<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
---- SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
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, 2000 (Unaudited)
and December 31, 1999 3
Consolidated Statements of Revenues, Expenses and
Patronage Capital (Unaudited) - Three and Six Months
Ended June 30, 2000 and 1999 4
Consolidated Statements of Comprehensive Income (Unaudited) -
Three and Six Months Ended June 30, 2000 and 1999 4
Consolidated Statements of Cash Flows (Unaudited) - Six
Months Ended June 30, 2000 and 1999 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
PART II. Other Information
Item 1. Legal Proceedings 14
Item 6. Exhibits and Reports on Form 8-K 14
Signature 15
Exhibit Index 16
</TABLE>
<PAGE>
OLD DOMINION ELECTRIC COOPERATIVE
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
----------------- ------------------
(in thousands)
<S> <C>
ASSETS: (unaudited) (*)
-------
Electric Plant:
In service $ 899,829 $ 889,392
Less accumulated depreciation (251,725) (209,865)
----------------- ------------------
648,104 679,527
Nuclear fuel, at amortized cost 4,245 6,981
Construction work in progress 9,070 13,023
----------------- ------------------
Net Electric Plant 661,419 699,531
----------------- ------------------
Investments:
Nuclear decommissioning trust fund 58,925 54,159
Lease deposits 127,054 125,845
Other 81,793 82,020
----------------- ------------------
Total Investments 267,772 262,024
----------------- ------------------
Current Assets:
Cash and cash equivalents 30,856 25,088
Receivables 38,405 34,044
Fuel, materials and supplies, at average cost 10,922 9,312
Prepayments 2,398 2,244
Deferred energy 1,712 -
----------------- ------------------
Total Current Assets 84,293 70,688
----------------- ------------------
Deferred Charges: 21,121 18,269
----------------- ------------------
Total Assets $ 1,034,605 $ 1,050,512
================= ==================
CAPITALIZATION AND LIABILITIES:
-------------------------------
Capitalization:
Patronage capital $ 220,623 $ 216,369
Accumulated other comprehensive income (2,151) (2,316)
Long-term debt 477,869 509,606
----------------- ------------------
Total Capitalization 696,341 723,659
----------------- ------------------
Current Liabilities:
Long-term debt due within one year 29,700 29,700
Accounts payable 19,778 15,022
Accounts payable - Members 35,967 32,616
Deferred energy - 3,263
Accrued expenses 7,913 6,770
----------------- ------------------
Total Current Liabilities 93,358 87,371
----------------- ------------------
Deferred Credits and Other Liabilities:
Decommissioning reserve 58,925 54,159
Obligations under long-term leases 130,142 129,010
Other 55,839 56,313
----------------- ------------------
Total Deferred Credits and Other Liabilities 244,906 239,482
----------------- ------------------
Commitments and Contingencies - -
----------------- ------------------
Total Capitalization and Liabilities $ 1,034,605 $ 1,050,512
================= ==================
</TABLE>
-------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
(*) The Consolidated Balance Sheet at December 31, 1999, 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 STATEMENTS OF REVENUES,
EXPENSES AND PATRONAGE CAPITAL (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------------------- ---------------------------------------
2000 1999 2000 1999
------------------ ----------------- ----------------- ------------------
(in thousands)
<S> <C>
Operating Revenues $ 95,349 $ 85,501 $ 200,234 $ 191,819
------------------ ----------------- ----------------- ------------------
Operating Expenses:
Fuel 11,558 11,993 23,317 22,946
Purchased power 39,972 31,469 80,976 76,583
Operations and maintenance 9,068 8,150 17,594 16,656
Administrative and general 5,278 4,848 9,394 8,809
Depreciation, amortization, and
decommissioning 15,653 13,941 40,826 34,386
Taxes other than income taxes 2,536 1,999 4,496 3,880
------------------ ----------------- ----------------- ------------------
Total Operating Expenses 84,065 72,400 176,603 163,260
------------------ ----------------- ----------------- ------------------
Operating Margin 11,284 13,101 23,631 28,559
Other (Expense)/Income, net (245) (30) (713) 20
Investment Income 1,359 1,811 2,452 3,089
Interest Charges, net (10,318) (12,394) (21,116) (26,370)
------------------ ----------------- ----------------- ------------------
Net Margin 2,080 2,488 4,254 5,298
Patronage Capital-Beginning of Period 218,543 209,338 216,369 206,528
------------------ ----------------- ----------------- ------------------
Patronage Capital-End of Period $ 220,623 $ 211,826 $ 220,623 $ 211,826
================== ================= ================= ==================
</TABLE>
-------------------------------------------------------------------------------
OLD DOMINION ELECTRIC COOPERATIVE
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------------------- ---------------------------------------
2000 1999 2000 1999
------------------ ----------------- ----------------- ------------------
(in thousands)
<S> <C>
Net Margin $ 2,080 $ 2,488 $ 4,254 $ 5,298
Other comprehensive income:
Unrealized gain/(loss) on investments 132 (1,219) 165 (1,760)
------------------ ----------------- ----------------- ------------------
Comprehensive income $ 2,212 $ 1,269 $ 4,419 $ 3,538
================== ================= ================= ==================
</TABLE>
-------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE>
OLD DOMINION ELECTRIC COOPERATIVE
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
---------------------------------------
2000 1999
----------------- ------------------
(in thousands)
<S> <C>
Operating Activities:
Net margin $ 4,254 $ 5,298
Adjustments to reconcile net margin to net cash
provided by operating activities:
Depreciation, amortization, and decommissioning 40,826 34,386
Other noncash charges 4,081 6,241
Amortization of lease obligation 4,535 4,348
Change in current assets (7,837) (864)
Change in current liabilities 5,987 9,743
Deferred charges and other (2,049) (1,432)
----------------- ------------------
Net Cash Provided by Operating Activities 49,797 57,720
----------------- ------------------
Financing Activities:
Reductions of long-term debt (32,985) (25,784)
Obligations under long-term leases (177) (175)
----------------- ------------------
Net Cash Used in Financing Activities (33,162) (25,959)
----------------- ------------------
Investing Activities:
Lease desposits and other investments (4,039) (52,322)
Electric plant additions (6,488) (1,095)
Decommissioning fund deposits (340) (340)
----------------- ------------------
Net Cash Used in Investing Activities (10,867) (53,757)
----------------- ------------------
Net Change in Cash and Cash Equivalents 5,768 (21,996)
Cash and Cash Equivalents - Beginning of Period 25,088 82,382
----------------- ------------------
Cash and Cash Equivalents - End of Period $ 30,856 $ 60,386
================= ==================
</TABLE>
-------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
5
<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, 2000, and its consolidated results of operations
and its comprehensive income for the three and six months ended June 30,
2000 and 1999, and its consolidated cash flows for the six months ended
June 30, 2000 and 1999. The consolidated results of operations for the six
months ended June 30, 2000, 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 1999 Annual Report on Form 10-K filed with the
Securities and Exchange Commission.
2. 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" or "SPI"). Subsequently, an independent
assessment of the impact on Old Dominion of transition to a competitive
market was performed and the resulting recommendations to mitigate the
transition effects were approved by the Board of Directors on July 28,
1998, and incorporated into the SPI. The SPI, as then approved, called
for the accumulation of approximately $330.0 million in cash and cash
equivalents from 1998 to 2003 with the funds to be used to reduce Old
Dominion's reliance on debt. A provision of the SPI requires that it be
updated periodically based on revised projections, projected targets,
legislation, and the status of the SPI in terms of achieving its
objective. The Board of Directors will approve all revisions or
modifications.
In conjunction with the SPI, on May 10, 1999, Old Dominion's Board of
Directors unanimously approved a resolution to record accelerated
depreciation on generation assets during the period January 1, 1999,
through December 31, 2003, and to recover the additional expense through
rates pursuant to the comprehensive rate formula filed with and accepted
by FERC.
A study was undertaken in late 1999 to assess the status of the SPI and
the numerous factors that impact its results. This study considered
changes in market rate forecasts, components of Old Dominion's cost of
service, and deregulation timelines. Additionally, it incorporated the
effects of recording accelerated depreciation. As a result of this study,
the targeted collection amount of $330.0 million was reduced to $241.0
million. Old Dominion will continue to evaluate the various factors that
impact the results of the SPI, monitor its progress, and, upon approval
from its Board of Directors, adjust the SPI as necessary to achieve its
objective.
Rates approved by the Board of Directors for 2000 include the recovery of
additional depreciation of approximately $53.0 million. During the first
half of 2000, Old Dominion recorded additional depreciation of $26.2
million as compared to $22.4 million in the first half of 1999. To date
Old Dominion has collected a total of $103.0 million ($26.2 in the first
half of 2000, $45.4 million in 1999, and $31.4 million in 1998) toward the
revised SPI target of $241.0 million.
In conjunction with the SPI, Old Dominion purchased $33.3 million of its
higher cost outstanding debt in the first half of 2000.
3. Certain reclassifications have been made to the accompanying prior year's
consolidated financial statements to conform to the current year's
presentation.
6
<PAGE>
OLD DOMINION ELECTRIC COOPERATIVE
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 respect to matters that could have an
impact on future operations of Old Dominion. These statements, based on
expectations and estimates of management, are not guarantees of future
performance and are subject to risks, uncertainties, and other factors that
could cause actual results to differ materially from those expressed in the
forward-looking statements. These risks, uncertainties, and other factors
include, but are not limited to: general business conditions, competition,
federal and state regulations, environmental issues, tax status, industry
restructuring, and weather. These risks and uncertainties are further discussed
in Old Dominion's Annual Report on Form 10-K filed with the Securities and
Exchange Commission for the year ended December 31, 1999. Given these
uncertainties, undue reliance should not be placed on such forward-looking
statements.
Results of Operations
Operating Revenues.
Old Dominion's operating revenues are derived from power sales to its
Members and to nonmembers. 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, seasonal
weather fluctuations, and, in the future, retail competition.
Sales to nonmembers represent sales of excess purchased energy and sales of
excess energy from the Clover Power Station ("Clover"). Excess purchased energy
is sold to the Pennsylvania-New Jersey-Maryland Interconnection LLC ("PJM")
power pool. Excess energy from Clover is sold to Virginia Electric and Power
Company ("Virginia Power"), pursuant to the requirements of the Clover Operating
Agreement. In light of deregulation initiatives in Virginia, Old Dominion and
Virginia Power have agreed that the Clover Operating Agreement will have to be
restructured prior to January 1, 2002, to permit Old Dominion to sell its excess
energy from Clover to others and to Virginia Power on changed terms.
The following table summarizes the increases (decreases) in operating
revenues by component:
Three Months Six Months
Ended Ended
June 30, June 30,
2000 vs 1999 2000 vs 1999
------------- -------------
(in thousands)
Sales to Members:
Power sales volume $10,222 $10,957
Blended rates (4,940) (7,771)
Fuel adjustment revenues 786 723
Margin stabilization plan adjustment (1,769) (1,222)
--------- ---------
4,299 2,687
Sales to nonmembers 5,549 5,728
-------- --------
$ 9,848 $ 8,415
======= =======
7
<PAGE>
Unusually hot weather in the second quarter resulted in increased Member
revenues for the second quarter and first half of 2000 as compared to the same
periods in 1999 despite two 4% reductions in the demand rate effective August 1,
1999 and April 1, 2000. Member demand and energy sales for the three and six
month periods ended June 30, 2000 and 1999, were as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
-------------------------- --------------------------
June 30, June 30,
-------------------------- --------------------------
2000 1999 2000 1999
--------- ---------- ------------ -----------
<S> <C>
Demand sales (MW) 3,961 3,535 8,240 7,868
Energy sales(MWh) 2,026,301 1,835,460 4,314,945 4,034,041
</TABLE>
The substantial increase in nonmember revenues for the three and six month
periods ended June 30, 2000, as compared to the same periods in 1999 resulted
from sales of excess purchased energy to the PJM power pool.
Weather affects customer demand for electricity. Hot summers and cold
winters increase demand while mild weather reduces demand. The weather's effect
is measured using degree days. A degree day is the difference between the
average daily temperature and a baseline temperature of 65 degrees. Cooling
degree days result when the average daily temperature is above 65 degrees;
heating degree days result when the average daily temperature is below 65
degrees. Heating and cooling degree days for the three and six month periods
ended June 30, 2000 and 1999, were as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------- -------------------------------
2000 1999 Normal 2000 1999 Normal
-------- -------- ------ -------- -------- ------
<S> <C>
Cooling degree days 462 369 452 468 369 463
Percentage change compared
to prior year 25.2% (14.4)% 26.8% (19.9)%
Heating degree days 298 292 298 2,181 2,236 2,170
Percentage change compared
to prior year 2.1% (0.7)% (2.5)% 10.2%
</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
Clover. Power plants, particularly nuclear power plants such as North Anna,
generally have relatively high fixed costs; however, 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 energy from either Virginia Power, which is more costly, or the
market, which may be more or less costly. 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.
8
<PAGE>
North Anna and Clover capacity factors for the three and six month periods ended
June 30, 2000 and 1999, 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,
---------------- --------------- ----------------- --------------
2000 1999 2000 1999 2000 1999 2000 1999
------ ------ ------ ------ -------- ------ ------ ------
<S> <C>
Unit 1 87.5% 103.7% 79.4% 103.4% 75.2% 79.3% 83.6% 78.2%
Unit 2 99.9 101.7 101.2 100.1 89.6 92.1 87.2 85.7
Combined 93.7 102.7 90.3 101.8 82.4 85.7 85.4 82.0
</TABLE>
North Anna Unit 1 ran for 522 consecutive days before it began a scheduled
refueling outage on March 12, 2000. The unit was returned to service on April 8,
2000, four days ahead of schedule. Additionally, the unit experienced minor
unscheduled outages during the first half of 2000. North Anna Unit 2 experienced
only minor unscheduled outages. Neither unit was off-line during the first six
months of 1999.
Clover Unit 1 was off-line 15 days during the second quarter of 2000 for a
scheduled maintenance outage. The unit also experienced minor unscheduled
outages during the first half of 2000. Clover Unit 2 experienced only minor
outages during the first half of 2000. In March 1999, Clover Unit 1 was removed
from service for a 16-day scheduled maintenance outage. Additionally, Unit 1
experienced minor unscheduled outages during the first half of 1999. Clover Unit
2 experienced only minor unscheduled outages during the first half of 1999.
In addition to power generated at Clover and North Anna, Old Dominion
purchases power from Virginia Power, Public Service Electric & Gas Company
("PSE&G"), Conectiv Energy ("Conectiv"), formerly Delmarva Power & Light
Company, and others. Old Dominion's energy supply for the three and six month
periods ended June 30, 2000 and 1999, was as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------------- -----------------------------------
2000 1999 2000 1999
---------------- ------------------ ------------------ ---------------
(MWh) (MWh) (MWh) (MWh)
<S> <C>
Clover 793,408 37.2% 824,711 42.6% 1,629,077 36.0% 1,553,930 37.0%
North Anna 425,029 19.9 465,543 24.1 819,490 18.1 922,370 22.0
Purchased Power:
Virginia Power 397,730 18.7 220,628 11.4 949,864 21.0 733,664 17.5
Delmarva Area (PSE&G,
Conectiv, Conectiv/PPL) 230,771 10.8 350,014 18.1 494,018 10.9 713,462 17.0
Other 285,410 13.4 72,549 3.8 630,438 14.0 276,401 6.5
----------- ------ ----------- ------- ---------- ----- ---------- ------
Total Available Energy 2,132,348 100.0% 1,933,445 100.0% 4,522,887 100.0% 4,199,827 100.0%
========== ===== ========= ===== ========= ===== ========= =====
</TABLE>
Unusually hot weather in May and June combined with accelerated
depreciation recorded under Old Dominion's Strategic Plan Initiative were the
primary factors affecting operating expenses in the second quarter and first
half of 2000. The hot weather combined with scheduled and unscheduled outages at
both Clover and North Anna resulted in an increase in purchased power expenses
and a decrease in fuel expenses.
Operations and maintenance expenses increased in the second quarter and
first half of 2000 as compared to the same periods in 1999 primarily because of
maintenance performed during the Clover and North Anna outages. There were no
significant outages in the second quarter and first half of 1999.
9
<PAGE>
Depreciation expense increased because of accelerated depreciation recorded
on generation assets in accordance with Old Dominion's Strategic Plan
Initiative. During the first half of 2000, Old Dominion recorded $26.2 million
of additional depreciation expense. During the first half of 1999, Old Dominion
recorded $22.4 million of additional depreciation expense.
Non-Operating Income and Expenses
Investment income decreased in the second quarter and first half of 2000 as
compared to the same periods in 1999 because of a decrease in investment
balances resulting from the purchase of $33.3 million and $49.3 million of
outstanding debt in 2000 and 1999, respectively.
Interest on long-term debt decreased in the second quarter and first half
of 2000 as compared to the same periods in 1999 primarily because Old Dominion
purchased $49.3 million of its higher cost outstanding debt in 1999.
Additionally, Old Dominion purchased $33.3 million of its higher cost
outstanding debt during the first half of 2000.
Liquidity and Capital Resources
Operating activities for the first half of 2000 and 1999 were primarily
affected by accelerated depreciation recorded on generation assets in accordance
with Old Dominion's Strategic Plan Initiative.
Financing activities for the six-month periods ended June 30, 2000 and 1999
resulted in a cash outflow as Old Dominion used its available cash to purchase
outstanding debt.
Investing activities for the six months ended June 30, 2000, resulted in a
cash outflow because of additions to plant and lease deposits and other
investments. Investing activities for the six months ended June 30, 1999, mainly
additions to other investments to establish Old Dominion's strategic plan fund,
resulted in a net cash outflow
Strategic Plan Initiative
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" or
"SPI"). Subsequently, an independent assessment of the impact on Old Dominion of
transition to a competitive market was performed and the resulting
recommendations to mitigate the transition effects were approved by the Board of
Directors on July 28, 1998, and incorporated into the SPI. The SPI, as then
approved, called for the accumulation of approximately $330.0 million in cash
and cash equivalents from 1998 to 2003 with the funds to be used to reduce Old
Dominion's reliance on debt. A provision of the SPI requires that it be updated
periodically based on revised projections, projected targets, legislation, and
the status of the SPI in terms of achieving its objective. The Board of
Directors will approve all revisions or modifications.
In conjunction with the SPI, on May 10, 1999, Old Dominion's Board of
Directors unanimously approved a resolution to record accelerated depreciation
on generation assets during the period January 1, 1999, through December 31,
2003, and to recover the additional expense through rates pursuant to the
comprehensive rate formula filed with and accepted by FERC.
A study was undertaken in late 1999 to assess the status of the SPI and the
numerous factors that impact its results. This study considered changes in
market rate forecasts, components of Old Dominion's cost of service and
deregulation timelines. Additionally, it incorporated the effects of recording
accelerated depreciation. As a result of this study, the targeted collection
amount of $330.0 million was reduced to $241.0 million. Old Dominion will
10
<PAGE>
continue to evaluate the various factors that impact the results of the SPI,
monitor its progress, and, upon approval from its Board of Directors, adjust the
SPI as necessary to achieve its objective.
Rates approved by the Board of Directors for 2000 include the recovery of
additional depreciation of approximately $53.0 million. During the first half of
2000, Old Dominion recorded additional depreciation of $26.2 million as compared
to $22.4 million in the first half of 1999. To date Old Dominion has collected a
total of $103.0 million ($26.2 in the first half of 2000, $45.4 million in 1999,
and $31.4 million in 1998) toward the revised SPI target of $241.0 million.
In conjunction with the SPI, Old Dominion purchased $33.3 million of its
higher cost outstanding debt during the first half of 2000.
Competition and Changing Regulations
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 factors 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 of 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.
Each of the four states in which Old Dominion's Members operate (Virginia,
Maryland, Delaware, and West Virginia) have enacted legislation that addresses
deregulation of the electric industry, and outlines a process by which electric
utilities within their respective jurisdictions, including cooperatives, will
transition to competition. The individual deregulation plans adopted by the
Virginia, Maryland, and Delaware legislators are similar. In these three states,
previously regulated electric utilities must unbundle the component parts of
their generation, transmission, and distribution. Power transmission and
distribution will remain under government regulation; however, power generation
will be deregulated and utilities will compete for customers in the open market.
The plans of Virginia, Maryland, and Delaware each indicate that cooperatives
will remain the default provider of power in their assigned territories, and
that they will retain the metering and billing functions. Each of these plans
also provides for recovery of stranded costs over a specified transition period;
however, the timing of each state's plan implementation is different.
Additionally, each Member is legislatively required to submit a restructuring
plan to its respective commission, including its assessment of market rates and
proposed unbundled rate structure. Specific and unique aspects of each state's
legislation are detailed below.
Management believes that under the Federal Energy Regulatory Commission
rate formula, Old Dominion is allowed to collect all costs and therefore, there
should be no financial impact on Old Dominion.
The following table estimates the cumulative percentage of Old Dominion's
load sales, based on 1999 demand sales, that will be subject to deregulation and
at risk of loss in the competitive market each year in Virginia, Maryland,
Delaware, and West Virginia. This data is based on the dates that the Members'
individual classes of customers are free to choose an alternative power
supplier, as mandated by the individual state's legislative action.
11
<PAGE>
<TABLE>
<CAPTION>
Percentage of Old Dominion's Load Sales
2000 2001 2002-2004
---- ---- ---------
<S> <C>
Virginia - % - % 78.8 %(1)
Maryland - - (2) 9.5 (2)
Delaware 0.6 11.5 11.5
West Virginia - 0.2 0.2
------ ---- -----
Old Dominion's Total System 0.6 % 11.7 % 100.0 %
====== ==== =====
</TABLE>
------------------
(1) The opportunity for Virginia consumers to shop for the purchase of
electricity will be phased in between January 1, 2002 and January 1, 2004
in accordance with a schedule that is to be developed by the Virginia State
Corporation Commission.
(2) Old Dominion's Maryland Member must offer customer choice by July 1, 2003.
It may voluntarily offer choice as early as 2001.
Virginia. On March 25, 1999, the governor of Virginia signed into law
comprehensive electric utility restructuring legislation. The legislation
provides for retail choice to be phased in between January 1, 2002 and January
1, 2004 in accordance with a schedule that is to be developed by the Virginia
State Corporation Commission ("VSCC"). By January 1, 2001, each utility is to
submit to the VSCC its plan for functional separation.
The deregulation plan calls for capping rates from January 1, 2002, to July
1, 2007. The rates were capped at the levels in effect on July 1, 1999; however,
a utility can petition the VSCC for an increase in rates prior to January 1,
2001. Additionally, the VSCC may adjust capped rates to facilitate the Members'
recovery of fuel costs. During this transition period, utilities may collect
stranded costs through operation of the capped rates and a wires charge that
will be applied to all customers that choose an alternative power supplier.
The 2000 session of the Virginia General Assembly passed legislation to
further enhance retail choice in Virginia. The legislation as passed
accomplishes the following: (1) more clearly defines which entities qualify as
aggregators and, therefore, must be licensed, (2) directs the VSCC to continue
its examination of whether metering and billing should be competitive, and (3)
allows the VSCC to consider transmission charges when calculating market price.
Language in this legislation clarifies that cooperatives will be the default
supplier of all competitive services, and will continue to be permitted to sell
power directly to their customers.
Maryland. On April 8, 1999, the governor of Maryland signed into law
restructuring legislation requiring a three-year phase-in of retail competition
beginning with investor-owned utilities on July 1, 2001. Such phase-in is to be
completed by July 1, 2003, at which time all customers will be able to choose
their electric supplier. By the same law, the cooperatives must present to the
Maryland Public Service Commission ("MPSC") a plan whereby all cooperative
customers will have choice by July 1, 2003.
The legislation also calls for a 3.0% to 7.5% rate reduction for
non-cooperative residential customers upon commencement of competition; no such
rate reduction is required for cooperative customers. Rates for all customers
are to be frozen for four years from the date of the commencement of
competition. Any proposed collection of stranded costs by cooperatives is to be
included in a filing before the MPSC along with an unbundled rate study for
their approval. Old Dominion's Maryland Member, Choptank Electric Cooperative
("Choptank"), made such a filing in July 1999. Additionally, Choptank has
indicated that it may voluntarily offer customer choice as early as July 1,
2001. Choptank and Old Dominion are currently involved in settlement
negotiations with the MPSC regarding this filing. Old Dominion management
believes that a component of this settlement will permit Choptank to collect its
stranded costs from its customers that choose an alternative power supplier.
Delaware. On March 31, 1999, the governor of Delaware signed into law
legislation requiring a phase-in of retail competition beginning October 1,
1999, for customers of the state's investor-owned electric utility, Conectiv,
and April 1, 2000, for the customers of Delaware Electric Cooperative ("DEC"),
Old Dominion's Delaware Member. Based on current estimates, the customers of DEC
that are permitted to shop for power during 2000 account for less than 1.0% of
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Old Dominion's total load sales. All customers of DEC, representing
approximately 11.5% of Old Dominion's total load sales, will have the option of
choosing their power supplier by April 1, 2001.
Rates for Conectiv's residential customers were reduced 7.5% effective
October 1, 1999, and will remain frozen at those levels through September 30,
2003. Rates for Conectiv's non-residential customers are to remain frozen at
their October 1, 1999 levels through September 30, 2002. DEC's customers' rates
are to be frozen at current levels through March 31, 2005.
The Delaware legislation required that DEC file a restructuring and rate
unbundling plan, including any proposed collection of the Member cooperative's
stranded costs. DEC filed such a plan in September 1999. Old Dominion intervened
in this proceeding to represent the interests of all of its Members. On February
28, 2000, the Delaware Public Service Commission ("DPSC") issued its preliminary
order in response to the filing. On April 25, 2000, the DPSC issued its final
opinion and order affirming its preliminary order. The order indicates that it
is the determination of the DPSC that DEC has no stranded costs and therefore
cannot collect such costs from those customers who choose an alternative power
supplier.
West Virginia. On March 11, 2000, the West Virginia legislature adopted a
restructuring plan into law that implements customer choice on January 1, 2001,
or a later date established by the state commission. As in the other three
states, power generation will be deregulated and utilities will compete for
customers in the open market; incumbent utilities will be the default suppliers;
and, metering and billing services will be fully competitive within four years
of the plan's implementation. The plan imposes restrictions on the residential
and large commercial/industrial rates to be charged during the first 7 and 13
years, respectively.
Other Matters
In July 2000, Old Dominion entered into contracts to purchase combustion
turbine generators with a total rated capacity of 850MW. Old Dominion intends to
use the generators in two generating plants it is planning to construct to
supply blocks of power to coincide with the timing and demand and energy
requirements contained in expiring power purchase contracts. These generators
are part of a larger project to construct new generating facilities totaling
approximately $375.0 million.
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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.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
3.1 Amended and Restated Articles of Incorporation of Old Dominion
Electric Cooperative
3.2 Bylaws of Old Dominion Electric Cooperative, Amended and Restated
as of November 9, 1999
27. Financial Data Schedule
(b) Reports on Form 8-K.
Form 8-K, dated May 12, 2000, was filed by the Registrant to report
Changes in Registrant's Certifying Accountant.
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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 11, 2000 /s/ Daniel M. Walker
------------------------------------------------
Daniel M. Walker
Senior Vice President of Accounting and Finance
(Chief Financial Officer)
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EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Page
Number Description of Exhibit Number
------ ---------------------- ------
<S> <C>
3.1 Amended and Restated Articles of Incorporation of Old Dominion Electric Cooperative 17
3.2 Bylaws of Old Dominion Electric Cooperative, Amended and Restated as of November 9, 2000 24
27. Financial Data Schedule 49
</TABLE>
