SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _________
Commission file 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 __ No X
The Registrant is a membership corporation and has no authorized or outstanding
equity securities.
<PAGE>
OLD DOMINION ELECTRIC COOPERATIVE
INDEX
<TABLE>
<CAPTION>
Page
Number
<S> <C>
PART I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets - June 30, 1998 (Unaudited)
and December 31, 1997 3
Consolidated Statements of Revenues, Expenses and
Patronage Capital (Unaudited) - Three and Six Months Ended
June 30, 1998 and 1997 5
Consolidated Statements of Comprehensive Income (Unaudited) -
Three and Six Months Ended June 30, 1998 and 1997 6
Consolidated Statements of Cash Flows (Unaudited) - Six
Months Ended June 30, 1998 and 1997 7
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
PART II. Other Information
Item 1. Legal Proceedings 16
Item 6. Exhibits and Reports on Form 8-K 16
Signature 17
Exhibit Index 18
</TABLE>
<PAGE>
OLD DOMINION ELECTRIC COOPERATIVE
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------ ------------
(unaudited) (*)
<S> <C>
ASSETS:
Electric Plant:
In service $ 885,420 $ 885,670
Less accumulated depreciation (128,058) (116,409)
------------ ------------
757,362 769,261
Nuclear fuel, at amortized cost 3,663 6,401
Plant acquisition adjustment, at amortized cost 11,360 22,721
Construction work in progress 15,841 12,701
------------ ------------
Net Electric Plant 788,226 811,084
------------ ------------
Decommissioning Fund 49,121 44,162
Other Investments and Funds 32,431 24,539
Restricted Investments and Funds 116,454 116,080
Current Assets:
Cash and cash equivalents 85,092 61,740
Receivables, net of allowance of $6.0 million in
1998 and 1997 34,189 34,582
Fuel stock 2,676 4,254
Materials and supplies, at average cost 5,721 5,362
Prepayments 2,029 1,439
------------ ------------
Total Current Assets 129,707 107,377
------------ ------------
Deferred Charges 14,267 14,058
Other Assets 11,787 12,612
------------ ------------
Total Assets $ 1,141,993 $ 1,129,912
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
(*) The Consolidated Balance Sheet at December 31, 1997, has been taken
from the audited financial statements at that date, but does not
include all disclosures required by generally accepted accounting
principles.
<PAGE>
OLD DOMINION ELECTRIC COOPERATIVE
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------ ------------
<S> <C>
CAPITALIZATION AND LIABILITIES: (unaudited) (*)
Capitalization:
Patronage capital $ 199,672 $ 197,552
Accumulated other comprehensive income 477 -
Long-term debt 607,009 605,878
------------ ------------
Total Capitalization 807,158 803,430
------------ ------------
Current Liabilities:
Long-term debt due within one year 29,535 30,116
Accounts payable 25,368 31,732
Accounts payable - Member deposits 40,467 26,118
Deferred energy 661 3,960
Accrued interest 4,109 4,111
Accrued taxes 1,227 263
Other 3,535 4,151
----------- ------------
Total Current Liabilities 104,902 100,451
------------ ------------
Decommissioning Reserve 49,121 44,162
Deferred Credits 60,404 61,782
Obligations under Long-Term Leases 119,660 119,343
Other Liabilities 748 744
Commitments and Contingencies
------------ ------------
Total Capitalization and Liabilities $ 1,141,993 $ 1,129,912
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
(*) The Consolidated Balance Sheet at December 31, 1997, has been taken
from the audited financial statements at that date, but does not
include all disclosures required by generally accepted accounting
principles.
<PAGE>
OLD DOMINION ELECTRIC COOPERATIVE
CONSOLIDATED STATEMENTS OF REVENUES,
EXPENSES AND PATRONAGE CAPITAL (UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- ---------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C>
Operating Revenues:
Sales to Members $ 82,099 $ 79,873 $ 167,774 $ 168,691
Sales to non-members 281 275 453 302
------------ ------------ ------------ ------------
82,380 80,148 168,227 168,993
------------ ------------ ------------ ------------
Operating Expenses:
Operation:
Fuel 10,183 7,924 21,162 18,365
Purchased power 32,217 35,935 68,333 79,303
Other 6,206 5,537 11,955 11,012
------------ ------------ ------------ ------------
48,606 49,396 101,450 108,680
Maintenance 1,906 2,364 3,744 4,287
Administrative and general 3,986 4,174 7,777 8,126
Depreciation and amortization 12,092 7,041 24,192 13,556
Amortization of lease gains (689) (689) (1,378) (1,378)
Decommissioning cost 170 170 340 340
Taxes other than income taxes 1,860 1,791 3,717 3,595
------------ ------------ ------------ ------------
Total Operating Expenses 67,931 64,247 139,842 137,206
----------- ------------ ------------ ------------
Operating Margin 14,449 15,901 28,385 31,787
------------ ------------ ------------ ------------
Other Income/(Expense), net 8 (152) 582 (34)
----------- ------------ ------------ ------------
Investment Income:
Interest 1,138 677 2,098 1,647
Other 60 - 154 96
------------ ------------ ------------ ------------
Total Investment Income 1,198 677 2,252 1,743
------------ ------------ ------------ ------------
Interest Charges:
Interest on long-term debt, net 12,997 13,724 25,992 27,983
Other 137 49 200 85
Allowance for borrowed funds
used during construction (105) (100) (209) (186)
----------- ------------ ------------ ------------
Net Interest Charges 13,029 13,673 25,983 27,882
------------ ------------ ------------ ------------
Net Margin 2,626 2,753 5,236 5,614
Patronage Capital-beginning
of period 197,046 187,614 197,552 184,753
Payment of Capital Credits - - (3,116) -
------------ ------------ ------------ ------------
Patronage Capital-end of period $ 199,672 $ 190,367 $ 199,672 $ 190,367
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
OLD DOMINION ELECTRIC COOPERATIVE
STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- ---------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
(in thousands) (in thousands)
<S> <C>
Net Margin $ 2,626 $ 2,753 $ 5,236 $ 5,614
Other comprehensive income:
Unrealized gains on investments 143 - 477 -
------------ ------------ ------------ ------------
Comprehensive income $ 2,769 $ 2,753 $ 5,713 $ 5,614
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
OLD DOMINION ELECTRIC COOPERATIVE
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
---------------------------
1998 1997
------------ ------------
<S> <C>
Cash Provided by Operating Activities:
Net margin $ 5,236 $ 5,614
Adjustments to reconcile net margin to net cash
provided by operating activities:
Depreciation 12,618 12,472
Amortization of plant acquisition adjustment 11,361 1,035
Amortization of nuclear fuel 2,738 2,735
Decommissioning cost 340 340
Amortization of debt discount 1,131 1,088
Amortization of other debt costs 474 610
Amortization of deferred charges 210 45
Amortization of lease obligation 4,167 3,904
Gain from lease transactions (1,378) (1,378)
Changes in Current Assets and Current Liabilities:
Change in current asssets 1,022 7,842
Change in current liabilities 5,032 30,615
(Increase) decrease in deferred charges (801) 255
Decrease (increase) in other assets 733 (3,251)
Decrease in deferred credits - (13,335)
Increase (decrease) in other liabilities 4 (3)
------------ ------------
Net Cash Provided by Operating Activities 42,887 48,588
------------ ------------
Cash Used for Financing Activities:
Obligations under long-term leases (3,850) (816)
Payment of long-term debt, net (581) (31,703)
Payment of capital credits (3,116) -
------------ ------------
Net Cash Used for Financing Activities (7,547) (32,519)
------------ ------------
Cash (Used for) Provided by Investing Activities:
Additions to electric plant (3,794) (19,740)
Decommissioning fund deposits (340) (340)
(Additions) Reduction to other investments and funds, net (7,415) 29,805
Additions to restricted investments and funds, net (374) (3,252)
Retirement work in progress (65) 45
------------ ------------
Net Cash (Used for) Provided by Investing Activities (11,988) 6,518
------------ ------------
Net Change in Cash and Cash Equivalents 23,352 22,587
Beginning of Period Cash and Cash Equivalents 61,740 46,217
------------ ------------
End of Period Cash and Cash Equivalents $ 85,092 $ 68,804
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<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 June 30, 1998, its consolidated
results of operations and its comprehensive income for the three and six
months ended June 30, 1998 and 1997, and its consolidated cash flows
for the six months ended June 30, 1998 and 1997. The consolidated
results of operations for the six months ended June 30, 1998, 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 1997
Annual Report on Form 10-K filed with the Securities and Exchange
Commission.
2. In April 1998, Ronald W. Watkins and Old Dominion's Board of Directors
decided not to renew Mr. Watkins' employment contract, which expired April
1, 1998. Mr. Watkins had been president and chief executive officer of Old
Dominion since April 1, 1995. The Board of Directors named Charles R.
Rice, Jr., current vice chairman of Old Dominion's board, to serve as
acting president until a new president and chief executive officer is
appointed.
3. 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. 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. A trial date has not been set. CSC
and the other participants in Seacoast Power LLC have sold their interest
in this venture but have retained their interest in this lawsuit.
4. 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. On January 29, 1998, the Texas
Court of Appeals issued an order affirming the default judgment against
Seacoast but reversing and remanding the award of damages as factually
unsupported. On March 18, 1998, Seacoast filed an appeal challenging the
refusal by the Texas Court of Appeals to set aside the default judgment.
That appeal is pending.
In a separate proceeding, on May 5, 1997, Seacoast filed a bill of review
in the District Court of Travis County, Texas, collaterally attacking the
default judgment. That action is also pending.
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 its share of the loss should be limited to a pro rata 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 over time and without a material impact on Old Dominion's
financial position.
<PAGE>
6. On October 14, 1997, Old Dominion's Board of Directors approved a
resolution adopting certain strategic objectives designed to mitigate
the effects of the transition to a competitive electric market (the
"Strategic Plan Initiative"). Management is currently evaluating
various alternatives as Old Dominion prepares for transition to
competition. The Strategic Plan Initiative could result in an
alternate treatment of Old Dominion's excess margins, which are
currently returned to Members through the Margin Stabilization Plan.
Northern Virginia Electric Cooperative ("NOVEC"), Rappahannock Electric
Cooperative ("REC"), and Southside have voiced concerns about the
level and timing of stranded cost recovery as contemplated by the
Strategic Plan Initiative. Further, NOVEC and REC have expressed
concerns about the Strategic Plan Initiative regarding: (1) the
all-requirements nature of the Wholesale Power Contracts that they have
with Old Dominion, and (2) whether Old Dominion has the right under the
Wholesale Power Contracts to "over-collect" monies from its Members
for future debt retirement or for payment of future stranded costs. To
address these concerns, Old Dominion is working on several initiatives to
resolve several Members concerns, including those raised by REC and NOVEC,
regarding the transition to a competitive environment.
7. In accordance with Statement of Financial Accounting Standards No. 130,
Reporting Comprehensive Income, Old Dominion has included a Statement of
Comprehensive Income in its consolidated financial statements for the
quarter ended June 30, 1998.
<PAGE>
OLD DOMINION ELECTRIC COOPERATIVE
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements, as defined by the
Private Securities Litigation Act of 1995, with regard to matters that could
have an impact on future operations of Old Dominion. These statements are based
on expectations and estimates of management and are not guarantees of future
performance. Actual results may differ materially from those expressed in the
forward-looking statements.
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 the changes (increases (decreases)) in
operating revenues by component:
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
June 30, June 30,
1998 vs 1997 1998 vs 1997
------------ ------------
(in thousands)
<S> <C>
Sales to Members:
Power sales volume $ 3,586 $ 602
Blended rates (1,772) (2,293)
Fuel adjustment revenues (1,617) (2,623)
Margin stabilization plan adjustment 2,029 3,397
-------- --------
2,226 (917)
Sales to Non-members 6 151
----------- ---------
$ 2,232 $ (766)
======== ========
</TABLE>
Warmer weather during the second quarter of 1998 resulted in an increase in
demand revenues, which was offset by a 4.0% reduction in the demand rate,
effective April 1, 1998. The net result for the quarter was a marginal increase
in demand revenues as compared to the same period in 1997. Energy revenues
increased 5.7% because of the warm weather. Old Dominion's demand sales for the
three months ended June 30, 1998 and 1997, were 3,558 MW and 3,422 MW,
respectively. Energy sales for the three months ended June 30, 1998 and 1997,
were 1,737,205 MWh and 1,671,767 MWh, respectively.
Warmer weather in the second quarter of 1998 as compared to 1997 resulted
in an increase in demand revenues. However, a warm winter and a 4.0% reduction
in the demand rate negatively affected the increase. The net result was a 2.2%
increase in demand revenues. Energy revenues increased 1.5% increase as compared
to 1997. Demand sales for the six-month periods ended June 30, 1998 and 1997,
were 7,227 MW and 7,217 MW, respectively. Energy sales for the six-month periods
ended June 30, 1998 and 1997, were 3,661,337 MWh and 3,636,887 MWh,
respectively.
<PAGE>
Heating and cooling degree days for the three and six month periods
ended June 30, 1998 and 1997, were as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
June 30, June 30,
-------- --------
1998 1997 Normal 1998 1997 Normal
-------- -------- ------ -------- -------- ------
<S> <C>
Cooling degree days 431 308 458 462 313 468
Percentage change compared
to prior year 40.0% (32.3)% 47.6% (31.2)%
Heating degree days 294 472 326 2,028 2,336 2,323
Percentage change compared
to prior year (37.7)% 28.6% (13.2)% (6.6)%
</TABLE>
Operating Expenses. Old Dominion has an 11.6% undivided ownership interest
in the North Anna Nuclear Power Station ("North Anna") and a 50% undivided
ownership interest in the Clover Power Station ("Clover"). 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.
When either North Anna or Clover is off-line, Old Dominion must purchase
replacement power that is 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 energy rates to the Members, are significantly affected by the
operations of North Anna and Clover.
North Anna and Clover capacity factors for the three and six month periods
ended June 30, 1998 and 1997, were as follows:
<TABLE>
<CAPTION>
North Anna Clover
---------- ------
Three Six Three Six
Months Ended Months Ended Months Ended Months Ended
June 30, June 30, June 30, June 30,
-------- -------- -------- --------
1998 1997 1998 1997 1998 1997 1998 1997
------ ------ ------ ------ -------- ------ ------ -----
<S> <C>
Unit 1 100.3% 63.8% 100.1% 82.3% 80.4% 82.8% 84.4% 72.9%
Unit 2 65.7 100.3 81.3 100.5 53.9 14.3 56.5 42.3
Combined 83.0 82.1 90.7 91.4 67.1 48.6 70.5 57.6
</TABLE>
North Anna Unit 1 was not off-line during the first six months of 1998;
however, Unit 1 was off-line 31 days for scheduled refueling during the first
half of 1997. North Anna Unit 2 was off-line 30 days for scheduled refueling
during the six months ended June 30, 1998. Unit 2 was not off-line during the
first six months of 1997.
During the six months ended June 30, 1998, Clover Unit 1 experienced one
minor scheduled outage and two minor unscheduled outages (approximately 5 days).
Clover Unit 2 was off-line from February 28 through April 29, 1998 for the
scheduled chimney liner replacement. During the six month period ended June 30,
1997, Clover Unit 1 was off-line 16 days for repairs to the chimney's titanium
liner, 2 days for other minor unscheduled maintenance and 5 days for scheduled
maintenance. Clover Unit 2 was off-line 11 days for a scheduled warranty
inspection, 3 days for unscheduled maintenance and 75 days for repairs resulting
from the damage incurred on April 17, 1997, when the unit tripped off-line.
<PAGE>
Old Dominion's energy supply for the three and six month periods
ended June 30, 1998 and 1997, was as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
1998 1997 1998 1997
---- ---- ---- ----
(MWh) (MWh) (MWh) (MWh)
<S> <C>
North Anna 376,212 20.6% 372,016 21.5% 817,325 21.6% 824,325 22.0%
Clover 646,674 35.4 467,662 27.0 1,335,717 35.3 1,089,322 29.0
Purchased Power:
Virginia Power 360,930 19.8 494,527 28.6 758,070 20.0 968,198 25.8
PSE&G Contract 251,697 13.8 274,145 15.9 536,773 14.2 528,170 14.1
Delmarva Power 148,920 8.1 77,711 4.5 236,760 6.3 245,784 6.6
Other 42,378 2.3 42,960 2.5 97,250 2.6 95,409 2.5
----------- ------- ----------- ------- ----------- ------- ------------------
Total Available Energy 1,826,811 100.0% 1,729,021 100.0% 3,781,895 100.0% 3,751,208 100.0%
========= ===== ========= ===== ========= ===== ========= =====
</TABLE>
Increased production at Clover and warm weather were the primary factors
affecting operating expenses in the second quarter and first half of 1998.
Purchased power costs were lower and fuel and other operation costs were higher
during the second quarter and first half of 1998 because of increased production
at Clover. During the second quarter of 1997, Clover Unit 2 was off-line for
repairs because of damage incurred on April 17, 1997 when the unit tripped
off-line.
Maintenance expense decreased in the second quarter and first half of 1998
as compared to the same periods in 1997 because additional maintenance was
performed on Clover Unit 2 in 1997 while the unit was off-line for repairs to
the chimney's titanium liner.
Depreciation expense increased because of accelerated amortization of the
North Anna plant acquisition adjustment.
Other income/(expense) increased because of a refund of administrative and
general expenses related to 1996 and 1997 that resulted from implementation of a
new Interconnection and Operating Agreement with Virginia Power.
Investment income increased during the second quarter and the first half of
1998 as compared to the same periods in 1997 due to higher investment balances.
Interest on long-term debt decreased in 1998 as compared to the same period
in 1997 due to scheduled debt service and the purchase of $32.0 million of
outstanding debt in 1997.
Interest on adjustments to the Virginia Power bill resulted in an increase
in other interest expense for the second quarter and first half of 1998 as
compared to 1997.
Liquidity and Capital Resources
Operating Activities. Operating activities are an important source of cash
for Old Dominion, providing $42.9 million in the first half of 1998 and $48.6
million in the first half of 1997. Net cash provided by operating activities
decreased in the six month period ended June 30, 1998, as compared to the same
period in 1997 primarily due to changes between periods in non-cash working
capital accounts, mainly notes and accounts receivable and accounts payable. The
1997 changes were off-set by a $13.3 million decrease in operating cash due to
payment of a special assessment of gross receipts taxes, which was later
returned to Old Dominion.
<PAGE>
Financing Activities. Financing activities resulted in a cash outflow of
$7.5 million as Old Dominion used its cash from operations for debt service and
the retirement of a portion of capital credits.
Investing Activities. Investing activities, mainly additions to plant
and additions to other investments and funds, resulted in a net cash outflow of
$12.0 million.
Other Matters
In April 1998, Ronald W. Watkins and Old Dominion's Board of Directors
decided not to renew Mr. Watkins' employment contract, which expired April 1,
1998. Mr. Watkins had been president and chief executive officer of Old Dominion
since April 1, 1995. The Board of Directors named Charles R. Rice, Jr., current
vice chairman of Old Dominion's board, to serve as acting president until a new
president and chief executive officer is appointed.
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. 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. A trial date has not been set. CSC and the
other participants in Seacoast Power LLC have sold their interests in this
venture but have retained their interests in this lawsuit.
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. On January 29, 1998, the Texas Court
of Appeals issued an order affirming the default judgment against Seacoast but
reversing and remanding the award of damages as factually unsupported. On March
18, 1998, Seacoast filed an appeal challenging the refusal by the Texas Court of
Appeals to set aside the default judgment. That appeal is pending.
In a separate proceeding, on May 5, 1997, Seacoast filed a bill of review in
the District Court of Travis County, Texas, collaterally attacking the default
judgment. That action is also pending.
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 its share of the loss
should be limited to a pro rata 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 over time and without a material impact
on Old Dominion's financial position.
On October 14, 1997, Old Dominion's Board of Directors approved a resolution
adopting certain strategic objectives designed to mitigate the effects of the
transition to a competitive electric market (the "Strategic Plan Initiative").
Management is currently evaluating various alternatives as Old Dominion prepares
for transition to competition. The Strategic Plan Initiative could result in an
alternate treatment of Old Dominion's excess margins, which are currently
returned to Members through the Margin Stabilization Plan. Northern Virginia
Electric Cooperative ("NOVEC"), Rappahannock Electric Cooperative ("REC"), and
Southside have voiced concerns about the level and timing of stranded cost
recovery as contemplated by the Strategic Plan Initiative. Further, NOVEC and
REC have expressed concerns about the Strategic Plan Initiative regarding: (1)
the all-requirements nature of the Wholesale Power Contracts that they have with
Old Dominion, and (2) whether Old Dominion has the right
<PAGE>
under the Wholesale Power Contracts to "over-collect" monies from its Members
for future debt retirement or for payment of future stranded costs. To address
these concerns, Old Dominion is working on several initiatives to resolve
Members concerns, including those raised by REC and NOVEC, regarding the
transition to a competitive environment.
Future Issues
Competition
The electric utility industry is becoming increasingly competitive as a
result of deregulation, competing energy suppliers, new technology, and other
factors. The Energy Policy Act of 1992 amended the Federal Power Act and the
Public Utilities Holding Company Act to allow for increased competition among
wholesale electricity suppliers and increased access to transmission services by
such suppliers. A number of other significant factors have affected the
operations of electric utilities, including the availability and cost of fuel
for the generation of electric energy; the use of alternative fuel sources for
space and water heating and household appliances; fluctuating rates of load
growth; compliance with environmental and other governmental regulations;
licensing and other delays affecting the construction, operation, and cost of
new and existing facilities; and the effects of conservation, energy management,
and other governmental regulations on the use of electric energy. All these
factors present an increasing challenge to companies in the electric utility
industry, including Old Dominion and its Members, to reduce costs, increase
efficiency and innovation, and improve management of resources.
The 1998 session of the Virginia General Assembly passed two measures that
will determine the course of electric industry restructuring in Virginia. The
first, H.B. 1172, indicates that the deregulation of generation and the
transition to retail competition will begin in 2002 and be completed by 2004.
However, these time lines are not self-enacting and future action by the General
Assembly is needed. Consequently, Senate Joint Resolution 91 ("SJR 91") was
passed to continue the study of electric industry restructuring in Virginia. The
subcommittee created pursuant to SJR 91 has established four task forces:
Stranded Costs and Related Issues, Consumer and Environmental Education,
Structure and Transition, and Taxes. These task forces will meet and determine
what legislative changes, if any, are needed to facilitate restructuring in the
state.
The Maryland General Assembly adjourned in April 1998 without taking action
on any electric industry restructuring proposal. Consequently, the order adopted
by the Maryland Public Service Commission ("Maryland Commission") in 1997
outlining both a time frame for restructuring and a process by which it will
occur are in effect. Requests for rehearing of the order have been filed and are
currently pending before the Maryland Commission. Six roundtable groups have
been meeting over the last several months addressing issues of competitive
metering and billing, continuation of demand-side management, universal service,
customer projections, consumer education, and supplier authorization. An interim
report to the Maryland Commission is due in November 1998 reporting on the
progress of each roundtable.
The Maryland Senate Budget and Taxation Committee and the Maryland House
Committee on Ways and Means have begun meeting on tax reform in Maryland in
preparation for retail competition. The first meeting was held on July 28, 1998,
with several meetings scheduled throughout the remainder of the year.
A measure to provide customer choice was introduced in the Delaware General
Assembly during their most recent session which recessed on June 30,1998. While
the measure passed the House unanimously, the Senate never considered it. The
primary opponent of this legislation was the Governor who expressed concern
about the impact of restructuring on residential customers. It is anticipated
that legislation will be introduced in Delaware in 1999.
<PAGE>
Year 2000 Compliance
Old Dominion has entered into a contract for an assessment of its information
systems and vendor supplied application software as it relates to their ability
to comply with the year 2000. The assessment began on May 18, 1998, and is
expected to be complete by the end of the third quarter. Management anticipates
that some computer systems may require modification or replacement; however, the
cost of any modification or replacement has not been determined at this time.
<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, Inc.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
27.Financial Data Schedule
(b) Reports on Form 8-K.
The Registrant filed no reports on Form 8-K during the quarter ended
June 30, 1998.
<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: August 14, 1998 /s/Daniel M. Walker
-------------------
Daniel M. Walker
Vice President of Accounting and Finance
(Chief Financial Officer)
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
<S> <C>
Exhibit Page
Number Description of Exhibit Number
27. Financial Data Schedule 19
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF OLD DOMINION ELECTRIC COOPERATIVE IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 788,226
<OTHER-PROPERTY-AND-INVEST> 198,006
<TOTAL-CURRENT-ASSETS> 129,707
<TOTAL-DEFERRED-CHARGES> 14,267
<OTHER-ASSETS> 11,787
<TOTAL-ASSETS> 1,141,993
<COMMON> 0
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 199,672<F1>
<TOTAL-COMMON-STOCKHOLDERS-EQ> 0
0
0
<LONG-TERM-DEBT-NET> 607,009
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 29,535
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 305,300
<TOT-CAPITALIZATION-AND-LIAB> 1,141,993
<GROSS-OPERATING-REVENUE> 168,227
<INCOME-TAX-EXPENSE> 0
<OTHER-OPERATING-EXPENSES> 139,842
<TOTAL-OPERATING-EXPENSES> 139,842
<OPERATING-INCOME-LOSS> 28,385
<OTHER-INCOME-NET> 2,834
<INCOME-BEFORE-INTEREST-EXPEN> 31,219
<TOTAL-INTEREST-EXPENSE> 25,983
<NET-INCOME> 5,236
0
<EARNINGS-AVAILABLE-FOR-COMM> 0
<COMMON-STOCK-DIVIDENDS> 0
<TOTAL-INTEREST-ON-BONDS> 25,992
<CASH-FLOW-OPERATIONS> 42,887
<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 Dominon which have been allocated to its members
based on their respective power purchases in accordance with Old Dominion's
bylaws.
</FN>
</TABLE>
