SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[ X ]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1999
Commission File Number 33-82034
INDIANTOWN COGENERATION, L.P.
(Exact name of co-registrant as specified in its charter)
Delaware 52-1722490
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
Indiantown Cogeneration Funding Corporation
(Exact name of co-registrant as specified in its charter)
Delaware 52-1889595
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
7500 Old Georgetown Road, 13th Floor
Bethesda, Maryland 20814-6161
(Registrants' Address of principal executive offices)
(301)-718-6800
(Registrants' 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 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. [ X ] Yes [ ] No
Indicate by check mark if disclosure of delinquent filer pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of March 30, 2000, there were 100 shares of common stock of Indiantown
Cogeneration Funding Corporation, $1 par value outstanding.
<PAGE>
Indiantown Cogeneration, L.P.
Indiantown Cogeneration Funding Corporation
PART I Page Number
Item 1 Business.......................................... 1
Item 2 Properties........................................ 6
Item 3 Legal Proceedings................................. 6
Item 4 Submission of Matters to a Vote
of Security Holders............................... 8
PART II
Item 5 Market for the Registrant's Common
Stock and Related Security Holder Matters......... 8
Item 6 Selected Financial Data........................... 9
Item 7 Management's Discussion and Analysis of
Financial Condition and Results of Operations..... 10
Item 7A Qualtitative and Quantitative Disclosures
About Market Risk................................. 14
Item 8 Financial Statements and Supplementary Data........ 15
Item 9 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure............. 37
PART III
Item 10 Directors and Executive Officers................... 37
Item 11 Remuneration of Directors and Officers............. 38
Item 12 Security Ownership of Certain Beneficial Owners
and Management......................................... 38
Item 13 Certain Relationships and Related Transactions..... 39
PART IV
Item 14 Exhibits, Financial Statement Schedules and
Reports on Form 8-K................................ 39
Signatures......................................... 43
<PAGE>
Item 1 BUSINESS
The Partnership
Indiantown Cogeneration, L.P. (the "Partnership") is a special purpose
Delaware limited partnership formed on October 4, 1991. The Partnership was
formed to develop, construct, and operate an approximately 330 megawatt (net)
pulverized coal-fired cogeneration facility (the "Facility") located on an
approximately 240 acre site in southwestern Martin County, Florida. The Facility
produces electricity for sale to Florida Power & Light Company ("FPL") and
supplies steam to Caulkins Indiantown Citrus Co. ("Caulkins") for its plant
located near the Facility.
The original general partners were Toyan Enterprises ("Toyan"), a
California corporation and a wholly owned special purpose indirect subsidiary of
PG&E Generating Company, LLC and Palm Power Corporation ("Palm"), a Delaware
corporation and a special purpose indirect subsidiary of Bechtel Enterprises,
Inc. ("Bechtel Enterprises"). The sole limited partner was TIFD III-Y, Inc.
("TIFD"), a special purpose indirect subsidiary of General Electric Capital
Corporation ("GECC"). During 1994, the Partnership formed its sole, wholly owned
subsidiary, Indiantown Cogeneration Funding Corporation ("ICL Funding"), to act
as agent for, and co-issuer with, the Partnership in accordance with the 1994
bond offering discussed in Note 4. ICL Funding has no separate operations and
has only $100 in assets.
In 1998, Toyan consummated transactions with DCC Project Finance Twelve,
Inc. ("PFT"), whereby PFT, through a new partnership (Indiantown Project
Investment, L.P. ("IPILP")) with Toyan, became a new general partner in the
Partnership. Toyan is the sole general partner of IPILP. Prior to the PFT
transaction, Toyan converted some of its general partnership interest into a
limited partnership interest such that Toyan now directly holds only a limited
partnership interest in the Partnership. In addition, Bechtel Generating
Company, Inc. ("Bechtel Generating"), sold all of the stock of Palm to a wholly
owned indirect subsidiary of Cogentrix Energy, Inc. ("Cogentrix"). Palm holds a
10% general partner interest in the Partnership.
On June 4, 1999, Thaleia, LLC ("Thaleia"), a wholly-owned subsidiary of
Palm and indirect wholly-owned subsidiary of Cogentrix, acquired from TIFD a
19.9% limited partner interest in the Partnership. On September 20, 1999,
Thaleia acquired another 20.0% limited partnership interest from TIFD and TIFD's
membership on the Board of Control. On November 19, 1999, Thaleia purchased
TIFD's remaining limited partner interest in the Partnership from TIFD.
The net profits and losses of the Partnership are allocated to Toyan,
Palm, TIFD and IPILP and Thaleia (collectively, the "Partners") based on the
following ownership percentages:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
As of As of As of As of As of
August 21, October 20, June 4, September 20, November24,
1998 1998 1999 1999 1999
---- ---- ---- ---- ----
Toyan 30.05% 30.05% 30.05% 30.05% 30.05%
Palm 10% 10%* 10%* 10%* 10%*
IPILP 19.95%** 19.95%** 19.95% 19.95% 19.95%
TIFD 40% 40% 20.1% .1% 0%
Thaleia -- -- 19.9%* 39.9%* 40%*
</TABLE>
[FN]
*Now beneficially owned by Cogentrix.
1
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** PFT's beneficial ownership in the Partnership through IPILP was equal
to 10% as of August 21, 1998, and 15% as of November 23, 1998.
</FN>
The changes in ownership were the subject of notices of
self-recertification of Qualifying Facility status
filed by the Partnership with the Federal Energy Regulatory Commission on August
20, 1998, November 16, 1998, June 4, 1999, September 21, 1999, and November 24,
1999.
All distributions other than liquidating distributions will be made
based on the Partners' percentage interest as shown above, in accordance with
the project documents and at such times and in such amounts as the Board of
Control of the Partnership determines. The original partners contributed,
pursuant to an equity commitment agreement, approximately $140,000,000 of equity
when commercial operation of the Facility commenced in December 1995.
The Partnership is managed by PG&E Generating Company ("PG&E Gen"),
formerly known as U.S. Generating Company, pursuant to a Management Services
Agreement (the "MSA"). The Facility is operated by PG&E Operating Services
Company ("PG&E OSC"), formerly known as U.S. Operating Services Company,
pursuant to an Operation and Maintenance Agreement (the "O&M Agreement"). PG&E
Gen and PG&E OSC are general partnerships indirectly owned by PG&E Generating
Company LLC.
The Partnership began construction of the Facility in October 1992 and
was in the development phase through the commencement of commercial operation.
The Facility commenced commercial operation under its power purchase agreement
(the "Power Purchase Agreement" or "PPA") with FPL on December 22, 1995. The
Facility synchronized with the FPL system on June 30, 1995 and the Partnership
sold to FPL electricity produced by the Facility during startup and testing. The
Partnership's continued existence is dependent on the ability of the Partnership
to maintain successful commercial operation under the Power Purchase Agreement.
The Partnership has filed a complaint against FPL with respect to the
interpretation of a certain provision of the Power Purchase Agreement. Please
see "Item 3 Legal Proceedings" below. Management of the Partnership is of the
opinion that the assets of the Partnership are realizable at their current
carrying value. The Partnership has no assets other than the Facility, the
Facility site, contractual arrangements relating to the Facility (the "Project
Contracts") and the stock of ICL Funding.
Certain Project Contracts
The Facility supplies (i) electric generating capacity and energy to FPL
pursuant to the Power Purchase Agreement and (ii) steam to Caulkins Indiantown
Citrus Company ("Caulkins") pursuant to a long-term energy services agreement
(the "Energy Services Agreement").
Payments from FPL pursuant to the Power Purchase Agreement provide
approximately 99% of Partnership revenues. Under and subject to the terms of the
Power Purchase Agreement, FPL is obligated to purchase electric generating
capacity made available to it and associated energy from the Facility beginning
with the date the Facility achieved commercial operation through December 22,
2025.
Payments by FPL consist of capacity payments and energy payments. FPL is
required to make capacity payments to the Partnership on a monthly basis for
electric generating capacity made available to FPL during the preceding month
regardless of the amount of electric energy actually purchased. The capacity
payments have two components, an un-escalated fixed capacity payment and an
escalated fixed operation and maintenance payment, which together are expected
by the Partnership to cover all of the Partnership's fixed costs, including debt
service. Energy payments are made only for the amount of
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electric energy actually delivered to FPL. The energy payments made by FPL are
expected by the Partnership to cover the Partnership's variable costs of
electric energy production but will be insufficient to cover the variable costs
of steam production for steam supplied to Caulkins. The amount of this shortfall
is not expected by the Partnership to have a material adverse effect on its
ability to service its debt.
The Partnership supplies thermal energy to Caulkins in order for the
Facility to meet the operating and efficiency standards under the Public Utility
Regulatory Policy Act of 1978, as amended, and the FERC's regulations
promulgated thereunder (collectively, "PURPA"). The Facility has been certified
as a Qualifying Facility under PURPA. Under PURPA, Qualifying Facilities are
exempt from certain provisions of the Public Utility Holding Company Act of
1935, as amended ("PUHCA"), most provisions of the Federal Power Act (the
"FPA"), and, except under certain limited circumstances, rate and financial
regulation under state law. The Energy Services Agreement with Caulkins requires
Caulkins to purchase the lesser of (i) 525 million pounds of steam per year or
(ii) the minimum quantity of steam per year necessary for the Facility to
maintain its status as a Qualifying Facility under PURPA (currently estimated by
the Partnership not to exceed 525 million pounds per year).
The Partnership has a coal purchase agreement (the "Coal Purchase
Agreement") with Lodestar Energy, Inc. ("Lodestar") pursuant to which Lodestar
supplies all of the Facility's coal needs, which are estimated to be 1 million
tons of coal per year. The Partnership has no obligation to purchase a minimum
quantity of coal under the Coal Purchase Agreement. The fuel price escalation
provisions in the Coal Purchase Agreement are substantially the same as
escalation of the fuel price component of the energy price contained in the
Power Purchase Agreement with FPL. This mechanism is intended to mitigate any
mismatch between the price the Partnership pays for coal and the energy payments
received from FPL.
During 1997, coal ash produced during operation of the Facility was
disposed of pursuant to the Coal Purchase Agreement and back-up disposal
arrangements with Chambers Waste Systems, Inc. of Florida ("Chambers"). In 1998,
the Partnership entered into agreements with Lodestar and VFL Technology
Corporation ("VFL") for ash disposal at alternative sites. These agreements will
reduce the cost of ash disposal. The Partnership has been informed that
Lodestar, Chambers, and VFL have obtained the permits necessary to receive such
coal ash.
The Partnership entered into a lime purchase agreement (the "Lime
Purchase Agreement") with Chemical Lime Company ("Chemlime"), an Alabama
corporation, to supply the lime requirements of the Facility's dry scrubber and
sulfur dioxide removal system. The initial term of the Lime Purchase Agreement
is 15 years from the commercial operation date. Chemlime is obligated to provide
all of the Facility's lime requirements, but the Partnership has no obligation
to purchase a minimum quantity of lime.
Competition
Since the Partnership has a long-term contract to sell electric
generating capacity and energy from the Facility to FPL, it does not expect
competitive forces to have a significant effect on its business. As discussed
under "Energy Prices " below, the cost of power available to FPL from other
sources will affect FPL's dispatch of the Facility and, therefore, the amount of
electric energy FPL purchases from the Partnership. The Partnership expects that
the capacity payments under the Power Purchase
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Agreement, which are not affected by the level of FPL's dispatch of the
Facility, will cover all of the Partnership's fixed costs, including debt
service.
Energy Prices
In October 1999, FPL filed with the Florida Public Service Commission its
projections for its 2000-2001 "as available" energy costs (in this context, "as
available" energy costs reflect actual energy production costs avoided by FPL
resulting from the purchase of energy from the Facility and other Qualifying
Facilities). The projections filed by FPL are lower for certain periods than the
energy prices specified in the Power Purchase Agreement for energy actually
delivered by the Facility. At other times, the projections exceed the energy
prices specified in the Power Purchase Agreement. Should FPL's "as available"
energy cost projections prove to reflect actual rates, FPL may elect, pursuant
to its dispatch and control rights over the Facility set forth in the Power
Purchase Agreement, to run the Facility less frequently or at lower loads than
if the Facility's energy prices were lower than the cost of other energy sources
available to FPL. Since capacity payments under the Power Purchase Agreement are
not affected by FPL's dispatch of the Facility and because capacity payments are
expected by the Partnership to cover all of the Partnership's fixed costs,
including debt service, the Partnership currently expects that, if the filed
projections prove to reflect actual rates, such rates and the resulting dispatch
of the Facility will not have a material adverse effect on the Partnership's
ability to service its debt. To the extent the Facility is not operated by FPL
during Caulkins' processing season (November to June), the Partnership may elect
to run the Facility at a minimum load or shut down the Facility and run
auxiliary boilers to produce steam for Caulkins in amounts required under the
Partnership's steam agreement with Caulkins. Such operations may result in
decreased net operating income for such periods. The Partnership expects that
the decrease, if any, will not be material. For the year ended December 31,
1999, FPL requested the Partnership to decommit the Facility numerous times and
the Partnership has typically exercised its rights to operate at minimum load
(100MW) during such decommit requests. The Partnership's election to operate at
minimum load has not had a material impact on the Partnership or its financial
condition although energy delivered during such operations is sold at reduced
prices.
Employees
The Partnership has no employees and does not anticipate having any
employees in the future because, under a management services agreement, PG&E Gen
acts as the Partnership's representative in all aspects of managing operation of
the Facility as directed by the Partnership's Board of Control. As noted above,
PG&E OSC is providing operations and maintenance services for the Partnership.
Business Strategy and Outlook
The Partnership's overall business plan is to safely produce clean,
reliable energy at competitive prices. The Facility commenced commercial
operation on December 22, 1995 and completed its fourth full year of operation
on December 31, 1999.
During 1999, the Facility produced 1,745,760 MW-hr of energy for sale to
FPL compared to 1,485,0089 MW-hr in 1998. This increase was due primarily to
FPL's higher dispatch of the Facility. Dispatch of the Facility by FPL averaged
approximately 65.41% over the year compared to 55.58% for 1998.
The Facility produced approximately 390 million pounds of steam for sale
to Caulkins in 1999 compared to approximately 370 million pounds in 1998 thereby
exceeding the minimum requirements to
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maintain Qualifying Facility status. The 20 million-pound increase in steam
deliveries was due primarily to higher production of juice by Caulkins in 1999.
The Facility ended the year with a twelve-month rolling average Capacity
Billing Factor of 100.636% in 1999 and 101.038% in 1998. The Capacity Billing
Factor measures the overall availability of the Facility, but gives a heavier
weighting to on-peak availability. Cash flows during 1999 were sufficient to
fund all operating expenses and debt repayment obligations.
Forward Looking Statements
When used in this report, words or phrases which are predictions of or
indicate future events and trends are subject to a number of risks and
uncertainties which could cause actual results to differ materially from those
projected. Given such uncertainties, readers are cautioned not to place undue
reliance on such statements. The Partnership undertakes no obligation to
publicly update or revise any forward looking statement to reflect current or
future events or circumstances.
The Partnership anticipates that, barring any unforeseeable adverse
events or a negative outcome in the litigation described in Item 3 below, the
results for 2000 will be similar to the results for 1999. Dispatch of the unit
by FPL during the summer months is expected to be similar to 1999 levels.
Dispatch during the winter is highly dependent on weather and FPL's cost of
running its oil and gas fired units. Caulkins expects a strong citrus crop for
processing in 2000 and steam demand from Caulkins is expected to be similar to
1999 levels.
The Facility is planning on four weeks of scheduled outages during 2000
to perform routine inspections and maintenance. The primary outage is scheduled
for October 2000 during the off-season for citrus production.
The Partnership is not aware of any reason to expect coal pricing during
2000 to substantially differ from 1999 levels.
In the absence of any major equipment failures, unit availability is
expected to be comparable to 1999 levels. If this is achieved, the Capacity
Billing Factor and associated capacity bonuses would be similar.
The Partnership believes that its current financial resources will be
adequate to cover operating expenses and debt repayment obligations in 2000.
Governmental Approvals
The Partnership has obtained all material environmental permits and
approvals required, as of December 31, 1999, in order to continue commercial
operation of the Facility. Certain of these permits and approvals are subject to
periodic renewal. Certain additional permits and approvals will be required in
the future for the continued operation of the Facility. The Partnership is not
aware of any technical circumstances that would prevent the issuance of such
permits and approvals or the renewal of currently issued permits. The
Partnership timely filed its application for a Title V air permit on May 24,
1996. The permit was issued on October 11, 1999.
On December 22, 1999, the Partnership submitted to the Florida
Department of Environmental Protection ("DEP") a request for amendments to the
Site Certification and an application for modifications of the Site Certificate.
The amendments to the Site Certification are being provided to
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<PAGE>
inform DEP of certain changes to the Facility's design and operation. The
requests will not require changes to the Conditions of Certification for the
Facility and do not involve significant environmental impacts that would require
new environmental permits or approvals. Also submitted was an application for
modifications of the Site Certificate, which describes other proposed changes to
the Facility design and operations. The modifications will require changes to
the Conditions of Certification. The requests include modifications to allow the
additions of a carbon dioxide plant and a chilled water plant, changes in the
cooling water storage pond elevation, and modifications of the operation of the
pulverized coal-fired boiler to increase the electric generation output.
The DEP has proposed to modify the conditions of the Site Certification
to allow emergency discharge of cooling water and process water to conform to
NPDES Permit Number FL0183750, which was issued on January 19, 2000.
Item 2 PROPERTIES
The Facility is located in a predominantly industrial area in
southwestern Martin County, Florida, on approximately 240 acres of land owned by
the Partnership (the "Site"). Other than the Facility, the Site, and the make-up
water pipeline and associated equipment, the Partnership does not own or lease
any material properties.
Item 3 LEGAL PROCEEDINGS
Dispute with FPL
On March 19, 1999, the Partnership filed a complaint against FPL in the
United States District Court for the Middle District of Florida. The lawsuit
stems from a course of action pursued by FPL beginning in the Spring of 1997, in
which FPL purported to exercise its dispatch and control rights under the Power
Purchase Agreement in a manner which the Partnership believes violated the terms
of the power sales agreement. In its complaint, the Partnership charges that
such conduct was deliberately calculated to cause the Partnership to be unable
to meet the requirements to maintain the Facility's status as a Qualifying
Facility under the Public Utility Regulatory Policies Act of 1978.
The complaint alleges that FPL took the position that if the Facility is
off-line for any reason, then FPL is under no obligation to allow the Facility
to reconnect to FPL's system. The original complaint asserted, however, that the
Partnership specifically and successfully negotiated for a contractual right to
operate the Facility up to 100 MW ("Minimum Load") in order to enable it to
cogenerate sufficient steam to maintain its Qualifying Facility status. While
FPL has not disputed that the Partnership may maintain Minimum Load operations
if the Facility is delivering power when FPL requests the Partnership to
decommit the Facility, the complaint states that FPL has claimed absolute
discretion to deny the Partnership permission to reconnect the Facility with
FPL's system.
Since the loss of Qualifying Facility status may result in an event of
default under the Power Purchase Agreement, the Partnership must take action to
address this matter. The Partnership is investigating various alternatives to
mitigate its QF risk. These are described under "QF Mitigation Options" below.
The complaint asserts causes of action for (i) FPL's breach of the Power
Purchase Agreement, (ii) FPL's anticipatory repudiation of the Power Purchase
Agreement, (iii) breach of the implied covenant of good faith, fair dealing and
commercial reasonableness and (iv) a declaratory judgment by the court of
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the rights of the parties under the Power Purchase Agreement. The Partnership
seeks (a) a declaratory ruling that FPL's actions constitute a breach of the
terms of the Power Purchase Agreement and that the Partnership has the absolute
right to operate the Facility at Minimum Load (except for reasons of safety or
system security) at the rates provided for in the Power Purchase Agreement, (b)
injunctive relief preventing FPL from further violating the Power Purchase
Agreement, (c) compensatory damages and (d) other relief as the court may deem
appropriate.
On April 14, 1999, FPL filed a responsive pleading to the complaint
including a motion to dismiss two of the four counts raised in the complaint,
raising certain affirmative defenses and seeking declaration that FPL has
unfettered dispatch rights under the Power Purchase Agreement. On April 23,
1999, FPL filed answer to the counts which were not challenged in the motion to
dismiss. On May 13, 1999, the Partnership filed its response to FPL's motion to
dismiss and request for declaratory judgement. On May 18, 1999, the Court denied
FPL's Motion to Dismiss in its entirety. The Partnership filed an amended
complaint which was accepted on June 17, 1999. The amended complaint simply
consolidated the Partnership's claims for breach of contract and breach of the
implied obligation of good faith and fair dealing which was, in part, in
response to a recent federal court decision. FPL moved to dismiss the entire
amended complaint and the Partnership filed its opposition papers August 2,
1999. The Court granted FPL's motion to dismiss only with respect to the first
count of the complaint. The Partnership has amended its complaint to address
issues raised by the Court in its decision to dismiss this count. FPL is
expected to file a new motion to dismiss the amended complaint. The second
amended complaint which was filed on March 21, 2000, is attached as an exhibit
to the Report. The Court has also ordered a mediation session. In addition, a
trial period has been established by the Court in April 2001.
This summary of the Partnership's complaint against FPL is qualified in
its entirety by the complaint, which was filed with the court in docket
99-317-CIV-ORL-19C. This summary does not, nor does it purport to, include all
of the material statements and claims made in the complaint, and has been
provided solely for the reader's convenience. This summary is not intended to be
relied upon for any purpose without reference to the complaint.
OTHER INFORMATION
QF Mitigation Options
If the court rules against the Partnership in the litigation with FPL,
the Facility could lose its QF status, unless the Partnership is able to
implement mitigating action. Loss of QF status would result in an event of
default under the Power Purchase Agreement and the indenture for the Bonds.
Unless cured, such events of default would have a material adverse effect on the
Partnership's business, results of operation and financial condition.
To mitigate the risk of a possible adverse ruling by the Court, the
Partnership has analyzed the feasibility of various options. The analyses
included the following:
o providing steam to Caulkins for refrigeration
o constructing a liquid carbon dioxide production facility to which the
Facility would supply steam
o installing distilled water production equipment to which the Facility would
supply steam
o providing steam for a facility to dry chicken manure at a nearby farm for use
as a fertilizer
o providing steam to Caulkins to dry orange peels for use in cattle feed
o providing steam to Caulkins for wash-water cooling
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o providing steam or chilled water for water temperature control at a nearby
fish farm
o constructing a cold storage food distribution center to which the Facility
would supply chilled water
o providing chilled water to a nearby hen house for cooling
o constructing a lumber kiln to dry wood using steam provided by the Facility
o providing chilled water to a nearby flour mill for temperature control
The analyses included an evaluation as to whether the steam usage for
these alternatives would qualify for QF purposes and to determine each option's
feasibility - whether the option can increase steam production on a schedule,
which may include regulatory approval, that would assure maintenance of QF
status at an acceptable cost to the Partnership. The Partnership has completed
its initial analyses of the options, but has not yet determined whether to
implement any option. The Partnership has, however, commenced the lengthy
process of amending its Site Certification to allow for a chilled water plant
and a carbon dioxide facility. The Partnership may defer a decision to implement
any option until a judgment is made in the litigation with FPL. If any option is
implemented, the Partnership may, subject to the terms of the indenture for
the Bonds, finance such option with senior secured debt ranking pari passu
with the Bonds.
No assurance can be given that of any option under consideration or any
other option will finally be determined to be feasible or that, even if one or
more options are determined to be feasible, that such option(s) will be
implemented or will result in assuring the maintenance of QF status.
Notwithstanding the 18-day period, in March of 1999, during which FPL
prevented the Facility from reconnecting to FPL's system and thereby
cogenerating qualifying steam, the Partnership cogenerated steam totaling 6.1%
of electrical output in 1999 thereby exceeding the statutorily required 5%
threshold.
Property Tax Matter
The Partnership was contacted in 1998 by the local Martin County
property appraiser concerning the proper qualification of some of its pollution
control equipment, which equipment receives reduced valuation for property tax
purposes. After review by the Partnership, and discussion directly with the
appraiser's office, the Partnership provided the appraiser with all requested
information. The appraiser has not taken any further action on this matter.
Item 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the security holders of the
Partnership during 1999.
PART II
Item 5 MARKET FOR THE REGISTRANT'S COMMON STOCK AND
RELATED SECURITY HOLDER MATTERS
The Partnership is a Delaware limited partnership wholly owned by Palm,
Toyan, Thaleia and IPILP. Beneficial interests in the Partnership are not
available to other persons except with the consent of the Partners.
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There is no established public market for ICL Funding's common stock.
The 100 shares of $1 par common stock are owned by the Partnership. ICL Funding
has not paid, and does not intend to pay, dividends on the common stock.
Item 6 SELECTED FINANCIAL DATA
The selected financial data of the Partnership presented below, which consists
primarily of certain summary consolidated balance sheet information of the
Partnership as of December 31, 1999, 1998, 1997, 1996, and 1995, should be read
in conjunction with Item 7 of this report, "Management's Discussion an Analysis
of Financial Condition And Results of Operations", and with the Partnership's
financial statements appearing elsewhere in this report. The Partnership, which
was in the development stage through December 21, 1995, began construction of
the Facility in October 1992 and declared commercial operation of the Facility
on December 22, 1995. The financial statements and supplementary data required
by this item are presented under Item 8.
The following is a summary of the quarterly results of operations for the
years ended December 31, 1995, 1996, 1997, 1998 and 1999.
<TABLE>
<CAPTION>
Three Months Ended (unaudited)
<S> <C> <C> <C> <C> <C>
March 31 June 30 September 30 December 31 Total
-------- ------- ------------ ----------- -----
(in thousands)
1995
Operating revenues (a) (a) (a) $4,565 $4,565
Gross Profit (a) (a) (a) 2,421 2,421
Net income (a) (a) (a) 802 802
1996
Operating revenues $38,767 $40,384 $42,571 $37,124 $158,846
Gross Profit 20,314 18,555 19,272 19,197 77,338
Net income 4,005 2,493 2,894 2,398 11,790
1997
Operating revenues $37,879 $38,936 $43,907 $41,795 $162,517
Gross Profit 20,173 22,607 22,419 19,124 84,323
Net income 3,950 6,147 6,074 1,837 18,008
1998
Operating revenues $37,144 $41,466 $43,296 $37,277 $159,183
Gross profit 21,672 22,636 23,342 21,415 89,065
Net income before
cumulative change in
accounting principle 5,181 6,014 6,438 4,541 21,174
Net income 5,181 6,014 6,438 3,722 21,355
1999
Operating revenues $35,751 $40,457 $45,600 $41,462 $163,270
Gross profit 23,190 21,743 22,313 21,235 88,481
Net income 6,517 5,108 5,794 4,995 22,414
</TABLE>
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(a) Data not available as Commercial Operations commenced on December 22, 1995.
<TABLE>
<CAPTION>
Indiantown Cogeneration, L.P.
as of December 31,
<S> <C> <C> <C> <C> <C>
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Total Assets $694,852,029 $708,139,691 $735,468,011 $753,669,863 $799,451,339
Long-Term Debt 583,994,031 595,835,699 606,119,747 616,651,805 626,601,265
Total Liabilities 606,607,479 616,339,161 629,342,447 637,472,694 658,649,167
Capital Distributions 25,970,000 35,680,000 28,080,382 36,395,054 --
Total Partners' Capital 88,244,550 91,800,530 106,125,564 116,197,169 140,802,172
Construction in Progress -- -- -- -- --
Property, Plant & Equipment, Net
641,449,055 654,188,458 668,464,373 682,214,731 691,588,155
Operating Revenues 163,270,119 159,183,399 162,517,435 158,845,947 4,564,860
Net Income 22,414,021 21,354,967 18,008,777 11,790,051 802,172
</TABLE>
Item 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
Year ended December 31, 1999 Compared to the Year Ended December 31,1998
- ------------------------------------------------------------------------
The Partnership is primarily engaged in the ownership and operation of a
non-utility electric generating facility. From its inception and until December
21, 1995, the Partnership was in the development stage and had no operating
revenues or expenses. On December 22, 1995 the Facility commenced commercial
operation. As of December 31, 1999 and 1998 the Partnership had approximately
$641.1 million and $654.2 million, respectively, of property, plant and
equipment consisting primarily of purchased equipment, construction related
labor and materials, interest during construction, financing costs, and other
costs directly associated with the construction of the Facility. This decrease
is due primarily to depreciation of $15.2 million, offset by $2.5 million of
capital improvements.
For the three months ended December 31, 1999 and 1998 the Partnership
had total operating revenues of approximately $41.5 million and $37.3 million,
respectively. This $4.2 million increase was due primarily to higher dispatch by
FPL resulting in increased energy revenues. For the three months ending December
31, 1999 and 1998, the Partnership had total operating costs of $22.9 million
and $18.8 million respectively. This $4.1 million increase was due primarily to
increased variable costs associated with higher dispatch by FPL. Total net
interest expense was approximately $13.6 million and $14.0 million for the three
months ended December 31, 1999 and 1998, respectively. This decrease was due
primarily to the maturity of Series A-7 of the First Mortgage Bonds on June 15,
1999 and Series A-8 of the First Mortgage Bonds on December 15, 1999. Net income
was approximately $5.0 million and $3.7 million for three months ended December
31, 1999 and 1998, respectively. This increase was due primarily to decreases in
net interest expense of $0.4 million, a decrease in insurance expenses of $.03
10
<PAGE>
million and a write off of start up cost of $0.8 million in the 3 months ended
December 31, 1998. (Please see Note 2.)
For the years ended December 31, 1999 and 1998, the Partnership had
total operating revenues of $163.3 million and $159.2 million, respectively.
This increase was attributable primarily to increased energy revenues of $3.9
million and by increased capacity bonus and capacity revenues of $0.2 million.
The increased revenues from capacity are due primarily to the quarterly
escalations on the Fixed O&M component. The higher energy revenues are due
primarily to greater dispatch levels by FPL. Total operating costs were $85.5
million and $80.6 million for the years ended December 31, 1999 and 1998,
respectively. This increase was due primarily to an increase of $3.6 million in
fuel and ash costs, both resulting from higher dispatch by FPL and an increase
of $1.0 million in operations and maintenance expenses. For the years ended
December 31, 1999 and 1998, the total net interest expense was approximately
$55.4 million and $56.4 million, respectively. The decrease was primarily due to
a $0.8 million reduction in bond interest expense due to the maturity of Series
A-7 of the First Mortgage Bonds on June 15, 1999 and Series A-8 of the First
Mortgage Bonds on December 15, 1999, a reduction in LOC fees of $0.4 million,
and a reduction in interest income of $0.2 million. Net income was $22.4 million
and $21.4 million for the twelve months ended December 31, 1999 and 1998,
respectively. This $1.0 million increase was primarily attributable to the
increased revenues of $4.1 million and the effect in 1998 for the write-off of
$0.8 million for start-up costs, offset by a $4.9 million increase in operating
costs and a $1.0 million decrease in net interest expense.
Year ended December 31, 1998 Compared to the Year Ended December 31,1997
- ------------------------------------------------------------------------
The Partnership is primarily engaged in the ownership and operation of a
non-utility electric generating facility. From its inception and until December
21, 1995, the Partnership was in the development stage and had no operating
revenues or expenses. On December 22, 1995 the Facility commenced commercial
operation. As of December 31, 1998 and 1997 the Partnership had approximately
$654.2 million and $668.5 million, respectively, of property, plant and
equipment consisting primarily of purchased equipment, construction related
labor and materials, interest during construction, financing costs, and other
costs directly associated with the construction of the Facility. This decrease
is due primarily to depreciation of $14.8 million and start-up costs expensed
according to the American Institute of Certified Public Accountant's Statement
of Position 98-5, "Reporting on the Costs of Start-Up Activities," of $0.8
million, offset by $1.4 million of capital improvements.
For the three months ended December 31, 1998 and 1997, the Partnership
had total operating revenues of approximately $37.3 million and $41.8 million,
respectively. This $4.5 million decrease was due primarily to lower dispatch by
FPL resulting in decreased energy revenues. For the three months ending December
31, 1998 and 1997, the Partnership had total operating costs of $18.8 million
and $25.0 million respectively. This $6.2 million decrease was due primarily to
decreased variable costs associated with lower dispatch by FPL and savings from
the new ash disposal agreements. Total net interest expense was approximately
$14.0 million and $15.0 million for the three months ended December 31, 1998 and
1997, respectively. This decrease was due primarily to the maturity of Series
A-5 of the First Mortgage Bonds on June 15, 1998 and Series A-6 of the First
Mortgage Bonds on December 15, 1998. Net income was approximately $3.7 million
and $1.8 million for three months ended December 31, 1998 and 1997,
respectively. This increase was due primarily to decreases in operating and
maintenance expenses of $2.5 million and net interest expense of $0.4 million
offset by increases in depreciation of $0.4 million, year 2000 expenses, taxes
of approximately $0.6 million and $0.8 million of start-up costs.
For the years ended December 31, 1998 and 1997, the Partnership had
total operating revenues of $159.2 million and $162.5 million, respectively.
This decrease was attributable primarily to decreased energy revenues of $4.5
million offset by increased capacity bonus and capacity revenues of $1.2
million. The
11
<PAGE>
increased revenues from capacity is due primarily to a higher Capacity Billing
Factor under the PPA resulting from improved plant performance. The lower energy
revenues are due primarily to reduced dispatch levels. Total operating costs
were $80.6 million and $87.7 million for the years ended December 31, 1998 and
1997, respectively. This decrease was due primarily to a reduction of $7.3
million in fuel and ash costs resulting from lower dispatch by FPL and savings
from the new ash disposal agreements, and a decrease of $0.8 million in
operations and maintenance expenses offset by increases in support services for
operations, environmental and safety initiatives and for year 2000 related
costs. For the years ended December 31, 1998 and 1997, the total net interest
expense was approximately $56.4 million and $56.8 million, respectively. The
decrease was primarily due to a $0.7 million reduction in bond interest expense
offset by a reduction in interest income and an increase in working capital loan
interest. Net income was $21.4 million and $18.0 million for the twelve months
ended December 31, 1998 and 1997, respectively. This $3.4 million increase was
primarily attributable to the decreased revenues of $3.3 million, start-up costs
of $0.8 million, offset by a $7.1 million decrease in operating costs and a $0.4
million decrease in net interest expense.
Results of Operations
Year ended December 31, 1999 Compared to the Year Ended December 31, 1998
- -------------------------------------------------------------------------
For the years ending December 31, 1999 and 1998, the Facility achieved
an average Capacity Billing Factor of 100.64% and 101.28% respectively. This
decrease was primarily attributable to minor mechanical problems. This resulted
in earning full monthly capacity payments aggregating $112.4 million for the
year in 1999 and $112.2 million for the year in 1998. Bonuses aggregated $11.2
million for the year in both 1999 and 1998. During 1999 and 1998, the Facility
was dispatched by FPL and generated 1,745,760 megawatt-hours and 1,485,008
megawatt-hours, respectively. The monthly average dispatch rate requested by FPL
was 65.4% and 51.6% for the twelve months ended December 31, 1999 and 1998,
respectively.
For the years ending December 31, 1998 and 1997, the Facility achieved
an average Capacity Billing Factor of 101.28% and 98.29% respectively. The
increase was primarily attributable to better mechanical operations. This
resulted in earning full monthly capacity payments aggregating $112.2 million
for the year in 1998 and $112.0 million for the year in 1997. Bonuses aggregated
$11.2 million for the year in 1998 and $10.3 million for the year in 1997. These
increases were due primarily to a higher Capacity Billing Factor resulting from
better plant performance. During 1998 and 1997, the Facility was dispatched by
FPL and generated 1,485,008 megawatt-hours and 1,668,959 megawatt-hour
respectively. The monthly average dispatch rate was 51.6% and 67.5% for the
twelve months ended December 31, 1998 and 1997, respectively. The reduced
dispatch levels were primarily the result of moderate winter weather.
Liquidity and Capital Resources
On November 22, 1994, the Partnership and ICL Funding issued first
mortgage bonds in an aggregate principal amount of $505 million (the "First
Mortgage Bonds"). Of this amount, $236.6 million of the First Mortgage Bonds
bear an average interest rate of 9.05% and $268.4 million of the First Mortgage
Bonds bear an interest rate of 9.77%. Concurrent with the Partnership's issuance
of its First Mortgage Bonds, the Martin County Industrial Development Authority
issued $113 million of Industrial Development Refunding Revenue Bonds (Series
1994A) which bear an interest rate of 7.875% (the "1994A Tax Exempt Bonds"). A
second series of tax exempt bonds (Series 1994B) in the approximate amount of
$12 million, which bear an interest rate of 8.05%, were issued by the Martin
County Industrial Development Authority on December 20, 1994 (the "1994B Tax
Exempt Bonds" and, together with the 1994A Tax Exempt Bonds, the "1994 Tax
Exempt Bonds"). The First Mortgage Bonds and the 1994 Tax Exempt Bonds are
hereinafter collectively referred to as the "Bonds."
12
<PAGE>
Certain proceeds from the issuance of the First Mortgage Bonds were used
to repay $421 million of the Partnership's indebtedness, and financing fees and
expenses incurred in connection with the development and construction of the
Facility. The balance of the proceeds were deposited in various restricted funds
that are being administered by an independent disbursement agent pursuant to
trust indentures and a disbursement agreement. Funds administered by such
disbursement agent are invested in specified investments. These funds together
with other funds available to the Partnership were used: (i) to finance
completion of construction, testing, and initial operation of the Facility; (ii)
to finance construction interest and construction-related contingencies; and
(iii) to provide for initial working capital.
The proceeds of the 1994 Tax Exempt Bonds were used to refund $113
million principal amount of Industrial Development Revenue Bonds (Series 1992A
and Series 1992B) previously issued by the Martin County Industrial Development
Authority for the benefit of the Partnership, and to fund, in part, a debt
service reserve account for the benefit of the holders of its tax-exempt bonds
and to complete construction of certain portions of the Facility.
The Partnership's total borrowings from inception through December 1999
were $769 million. The equity loan of $139 million was repaid on December 26,
1995. As of December 31, 1999, the outstanding borrowings included $125 million
from the 1994 Tax Exempt Bonds and all of the available First Mortgage Bond
proceeds. The First Mortgage Bonds have matured as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Series Aggregate Principal Amount Date Matured and Payed
A-1 $4,397,000 June 15, 1996
A-2 4,398,000 December 15, 1996
A-3 4,850,000 June 15, 1997
A-4 4,851,000 December 15, 1997
A-5 5,132,000 June 15, 1998
A-6 5,133,000 December 15, 1998
A-7 4,998,000 June 15, 1999
A-8 4,999,000 December 15, 1999
</TABLE>
The weighted average interest rate paid by the Partnership on its debt
for the years ended December 31, 1999 and 1998, was 9.182% and 9.174%
respectively.
The Partnership, pursuant to certain of the Project Contracts, is
required to post letters of credit which, in the aggregate, will have a face
amount of no more than $65 million. Certain of these letters of credit have been
issued pursuant to a Letter of Credit and Reimbursement Agreement with Credit
Suisse First Boston and the remaining letters of credit will be issued when
required under the Project Contracts, subject to conditions contained in such
Letter of Credit and Reimbursement Agreement. As of December 31, 1999, no
drawings have been made on any of these letters of credit. The Letter of Credit
and Reimbursement Agreement has a term of seven years subject to extension at
the discretion of the banks party thereto.
The Partnership entered into a debt service reserve letter of credit and
reimbursement agreement, dated as of November 1, 1994, with Banque Nationale de
Paris pursuant to which a debt service reserve letter of credit in the amount of
approximately $60 million was issued. This agreement has a term of five years
subject to extension at the discretion of the banks party thereto. Drawings on
the debt service reserve letter of credit became available on the Commercial
Operation Date of the Facility to pay principal and interest on the First
Mortgage Bonds, the 1994 Tax Exempt Bonds and interest on any
13
<PAGE>
loans created by drawings on such debt service reserve letter of credit. Cash
and other investments held in the debt service reserve account will be drawn on
for the Tax Exempt Bonds prior to any drawings on the debt service reserve
letter of credit. As of December 31, 1999, no drawings have been made on the
debt service reserve letter of credit. On January 11, 1999, in accordance with
the Partnership's financing documents, the debt service reserve letter of credit
was reduced to approximately $30 million, which, together with cash in the debt
service reserve account, represents the maximum remaining semi-annual debt
service on the First Mortgage Bonds and the 1994 Tax Exempt Bonds.
In order to provide for the Partnership's working capital needs, the
Partnership entered into a Revolving Credit Agreement with Credit Suisse dated
as of November 1, 1994. This Agreement has a term of seven years subject to
extension at the discretion of the banks party thereto. The revolving credit
agreement has a maximum available amount of $15 million and may be drawn on by
the Partnership from time to time. The interest rate is based upon various short
term indices at the Partnership's option and is determined separately for each
draw. During 1999, working capital loans were made to the Partnership under the
working capital loan facility. All working capital loans were repaid in a timely
manner.
Year 2000
The Partnership successfully transitioned into the Year 2000 without
any Y2K-related service disruptions. There is, however, a risk that some
computer-related problems might not manifest themselves for a period of time and
that supplier or business partner Y2K-related problems may materialize and have
an adverse impact on the Partnership's operations. Through December 31, 1999,
the Partnership spent approximately $450,000 on year 2000 related projects. The
Partnership currently does not believe that it will need to incur any further
costs for year 2000 efforts.
Item 7A Qualitative and Quantitative Disclosures About Market Risk
The only material market risk to which the Partnership is exposed is
interest rate risk. The Partnership's exposure to market risk for changes in
interest rates relates primarily to the opportunity costs of long-term fixed
rate obligations in a falling interest rate environment.
The table below presents principal, interest and related weighted
average interest rates by year of maturity (in thousands).
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
DEBT (all fixed rate) 2000 2001 2002 2003 2004 Thereafter Total Fair Value
---- ---- ---- ---- ---- ---------- ----- ----------
Tax Exempt Bonds:
Principal $0.0 $0.0 $0.0 $0.0 $0.0 $125,010 $125,010 $127,510
Interest $9,865 $9,865 $9,865 $9,865 $9,865 $185,557 $234,882
Average Interest Rate 7.89% 7.89% 7.89% 7.89% 7.89% 7.89%
First Mortgage Bonds:
Principal $11,533 $11,141 $11,460 $14,566 $16,785 $400,756 $466,240 $465,188
Interest $44,276 $43,217 $42,178 $41,045 $39,645 $320,686 $531,047
Average Interest Rate 9.55% 9.56% 9.57% 9.58% 9.59% 9.67%
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE>
Item 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Page
Index to Financial Statements
-----------------------------
Report of Independent Public Accountants 16
Consolidated Balance Sheets 17
Consolidated Statements of Operations 19
Consolidated Statements of Changes in Partners' Capital 20
Consolidated Statements of Cash Flows 22
Notes to Consolidated Financial Statements 23
15
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Indiantown Cogeneration, L.P.:
We have audited the accompanying consolidated balance sheets of
Indiantown Cogeneration, L.P., (a Delaware limited partnership) and
subsidiaries, as of December 31, 1999, and 1998, and the related consolidated
statements of operations, changes in partners' capital and cash flows for each
of the three years in the period ended December 31, 1999. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Indiantown Cogeneration,
L.P. and subsidiaries as of December 31, 1999, and 1998, and the results of
their operations and their cash flows for each of the three years in the period
ended in conformity with accounting principles generally accepted in the United
States.
As explained in Note 2 to the financial statements, the Partnership changed its
method of accounting for costs of start-up activities in 1998.
ARTHUR ANDERSEN LLP
Vienna, Virginia
January 14, 2000
16
<PAGE>
<TABLE>
<CAPTION>
Indiantown Cogeneration, L.P.
Consolidated Balance Sheets
As of December 31, 1999 and December 31, 1998
---------------------------------------------
<S> <C> <C>
ASSETS 1999 1998
- -------------------------------------------------------------- --------------- --------------
CURRENT ASSETS:
Cash and cash equivalents $ 2,416,997 $ 2,419,089
Accounts receivable-trade 13,471,985 12,369,594
Inventories 1,146,017 940,125
Prepaid expenses 807,372 736,700
Deposits 44,450 44,000
Investments held by Trustee, including restricted funds
of $2,752,669 and $2,718,549 respectively 3,283,909 2,770,774
----------- -------------
Total current assets 21,170,730 19,280,282
------------ -------------
INVESTMENTS HELD BY TRUSTEE,
restricted funds 14,501,877 14,001,428
------------ -------------
DEPOSITS 80,000 75,000
PROPERTY, PLANT & EQUIPMENT:
Land 8,582,363 8,582,363
Electric and steam generating facilities 698,401,089 695,929,380
Less accumulated depreciation (65,534,397) (50,323,285)
------------- -------------
Net property, plant & equipment 641,449,055 654,188,458
------------- -------------
FUEL RESERVE 1,318,099 3,428,403
------------- -------------
DEFERRED FINANCING COSTS, net of accumulated amortization of
$43,854,648 and $43,020,796 respectively 16,332,268 17,166,120
------------- ------------
Total assets $ 694,852,029 $708,139,691
============= ============
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
17
<PAGE>
<TABLE>
<CAPTION>
Indiantown Cogeneration, L.P.
Consolidated Balance Sheets
As of December 31, 1999 and December 31, 1998
---------------------------------------------
<S> <C> <C>
LIABILITIES AND PARTNERS' CAPITAL 1999 1998
- ---------------------------------------------------- ------------------ ------------------
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 7,584,406 $ 7,405,610
Accrued interest 2,267,017 2,302,048
Current portion - First Mortgage Bonds 11,533,135 9,997,000
Current portion lease payable - railcars 308,534 287,048
------------------ ------------------
Total current liabilities 21,693,092 19,991,706
------------------ ------------------
LONG TERM DEBT:
First Mortgage Bonds 454,708,865 466,242,000
Tax Exempt Facility Revenue Bonds 125,010,000 125,010,000
Lease payable - railcars 4,275,166 4,583,699
------------------ ------------------
Total long term debt 583,994,031 595,835,699
------------------ ------------------
Scheduled major overhaul 920,356 511,756
Total liabilities 606,607,479 616,339,161
------------------ ------------------
PARTNERS' CAPITAL:
Toyan Enterprises 26,517,489 27,586,061
Palm Power Corporation 8,824,455 9,180,053
TIFD III-Y, Inc. - 36,720,211
Indiantown Project Investment Partnership 17,604,787 18,314,205
Thaleia, Inc. 35,297,819 -
------------------ ------------------
Total partners' capital 88,244,550 91,800,530
------------------ ------------------
Total liabilities and partners'
capital $694,852,029 $708,139,691
================== ==================
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
18
<PAGE>
<TABLE>
<CAPTION>
Indiantown Cogeneration, L.P.
Consolidated Statements of Operations
For the Years Ended December 31, 1998, 1997 and 1996
----------------------------------------------------
<S> <C> <C> <C>
1999 1998 1997
---- ---- ----
Operating Revenues:
Electric capacity and capacity bonus $ 123,682,957 $ 123,461,237 $ 122,285,655
Electric energy revenue 39,461,349 35,549,353 40,098,446
Steam 125,813 172,809 133,334
------------- -------------- --------------
Total operating revenues 163,270,119 159,183,399 162,517,435
------------- -------------- --------------
Cost of Sales:
Fuel and ash 39,794,007 36,220,511 43,505,182
Operating and maintenance 19,767,743 18,807,227 19,600,378
Depreciation 15,227,631 15,091,155 15,088,413
---------- ---------- ----------
Total cost of sales 74,789,381 70,118,893 78,193,973
---------- ---------- ----------
Gross Profit 88,480,738 89,064,506 84,323,462
---------- ---------- ----------
Other Operating Expenses:
General and administrative 4,501,136 3,826,290 2,830,813
Insurance and taxes 6,212,453 6,689,843 6,705,113
--------- --------- ---------
Total other operating expenses 10,713,589 10,516,133 9,535,926
---------- ---------- ---------
Operating Income 77,767,149 78,548,373 74,787,536
---------- ---------- ----------
Non-Operating Income (Expense):
Interest expense (57,475,271) (58,868,345) (59,390,569)
Interest income
2,122,142 2,493,655 2,611,810
----------- ----------- -----------
Net non-operating expense (55,353,129) (56,374,690) (56,778,759)
------------ ------------ ------------
Income before cumulative effect of change
in accounting principle 22,414,020 22,173,683 18,008,777
Cumulative effect of a change in
accounting for costs of start-up activities - (818,716) -
-------------- ------------- -------------
Net Income $ 22,414,020 $ 21,354,967 $ 18,008,777
============== ============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
19
<PAGE>
<TABLE>
<CAPTION>
Indiantown Cogeneration, L. P.
Consolidated Statements of Changes in Partners' Capital
For the Years Ended December 31, 1999, 1998 and 1997
-------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Toyan Palm Power TIDF III-Y,
Enterprises Corporation Inc. IPILP Thaleia, LLC Total
Partners' capital,
December 31, 1996 $55,774,642 $13,943,660 $46,478,867 - - $116,197,169
Net income (1/1/97 -
9/19/97) 7,390,612 1,847,654 6,158,843 - - 15,397,109
Capital distributions
(1/1/97 - 9/19/97) (7,813,463) (1,953,365) (6,511,218) - - (16,278,046)
----------- ----------- ----------- ------ ----------- ------------
Partners' capital,
September 19, 1997 55,351,791 13,837,949 46,126,492 - - 115,316,232
Transfer Palm Power 1/6
Interest to Toyan 2,306,325 (2,306,325) - - - -
Net income (9/20/97 -
12/31/97 1,305,835 261,166 1,044,667 - - 2,611,668
Capital distributions
(9/20/97 - 12/31/97) (5,901,168) (1,180,234) (4,720,934) - - (11,802,336)
----------- ----------- ----------- ------- ----------- ------------
Partners' capital,
December 31, 1997 53,062,783 10,612,556 42,450,225 - - 106,125,564
Net Income (1/1/98 -
8/21/98) 7,228,833 1,445,767 5,783,066 14,457,666
Capital Distributions (1/1/98 -
8/21/98) (13,240,000) (2,648,000) (10,592,000) - - (26,480,000)
------------ ----------- ------------ --------- ---------- -------------
Partners' capital
August 21, 1998 47,051,616 9,410,323 37,641,291 - - 94,103,230
Transfer Toyan 19.95%
interest to IPILP (18,773,594) - - 18,773,594 - -
Net Income (8/22/98
through 12/31/98) 2,072,639 689,730 2,758,920 1,376,011 - 6,897,300
Capital Distributions (8/22/98 -
12/31/98) (2,764,600) (920,000) (3,680,000) (1,835,400) - (9,200,000)
----------- --------- ----------- ----------- --------- ------------
Partners'
capital
December 31, 1998 $27,586,061 $9,180,053 $36,720,211 $18,314,205 - $91,800,530
Net Income (1/1/99 -
6/11/99) 3,139,325 1,044,700 4,178,802 2,084,177 - 10,447,004
Partners' capital
June 11, 1999 $30,725,386 $10,224,753 $40,899,013 $20,398,382 - $102,247,534
Transfer TIFD 19.90%
interest to Thaleia, LLC
- - (20,347,259) - 20,347,259 -
Net Income (6/12/99 -
9/20/99) 1,915,912 637,575 1,281,525 1,271,961 1,268,773 6,375,746
20
<PAGE>
Capital distributions
(6/12/99 - 9/20/99) (5,039,385) (1,677,000) (3,370,770) (3,345,615) (3,337,230) (16,770,000)
----------- ----------- ----------- ----------- ----------- ------------
Partners' capital
September 20, 1999 $27,601,913 $9,185,328 $18,462,509 $18,324,728 $18,278,802 $91,853,280
Transfer TIFD 20.00%
interest to Thaleia, LLC - - (18,370,656) - 18,370,656 -
Net Income (9/21/99 -
11/24/99) 1,175,664 391,236 3,912 780,517 1,561,032 3,912,361
--------- ------- ----- ------- --------- -----------
Partners' capital
November 24, 1999 $28,777,577 $9,576,564 $95,765 $19,105,245 $38,210,490 $95,765,641
Transfer TIFD 0.10%
interest to Thaleia, LLC - - (95,765) - 95,765 -
Net Income (11/25/99 -
12/31/99) 504,512 167,891 - 334,942 671,564 1,678,909
Capital distributions
(11/25/99 - 12/31/99) (2,764,600) (920,000) - (1,835,400) (3,680,000) (9,200,000)
----------- --------- ---------- ----------- ----------- -----------
Partners' capital
December 31, 1999 $26,517,489 $8,824,455 - $17,604,787 $35,297,819 $88,244,550
=========== ========== =========== =========== =========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
21
<PAGE>
<TABLE>
<CAPTION>
Indiantown Cogeneration, L.P
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1998, 1997 and 1996
----------------------------------------------------
<S> <C> <C> <C>
1999 1998 1997
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 22,414,020 $ 21,354,967 $ 18,008,777
Adjustments to reconcile net income to net cash
provided by operating activities:
Cumulative effect of a change in accounting principle - 818,716 -
Depreciation and amortization 15,681,507 15,666,912 15,950,248
(Increase) Decrease in accounts receivable-trade (1,102,391) 2,113,496 376,789
Decrease (Increase) in inventories and fuel reserve 1,904,412 (890,538) 1,332,079
(Increase) Decrease in deposits and prepaid expenses (76,122) 428,029 (470,004)
Increase (Decrease) in accounts payable, accrued
liabilities, accrued interest and scheduled major overhaul 552,186 (2,471,228) 1,819,213
---------- ---------- ----------
Net cash provided by operating activities 39,373,612 37,020,354 37,017,102
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant & equipment (2,108,071) (1,361,673) (1,338,055)
(Increase) Decrease in investments held by trustee (1,013,585) 9,738,087 5,240,851
----------- --------- ---------
Net cash (used in) provided by investing activities (3,121,656) 8,376,414 3,902,796
----------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in lease payable--railcars (287,048) (267,058) (248,460)
Payment of bonds (9,997,000) (10,265,000) (9,701,000)
Capital distributions (25,970,000) (35,680,000) (28,080,382)
------------ ------------ ------------
Net cash used in financing activities (36,254,048) (46,212,058) (38,029,842)
------------ ------------ ------------
(DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS (2,092) (815,290) 2,890,056
Cash and cash equivalents, beginning of year 2,419,089 3,234,379 344,323
---------- ---------- ----------
Cash and cash equivalents, end of year $2,416,997 $2,419,089 $3,234,379
========== ========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest $ 55,039,501 $ 55,879,716 $ 56,665,646
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
22
<PAGE>
Indiantown Cogeneration, L.P.
Notes to Consolidated Financial Statements
As of December 31, 1999 and 1998
1. ORGANIZATION AND BUSINESS:
Indiantown Cogeneration, L.P. (the "Partnership") is a special purpose
Delaware limited partnership formed on October 4, 1991. The Partnership
was formed to develop, construct, and operate an approximately 330
megawatt (net) pulverized coal-fired cogeneration facility (the
"Facility") located on an approximately 240 acre site in southwestern
Martin County, Florida. The Facility produces electricity for sale to
Florida Power & Light Company ("FPL") and supplies steam to Caulkins
Indiantown Citrus Co. ("Caulkins") for its plant located near the
Facility.
The original general partners were Toyan Enterprises ("Toyan"), a
California corporation and a wholly-owned special purpose indirect
subsidiary of PG&EGenerating Company, LLC and Palm Power Corporation
("Palm"), a Delaware corporation and a special purpose indirect
subsidiary of Bechtel Enterprises, Inc. ("Bechtel Enterprises"). The
sole limited partner was TIFD III-Y, Inc. ("TIFD"), a special purpose
indirect subsidiary of General Electric Capital Corporation ("GECC").
During 1994, the Partnership formed its sole, wholly owned subsidiary,
Indiantown Cogeneration Funding Corporation ("ICL Funding"), to act as
agent for, and co-issuer with, the Partnership in accordance with the
1994 bond offering discussed in Note 4. ICL Funding has no separate
operations and has only $100 in assets.
In 1998, Toyan consummated transactions with DCC Project Finance Twelve,
Inc. ("PFT"), whereby PFT, through a new partnership (Indiantown Project
Investment, L.P. ("IPILP")) with Toyan, became a new general partner in
the Partnership. Toyan is the sole general partner of IPILP. Prior to
the PFT transaction, Toyan converted some of its general partnership
interest into a limited partnership interest such that Toyan now
directly holds only a limited partnership interest in the Partnership.
In addition, Bechtel Generating Company, Inc. ("Bechtel Generating"),
sold all of the stock of Palm to a wholly owned indirect subsidiary of
Cogentrix Energy, Inc. ("Cogentrix"). Palm holds a 10% general partner
interest in the Partnership.
On June 4, 1999, Thaleia, LLC ("Thaleia"), a wholly-owned subsidiary of
Palm and indirect wholly-owned subsidiary of Cogentrix, acquired from
TIFD a 19.9% limited partner interest in the Partnership. On September
20, 1999, Thaleia acquired another 20% limited partnership interest from
TIFD and TIFD's membership on the Board of Control. On November 24,
1999, Thaleia purchased TIFD's remaining limited partner interest in the
Partnership from TIFD.
The net profits and losses of the Partnership are allocated to Toyan,
Palm, TIFD and IPILP and Thaleia (collectively, the "Partners") based on
the following ownership percentages:
23
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
As of As of As of As of As of
August 21, October 20, June 4, September 20, November 24,
1998 1998 1999 1999 1999
---- ---- ---- ---- ----
Toyan 30.05% 30.05% 30.05% 30.05% 30.05%
Palm 10% 10%* 10%* 10%* 10%*
IPILP 19.95%** 19.95%** 19.95% 19.95% 19.95%
TIFD 40% 40% 20.1% .1% 0%
Thaleia - - 19.9% 39.9% 40.0%
</TABLE>
[FN]
* Now beneficially owned by Cogentrix.
** PFT's beneficial ownership in the Partnership through IPILP was equal
to 10% as of August 21, 1998, and 15% as of November 23, 1998.
</FN>
The changes in ownership were the subject of notices of self-recertification of
Qualifying Facility status filed by the Partnership with the Federal Energy
Regulatory Commission on August 20, 1998, November 16, 1998, June 4, 1999,
September 21, 1999, and November 24, 1999.
All distributions other than liquidating distributions will be made based on the
Partners' percentage interest as shown above, in accordance with the project
documents and at such times and in such amounts as the Board of Control of the
Partnership determines.
The Partnership is managed by PG&EGenerating Company ("PG&EGen"), formerly known
as U.S. Generating Company, pursuant to a Management Services Agreement (the
"MSA"). The Facility is operated by PG&E Operating Services Company ("PG&E
OSC"), formerly known as U.S. Operating Services Company, pursuant to an
Operation and Maintenance Agreement (the "O&M Agreement"). PG&EGen and PG&E OSC
are general partnerships wholly-owned by PG&EGenerating Company, LLC, an
indirect wholly-owned subsidiary of PG&E Corporation.
The Partnership commenced commercial operations on December 22, 1995 (the
"Commercial Operation Date").
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Presentation
The Partnership's financial statements are prepared on the accrual basis of
accounting in accordance with generally accepted accounting principles. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect 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 revenue and expenses during the reporting period. Actual results
could differ from those estimates.
The accompanying consolidated financial statements include the accounts of the
Partnership and ICL Funding. All significant intercompany balances have been
eliminated in consolidation.
24
<PAGE>
Cash and Cash Equivalents
For the purposes of reporting cash flows, cash equivalents include short-term
investments with original maturities of three months or less.
Inventories
Coal and lime inventories are stated at the lower of cost or market using the
average cost method.
Prepaid Expenses
Prepaid expenses of $807,372 as of December 31, 1999, include $500,000 for
operation and maintenance funding, $243,135 for insurance costs related to
property damage and other general liability policies and $64,237 for prepayments
of the annual administrative fees for the letters of credit and for the trustee.
Prepaid expenses of $736,700 as of December 31, 1998, include $500,000 for
operations and maintenance funding, $167,634 for insurance costs related to
property damage and other liability policies and $69,066 for prepayments of the
annual administrative fees for the letters of credit and for the trustee.
Deposits
Deposits are stated at cost and include amounts required under certain of the
Partnership's agreements as described in Note 3.
Investments Held by Trustee
The investments held by the trustee represent bond and equity proceeds held by a
bond trustee/disbursement agent and are carried at cost, which approximates
market. All funds are invested in either Nations Treasury Fund-Class A or other
permitted investments for longer periods. The Partnership also maintains
restricted investments covering a portion of the Partnership's debt as required
by the financing documents. The proceeds include $12,501,000 of restricted
tax-exempt debt service reserve required by the financing documents and are
classified as a noncurrent asset on the accompanying balance sheets. The
Partnership maintains restricted investments covering a portion of debt
principal and interest payable, as required by the financing documents. These
investments are classified as current assets in the accompanying consolidated
balance sheets. A qualifying facility ("QF") reserve of $2.0 million is also
held long term assets in the accompanying balance sheet at December 31, 1999
(see Note 4).
Property, Plant and Equipment
Property, plant and equipment, which consist primarily of the facility, are
recorded at actual cost. The facility is depreciated on a straight-line basis
over 35 years with a residual value on the facility approximating 25 percent of
the gross Facility costs.
Other property, plant and equipment are depreciated on a straight-line basis
over the estimated economic or service lives of the respective assets (ranging
from five to seven years). Routine maintenance and repairs are charged to
expense as incurred.
25
<PAGE>
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of" ("SFAS No. 121").
SFAS No. 121 establishes criteria for recognizing and measuring impairment
losses when recovery of recorded long-lived asset values is uncertain. In the
opinion of Management of the Partnership, there has been no impact on the
Partnership's financial condition or results of operations in 1999, 1998, or
1997.
Fuel Reserve
The fuel reserve, carried at cost, represents an approximate fifteen-day supply
of coal held for emergency purposes.
Scheduled Major Overhaul
The Partnership's depreciation is based on the plant being considered as a
single property unit. Certain components within the plant will require
replacement or overhaul several times within the estimated life of the plant.
Scheduled major overhaul represents an accrual for anticipated expenditures for
scheduled significant replacement and overhaul costs of the facility. The
expense is recognized ratably over the scheduled overhaul cycle of the related
equipment.
It is anticipated that the Securities and Exchange Commission ("SEC") will issue
a ruling in March 2000 that will change the allowed methods of accounting for
scheduled major overhauls. In this ruling, the SEC will announce that it will
not accept the accrue in advance method of accounting for scheduled major
overhauls currently used by the Partnership. Since the Partnership's partners
are required to file with the SEC, the Partnership will need to change its
method of accounting for scheduled major overhaul to the as incurred method. The
SEC's anticipated ruling will allow companies to recognize the change as a
cumulative effect of a change in accounting principle in the year of adoption.
Under the ruling, all companies would be required to reflect this change by the
end of the first quarter of 2000. As such, the Partnership will reflect a
cumulative effect of a change in accounting principle, which will be an increase
in net income of $920,536 in its financial statements for the year ending
December 31, 2000.
Revenue Recognition
Revenues from the sale of electricity are recorded based on output delivered and
capacity provided at rates as specified under contract terms.
Organization Costs
The Partnerships adopted the American Institute of Certified Public Accountants
issued Statement of Position 98-5, "Reporting on the Costs of Start-up
Activities" ("SOP 98-5") during 1998 which resulted in the write-off of all
organization costs reflected on the accompanying balance sheet. The amount of
start-up costs previously capitalized, and written-off in 1998, amounted to
$818,716.
26
<PAGE>
Deferred Financing Costs
Financing costs, consisting primarily of the costs incurred to obtain project
financing, are deferred and amortized using the effective interest rate method
over the term of the related permanent financing.
Income Taxes
Under current law, no Federal or state income taxes are paid directly by the
Partnership. All items of income and expense of the Partnership are allocable to
and reportable by the Partners in their respective income tax returns.
Accordingly, no provision is made in the accompanying consolidated financial
statements for Federal or state income taxes.
New Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board isssued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133").
SFAS 133 established accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. It requires that entities recognize all
derivative instruments as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. If certain
conditions are met, a derivative may be specifically designated as (a) a hedge
of the exposure to changes in the fair value of a recognized asset or liability
or an unrecognized firm commitment, or (b) a hedge of the exposure to variable
cash flows of a forecasted transaction. The Partnership has also entered into
certain other contracts that may meet the definition of derivative instruments
under SFAS 133. The Partnership is evaluating all contracts to determine the
impact on its financial statements. SFAS 133, as amended, is effective for the
Partnership in fiscal year 2001.
3. DEPOSITS:
In 1991, in accordance with a contract between the Partnership and Martin
County, the Partnership provided Martin County with a security deposit in the
amount of $149,357 to secure installation and maintenance of required
landscaping materials. In January 1998, the Partnership received a refund of
funds in excess of the required deposit as security for the first year
maintenance as set forth in the contract between the Partnership and Martin
County. The remaining deposit in the amount of $39,804 was included in current
assets as of December 31, 1997. These funds were returned in September 1998 when
the Partnership submitted a surety bond for the refund amount. In July 1999,
Martin County Growth Management Environmental Division authorized release of the
funds securing the landscaping.
In 1991, in accordance with the Planned Unit Development Zoning Agreement
between the Partnership and Martin County, the Partnership deposited $1,000,000
in trust with the Board of County Commissioners of Martin County (the "PUD
Trustee"). Income from this trust will be used solely for projects benefiting
the community of Indiantown. On July 23, 2025, the PUD Trustee is required to
return the deposit to the Partnership. As of December 31, 1999 and 1998,
estimated present values of this deposit of $80,000 and $75,000, respectively,
are included in deposits in the accompanying consolidated balance sheets. The
remaining balance is included in property, plant and equipment as part of total
capitalized construction expenses.
27
<PAGE>
4. BONDS AND NOTES PAYABLE:
-----------------------
First Mortgage Bonds
The Partnership and ICL Funding jointly issued $505,000,000 of First Mortgage
Bonds (the "First Mortgage Bonds") in a public issuance registered with the
Securities and Exchange Commission. Proceeds from the issuance were used to
repay outstanding balances of $273,513,000 on a prior construction loan and to
complete the project. The First Mortgage Bonds are secured by a lien on and
security interest in substantially all of the assets of the Partnership. The
First Mortgage Bonds were issued in 10 separate series with fixed interest rates
ranging from 7.38 to 9.77 percent and with maturities ranging from 1996 to 2020.
Interest is payable semi-annually on June 15 and December 15 of each year.
Interest expense related to the First Mortgage Bonds was $45,138,915,
$46,014,161, and $46,800,091 in 1999, 1998, and 1997 respectively.
Future minimum payments related to outstanding First Mortgage Bonds and at
December 31, 1999 are as follows (in thousands):
2000 $ 11,533
2001 11,141
2002 11,460
2003 14,566
2004 16,785
Thereafter 400,757
---------
Total $466,242
=========
Tax Exempt Facility Revenue Bonds
The proceeds from the issuance of $113,000,000 of Series 1992A and 1992B
Industrial Development Revenue Bonds (the "1992 Bonds") through the Martin
County Industrial Development Authority (the "MCIDA") were invested in an
investment portfolio with Fidelity Investments Institutional Services Company.
On November 22, 1994, the Partnership refunded the 1992 Bonds with proceeds from
the issuance of $113,000,000 Series 1994A and of $12,010,000 Series 1994B Tax
Exempt Facility Refunding Revenue Bonds which were issued on December 20, 1994
(the Series 1994A Bonds and the Series 1994B Bonds, collectively, the "1994 Tax
Exempt Bonds").
The 1994 Tax Exempt Bonds were issued by the MCIDA pursuant to an Amended and
Restated Indenture of Trust between the MCIDA and NationsBank of Florida, N.A.
(succeeded by The Bank of New York Trust Company of Florida, N.A.) as trustee
(the "Trustee"). Proceeds from the 1994 Tax Exempt Bonds were loaned to the
Partnership pursuant to the MCIDA Amended and Restated Authority Loan Agreement
dated as of November 1, 1994 (the "Authority Loan"). The Authority Loan is
secured by a lien on and a security interest in substantially all of the assets
of the Partnership. The 1994 Tax Exempt Bonds, which mature December 15, 2025,
carry fixed interest rates of 7.875 percent and 8.05 percent for Series 1994A
and 1994B, respectively. Total interest paid related to the 1994 Tax Exempt
Bonds was $9,865,555 for each of the years ended
28
<PAGE>
December 31, 1999, 1998 and 1997. The Tax Exempt Bonds and the First Mortgage
Bonds are equal in seniority.
Equity Contribution Agreement
Pursuant to an Equity Contribution Agreement, dated as of November 1, 1994,
between TIFD and NationsBank of Florida, N.A. (succeeded by The Bank of New York
Trust Company of Florida, N.A.), the Partners contributed approximately
$140,000,000 of equity on December 26, 1995. Proceeds were used to repay the
$139,000,000 outstanding under the Equity Loan Agreement. The remaining
$1,000,000 was deposited with the Trustee according to the disbursement
agreement among the Partnership, the Trustee and the other lenders to the
Partnership. On June 15, 1998, the funds were released and subsequently
distributed in accordance with the disbursement agreement.
Revolving Credit Agreement
The Revolving Credit Agreement provides for the availability of funds for the
working capital requirements of the Partnership. It has a term of seven years
from November 1, 1994, subject to extension at the discretion of the bank party
thereto. The interest rate is based upon various short-term indices chosen at
the Partnership's option and is determined separately for each draw. This credit
facility includes commitment fees, to be paid quarterly, of .375 percent on the
unborrowed portion. The face amount of the original working capital letter of
credit was increased in November 1994 from $10,000,000 to $15,000,000. Under the
original and new working capital credit facilities, the Partnership paid
$52,836, $54,274 and $57,031 in commitment fees in 1999, 1998 and 1997,
respectively. At December 31, 1997, no draws for working capital had been made
to the Partnership under the Revolving Credit Agreement. One working capitol
loan was made in May and two in June of 1998. They were repaid in July of 1998.
Another was made in November 1998 and repaid in December, 1998. In 1999, working
capital loans were made in May and June and repaid in July and August, and
November and repaid in December.
FPL Termination Fee Letter of Credit
On or before the Commercial Operation Date, the Partnership was required to
provide FPL with a letter of credit equal to the total termination fee as
defined in the Power Purchase Agreement in each year not to exceed $50,000,000.
Pursuant to the terms of the Letter of Credit and Reimbursement Agreement, the
Partnership obtained a commitment for the issuance of this letter of credit. At
the Commercial Operation Date, this letter of credit replaced the completion
letter of credit outlined below. The initial amount of $13,000,000 was issued
for the first year of operations and increased to $40,000,000 in January of
1999. During 1999, 1998 and 1997 no draws were made on this letter of credit.
Commitment fees of $704,555, $643,076 and $572,819, were paid on this letter of
credit in 1999, 1998 and 1997, respectively.
FPL QF Letter of Credit
Within 60 days after the Commercial Operation Date, the Partnership was required
to provide a letter of credit for use in the event of a loss of QF status under
the Public Utility Regulatory Policies Act of 1978 ("PURPA"). The initial amount
was $500,000 increasing by $500,000 per agreement year to a maximum of
$5,000,000. Pursuant to the terms of the Letter of Credit and
29
<PAGE>
Reimbursement Agreement, the Partnership obtained a commitment for the issuance
of this letter of credit. The amount will be used by the Partnership as
necessary to maintain or reinstate the qualifying facility status. The
Partnership may, in lieu of a letter of credit, make regular cash deposits to a
dedicated account in amounts totaling $500,000 per agreement year to a maximum
of $5,000,000. In February 1996, the Partnership established a QF account with
the Trustee. The balance in this account at December 31, 1999 and 1998, was
$2,000,000 and $1,500,000, respectively, and is included in noncurrent,
restricted investments held by trustee in the accompanying consolidated balance
sheets.
Steam Host Letter of Credit
At financial closing in October 1992, the Partnership provided Caulkins a letter
of credit in the amount of $10,000,000 pursuant to the Energy Services Agreement
(see Note 6). This letter of credit was terminated in 1994 and a new one was
issued with essentially the same terms. In the event of a default under the
Energy Services Agreement, the Partnership is required to pay liquidated damages
in the amount of $10,000,000. Failure by the Partnership to pay the damages
within 30 days allows the steam host to draw on the letter of credit for the
amount of damages suffered by Caulkins. As of December 31, 1999, 1998 and 1997,
no draws had been made on this letter of credit. Commitment fees of $143,011,
$156,315, and $178,862 were paid relating to this letter of credit in 1999,
1998, and 1997, respectively.
Debt Service Reserve Letter of Credit
On November 22, 1994, the Partnership also entered into a debt service reserve
letter of credit and reimbursement agreement with Banque Nationale de Paris
pursuant to which a debt service reserve letter of credit in the amount of
approximately $60,000,000 was issued. Such agreement has a rolling term of five
years subject to extension at the discretion of the banks party thereto.
Drawings on the debt service reserve letter of credit are available to pay
principal and interest on the First Mortgage Bonds, the 1994 Tax-Exempt Bonds
and interest on any loans created by drawings on such debt service reserve
letter of credit. Cash and other investments held in the debt service reserve
account will be drawn on prior to any drawings on the debt service reserve
letter of credit. As of December 31, 1999, 1998 and 1997, no draws had been made
on this letter of credit. Commitment fees of $488,281, $877,901 and $875,496
were paid on this letter of credit in 1999, 1998, 1997 and , respectively. On
January 11, 1999, pursuant to the Disbursement Agreement, the Debt Service
Reserve Letter of Credit was reduced to approximately $30 million.
5. PURCHASE AGREEMENTS:
Coal Purchase and Transportation Agreement
The Partnership entered into a 30-year purchase contract with Lodestar Energy,
Inc. (formerly known as Costain Coal, Inc.), commencing from the first day of
the calendar month following the Commercial Operation Date, for the purchase of
the facility's annual coal requirements at a price defined in the agreement, as
well as for the disposal of ash residue. The Partnership has no obligation to
purchase a minimum quantity of coal under this agreement.
In 1997, the Partnership entered into an arrangement with Lodestar and the coal
transporter to compensate the Partnership for reduced FPL revenues when the
facility
30
<PAGE>
runs at minimum load during decommit periods. In exchange for the Partnership's
continued purchase and transportation of coal during these periods, Lodestar and
the coal transporter each pay the Partnership a portion of the foregone FPL
revenues.
On June 8, 1998, the Partnership entered into a 3-year agreement with Lodestar
which established an arrangement for the Partnership disposal of ash at
alternative locations. The partnership also entered an agreement with VFL
Technology Corporation for the disposal of ash.
Lime Purchase Agreement
On May 1, 1992, the Partnership entered into a lime purchase agreement with
Chemical Lime Company of Alabama, Inc. for supply of the facility's lime
requirements for the facility's dry scrubber sulfur dioxide removal system. The
initial term of the agreement is 15 years from the Commercial Operation Date and
may be extended for successive 5-year periods. Either party may cancel the
agreement after January 1, 2000, upon proper notice. The Partnership has no
obligation to purchase a minimum quantity of lime under the agreement. The price
of lime was renegotiated in 1999 for a three year period beginning January 1,
2000.
6. SALES AND SERVICES AGREEMENTS:
Power Purchase Agreement
On May 21, 1990, the Partnership entered into a Power Purchase Agreement with
FPL for sales of the facility's electric output. As amended, the agreement is
effective for a 30-year period, commencing with the Commercial Operation Date.
The pricing structure provides for both capacity and energy payments.
Capacity payments remain relatively stable because the amounts do not vary with
dispatch. Price increases are contractually provided. Capacity payments include
a bonus or penalty payment if actual capacity is in excess of or below specified
levels of available capacity. Energy payments are derived from a contractual
formula defined in the agreement based on the actual cost of domestic coal at
another FPL plant, St. Johns River Power Park.
Energy Services Agreement
On September 30, 1992, the Partnership entered into an energy services agreement
with Caulkins. Commencing on the Commercial Operation Date and continuing
throughout the 15-year term of the agreement, Caulkins is required to purchase
the lesser of 525 million pounds of steam per year or the minimum quantity of
steam per year necessary for the facility to maintain its status as a QF under
PURPA. The facility declared Commercial Operation with Caulkins on March 1,
1996.
7. COMMITMENTS AND CONTINGENCIES
On March 19, 1999, Indiantown Cogeneration, L.P. (the "Partnership") filed a
complaint against Florida Power & Light Company ("FPL") in the United States
District Court for the Middle
31
<PAGE>
District of Florida. The lawsuit resulted from a course of action pursued by FPL
on March 10, 1999, in which FPL purported to exercise its dispatch and control
rights under the power sales agreement and disconnected its system from the
Partnership. The Partnership believed this act violated the terms of the power
sales agreement. In its complaint, the Partnership charged that such conduct was
deliberately calculated to cause the Partnership to be unable to meet the
requirements to maintain the facility's status as a QF under the Public Utility
Regulatory Policies Act of 1978.
On March 28, 1999, FPL reconnected the facility to FPL's system. FPL had moved
to dismiss the entire amended complaint and ICLP filed its opposition papers on
August 2, 1999. The Court has ordered a mediation session and set a trial date
in April 2001. If the facility was unable to maintain its QF status, it would be
in default under the PPA. Management and legal counsel believe that it is too
early in the proceedings to predict the outcome of the case and any impact on
the net income.
32
<PAGE>
8. RELATED PARTY TRANSACTIONS:
Management Services Agreement
The Partnership has a Management Services Agreement with PG&EGen, a California
general partnership and a wholly owned indirect subsidiary of PG&EGenLLC, for
the day-to-day management and administration of the Partnership's business
relating to the Facility. The agreement commenced on September 30, 1992 and will
continue through August 31, 2026. Compensation to PG&EGen under the agreement
includes an annual base fee of $650,000 (adjusted annually), wages and benefits
for employees performing work on behalf of the Partnership and other costs
directly related to the Partnership. Payments of $4,120,468, $2,800,644, and
$1,981,174 in 1999, 1998 and 1997, were made to PG&EGen, respectively. At
December 31, 1999 and 1998, the Partnership owed PG&EGen $432,068 and $420,605,
respectively, which are included in accounts payable in the accompanying
consolidated balance sheets.
Operations and Maintenance Agreement
The Partnership has an Operation and Maintenance Agreement with PG&E OSC, a
California general partnership and a wholly owned indirect subsidiary of
PG&EGenLLC, for the operations and maintenance of the Facility for a period of
30 years (starting September 30, 1992). Thereafter, the agreement will be
automatically renewed for periods of 5 years until terminated by either party
with 12 months notice. If targeted plant performance is not reached, PG&E OSC
will pay liquidated damages to the Partnership. Compensation to PG&E OSC under
the agreement includes an annual base fee of $1.5 million ($900,000 of which is
subordinate to debt service and certain other costs), certain earned fees and
bonuses based on the Facility's performance and reimbursement for certain costs
including payroll, supplies, spare parts, equipment, certain taxes, licensing
fees, insurance and indirect costs expressed as a percentage of payroll and
personnel costs. The fees are adjusted quarterly by a measure of inflation as
defined in the agreement. Payments of $9,790,473, $9,605,917, and $9,708,409
were made to PG&E OSC in 1999, 1998 and 1997, respectively. At December 31, 1999
and 1998, the Partnership owed PG&E OSC $836,346 and $646,888 respectively,
which is included in accounts payable in the accompanying consolidated balance
sheets.
Railcar Lease
The Partnership entered into a 15 year Car Leasing Agreement with GE Capital
Railcar Services Corporation, an affiliate of GECC, to furnish and lease 72
pressure differential hopper railcars to the Partnership for the transportation
of fly ash and lime. The cars were delivered starting in April 1995, at which
time the lease was recorded as a capital lease. The leased asset of $5,753,375
and accumulated depreciation of $1,784,463 is included in property, plant and
equipment at December 31, 1999. Payments of $629,856, including principal and
interest, were made in 1999, 1998 and 1997 and the lease obligation of
approximately $4,583,700, $4,870,747 and $5,137,805 at December 31, 1999, 1998,
and 1997, respectively, is reported as a lease payable in the accompanying
consolidated balance sheets.
33
<PAGE>
Future minimum payments related to the Car Leasing Agreement at December
31, 1999 are approximately as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
2000 $ 629,856
2001 629,856
2002 629,856
2003 629,856
2004 629,856
Thereafter 3,374,623
---------
Total minimum lease payments 6,523,903
Interest portion of lease payment (1,940,203)
----------
Present value of future minimum
lease payments 4,583,700
Current portion (308,534)
-----------
Long-term portion $ 4,275,166
============
</TABLE>
Distribution to Partners
On June 15 and December 15, 1999, as provided in the Partnership Agreement,
Indiantown distributed approximately $16.8 million and $9.2 million,
respectively, to the Partners. An additional $1.8 million of distributable cash
was retained for capital projects and is included in cash and cash equivalents
as of December 31, 1999, on the accompanying consolidated balance sheet. Funds
distributed were from electric and steam revenues collected during the fourth
and third full years of commercial operations.
9. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and estimated fair values of
certain of the Partnership's financial instruments at December 31, 1999 and
1998:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
December 31, 1999
Financial Liabilities Carrying Amount Fair Value
--------------------- ----------------- ----------
1994 Tax Exempt Bonds $125,010,000 $127,510,200
First Mortgage Bonds $466,242,000 $465,188,912
December 31, 1998
Financial Liabilities Carrying Amount Fair Value
--------------------- ----------------- ----------
1994 Tax Exempt Bonds $125,010,000 $146,749,907
First Mortgage Bonds $476,239,000 $564,777,850
</TABLE>
For the 1994 Tax Exempt Bonds and First Mortgage Bonds, the fair values of the
Partnership's bonds payable are based on the stated rates of the 1994 Tax Exempt
Bonds and First Mortgage
34
<PAGE>
Bonds and current market interest rates to estimate market values for the 1994
Tax Exempt Bonds and the First Mortgage Bonds.
The carrying amounts of the Partnership's cash and cash equivalents, accounts
receivable, deposits, prepaid expenses, investments held by trustee, accounts
payable, accrued liabilities and accrued interest approximate fair value because
of the short maturities of these instruments.
35
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report dated January 14, 2000 in this Form 10-K included in Registration
Statement File No. 33-82034. It should be noted that we have not audited any
financial statements of the company subsequent to December 31, 1999 or performed
any audit procedures subsequent to the date of our report.
/s/ ARTHUR ANDERSEN LLP
- ------------------------
Vienna, VA
March 30, 2000
36
<PAGE>
Item 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
Item 10 DIRECTORS AND EXECUTIVE OFFICERS
Indiantown Cogeneration, L.P. Board of Control
The following table sets forth the names, ages and positions of the
members of the Board of Control of the Partnership. Members of the Board of
Control are selected from time to time by, and serve at the pleasure of, the
Partners of the Partnership.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Name Age Position
---- --- --------
Thomas J. Bonner................. 45 Palm Representative and
Thaleia Representative
Thomas F. Schwartz ............ 38 Palm Representative and
Thaleia Representative
P. Chrisman Iribe.................. 48 IPILP Representative
Sanford L. Hartman.......... 46 IPILP Representative
</TABLE>
Thomas J. Bonner is Vice President - Asset Management for Cogentrix
Energy, Inc. and has been with Cogentrix since 1987. Prior to joining Cogentrix
Energy, Inc., Mr. Bonner spent five years as a utilities manager in an
integrated fiber and chemical production facility. Mr. Bonner holds a B.S. from
the U.S. Naval Academy, and an M.B.A. from Old Dominion University.
Thomas F. Schwartz is Group Senior Vice President and Chief Financial
Officer of Cogentrix Energy, Inc. He is responsible for the areas of corporate
finance and tax planning. Mr. Schwartz joined Cogentrix Energy, Inc. in 1991,
and has held various positions in accounting and finance. Prior to joining
Cogentrix Energy, Inc., Mr. Schwartz was Audit Manager with Arthur Andersen,
LLP. Mr. Schwartz holds a B.A. degree in accounting from the University of North
Carolina - Charlotte.
P. Chrisman Iribe is President of PG&EGenerating Company and has been
with PG&EGenerating Company, LLC ("PG&EGenLLC") since it was formed in 1989.
Prior to joining PG&EGenLLC, Mr. Iribe was senior vice president for planning,
state relations and public affairs with ANR Pipeline Company, a natural gas
pipeline company and a subsidiary of the Coastal Corporation. Mr. Iribe holds a
B.A. degree in Economics from George Washington University.
Sanford L. Hartman joined PG&EGenLLC's legal group in 1990 and became
its General Counsel in April 1999. Prior to joining PG&EGenLLC, Hartman was
counsel to Long Lake Energy Corporation, an independent power producer with
headquarters in New York City and was an attorney with Bishop, Cook, Purcell &
Reynolds, a Washington, D.C., law firm. Hartman has a BA in Political Science
from Drew University and a JD from Temple University.
37
<PAGE>
ICL Funding Corporation Board of Directors
The following table sets forth the names, ages and positions of the
directors and executive officers of ICL Funding. Directors are elected annually
and each elected director holds office until a successor is elected. Officers
are elected from time to time by vote of the Board of Directors.
<TABLE>
<CAPTION>
<S> <C> <C>
Name Age Position
---- --- --------
P. Chrisman Iribe 47 Director, President
Sanford L. Hartman 46 Director
John R. Cooper 51 Vice President, Chief
Financial Officer and
Principal Accounting
Officer
</TABLE>
Item 11 REMUNERATION OF DIRECTORS AND OFFICERS
No cash compensation or non-cash compensation was paid in any prior year
or is currently proposed to be paid in the current calendar year by ICL Funding
or the Partnership to any of the officers and directors listed above.
Accordingly, the Summary Compensation Table and other tables required under Item
402 of the Securities and Exchange Commission's Regulation S-K have been
omitted, as presentation of such tables would not be meaningful.
Management services for the Partnership are being performed by PG&EGen
on a cost-plus basis in addition to the payment of a base fee. Operation and
maintenance services for the Partnership will be performed by PG&E OSC on a
cost-plus basis. In addition to a base fee, PG&E OSC may earn certain additional
fees and bonuses based on specified performance criteria.
Item 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
Partnership interests in the Partnership, as of December 31, 1999, are
held as follows:
Toyan 30.05% L.P.
IPILP 19.95% G.P.
Palm 10.00% G.P.
Thaleia 40.00% L.P.
All of the outstanding shares of common stock of ICL Funding are owned
by the Partnership.
38
<PAGE>
Item 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Partnership has several material contracts with affiliated entities.
These contracts, which include the Construction Contract, the Management
Services Agreement, the Operations and Maintenance Agreement and the Railcar
Lease, are described elsewhere in this report, most notably in Note 7 to the
Partnership's consolidated financial statements.
PART IV
Item 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
a) Documents filed as of this Report Page
----
(1) Consolidated financial statements:
Report of Independent Public Accountants............ 16
Consolidated Balance Sheets as of
December 31, 1999 and December 31, 1998 ............ 17
Consolidated Statements of Operations for the
years ended December 31, 1999, 1998 and 1997........ 19
Consolidated Statements of Changes
in Partners' Capital for the years ended
December 31, 1999, 1998 and 1997.................... 20
Consolidated Statements of Cash Flows for the
years ended December 31, 1999, 1998 and 1997....... 22
Notes to Consolidated Financial
Statements......................................... 23
(2) Consolidated Financial Statement
Schedules...................................... None
b) Reports on Form 8-K: None
39
<PAGE>
c) Exhibits:
Exhibit
No. Description
3.1 Certificate of Incorporation of Indiantown Cogeneration Funding
Corporation.*
3.2 By-laws of Indiantown Cogeneration Funding Corporation.*
3.3 Certificate of Limited Partnership of Indiantown Cogeneration,
L.P.*
3.4 Amended and Restated Limited Partnership Agreement of Indiantown
Cogeneration, L.P., among Palm Power Corporation, Toyan
Enterprises and TIFD III-Y Inc.*
3.5 Form of First Amendment to Amended and Restated Limited
Partnership Agreement of Indiantown Cogeneration, L.P.*
4.1 Trust Indenture, dated as of November 1, 1994, among Indiantown
Cogeneration Funding Corporation, Indiantown Cogeneration, L.P.,
and NationsBank of Florida, N.A., as Trustee, and First
Supplemental Indenture thereto.**
4.2 Amended and Restated Mortgage, Assignment of Leases, Rents,
Issues and Profits and Security Agreement and Fixture Filing
among Indiantown Cogeneration, L.P., as Mortgagor, and Bankers
Trust Company as Mortgagee, and NationsBank of Florida, N.A., as
Disbursement Agent and, as when and to the extent set forth
therein, as Mortgagee with respect to the Accounts, dated as of
November 1, 1994.**
4.3 Assignment and Security Agreement between Indiantown
Cogeneration, L.P., as Debtor, and Bankers Trust Company as
Secured Party, and NationsBank of Florida, N.A., as Disbursement
Agent and, as when, and to the extent set forth therein, a
Secured Party with respect to the Accounts, dated as of November
1, 1994.**
10.1.1 Amended and Restated Indenture of Trust between Martin County
Industrial Development Authority, as Issuer, and NationsBank of
Florida, N.A., as Trustee, dated as of November 1, 1994.**
10.1.2 Amended and Restated Authority Loan Agreement by and between
Martin County Industrial Development Authority and Indiantown
Cogeneration, L.P., dated as of November 1, 1994.**
10.1.3 Letter of Credit and Reimbursement Agreement among Indiantown
Cogeneration, L.P., as Borrower, and the Banks Named Therein,
and Credit Suisse, as Agent, dated as of November 1, 1994.**
10.1.4 Disbursement Agreement, dated as of November 1, 1994, among
Indiantown Cogeneration, L.P., Indiantown Cogeneration Funding
Corporation, NationsBank of Florida, N.A., as Tax-Exempt
Trustee, NationsBank of Florida, N.A., as Trustee, Credit
Suisse, as Letter of Credit Provider, Credit Suisse, as Working
Capital Provider, Banque Nationale de Paris, as Debt Service
Reserve Letter of Credit Provider, Bankers Trust Company, as
Collateral Agent, Martin County Industrial Development
Authority, and NationsBank of Florida, N.A., as Disbursement
Agent.**
40
<PAGE>
10.1.5 Revolving Credit Agreement among Indiantown Cogeneration, L.P.,
as Borrower, and the Banks Named Therein, and Credit Suisse, as
Agent, dated as of November 1, 1994.**
10.1.6 Collateral Agency and Intercreditor Agreement, dated as of
November 1, 1994, among NationsBank of Florida, N.A., as Trustee
under the Trust Indenture, dated as of November 1, 1994,
NationsBank of Florida, N.A., as Tax-Exempt Trustee under the
Tax Exempt Indenture, dated as of November 1, 1994, Credit
Suisse, as letter of Credit Provider, Credit Suisse, as Working
Capital Provider, Banque Nationale de Paris, as Debt Service
Reserve Letter of Credit Provider, Indiantown Cogeneration,
L.P., Indiantown Cogeneration Funding Corporation, Martin County
Industrial Development Authority, NationsBank of Florida, N.A.,
as Disbursement Agent under the Disbursement Agreement dated as
of November 1, 1994, and Bankers Trust Company, as Collateral
Agent.**
10.1.7 Amended and Restated Equity Loan Agreement dated as of November
1, 1994, between Indiantown Cogeneration, L.P., as the Borrower,
and TIFD III-Y Inc., as the Equity Lender.**
10.1.8 Equity Contribution Agreement, dated as of November 1, 1994,
between TIFD III-Y Inc. and NationsBank of Florida, N.A., as
Disbursement Agent.**
10.1.9 GE Capital Guaranty Agreement, dated as of November 1, 1994,
between General Electric Capital Corporation, as Guarantor, and
NationsBank of Florida, N.A., as Disbursement Agent.**
10.1.11 Debt Service Reserve Letter of Credit and Reimbursement
Agreement among Indiantown Cogeneration, L.P., as Borrower, and
the Banks Named Therein, and Banque Nationale de Paris, as
Agent, dated as of November 1, 1994.**
10.2.18 Amendment No. 2 to Coal Purchase Agreement, dated as of April
19, 1995.***
10.2.19 Fourth Amendment to Energy Services Agreement, dated as of
January 30, 1996.****
21 Subsidiaries of Registrant*
27 Financial Data Schedule. (For electronic filing purposes only.)
99 Copy of Registrants' press release dated January 3, 1996.****
99.1 Copy of Registrant's complaint against FPL filed March 19, 1999.*****
99.2 Copy of Registrant's Second Amended Complaint against FPL filed
March 21, 2000.
[FN]
- --------------------------
* Incorporated by reference from the Registrant Statement on Form S-1, as
amended, file no. 33-82034 filed by the Registrants with the SEC in July 1994.
** Incorporated by reference from the quarterly report on Form 10-Q, file no.
33-82034 filed by the Registrants with the SEC in December
41
<PAGE>
1994.
*** Incorporated by reference from the quarterly report on Form 10-Q, file no.
33-82034 filed by the Registrants with the SEC in May 1995.
**** Incorporated by reference from the current report on Form 8-K, file no.
33-82034 filed by the Registrants with the SEC in January 1996.
*****Incorporated by reference from the quarterly report on Form 10-Q file no.
33-82034 filed by the Registrants with the SEC in May 1996.
***** Incorporated by reference from the current report on Form 8-K file no.
33-82034 filed by the Registrants with the SEC in March 1999.
</FN>
42
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
co-registrant has duly caused this Form 10-K to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Bethesda, state of
Maryland, on March 30, 2000.
INDIANTOWN COGENERATION, L.P.
Date: March 30, 2000 /s/ John R. Cooper
--------------------------------
Name: John R. Cooper
Title: Chief Financial Officer,
Principal Accounting Officer
and Senior Vice President
Pursuant to the requirements of the Securities Act of 1933, this Form
10-K has been signed by the following persons in the capacities and on the dates
indicated.
Signature Title Date
/s/ P. Chrisman Iribe Member of Board of Control, March 30, 2000
- ----------------------
P. Chrisman Iribe President and Secretary
/s/ John R. Cooper Chief Financial Officer, March 30, 2000
- ----------------------
John R. Cooper Principal Accounting
Officer and Senior
Vice President
/s/ Thomas J. Bonner Member of Board of Control March 30, 2000
- --------------------
Thomas J. Bonner
/s/ Thomas F. Schwartz Member of Board of Control March 30, 2000
- ----------------------
Thomas F. Schwartz
/s/ Sanford L. Hartman Member of Board of Control March 30, 2000
- ---------------------- and Senior Vice President
Sanford L. Hartman
43
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
co-registrant has duly caused this Form 10-K to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Bethesda, state of
Maryland, on March 30, 1999.
INDIANTOWN COGENERATION
FUNDING CORPORATION
Date: March 30, 2000 /s/ John R. Cooper
---------------------------------
Name: John R. Cooper
Title: Chief Financial Officer,
Principal Accounting Officer
and Vice President
Pursuant to the requirements of the Securities Act of 1933, this Form
10-K has been signed by the following persons in the capacities and on the dates
indicated.
Signature Title Date
/s/ P. Chrisman Iribe Director and President March 30, 2000
- ----------------------
P. Chrisman Iribe
/s/ John R. Cooper Chief Financial Officer, March 30, 2000
- ---------------------- Principal Accounting
John R. Cooper Officer and Vice President
44
Exhibit 99.2
UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF FLORIDA
ORLANDO DIVISION
INDIANTOWN COGENERATION, L.P.,
Plaintiff,
vs. CASE NUMBER: 99-317-CIV-ORL-19C
FLORIDA POWER & LIGHT COMPANY,
Defendant. JURY TRIAL DEMANDED
- ------------------------------------/
SECOND AMENDED COMPLAINT
Plaintiff Indiantown Cogeneration, L.P. ("ICL") files this Second
Amended Complaint against Florida Power & Light Company ("FPL"), and alleges:
NATURE OF THE ACTION
1. ICL brings this action to enforce its rights, as seller, against
FPL, as purchaser, under an Agreement for the Purchase of Firm Capacity and
Energy, dated as of March 31, 1990, as amended pursuant to amendments effective
December 5, 1990 and July 15, 1992 (collectively, the "Power Purchase
Agreement").
2. The Power Purchase Agreement obligated ICL to construct and operate
a coal-fired power plant (the "Facility") that would be certified as a
qualifying cogeneration facility by the Federal Energy Regulatory Commission
("FERC"). Cogeneration is the production of both electricity and useful thermal
outputs (in this case, steam) through the sequential use of energy (in this
case, coal). ICL sells all the electricity generated by the Facility to FPL.
FPL, in
1
<PAGE>
turn, is obligated to purchase the electrical output from the Facility pursuant
to the terms and conditions of the Power Purchase Agreement. The generation,
purchase and sale of this electricity occurs in the wholesale market for
electricity.
3. The Facility is a Qualifying Facility ("QF") under the Public
Utilities Regulatory Policies Act of 1978 ("PURPA"), 16 U.S.C. 824a et. seq. In
order to maintain its status as a QF, the Facility must produce electrical
energy and thermal energy (steam) in specified proportions. Steam can be
included in the QF calculation only if it is produced at the same time
electricity is being generated and from the same fuel that is used to generate
the electricity. Maintaining QF status is extremely valuable to ICL. The Power
Purchase Agreement requires ICL to maintain the Facility as a QF.
4. Because of the monopoly nature of the market for the transmission
of wholesale electricity and the location of the Facility in FPL's service
territory, the Facility must be connected to FPL's transmission system in order
to sell its electricity to FPL or any other wholesale purchaser. Moreover,
because the Facility is a cogeneration facility, it must be connected to FPL's
system to generate both electricity and steam sequentially. This is because
electricity generated in the form of alternating current (AC) cannot be stored.
It must be used as it is generated. If FPL denies its transmission system to
ICL, the Facility cannot generate electricity, cannot operate as a cogenerator,
and can potentially lose its QF status.
5. At the time the Power Purchase Agreement was negotiated, ICL and
FPL both recognized the importance of ICL preserving the Facility's QF status.
In order to do so, ICL informed FPL that it would be necessary for ICL to
maintain some control over the quantity of
2
<PAGE>
electricity generated in order to preserve the Facility's QF status. If ICL was
not permitted to produce at least some electricity during the times that it was
producing steam, then it could potentially lose its QF status. ICL did not
anticipate having excess margin in the amount of steam utilized for QF purposes
to allow it to shut down if requested by FPL during the citrus processing
season. These concerns led ICL to negotiate to secure the right to produce a
"Minimum Load" - 100MW - of electricity at all times under the Power Purchase
Agreement.
6. From time to time, all plants -- including the Facility --
experience a "trip," which means that the plant automatically shuts down and
disconnects from the transmission system to which it is connected for a brief
period of time due to the operation of certain safety mechanisms. The Facility
has tripped for safety reasons on occasion in recent years. After each trip, ICL
has promptly (within hours) rectified any problem and readied its Facility for
reconnection to FPL's system.
7. Before March 10, 1999, FPL's ordinary practice following a unit trip
was to permit ICL to reclose the Facility to FPL's system as soon as the
Facility was ready to go back on line. On 48 separate occasions before March 10,
1999, when the Facility tripped, FPL allowed the Facility to be reclosed into
the FPL system as soon as the Facility was ready. On four such occasions, FPL
had decommitted the Facility and still promptly permitted the Facility to
reclose to the system after a trip.
8. The Facility tripped on March 10, 1999. Before the trip, FPL had
requested that the Facility be "decommitted," and ICL had exercised its right to
operate, and was operating, at Minimum Load. After the Facility tripped on March
10, 1999, FPL arbitrarily, capriciously and
3
<PAGE>
in bad faith refused to allow the Facility to "reclose into," i.e., reconnect
with, FPL's system in order to operate at or below the Minimum Load of 100 MW.
FPL based its decision on a new and contrived interpretation of the Power
Purchase Agreement that is inconsistent with the agreed-to contractual terms,
and the parties' reasonable contractual expectations and prior course of
dealing. By refusing to permit the Facility to reconnect to FPL's system, FPL
improperly deprived ICL of the right to continue to operate under the Power
Purchase Agreement. FPL's conduct harmed ICL and, as explained below, threatens
to harm ICL irreparably in the future by making it impossible for the Facility
to maintain its QF status with the consequent loss of the Power Purchase
Agreement and the value of the Facility. If ICL were to lose the Facility's QF
status, FPL might be able to declare the Power Purchase Agreement to be in
default, which would cause losses to ICL in excess of hundreds of millions of
dollars.
9. ICL seeks judgment (i) declaring that FPL has breached the terms of
the Power Purchase Agreement; (ii) preliminarily and permanently enjoining FPL
from violating the terms of the Power Purchase Agreement, by requiring FPL to
allow ICL to reconnect to FPL's system following a trip and pay ICL the rates
required by the Power Purchase Agreement; (iii) awarding ICL compensatory
damages, including prejudgment interest, for those compensable injuries suffered
by ICL as a result of FPL's conduct alleged herein; (iv) awarding ICL its costs
attendant to this action; and (v) awarding ICL such other and further relief as
is just and proper.
4
<PAGE>
PARTIES
10. ICL, a limited partnership organized and existing under the laws
of the State of Delaware, was formed to develop, acquire, own, engineer,
construct, test and operate the Facility.
11. The following are general partners in ICL. Thaleia LLC, a Delaware
limited liability company with its principal place of business in North
Carolina, owns a 40% share in ICL. Indiantown Project Investment Partnership,
L.P., a Delaware limited partnership with its principal place of business in
Maryland, owns a 19.95% share in ICL. Palm Power Corporation, a Delaware
corporation with its principal place of business in North Carolina, owns a 10%
share in ICL.
12. Toyan Enterprises, a California corporation with its principal
place of business in Maryland, is a limited partner and owns a 30.05% share in
ICL.
13. Defendant FPL is an investor owned utility corporation organized
and existing under the laws of the State of Florida, with its principal place of
business in Florida. Its service territory covers South Florida and the eastern
seaboard of Florida, including portions of the Middle District of Florida.
JURISDICTION AND VENUE
14. The amount in controversy exceeds $75,000.00, exclusive of
interest and costs.
15. This Court has jurisdiction over the subject matter of this action
pursuant to 28 U.S.C.ss.ss.1332 (diversity of citizenship), 2201 and 2202
(declaratory judgment).
5
<PAGE>
16. Venue is proper in this district pursuant to 28
U.S.C.ss.ss.1391(a)(1) and (c) since FPL resides within this district.
FACTUAL BACKGROUND
17. The Facility is a cogeneration resource, i.e., it sequentially
produces (i) electric capacity and energy, which are sold to FPL pursuant to the
Power Purchase Agreement; and (ii) steam, which is sold to Caulkins Indiantown
Citrus Company ("Caulkins"), a wholesale citrus juice processor which uses steam
in its fruit processing operations, pursuant to an Energy Services Agreement,
dated as of September 8, 1992, as amended. FPL is the Facility's sole purchaser
of electric generating capacity and energy, and Caulkins is its sole purchaser
of steam.
18. ICL built the Facility after it had negotiated the Power Purchase
Agreement with FPL. ICL's decision to build the Facility was in reliance on the
promises FPL made in the Power Purchase Agreement.
QF Status
19. The Facility has been certified as a QF by FERC.
20. PURPA exempts QFs from certain provisions of the Public Utility
Holding Company Act of 1935, as amended ("PUHCA"), 15 U.S.C. 79z et. seq., most
provisions of the Federal Power Act (the "FPA"), 16 U.S.C. 791 et. seq., and
certain rate and financial regulation under state law.
21. The Facility must satisfy certain requirements specified in the
regulations promulgated by the FERC in order to maintain its QF status.
6
<PAGE>
22. Specifically, the Facility must sequentially produce both
electricity and steam for non-mechanical or non-electrical uses, with the steam
being produced in such proportions to the total useful energy output that the
annual useful steam energy output is not less than 5% of the total annual useful
power and steam output. 18 C.F.R. 292.205.
23. Caulkins operates seasonally from November through May.
Consequently, in order to maintain its QF status, ICL must deliver sufficient
steam to Caulkins during this limited season to achieve the 5% ratio of steam to
total energy output on an annual basis (the "QF ratio"). As the parties were
well aware when the Power Purchase Agreement was negotiated, Caulkins' operating
season occurs when Florida's electric usage is lowest. Because Caulkins does not
operate when electric demand is highest in Florida (i.e. the summer months), ICL
specifically sought and obtained the right to operate at or below Minimum Load
as a means of preserving its QF status.
24. The amount of steam Caulkins purchases in a normal operating season
is sufficient to maintain the Facility's QF status. This steam, however, must be
sequentially produced with electricity in order to count for purposes of
calculating the QF ratio. Caulkins does not, however, purchase sufficient steam
to provide a significant protective cushion for the Facility that would allow it
to refrain from electrical generation during any significant period of steam
supply. Accordingly, it is critical to the Facility's QF status that the
Facility provide QF- qualified steam (that steam produced while sequentially
generating electricity) to Caulkins at all times during the fruit season without
significant interruption.
7
<PAGE>
25. In normal operations, the Facility supplies steam to Caulkins
sequentially with the generation of electricity for FPL. That is, steam which
has been used to drive the Facility's turbine generator is subsequently
delivered to Caulkins. Such steam is appropriately accounted for in calculating
the Facility's QF ratio.
26. When the Facility is not generating electricity, ICL still
supplies steam to Caulkins through use of a natural gas auxiliary boiler system.
Such non-sequential steam, however, may not be counted in calculating the
Facility's QF ratio.
27. In order to maintain the Facility's QF status, then, it is
critical that ICL be able to produce both electricity and steam at virtually all
times, during periods when Caulkins demands steam, regardless of FPL's economic
considerations. If ICL is unable to produce electricity during those periods, it
will be unable to credit the steam provided to Caulkins toward its QF ratio.
The Contract Negotiations
28. Recognizing these critical facts relating to the Facility's QF
status, FPL and ICL negotiated provisions of the Power Purchase Agreement that
are specifically intended to preserve ICL's ability to maintain QF status even
at times when FPL does not request electricity from the Facility. This was
accomplished by permitting ICL to operate the Facility at or below Minimum Load
at all times, with two rare exceptions where such operation would impair safety
or reliability.
8
<PAGE>
29. The negotiation of the Power Purchase Agreement proceeded in two
rounds. The first round took place in 1989. The second round took place in early
1990. The structure and some of the provisions in the contract drafts changed
between the first and second rounds of the negotiations. Throughout the
negotiations, FPL wished to obtain rights to dispatch the Facility - that is, to
control the electrical output of the Facility. ICL wished, on the other hand, to
ensure that it could, in its sole discretion, produce at least some electricity
(and steam) as a means of preserving the Facility's QF status. While FPL
obtained some right to dispatch the Facility, ICL prevailed in both rounds of
the contract negotiations, and its position that it would have the right to
produce some electricity was reflected in the final contract.
The First Round of Negotiations
30. The initial draft of the Power Purchase Agreement in the first
round of negotiations did not contain provisions regarding FPL's right to
dispatch the Facility. On October 10, 1989, FPL circulated the first draft that
contained dispatch provisions. In Section 11.1 of this draft, FPL proposed that
it have the right to dispatch power "in any manner which it deemed appropriate."
There was no limitation in that draft on FPL's ability to dispatch the Facility.
In other words, under that draft, FPL might be able to shut down the facility
completely and demand no electricity at all, at any time, for any reason.
31. ICL negotiators refused to accept the proposed dispatch
provisions. In an October 12, 1989 meeting between ICL and FPL, the negotiators
introduced the concept of "Minimum Load" - the load of electrical energy below
which FPL could not dispatch the facility. Language giving effect to this
concept was incorporated into the next draft that was circulated.
9
<PAGE>
In that October 20, 1989 draft, an amendment to the dispatch provisions -
Section 11.1(a) - stated that ICL "in its sole discretion" could operate the
facility "below Minimum Load," or 100 MW.
32. On October 26 and 27, 1989, ICL and FPL negotiators met and
reached a handshake agreement on a power purchase agreement.
33. Following the October 1989 meetings, ICL and FPL worked on open
issues and targeted November for signing the contract. The November 13, 1989
draft (the last draft that was circulated during the first round) contains
limitations on FPL's dispatch rights. Specifically, Section 11.1 stated that
"FPL shall have the right to dispatch real and reactive power delivered from the
Facility to its system in any manner which it deems appropriate, except that FPL
may not dispatch below Minimum Load or above Committed Capacity." (emphasis
added). Section 11.2 of that draft confirmed that "ICL, in its sole discretion,
may operate the Facility up to the Minimum Load."
The Second Round of Negotiations
34. FPL declined to sign the power purchase agreement that had been
the subject of the handshake agreement. In late 1989, FPL introduced a second
group of negotiators, and the parties began the second round of negotiations
with a new draft.
35. In the second round of negotiations, ICL continued to insist that
it have the right to produce some electricity (up to Minimum Load) at all times.
36. FPL circulated the first draft of the second round of negotiations
on January 18, 1990. In that draft, FPL made significant changes to the energy
purchasing and dispatch
10
<PAGE>
provisions. In Section 6.3 of the draft, FPL included language that FPL would be
under no obligation to purchase energy "at those times as determined by
Dispatch" pursuant to Article 13.0 (the article on dispatch); FPL did not
include language requiring FPL to "resume normal acceptance of Energy as quickly
as possible" after an interruption. At the same time, Section 13.7 of the draft
did not permit ICL to operate the facility at or below Minimum Load "in its sole
discretion" (as was the case at the completion of the first round of
negotiations), but instead only "with FPL's approval."
37. ICL negotiators quickly rejected these changes. In a January 26,
1990 mark-up of that draft, ICL negotiators eliminated the requirement of "FPL's
approval"from the provision allowing ICL to operate the Facility at or below
Minimum Load in Section 13.7.
38. On February 9, 1990, ICL and FPL negotiators met to discuss FPL's
January 18th draft and ICL's January 26th mark-up. In that meeting, ICL's
negotiators stated that they would draft a revised version of Section 13.7.
39. The next draft, dated February 16, 1990, included changes to both
Sections 6.3 and 13.7. Section 6.3 included language requiring that "FPL shall
resume normal acceptance of Energy as quickly as practicable" after an
interruption if the reason for the interruption concerned the safe and reliable
operation of the system. Section 13.7 of this draft preserved ICL's right to
produce electricity at or below Minimum Load "in its sole discretion."
40. These changes put the relative rights of the parties in a position
very similar to the position at the conclusion of the first round of
negotiations. FPL would not be obligated to purchase any electricity if such
purchases would affect the safety of FPL's system, endanger life
11
<PAGE>
or property or create a significant service disruption. If service were
interrupted, FPL would be required to resume its purchase as soon as
practicable. FPL could dispatch the facility down to 100 MW, but if FPL demanded
less than 100MW, then ICL at its sole discretion could continue to operate at or
below the 100 MW Minimum Load to protect is QF status.
41. In a March 8, 1990 draft, FPL attempted again to limit ICL's
rights to produce electricity at or below Minimum Load. FPL inserted the
condition that "unless FPL notifies ICL that purchases from ICL at that time,
due to operational circumstances, will result in costs greater than those FPL
would incur if FPL did not receive Energy from the Facility . . . ICL may, at
its sole discretion, . . . continue to operate the Facility at or below Minimum
Load . . ." This new condition would have allowed FPL to prevent ICL from
operating the Facility at or below Minimum Load for certain economic reasons.
42. In the next series of meetings, ICL negotiators rejected FPL's
proposed economic condition on ICL's right to operate at or below Minimum Load.
Then, in a follow-up conference call, ICL negotiators recognized that they
needed to redraft Section 13.7.
43. A March 28, 1990 draft removed the economic limitation on ICL's
sole discretion to operate at or below Minimum Load. In return, ICL agreed to
accept a lower rate for energy it delivered up to the Minimum Load of the
Facility when ICL exercised its discretion to override an FPL decommit order.
The only limitation on ICL's discretion was if operation of the Facility would
affect the safety of FPL's system, endanger life or property, or create a
significant service disruption under Section 6.3.
12
<PAGE>
The Final Contract
44. The parties executed the final Power Purchase Agreement in May
1990. Pursuant to Section 6.2 of the Power Purchase Agreement, FPL is obligated
(with certain exceptions not pertinent here) to purchase electric generating
capacity made available to it and associated energy from the Facility.
Consistent with this provision, at all relevant times, ICL has fulfilled its
obligations under the Power Purchase Agreement by remaining ready, willing and
able to provide the Facility's electric generating capacity and energy to FPL.
45. Pursuant to Section 8 of the Power Purchase Agreement, FPL is
required to pay ICL (i) monthly capacity payments for electrical generating
capacity made available to FPL, regardless of the amount of electrical energy
actually purchased, and (ii) energy payments based upon the amount of electrical
energy actually delivered. Payments from FPL pursuant to the Power Purchase
Agreement account for the vast majority of the revenues generated by the
Facility.
46. Under Section 2 of the Power Purchase Agreement, the Facility is
required to maintain its QF status under federal law and its "qualifying
cogenerator" status under Florida law, specifically regulations promulgated by
the Florida Public Service Commission.
47. Section 13.6 contains provisions relating to FPL's right to accept
or decline electricity from ICL. Specifically, this section provides that,
"[c]onsistent with Section 13.7, FPL shall have Dispatch and Control Rights to
commit and decommit the Facility and to control the real and reactive power
delivered from the Facility to FPL's system in any manner which FPL deems
appropriate, subject to FPL's Operating Limits." FPL's Operating Limits are
defined in
13
<PAGE>
Section 1.30 to be "certain operating capabilities of the Facility that shall be
available to FPL pursuant to" the Power Purchase Agreement. The limits include
"(v) minimum operating capability while under Automatic Generation Control: 100
MW; (vi) minimum operating capability while under manual generation control: 100
MW."
48. Section 13.6 further states that "[c]ontrol of Capacity and Energy
shall be ICL's responsibility except during any Dispatch Hour." Moreover, Under
Section 13.6, FPL "shall not reduce the real power output of the Facility below
the Minimum Load without decommitting the Facility." (emphasis supplied). Under
Section 13.6, then, FPL may not dispatch the Facility below Minimum Load while
the Facility is "committed." Control of Capacity and Energy at any time when the
Facility is not operating above the Minimum Load is ICL's responsibility. The
Power Purchase Agreement defines Minimum Load as "100 MW (megawatts) net of
internal electrical requirements."
49. The parties further expressly limited FPL's ability to dispatch or
decommit the Facility in Section 13.7. Specifically, Section 13.7 provides in
its entirety:
For purposes of exercising certain Dispatch and Control
Rights, FPL agrees that the minimum notice for shutdown shall
be eight hours and the minimum run time between start-up and
shutdown shall be eight hours. FPL may request ICL to decommit
the Facility, provided that such request will not exceed FPL's
Operating Limits. Unless FPL notifies ICL that the purchases
from ICL at that time shall be interrupted due to
circumstances specified in Section 6.3(i) and (ii), SALE OF
ENERGY AND CAPACITY BY ICL, ICL may, at its sole discretion,
continue to operate the Facility at or below Minimum Load and
deliver Energy to FPL. However, any hour or part of an hour
that ICL elects to continue to operate the Facility rather
than decommit the Facility as requested by FPL, shall not be
considered a Dispatch Hour. Once FPL requests the Facility to
again produce generation
14
<PAGE>
above the Minimum Load, the first hour subsequent to such
request shall be a Dispatch Hour.
(Emphasis supplied).
50. Notably, pursuant to Section 13.7, the only circumstances under
which FPL may dispatch or decommit the Facility below the 100 MW Minimum Load
over ICL's objection are specified in Section 6.3(i) and (ii). Section 6.3(i)
and (ii) provides:
FPL shall not be obligated to purchase, and may require
interrupted or reduced deliveries of, Energy(i) to the extent
FPL determines it to be necessary for safe and reliable
operation and maintenance of any part of FPL's system (ii) if
FPL determines that a failure to interrupt or reduce
deliveries of energy is likely to endanger life or property,
or it is likely to result in significant disruption of
electric services to FPL's customers . . . .
(Emphasis supplied). Thus, under Section 13.7, ICL has the option to provide
anywhere between zero and 100 MW of energy to FPL, albeit at reduced energy
rates, during time periods that FPL might not otherwise request energy output
from the ICL Facility. The only limitations on ICL's rights involve safety and
system reliability for FPL. Nothing in Sections 6.3 (i) and (ii) or 13.7
provides FPL with a right to refuse to reconnect the Facility into its system
for economic reasons following a trip. Instead, these provisions allow ICL the
discretion to operate the Facility at up to Minimum Load so that it sufficiently
cogenerates electricity and steam. In fact, the parties considered and rejected
the idea of conditioning ICL's right to produce Minimum Load on FPL's economic
considerations.
51. Under Sections 1.30, 1.40, 6.2, 6.3, 13.6 and 13.7 of the Power
Purchase Agreement, then, ICL is guaranteed the right to produce and sell to FPL
up to 100 MW of electrical energy at all times, except in certain situations
where doing so would threaten safety or
15
<PAGE>
reliability. The Facility may produce no electricity at all, 100 MW, or anywhere
in between. If ICL chooses to have the Facility produce no electricity it may
later decide, even though still decommitted, to have the Facility produce 100
MW. These rights are independent of whether the Facility has tripped and are
independent of FPL's demands for electricity or FPL's actions in committing,
decommitting, or dispatching the Facility.
52. Section 13.3 of the Power Purchase Agreement sets forth provisions
relating to reconnection of the Facility following a trip. The parties
negotiated these provisions to ensure the safe and secure operation of the
Facility and its interaction with FPL's system. In particular, Section 13.3
provides in its entirety:
If the Facility is separated from the FPL system for any
reason, under no circumstances shall ICL reclose into FPL's
system without first obtaining FPL's specific approval, as
determined by the Operating Representatives.
An Operating Representative acts in "matters pertaining to detailed operating
arrangements for the delivery of Capacity and Energy" (1.47). Absent agreement
of the parties, the Operating Representatives' duties are limited to those
specifically identified in the Agreement plus coordinating outage schedules,
establishing control and operating procedures and providing a list of Operating
Representatives (ss. 13.2). Nowhere does the Agreement specifically provide the
Operating Representatives the right to control the output of the Facility for
economic reasons. To provide for the safe and secure operation of the Facility
and its interaction with FPL's system, the Facility cannot automatically
reconnect into FPL's system after it trips. The Facility must receive FPL's
consent from the Operating Representatives to reconnect to avoid safety or
system
16
<PAGE>
reliability problems that might result if ICL were to inject its power
into FPL's grid at an inopportune moment.
53. Section 13.3 of the Power Purchase Agreement does not override
FPL's obligation to purchase up to Minimum Load. Nothing in Section 13.3
provides FPL with a right to refuse to permit the Facility to reconnect into its
system for economic reasons, or for any reasons other than those specified in
Section 6.3, following a trip. Instead, Section 6.3 requires FPL to resume
acceptance of electricity after an interruption "as quickly as practicable".
54. On March 21, 1991 and November 23, 1992, the Florida Public
Service Commission (the "FPSC") approved the Power Purchase Agreement, finding
that the cost of electricity to be provided by the Facility is reasonable when
compared to the viable alternatives to meet FPL's need for electricity and that
the Facility was the most cost effective alternative available to meet FPL's
need for firm capacity and energy.
FPL's Refusal to Allow the Facility to Reclose into FPL's System
55. On March 10, 1999, the Facility "tripped," i.e., automatically
ceased providing electricity to FPL due to the operation of certain safety
mechanisms. Prior to the trip, FPL had ordered the Facility to decommit, and ICL
had been exercising its discretion to have the Facility continue to produce
electricity up to the Minimum Load, and produce steam for delivery to Caulkins.
56. ICL quickly corrected the problem that led to the "trip" and sought
to reclose into FPL's system and resume operations at Minimum Load. FPL,
however, refused to allow the Facility to reclose into its system. FPL based its
decision on a new and contrived interpretation
17
<PAGE>
of the Power Purchase Agreement. Namely, purporting to rely upon Sections 1.21
and 13.6 of the Power Purchase Agreement, FPL insisted that upon a trip of the
Facility, FPL has the sole and absolute discretion to determine whether and when
to reconnect the Facility.1 FPL also maintained that it was not economically
beneficial for FPL to reconnect the Facility into its system and that it would
not do so until or unless it determined that this condition was satisfied. FPL
did not permit the Facility to reconnect to the FPL system until March 28, 1999.
57. During the time when the Facility was disconnected, FPL suggested
that it would consider permitting ICL to reconnect the Facility if ICL would
accept lower energy rates for the electricity than would otherwise be the case
under the Power Purchase Agreement.
58. After the trip at issue, FPL sent ICL a memo regarding
"Dispatch/Decommit Hours." For March 10, 1999, FPL stated: "Decommit Requested."
59. FPL's refusal to reconnect the Facility into its system and to
accept delivery of electricity up to the 100 MW Minimum Load after FPL had
requested the Facility be decommitted, constitutes a breach of the express
language of Sections 6.3 and 13.7 of the Power Purchase Agreement. Under these
provisions, FPL had no right to refuse to reconnect the Facility or to deny ICL
the right to continue to operate up to the 100 MW Minimum Load for economic
reasons. FPL's conduct also constituted an unequivocal and wrongful repudiation
of its obligations under the Power Purchase Agreement.
[FN]
_____________________
1 Section 1.21 of the Power Purchase Agreement defines the term "Dispatch and
Control Rights". Notably, the definition expressly subjects FPL's Dispatch and
Control Rights to the provisions of Section 13.0, including Section 13.7. The
Power Purchase Agreement also states that FPL's rights exist only within FPL's
Operating Limits, which are defined as being above 100 MW. Section 1.30.
</FN>
18
<PAGE>
60. FPL's conduct constitutes a breach of Section 13.6 of the Power
Purchase Agreement. Under that section, ICL is to control the Capacity and
Energy of the Facility except during any Dispatch Hour. Because ICL had elected
to produce up to Minimum Load before the trip on March 10, 1999, and was at the
time of the trip operating at Minimum Load, the hours immediately preceding the
trip and immediately thereafter until FPL "requests the Facility to again
produce generation above the Minimum Load" were not Dispatch Hours. By refusing
to permit ICL to reconnect to its system, FPL effectively deprived ICL of its
right to control the Capacity and Energy of the Facility during hours other than
a Dispatch Hour under Section 13.6.
61. FPL's conduct constitutes a breach of its implied duty of good
faith, fair dealing and commercial reasonableness with respect to Section 13.3
of the Power Purchase Agreement. To the extent that this provision grants FPL
discretion to regulate reconnection of the Facility into its system following a
trip, FPL has an obligation to exercise that discretion reasonably and with
proper motive. FPL, however, exercised that discretion arbitrarily, capriciously
and in a manner inconsistent with the parties' reasonable contract expectations.
62. Indeed, FPL engaged in the above-mentioned conduct to coerce ICL
into renegotiating the Power Purchase Agreement and/or for the purpose of
precipitating a breach of ICL's obligation to maintain the Facility's QF status.
As described above, the Facility's ability to maintain its QF status, as
required by the Power Purchase Agreement, depends upon its ability to supply,
without interruption, sequentially produced steam and electricity. In a 1995
document, FPL recognized that its claimed right to refuse reconnection "could
threaten ICL's ability to maintain QF status, which is a contract requirement."
FPL further recognized that a possible loss
19
<PAGE>
of QF status and consequent breach of contract are "exacerbated by" FPL's
claimed right to refuse reconnection.
63. FPL's refusal to reconnect the Facility into its system and to
accept delivery of the 100 MW Minimum Load, together with its new and contrived
interpretation of the Power Purchase Agreement, create an immediate danger that
ICL will be irreparably harmed by loss of the Facility's QF status. Indeed, this
appears to be FPL's motive in adopting this new interpretation of the Power
Purchase Agreement. Whenever the Facility trips in the future - an event that is
bound to occur - FPL may indefinitely try to prevent the Facility from reclosing
into its system and, thus, destroy the Facility's QF status.2 This will have two
irreparable consequences for ICL. First, loss of QF status and termination of
the Power Purchase Agreement constitute an event of default under ICL's loan
agreements relating to its (i) $125 million loan from Martin County Industrial
Development Authority and (ii) its $500 million First Mortgage Bonds. Secondly,
such a failure could provide FPL with a pretext to terminate the Power Purchase
Agreement. Without the Power Purchase Agreement, the Facility cannot service its
debt and will become insolvent.
COUNT I
Breach of Contract
64. ICL realleges and incorporates paragraphs 1 through 63.
[FN]
_______________________
2 On March 19, 1999, ICL filed its Complaint, alleging claims against FPL for
breach of contract, anticipatory repudiation, breach of the implied covenant of
good faith, fair dealing and commercial reasonableness, and declaratory
judgment. Following the filing of ICL's Complaint, FPL allowed the Facility to
reconnect into its system. FPL, however, continues to assert its contrived
construction of the Power Purchase Agreement in derogation of the agreement's
express and implied terms and the parties' original intent.
</FN>
20
<PAGE>
65. ICL expended considerable sums in reasonable reliance upon FPL's
express promises and good faith in entering into the Power Purchase Agreement.
66 Under the express terms of the Power Purchase Agreement, FPL is
obligated to purchase electricity from ICL through December 1, 2025.
67 Under the express terms of Section 13.7 of the Power Purchase
Agreement, FPL is required to purchase, in ICL's "sole discretion," up to 100 MW
Minimum Load of electricity from the Facility, even during periods when FPL has
determined to dispatch or decommit the Facility.
68 On March 10, 1999, FPL had issued a decommit order to the Facility.
ICL chose to continue to operate the facility up to Minimum Load at that time,
as was its right under Section 13.7 of the Power Purchase Agreement. When the
Facility tripped on March 10, 1999, FPL had requested ICL to decommit the
Facility. The hours immediately preceding the trip as well as the hours
immediately after the trip were not Dispatch Hours.
69 FPL's refusal to allow the Facility to reconnect to FPL's system and
its refusal to purchase up to 100 MW of electricity constitutes a breach of
FPL's express obligations under the Power Purchase Agreement, including under
Sections 1.30, 1.40, 6.2, 6.3, 13.6 and 13.7.
70 FPL's refusal to allow the Facility to reconnect to FPL's system and
its refusal to purchase up to 100 MW of electricity constitutes a breach of the
Power Purchase Agreement's implied covenant of good faith, fair dealing and
commercial reasonableness.
71 The right to produce up to Minimum Load at all times was an
important right to ICL under the Power Purchase Agreement. The parties'
reasonable expectations were that FPL would not be permitted under Sections 6.2,
13.3, 13.6 or 13.7 arbitrarily and unilaterally to
21
<PAGE>
deprive ICL of the right to continue to operate up to Minimum Load, and thereby
of its ability to preserve the Facility's QF status.
72 The implied covenant requires FPL to do that which the Power
Purchase Agreement presupposed would be done to accomplish its basic purpose and
to refrain from conduct that would undermine that purpose or deprive ICL of the
essential benefits for which it bargained. The implied covenant also requires
FPL to exercise any discretion vested in it by the Power Purchase Agreement
reasonably and with proper motive, and not in a manner that is arbitrary,
capricious or inconsistent with the parties' reasonable contractual
expectations.
73 FPL breached the implied covenant by exercising discretionary
authority under Section 13.3 of the Power Purchase Agreement - a provision which
was intended only to address technical operating issues so as to assure safety
and system security, by requiring the Facility to request FPL's approval before
reconnecting into FPL's system - to arbitrarily, capriciously and in bad faith
refuse reconnection of the Facility. FPL did not take this action for any
legitimate purpose, but to undermine the Power Purchase Agreement's basic
purpose, frustrate ICL's ability to perform its obligations under the Power
Purchase Agreement, and deprive ICL of its reasonable contractual expectations.
74 More specifically, FPL took this action to wrongfully coerce a
renegotiation or termination of the Power Purchase Agreement and, thereby,
abrogate its obligations under the Power Purchase Agreement. FPL also sought to
give powers to its Operating Representatives to make economic decisions that the
Operating Representatives did not have under the Power Purchase Agreement. Upon
information and belief, this conduct - together with FPL's current
22
<PAGE>
interpretation of the Power Purchase Agreement - is part of FPL's strategy to
unilaterally reduce the cost of purchased power throughout its system, and is
not a good faith interpretation or performance of the agreement.
75 ICL has fully and completely complied with all its obligations
under the Power Purchase Agreement.
76 FPL's breach of its obligations to ICL has significantly damaged
ICL and threatens to significantly and irreparably harm ICL with the intent and
effect by making it impossible for the Facility to maintain its QF status with
the consequent loss of the value of the Facility.
WHEREFORE, Plaintiff ICL demands judgment against Defendant FPL for
damages, interest, and the costs of this action, and such other relief as the
Court deems just and equitable.
COUNT II
Anticipatory Repudiation
77 ICL realleges and incorporates paragraphs 1 through 76.
78 FPL's refusal to allow the Facility to reconnect into its system
and its refusal to purchase electricity from ICL, together with its new and
contrived interpretation of the Power Purchase Agreement, constitute a blatant
attempt to frustrate ICL's ability to maintain its QF status and, thereby,
create a pretext for FPL to terminate the Power Purchase Agreement. Such
23
<PAGE>
conduct constitutes an anticipatory, wholesale and unequivocal repudiation of
FPL's obligations under the Power Purchase Agreement.
79 ICL is and at all relevant times has been ready willing and able to
perform as required under the Power Purchase Agreement.
80 FPL's anticipatory repudiation of its obligations to ICL has
significantly damaged ICL and threatens to significantly and irreparably harm
ICL by making it impossible for the Facility to maintain its QF status with the
consequent loss of the value of the Facility.
WHEREFORE, Plaintiff ICL demands judgment against Defendant FPL for
damages, interest, and the costs of this action, and such other relief as the
Court deems just and equitable.
COUNT III
Declaratory Judgment
81 ICL realleges and incorporates paragraphs 1 through 80.
82 For all of the above-mentioned reasons, there exists an actual,
substantial and immediate controversy within the Court's jurisdiction, the
controversy is the result of FPL's conduct and this controversy will be
redressed by a favorable judicial decision. The Court, thus, may properly
declare the rights and other legal relations of the parties to this action with
respect to ICL's claims.
WHEREFORE, ICL demands judgement:
24
<PAGE>
A. declaring that FPL has breached the Power Purchase Agreement and
the implied covenant of good faith and fair dealing and commercial
reasonableness attendant thereto;
B. declaring that FPL is required under Section 13.3 of the Power
Purchase Agreement to permit ICL's Facility to reconnect to the FPL system,
except under conditions in which reconnection would demonstrably impair safety
and system security;
C. declaring that FPL is required to purchase output of up to a
Minimum Load of 100 MW of electricity from the Facility in ICL's sole
discretion, under the financial terms of Section 8 of the Power Purchase
Agreement governing the basis for payments by FPL;
D. preliminarily, pending final resolution of this action and,
thereafter, permanently enjoining FPL and its agents, officers, employees,
agents and all persons acting in concert with it from further breaching the
terms of the Power Purchase Agreement;
E. awarding ICL compensatory damages, including prejudgment interest,
for those compensable injuries it has suffered due to FPL's conduct alleged
herein;
F. awarding ICL its costs incurred herein; and
G. awarding such other and further relief as may be just and proper.
25
<PAGE>
JURY DEMAND
Plaintiff hereby demands trial by jury pursuant to Federal Rule of
Civil Procedure 38(b).
-----------------------------------
Gregory A. Presnell, Esquire
Florida Bar Number: 100525
Gregory J. Kelly, Esquire
Florida Bar Number: 780154
Erik E. Hawks, Esquire
Florida Bar Number: 0059188
AKERMAN, SENTERFITT & EIDSON, P.A.
255 South Orange Avenue
Citrus Center - 10th Floor
Post Office Box 231
Orlando, Florida 32802
Telephone: (407) 843-7860
Facsimile: (407) 843-6610
and
John A. DeVault, III, Esquire
Florida Bar No. 10379
BEDELL, DITTMAR, DEVAULT, PILLANS & COXE
The Bedell Building
101 East Adams Street
Jacksonville, FL 32202
Telephone: (904) 353-0211
Facsimile: (904) 353-9307
and
Jeffrey A. Rosen, Esquire
Gerald F. Masoudi, Esquire
Mark E. McKane, Esquire
KIRKLAND & ELLIS
655 Fifteenth Street, N.W.
Suite 1200
Washington, DC 20005
Telephone: (202) 879-5000
Facsimile: (202) 879-5200
Attorneys for Plaintiff Indiantown
Cogeneration, L.P.
26
<PAGE>
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that a true and correct copy of the foregoing has
been furnished by U.S. Mail to: Karen C. Dyer, Esquire, Boies & Schiller,
L.L.P., 390 North Orange Avenue, Suite 1890, Orlando, Florida 32801, this____
day of March, 2000.
-----------------------------------
Gregory J. Kelly, Esquire
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> This document contains summary financial information
extracted from the financial statements contained in
the attached Annual Report on Form 10-K for the
fiscal year ended December 31, 1999 and is qualified
in its entirety by reference to such financial
statements.
</LEGEND>
<CIK> 0000927632
<NAME> INDIANTOWN COGENERATION, L.P.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-START> Jan-01-1999
<PERIOD-END> Dec-31-1999
<CASH> 5,700,906
<SECURITIES> 0
<RECEIVABLES> 13,471,985
<ALLOWANCES> 0
<INVENTORY> 1,146,017
<CURRENT-ASSETS> 21,170,730
<PP&E> 641,449,055
<DEPRECIATION> 65,534,397
<TOTAL-ASSETS> 694,852,029
<CURRENT-LIABILITIES> 21,693,092
<BONDS> 591,252,000
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 694,852,029
<SALES> 163,270,119
<TOTAL-REVENUES> 163,270,119
<CGS> 74,789,381
<TOTAL-COSTS> 85,502,970
<OTHER-EXPENSES> 10,713,589
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 57,475,271
<INCOME-PRETAX> 22,414,020
<INCOME-TAX> 0
<INCOME-CONTINUING> 22,414,020
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,414,020
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
