SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2000
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)-280-6800
(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
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Indiantown Cogeneration, L.P.
Indiantown Cogeneration Funding Corporation
PART I FINANCIAL INFORMATION Page No.
Item 1 Financial Statements:
Consolidated Balance Sheets as of March 31, 2000
(Unaudited) and December 31, 1999................................1
Consolidated Statements of Operations for the
Three Months Ended March 31, 2000 (Unaudited)
and March 31, 1999 (Unaudited)...................................3
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 2000 (Unaudited) and March 31, 1999
(Unaudited)......................................................4
Notes to Consolidated Financial Statements (Unaudited).............5
Item 2 Management's Discussion and Analysis
of Financial Condition and Results of Operations...................8
PART II OTHER INFORMATION
Item 1 Legal Proceedings.................................................11
Item 5 Other Information.................................................13
Item 6 Exhibits and Reports on Form 8K...................................15
Signatures................................................................16
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<TABLE>
<CAPTION>
PART I
FINANCIAL INFORMATION
Indiantown Cogeneration, L.P.
Consolidated Balance Sheets
As of March 31, 2000 and December 31, 1999
------------------------------------------
<S> <C> <C>
March 31, December 31,
ASSETS 2000 1999
- -------------------------------------------------------------- ------------------- ---------------------
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 1,751,092 $ 2,416,997
Accounts receivable-trade 13,774,244 13,471,985
Inventories 1,080,898 1,146,017
Prepaids 1,105,605 807,372
Deposits 44,450 44,450
Investments held by Trustee, including restricted funds
of $19,337,518 and $2,752,669, respectively
26,981,798 3,283,909
------------------- ---------------------
Total current assets 44,738,087 21,170,730
------------------- ---------------------
INVESTMENTS HELD BY TRUSTEE,
restricted funds 14,524,232 14,501,877
DEPOSITS 150,675 80,000
PROPERTY, PLANT & EQUIPMENT:
Land 8,582,363 8,582,363
Electric and steam generating facilities 698,801,603 698,401,089
Less accumulated depreciation (69,170,518) (65,534,397)
------------------- ---------------------
Net property, plant & equipment 638,213,448 641,449,055
------------------- ---------------------
FUEL RESERVE 1,286,368 1,318,099
DEFERRED FINANCING COSTS, net of accumulated amortization of
$44,060,794 and $43,854,648, respectively
16,126,122 16,332,268
------------------- ---------------------
Total assets $715,038,932 $694,852,029
=================== =====================
</TABLE>
The accompanying notes are an integral part of these
consolidated balance sheets.
1
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<TABLE>
<CAPTION>
Indiantown Cogeneration, L. P.
Consolidated Balance Sheets
As of March 31, 2000 and December 31, 1999
------------------------------------------
<S> <C> <C>
March 31, December 31, 1999
LIABILITIES AND PARTNERS' CAPITAL 2000
- -------------------------------------------------------------- --------------------- ----------------------
(Unaudited)
CURRENT LIABILITIES:
Accrued payables/liabilities $ 8,299,252 $ 7,584,406
Accrued interest 16,020,257 2,267,017
Current portion - First Mortgage Bonds 11,533,135 11,533,135
Current portion lease payable - railcars 314,152 308,534
--------------------- ----------------------
Total current liabilities 36,166,796 21,693,092
--------------------- ----------------------
LONG TERM DEBT:
First Mortgage Bonds 454,708,865 454,708,865
Tax Exempt Facility Revenue Bonds 125,010,000 125,010,000
Lease payable - railcars 4,194,490 4,275,166
--------------------- ----------------------
Total long term debt 583,913,355 583,994,031
Reserve-Major Maintenance -0- 920,356
--------------------- ----------------------
Total liabilities 620,079,971 606,607,479
--------------------- ----------------------
PARTNERS' CAPITAL:
Toyan Enterprises 28,535,116 26,517,489
Palm Power Corporation 9,495,877 8,824,455
Indiantown Project Investment Partnership 18,944,276 17,604,787
Thaleia 37,983,512 35,297,819
--------------------- ----------------------
Total partners' capital 94,958,781 88,244,550
--------------------- ----------------------
Total liabilities and partners' capital $ 715,038,932 $ 694,852,029
Capital $721,268,887 $708,139,691
===================== ======================
</TABLE>
The accompanying notes are an integral part of these consolidated
balance sheets.
2
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<TABLE>
<CAPTION>
Indiantown Cogeneration, L.P.
Consolidated Statements of Operations
For the Three Months Ended March 31, 2000 and March 31, 1999
------------------------------------------------------------
<S> <C> <C>
Three Months Ended Three Months Ended
March 31, 2000 March 31, 1999
------------------------- -------------------------
Operating Revenues: (Unaudited) (Unaudited)
Electric capacity and capacity bonus revenue $30,981,320 $30,903,983
Electric energy revenue 13,105,749 4,818,398
Steam revenue 19,171 28,634
Total operating revenues 44,106,240 35,751,015
---------- ----------
Cost of Sales:
Fuel and ash 13,446,313 5,320,617
Operating and maintenance 4,263,406 3,332,264
Depreciation 3,785,291 3,907,783
---------- ----------
Total cost of sales 21,495,010 12,560,664
---------- ----------
Gross Profit 22,611,230 23,190,351
---------- ----------
Other Operating Expenses:
General and administrative 1,261,212 982,748
Insurance and taxes 1,501,719 1,658,650
--------- ---------
Total other operating expenses 2,762,931 2,641,398
--------- ---------
Operating Income 19,848,299 20,548,953
---------- ----------
Non-Operating Income (Expenses):
Interest expense (14,453,537) (14,422,744)
Interest/Other income 399,113 391,183
----------- -----------
Net non-operating expense (14,054,424) (14,031,561)
------------ ------------
Income before cumulative effect of
change in accounting principle 5,793,875 6,517,392
Cumulative effect of change in accounting principle 920,356 -0-
------------ --------------
Net Income $6,714,231 $6,517,392
============ ==============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
3
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<TABLE>
<CAPTION>
Indiantown Cogeneration, L.P.
Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 2000 and 1999
--------------------------------------------------
<S> <C> <C>
Three Months Three Months
Ended Ended
March 31, March 31,
2000 1999
-------------------- ----------------------
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 6,714,231 $ 6,517,392
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 3,991,437 4,117,408
(Increase)decrease in accounts receivable (302,259) 865,940
Decrease in inventories and fuel reserves 96,850 2,067,354
Increase in deposits and prepaids (368,908) (333,915)
Increase in accounts payable, accrued liabilities
and accrued interest 14,468,086 10,777,675
(Decrease) increase in major maintenance
reserve (920,356) 102,195
(Decrease)in lease payable (75,058) (65,831)
-------------------- ----------------------
Net cash provided by operating activities 23,604,023 24,044,218
-------------------- ----------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant & equipment 549,684 (455,975)
Increase in investment held by trustee (23,720,244) (23,831,797)
-------------------- ----------------------
Net cash used in investing activities (24,269,928) (24,287,772)
-------------------- ----------------------
CHANGE IN CASH AND CASH EQUIVALENTS (665,905) (243,554)
CASH and CASH EQUIVALENTS, beginning of year 2,416,997 2,419,089
------------------- ----------------------
CASH and CASH EQUIVALENTS, end of period $ 1,751,092 $ 2,175,535
=================== ======================
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
4
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Indiantown Cogeneration, L.P.
Notes to Consolidated Financial Statements
As of March 31, 2000
(Unaudited)
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&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. 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,IPILP and Thaleia (collectively, the "Partners") based on the following
ownership percentages:
5
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<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% --
Thaleia -- -- 19.9%* 39.9%* 40%*
</TABLE>
*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.
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&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 wholly-owned by PG&E Generating
Company, LLC, an indirect wholly-owned subsidiary of PG&E Corporation.
2. FINANCIAL STATEMENTS:
The consolidated balance sheets as of March 31, 2000, and the
consolidated statements of operations and cash flows for the three months ended
March 31, 2000 and 1999, have been prepared by the Partnership, without audit
and in accordance with the rules and regulations of the Securities and Exchange
Commission. In the opinion of management, these financial statements include all
adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the financial position of the Partnership as of March 31, 2000,
and the results of operations and cash flows for the three months ended March
31, 2000 and 1999.
The financial statements and related notes contained herein should be
read in conjunction with the Partnership's Annual Report on Form 10-K for the
year ended December 31, 1999.
Investments Held by Trustee
The investments held by trustee represent bond and equity proceeds and
revenue funds 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
6
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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 in long term assets in the
accompanying balance sheets.
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 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.
Change in Accounting Principle
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.
The scheduled major overhaul represented an accrual for anticipated expenditures
for scheduled significant replacement and overhaul costs of the Facility. The
expense was being 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 during fiscal year 2000, which will change the allowed
methods of accounting for scheduled major overhauls. In this ruling, the SEC is
expected to announce that it will not accept the accrue-in-advance method of
accounting for scheduled major overhauls. The Partnership has, therefore,
changed 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. As such, the Partnership has reflected a cumulative effect of a change
in accounting principle of $920,356 in its financial statements for the period
ending March 31, 2000.
New Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board issued 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.
7
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3. DEPOSITS:
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 March 31, 2000 and
December 31, 1999, estimated present value of this deposit was $150,675 and
$80,000, respectively. The remaining balance has been included in property
plant, and equipment as part of total construction expenses.
Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Financial Statements of the Partnership and the notes thereto
included elsewhere in this report.
General
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 March 31, 2000, the Partnership had approximately $638 million
of property, plant and equipment (net of accumulated depreciation) consisting
primarily of purchased equipment, construction related labor and materials,
interest during construction, financing cost, and other costs directly
associated with the construction of the Facility. For the three months ended
March 31, 2000, the Partnership had total operating revenues of approximately $
44.1 million, total operating costs of $24.3 million, total net interest
expenses of approximately $14.0 million, and a cumulative effect of change in
accounting principle of $0.9 million resulting in net income of approximately
$6.7 million.
The Partnership is engaged in litigation with FPL, the Partnership's
primary source of revenue. Under certain circumstances, an adverse ruling in the
litigation could have a material adverse effect on the Partnership's business
and financial condition. Please see Part II Item 1, Legal Proceedings, for a
description of the litigation, and Part II, Item 5, Other Information, for a
description of the Partnership's options to mitigate the risk posed by an
adverse ruling in such litigation.
The Partnership has obtained all material environmental permits and
approvals required as of March 31, 2000, in order to continue the 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 existing 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.
8
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Results of Operations
For the three months ending March 31, 2000 and 1999, the Facility
achieved an average Capacity Billing Factor of 100.01% and 101.64%,
respectively. This resulted in earning monthly capacity payments aggregating
$28.2 million and $28.1 million and bonuses aggregating $2.8 million for the
three months ended March 31, 2000 and 1999. The Capacity Billing Factor measures
the overall availability of the Facility, but gives a heavier weighting to
on-peak availability. During the three months ended March 31, 2000, the Facility
was dispatched by FPL and generated 571,896 megawatt-hours compared to 208,484
megawatt-hours during the same period in 1999. The increase was due to higher
oil and gas prices incurred by FPL during the first quarter to generate energy.
The monthly dispatch rate for the first three months of 2000 ranged from 73% to
87%, as compared to a range of 18% to 35% for the corresponding period in 1999.
Net income for the three months ended March 31, 2000, was approximately
$6.7 million compared to the net income of approximately $6.5 million for the
corresponding period in the prior year. The $0.2 million increase is primarily
attributable to lower net energy costs of $0.1 million, an increase in capacity
revenue of $0.1 million, a reduction in insurance and taxes of $0.2 million, and
an expense reversal of $0.9 million for a cumulative change in accounting
principle relating to major maintenance costs. This is offset by higher general
and administrative costs of $0.2 million for legal fees for the FPL litigation
and an increase in operating and maintenance costs of $0.9 million due to the
increase in dispatch.
Electric Energy Revenues
<TABLE>
<CAPTION>
For the three months ended
<S> <C> <C>
March 31, 2000 March 31, 1999
-------------- --------------
Revenues $ 44.1 million $35.7 million
KWhs 571.9 208.5
Average Capacity Billing Factor 100.01% 101.64%
Average Dispatch Rate 80.45% 29.56%
</TABLE>
For the three months ended March 31, 2000, the Partnership had total
operating revenues of approximately $44.1 million as compared to $35.7 million
for the corresponding period in the prior year. The $8.4 million increase in
operating revenue is primarily due to higher energy revenue resulting from
higher dispatch by FPL.
Costs of revenues for the three months ended March 31, 2000, were
approximately $21.5 million on sales of 571,896 MWhs as compared to $12.6
million on sales of 208,484 MWhs for the corresponding period in the prior year.
This increase is primarily a result of higher fuel and ash costs of $8.2 million
and an increase of $0.9 million for operating and maintenance costs, both
resulting from higher dispatch.
Total other operating expenses for the three months ended March 31,
2000, were approximately $2.8 million compared to the $2.6 million of total
other operating expenses for the corresponding period in the prior year. The
$0.2 million increase is due to higher general and administrative expenses for
legal expenses for the FPL litigation.
9
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Net interest expense for the three months ended March 31, 2000, of
approximately $14.0 million compared to $14.0 million of net interest expense
for the same period in the prior year.
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"), $236.6 million of which bear an average interest rate of 9.26%
and $268.4 million of which bear an interest rate of 9.77%. Concurrently 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."
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 and 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 being used: (i) to finance
completion of construction, testing, and initial operation of the Facility; (ii)
to finance construction interest and contingency; 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 March 2000 were
$769 million. The equity loan of $139 million was repaid on December 26, 1995.
As of March 31, 2000, the 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:
Series Aggregate Principal Amount Date Matured and Paid
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
The weighted average interest rate paid by the Partnership on its debt for the
three months ended March 31, 2000 and 1999, was 9.204% and 9.167%, respectively.
10
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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 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 March 31, 2000, 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 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 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 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 March 31, 2000, no drawings have been made on the debt service
reserve letter of credit.
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. As of March 31, 2000, thirteen working capital loans had been made to
the Partnership under the working capital loan facility. All working capital
loans were repaid.
PART II
OTHER INFORMATION
Item 1 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
11
<PAGE>
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 asserted 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 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. The second
amended complaint which was filed on March 21, 2000, is attached as an exhibit
to the Partnership's Annual Report on Form 10-K filed with the Securities and
Exchange Commission on March 30, 2000. On April 7, 2000, FPL filed a motion to
dismiss ICL's second amended complaint and the Partnership filed its opposition
papers April 21, 2000. The Court has not yet ruled on FPL's motion to dismiss
the second amended complaint. 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.
12
<PAGE>
Item 5 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
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.
13
<PAGE>
Governmental Approvals
The Partnership has obtained all material environmental permits and
approvals required, as of March 31, 2000, 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 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.
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 three months ended March 31,
2000, FPL has
14
<PAGE>
not requested the Partnership to decommit the Facility. 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.
Debt Service Reserve Account
As permitted by the Partnership's financing arrangements, on August 19,
1998, the Partnership requested that the balance in the Debt Service Reserve
Account be reduced to the Debt Service Reserve Account Required Balance by
reducing the Debt Service Reserve Letter of Credit. On January 11, 1999, the
reduction was approved. The Debt Service Reserve Account now contains the
$29,609,840 Debt Service Reserve Letter of Credit and $12,501,000 of cash
(available only as a debt service reserve for the Tax Exempt Bonds).
Item 6 EXHIBITS AND REPORTS ON FORM 8-K
a) Reports on Form 8-K:
None
b) Exhibits:
Exhibit
No. Description
-- -----------
27 Financial Data Schedule
15
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized
INDIANTOWN COGENERATION, L.P.
(Co-Registrant)
Date: May 15, 2000 ______________________________
John R. Cooper
Vice President and
Chief Financial Officer
INDIANTOWN COGENERATION FUNDING
CORPORATION
(Co-Registrant)
Date: May 15, 2000 _____________________________
John R. Cooper
Vice President and
Chief Financial Officer
<PAGE>
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