<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, 1999
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, 1999
PAGE NO.
--------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets as of September 30, 1999
(Unaudited) and December 31, 1998 3
Condensed Statements of Revenues and Expenses and
Comprehensive Margin (Unaudited) for the Three Months
and Nine Months ended September 30, 1999 and 1998 5
Condensed Statements of Cash Flows (Unaudited)
for the Nine Months Ended September 30, 1999 and 1998 6
Notes to the Condensed Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 16
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
OGLETHORPE POWER CORPORATION
CONDENSED BALANCE SHEETS
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
- --------------------------------------------------------------------------------------------
(dollars in thousands)
1999 1998
ASSETS (Unaudited)
-------------------------------------
<S> <C> <C>
ELECTRIC PLANT, AT ORIGINAL COST:
In service $4,869,530 $4,856,174
Less: Accumulated provision for depreciation (1,602,992) (1,510,888)
----------------- ----------------
3,266,538 3,345,286
Nuclear fuel, at amortized cost 88,374 84,418
Construction work in progress 17,637 20,948
----------------- ----------------
3,372,549 3,450,652
----------------- ----------------
INVESTMENTS AND FUNDS:
Decommissioning fund, at market 126,508 122,094
Deposit on Rocky Mountain transactions, at cost 58,607 55,755
Bond, reserve and construction funds, at market 30,870 32,909
Investment in associated organizations, at cost 16,239 16,231
Other, at cost 2,731 3,326
----------------- ----------------
234,955 230,315
----------------- ----------------
CURRENT ASSETS:
Cash and temporary cash investments, at cost 125,181 106,235
Other short-term investments, at market 75,285 73,356
Customer receivables 132,338 110,919
Notes and interim financing receivable 73,391 45,151
Inventories, at average cost 91,635 76,783
Prepayments and other current assets 17,560 21,395
----------------- ----------------
515,390 433,839
----------------- ----------------
DEFERRED CHARGES:
Premium and loss on reacquired debt, being amortized 198,805 206,729
Deferred amortization of Scherer leasehold 100,828 99,297
Discontinued projects, being amortized 30,066 36,203
Deferred debt expense, being amortized 15,106 15,825
Other 34,369 33,405
----------------- ----------------
379,174 391,459
----------------- ----------------
$4,502,068 $4,506,265
================= ================
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
3
<PAGE>
<TABLE>
<CAPTION>
OGLETHORPE POWER CORPORATION
CONDENSED BALANCE SHEETS
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
- ----------------------------------------------------------------------------------------------------
(dollars in thousands)
1999 1998
EQUITY AND LIABILITIES (Unaudited)
-------------------------------------
<S> <C> <C>
CAPITALIZATION:
Patronage capital and membership fees (including
unrealized loss of ($748) at
September 30, 1999 and gain of $1,006 at
December 31, 1998 on available-for-sale securities) $369,770 $352,701
Long-term debt 3,098,867 3,177,883
Obligation under capital leases 276,993 282,299
Obligation under Rocky Mountain transactions 58,607 55,755
----------------- ----------------
3,804,237 3,868,638
----------------- ----------------
CURRENT LIABILITIES:
Long-term debt and capital leases due within one year 105,172 97,475
Accounts payable 64,353 46,676
Notes payable 70,251 50,986
Accrued interest 20,333 10,074
Accrued and withheld taxes 19,433 214
Other current liabilities 9,369 17,901
----------------- ----------------
288,911 223,326
----------------- ----------------
DEFERRED CREDITS AND OTHER LIABILITIES:
Gain on sale of plant, being amortized 56,426 58,282
Net benefit of sale of income tax benefits, being amortized 20,023 26,030
Net benefit of Rocky Mountain transactions, being amortized 86,800 89,189
Accumulated deferred income taxes 63,203 63,203
Decommissioning reserve 159,478 156,021
Other 22,990 21,576
----------------- ----------------
408,920 414,301
----------------- ----------------
$4,502,068 $4,506,265
================= ================
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
4
<PAGE>
<TABLE>
<CAPTION>
OGLETHORPE POWER CORPORATION
CONDENSED STATEMENTS OF REVENUES AND EXPENSES AND COMPREHENSIVE MARGIN (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
- -------------------------------------------------------------------------------------------------------------
(dollars in thousands)
Three Months Nine Months
1999 1998 1999 1998
------------------------------- -------------------------------
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Sales to Members $370,841 $331,361 $878,424 $860,317
Sales to non-Members 22,795 14,414 39,893 37,451
-------------- -------------- -------------- --------------
TOTAL OPERATING REVENUES 393,636 345,775 918,317 897,768
-------------- -------------- -------------- --------------
OPERATING EXPENSES:
Fuel 57,158 55,680 145,298 144,525
Production 50,376 49,996 153,216 145,413
Purchased power 192,413 153,202 338,148 337,907
Depreciation and amortization 33,728 31,074 101,028 93,273
-------------- -------------- -------------- --------------
TOTAL OPERATING EXPENSES 333,675 289,952 737,690 721,118
-------------- -------------- -------------- --------------
OPERATING MARGIN 59,961 55,823 180,627 176,650
-------------- -------------- -------------- --------------
OTHER INCOME (EXPENSE):
Investment income 6,897 5,742 24,961 21,856
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 34 19 80 49
Other 1,010 786 2,808 1,699
-------------- -------------- -------------- --------------
TOTAL OTHER INCOME 10,740 9,346 36,245 32,000
-------------- -------------- -------------- --------------
INTEREST CHARGES:
Interest on long-term debt and other
obligations 64,757 65,256 198,744 199,797
Allowance for debt funds used during
construction (297) (173) (695) (452)
-------------- -------------- -------------- --------------
NET INTEREST CHARGES 64,460 65,083 198,049 199,345
-------------- -------------- -------------- --------------
NET MARGIN 6,241 86 18,823 9,305
Net change in unrealized gain (loss)
on available-for-sale securities (85) 2,366 (1,754) 2,961
-------------- -------------- -------------- --------------
COMPREHENSIVE MARGIN $6,156 $2,452 $17,069 $12,266
============== ============== ============== ==============
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
5
<PAGE>
<TABLE>
<CAPTION>
OGLETHORPE POWER CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
- ----------------------------------------------------------------------------------------------------------
(dollars in thousands)
1999 1998
-----------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net margin $ 18,823 $ 9,305
---------------- ---------------
ADJUSTMENTS TO RECONCILE NET MARGIN TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Depreciation and amortization 136,505 129,410
Allowance for equity funds used during
construction (80) (49)
Amortization of deferred gains (1,856) (1,856)
Amortization of net benefit of sale of income tax benefits (8,396) (8,396)
Other 10,596 9,991
CHANGE IN NET CURRENT ASSETS, EXCLUDING LONG-TERM DEBT
AND CAPITAL LEASES DUE WITHIN ONE YEAR AND NOTES PAYABLE:
Notes receivable 220 502
Receivables (21,419) (21,751)
Inventories (14,852) (9,388)
Prepayments and other current assets 3,835 (7,971)
Accounts payable 17,677 18,682
Accrued interest 10,259 1,454
Accrued and withheld taxes 19,219 16,637
Other current liabilities (8,532) (3,686)
---------------- ---------------
TOTAL ADJUSTMENTS 143,176 123,579
---------------- ---------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 161,999 132,884
---------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions (44,995) (25,779)
Net proceeds from bond, reserve and construction funds 1,327 1,143
(Increase) decrease in investment in associated organizations (8) 343
Increase in other short-term investments (2,972) (4,520)
Increase in decommissioning fund (13,905) (8,988)
---------------- ---------------
NET CASH USED IN INVESTING ACTIVITIES (60,553) (37,801)
---------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term debt proceeds, net (3,497) 1,185
Long-term debt payments (71,945) (68,931)
Premium paid on refinancing of debt - (24,041)
Increase in notes payable 19,265 3,982
Increase in notes receivable under interim financing agreement (28,460) -
Other 2,137 1,412
---------------- ---------------
NET CASH USED IN FINANCING ACTIVITIES (82,500) (86,393)
---------------- ---------------
NET INCREASE IN CASH AND TEMPORARY CASH INVESTMENTS 18,946 8,690
CASH AND TEMPORARY CASH INVESTMENTS AT BEGINNING OF PERIOD 106,235 63,215
---------------- ---------------
CASH AND TEMPORARY CASH INVESTMENTS AT END OF PERIOD $125,181 $ 71,905
================ ===============
CASH PAID FOR:
Interest (net of amounts capitalized) $161,459 $ 177,396
Income taxes - -
</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, 1999 AND 1998
(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, 1999 and 1998.
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 1998 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, 2001. Oglethorpe is currently assessing the impact
that adoption of SFAS No. 133 will have on results of operations and
financial condition.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
MEMBER POWER RESOURCES
Under the Wholesale Power Contracts, Oglethorpe's 39 retail electric
distribution cooperative members (the Members) may choose to supply all or a
portion of their future requirements with purchases from suppliers other than
Oglethorpe. A new entity, Smarr EMC, was formed in 1998 by 36 of the Members to
own a two-unit, 217 megawatt (MW) combustion turbine (CT) facility, Smarr Energy
Facility (Smarr CT). Smarr CT was declared in commercial operation in June 1999.
Oglethorpe is providing operation management services for this facility.
Smarr EMC, or similar entities, may also own future generation facilities on
behalf of Members who may decide to participate in such projects. Sewell
Creek Energy Facility (Sewell Creek CT) is one such project currently under
construction in which 31 Members are participating. Sewell Creek CT is a
four-unit, 492 MW CT facility scheduled for commercial operation by the
summer of 2000. Oglethorpe is providing construction management services and
interim financing for this facility and anticipates that it will provide
operation management services as well.
In addition, two Members formed an entity that constructed 90 MW of CT
capacity, which began commercial operation in the summer of 1999.
All of these CTs are currently anticipated to be dispatched in the Oglethorpe
pool of generation resources, except for 50 MW of the 90 MW owned by two
Members.
RESULTS OF OPERATIONS
For the Three Months and Nine Months Ended September 30, 1999 and 1998
- ----------------------------------------------------------------------
OPERATING REVENUES
Revenues from sales to Members for the three months and nine months ended
September 30, 1999 were 11.9% and 2.1% higher than the same periods of 1998.
Megawatt-hour (MWh) sales to Members were 3.7% and 5.2% higher in the current
three-month and nine-month periods compared to the same periods of 1998. The
average revenue per MWh from sales to Members was 7.9% higher for the current
quarter and 2.9% lower year-to-date compared to the same periods of 1998. The
components of Member revenues for the three months and nine months ended
September 30, 1999 and 1998 were as follows:
8
<PAGE>
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
1999 1998 1999 1998
---- ---- ---- ----
(dollars in thousands)
<S> <C> <C> <C> <C>
Capacity revenues $155,287 $155,866 $465,710 $467,548
Energy revenues 215,554 175,495 412,714 392,769
-------- -------- -------- --------
Total $370,841 $331,361 $878,424 $860,317
======== ======== ======== ========
</TABLE>
While capacity revenues from Members for the three months and nine months ended
September 30, 1999 compared to 1998 were virtually unchanged, energy revenues
were 22.8% and 5.1% higher for the current periods compared to the same periods
of 1998. The increase in energy revenues in the current quarter of 1999 was
primarily due to the pass-through of higher energy prices for purchased power in
the wholesale electricity markets (see "OPERATING EXPENSES" below). Oglethorpe's
average energy revenue per MWh from sales to Members for the current quarter was
18.5% higher compared to same quarter of 1998.
The increase in energy revenues from sales to Members for the year-to-date was
due to additional MWhs of energy sold, as the average energy revenue per MWh was
virtually unchanged from the prior year. Peak demand for energy occurred during
the third quarter in 1999 and in the second quarter in 1998. The resulting
higher wholesale electric market prices during the third quarter of 1999 largely
offset the lower market prices for purchased power experienced in the second
quarter of 1999. The increase in MWh sales to Members in 1999 compared to 1998
was due to continued sales growth in the Members' service territories. In
addition, Oglethorpe provided the Members with additional energy to offset lower
delivery of hydroelectric power from Southeastern Power Administration due to
lower than normal rainfall.
Sales to non-Members were primarily from energy sales to other utilities and
power marketers. The following table summarizes the amounts of non-Member
revenues from these sources for the three months and nine months ended September
30, 1999 and 1998:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
1999 1998 1999 1998
---- ---- ---- ----
(dollars in thousands)
<S> <C> <C> <C> <C>
Sales to other utilities $21,884 $ 9,212 $34,588 $22,626
Sales to power marketers 911 5,202 5,305 14,825
------- ------- ------- -------
Total $22,795 $14,414 $39,893 $37,451
======= ======= ======= =======
</TABLE>
Sales to other utilities represent sales made directly by Oglethorpe. Oglethorpe
sells for its own account any energy available from 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.
9
<PAGE>
Under the LG&E Energy Marketing Inc. (LEM) and Morgan Stanley power marketer
arrangements, sales to the power marketers represent 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 at Oglethorpe's cost,
subject to certain limitations, and to Morgan Stanley at a contractually fixed
price. The volume of sales to power marketers depends primarily on the power
marketers' decisions for servicing their load requirements. For information
regarding an arbitration proceeding between Oglethorpe and LEM regarding the LEM
power marketer arrangement, see "PART II - OTHER INFORMATION--Item 1. Legal
Proceedings."
OPERATING EXPENSES
Operating expenses for the three months and nine months ended September 30, 1999
were 15.1% and 2.3% higher compared to the same periods of 1998. This increase
was primarily due to 25.6% higher total purchased power costs for the current
three-month period compared to the same period of 1998. Purchased power costs
year-to-date were virtually unchanged. Oglethorpe purchased 9.6% and 10.4% less
MWhs in the three months and nine months ended September 30, 1999 than in the
same periods of 1998. The average cost per MWh of total purchased power was
38.9% and 11.7% higher in 1999 compared to the comparable periods of 1998.
Purchased power costs were as follows:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- --------------------
1999 1998 1999 1998
---- ---- ---- ----
(dollars in thousands)
<S> <C> <C> <C> <C>
Capacity costs $ 22,858 $ 30,422 $ 75,207 $ 93,102
Energy costs 169,555 122,780 262,941 244,805
-------- -------- -------- --------
Total $192,413 $153,202 $338,148 $337,907
======== ======== ======== ========
</TABLE>
Purchased power capacity cost for the three months and nine months ended
September 30, 1999 was approximately 24.9% and 19.2% lower than for the
comparable periods of 1998. These savings were primarily a result of the
elimination, effective September 1, 1998, of a 250 MW component block under the
Block Power Sale Agreement between Oglethorpe and Georgia Power Company (GPC).
Purchased power energy costs for the three-month and nine-month periods of 1999
were 38.1% and 7.4% higher compared to the same periods of 1998 as a result of
higher prices experienced in the wholesale electricity markets during the third
quarter of 1999 compared to 1998, whereas in 1998 higher prices occurred in the
second quarter compared to 1999. This factor resulted in a 52.7% and a 19.9%
increase in the average cost of purchased power energy per MWh for the
three-month and nine-month periods of 1999 compared to 1998. The increase in the
average cost of purchased power energy during the current quarter was primarily
responsible for the increase in the average cost of energy to the Members in the
third quarter of 1999 compared the same period of 1998.
OTHER INCOME
Investment income was higher for the three-month and nine-month periods of 1999
compared to the same periods of 1998 primarily due to interest earnings on the
notes and interim financing receivable
10
<PAGE>
from Smarr EMC relating to Smarr CT and Sewell Creek CT. See "GENERAL--MEMBER
POWER RESOURCES" for a further discussion of these projects.
NET MARGIN AND COMPREHENSIVE MARGIN
Oglethorpe's net margin for the three months and nine months ended September 30,
1999 was $6.2 million and $18.8 million, respectively, compared to $86,000 and
$9.3 million for the same periods of 1998. The higher net margin resulted
primarily from lower than budgeted fixed operations and maintenance (O&M)
expenses and from lower than budgeted interest rates on the variable portion of
long-term debt. Comprehensive margin for Oglethorpe is net margin adjusted for
the net change in unrealized gains and losses on investments in
available-for-sale securities.
FINANCIAL CONDITION
Total assets and total equity plus liabilities as of September 30, 1999 were
$4.5 billion, which was $4.2 million less than the total at December 31, 1998
due primarily to an increase in the notes and interim financing receivable for
construction of Sewell Creek CT, customer receivables and inventories, offset by
depreciation of plant. The Sewell Creek CT project is being financed on an
interim basis by Oglethorpe through the issuance of commercial paper. See
"General--MEMBER POWER RESOURCES" for a further discussion of these projects.
ASSETS
Property additions for the nine months ended September 30, 1999 totaled $45.0
million primarily for purchases of nuclear fuel and for additions, replacements
and improvements to existing generation facilities.
The increase in cash and temporary cash investments was the result of cash
provided from operations exceeding cash used in financing and investing
activities, including property additions noted above and debt principal
repayments.
The increase in customer receivables resulted from significantly higher energy
costs billed to Members at September 30, 1999 compared to the energy costs
reflected in the receivable balance at December 31, 1998.
The increase in notes and interim financing receivable resulted primarily from
use of funds for interim financing activities related to the construction of the
Sewell Creek CT.
Inventories of fossil fuel were greater at September 30, 1999 than at December
31, 1998 as a result of unused coal supplies that were increased in anticipation
of normal seasonal demand for electricity during the summer season. In addition,
inventories were greater because Oglethorpe's fossil fuel plants have been
utilized less than projected due to decisions made by LEM and Morgan Stanley
under the power marketer arrangements. Oglethorpe also has increased its fossil
fuel inventories as part of its Year 2000 contingency plan.
See "Miscellaneous--YEAR 2000--CONTINGENCY PLANNING".
11
<PAGE>
Prepayments and other current assets decreased primarily due to the exercise of
options purchased to meet summer power requirements.
EQUITY AND LIABILITIES
Accounts payable increased primarily due to the volume of purchased power
activity in September 1999 compared to December 1998.
Notes payable represents commercial paper issued by Oglethorpe as interim
financing for costs incurred in the construction of Sewell Creek CT. Oglethorpe
expects to be reimbursed for costs relating to the construction of Sewell Creek
CT shortly after it is placed into commercial operation, which Oglethorpe
anticipates will be by the summer of 2000.
Accrued interest increased as a result of the accrual for the January 1, 2000
interest payment due for the Scherer Unit No. 2 lease obligation.
Accrued and withheld taxes increased as a result of the normal monthly accruals
for property taxes, which are generally paid in the fourth quarter of the year.
The decrease in other current liabilities primarily resulted from $8.9 million
improvement in negative book cash balances at September 30, 1999 compared to
1998 year-end.
CAPITAL REQUIREMENTS
The Georgia Department of Natural Resources recently approved a State
Implementation Plan (SIP), developed to bring Atlanta into compliance with
the one-hour ozone National Ambient Air Quality Standards under the Clean Air
Act. The SIP requires significant reductions in nitrogen oxide emissions from
Plants Wansley and Scherer by May 1, 2003. Oglethorpe expects that it and the
other co-owners will have to install control equipment at both plants to
achieve these reductions. Based on this SIP, Oglethorpe estimates that its
share of the expenses for controls will be up to $80 million over the next
four years. The expected expenditures for 2000 and 2001 were previously
reflected in Oglethorpe's forecasted capital expenditures for the years 2000
and 2001 included in "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Financial Condition--Capital
Requirements" in Item 7 of Oglethorpe's 1998 Annual Report on Form 10-K. The
remaining expected expenditures are included in Oglethorpe's forecasted
capital expenditures for 2002 and 2003.
The U.S. Environmental Protection Agency (EPA) must approve the SIP before it
is implemented. The EPA has indicated that it will not approve the current
SIP because the EPA does not believe the reductions called for by the SIP
will be sufficient to bring Atlanta into compliance. In response to the EPA's
concerns the Georgia Environmental Protection Division recently announced
that it is considering revising the SIP, which revisions may include stricter
regulations affecting both plants. In addition, it is unclear how the
recently approved rules affecting Plant Scherer will be interpreted. If
stricter standards are implemented or if the recently approved standards are
interpreted to require greater reductions than Oglethorpe anticipates,
Oglethorpe may incur significant additional capital costs. Because these
regulations are subject not only to additional rulemaking, but also to legal
challenges, the above amounts are estimates and may significantly differ from
actual future
12
<PAGE>
expenditures Oglethorpe must make to comply with these and other
environmental laws and regulations.
On November 3, 1999, the United States Justice Department, on behalf of the
EPA, filed lawsuits against GPC and some of its affiliates, as well as other
utilities. The lawsuits allege violations of the new source review provisions
and the new source performance standards of the Clean Air act at, among other
facilities, Plant Scherer Units No. 3 and No. 4. Oglethorpe is not currently
named in the lawsuits and Oglethorpe does not have an ownership interest in
the named units of Plant Scherer. The resolution of this matter is highly
uncertain at this time, as is any responsibility of Oglethorpe for a share of
any penalties and capital costs required to remedy any violations at
facilities co-owned by Oglethorpe.
MISCELLANEOUS
COMPETITION
For information about competition in the electric utility industry and the
actions and potential actions Oglethorpe and the Members have taken and are
considering and evaluating to reduce costs and enhance their competitiveness in
anticipation of future increased competition, see Oglethorpe's Quarterly Report
on Form 10-Q for the quarterly period ended March 31, 1999.
YEAR 2000
BACKGROUND. The Year 2000 issue, which is common to most corporations, concerns
the ability of certain hardware, software, databases and other devices that use
microprocessors 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 that may have embedded microprocessors, such as those relating to
operations of the Rocky Mountain Pumped Storage Hydroelectric Facility (Rocky
Mountain), generation substations and Oglethorpe's headquarters facilities.
Management recognizes the seriousness of the Year 2000 issue and believes it has
dedicated adequate resources to address the issue. Oglethorpe's Controller and
Chief Risk Officer is in charge of its Year 2000 program, and he reports
directly to Oglethorpe's President and Chief Executive Officer. As part of its
business alliance with Oglethorpe, Intellisource assisted in the administration
of certain portions 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 problems in its systems. Substantially all IT and non-IT
systems were inventoried and assessed.
13
<PAGE>
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 complete. Financial
accounting systems, procurement and materials management systems and human
resource/payroll systems are externally developed and supported. Oglethorpe is
replacing most of its financial accounting systems modules and is retaining and
upgrading one module. Oglethorpe expects its financial accounting systems to be
Year 2000 ready during the fourth quarter of 1999. The financial accounting
systems project is approximately 90% complete. All other externally developed
business systems are Year 2000 ready. Critical computer systems required to
operate the Rocky Mountain control room have been upgraded. The computer system
required to manage maintenance activities and purchase materials for Rocky
Mountain has been replaced.
Phase III began in the spring of 1999 with a verification of the completeness of
the original systems inventory. Phase III also includes contingency planning, an
assessment of Year 2000 readiness of material third parties and verification
that all material systems are being properly remediated and tested. This phase
will be on-going throughout 1999.
RELATIONSHIPS WITH THIRD PARTIES. Georgia Transmission Corporation (GTC) and
Georgia System Operations Corporation (GSOC) have implemented detailed
strategies to ensure Year 2000 readiness of the systems utilized in their
transmission and systems control operations. The Year 2000 readiness plans for
Oglethorpe, GTC and GSOC were jointly developed and are being implemented on the
same schedule, as described above.
Oglethorpe has gathered information from the Members regarding their Year 2000
readiness. In addition, the Members have participated in an ongoing survey by
the Georgia Public Service Commission (PSC) to monitor Year 2000 readiness. As
of September 30, 1999, all of the Members were on or ahead of the PSC's schedule
for Year 2000 readiness. Based on the information gathered by Oglethorpe and the
PSC, Oglethorpe is conducting a follow-up program to monitor the Members' Year
2000 readiness and has worked with the Members to coordinate contingency plans
for Oglethorpe and the Members.
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. Year 2000 remediation and testing on all generation plants which are
operated by GPC are being performed by GPC's parent company, The Southern
Company (Southern). Oglethorpe estimates that approximately $4.7 million will be
billed by Southern based on its ownership share of the co-owned generation
plants, of which approximately $4.4 million has been paid. Remaining costs will
be expensed primarily in 1999. Southern reports that its Year 2000 program for
the Georgia-based generating plants was completed on schedule in June 1999.
Southern also reports that its Year 2000 program will continue to monitor the
affected computer systems, devices and applications into the Year 2000. 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 SEC.
14
<PAGE>
During Phase III of its program, Oglethorpe is in the process of assessing the
Year 2000 readiness of other third parties, including power marketers (such as
LEM and Morgan Stanley), other utilities and vendors of materials and services.
Oglethorpe has identified over 1,200 such third parties, of which 300 have
continuing relationships with Oglethorpe. Approximately 60 of these are deemed
to be material. Oglethorpe has requested information from these third parties.
As of October 31, 1999, Oglethorpe has received assurances from 100% of material
third parties and approximately 90% of other continuing third parties that they
are Year 2000 ready. Oglethorpe will continue to request information from the
remaining continuing third parties in the fourth quarter of 1999. Oglethorpe may
not be able to identify all third parties' Year 2000 problems and may not be
able to develop adequate contingency plans if third parties do not correct their
Year 2000 problems.
PROJECT COSTS. In addition to the $4.7 million expected to be paid to Southern,
Oglethorpe currently estimates project costs of approximately $4.6 million.
These costs have been incurred to upgrade its internal systems, including
those relating to Rocky Mountain, and to upgrade or replace its externally
developed financial accounting, procurement and materials management systems.
These costs also have been and are being incurred to perform a management
evaluation of the Phase I and Phase II activities, and to perform the
contingency planning and the preparedness evaluation of key business
relationships. 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. To date, Oglethorpe has spent approximately $3.6
million of the $4.6 million on these efforts. These costs are estimates, and
actual costs could be higher.
Oglethorpe plans to pay for Year 2000 costs with general corporate funds. Year
2000 costs are being recovered from the Members through Oglethorpe's rates.
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 Year 2000 ready by December 31, 1999.
The most reasonably likely worst case scenario would be service interruptions to
Oglethorpe's Members or the Members' retail consumers. These scenarios include
the loss of a generating unit or a source of purchased power, or a disruption in
transmission or distribution services by GTC or the Members. 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. 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, Oglethorpe may
not be able to assess fully the possibility of service interruptions to the
ultimate retail consumers or the impact of service interruptions or other
business system failures on its financial condition or results of operations.
Actual results, costs, risks, or worst case scenarios related to Year 2000
issues may materially differ from those that Oglethorpe expects or estimates.
Factors that might cause material differences include, but are not limited to,
Oglethorpe's ability to locate and correct all microprocessors that are not Year
2000 ready, the readiness of third parties, and Oglethorpe's ability to develop
adequate contingency plans to respond to foreseen or unforeseen Year 2000
problems.
15
<PAGE>
CONTINGENCY PLANNING. Oglethorpe has developed contingency plans for its IT and
non-IT systems with the assistance of the consulting firm KPMG. The contingency
plans were completed as of July 31, 1999 and will continue to be evaluated,
tested and implemented throughout 1999. The contingency plans also focus on
non-compliance by material third parties and assess the need to identify
alternative vendors and the need to increase inventory of materials and
supplies. The goal of the contingency planning process is to keep any service
interruptions to a minimum and of short duration and to avoid disruptions in its
billing or other management processes. Oglethorpe may incur additional costs as
a result of implementing its contingency plans.
As part of Oglethorpe's contingency plans, it has worked with GTC, GSOC and
the Members to implement an action plan for the Year 2000 rollover based on
Oglethorpe's, GTC's and GSOC's established plans for handling a major storm
or similar event. Oglethorpe will staff a command center beginning on
December 31, 1999 and continuing for as long as needed to resolve any
problems that arise from the date change.
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
This Quarterly Report on Form 10-Q contains forward-looking statements,
including statements regarding, among other items, (i) anticipated trends in
Oglethorpe's business, (ii) Oglethorpe's future power supply resources and
arrangements, (iii) anticipated changes in laws or regulations and their effects
on Oglethorpe and (iv) 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 "YEAR 2000" herein, "Miscellaneous--COMPETITION"
in Item 2 of Oglethorpe's Quarterly Report on Form 10-Q for the quarterly period
ended March 31, 1999 and "CERTAIN FACTORS AFFECTING THE ELECTRIC UTILITY
INDUSTRY" in Item 1 of Oglethorpe's 1998 Annual Report on Form 10-K. 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Oglethorpe's market risks have not changed materially from the market
risks reported in Oglethorpe's 1998 Annual Report on Form 10-K.
16
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The arbitration process regarding Oglethorpe's power marketer agreement with LEM
is continuing. Discovery has been completed and both Oglethorpe and LEM have
submitted their proposed resolutions to the arbitrators. A hearing began on
November 2, 1999 and is ongoing. The agreement calls for the arbitrators to
render a decision within thirty days of the end of the hearing. For more
information on this matter, see "MEMBER REQUIREMENTS AND POWER SUPPLY
RESOURCES--Power Marketer Arrangements--LEM AGREEMENTS" in Item 1 and "LEGAL
PROCEEDINGS" in Item 3 of Oglethorpe's 1998 Annual Report on Form 10-K.
ITEM 5. OTHER INFORMATION
As previously reported in a Current Report on Form 8-K, filed September 3,
1999, Thomas A. Smith succeeded Jack L. King as President and Chief Executive
Officer and as a director of Oglethorpe effective September 15, 1999. As part
of a management transition plan, Mr. King also resigned as President and
Chief Executive Officer and as a director of GTC and GSOC. Effective
September 15, 1999, Julian Brix became President and Chief Executive Officer
and a director of GTC. Effective January 1, 2000, Jerry J. Saacks,
Oglethorpe's Chief Operating Officer, will leave that position to become
President and Chief Executive Officer and a director of GSOC. Effective
November 8, 1999, W. Clayton Robbins was named Oglethorpe's Senior Vice
President, Finance and Administration to replace the position of Chief
Financial Officer which had been vacant since Mr. Smith became President and
Chief Executive Officer.
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
A report on Form 8-K was filed by Oglethorpe on September 3, 1999, announcing
that Thomas A. Smith was named to succeed Jack L. King as President and Chief
Executive Officer and as a Director of Oglethorpe effective September 15,
1999.
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 10, 1999 By: /s/ Thomas A. Smith
----------------------------------------
Thomas A. Smith
President and Chief Executive Officer
(Principal Executive Officer)
Date: November 10, 1999 /s/ Mac F. Oglesby
----------------------------------------
Mac F. Oglesby
Treasurer
(Principal Financial Officer)
Date: November 10, 1999 /s/ Willie B. Collins
----------------------------------------
Willie B. Collins
Controller and Chief Risk Officer
(Chief Accounting Officer)
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM OGLETHORPE
POWER CORPORATIONS CONDENSED BALANCE SHEET AS OF SEPTEMBER 30, 1999 AND RELATED
CONDENSED STATEMENTS OF REVENUE AND EXPENSES AND CASH FLOWS FOR THE PERIOD ENDED
SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<BOOK-VALUE> PER-BOOK<F1>
<TOTAL-NET-UTILITY-PLANT> 3,372,549
<OTHER-PROPERTY-AND-INVEST> 234,955
<TOTAL-CURRENT-ASSETS> 515,390
<TOTAL-DEFERRED-CHARGES> 379,174
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 4,502,068
<COMMON> 0
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 369,770
<TOTAL-COMMON-STOCKHOLDERS-EQ> 0
0
0
<LONG-TERM-DEBT-NET> 3,098,867
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 70,251
<LONG-TERM-DEBT-CURRENT-PORT> 97,059
0
<CAPITAL-LEASE-OBLIGATIONS> 276,993
<LEASES-CURRENT> 8,113
<OTHER-ITEMS-CAPITAL-AND-LIAB> 581,015
<TOT-CAPITALIZATION-AND-LIAB> 4,502,068
<GROSS-OPERATING-REVENUE> 918,317
<INCOME-TAX-EXPENSE> 0
<OTHER-OPERATING-EXPENSES> 737,690
<TOTAL-OPERATING-EXPENSES> 737,690
<OPERATING-INCOME-LOSS> 180,627
<OTHER-INCOME-NET> 36,245
<INCOME-BEFORE-INTEREST-EXPEN> 216,872
<TOTAL-INTEREST-EXPENSE> 198,049
<NET-INCOME> 18,823
0
<EARNINGS-AVAILABLE-FOR-COMM> 0
<COMMON-STOCK-DIVIDENDS> 0
<TOTAL-INTEREST-ON-BONDS> 37,582
<CASH-FLOW-OPERATIONS> 161,999
<EPS-BASIC> 0
<EPS-DILUTED> 0
<FN>
<F1>$369,770 REPRESENTS TOTAL RETAINED PATRONAGE CAPITAL. THE REGISTRANT IS A
MEMBERSHIP CORPORATION AND HAS NO AUTHORIZED OR OUTSTANDING EQUITY SECURITIES.
</FN>
</TABLE>
