File No. 69-370
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM U-3A-2
STATEMENT BY HOLDING COMPANY CLAIMING EXEMPTION UNDER
RULE U-2 FROM THE
PROVISIONS OF THE PUBLIC UTILITY HOLDING COMPANY ACT OF
1935
ROSEBUD ENERGY CORP.
hereby files with the Securities and Exchange Commission, pursuant to Rule U-2,
its statement claiming exemption as a holding company from the provisions of the
Public Utility Holding Company Act of 1935. In support of such claim for
exemption the following information is submitted:
1. Name, State of organization, locations and nature of business of
claimant and every subsidiary thereof.
Rosebud Energy Corp. ("Rosebud") is a corporation incorporated in Montana.
Rosebud's address is Diamond Block Building, Suite 210, 44 West 6th Avenue,
Helena, Montana 59624, c/o Doney, Crowley, Bloomquist & Uda, PC. Rosebud was
formed to own a general partnership interest in and be the sole general partner
of Colstrip Energy Limited Partnership ("Colstrip"). Colstrip is a Montana
1
<PAGE>
limited partnership, with the same address as Rosebud, and was formed to own and
operate a 35 megawatt electric generation facility ("Facility") located near
Colstrip, Montana.
2. A brief description of the properties of claimant and each of its
subsidiary public utility companies used for the generation, transmission, and
distribution of electric energy for sale, or for the production, transmission,
and distribution of natural or manufactured gas, indicating the location of
principal generating plants, transmission lines, producing fields, gas
manufacturing plants, and electric and gas distribution facilities, including
all such properties which are outside the state in which claimant and its
subsidiaries are organized and all transmission or pipelines which deliver or
receive electric energy or gas at the borders of such State.
Rosebud owns no property used for the generation, transmission and
distribution of electricity for sale, or for the production, transmission, and
distribution of natural or manufactured gas. The only property owned by Colstrip
is the Facility, which is located near Colstrip, Montana, and which sells all of
its output at wholesale to the Montana Power Company, an investor owned utility.
2
<PAGE>
3. The following information for the last calendar year with respect to
claimant and each of its subsidiary public utility companies:
(a) Number of kwh of electric energy sold (at retail or wholesale),
and Mcf. of natural or manufactured gas distributed at retail.
The total number of kwh sold in calendar year 1999 was 308,099,950.
(b) Number of kwh of electric energy and mcf, of natural or
manufactured gas distributed at retail outside the State in which each such
company is organized.
None.
(c) Number of kwh. of electric energy and mcf. of natural or
manufactured gas sold at wholesale outside the State in which each such company
is organized, or at the state line.
None.
(d) Number of kwh of electric energy and mcf. of natural or
manufactured gas purchased outside the State in which each such company is
organized or at the state line.
None.
4. The following information for the reporting period with respect
to claimant and each interest it holds directly or indirectly in an EWG or a
foreign utility company, stating monetary amounts in United States dollars:
3
<PAGE>
(a) Name, location, business address and description of the
facilities used by the EWG or foreign utility company for the generation,
transmission and distribution of electric energy for sale or for the
distribution at retail of natural or manufactured gas.
Rosebud owns no interest in an EWG.
(b) Name of each system company that holds an interest in such ewg or
foreign utility company; and description of the interest held.
None.
(c) Type and amount of capital invested, directly or indirectly, by
the holding company claiming exemption; any direct or indirect guarantee of the
security of the EWG or foreign utility company by the holding company claiming
exemptions; and any debt or other financial obligation for which there is
recourse, directly or indirectly, to the holding company claiming exemption or
another system company, other than the ewg or foreign utility company.
None.
(d) Capitalization and earnings of the EWG or foreign utility company
during the reporting period.
None.
(e) Identify any service, sales or construction contract(s) between
the EWG or foreign utility company and a system company, and describe the
4
<PAGE>
services to be rendered or goods sold and fees or revenues under such
agreement(s).
None.
The above-named claimant has caused this statement to be duly executed
on its behalf by its authorized officer on this 29th day of February, 2000.
ROSEBUD ENERGY CORP.
By: /s/ R. Lee Roberts
-----------------------------------
R. Lee Roberts
President
CORPORATE SEAL
Attest: Subscribed and Sworn to before me this 29th
of February, 2000
/s/ Debbie K. Roholt
------------------------------
Residing at Boise, Idaho
-------------------
Expiration Date 04/14/04
---------------
Name, title, and address of Officer of whom notices and correspondence
concerning this statement would be addressed:
R. Lee Roberts President
- --------------------------------------------------------------------------------
(Name) (Title)
Diamond Block Bldg. Ste. 210 44 W 6th Ave. Helena, Montana 59624
- --------------------------------------------------------------------------------
(Address)
Please send additional copy to:
Mr. Matthew W. S. Estes, Esq.
Skadden, Arps, Slate, Meagher & Flom
1440 New York Avenue, N.W.
Washington, D.C. 20005
5
<PAGE>
EXHIBIT A
Claimant has no subsidiary companies. The claimant's Balance Sheet and
Statement of Operations as of December 31, 1999 are attached. In addition,
inasmuch as claimant is general partner of Colstrip, Colstrip's Balance Sheet,
Statement of Operations, Statement of Cash Flows, and Statement of Partners'
Capital as of December 31, 1999 are attached.
6
D R A F T
<TABLE>
<CAPTION>
Rosebud Energy Corp.
Balance Sheet
As of 12/31/99
<S> <C> <C>
CURRENT ASSETS:
Rosebud Fee Acct. - US Bank $ 598.56
Rosebud Operating Acct. - US Bank 70,052.68
Rosebud Legal Fee Acct. - US Bank 30,000.00
---------------------
TOTAL CURRENT ASSETS $ 100,651.24
PROPERTY, PLANT AND EQUIPMENT:
Land 1,000.00
Office Furniture and Fixtures 9,610.58
Computer Equipment and Software 10,424.94
Accum. Deprec. - Office Equip. (1,509.47)
Accum. Deprec. - Office F and F (5,604.83)
Accum. Deprec. - Computer Equip. (2,279.95)
---------------------
TOTAL PROPERTY, PLANT AND EQUIPMENT $ 11,641.27
OTHER ASSETS:
Other Receivable - RDO 357,923.55
Other Investments (7,639,159.56)
---------------------
TOTAL OTHER ASSETS $(7,281,236.01)
----------------------
TOTAL ASSETS $(7,168,943.50)
======================
</TABLE>
<PAGE>
D R A F T
<TABLE>
<CAPTION>
Rosebud Energy Corp.
Balance Sheet
As of 12/31/99
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES:
Accounts Payable $ 4,263.69
Other Payable 490,476.23
----------------------
TOTAL CURRENT LIABILITIES $ 494,739.92
--------------------------
TOTAL LIABILITIES $ 494,739.92
SHAREHOLDERS' EQUITY:
Shareholders' Capital $(3,541,275.08)
Retained Earnings (3,457,140.76)
Net Loss (665,267.58)
----------------------
TOTAL SHAREHOLDERS' EQUITY $(7,663,683.42)
--------------------------
TOTAL LIABILITIES/SHAREHOLDERS' EQUITY $(7,168,943.50)
==========================
</TABLE>
<PAGE>
D R A F T
<TABLE>
<CAPTION>
Rosebud Energy Corp.
STATEMENT OF OPERATIONS
For the Period Ended 12/31/99
<S> <C>
REVENUES:
Professional Fees $ 431,673.08
OPERATING EXPENSES:
Accounting and Auditing Fees 5,045.00
Legal Fees 3,208.73
Travel Expenses 15,080.44
Business Meals and Entertainment 1,345.29
Telephone Expense 9,363.91
Fees and Licenses 40.00
Rent Expense 30,806.87
Consulting Fees 1,398.30
Employee Benefits 53,636.75
Employee Relations 3,169.56
Payroll and Payroll Tax Expense 268,783.37
Office Supplies 9,217.02
Outside Services - Administrative 6,946.65
Outside Services - Finance 887,624.56
Postage and Freight 4,026.50
Insurance 3,336.00
Charitable Contribution 185.00
Community Relations 567.00
Continuing Education 2,791.32
Dues and Publications 2,866.12
Miscellaneous 17,868.50
Taxes 20.00
Depreciation 2,539.37
----------------------------
TOTAL OPERATING EXPENSES $1,329,866.26
----------------------------
TOTAL OPERATING LOSS (898,193.18)
Gain - Other Invest. - CELP 232,925.60
----------------------------
NET LOSS $ (665,267.58)
============================
</TABLE>
<PAGE>
D R A F T
COLSTRIP ENERGY LIMITED PARTNERSHIP
Financial Statements
for the years ended December 31, 1999 and 1998
<PAGE>
D R A F T
<TABLE>
<CAPTION>
Colstrip Energy Limited Partnership
Balance Sheets
as of December 31,
ASSETS 1999 1998
------------------- --------------------
<S> <C> <C>
Current assets:
Designated and restricted cash equivalents $3,270,138 $3,083,616
Liquid investments 1,538,248 1,891,762
Receivable from Montana Power Company 1,825,843 1,737,074
Prepaid expenses 118,488 93,473
Special reserve account investments 527,533 503,125
Other 94,586 160,988
------------------- --------------------
Total current assets 7,374,836 7,470,038
Property, plant and equipment, net 70,151,355 71,928,155
Bond reserve fund investments 6,017,376 6,084,976
Deferred charges 2,456,492 2,823,534
Limestone inventory 602,844 595,310
------------------- --------------------
Total assets $86,602,903 $ 88,902,013
=================== ====================
LIABILITIES AND PARTNERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $1,3475683 $ 1,120,953
Accrued interest 169,980 178,153
Current portion of term notes payable 2,640,000 2,280,000
-------------------- --------------------
Total current liabilities 4,157,548 3,579,106
Bond payable 60,800,000 60,800,000
Term notes payable 2,760,000 5,400,000
-------------------- --------------------
Total liabilities 67,717,548 69,779,106
Commitment (Note 11) and contingencies (Note 13)
Partners' equity:
Partners' capital 18,884,403 19,110,624
Accumulated comprehensive income 952 12,283
-------------------- --------------------
Total liabilities and partners' equity $ 86,602,903 $ 88,902,013
==================== ====================
</TABLE>
The accompanying notes are an integral part of the financial statements.
2
<PAGE>
D R A F T
<TABLE>
<CAPTION>
Colstrip Energy Limited Partnership
Statements of Operations
for the years ended December 31,
1999 1998
------------------- --------------------
<S> <C> <C>
Revenues:
Energy $16,763,672 $15,305,882
Capacity 3,295,627 3,187,158
Interest Income 494,619 560,679
Other 507,115 79,015
------------------- --------------------
21,061,033 19,132,734
------------------- --------------------
Raw materials:
Coal 2,284,259 2,112,651
Coal transport 743,034 582,723
Coal royalty 371,898 361,651
Limestone processing charge 116,471 122,365
Limestone transport 452,304 410,100
Limestone usage 29,561 32,314
Fuel oil 25,970 13,607
Operating expenses:
Operations and maintenance (O&M) contract labor 2,290,447 2,273,873
O&M nonlabor 933,926 862,525
Professional fees 1,102,940 911,649
Property, license and other taxes 409,807 420,957
Insurance 132,012 173,168
Management fee to operator 231,185 230,960
Other 246,110 278,684
------------------- --------------------
9,369,924 8,787,227
------------------- --------------------
Operating revenues available for debt service and 11,691,109 10,345,507
other expenses ------------------- --------------------
Debt service expenses:
Interest 2,378,159 2,740,981
Loan fees 952,988 896,504
Expenses subordinate to debt service:
Bonus to operator 188,626 52,856
Depreciation and amortization 2,348,196 2,349,549
------------------- --------------------
Total debt service and other expenses 5,867,969 6,039,890
------------------- --------------------
Net income $ 5,823,140 $ 4,305,617
=================== ====================
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
D R A F T
<TABLE>
<CAPTION>
Colstrip Energy Limited Partnership
Statements of Comprehensive Income
for the years ended December 31,
1999 1998
------------------- --------------------
<S> <C> <C>
Net income $ 5,823,140 $ 4,305,617
Unrealized holding loss arising during period (11,331) (5,526)
------------------- --------------------
Comprehensive income $ 5,811,809 $ 4,300,091
=================== ====================
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
D R A F T
<TABLE>
<CAPTION>
Colstrip Energy Limited Partnership
Statements of Partners' Capital
for the years ended December 31, 1999 and 1998
General Limited
Partner Partners Total
------------------ ------------------- -----------------
<S> <C> <C> <C>
Balance at January 1, 1998 $ (3,965,686) $ 23,996,237 $20,030,551
Net income 172,225 4,133,392 4,305,617
Capital withdrawn (1,888,760) (3,336,784) (5,225,544)
------------------ ------------------- -----------------
Balance at December 31, 1998 $ (5,682,221) $ 24,792,845 $19,110,624
Net income 232,926 5,590,214 5,823,140
Capital withdrawn (2,189,863) (3,859,498) (6,049,361)
------------------ ------------------- -----------------
Balance at December 31, 1999 $ (7,639,158) $ 26,523,561 $ 18,884,403
================== =================== =================
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
D R A F T
<TABLE>
<CAPTION>
Colstrip Energy Limited Partnership
Statements of Cash Flows
for the years ended December 31,
1999 1998
------------------- --------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 5,823,140 $ 4,305,617
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,348,196 2,349,549
Amortization of investment discount (354,474) (312,372)
Change in assets and liabilities:
Receivable from Montana Power Company (88,769) (44,299)
Prepaid expenses and other assets 4,292 19,086
Inventory 29,561 32,314
Accounts payable and accrued expenses 226,615 81,453
Accrued interest (8,173) (26,752)
------------------- --------------------
Net cash provided by operating activities 7,980,388 6,404,596
------------------- --------------------
Cash flows from investing activities:
Proceeds from maturities or sales of available-for-sale
investment securities 36,893,077 18,556,632
Purchase of available for sale investment securities (36,153,228) (18,582,088)
Expenditures for property, plant and equipment (204,354) (345,706)
------------------- --------------------
Net cash provided (used) for investing activities 535,495 (371,162)
------------------- --------------------
Cash flows from financing activities:
Partner capital withdrawn (6,049,361) (5,225,544)
Principal payments on term notes (2,280,000) (1,920,000)
------------------- --------------------
Net cash used for financing activities (8,329,361) (7,145,544)
------------------- --------------------
Net increase (decrease) in designated and restricted
cash and equivalents
186,522 (1,112,110)
Designated and restricted cash and equivalents, beginning of
year 3,083,616 4,195,726
------------------- --------------------
Designated and restricted cash and equivalents, end of year $ 3,270,138 $ 3,083,616
=================== ====================
Interest paid $ 2,386,332 $ 2,767,733
</TABLE>
The accompanying notes are an integral part of the financial statements
6
<PAGE>
D R A F T
Colstrip Energy Limited Partnership
Notes to Financial Statements
1. Organization and Operation:
Colstrip Energy Limited Partnership (the Partnership) owns and operates a
35-megawatt electric generation facility (the Project) near Colstrip,
Montana. Commercial operations of the Project commenced on May 3, 1990.
At December 31, 1999, the Partnership consists of Rosebud Energy Corp.
(Rosebud), the general partner, and two limited partners: Harrier Power
Corporation (indirectly wholly-owned by U.S. Generating Company, LLC) and
Spruce Limited Partnership. The general partner of Spruce Limited
Partnership is Spruce Power Corporation (which PG&E Generating Company
purchased from Bechtel Enterprises, Inc. effective September 19, 1997 and
is now indirectly wholly-owned by U.S. Generating Company, LLC) and the
limited partner is Pitney Bowes Credit Corp. In January 2000 Enron Bighorn
Acquisition Group purchased Harrier Power Corporation's limited partnership
interest in the Partnership. The original life of the Partnership is 40
years expiring in 2028.
The Project is a Federal Energy Regulatory Commission (FERC) certified
Small Power Production Facility consisting of a circulating fluidized bed
combustion boiler, an extraction/condensing steam turbine generator unit
and related auxiliary equipment. The unit is fired by waste coal in the
form of sub-bituminous coal refuse. Montana Power Company (MPC) has
contracted to purchase all of the electricity to be generated by the
Project through June, 2025.
2. Summary of Significant Accounting Policies:
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
dates of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from
those estimates.
Inventory - Inventory consists of limestone to be used in the power
generation process and is stated at cost.
Investments - The Partnership classifies liquid investments, special
reserve account investments and bond reserve fund investments as
available-for-sale securities which are stated at estimated fair value.
Property, Plant and Equipment - Property, plant and equipment is stated at
historical cost net of accumulated depreciation. When property, plant and
equipment is disposed of, the asset cost and related accumulated
depreciation are removed from the Partnership's books and the net gain or
loss is included in operations. Depreciation is provided using the
straight-line method over estimated useful lives of fifty years for plant
and systems, seven years for heavy operating equipment, five to seven years
for periodic scheduled overhaul costs, and five years for land
improvements, furniture, computer equipment, small tools and vehicles.
7
<PAGE>
D R A F T
The Partnership reviews the carrying value of property, plant and equipment
for impairment whenever events and circumstances indicate that the carrying
value of an asset may not be recoverable from the estimated future cash
flows expected to result from its use and eventual disposition. In cases
where undiscounted expected future cash flows are less than the carrying
value, an impairment loss is recognized equal to an amount by which the
carrying value exceeds the fair value of assets. No assets are considered
impaired as of December 31, 1999 or 1998.
Deferred Charges - Costs of issuing bonds and notes are amortized using the
effective interest rate method over the term of the related financing. The
cost of entering into interest rate cap transactions is amortized on a
straight-line basis over the term of the related financing.
Income Taxes - The Partnership is subject to the partnership provisions of
the Internal Revenue Code and, accordingly, incurs no federal or state
income taxes. Individual partners report their respective share of the
Partnership's taxable income, loss, deductions and credits.
Financial Instruments - Designated and restricted cash equivalents include
highly liquid investments with original maturities of three months or less,
readily convertible to known amounts of cash. The amounts reported as
restricted and designated cash and equivalents, receivables, other assets,
accounts payable and accrued expenses are considered to be reasonable
approximations of their fair values. Bonds payable and term notes payable
carrying values are considered to be a reasonable approximation of their
fair values as these financial instruments bare variable interest rates.
The fair value estimates presented herein were based on market information
available to management as of December 31, 1999. The use of different
market assumptions and estimation methodologies could have a material
effect on the estimated fair value amounts. The reported fair values do not
take into consideration other expenses that would be incurred in an actual
settlement.
Revenue Recognition - MPC has contracted to purchase all of the electricity
to be generated by the Project through June 2025. Revenue is recorded based
on power generation at rates established by the Power Purchase Agreement
("PPA").
3. Comprehensive Income:
The only component of accumulative other comprehensive income is unrealized
holding gains and losses on available-for-sale securities, changes for
which have been displayed in the Statements of Comprehensive Income.
8
<PAGE>
D R A F T
<TABLE>
<CAPTION>
4. Designated and Restricted Cash and Equivalents:
Partnership revenues are deposited with an agent bank for disbursement in
accordance with the terms of the partnership and credit agreements.
Designated and restricted funds were as follows:
December 31,
1999 1998
------------------- -------------------
<S> <C> <C>
Designated cash and equivalents:
Cash available for operations:
First Interstate O&M nonlabor $ 104,931 $ 31,750
US Bank accounts 2,514,433 2,415,413
------------------- -------------------
2,619,364 2,447,163
------------------- -------------------
Restricted cash and equivalents:
Credit Suisse revenue holdings account 2,312 50
Credit Suisse debt service account 206,484 260,068
Credit Suisse revolving credit debt service account - 14
Credit Suisse maintenance reserve account 315,725 232,133
Credit Suisse O&M bonus and sub fee account 125,321 128,738
Credit Suisse special reserve account 932 15,450
------------------- -------------------
650,774 636,453
------------------- -------------------
Total designated and restricted cash and equivalents 3,270,138 3,083,616
=================== ===================
</TABLE>
<TABLE>
<CAPTION>
5. Available-for-Sale Securities:
The following is a summary of the Partnership's available-for-sale
securities by contractual maturities:
Gross
Maturity Amortized Unrealized
Year Cost Gains Fair Value
-------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
December 31, 1999
Liquid Investments:
Federal Discount Notes 2000 $ 1,537,429 $ 819 $ 1,538,248
Special reserve account investments:
U.S. Treasury Bills 2000 $ 527,400 $ 133 $ 527,533
Bond reserve fund investments:
Federal Discount Notes 2000 $ 6,017,376 $ - $ 6,017,376
December 31, 1998
Liquid Investments:
U.S. Treasury Notes 1999 $ 1,882,524 $ 9,238 $ 1,891,762
Special reserve account investments:
U.S. Treasury Notes 1999 $ 500,080 $ 3,045 $ 503,125
Bond reserve fund investments:
U.S. Treasury Bills 1999 $ 6,084,976 $ - $ 6,084,976
</TABLE>
9
<PAGE>
D R A F T
<TABLE>
<CAPTION>
6. Property, Plant and Equipment:
Property, plant and equipment was as follows:
December 31,
1999 1998
------------------- -------------------
<S> <C> <C>
Land Improvements $ 80,674 $ 80,674
Land 496,240 496,240
Plant, equipment and systems 86,467,277 86,458,766
Heavy operating equipment 1,245,098 1,245,098
Small tools and equipment 158,360 156,136
Office furniture and equipment 184,611 176,345
Vehicles 85,095 85,095
------------------- -------------------
Property, plant and equipment, at cost 88,817,355 88,698,354
Less accumulated depreciation (18,666,000) (16,770,199)
------------------- -------------------
Property, plant and equipment, net $ 70,151,355 $ 71,928,155
=================== ===================
Depreciation of property, plant and equipment was $1,977,159 for 1999 and $1,963,142 for 1998.
</TABLE>
<TABLE>
<CAPTION>
7. Deferred Charges:
Deferred charges, net of accumulated amortization, were as follows:
December 31,
1999 1998
------------------- -------------------
<S> <C> <C>
Bond financing $ 1,131,770 $ 1,439,418
Notes financing 1,324,722 1,384,116
------------------- -------------------
$ 2,456,492 $ 2,823,534
=================== ===================
</TABLE>
8. Bonds Payable:
The 1989 Series tax-exempt bonds were issued October, 1989 in the amount of
$60,800,000. The bonds bear interest at weekly, monthly, semiannual, annual
or term rates set at the option of the Partnership or, upon termination of
a letter of credit, at a fixed interest rate until maturity. The interest
rate for the tax-exempt bonds was changed from a weekly interest rate to an
annual interest rate effective June 2, 1999, subject to an interest rate
adjustment on June 1, 2000. The weighted average interest rate from January
1, 1999 through May 31, 1999, based on a weekly rate was 3.14%. The annual
interest rate from June 2, 1999 through May 31, 2000 is 3.31%, with
interest payable on the first business day of March, June, September and
December. The interest rate for the week ending December 31, 1998 was
4.05%, with a weighted average interest rate for the year of 3.51%.
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<PAGE>
D R A F T
The bonds mature December, 2015 and are subject to mandatory and optional
redemption prior to maturity. Optional redemption, in whole or in part, may
be made at the election of the Partnership at a redemption price of up to
102% of face value. The bonds are subject to mandatory redemption through a
sinking fund requiring annual payments by the Partnership beginning in
2001. The bonds are payable from revenues of the Partnership or from a
letter of credit.
Scheduled annual bond sinking fund requirements are as follows:
Year Ending Amount Due
----------- ----------
2000 $ -
2001 1,700,000
2002 1,800,000
2003 2,200,000
2004 33,000,000
Thereafter
The remaining balance of bonds are payable upon maturity.
The Partnership has aggregate letters of credit in the amount of
$63,200,000 collateralizing the bonds payable (Note 9).
The bond agreement covenants require the Partnership, among other
requirements, to maintain specific insurance coverages.
9. Term Notes Payable:
The Partnership has a Credit and Reimbursement Agreement ("Credit
Agreement") providing for a Letter of Credit ("LOC") for $60,800,000 for
bond principal payments and $2,400,000 for bond interest payments, term
loans of $12,000,000 and additional credit facilities in the form of
revolving credit loans of $1,000,000 and capacity expansion loans of
$2,000,000. The additional credit facilities in the form of revolving
credit and capacity expansion loans expired in June 1999.
The LOC for the $60,800,000 to cover bond principal payments expires in
June, 2006. The LOC for $2,400,000 to cover bond interest payments expires
on May 31, 2000. Aggregate annual fees on the LOC are approximately 1.17%
through June, 2001 and 1.29% thereafter. The Partnership paid LOC fees of
$772,532 and $738,299 in 1999 and 1998, respectively.
Term notes payable bear interest from 1% to 1.25% above the London
Interbank Offering Rate ("LIBOR"). The interest rate in effect at December
31, 1999 was 7.18% including the spread above LIBOR.
11
<PAGE>
D R A F T
The Partnership agreed to pay an annual commitment fee of 0.5% on the
un-utilized commitments for the capacity expansion loans and the revolving
credit loans plus certain other annual administrative fees which totaled
$69,602 and $77,155 in 1999 and 1998, respectively.
The Partnership has an interest rate cap to protect against the impact of
changes in market interest rates. The effect of this contract is to limit
the interest the Partnership would pay to no more than approximately
10.667% on $45.6 million. The interest rate cap was effective June 30, 1996
and expires on June 30, 2001.
Scheduled principal payments for the term notes are as follows:
2000 2,640,000
2001 1,200,000
2002 1,560,000
----------
$5,400,000
==========
Substantially all of the Partnership assets are pledged as collateral for
the letter of credit and the term notes payable. The credit agreements
provide for no other recourse by the lenders against the Partnership or any
partner.
The Credit Agreement covenants require the Partnership, among other
requirements, to maintain specific debt service coverage ratios and
insurance coverages. Term notes payables are subject to an acceleration
clause upon default of the covenants.
10. Related Party Transactions:
Rosebud and an affiliate provide management and administrative services,
and coal transportation services, and after January 1, 1999, limestone
transportation services to the Partnership, and are also reimbursed for
expenses incurred on behalf of the Partnership. Fees and reimbursable costs
recorded by Rosebud and the affiliate during 1999 and 1998 were $1,217,233
and $1,120,226, respectively, of which $38,992 and $58,078 were payable at
December 31, 1999 and 1998, respectively. The Partnership had receivables
from Rosebud of $70,053 and $66,079 as of December 31, 1999 and 1998,
respectively.
Pursuant to the Partnership Agreement, the general partner is entitled to
receive an Incentive Operating Performance Distribution (IOPD) which is
subordinated to certain other minimum cash distributions starting in 2003.
The IOPD paid to the general partner was $903,366 and $776,498 in 1999 and
1998, respectively, and is reported as a withdrawal of partnership capital
in each respective year. Undistributed IOPD at December 31, 1999 and 1998
was $194,941 and $150,702, respectively. IOPD amounts not distributed bear
interest at prime plus 1%.
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D R A F T
Legal fees, including expenses incurred on behalf of the Partnership, in
the amount of $412,362 and $231,883 were earned by the law firms of Owen H.
Orndorff Law Offices and R. Lee Roberts in 1999 and 1998, respectively.
Consulting fees, including expenses incurred on behalf of the Partnership,
in the amount of $65,321 and $39,469 were earned by Jeffrey L. Smith in
1999 and 1998, respectively. Certain principals of these firms and Jeffrey
L. Smith serve as officers and are shareholders of Rosebud. Amounts payable
to these related parties total $33,276 and $29,354 at December 31, 1999 and
1998, respectively.
11. Commitments:
The Partnership has entered into the following long-term operating
commitments:
o A cogeneration and long-term power purchase agreement with Montana
Power Company to sell and deliver capacity and energy through June
2025. Charges include a fixed fee portion which escalates annually and
a variable portion that is determined by the Montana Public Service
Commission.
o Refuse coal supply and backup coal supply agreements with Western
Energy Company (WECo) to purchase all of the Partnership's coal
requirements until 2025. Charges are modified in January and July of
each year and are based on various complex indices;
o A 1988 limestone supply agreement, amended in 1992, with Montana
Limestone Company with an initial term ending in 2005, renewable for
up to five additional five-year terms. A processing charge is paid by
the Partnership in the amount of $3.00 per ton, increased by a 4%
compounded annual escalation beginning January 1, 1993 ($3.94 per ton
at December 31, 1999);
o A 1991 limestone supply agreement with Montana Limestone Company with
an initial term ending in 2021. A processing charge is paid by the
Partnership in the amount of $3.00 per ton, increased by a 4%
compounded annual escalation beginning September 1, 1990. The
processing charge may be renegotiated in 2006. There was no limestone
processed under this agreement through 1999;
o A services agreement with Constellation Operating Services for
operations and maintenance of the Facility until 2010, renewable for
up to three five-year terms. The Partnership may terminate the
agreement at its sole discretion at December 31, 2000 or December 31,
2005. The charges are based on Constellation's labor costs and other
costs incurred with an additional mark-up; and
o A coal transport agreement with WECo, whereby WECo leases trucks from
the Partnership for coal delivery. The agreement provides for WECo to
operate and maintain the trucks and deliver coal through 2023. The
charges are based on WECo's costs incurred with an additional markup.
Rosebud Operating Services, Inc. performs maintenance on the trucks.
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D R A F T
12. Concentrations of Credit Risk:
The Partnership has concentrations of credit risk, generally does not
require collateral, and does not anticipate credit losses related to cash
balances in bank accounts, which may exceed federally insured amounts, and
receivables from Montana Power Company.
13. Contingencies:
The Partnership's 1989 series tax-exempt bonds are subject to Internal
Revenue Code section 148 regarding arbitrage rebate requirements. The
rebate was calculated based on earnings on non-purpose investments in
excess of interest incurred on the tax-exempt bonds for the 5-year period
ending October 1999. No rebate is due for this period. Rebate amounts, if
any, are due after each 5-year period the tax-exempt bonds are outstanding.
The State of Montana passed, in the 1997 session, legislation deregulating
the electrical generation industry in Montana. MPC publicly announced its
intention to sell its ownership interest in all power generating assets,
including its power purchase contracts. On December 17, 1999, MPC sold its
ownership interests in its power generating assets to Pennsylvania Power &
Light. Any proposed sale of the Partnership's power purchase contract with
MPC must have Partnership approval (which cannot be unreasonably withheld)
and the Partnership cannot predict the impact, if any, that such a sale by
MPC would have on its financial position, results of operations or cash
flows.
The Partnership filed complaints in 1997 and 1998 against MPC claiming
that, among other things, MPC violated the power purchase agreement by
wrongfully curtailing power and capacity purchases during the periods July
3, 1997 through July 18, 1997 and May 5, 1998 through June 17, 1998. In
April 1999 the Partnership and MPC reached a settlement under which MPC
paid the Partnership $507,100. This settlement is recorded as other revenue
in the Statement of Operations.
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