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, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission file number 33-46795
OLD DOMINION ELECTRIC COOPERATIVE
(Exact Name of Registrant as Specified in Its Charter)
VIRGINIA 23-7048405
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
4201 Dominion Boulevard, Glen Allen, Virginia 23060
(Address of Principal Executive Offices) (Zip Code)
----------
(804) 747-0592
(Registrant's Telephone Number, Including Area Code)
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
The Registrant is a membership corporation and has no authorized or outstanding
equity securities.
<PAGE>
OLD DOMINION ELECTRIC COOPERATIVE
INDEX
Page
Number
PART I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets - September 30, 1997 (Unaudited)
and December 31, 1996 3
Consolidated Statements of Revenues, Expenses and
Patronage Capital (Unaudited) - Three and Nine Months Ended
September 30, 1997 and 1996 5
Consolidated Statements of Cash Flows (Unaudited) - Nine
Months Ended June 30, 1997 and 1996 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II. Other Information
Item 1. Legal Proceedings 15
Item 6. Exhibits and Reports on Form 8-K 15
Signature 16
Exhibit Index 17
<PAGE>
OLD DOMINION ELECTRIC COOPERATIVE
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
(unaudited) (*)
<S> <C>
ASSETS:
Electric Plant:
In service $ 883,042 $ 882,879
Less accumulated depreciation (108,956) (91,525)
------------- ------------
774,086 791,354
Nuclear fuel, at amortized cost 3,953 8,311
Plant acquisition adjustment, at amortized cost 23,238 24,790
Construction work in progress 15,877 11,106
------------- ------------
Net Utility Plant 817,154 835,561
------------- ------------
Decommissioning Fund 43,267 39,298
Other Investments and Funds, Available for Sale 5,138 35,112
Restricted Investments and Funds 114,098 109,019
Current Assets:
Cash and cash equivalents 106,754 46,217
Note receivable, net of allowance of $1.6 million
in 1997 and 1996 - 6,992
Receivables, net of allowance of $4.4 million and
$5.1 million in 1997 and 1996 34,223 36,084
Fuel stock 3,223 3,052
Materials and supplies, at average cost 5,398 5,186
Prepayments 1,234 1,187
------------- ------------
Total Current Assets 150,832 98,718
------------- ------------
Deferred Charges 29,756 27,412
Other Assets 7,435 11,226
------------- ------------
Total Assets $ 1,167,680 $ 1,156,346
============= ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
(*) The Consolidated Balance Sheet at December 31, 1996, has been taken
from the audited financial statements at that date, but does not
include all disclosures required by generally accepted accounting
principles.
3
<PAGE>
OLD DOMINION ELECTRIC COOPERATIVE
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
(unaudited) (*)
<S> <C>
CAPITALIZATION AND LIABILITIES:
Capitalization:
Patronage capital $ 193,095 $ 184,753
Long-term debt 634,117 664,490
------------- -------------
Total Capitalization 827,212 849,243
------------- -------------
Current Liabilities:
Long-term debt due within one year 18,228 17,928
Accounts payable 39,985 26,409
Accounts payable - Member deposits 32,130 19,308
Construction contract payable - 15,283
Deferred energy 3,513 1,771
Accrued interest 16,559 4,445
Accrued taxes 2,434 497
Other 3,496 4,342
------------- -------------
Total Current Liabilities 116,345 89,983
------------- -------------
Decommissioning Reserve 43,267 39,298
Deferred Credits 62,801 64,868
Obligations under Long-Term Leases 117,308 112,202
Other Liabilities 747 752
Commitments and Contingencies
------------- -------------
Total Capitalization and Liabilities $ 1,167,680 $ 1,156,346
============= =============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
(*) The Consolidated Balance Sheet at December 31, 1996, has been taken
from the audited financial statements at that date, but does not
include all disclosures required by generally accepted accounting
principles.
4
<PAGE>
OLD DOMINION ELECTRIC COOPERATIVE
CONSOLIDATED STATEMENTS OF REVENUES,
EXPENSES AND PATRONAGE CAPITAL (UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- -----------------------
1997 1996 1997 1996
--------- ---------- ---------- ---------
<S> <C>
Operating Revenues:
Sales to members $ 93,620 $ 98,591 $ 262,311 $ 279,548
Sales to non-members 80 40 382 247
--------- --------- --------- ---------
93,700 98,631 262,693 279,795
--------- --------- --------- ---------
Operating Expenses:
Operation-
Fuel 10,956 9,221 29,321 27,821
Purchased power 47,791 44,202 127,094 147,807
Other 5,650 6,124 16,662 14,990
--------- --------- --------- ---------
64,397 59,547 173,077 190,618
Maintenance 1,534 2,975 5,821 6,865
Administrative and general 3,987 3,738 12,113 10,813
Depreciation and amortization 6,763 5,263 20,319 16,350
Amortization of lease gains (689) (549) (2,067) (907)
Decommissioning cost 171 171 511 511
Taxes other than income taxes 1,829 1,460 5,424 4,452
--------- --------- --------- ---------
Total Operating Expenses 77,992 72,605 215,198 228,702
--------- --------- --------- ---------
Operating Margin 15,708 26,026 47,495 51,093
--------- --------- --------- ---------
Other (Expense)/Income, net (109) (9,974) (143) (4,286)
--------- --------- --------- ---------
Investment Income:
Interest 661 1,166 2,308 3,919
Other 6 739 102 1,284
--------- --------- --------- ---------
Total Investment Income 667 1,905 2,410 5,203
--------- --------- --------- ---------
Interest Charges:
Interest on long-term debt, net 13,559 14,974 41,542 46,265
Other 82 134 167 321
Allowance for borrowed funds
used during construction (103) (174) (289) (3,894)
--------- --------- --------- ---------
Net Interest Charges 13,538 14,934 41,420 42,692
--------- --------- --------- ---------
Net Margin 2,728 3,023 8,342 9,318
Patronage Capital-beginning of period 190,367 178,808 184,753 172,513
--------- --------- --------- ---------
Patronage Capital-end of period $ 193,095 $ 181,831 $ 193,095 $ 181,831
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE>
OLD DOMINION ELECTRIC COOPERATIVE
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------
1997 1996
---------- ---------
(in thousands)
<S> <C>
Cash Provided By Operating Activities:
Net margin $ 8,342 $ 9,318
Adjustments to reconcile net margin to net cash
provided by operating activities:
Depreciation 18,696 14,705
Amortization 8,531 8,238
Decommissioning cost 511 511
Provision for losses on notes and accounts receivable -- 11,010
Amortization of lease obligations 6,163 2,618
Gain from lease transactions (2,067) (6,672)
Change in Current Assets and Liabilities:
Change in current assets 8,423 1,383
Change in current liabilities 41,345 (10,341)
(Increase) decrease in deferred charges (3,186) 529
Decrease (increase) in other assets 3,653 (2,506)
Increase in deferred credits -- 62,977
(Decrease) increase in other liabilities (5) 549
--------- ---------
Net Cash Provided By Operating Activities 90,406 92,319
--------- ---------
Cash (Used For) Provided By Financing Activities:
Additions to long-term debt -- 23,884
Obligations under long-term lease -- 107,566
Reductions of long-term debt (31,713) (83,411)
--------- ---------
Net Cash (Used For) Provided By Financing Activities (31,713) 48,039
--------- ---------
Cash Provided By (Used For) Investing Activities:
Additions to electric plant (21,506) (26,099)
Decommissioning fund deposits (511) (511)
(Additions to) reduction of other investments and funds, net 29,974 (105,188)
Additions to restricted investments and funds, net (6,136) --
Retirement work in progress 23 7
--------- ---------
Net Cash Provided By (Used For) Investing Activities 1,844 (131,791)
--------- ---------
Net Increase in Cash and Cash Equivalents 60,537 8,567
Beginning of Period Cash and Cash Equivalents 46,217 63,670
--------- ---------
End of Period Cash and Cash Equivalents $ 106,754 $ 72,237
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
6
<PAGE>
OLD DOMINION ELECTRIC COOPERATIVE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. In the opinion of the management of Old Dominion Electric Cooperative ("Old
Dominion"), the accompanying unaudited consolidated financial statements
contain all adjustments, which include only normal recurring adjustments,
necessary for a fair statement of Old Dominion's consolidated financial
position as of September 30, 1997, its consolidated results of operations
for the three and nine months ended September 30, 1997 and 1996, and its
consolidated cash flows for the nine months ended September 30, 1997 and
1996. The consolidated results of operations for the nine months ended
September 30, 1997, are not necessarily indicative of the results to be
expected for the entire year. These financial statements should be read in
conjunction with the financial statements and notes thereto included in Old
Dominion's 1996 Annual Report on Form 10-K filed with the Securities and
Exchange Commission (the "SEC").
2. On April 17, 1997, the turbine generator unit on Clover Power Station's
("Clover") Unit 2 was damaged when necessary auxiliary power was not
available after the unit tripped off-line. The damage, repairs for which
were approximately $5.8 million (Old Dominion's share being $2.9 million),
was covered by insurance. Old Dominion's share of the insurance deductible
was $250,000. Repairs to the unit have been completed and the unit was back
in operation on July 2, 1997. During the outage, replacement power was
purchased from Virginia Power at supplemental rates.
3. In 1996, Old Dominion entered into two long-term lease and leaseback
transactions. The net benefit to Old Dominion of these transactions was
approximately $63.0 million. After the transactions closed, the staff of
the Virginia State Corporation Commission ("SCC") assessed a 2.1% gross
receipts tax on the approximately $635.0 million base value of the
leaseback transactions. Old Dominion paid the $13.3 million gross receipts
tax assessment under protest on June 1, 1997. A hearing with the SCC was
held on September 9, 1997, to review the assessment of gross receipts taxes
and a judgment was subsequently rendered in favor of Old Dominion. The
$13.3 million was returned to Old Dominion on September 30, 1997.
4. In 1995, Old Dominion and 10 of its 12 member distribution systems
established an affiliate, CSC Services, Inc. ("CSC"), to explore
alternative business opportunities on behalf of the cooperatives. During
1996, CSC invested in an approximate one-half interest in Seacoast Power
LLC, whose wholly-owned subsidiary, Seacoast, Inc. ("Seacoast"), executed a
six-month power sales contract with INECEL, the state-owned electric
utility in Ecuador. CSC and the other participants in Seacoast Power LLC
also formed Power Ventures LLC. Through loans of approximately $17.5
million to Seacoast, Old Dominion and CSC funded approximately one-half the
cost to construct and operate the generating assets necessary to fulfill
the power sales contract with INECEL.
Because of contract disputes, INECEL did not pay invoices rendered by
Seacoast for energy made available under the terms of the power sales
contract. Accordingly, in July 1996, Seacoast filed a $26.0 million lawsuit
in Ecuador against INECEL seeking to recover approximately $16.3 million in
amounts owed under the power sales contract, plus damages and fees.
Management of Seacoast plans to pursue this matter; however, a trial date
has not been set.
On May 24, 1996, a default judgment of approximately $27.0 million was
rendered against Seacoast pursuant to a claim filed in the District Court
of Travis County, Texas, by an entity seeking damages for breach of an oral
contract by the former owners of Seacoast. Seacoast's registered agent in
Texas failed to notify the current owners of Seacoast of the claim in a
7
<PAGE>
timely manner. On appeal, the judgment was remanded back to the District
Court in December 1996; however, in January 1997, the appellate court
reversed its decision and agreed to hear the appeal. No rehearing date has
been scheduled. Management of Seacoast expects to prevail in having the
judgment overturned.
5. On February 27, 1997, Southside Electric Cooperative ("Southside"), one of
two Member distribution systems that did not participate in forming CSC,
raised a question as to whether the loss, with respect to Old Dominion's
interest in Seacoast, should be borne totally by Old Dominion, thus
resulting in a greater financial burden on Southside. Southside asserts
that their share of the loss should be limited to a prorata share of Old
Dominion's 30% common equity participation in CSC, which may be less than
their proportionate share as an Old Dominion member.
On October 16, 1997, the Board of Directors of Southside passed a
resolution outlining various issues of concern with Old Dominion.
Management believes these issues will be resolved without a material
impact on Old Dominion's financial position.
6. Certain reclassifications have been made to the accompanying prior year's
consolidated financial statements to conform to the current year's
presentation.
8
<PAGE>
OLD DOMINION ELECTRIC COOPERATIVE
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Operating Revenues. Old Dominion's operating revenues are derived from
power sales to its Members and to non-members. Revenues from sales to Members
are a function of the requirement for power by the Members' consumers and Old
Dominion's cost of service in meeting that requirement. The major factors
affecting Members' consumers' demand for power are the growth in the number of
consumers and seasonal weather fluctuations.
The following table illustrates increases (decreases) in operating revenues
by component:
Three Months Nine Months
Ended Ended
September 30, September 30,
1997 vs 1996 1997 vs 1996
------------ -------------
(in thousands)
Sales to Members:
Power sales volume $ 12,683 $ 874
Blended rates (731) (1,803)
Fuel adjustment revenues (2,159) (5,432)
Margin stabilization plan adjustment (14,764) (10,876)
Sales to Non-members 40 135
-------- --------
$ (4,931) $(17,102)
======== ========
During the three months ended September 30, 1997, sales volume increased
$12.7 million as compared to the same period in 1996 due to a 13.4% increase in
demand sales and an 11.1% increase in energy sales. The increases were the
result of hotter than normal temperatures in August and September of 1997
combined with cooler than normal temperatures in the third quarter of 1996. The
increase in sales volume was off-set by a $14.8 million change in the margin
stabilization plan adjustment. This change is primarily the result of the
increase in the sales volume and the partial write-off in 1996 of Old Dominion's
interest in Seacoast, Inc. Old Dominion's demand and energy sales for the
three months ended September 30, 1997, were 4,204,280 kW and 2,043,371 MWh,
respectively. Demand and energy sales for the three months ended September 30,
1996, were 3,668,042 kW and 1,840,155 MWh, respectively.
Operating revenues for the nine months ended September 30, 1997, increased
as compared to the same period in 1996 due to a $10.9 million change in the
margin stabilization plan adjustment. Additionally, there was a $5.4 million
decrease in fuel adjustment revenues. Demand and energy sales for the nine
months ended September 30, 1997, were 11,420,930 kW and 5,680,258 MWh,
respectively. Demand and energy sales for the nine months ended September 30,
1996, were 11,421,737 kW and 5,630,571 MWh, respectively.
Operating Expenses. Old Dominion has an 11.6% ownership interest in the
North Anna Nuclear Power Station ("North Anna"). While nuclear power plants,
such as North Anna, generally have relatively high fixed costs, such facilities
operate with relatively low variable costs due to lower fuel costs and
technological efficiencies. Owners of nuclear power plants, including Old
Dominion, incur the embedded fixed costs of these facilities whether or not the
units operate.
Old Dominion also holds a 50% undivided interest in the Clover Power
Station ("Clover"), which became fully operational when Unit 2 began commercial
operation in March 1996.
9
<PAGE>
When either North Anna or Clover is off-line, Old Dominion must purchase
replacement power that can be more costly. Any change in the amount of Old
Dominion's energy output from North Anna or Clover displaces or is replaced by
higher cost supplemental energy purchases from Virginia Electric and Power
Company ("Virginia Power"). As a result, Old Dominion's operating expenses, and
therefore its rates to the Members, are significantly impacted by the operations
of North Anna and Clover.
North Anna and Clover capacity factors for the three and nine month periods
ended September 30, 1997 and 1996, were as follows:
<TABLE>
<CAPTION>
North Anna Clover
--------------------------------------- --------------------------------------
Three Nine Three Nine
Months Ended Months Ended Months Ended Months Ended
September 30, September 30, September 30, September 30
-------------- -------------- -------------- -------------
1997 1996 1997 1996 1997 1996 1997 1996
<S> <C> -------------- -------------- -------------- -------------
Unit 1 100.0% 98.3% 88.3% 84.8% 55.4% 41.8% 67.2% 56.5%
Unit 2 99.6 72.9 100.2 91.5 81.7 76.7 55.8 75.2
Combined 99.8 85.6 94.3 88.2 68.6 59.3 61.5 65.9
</TABLE>
During the nine month period ended September 30, 1997, North Anna Unit 1
was off-line 30 days for scheduled maintenance and refueling. Unit 2 was not
off-line during the first nine months of 1997. During the nine month period
ended September 30, 1996, North Anna Unit 1 was off-line 30 days for scheduled
maintenance and refueling and 2 days for unscheduled maintenance. Unit 2 was
off-line 23 days for scheduled refueling.
During the nine month period ended September 30, 1997, Clover Unit 1 was
off-line 47 days for repairs to the chimney's liner, three days for other minor
unscheduled maintenance and five days for scheduled maintenance. Also during the
nine months ended September 30, 1997, Clover Unit 2 was off-line 11 days for a
scheduled warranty inspection, 11 days for unscheduled maintenance and 75 days
for repairs resulting from the damage incurred on April 17, 1997, when the unit
tripped off-line. During the nine month period ended September 30, 1996, Clover
Unit 1 was off-line 59 days for replacement of the burners and repairs to the
chimney's liner, 10 days for a scheduled warranty inspection and six days for
unscheduled maintenance. Unit 2 was off-line 10 days for scheduled maintenance.
Old Dominion's energy supply for the three and nine month periods ended
September 30, 1997 and 1996, was as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------------- ------------------------------------
1997 1996 1997 1996
-------------- ---------------- --------------- ---------------
(MWh) (MWh) (MWh) (MWh)
<S> <C>
North Anna 457,738 21.5% 392,314 20.7% 1,282,063 21.8% 1,204,154 20.8%
Clover 667,508 31.3 516,941 27.3 1,756,830 29.9 1,532,169 26.5
Purchased Power:
Virginia Power 525,681 24.6 530,497 28.0 1,493,879 25.4 1,693,391 29.2
Delmarva Power 157,443 7.4 143,365 7.6 403,227 6.8 417,859 7.2
PSE&G Contract 276,585 13.0 267,317 14.1 804,755 13.7 819,299 14.1
Other 47,156 2.2 43,257 2.3 142,565 2.4 128,893 2.2
----------- ------- ------------------ ----------------- -------------------
Total Available Energy 2,132,111 100.0% 1,893,691 100.0% 5,883,319 100.0% 5,795,765 100.0%
</TABLE>
Fuel costs increased during the three and nine month periods ended
September 30, 1997, as compared to the same periods in 1996 due to increased
production at North Anna and Clover.
10
<PAGE>
Purchased power costs increased during the third quarter of 1997 as
compared to the third quarter of 1996 due to increased demand and energy sales.
Purchased power costs decreased during the first nine months of 1997 as compared
to the corresponding period in 1996 as a result of increased generation and a
reduction in demand costs due to the renegotiation of purchased power contracts.
Other operating costs decreased in the third quarter of 1997 as compared to
the same period in 1996 due to a $.9 million write-off of North Anna pollution
control capitalized interest in 1996. Other operating costs, excluding the $.9
million write-off, increased due to an increase in production and the
reclassification of certain costs from maintenance to production expense in
1997. Other operating costs increased during the first nine months of 1997 as
compared to the same period in 1996 primarily due to an increase in production
and transmission costs. The increase in costs resulted from the increase in
production and the reclassification of costs.
Maintenance expense decreased during the third quarter and first nine
months of 1997 as compared to the same periods in 1996 due to the
reclassification of costs from maintenance to production expense in 1997.
Administrative and general expenses increased during the three and nine
months ended September 30, 1997, due primarily to additional expenses for
purchased power contract negotiations. Also, expenses for the nine months ended
September 30, 1997, increased due to a change in estimate of the Federal Energy
Regulatory Commission's ("FERC") annual fee.
Depreciation and amortization expense increased during the third quarter
and first nine months of 1997 as compared to the same periods in 1996 due to
continued recording of depreciation expense on replaced steam generators at
North Anna, which were not fully depreciated when replaced in 1996, and an
increase in Clover depreciation because of a change in the estimated life of the
Clover Unit 1 ash site landfill. Additionally, for the nine months ended
September 30, 1997, both Clover Units 1 and 2 were in operation, whereas, in the
first nine months of 1996, Clover Unit 2 was in operation for only six months.
Taxes for the three and nine month periods ended September 30, 1997,
increased as compared to the same periods in 1996 primarily due to property
taxes on Clover. Additionally, for the nine months ended September 30, 1997,
there was an increase in gross receipts taxes resulting from increased revenues
and decreased power purchases.
Other (expense)/income, net, decreased during the three and nine month
periods ended September 30, 1997, as compared to the same periods in 1996
primarily due to the recording of a reserve against the loan to Seacoast, Inc.
in 1996. The decrease was off-set by an additional billing to Virginia Power of
approximately $1.5 million for direct overhead costs related to the Clover
Project for the period 1990 through 1995. For the nine months ended September
30, 1996, other expense was off-set by the recognition of a gain on the cross
border lease transaction, which was completed in 1995.
Investment income decreased during the third quarter and first nine months
of 1997 as compared to 1996 due primarily to lower investment balances.
Interest on long-term debt decreased in 1997 due to the purchase, in April
1997, of $32.0 million of outstanding debt and the purchase, in 1996, of $83.1
million of outstanding debt combined with $18.4 million in debt service
payments. The 1997 and 1996 debt purchases resulted in net interest savings of
$42.7 million and $138.2 million, respectively, over the life of the debt.
Allowance for borrowed funds used during construction decreased in the
third quarter and first nine months of 1997 as compared to 1996 because interest
capitalization on the Clover construction project ceased as the units began
commercial operation.
11
<PAGE>
Liquidity and Capital Resources
Operating Activities. Net cash provided by operating activities increased
for the nine month period ended September 30, 1997, as compared to the same
period in 1996, primarily due to increased depreciation resulting from the
commercialization of Clover and changes between periods in non-cash working
capital accounts, mainly accounts payable and accrued interest on long-term
debt.
Financing Activities. In April 1997, Old Dominion purchased a total of
$32.0 million of its 8.76% First Mortgage Bonds, Series 1992 A. The transaction
resulted in a net loss of approximately $2.0 million, including the write-off of
original issuance costs. The losses have been deferred and are being amortized
over the life of the remaining bonds.
Investing Activities. Net cash provided by investing activities increased
primarily as a result of liquidating investments for the purchase of $32.0
million of outstanding debt. The increase was off-set by $21.5 million of
electric plant additions.
Competition
Pursuant to statutes in Virginia and Delaware and an order of the public
service commission in Maryland, each of the Members operating in those states
has been granted an exclusive service territory. See "THE MEMBERS--Territorial
Integrity" in Old Dominion's Annual Report on Form 10-K for the year ended
December 31, 1996. As discussed in the 1996 Form 10-K, the electric utility
industry is becoming increasingly competitive. In fact, the electric industry is
undergoing fundamental changes as it moves toward deregulation. Individual
states currently have the authority to determine whether to implement retail
competition, in the form of retail wheeling or otherwise, within their state.
Several states are in the process of considering retail competition. Congress is
currently evaluating proposed federal legislation that will mandate retail
wheeling in every state. Respective state legislatures and commissions in the
three state member territory are currently evaluating electric utility
restructuring, which could result in legislative action in the three states in
1998.
One foreseeable result of the trend toward deregulation and retail
competition, is that the market price for electricity will drop. A lower price
for electricity will cause many utilities with fixed investments to face a
situation where the utility may not be able to charge rates sufficient to
recover all of its costs. This situation is what is referred to in the utility
industry as "stranded costs." In anticipation of deregulation and retail
competition, Old Dominion's management is currently determining the range of
stranded costs based on a variety of strategies aimed at addressing competition.
Old Dominion, like all rate regulated utilities, is required to account for
its activities pursuant to Statement of Financial Accounting Standards No. 71,
"Accounting for the Effects of Certain Types of Regulation" ("SFAS 71"). To
reduce the rate impact on customers of certain activities, most utilities, under
SFAS 71, have capitalized certain costs, and amortized such costs, to rates over
a set period of time. Stranded costs are an example of such capitalized costs.
The respective state legislatures, and perhaps federal legislation, will
determine whether, and to what extent, stranded costs can be recovered through
retail rates. Although neither Virginia, Maryland nor Delaware has passed
legislation specifically addressing stranded costs, Old Dominion has no reason
to believe that it will not be able to recover those costs.
On October 14, 1997, Old Dominion's Board of Directors approved a
resolution to adopt a strategic plan to mitigate the effects of the transition
to a competitive electric market. Management is currently evaluating various
alternatives as Old Dominion begins the transition to competition. The
resolution calls for rates to remain
12
<PAGE>
at levels above cost, through the year 2002, with all revenues in excess of cost
utilized to mitigate stranded costs. The resolution does not anticipate a rate
increase. The Board stated that they will review and may change the target and
timing for collection of stranded costs depending on the legislative outlook,
regulatory environment and the then current expectation for market prices.
Old Dominion and its Members believe that the changes in the industry,
along with the growing diversity of needs of the Members, make it beneficial to
study the feasibility of altering certain aspects of the relationship between
Old Dominion and its Members, so as to allow for the possibility that the
Members could satisfy some or all of their additional future electric power
needs from sources other than Old Dominion. The Members are currently discussing
these matters with Old Dominion and have stated their commitment to Old Dominion
to work together to address these issues.
On October 16, 1997, the Board of Directors of Southside Electric
Cooperative ("Southside") passed a resolution outlining various issues of
concern with Old Dominion. Management believes these issues will be resolved
over time as part of the overall changes referred to in the immediately
preceding paragraph and without a material impact on Old Dominion's financial
position.
Other Matters
On July 29, 1997, Old Dominion and Virginia Power signed an Amended and
Restated Interconnection & Operating Agreement ("I&O Agreement"). The I&O
Agreement will become effective on the later of January 1, 1998, or the date on
which the Federal Energy Regulatory Commission accepts the agreement for filing
and permits the agreement to become effective, and extends through 2005. The I&O
Agreement covers the supply of supplemental, peaking and reserve power plus a
new power transmission relationship that takes into account a national policy of
opening power lines to competing wholesale power suppliers. It also allows the
two companies to make the transition to a competitive electric power market over
a five-year period. Old Dominion estimates that this new wholesale power
contract with Virginia Power could generate significant savings for its Members
over current rates.
On April 17, 1997, the turbine generator unit on Clover Unit 2 was damaged
when necessary auxiliary power was not available after the unit tripped
off-line. The damage, repairs for which were approximately $5.8 million (Old
Dominion's share being $2.9 million), was covered by insurance. Old Dominion's
share of the insurance deductible was $250,000. Repairs to the unit have been
completed and the unit was back in operation on July 2, 1997. During the outage,
replacement power was purchased from Virginia Power at supplemental rates.
In 1996, Old Dominion entered into two long-term lease and leaseback
transactions. The net benefit to Old Dominion of these transactions was
approximately $63.0 million. After the transactions closed, the staff of the
Virginia State Corporation Commission ("SCC") assessed a 2.1% gross receipts tax
on the approximately $635.0 million base value of the leaseback transactions.
Old Dominion paid the $13.3 million gross receipts tax assessment under protest
on June 1, 1997. A hearing with the SCC was held on September 9, 1997, to review
the assessment of gross receipts taxes and a judgment was rendered in favor of
Old Dominion. The $13.3 million was returned to Old Dominion on September 30,
1997.
13
<PAGE>
In 1995, Old Dominion and 10 of its 12 member distribution systems
established an affiliate, CSC Services, Inc. ("CSC"), to explore alternative
business opportunities on behalf of the cooperatives. During 1996, CSC invested
in an approximate one-half interest in Seacoast Power LLC, whose wholly-owned
subsidiary, Seacoast, Inc. ("Seacoast"), executed a six-month power sales
contract with INECEL, the state-owned electric utility in Ecuador. CSC and the
other participants in Seacoast Power LLC also formed Power Ventures LLC. Through
loans of approximately $17.5 million to Seacoast, Old Dominion and CSC funded
approximately one-half the cost to construct and operate the generating assets
necessary to fulfill the power sales contract with INECEL.
Because of contract disputes, INECEL did not pay invoices rendered by
Seacoast for energy made available under the terms of the power sales contract.
Accordingly, in July 1996, Seacoast filed a $26.0 million lawsuit in Ecuador
against INECEL seeking to recover approximately $16.3 million in amounts owed
under the power sales contract, plus damages and fees. Management of Seacoast
plans to pursue this matter; however, a trial date has not been set.
On May 24, 1996, a default judgment of approximately $27.0 million was
rendered against Seacoast pursuant to a claim filed in the District Court of
Travis County, Texas, by an entity seeking damages for breach of an oral
contract by the former owners of Seacoast. Seacoast's registered agent in Texas
failed to notify the current owners of Seacoast of the claim in a timely manner.
On appeal, the judgment was remanded back to the District Court in December
1996; however, in January 1997, the appellate court reversed its decision and
agreed to hear the appeal. No rehearing date has been scheduled. Management of
Seacoast expects to prevail in having the judgment overturned.
On February 27, 1997, Southside Electric Cooperative ("Southside"), one of
two Member distribution systems that did not participate in forming CSC, raised
a question as to whether the loss, with respect to Old Dominion's interest in
Seacoast, should be borne totally by Old Dominion, thus resulting in a greater
financial burden on Southside. Southside asserts that their share of the loss
should be limited to a prorata share of Old Dominion's 30% common equity
participation in CSC, which may be less than their proportionate share as an Old
Dominion member.
14
<PAGE>
OLD DOMINION ELECTRIC COOPERATIVE
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Other than certain legal proceedings arising out of the ordinary
course of business, which management believes will not have a
material adverse impact on the results of operations or financial
condition of Old Dominion, there is no other litigation pending or
threatened against Old Dominion. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Other
Matters" for a discussion of certain disputes relating to Old
Dominion's interest in Seacoast.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
27. Financial Data Schedule
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the Registrant during the
quarter ended September 30, 1997.
<PAGE>
SIGNATURE
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.
OLD DOMINION ELECTRIC COOPERATIVE
Registrant
Date: November 14, 1997 /s/ Daniel M.Walker
---------------------------------------
Daniel M. Walker
Vice President of Accounting and Finance
(Chief Financial Officer)
<PAGE>
EXHIBIT INDEX
Exhibit Page
Number Description of Exhibit Number
- ------- ---------------------- ------
27. Financial Data Schedule 17
<TABLE> <S> <C>
<ARTICLE> OPUR1 <<<--- CUSTOMER PLEASE CHECK
<LEGEND>
The Schedule contains summary financial information extracted from the
consolidated financial statements of Old Dominion electric cooperative and is
qualified in its entirety by reference to such consolidated financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 817,154
<OTHER-PROPERTY-AND-INVEST> 162,503
<TOTAL-CURRENT-ASSETS> 150,832
<TOTAL-DEFERRED-CHARGES> 29,756
<OTHER-ASSETS> 7,435
<TOTAL-ASSETS> 1,167,680
<COMMON> 0
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 193,095<F1>
<TOTAL-COMMON-STOCKHOLDERS-EQ> 0
0
0
<LONG-TERM-DEBT-NET> 634,117
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 18,228
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 322,240
<TOT-CAPITALIZATION-AND-LIAB> 1,167,680
<GROSS-OPERATING-REVENUE> 262,693
<INCOME-TAX-EXPENSE> 0
<OTHER-OPERATING-EXPENSES> 215,198
<TOTAL-OPERATING-EXPENSES> 215,198
<OPERATING-INCOME-LOSS> 47,495
<OTHER-INCOME-NET> 2,267
<INCOME-BEFORE-INTEREST-EXPEN> 49,762
<TOTAL-INTEREST-EXPENSE> 41,420
<NET-INCOME> 8,342
0
<EARNINGS-AVAILABLE-FOR-COMM> 0
<COMMON-STOCK-DIVIDENDS> 0
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 90,406
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>Old Dominion is organized and operated as a cooperative. Patronage capital is
the retained net margins of Old Dominion which have been allocated to its
members based ontheir respective power purchases in accordnace with Old
Dominion's bylaws.
</FN>
</TABLE>
