<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
---
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30,2000
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
------
PART I. Financial Information
Item 1. Financial Statements
<S> <C>
Consolidated Balance Sheets - September 30, 2000 (Unaudited)
and December 31, 1999 3
Consolidated Statements of Revenues, Expenses and
Patronage Capital (Unaudited) - Three and Nine Months
Ended September 30, 2000 and 1999 4
Consolidated Statements of Comprehensive Income (Unaudited) -
Three and Nine Months Ended September 30, 2000 and 1999 4
Consolidated Statements of Cash Flows (Unaudited) - Nine
Months Ended September 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 15
Item 6. Exhibits and Reports on Form 8-K 15
Signature 16
Exhibit Index 17
</TABLE>
<PAGE>
OLD DOMINION ELECTRIC COOPERATIVE
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------------- ------------------
(in thousands)
ASSETS: (unaudited) (*)
<S> <C> <C>
----------------------------------------------------------------------------------------
Electric Plant:
In service $ 901,417 $ 889,392
Less accumulated depreciation (276,399) (209,865)
------------------- ------------------
625,018 679,527
Nuclear fuel, at amortized cost 2,583 6,981
Construction work in progress 29,345 13,023
------------------- ------------------
Net Electric Plant 656,946 699,531
------------------- ------------------
Investments:
Nuclear decommissioning trust fund 60,351 54,159
Lease deposits 129,133 125,845
Other 84,934 82,020
------------------- ------------------
Total Investments 274,418 262,024
------------------- ------------------
Current Assets:
Cash and cash equivalents 23,930 25,088
Receivables 35,559 34,044
Fuel, materials and supplies, at average cost 8,901 9,312
Prepayments 2,356 2,244
Deferred energy 18,477 -
------------------- ------------------
Total Current Assets 89,223 70,688
------------------- ------------------
Deferred Charges: 21,316 18,269
------------------- ------------------
Total Assets $ 1,041,903 $ 1,050,512
=================== ==================
CAPITALIZATION AND LIABILITIES:
----------------------------------------------------------------------------------------
Capitalization:
Patronage capital $ 222,600 $ 216,369
Accumulated other comprehensive income (829) (2,316)
Long-term debt 478,495 509,606
------------------- ------------------
Total Capitalization 700,266 723,659
------------------- ------------------
Current Liabilities:
Long-term debt due within one year 29,700 29,700
Accounts payable 17,804 15,022
Accounts payable - Members 28,921 32,616
Deferred energy - 3,263
Accrued expenses 17,538 6,770
------------------- ------------------
Total Current Liabilities 93,963 87,371
------------------- ------------------
Deferred Credits and Other Liabilities:
Decommissioning reserve 60,351 54,159
Obligations under long-term leases 132,182 129,010
Other 55,141 56,313
------------------- ------------------
Total Deferred Credits and Other Liabilities 247,674 239,482
------------------- ------------------
Commitments and Contingencies - -
------------------- ------------------
Total Capitalization and Liabilities $ 1,041,903 $ 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 Nine Months Ended
September 30, September 30,
------------------------------------------- -------------------------------------------
2000 1999 2000 1999
------------------- ------------------- ------------------- -------------------
(in thousands)
<S> <C> <C> <C> <C>
Operating Revenues $ 107,232 $ 108,641 $ 307,466 $ 300,460
------------------- ------------------- ------------------- -------------------
Operating Expenses:
Fuel 12,653 11,683 35,970 34,629
Purchased power 43,397 51,098 124,373 127,681
Operations and maintenance 9,193 8,009 26,787 24,665
Administrative and general 5,206 4,347 14,600 13,156
Depreciation, amortization, and
decommissioning 24,208 17,920 65,034 52,306
Taxes other than income taxes 1,820 1,895 6,316 5,775
------------------- ------------------- ------------------- -------------------
Total Operating Expense 96,477 94,952 273,080 258,212
------------------- ------------------- ------------------- -------------------
Operating Margin 10,755 13,689 34,386 42,248
Other Income/(Expense), net 10 (33) (703) (13)
Investment Income 1,012 1,298 3,464 4,387
Interest Charges, net (9,800) (12,444) (30,916) (38,814)
------------------- ------------------- ------------------- -------------------
Net Margin 1,977 2,510 6,231 7,808
Patronage Capital-Beginning of Period 220,623 211,826 216,369 206,528
------------------- ------------------- ------------------- -------------------
Patronage Capital-End of Period $ 222,600 $ 214,336 $ 222,600 $ 214,336
=================== =================== =================== ===================
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
OLD DOMINION ELECTRIC COOPERATIVE
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------------------- -------------------------------------------
2000 1999 2000 1999
------------------- ------------------- ------------------- -------------------
(in thousands)
<S> <C> <C> <C> <C>
Net Margin $ 1,977 $ 2,510 $ 6,231 $ 7,808
Other comprehensive income:
Unrealized gain/(loss) on investments 1,322 (968) 1,487 (2,728)
------------------- ------------------- ------------------- -------------------
Comprehensive income $ 3,299 $ 1,542 $ 7,718 $ 5,080
=================== =================== =================== ===================
------------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
4
<PAGE>
OLD DOMINION ELECTRIC COOPERATIVE
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------------------------------
2000 1999
------------------- -------------------
(in thousands)
<S> <C> <C>
Operating Activities:
Net margin $ 6,231 $ 7,808
Adjustments to reconcile net margin to
net cash provided by operating activities:
Depreciation, amortization, and decommissioning 65,034 52,306
Other noncash charges 6,420 8,169
Amortization of lease obligation 6,812 6,536
Change in current assets (19,693) (1,293)
Change in current liabilities 6,592 898
Deferred charges and other (2,304) (3,242)
------------------- -------------------
Net Cash Provided by Operating Activities 69,092 71,182
------------------- -------------------
Financing Activities:
Reductions of long-term debt (32,985) (42,342)
Obligations under long-term leases (265) (262)
------------------- -------------------
Net Cash Used in Financing Activities (33,250) (42,604)
------------------- -------------------
Investing Activities:
Lease deposits and other investments (8,089) (53,539)
Electric plant additions (28,400) (5,977)
Decommissioning fund deposits (511) (511)
------------------- -------------------
Net Cash Used in Investing Activities (37,000) (60,027)
------------------- -------------------
Net Change in Cash and Cash Equivalents (1,158) (31,449)
Cash and Cash Equivalents - Beginning of Period 25,088 82,382
------------------- -------------------
Cash and Cash Equivalents - End of Period $ 23,930 $ 50,933
=================== ===================
--------------------------------------------------------------------------------------------------------------------------
</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 September 30, 2000, and its consolidated results of operations
and comprehensive income for the three and nine months ended September 30,
2000 and 1999, and its consolidated cash flows for the nine months ended
September 30, 2000 and 1999. The consolidated results of operations for the
nine months ended September 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 approves 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 recover the additional expense through rates pursuant
to the comprehensive rate formula filed with and accepted by the Federal
Energy Regulatory Commission.
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, the 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 $53.1 million. During the first
nine months of 2000, Old Dominion recorded additional depreciation of $43.1
million as compared to $34.3 million in the first nine months of 1999. To
date Old Dominion has collected a total of $119.9 million 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 nine months 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. 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, as well as to Virginia Power, on changed terms.
The following table summarizes the increases (decreases) in operating revenues
by component:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30, September 30,
2000 vs 1999 2000 vs 1999
-------------- --------------
(in thousands)
<S> <C> <C>
Sales to Members:
Power sales volume $(3,261) $ 7,430
Blended rates (401) (7,905)
Fuel adjustment revenues 3,924 4,646
Margin stabilization plan adjustment 2,244 1,022
Margin stabilization returned to Members (3,336) (3,336)
------- -------
(830) 1,857
Sales to Nonmembers (579) 5,149
------- -------
$(1,409) $ 7,006
======= =======
</TABLE>
7
<PAGE>
Mild weather in the third quarter of 2000 combined with a reduction in the
demand rate effective April 1, 2000, resulted in decreased Member revenues for
the third quarter of 2000 as compared to the third quarter of 1999.
Unusually hot weather in the second quarter resulted in increased Member
revenues for the first nine months of 2000 as compared to the same period 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 nine month periods ended
September 30, 2000 and 1999, were as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------- ---------------------
September, September,
---------------------- ---------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Demand sales (MW) 4,473 4,594 12,713 12,462
Energy sales (MWh) 2,282,827 2,364,827 6,596,831 6,398,868
</TABLE>
Changes in nonmember revenues for the three and nine month periods ended
September 30, 2000, as compared to the same periods in 1999 resulted from sales
of excess purchased energy to PJM.
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 nine month periods ended September 30,
2000 and 1999, were as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------- ----------------------------
September 30, September 30,
---------------------------- ----------------------------
2000 1999 Normal 2000 1999 Normal
------ ------ -------- ------ ------ --------
<S> <C> <C> <C> <C> <C> <C>
Cooling degree days 764 1,056 1,093 1,232 1,425 1,556
Percentage change compared
to prior year (27.7)% (4.7)% (13.5)% (9.2)%
Heating degree days 43 15 19 2,224 2,251 2,189
Percentage change compared
to prior year 186.7% 150.0% (1.2)% 10.7%
</TABLE>
Operating Expenses
Operations
Old Dominion has an 11.6% undivided ownership interest in the North Anna
Nuclear Power Station ("North Anna") and a 50.0% 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 its Members, are significantly
affected by the operations of North Anna and Clover.
8
<PAGE>
North Anna and Clover capacity factors for the three and nine month periods
ended September 30, 2000 and 1999, 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,
--------------- --------------- --------------- ---------------
2000 1999 2000 1999 2000 1999 2000 1999
----- ----- ----- ----- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Unit 1 104.0% 103.8% 87.7% 103.5% 93.1% 83.5% 86.7% 80.3%
Unit 2 102.3 77.6 101.6 93.2 91.7 85.6 89.0 86.0
Combined 103.2 90.7 94.7 98.4 92.4 84.6 87.9 83.2
</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. The unit also experienced minor
unscheduled outages during the first nine months of 2000. As of September 30,
2000, Unit 1 had been online for 142 consecutive days. North Anna Unit 2
experienced only minor unscheduled outages during the first nine months of 2000.
As of September 30, 2000, Unit 2 had been online for 179 consecutive days.
There were no significant unplanned outages at North Anna during 1999. Unit 2
was removed from service in mid-September for a scheduled refueling.
Clover Unit 1 was off-line for 15 days in April 2000 for a scheduled
maintenance outage. The unit also experienced minor unscheduled outages during
the first nine months of 2000. As of September 30, 2000, Unit 1 had been online
for 123 consecutive days. Clover Unit 2 experienced only minor outages during
the first nine months of 2000. As of September 30, 2000, Unit 2 had been online
for 49 consecutive days.
Clover Unit 1 operated for 166 days before it was removed from service in
March 1999 for a 16-day scheduled maintenance outage. At September 30, 1999,
Clover Unit 2 had been in operation for 236 consecutive days. On August 7, 1999,
Clover experienced very low water flow due to continued drought conditions in
the state of Virginia. As a result, the units operated to meet peak loads
during the day; however, at night, load was reduced on each unit to 150 MW to
conserve water. On August 27, 1999, the units were released for full
operations.
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, Pennsylvania Power & Light ("PPL"), and others. Old Dominion's energy
supply for the three and nine month periods ended September 30, 2000 and 1999,
was as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------------------- ---------------------------------------
2000 1999 2000 1999
----------------- ---------------- ----------------- ------------------
(MWh) (MWh) (MWh) (MWh)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Clover 895,005 37.8% 823,172 33.2% 2,524,082 36.6% 2,377,102 35.6%
North Anna 472,871 20.0 415,564 16.7 1,292,361 18.8 1,337,934 20.0
Purchased Power:
Virginia Power 440,003 18.6 639,355 25.8 1,389,867 20.2 1,373,019 20.6
Delmarva Area (PSE&G,
Conectiv, Conectiv/PPL) 290,713 12.3 321,754 13.0 784,731 11.4 1,035,216 15.5
Other 267,593 11.3 278,933 11.3 898,031 13.0 555,334 8.3
--------- ----- --------- ----- --------- ----- --------- -----
Total Available Energy 2,366,185 100.0% 2,478,778 100.0% 6,889,072 100.0% 6,678,605 100.0%
========= ===== ========= ===== ========= ===== ========= =====
</TABLE>
Weather and accelerated depreciation recorded under Old Dominion's Strategic
Plan Initiative were the primary factors affecting operating expenses in the
third quarter and first nine months of 2000. Mild weather in the third quarter
of 2000, combined with a 10.4% increase in production resulted in a decrease in
purchased power
9
<PAGE>
and an increase in fuel expenses. Unusually hot weather in May and June combined
with scheduled and unscheduled outages at Clover and North Anna, resulted in an
increase in purchased power and a decrease in fuel expenses in the first nine
months of 2000.
Extreme temperatures in the first and third quarters of 1999 coupled with
increased production at North Anna and Clover in 1999 were the primary factors
affecting operating expenses in the first nine months of 1999. The result was
an increase in both production and purchased power expenses. In August 1999,
severe drought conditions forced Clover to operate at minimum load for
approximately three weeks resulting in a decrease in fuel expenses and an
increase in purchased power costs for the three months ended September 30, 1999.
Operations and maintenance expenses increased in the third quarter and first
nine months of 2000 as compared to the same period in 1999 primarily because of
maintenance performed during the Clover and North Anna outages. There were no
significant outages in the third quarter or first nine months of 1999.
Administrative and general expenses increased in the third quarter and first
nine months of 2000 primarily because of legal and engineering consulting fees
related to preconstruction activities on three generating plants. See "Other
Matters." Administrative and general expense increased in the third quarter and
first nine months of 1999 primarily because of legal and engineering consulting
fees related to the potential siting of generation plants combined with expenses
incurred in forming Old Dominion's alliance with Reliant Energy, Inc.
Depreciation expense increased because of accelerated depreciation recorded on
generation assets in accordance with Old Dominion's Strategic Plan Initiative.
During the first nine months of 2000, Old Dominion recorded $43.1 million of
additional depreciation expense. During the first nine months of 1999, Old
Dominion recorded $34.3 million of additional depreciation expense.
Non-Operating Income and Expenses
Investment income decreased during the third quarter and first nine months of
2000 as compared to the same periods in 1999 because of a decrease in invested
cash and cash equivalents resulting from the purchase of $33.3 million and $49.3
million of outstanding debt in 2000 and 1999, respectively, and a partial
payment on combustion turbine generators. Additionally, interest rates on
investments were lower in 2000.
Interest on long-term debt decreased in the third quarter and first nine
months 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 nine months of 2000.
Liquidity and Capital Resources
Operating activities for the nine months ended September 30, 2000 and 1999
were primarily affected by accelerated depreciation recorded on generation
assets in accordance with Old Dominion's Strategic Plan Initiative. Operating
activities in the first nine months of 2000 were also affected by changes in
non-cash working capital.
Financing activities for the nine months ended September 30, 2000 and 1999,
resulted in a cash outflow as Old Dominion used its available cash to purchase
outstanding debt.
Investing activities for the nine months ended September 30, 2000, resulted in
a cash outflow because of additions to electric plant and lease deposits and
other investments. Investing activities for the nine months ended September 30,
1999, resulted in a cash outflow because of additions to lease deposits and
other investments to establish Old Dominion's Strategic Plan Initiative fund.
The cash outflows associated with the increase in lease deposits were
essentially offset by the cash inflows associated with the amortization of the
lease obligations.
10
<PAGE>
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 through 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 approves 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 recover the additional expense through rates pursuant to the
comprehensive rate formula filed with and accepted by the Federal Energy
Regulatory Commission ("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, the 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 $53.1 million. During the first nine
months of 2000, Old Dominion recorded additional depreciation of $43.1 million
as compared to $34.3 million in the first nine months of 1999. To date Old
Dominion has collected a total of $119.9 million 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 nine months 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) has 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 systems and charges.
Power transmission and distribution will remain under
11
<PAGE>
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 its FERC 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.
<TABLE>
<CAPTION>
Percentage of Old Dominion's Load Sales
-------------------------------------------
2000 2001 2002-2004
---- ---- ---------
<S> <C> <C> <C>
Virginia - % - % 78.8%(1)
Maryland - 9.5(2) 9.5(2)
Delaware 0.6 11.5 11.5
West Virginia - 0.2 0.2
---- ---- -----
Old Dominion's Total System 0.6% 21.2% 100.0%
=== ==== =====
------------------
(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, but has volunteered to offer choice as early as 2001.
</TABLE>
Old Dominion's contracts with its Members represent those Members stranded
costs. Following is a summary of recent legislation in the states in which Old
Dominion's Members serve.
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 unbundling its rates.
The deregulation plan calls for capping rates from January 1, 2002, to July 1,
2007. The rates will be capped at the levels that were 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 the metering and billing functions 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, 2000. The phase-in is
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<PAGE>
to be completed by July 1, 2003, at which time all customers will be able to
choose their electric supplier. The legislation also calls for a 3.0% to 7.5%
rate reduction for non-cooperative residential customers upon commencement of
competition; however, 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.
The same law required the cooperatives to present to the Maryland Public
Service Commission ("MPSC") a plan whereby all cooperative customers will have
choice by July 1, 2003. Old Dominion's Maryland Member, Choptank Electric
Cooperative ("Choptank"), made such a filing in July 1999. In this filing
Choptank requested recovery of its stranded costs and volunteered to offer
choice to all of its customers on July 1, 2001. On July 21, 2000, Choptank, the
staff of the MPSC, and the Maryland Office of People's Counsel jointly filed
with the MPSC an Agreement of Stipulation and Settlement ("Stipulation") that
incorporated stranded costs recovery for Choptank. No parties to the
Stipulation objected to its terms or conditions. On October 18, 2000, a hearing
was held before the commissioners of the MPSC, wherein the commissioners were
asked to accept the Stipulation. Choptank is now awaiting the final order
regarding the matter.
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 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. Pursuant to the plan,
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.
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Other Matters
Old Dominion has entered into contracts to purchase combustion turbine
generators with a total rated capacity of 1,350 MW. Old Dominion intends to use
the generators in three generating plants it plans to construct to supply power
to coincide with the timing of expiring power purchase contracts. Old Dominion
anticipates spending approximately $700.0 million on the projects over the
estimated six-year construction period beginning in 2001.
In 1998 the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities," effective for fiscal years beginning after July 1, 2000. Old
Dominion is in the process of evaluating the impact of this standard on its
consolidated financial position and results of operations.
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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.
27. Financial Data Schedule
(b) Reports on Form 8-K.
The Registrant filed no reports on Form 8-K during the quarter ended
September 30, 2000.
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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: November 9, 2000 /s/Daniel M. Walker
--------------------------------------------
Daniel M. Walker
Senior Vice President of Accounting and Finance
(Chief Financial Officer)
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EXHIBIT INDEX
Exhibit Page
Number Description of Exhibit Number
------ ---------------------- ------
27. Financial Data Schedule 18
17
