debt 3,183,280 3,258,046
Obligation under capital leases 283,958 288,638
Obligation under Rocky Mountain transactions 54,845 52,176
--------- ---------
3,864,858 3,929,369
--------- ---------
Current liabilities:
Long-term debt and capital leases due within one year 96,483 89,556
Notes payable 3,982 --
Accounts payable 69,785 51,103
Accrued interest 14,415 12,961
Accrued and withheld taxes 17,154 517
Other current liabilities 4,742 8,428
--------- ---------
206,561 162,565
--------- ---------
Deferred credits and other liabilities:
Gain on sale of plant, being amortized 58,900 60,756
Net benefit of Rocky Mountain transactions, being amortized 89,986 92,375
Net benefit of sale of income tax benefits, being amortized 28,032 34,039
Accumulated deferred income taxes 63,117 63,117
Decommissioning reserve 146,122 142,354
Other 27,534 25,282
--------- ---------
413,691 417,923
--------- ---------
$4,485,110 $4,509,857
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
4
<PAGE>
Oglethorpe Power Corporation
Condensed Statements of Revenues and Expenses and Comprehensive Margin
(Unaudited)
For the Three and Nine Months Ended September 30, 1998 and 1997
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands)
Three Months Ended September 30, Nine Months Ended September 30,
1998 1997 1998 1997
-------------------------------- -------------------------------
<S> <C> <C> <C> <C>
Operating revenues:
Sales to Members $ 331,361 $ 280,503 $ 860,317 $ 767,714
Sales to non-Members 14,414 6,076 37,451 33,226
--------- --------- --------- ---------
Total operating revenues 345,775 286,579 897,768 800,940
--------- --------- --------- ---------
Operating expenses:
Fuel 55,680 61,206 144,525 152,799
Production 49,996 43,418 145,413 134,490
Purchased power 153,202 95,038 337,907 215,350
Depreciation and amortization 31,074 30,154 93,273 96,534
Other operating expenses -- 10 -- 5,775
--------- --------- --------- ---------
Total operating expenses 289,952 229,826 721,118 604,948
--------- --------- --------- ---------
Operating margin 55,823 56,753 176,650 195,992
--------- --------- --------- ---------
Other income (expense):
Interest income 5,742 7,247 21,856 21,002
Amortization of net benefit of sale of income tax benefits 2,799 2,799 8,396 8,396
Allowance for equity funds used during construction 19 32 49 81
Other 786 457 1,699 4,025
--------- --------- --------- ---------
Total other income 9,346 10,535 32,000 33,504
--------- --------- --------- ---------
Interest charges:
Interest on long-term-debt and other obligations 65,256 68,488 199,797 216,294
Allowance for debt funds used during construction (173) (328) (452) (873)
--------- --------- --------- ---------
Net interest charges 65,083 68,160 199,345 215,421
--------- --------- --------- ---------
Net margin (loss) 86 (872) 9,305 14,075
Net change in unrealized gain on available-for sale securities 2,366 787 2,961 329
--------- --------- --------- ---------
Comprehensive margin $ 2,452 ($ 85) $ 12,266 $ 14,404
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
5
<PAGE>
Oglethorpe Power Corporation
Condensed Statements of Cash Flows (Unaudited)
For the Nine Months Ended September 30, 1998 and 1997
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
(dollars in thousands)
1998 1997
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net margin $ 9,305 $ 14,075
--------- ---------
Adjustments to reconcile net margin to net cash provided by operating
activities:
Depreciation and amortization 136,151 139,190
Net benefit of Rocky Mountain transactions -- 22,470
Deferred gain from Corporate Restructuring -- 4,670
Allowance for equity funds used during construction (49) (81)
Amortization of deferred gains (1,856) (1,823)
Amortization of net benefit of sale of income tax benefits (8,396) (8,396)
Other 9,991 3,268
Change in net current assets, excluding long-term debt and capital leases due
within one year and notes payable:
Receivables (21,249) (4,290)
Inventories (9,388) 9,972
Prepayments and other current assets (7,971) (8,176)
Accounts payable 18,682 11,403
Accrued interest 1,454 (2,251)
Accrued and withheld taxes 16,637 14,860
Other current liabilities (3,686) 1,683
--------- ---------
Total adjustments 130,320 182,499
--------- ---------
Net cash provided by operating activities 139,625 196,574
--------- ---------
Cash flows from investing activities:
Property additions (25,779) (49,942)
Net proceeds from bond, reserve and construction funds 1,143 21,616
Decrease (increase) in investment in associated organizations 343 (28)
Increase in other short-term investments (4,520) (4,306)
Increase in decommissioning fund (8,988) (7,709)
Net cash received in Corporate Restructuring -- 23,495
--------- ---------
Net cash used in investing activities (37,801) (16,874)
--------- ---------
Cash flows from financing activities:
Long-term debt proceeds, net (5,556) 100,404
Long-term debt payments (68,931) (302,617)
Premium paid on refinancing of debt (24,041) --
Increase in notes payable 3,982 --
Retirement of patronage capital -- (48,863)
Other 1,412 (1,426)
--------- ---------
Net cash used in financing activities (93,134) (252,502)
--------- ---------
Net increase (decrease) in cash and temporary cash investments 8,690 (72,802)
Cash and temporary cash investments at beginning of period 63,215 132,783
--------- ---------
Cash and temporary cash investments at end of period $ 71,905 $ 59,981
--------- ---------
--------- ---------
Cash paid for:
Interest (net of amounts capitalized) $ 177,396 $ 202,400
Income taxes -- 830
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
6
<PAGE>
Oglethorpe Power Corporation
Notes to Condensed Financial Statements
September 30, 1998 and 1997
(A) The condensed financial statements included herein have been
prepared by Oglethorpe Power Corporation (Oglethorpe), without audit,
pursuant to the rules and regulations of the Securities and Exchange
Commission (SEC). In the opinion of management, the information
furnished herein reflects all adjustments (which include only normal
recurring adjustments) and estimates necessary to present fairly, in all
material respects, the results for the periods ended September 30, 1998
and 1997. Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such
SEC rules and regulations, although Oglethorpe believes that the
disclosures are adequate to make the information presented not
misleading. It is suggested that these condensed financial statements be
read in conjunction with the financial statements and the notes thereto
included in Oglethorpe's latest Annual Report on Form 10-K, as filed
with the SEC. Certain amounts for 1997 have been reclassified to conform
with the current period presentation.
(B) In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities." The standard requires
that all derivative instruments be recognized as assets or liabilities
and be measured at fair value. Oglethorpe is required to adopt SFAS No.
133 by January 1, 2000. Oglethorpe is currently assessing the impact
that adoption of SFAS No. 133 will have on results of operations and
financial condition and is undecided as to the date the standard will be
adopted.
(C) As discussed in Notes 1 and 2 of Notes to Financial Statements included
in Oglethorpe's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997, Oglethorpe entered into long-term lease transactions
for its 74.6% undivided ownership interest in the Rocky Mountain Pumped
Storage Hydroelectric Project (Rocky Mountain). Under the terms of these
transactions, Oglethorpe leased the facility to three institutional
investors for the useful life of the facility, who in turn leased it
back to Oglethorpe for a term of 30 years, through a wholly owned
subsidiary of Oglethorpe, Rocky Mountain Leasing Corporation. The assets
of Rocky Mountain Leasing Corporation are not available to pay creditors
of Oglethorpe or its affiliates.
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
General
LEM Power Marketer Arrangements
As previously reported, Oglethorpe entered into long-term power marketer
arrangements effective January 1, 1997 for approximately 50% of the load
requirements of its 39 retail electric distribution cooperative members (the
Members) with LG&E Energy Marketing Inc. (LEM), an indirect, wholly owned
subsidiary of LG&E Power Inc., a Delaware corporation (LPI), and of LG&E Energy
Corp. (LG&E), which is a diversified energy services company headquartered in
Louisville, Kentucky. In July 1998, LG&E announced that it was discontinuing its
merchant energy trading and sales business and associated gas gathering and
processing business and, as a result, recorded an after-tax loss on discontinued
operations of $225 million in the second quarter of 1998. LG&E stated that the
loss on discontinued operations results primarily from several fixed-price
energy marketing agreements, including the agreements between LEM and
Oglethorpe.
Oglethorpe has two agreements with LEM. One involves the load requirements of 37
of the 39 Members and has a term extending through 2011, with Oglethorpe and LEM
having the right to terminate the agreement beginning in 2002 and 2005,
respectively. The other agreement involves the load requirements of the other
two Members and has a term extending through 1999. Under the agreements, LEM is
obligated to deliver, and Oglethorpe is obligated to take, approximately 50% of
the load requirements of the participating Members. LEM has access to 50% of the
output of Oglethorpe's existing generating facilities and power purchase
arrangements for its use.
At the request of LEM, the parties have discussed the future of these
arrangements. LEM also has initiated the contractually defined binding
arbitration process as to certain load projections provided by Oglethorpe to LEM
in connection with the execution of the larger of the two agreements. Oglethorpe
continues to receive power under the LEM agreements and believes the agreements
are enforceable against LEM and LG&E (with respect to the agreement relating to
the 37 Members) and LPI (with respect to the agreement relating to the other two
Members). Even so, given LG&E's announced intention to discontinue its merchant
energy trading and sales business, instead of performing itself, LEM could, with
consent of Oglethorpe and the Rural Utilities Service, make alternative
arrangements, including assigning performance to an acceptable third party, or
otherwise make Oglethorpe whole from any damages incurred as a result of
termination. Oglethorpe believes that LEM, LG&E and LPI have the ability,
financial and otherwise, to perform their obligations under these agreements.
The current uncertainty relating to the LEM arrangements does not adversely
affect Oglethorpe's ability to meet its Members' load requirements but could, in
the future, affect the sources and prices for such power. If LEM, LG&E and LPI
were to cease to perform their obligations under the LEM agreements or the LEM
agreements were to be terminated, Oglethorpe expects to be able to serve its
Members' needs through its existing owned and purchased capacity, supplemented
by additional capacity either purchased in the wholesale market, constructed or
otherwise acquired. Termination of
8
<PAGE>
the LEM agreements would however eliminate a source of power at contractually
fixed prices and thus would introduce additional uncertainty regarding future
power costs and Member rates. Oglethorpe's management does not expect the
ultimate resolution of the LEM arrangements will have a material adverse effect
on its financial condition or results of operations.
Peaking Power Resources
As previously reported, Oglethorpe has forecasted the need for additional
capacity to meet the peaking requirements of its Members. Recently, Oglethorpe
has signed options to buy additional peaking power and has also arranged for the
construction of a 220-megawatt, natural gas-fired combustion turbine (Smarr CT)
to be located in Smarr, Georgia. The Smarr CT is being constructed by Siemens
Power Corporation and is expected to be operational for the summer of 1999. The
Smarr CT will be owned by a new entity, Smarr EMC, which will be owned by 36 of
the 39 Members of Oglethorpe. Oglethorpe expects to sign additional contracts
for peaking power and may also contract for or otherwise acquire additional
capacity.
Sale of EnerVision, Inc.
As discussed in Oglethorpe's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997, in connection with the Corporate Restructuring,
Oglethorpe created a wholly owned subsidiary, EnerVision, Inc., Tailored Energy
Solutions (EnerVision), to which it transferred its marketing services business.
On October 15, 1998, the senior associates of EnerVision purchased the company
from Oglethorpe. EnerVision plans to continue to serve the Georgia electric
cooperatives and also plans to expand its services to clients nationwide. The
sale of EnerVision did not have a material effect on Oglethorpe's financial
condition or results of operations.
Results of Operations
For the Three Months and Nine Months Ended September 30, 1998 and 1997
As reported in its 1997 Annual Report on Form 10-K, Oglethorpe and the Members
completed a corporate restructuring (the Corporate Restructuring) on March 11,
1997, in which Oglethorpe was divided into three specialized operating
companies. Oglethorpe now operates the power supply business, Georgia
Transmission Corporation (GTC) operates the transmission business and Georgia
System Operations Corporation (GSOC) operates the system operations business.
The Condensed Statement of Revenues and Expenses and Comprehensive Margin for
the three months and nine months ended September 30, 1998 reflects Oglethorpe's
operations solely as a power supply company, whereas the Condensed Statement of
Revenues and Expenses and Comprehensive Margin for the nine months ended
September 30, 1997 reflects Oglethorpe's operations as a combined power supply,
transmission and system operations company through March 31, 1997, and
operations solely as a power supply company thereafter. Although the Corporate
Restructuring was completed on March 11, 1997, pursuant to the restructuring
agreement among Oglethorpe, GTC and GSOC, all transmission-related and systems
operations-related revenues were assigned to Oglethorpe, and all
transmission-related and systems operations-related costs were paid or
reimbursed by Oglethorpe during the period March 11, 1997 through March 31,
1997. Decreases
9
<PAGE>
in depreciation and amortization, other operating expenses, operating margin,
net interest charges and net margin from 1997 to 1998 are primarily attributable
to the Corporate Restructuring.
See Oglethorpe's Annual Report on Form 10-K for the fiscal year ended December
31, 1997 for a pro forma presentation of the Statement of Revenues and Expenses
for the year ended December 31, 1997, reflecting the exclusion of the
transmission and system operations businesses, as though the Corporate
Restructuring had occurred at the beginning of 1997 (Note 11 of Notes to
Financial Statements).
Operating Revenues
Revenues from sales to Members for the three months and nine months ended
September 30, 1998 were 18.1% and 12.1% higher compared to the same periods of
1997. While capacity revenues from Members for the nine months ended September
30, 1998 compared to the same period of 1997 were reduced due to the removal of
capacity revenues relating to the transmission business, this effect was more
than offset by a significant increase in energy revenues from sales to Members.
Such energy revenues were 38.2% higher for the three months ended September 30,
1998 compared to the same period of 1997 and 44.3% higher for the nine-month
period compared to 1997. Megawatt-hour (MWh) sales to the Members were 13.9% and
16.3% higher in the current three-month and nine-month periods compared to the
same periods of 1997 due to prolonged hot weather during the summer months of
1998. Oglethorpe's average energy revenue per MWh from sales to Members for the
three-month and nine-month periods were 21.4% and 24.1% higher in 1998 compared
to 1997. This increase resulted primarily from higher purchased power costs as
discussed below under "Operating Expenses".
Sales to non-Members were primarily from energy sales to other utilities and
power marketers, and, in 1997, pursuant to contractual arrangements with Georgia
Power Company (GPC). The following table summarizes the amounts of non-Member
revenues from these sources for the three months and nine months ended September
30, 1998 and 1997:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
------------------ ------------------
1998 1997 1998 1997
---- ---- ---- ----
(dollars in thousands)
<S> <C> <C> <C> <C>
Sales to other utilities $ 9,212 $ 5,021 $22,626 $14,691
Sales to power marketers 5,202 772 14,825 3,508
GPC-Power supply arrangements 0 283 0 12,847
ITS transmission agreements 0 0 0 2,180
------- ------- ------- -------
Total $14,414 $ 6,076 $37,451 $33,226
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
Sales to other utilities represent sales made directly by Oglethorpe. Oglethorpe
sells for its own account any energy in excess of the portion of its resources
dedicated to Morgan Stanley Capital Group Inc. (Morgan Stanley) that is not
scheduled by Morgan Stanley pursuant to its power marketer arrangement. Sales to
other utilities were higher for the three-month and nine-month periods of 1998
10
<PAGE>
compared to 1997 partly due to capacity revenues received under an agreement
entered into with Alabama Electric Cooperative to sell 100 MW of capacity for
the period June 1998 through December 2005 and partly due to higher energy
prices experienced in the wholesale electricity markets during the summer months
of 1998.
Under the LEM and Morgan Stanley power marketer arrangements, sales to the power
marketers represented the net energy transmitted on behalf of LEM and Morgan
Stanley off-system on a daily basis from Oglethorpe's total resources. Such
energy was sold to LEM and Morgan Stanley at Oglethorpe's cost, with certain
limited adjustments set forth in the arrangements. The volume of sales to power
marketers depends primarily on the power marketers' decisions for servicing
their load requirements.
The revenues from power supply arrangements with GPC were derived in 1997 from
energy sales arising from dispatch situations whereby GPC caused Plant Wansley
to be operated when Oglethorpe's system did not require all of its contractual
entitlement to the generation. These revenues compensated Oglethorpe for its
costs because, under the operating agreement (before it was amended), Oglethorpe
was responsible for its share of fuel costs any time a unit operated. With the
commencement of the separate dispatch of Plant Wansley as of May 1, 1997, this
type of sale to GPC ended.
Another source of non-Member revenues in 1997 was payments received from GPC for
use of the Integrated Transmission System (ITS) and related transmission
interfaces. GPC compensated Oglethorpe to the extent that Oglethorpe's
percentage of investment in the ITS exceeded its percentage use of the system.
In such case, Oglethorpe was entitled to income as compensation for the use of
its investment by the other ITS participants. As a result of the Corporate
Restructuring, all of the revenues in this category have been GTC's revenues
since April 1, 1997.
Operating Expenses
Operating expenses were 26.2% and 19.2% higher in the three months and nine
months ended September 30, 1998 compared to the same periods of 1997. For the
nine months ended September 30, 1998 depreciation and amortization and other
operating expenses were lower due to the elimination of these expenses relating
to the transmission business assumed by GTC in connection with the Corporate
Restructuring. However, the changes in fuel, production and purchased power
expenses did not result from the Corporate Restructuring.
Production expenses were 15.2% higher for the third quarter 1998 compared to the
same period of 1997. This increase primarily resulted from higher operations and
maintenance costs at the various generation facilities.
Purchased power costs for the three months and nine months ended September 30,
1998 were 61.2% and 56.9% higher compared to the same periods of 1997. Purchased
power capacity costs for the three months and nine months ended September 30,
1998 were 12.3% and 12.5% lower than the same periods of 1997. These savings
were primarily as a result of the elimination, effective September 1, 1997,
of a 250-megawatt component block under the Block Power Sale Agreement
between Oglethorpe and GPC. Effective September 1, 1998, Oglethorpe
eliminated another 250-megawatt
11
<PAGE>
component block. Purchased power energy costs for the three-month and nine-month
periods of 1998 were 103.4% and 121.4% higher compared to the same periods of
1997 primarily as a result of significant price increases experienced in the
wholesale electricity markets combined with higher volume of purchased MWhs. A
total of 27.2% and 44.1% more MWhs were purchased in three-month and nine-month
periods of 1998 compared to the same periods of 1997 due to prolonged hot
weather during the summer months of 1998. The average cost of purchased power
energy per MWh for the three-month and nine-month periods were 59.9% and 53.7%
higher in 1998 compared to 1997. The higher volumes of purchased MWhs utilized
to serve Member load that was not contractually provided by the power marketers
resulted in a significant increase in the average MWh cost of energy to the
Members.
Other operating expenses for 1997 reflect expenses for the power delivery
portion of the business which was subsequently transferred to GTC in connection
with the Corporate Restructuring.
Other Income
Total other income for the nine months ended September 30, 1998 varied slightly
compared to the same periods of 1997. For the nine months ended September 30,
1997, the caption "Other" reflected a margin of approximately $1.3 million
related to Oglethorpe's marketing services business which was subsequently
transferred to EnerVision. As discussed in "General--Sale of EnerVision, Inc."
above, EnerVision was purchased from Oglethorpe by its senior associates on
October 15, 1998. For the nine months ended September 30, 1998, the caption
"Other" includes no net margin or loss from the results of operations and sale
of EnerVision.
Interest Charges
Net interest charges for the nine months ended September 30, 1998 decreased
compared to the same period of 1997 primarily due to the debt assumed by GTC in
connection with the Corporate Restructuring.
Net Margin and Comprehensive Margin
Oglethorpe's net margin (loss) for the three months and nine months ended
September 30, 1998 was $86,000 and $9.3 million, respectively, compared to
$(872,000) and $14.1 million for the same periods of 1997. Since Oglethorpe's
margin requirement is based on a ratio applied to interest charges, the
reduction in interest charges resulting from the Corporate Restructuring also
reduced Oglethorpe's margin requirement effective April 1, 1997. Such margin
earned by Oglethorpe from the transmission and system operations functions
during the first three months of 1997 was $2.3 million. The net loss for the
third quarter of 1997 was the result of a capacity charge adjustment in August
1997 to return $4 million of year-to-date margins in excess of the Indenture
requirements. The net margin achieved for the nine months ended September 30,
1998 is consistent with the 1998 margin requirement. The margin requirement for
1998 is approximately $1 million lower than budgeted due to lower interest
charges resulting from the refinancing of $430 million of Federal Financing Bank
(FFB) debt.
Comprehensive margin is now reported on the Condensed Statement of Revenues and
Expenses, consistent with Statement No. 130, "Reporting Comprehensive Income",
issued by the Financial
12
<PAGE>
Accounting Standards Board. This Statement requires the reporting of all
components of changes in equity on the Statement of Revenues and Expenses. For
Oglethorpe, the only additional item being reported is the net change in
unrealized gains on investments in available-for-sale securities.
Financial Condition
Total assets and total equity plus liabilities as of September 30, 1998 were
$4.5 billion which was $25 million less than the total at December 31, 1997 due
primarily to depreciation of electric plant.
Assets
Property additions for the nine months ended September 30, 1998 totaled $25.8
million primarily for purchases of nuclear fuel and for additions, replacements
and improvements to existing generation facilities.
The increase in cash is a result of cash provided from operations exceeding
financing and investing uses, including property additions noted above and debt
service activities of which $23.1 million in premiums were paid to the FFB in
conjunction with the refinancing of $430 million of debt.
The increase in receivables resulted from significantly higher energy costs
billed to Members at September 30, 1998 compared to the receivable balance from
the Members at December 31, 1997.
Inventories increased primarily as a result of the coal inventories for Plants
Scherer and Wansley returning to more normal levels at September 30, 1998
compared to lower 1997 year-end levels caused by problems associated with rail
transportation.
Prepayments and other current assets increased primarily due to a $5.8 million
increase in estimated payments to GPC for Plant Hatch operations and maintenance
costs for October 1998 compared to the estimate paid for January 1998. The
increase related to a planned refueling outage and costs to increase the actual
and licensed thermal output of Hatch Units No. 1 and No. 2.
The increase in premium and loss on reacquired debt resulted from the
above-mentioned refinancing premiums paid to FFB.
Equity and Liabilities
Notes payable represent commercial paper issued by Oglethorpe as interim
financing for costs incurred in construction of the Smarr CT. Although
Oglethorpe is providing interim financing, the facility will be owned by Smarr
EMC. Oglethorpe will be reimbursed by Smarr EMC for all construction costs
incurred prior to transfer of ownership, and, accordingly, has recorded all
expenditures as a receivable from Smarr EMC. For further discussion of this
generation facility see "General--Peaking Power Resources" above.
Accounts payable increased due to the volume of purchased power activity in
September 1998 compared to December 1997.
13
<PAGE>
Accrued and withheld taxes increased as a result of the normal monthly accruals
of property taxes, which are generally paid in the fourth quarter of the year.
The decrease in other current liabilities primarily resulted from $2.3 million
improvement in negative book cash balances at September 30, 1998 compared to
1997 year-end.
Miscellaneous
Year 2000 Issue
Background
The Year 2000 issue, which is common to most corporations, concerns the ability
of certain software and databases to properly recognize date sensitive
information related to the Year 2000 and thereafter. Oglethorpe is heavily
dependent upon complex computer systems for all phases of power supply
operations. Oglethorpe's operations include both information technology (IT)
systems, such as billing systems, financial accounting systems, and human
resource/payroll systems, as well as non-IT systems, such as those relating to
operations of the Rocky Mountain Pumped Storage Hydroelectric Facility (Rocky
Mountain), generation substations and Oglethorpe's headquarters facilities that
may have embedded microprocessors. Management recognizes the seriousness of the
Year 2000 issue and believes it has dedicated adequate resources to address the
issue. As part of its business alliance with Oglethorpe, Intellisource Services
Solutions is providing administration of Oglethorpe's Year 2000 program.
Oglethorpe's Board of Directors and its audit committee are monitoring this
issue through periodic updates from project management.
Project Phases
Oglethorpe has developed and is implementing a detailed strategy to prevent any
material disruption to operations.
Phase I began in April 1997 and included an inventory and assessment of
potential Year 2000 issues. Substantially all IT and non-IT systems were
assessed during this phase which concluded in the fall of 1997.
Phase II began in the fall of 1997 and includes remediation and testing of all
inventoried IT and non-IT systems. Remediation and testing efforts for all
inventoried internally developed systems applications are expected to be
completed by December 31, 1998. Externally purchased systems, including
financial accounting systems, procurement and materials management systems and
human resource/payroll systems are currently being evaluated for possible
upgrade or replacement in 1999. Remediation and testing efforts for systems at
Rocky Mountain are expected to be completed by March 31, 1999.
Phase III began recently and includes contingency planning and an assessment of
Year 2000 readiness of material third parties, including Oglethorpe's Members,
GTC, GSOC, GPC, power marketers and vendors. This phase will be on-going
throughout 1998 and 1999.
14
<PAGE>
Relationships with Third Parties
GTC and GSOC have also implemented a detailed strategy to ensure Year 2000
compliance of the systems utilized in their transmission and systems control
operations. The Year 2000 compliance plans for Oglethorpe, GTC and GSOC were
jointly developed and are being implemented on the same schedule, as described
above.
Oglethorpe is in the process of gathering information from the Members regarding
their Year 2000 readiness. Based on this information, Oglethorpe will implement
a follow-up program to monitor the Members' Year 2000 compliance and will
further assess any impact on Oglethorpe's risks and contingency planning. During
1998, Georgia Electric Membership Corporation (the Members' trade association)
and Intellisource Services Solutions have conducted workshops for the Members
and have assisted some Members in their Year 2000 planning by providing
information for their use in this process.
All of Oglethorpe's co-owned generating plants, except Rocky Mountain, are
operated by GPC on behalf of itself as a co-owner and as agent for the other
co-owners. The Southern Company (Southern) is performing Year 2000 remediation
and testing on all generation plants which are operated by Southern's
subsidiary, GPC. Southern estimates that total costs related to its project on
behalf of the GPC-operated plants will be approximately $38 million, of which
approximately $4.5 million is expected to be billed to Oglethorpe based on its
ownership share of these generation plants. To date, Oglethorpe has paid
approximately $1.5 million for this project. Remaining costs will be expensed
primarily in 1998 and 1999. Southern reports that its Year 2000 program for the
Georgia-based generating plants is scheduled to be completed by June 1999.
Southern is subject to the informational requirements of the Securities Exchange
Act of 1934, as amended, and, in accordance therewith, files reports and other
information with the Securities and Exchange Commission.
During Phase III of its program, Oglethorpe plans to assess the Year 2000
readiness of other significant third parties, including power marketers, other
utilities and vendors of materials and services. This information will allow
Oglethorpe to perform contingency planning, including assessing the need to
identify alternative vendors.
Project Costs
In addition to the $4.5 million expected to be paid to GPC, Oglethorpe currently
estimates costs of approximately $665,000 to upgrade its internal systems,
including those relating to Rocky Mountain. To date, Oglethorpe has spent
approximately $350,000 of the estimated $665,000 on this effort. In addition,
Oglethorpe will likely replace its current procurement and financial systems
during 1999 to improve functionality and to avoid Year 2000 remediation efforts
on those existing systems. The estimated cost of replacing these two systems is
approximately $3.2 million. Oglethorpe's policy is to expense as incurred the
maintenance and modification costs of existing software, including those
associated with the Year 2000 project, and to capitalize and amortize over its
useful life the cost of new software.
15
<PAGE>
Risk Assessment
Oglethorpe has implemented a detailed process to minimize the possibility of
power supply interruptions related to Year 2000 challenges and expects its IT
and non-IT systems to be in compliance by December 31, 1999. The most reasonably
likely worst case scenario could involve service interruptions to Oglethorpe's
Members and the Members' retail consumers. These scenarios include the loss of a
generating unit or a source of purchased power, or a disruption in transmission
and distribution services by GTC or the Members. Because Oglethorpe is taking
prudent steps to prepare for the Year 2000 challenges, it expects any
interruptions in power supply to be isolated and short in duration. However,
because of material relationships with third parties, it is too early to fully
assess the possibility of service interruptions to the ultimate retail
consumers.
There is also risk to the Members of billing and other business system failures
and of some reduction in net margin caused by interruptions in service and
reduced electrical demand by consumers because of their Year 2000 issues.
Oglethorpe has not fully assessed the impact of these risks on its financial
condition or results of operations.
Contingency Planning
Oglethorpe recently began developing contingency plans for its IT and non-IT
systems. This contingency planning process will also focus on non-compliance by
material third parties with the goal of keeping any service interruptions to a
minimum and of short duration.
Forward-Looking Statements and Associated Risks
This Quarterly Report on Form 10-Q contains forward-looking statements,
including statements regarding, among other things, (i) anticipated trends in
Oglethorpe's business, (ii) Oglethorpe's future power supply resources and
arrangements and (iii) other management issues such as the Year 2000 issue.
These forward-looking statements are based largely on Oglethorpe's current
expectations and are subject to a number of risks and uncertainties, certain of
which are beyond Oglethorpe's control. For certain factors that could cause
actual results to differ materially from those anticipated by these
forward-looking statements, see Oglethorpe's 1997 Annual Report on Form 10-K in
"CERTAIN FACTORS AFFECTING THE ELECTRIC UTILITY INDUSTRY" in Item 1 and
"Competition" in Item 7. In light of these risks and uncertainties, there can be
no assurance that events anticipated by the forward-looking statements contained
in this Quarterly Report will in fact transpire.
16
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Number Description
------ -----------
27.1 Financial Data Schedule (for SEC use only).
(b) Reports on Form 8-K
No reports on Form 8-K were filed by Oglethorpe for the quarter ended September
30, 1998.
17
<PAGE>
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.
Oglethorpe Power Corporation
(An Electric Membership Corporation)
Date: November 13, 1998 By: /s/ Jack L. King
-------------------------------------
Jack L. King
President and Chief Executive Officer
(Principal Executive Officer)
Date: November 13, 1998 /s/ Mac F. Oglesby
-------------------------------------
Mac F. Oglesby
Treasurer and Director
(Principal Financial Officer)
Date: November 13, 1998 /s/ Thomas A. Smith
--------------------------------------
Thomas A. Smith
Senior Vice President and Chief Financial
Officer
(Chief Financial Officer)
Date: November 13, 1998 /s/ Robert D. Steele
--------------------------------------
Robert D. Steele
Controller
(Chief Accounting Officer)
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM OGLETHORPE
POWER CORPORATION'S CONDENSED BALANCE SHEET AS OF SEPTEMBER 30, 1998 AND RELATED
STATEMENT OF REVENUES AND EXPENSES AND CASH FLOWS FOR THE PERIOD ENDED SEPTEMBER
30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<BOOK-VALUE> PER-BOOK<F1>
<TOTAL-NET-UTILITY-PLANT> 3,504,848
<OTHER-PROPERTY-AND-INVEST> 216,015
<TOTAL-CURRENT-ASSETS> 398,150
<TOTAL-DEFERRED-CHARGES> 366,097
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 4,485,110
<COMMON> 0
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 342,775
<TOTAL-COMMON-STOCKHOLDERS-EQ> 0
0
0
<LONG-TERM-DEBT-NET> 3,183,280
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 3,982
<LONG-TERM-DEBT-CURRENT-PORT> 89,225
0
<CAPITAL-LEASE-OBLIGATIONS> 283,958
<LEASES-CURRENT> 7,258
<OTHER-ITEMS-CAPITAL-AND-LIAB> 574,632
<TOT-CAPITALIZATION-AND-LIAB> 4,485,110
<GROSS-OPERATING-REVENUE> 897,768
<INCOME-TAX-EXPENSE> 0
<OTHER-OPERATING-EXPENSES> 721,118
<TOTAL-OPERATING-EXPENSES> 721,118
<OPERATING-INCOME-LOSS> 176,650
<OTHER-INCOME-NET> 32,000
<INCOME-BEFORE-INTEREST-EXPEN> 208,650
<TOTAL-INTEREST-EXPENSE> 199,345
<NET-INCOME> 9,305
0
<EARNINGS-AVAILABLE-FOR-COMM> 0
<COMMON-STOCK-DIVIDENDS> 0
<TOTAL-INTEREST-ON-BONDS> 37,448
<CASH-FLOW-OPERATIONS> 139,625
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>$342,775 REPRESENTS TOTAL RETAINED PATRONAGE CAPITAL. THE REGISTRANT IS A
MEMBERSHIP CORPORATION AND HAS NO AUTHORIZED OR OUTSTANDING EQUITY SECURITIES.
</FN>
</TABLE>
