UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 1997
Commission File Number 0-23432
RIDGEWOOD ELECTRIC POWER TRUST III
(Exact name of registrant as specified in its charter.)
Delaware, U.S.A. 22-3264565
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
947 Linwood Avenue, Ridgewood, New Jersey 07450-2939
(Address of principal executive offices (Zip Code)
Registrant's telephone number, including area code:
(201) 447-9000
Indicate by check mark whether the registrant(1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90
days.
YES [X] NO [ ]
<PAGE>
<TABLE>
PART I. - FINANCIAL INFORMATION
ITEM I - FINANCIAL STATEMENTS
RIDGEWOOD ELECTRIC POWER TRUST III
BALANCE SHEETS
(Unaudited)
<CAPTION>
September 30, December 31,
1997 1996
<S> <C> <C>
Assets
Investments in power
generation projects $ 25,232,675 $ 28,050,750
Cash and cash equivalents 2,051,421 2,959,240
Due from affiliates 1,362,755 109,085
Deferred due diligence
costs 0 30,000
Interest receivable 10,143 0
Other assets 377,228 281,000
Total assets $ 29,034,222 $ 31,430,075
Liabilities and Share-
holders' Equity
Accounts payable and
accrued expenses $ 33,408 $ 41,136
Due to affiliates 603,720 0
637,128 41,136
Shareholders' equity
(391.8444 shares issued
and outstanding) 28,444,156 31,406,084
Managing shareholder's
accumulated deficit (47,062) (17,145)
Total shareholders' equity 28,397,094 31,388,939
Total liabilities and
shareholders' equity $ 29,034,222 $31,430,075
<FN>
See Accompanying Notes to Financial Statements
</TABLE>
<PAGE>
<TABLE>
RIDGEWOOD ELECTRIC POWER TRUST III
STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS AND QUARTERS
ENDED SEPTEMBER 30, 1997 AND SEPTEMBER 30, 1996
(Unaudited)
<CAPTION>
Nine months Quarter Nine months Quarter
ended ended ended ended
September 30, September 30, September 30, September 30,
1997 1997 1996 1996
<S> <C> <C> <C> <C>
Revenue:
Income from power
generating projects $3,258,480 $1,762,856 $2,198,445 $1,171,161
Interest and dividend
income 120,993 54,692 199,244 (4,715)
3,379,473 1,817,548 2,397,689 1,166,446
Expenses:
Project due diligence costs 3,692 0 0 0
Management fee 583,311 195,102 594,872 198,542
Accounting and legal fees 44,860 26,776 27,255 7,500
Write-down of investments
in power generation
projects 3,235,680 3,235,680 0 0
Miscellaneous 20,669 7,608 14,820 2,968
3,888,212 3,465,166 636,947 209,010
Net income (loss) $ (508,739) $(1,647,618) $1,760,742 $ 957,436
Allocation to:
Shareholders $ (508,652) $(1,631,142) $1,743,135 $ 947,862
Managing shareholder (5,087) (16,476) 17,607 9,574
$ (508,739) $(1,647,618) $1,760,742 $ 957,436
<FN>
See Accompanying Notes to Financial Statements
</TABLE>
<PAGE>
RIDGEWOOD ELECTRIC POWER TRUST III
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS AND
SEPTEMBER 30, 1997 AND SEPTEMBER 30, 1996
(Unaudited)
[CAPTION]
Nine months Nine months
ended ended
September 30, 1997 September 30, 1996
[S] [C] [C]
Cash flows from operating
activities:
Net income (loss) $ (508,739) $1,760,742
Adjustment to
reconcile net income
(loss) to net cash used
in operating activities:
Purchase of investments
in power generation
projects (127,063) (7,279,299)
Write-down of investments
in power projects 2,945,138 0
Changes in assets &
liabilities:
Decrease (increase) in
due from affiliates (1,253,670) 228,350
(Increase) decrease in
deferred due diligence
costs 30,000 44,835
(Increase) decrease in
interest receivable (10,143) 51,233
Increase (decrease) in
other assets (96,228) 139,898
Increase (decrease) in
accounts payable and
accrued expenses (7,728) (42,442)
Increase in due to
affiliates 603,720 0
Total adjustments 2,084,026 (6,857,425)
Net cash provided
by (used in)
operating activities 1,575,287 (5,096,683)
Cash distributions to
Shareholders (2,483,106) (2,677,608)
Net cash provided by
(used in) financing
activities: (2,483,106) (2,677,608)
Net (decrease) increase
in cash and cash
equivalents (907,819) (7,774,291)
Cash and cash equivalents
- Beginning of period 2,959,240 10,972,576
Cash and cash equivalents
- End of period $2,051,421 $3,198,285
[FN]
See Accompanying Notes to Financial Statements
<PAGE>
Ridgewood Electric Power Trust III
Notes to Financial Statements
1. Organization and Purpose
Nature of business
Ridgewood Electric Power Trust III (the "Trust") was formed as a Delaware
business trust on December 6, 1993, by Ridgewood Energy Holding Corporation
acting as the Corporate Trustee. The managing shareholder of the Trust is
Ridgewood Power Corporation. The Trust began offering shares on January 3,
1994. The Trust commenced operations on April 16, 1994, and discontinued its
offering of Trust shares on May 31, 1995.
The Trust has been organized to invest in independent power generation
facilities and in the development of these facilities. These independent
power generation facilities include cogeneration facilities, which produce
both electricity and thermal energy, and other power plants that use various
fuel sources (except nuclear). The power plants sell electricity and thermal
energy to utilities and industrial users under long-term contracts.
"Business Development Company" election
Effective April 16, 1994, the Trust elected to be treated as a "Business
Development Company" under the Investment Company Act of 1940 and registered
its shares under the Securities Exchange Act of 1934.
2. Summary of Significant Accounting Policies
Interim financial statements
The financial statements for the three and nine months ended September 30,
1997 and 1996, included herein have been prepared by the Trust without audit
pursuant to the rules and regulations of the Securities and Exchange
Commission. Accordingly, these statements reflect all adjustments (consisting
only of normal recurring entries) which are, in the opinion of management,
necessary for a fair statement of the financial results for the interim
periods. Certain information and notes normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although the Trust believes that the disclosures are adequate to
make the information presented not misleading. These financial statements
should be read in conjunction with the financial statements and the notes
thereto included in the Trust's Annual Report on Form 10-K for the year ended
December 31, 1996 (Form 10-K).
Use of estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from the estimates.
Investments in power generation projects
The Trust holds investments in power generating projects, which are stated at
fair value. Due to the non-liquid nature of the investments, the fair values
of the investments are assumed to equal cost unless current available
information provides a basis for adjusting the carrying value of the
investments.
Revenue recognition
Income from investments is recorded when received. Interest and dividend
income are recorded as earned.
<PAGE>
Ridgewood Electric Power Trust III
Notes to Financial Statements
Offering costs
Costs associated with offering Trust shares (selling commissions, distribution
and offering costs) are recorded as a reduction of the shareholders' capital
contributions.
Cash and cash equivalents
The Trust considers all highly liquid investments with original maturities of
three months or less as cash and cash equivalents.
Due diligence costs relating to potential power project investments
Costs relating to the due diligence performed on potential power project
investments, are initially deferred, until such time as the Trust determines
whether or not it will make an investment in the respective project. Costs
relating to completed projects are capitalized and costs relating to rejected
projects are expensed at the time of rejection.
Income taxes
No provision is made for income taxes in the accompanying financial statements
as the income or losses of the Trust are passed through and included in the
tax returns of the individual shareholders of the Trusts.
Reclassification
Certain items in previously issued financial statements have been reclassified
for comparative purposes.
3. Investments in Power Generation Projects
The following investments in power generation projects are stated at fair
value:
September 30, December 31,
1997 1996
Power generation projects:
JRW Associates, L.P. $ 5,305,298 $ 5,305,298
Byron Power Partners, 3,138,072 3,138,072
L.P.
Providence Power
Partners, L.P. 7,130,000 7,130,000
On-Site Cogeneration
Projects:
Ridgewood/Rhode Island
PPLP 800,000 3,722,618
Ridgewood/Mass.
PPLP 3,223,881 3,223,881
Ridgewood/Elmsford PPLP 1,430,136 1,430,136
Other On-Site Cogen-
eration Project
Partnerships 4,205,288 4,100,745
TOTALS $ 25,232,675 $ 28,050,750
JRW Associates, L.P. (known as San Joaquin Power Company)
On January 17, 1995, the Trust acquired 100% of the existing partnership
interests of JRW Associates, L.P., which owns and operates an 8.5 megawatt
electric cogeneration facility, located in Atwater, California. The aggregate
cost of the investment was $5,305,298. The Trust received distributions of
$921,180 and $779,409 from the project for the periods ended September 30,
1997 and December 31, 1996, respectively.
<PAGE>
Ridgewood Electric Power Trust III
Notes to Financial Statements
Byron Power Partners, L.P. (known as Byron Power Company)
In January 1995, the Trust caused the formation of Byron Power Partners, L.P.
in which the Trust owns 100% of the existing partnership interests. On
January 17, 1995, Byron Power Partners, L.P. acquired a 5.7 megawatt electric
cogeneration facility, located in Byron, California. The aggregate cost of
the Trust's investment in the partnership was $3,138,072. The Trust received
distributions of $439,990 and $428,540 from the project for the periods ended
September 30, 1997 and December 31, 1996, respectively.
Providence Project
In 1996, Ridgewood Providence Power Partners, L.P. was formed as a Delaware
limited partnership ("Providence Power"). The Trust invested $7,058,700 and
owns a 35.7 % limited partnership interest in Providence Power. In addition,
Ridgewood Providence Power Corporation, was formed as a Delaware corporation
("RPPCorp."). The Trust invested $71,300 and owns 35.7 % of the outstanding
common stock of RPPCorp., which is the sole general partner of Providence
Power.
On April 16, 1996, Providence Power purchased substantially all of the net
assets of Northeastern Landfill Power Joint Venture. The assets acquired
include a 12.3 megawatt capacity electrical generating station, located at the
Central Landfill in Johnston, Rhode Island (the "Providence Project"). The
Providence Project includes eight reciprocating electric generator engines,
which are fueled by methane gas produced and collected from the landfill. The
electricity generated is sold to New England Power Corporation under a long-
term contract. The purchase price was $15,533,021 cash, including transaction
costs and repayment of $3,000,000 of principal on senior secured non-recourse
notes payable. In addition, Providence Power assumed the obligation to repay
the remaining principal outstanding of $6,310,404 on the senior secured non-
recourse notes payable.
Through ownership in RPPCorp. and Providence Power, the Trust owns 35.7 % of
the Providence Project. The remaining 64.3 % is owned by Ridgewood Electric
Power Trust IV ("Trust IV"). Ridgewood Power Corporation is the managing
partner of the Trust and Trust IV. The Trust received distributions of
$646,023 and $562,427 from the project for the periods ended September 30,
1997 and December 31, 1996, respectively.
On-site Cogeneration Projects
On September 29, 1995, the Trust acquired a portfolio of 35 projects from
affiliates of Eastern Utilities Associates ("EUA"), which sell electricity and
thermal energy to industrial and commercial customers. The projects are held
in eight limited partnerships of which the Trust is the sole limited partner
and is the sole owner of each of the general partners. In the aggregate, the
projects have 13.7 MW of base load and 5.7 MW of backup and standby capacity.
The Trust paid a total of $11.3 million for the projects and has invested
additional amounts in working capital. EUA operated the projects under a
transition agreement until January 1, 1996, at which time Ridgewood Power
Management Corporation, an affiliate of the Trust, assumed operational
control. In September 1997, the Trust entered into an agreement with
Alternate Energy Systems, Inc. (AES) to invest in three co-generation
facilities operated by AES. The Total investment as of September 30, 1997 was
$120,348. The Trust received distributions of $1,251,287 and $1,756,410 from
these projects for the periods ended September 30, 1997 and December 31, 1996
respectively.
<PAGE>
Ridgewood Electric Power Trust III
Notes to Financial Statements
Ridgewood/ Rhode Island Power Partners L.P.
Ridgewood/ Rhode Island Power Partners Limited Partnership (the
"Partnership") leases three 1,400 kilowatt Cooper Superior gas fired
generator sets with heat recovery to a Rhode Island manufacturing company
under a lease expiring in 2006. Two engines are in regular use and one
engine is on standby. The partnership is entitled to receive a monthly fixed
lease payment and a maintenance payment, which escalates over the term of the
lease. The Partnership is responsible for maintaining the engines and
related equipment. At the expiration of the lease, the lessee may purchase
the equipment from the partnership for its fair market value. The aggregate
cost of the Trust's investment in the partnership was $3,737,573. The Trust
received distributions of $282,944 and $572,970 from the project for the
periods ended September 30, 1997 and December 31, 1996 respectively. During
1997, the customer was in severe financial difficulties and repeatedly
defaulted on its payment obligations. In response, the customer alleged
violations by the Partnerhsip of the lease and requested renegotiation of the
lease. In the course of the negotiations, the customer's principal creditor
threatened to place the customer in Chapter 11 bankruptcy, which would result
in a cancellation of the lease. The lessee has agreed to purchase the
facility (the "Worcester Project") and terminate the lease in exchange for a
single cash payment. Accordingly, the Trust has written down its investment
in the Partnership by $2,937,573 to its estimated net realizable value of
$800,000. The Trust expects to complete the sale in the fourth quarter of
1997. Please also refer to Item 5- Arbitration and Litigation, for
additional information.
Ridgewood/ Mass. Power Partners L.P.
Ridgewood/ Mass. Power Partners L.P. (the "Partnership") owns two
projects. The first is a 3.5 MW base load, simple cycle, dual-fuel,
combustion turbine powered plant with a heat recovery steam generator which
sells electric power and steam to a manufacturing facility on whose site the
plant is located. The project includes two 1.6 MW Caterpillar diesel engine
generator sets to provide backup power. The project sells electric and
thermal energy to the manufacturing facility at the project's production cost
(as defined in the Energy Service Agreement) plus a share of the savings (the
difference between what the electric and thermal energy would have cost the
company absent the cogeneration plant). The Energy Service Agreement expires
at the end of 2005. The aggregate cost of the Trust's investment in the
partnership was $3,223,881. The Trust received distributions of $588,200 and
$660,201 from the project for the periods ended September 30, 1997 and
December 31, 1996, respectively. The Partnership also owns a smaller group of
four cogeneration generator sets totaling 255 KW serving a residential complex
in Worcester, Massachusetts. The energy services agreement ("ESA") provides
that the partnership receives from the customer the cost to purchase
electricity and natural gas from the local utility, less a guaranteed savings
based on the utility's current rates. The ESA expires in 2004.
Ridgewood/ Elmsford Power Partners, L.P.
Ridgewood/ Elmsford Power Partners, L.P. (the "Partnership") owns one
cogeneration project consisting of two 665 KW (1,330 KW total) dual fuel
Cooper Superior engine generator sets with heat recovery and a Caterpillar 600
kilowatt standby diesel generator set. The Energy Services Agreement ("ESA")
expires in 2005 and provides that the Partnership receives its production
costs (as defined in the ESA) plus a share of the excess of the customer's
avoided cost over production costs. The aggregate cost of the Trust's
investment in the partnership was $1,430,136. The Trust received
distributions of $326,236 and $160,940 from the project for the periods ended
September 30, 1997 and December 31, 1996, respectively.
<PAGE>
Ridgewood Electric Power Trust III
Notes to Financial Statements
The "Other On-site Cogeneration Project Partnerships"
The "other on-site cogeneration project partnerships" consist of five
partnerships, which own 30 of the 35 projects acquired from Eastern Utilities
Associates. These 30 projects represent approximately one-third of the
Trust's investment in the on-site cogeneration projects. All thirty are gas-
fired cogeneration projects, located in California, Connecticut or New York.
Their energy service agreements have terms expiring between September 1996 and
2011. The projects represent 5.5 MW of base load capacity. The largest
project is 660 KW or 12% of the capacity. The projects range in size from 30
KW to 660 KW. In September 1997, the Trust entered into an agreement with
Alternate Energy Systems, Inc. (AES) to invest in three co-generation
facilities operated by AES. All three facilities are located in New York. As
of September 30, 1997 and December 31, 1996, the total cost of the Trust's
investment in these partnerships was $4,205,288 and $4,100,745, respectively.
In 1996, the Trust wrote-off four small projects amounting to $113,042. In
September 1997 management decided to sell its interests in four plating plant
facilities and write down its investment in these projects by $7,565 to the
estimated net realizable value of $140,000. Management also wrote-off
intercompany receivables of $290,542 relating to these facilities. The Trust
received distributions of $53,907 and $362,299 from all of the projects for
the periods ended September 30, 1997 and December 31, 1996, respectively.
4. Transactions With Managing Shareholder And Affiliates
The Trust pays to the managing shareholder a distribution and offering fee up
to 5% of each capital contribution made to the Trust. The fee is intended to
cover legal, accounting, consulting, filing, printing, distribution, selling,
and closing costs for the offering of the Trust. For the periods ended
September 30, 1997, December 31, 1996, and December 31, 1995, the Trust paid
fees for these services to the managing shareholder totaling zero, zero and
$860,195, respectively. These fees were recorded as a reduction in
shareholders' capital contributions.
The Trust also pays to the managing shareholder an investment fee up to 2% of
each capital contribution made to the Trust. The fee is payable to the
managing shareholder for its services in investigating and evaluating
investment opportunities and effecting transactions for investing the capital
of the Trust. For the periods ended September 30, 1997, December 31, 1996 and
1995, the Trust paid investment fees to the managing shareholder of zero,
zero, and $343,779, respectively.
The Trust entered into a management agreement with the managing shareholder,
under which the managing shareholder renders certain management,
administrative and advisory services and provides office space and other
facilities to the Trust. As compensation to the managing shareholder, the
Trust pays the managing shareholder an annual management fee equal to 2.5% of
the net asset value of the Trust payable monthly upon the closing of the
Trust. For the periods ended September 30, 1997, December 31, 1996 and
December 31, 1995, the Trust paid management fees to the managing shareholder
of $583,311, $794,026 and $482,309, respectively.
Under the Declaration of Trust, the managing shareholder is entitled to
receive each year 1% of all distributions made by the Trust (other than those
derived from the disposition of Trust property) until the shareholders have
been distributed in that year an amount equal to 14% of their equity
contribution. Thereafter, the managing shareholder is entitled to receive 20%
of the distributions for the remainder of the year. The managing shareholder
is entitled to receive 1% of the proceeds from dispositions of Trust
properties until the shareholders have
<PAGE>
Ridgewood Electric Power Trust III
Notes to Financial Statements
received cumulative distributions equal to their original investment
("Payout"). In all cases, after Payout the managing shareholder is entitled
to receive 20% of all remaining distributions of the Trust.
Where permitted, in the event the managing shareholder or an affiliate
performs brokering services in respect of an investment acquisition or
disposition opportunity for the Trust, the managing shareholder or such
affiliate may charge the Trust a brokerage fee. Such fee may not exceed 2% of
the gross proceeds of any such acquisition or disposition. No such fees were
paid through September 30, 1997.
The managing shareholder purchased one share of the Trust for $84,000.
Through the closing of the Trust's offering on May 31, 1995, commissions and
placement fees of $390,844 were earned by Ridgewood Securities Corporation, an
affiliate of the managing shareholder.
In 1996, under an operating agreement with the Trust, Ridgewood Power
Management Corporation ("Ridgewood Management"), an entity related to the
managing shareholder through common ownership, provides management,
purchasing, engineering, planning and administrative services to the power
generation projects operated by the Trust. Ridgewood Management charges the
projects at its cost for these services and for the allocable amount of
certain overhead items. Allocations of costs are on the basis of identifiable
direct costs, time records or in proportion to amounts invested in projects
managed by Ridgewood Management.
5. Arbitration and Litigation
The Trust's subsidiaries that own the on-site cogeneration projects have
brought an arbitration proceeding against Eastern Utilities Associates, Inc.,
the former owner. The Trust has claimed that the former owner defrauded the
Trust by misrepresenting the financial status of the Worcester Project and its
customer and by making other material misrepresentations. The Trust also has
claimed that the former owner breached numerous representations and warranties
in the acquisition agreement and violated fair trade practice laws. The trust
has demanded return of the entire $11.5 million paid for the On-Site
Cogeneration Projects and additional compensatory damages. The former owner
has counterclaimed for approximately $550,000 for alleged unpaid management
services. The parties have selected arbitrators. The Trust has not reflected
the amounts claimed in its financial statements pending the outcome of the
arbitration proceeding.
In February 1997, the Trust's subsidiaries that own the San Joaquin and Byron
projects filed suit in the Superior Court of California against Pacific Gas
and Electric Company ("PG & E") for breach of the power sales contracts. The
Trust argues PG & E has improperly withheld approximately $200,000 of capacity
payments and also has asked for declaratory relief to require PG & E to
conform to the contracts' terms in the future. The parties are in settlement
negotiations which contemplate the payment to the Trust of most of its claims.
The Trust has not reflected the withheld capacity payments in its financial
statements pending the outcome of the suit.
On February 28, 1997 Michael Cutbirth, an individual, sued the Managing
Shareholder in the Superior Court of California, Kern County, claiming
unspecified damages (including a claim to an equity interest) for breach of an
alleged confidentiality agreement relating to the acquisition of the San
Joaquin and Byron Projects. The Managing Shareholder has successfully removed
the lawsuit to the United States District Court for the Eastern District of
<PAGE>
Ridgewood Electric Power Trust III
Notes to Financial Statements
California. Discovery has begun. The Managing Shareholder believes that it
has ample defenses to Mr. Cutbirth's claims and it will defend the action
vigorously.
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Quarterly Report on Form 10-Q, like some other statements made by the
Trust from time to time, has forward-looking statements. These statements
discuss business trends and other matters relating to the Trust's future
results and the business climate. In order to make these statements, the
Trust has had to make assumptions as to the future. It has also had to make
estimates in some cases about events that have already happened, and to rely
on data that may be found to be inaccurate at a later time. Because these
forward-looking statements are based on assumptions, estimates and changeable
data, and because any attempt to predict the future is subject to other
errors, what happens to the Trust in the future may be materially different
from the Trust's forward-looking statements here.
The Trust therefore warns readers of this document that they should not rely
on these forward-looking statements without considering all of the things that
could make them inaccurate. The Trust's other filings with the Securities and
Exchange Commission and its Confidential Memorandum discuss many (but not all)
of the risks and uncertainties that might affect these forward-looking
statements.
Some of these are changes in political and economic conditions, federal or
state regulatory structures, government taxation, spending and budgetary
policies, government mandates, demand for electricity and thermal energy, the
ability of customers to pay for energy received, supplies of fuel and prices
of fuels, operational status of plant, mechanical breakdowns, availability of
labor and the willingness of electric utilities to perform existing power
purchase agreements in good faith.
By making these statements now, the Trust is not making any commitment to
revise these forward-looking statements to reflect events that happen after
the date of this document or to reflect unanticipated future events.
Dollar amounts in this discussion are generally rounded to the nearest $1,000.
Nine months ended September 30, 1997 versus nine months ended September 30,
1996
Results of operations
The Trust carries its investment in the Projects it owns at fair value and
does not consolidate its financial statements with the financial statements of
the Projects. Revenue is recorded by the Trust as cash distributions are
received from the Projects. Trust revenues may fluctuate from period to
period depending on the operating cash flow generated by the Projects and the
amount of cash retained to fund capital expenditures. In addition, income and
cash flow earned by the Projects is seasonal, peaking in the third quarter of
the year as summer heat increases demand for electricity and electricity
prices are at peak levels and falling in the fourth and first quarters, when
demand for electricity is lower, prices for electricity are at lower off-peak
levels and equipment maintenance is performed.
For the nine months ended September 30, 1997, the Trust's net loss was
$509,000. The loss resulted from a third quarter 1997 charge to earnings of
$3,236,000 relating to the write-down to net realizable value of the Trust's
investment in five on-site cogeneration projects acquired from affiliates of
Eastern Utilities Associates in 1995. Without the write-down, net income for
the nine months ended September 30, 1997, would have been $2,727,000 as
compared to net income of $1,761,000 for the same period in 1996, an increase
of $966,000 (54.9%). This increase reflects an $1,060,000 increase in income
received from Projects in which the Trust has invested, a decrease of $78,000
(39.3%) in interest income and a increase of $16,000 (2.4%) in Trust expenses.
During the first nine months of 1997, the Trust received income from the On-
Site Cogeneration Projects, the Providence Project, the San Joaquin Project
and the Byron Project of $1,251,000, $646,000, $921,000 and $440,000,
respectively. In the comparable period of 1996, the Trust received income
from the On-Site Cogeneration Projects, the Providence Project, the San
Joaquin Project and the Byron Project of $1,235,000, $330,000, $339,000 and
$294,000, respectively. The increases from the two California projects
primarily reflect operating improvements.
During the first nine months of 1997, interest and dividend income decreased
by $168,000 from the comparable 1996 period, as a result of the increase of
the amount of cash invested in Projects, which decreased the cash invested in
short-term securities.
For the nine months ended September 30, 1997, the Trust's expenses (excluding
investment write-downs) increased by $16,000 from the same period in 1996.
There were no material changes in any of the expense categories.
Liquidity and Capital Resources
For the nine months ended September 30, 1997, net cash provided by operating
activities of $1,575,000 included $573,000 of cash which was transferred to
the Trust when the Trust changed its cash management procedures and
consolidated all significant cash balances at the Trust level. Cash
distributions to shareholders were $2,483,000 as compared to $2,678,000 in the
first nine months of 1996.
During the third quarter of 1997, the Trust and the Trust's principal bank
executed a commitment letter for a revolving line of credit, whereby the bank
will provide a three year committed line of credit facility of $757,000.
Outstanding borrowings bear interest at the bank's prime rate or, at the
Trust's choice, at LIBOR plus 2.5%. The credit agreement will require the
Trust to maintain a ratio of total debt to tangible net worth of no more than
1 to 1 and a minimum debt service coverage ratio of 2 to 1. The credit
facility is being obtained in order to allow the Trust to operate using a
minimum amount of cash, maximize the amount invested in Projects and maximize
cash distributions to shareholders. The Trust expects to execute the
definitive credit agreement during the fourth quarter of 1997.
Other than investments of available cash in power generation Projects,
obligations of the Trust are generally limited to payment of the management
fee to the Managing Shareholder, payments for certain accounting and legal
services to third persons and distributions to shareholders of available
operating cash flow generated by the Trust's investments. The Trust's policy
is to distribute as much cash as is prudent to shareholders. Accordingly, the
Trust has not found it necessary to retain a material amount of working
capital. The amount of working capital retained will be further reduced by
obtaining a line of credit.
Certain Industry Trends
The industry trend toward deregulation of the electric power generating and
transmission industries has accelerated after the adoption of Order 888 by the
Federal Energy Regulatory Commission ("FERC") on April 24, 1996. A number of
major states, including California, have adopted proposals to allow "retail
wheeling," which would allow any qualified generator to use utility
transmission and distribution networks to sell electricity directly to utility
customers. Other states, such as Massachusetts, New Hampshire and New York,
are preparing their own initiatives. As a result, profound changes in the
industry are occurring, marked by consolidations of utilities, large scale
spin-offs or sales of generating capacity, reorganizations of power pools and
transmission entities, and attempts by electric utilities to recover stranded
costs and alter power purchase contracts with independent power producers such
as the Trust.
It is too early to predict the effects of these trends and others on the
Trust's business. A critical issue for the Trust, however, is whether any
action will be taken to modify its existing power purchase contracts or to
shift costs to independent power producers. To date, neither FERC nor the
California authorities have adopted measures that would impair power purchase
contracts and the Trust is not aware of any other such action by regulatory
authorities in other states where it does business.
Legislative and regulatory action is unpredictable and that at any time
federal or state legislatures or regulators could adopt measures that would be
materially adverse to the Trust's business. Further, volatile market
conditions could adversely affect the Trust's operations and the actions of
other industry participants, such as electric utilities, which in turn could
affect the Trust.
PART II - OTHER INFORMATION
Item #1 Legal Proceedings
The Trust's subsidiaries that own the On-Site Cogeneration
projects have brought an arbitration proceeding against the seller of those
Projects, a subsidiary of Eastern Utilities Associates, Inc., the former
owner. In September and October 1997, the Trust amended its claim to allege
fraud with regard to the project owned by Ridgewood/Rhode Island Power
Partners, L.P., other fraud and unfair trade practices. It increased its
damage claim to $11.5 million of rescissory damages and up to $20 million of
other damages. The arbitration panel has been constituted. The Trust has not
reflected the amounts claimed in its financial statements pending the outcome
of the arbitration proceeding.
In February 1997, the Trust's subsidiaries that own the San
Joaquin and Byron projects filed suit in the Superior Court of
California for the City of San Francisco against Pacific Gas and
Electric Company ("PG & E") for breach of the power sales contracts.
The Trust argues PG & E has improperly withheld approximately $200,000
of capacity payments and also has asked for declaratory relief to
require PG & E to conform to the contracts' terms in the future. Settlement
negotiations are in progress which contemplate payment to the Trust of most of
its claims. The Trust has not reflected the withheld capacity payments in its
financial statements pending the outcome of the suit.
On February 28, 1997 Michael Cutbirth, an individual, sued the Managing
Shareholder in the Superior Court of California, Kern County, claiming
unspecified damages (including a claim to an equity interest) for breach
of an alleged confidentiality agreement relating to the acquisition of
the San Joaquin and Byron Projects. The Managing Shareholder has
successfully removed the lawsuit to the United States District Court for
the Eastern District of California. Discovery is in progress. The
Managing Shareholder believes that it has ample defenses to Mr.
Cutbirth's claims and it will defend the action vigorously.
Item #6 Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit 27. Financial Data Schedule
<PAGE>
RIDGEWOOD ELECTRIC POWER TRUST III
SIGNATURES
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.
RIDGEWOOD ELECTRIC POWER TRUST III
Registrant
November 14, 1997 By /s/ Martin V. Quinn
Date Martin V. Quinn,
Senior Vice President and
Chief Financial Officer
(signing on behalf of the
Registrant and as
principal financial officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information
extracted from the Registrant's unaudited interim financial
statements for the nine month period ended September 30, 1997 and
is qualified in its entirety by reference to those financial
statements.
</LEGEND>
<CIK> 0000917032
<NAME> RIDGEWOOD ELECTRIC POWER TRUST III
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 2,051,421
<SECURITIES> 25,232,675<F1>
<RECEIVABLES> 1,372,898
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,424,319
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 29,034,222
<CURRENT-LIABILITIES> 637,128
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 28,397,094<F2>
<TOTAL-LIABILITY-AND-EQUITY> 29,034,222
<SALES> 0
<TOTAL-REVENUES> 3,379,473
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,888,212<F3>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (508,739)
<INCOME-TAX> 0
<INCOME-CONTINUING> (508,739)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (508,739)
<EPS-PRIMARY> (1,298.32)
<EPS-DILUTED> (1,298.32)
<FN>
<F1>Investments in power project partnerships.
<F2>Represents Investor Shares of beneficial interest
in Trust with capital accounts of $28,444,156 less
managing shareholder's accumulated deficit of $47,062.
<F3>Reflects writedowns of investments of $3,235,680.
</FN>
</TABLE>
