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 September 30, 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 September 30, 2000
(Unaudited) and December 31, 1999..............................1
Consolidated Statements of Operations for the
Nine Months Ended September 30, 2000 (Unaudited) and
September 30, 1999 (Unaudited).................................3
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 2000 (Unaudited) and September 30, 1999
(Unaudited)....................................................4
Notes to Consolidated Financial Statements (Unaudited) ...........5
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations..............................11
PART II OTHER INFORMATION
Item 1 Legal Proceedings................................................15
Item 5 Other Information................................................17
Item 6 Exhibits and Reports on Form 8K..................................19
Signatures...............................................................20
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<TABLE>
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PART I
FINANCIAL INFORMATION
Indiantown Cogeneration, L.P.
Consolidated Balance Sheets
As of September 30, 2000 and December 31, 1999
----------------------------------------------
<S> <C> <C>
September 30, December 31,
ASSETS 2000 1999
--------------------------------------------------------------- ------------------- ---------------------
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 977,391 $ 2,416,997
Accounts receivable-trade 14,331,046 13,471,985
Inventories 1,172,034 1,146,017
Prepaids 864,604 807,372
Deposits 44,450 44,450
Investments held by Trustee, including
restricted funds of $19,211,173 and
$2,752,669, respectively 26,293,173 3,283,909
------------------- ---------------------
Total current assets 43,682,698 21,170,730
------------------- ---------------------
INVESTMENTS HELD BY TRUSTEE,
restricted funds 14,577,666 14,501,877
DEPOSITS 156,413 80,000
PROPERTY, PLANT & EQUIPMENT:
Land 8,582,363 8,582,363
Electric and steam generating facilities 700,143,380 698,401,089
Less accumulated depreciation (76,744,786) (65,534,397)
------------------- ---------------------
Net property, plant & equipment 631,980,957 641,449,055
------------------- ---------------------
FUEL RESERVE 2,617,094 1,318,099
DEFERRED FINANCING COSTS, net of
accumulated amortization of $44,473,073 and
$43,854,648, respectively
15,713,843 16,332,268
------------------- ---------------------
Total assets $ 708,728,671 $ 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 September 30, 2000 and December 31, 1999
----------------------------------------------
<S> <C> <C>
September 30, December 31,
LIABILITIES AND PARTNERS' CAPITAL 2000 1999
-------------------------------------------------------------- --------------------- ----------------------
(Unaudited)
CURRENT LIABILITIES:
Accrued payables/liabilities $ 12,371,993 $ 7,584,226
Accrued interest 15,863,028 2,267,017
Current portion - First Mortgage Bonds 11,337,016 11,533,135
Current portion lease payable - railcars 325,697 308,534
--------------------- ----------------------
Total current liabilities 39,897,734 21,692,912
LONG TERM DEBT:
First Mortgage Bonds 449,138,417 454,708,865
Tax Exempt Facility Revenue Bonds 125,010,000 125,010,000
Lease payable - railcars 4,028,703 4,275,166
--------------------- ----------------------
Total long term debt 578,177,120 583,994,031
Reserve-Major Maintenance - 920,536
--------------------- ----------------------
Total liabilities 618,074,854 606,607,479
-------------------------------------------------------------- --------------------- ----------------------
PARTNERS' CAPITAL:
Toyan Enterprises 27,241,473 26,517,489
Palm Power Corporation 9,065,380 8,824,455
Indiantown Project Investment Partnership 18,085,437 17,604,787
Thaleia 36,261,527 35,297,819
--------------------- ----------------------
Total partners' capital 90,653,817 88,244,550
--------------------- ----------------------
Total liabilities and partners' capital $ 708,728,671 $ 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 Nine Months Ended September 30, 2000 and September 30, 1999
-------------------------------------------------------------------
<S> <C> <C>
Nine Months Ended Nine Months Ended
September 30, 2000 September 30, 1999
------------------------- -------------------------
(Unaudited) (Unaudited)
Operating Revenues:
Electric capacity and capacity bonus revenue $92,934,747 $92,722,266
Electric energy revenue 40,999,423 28,992,289
Steam revenue 78,669 93,420
----------- -----------
Total operating revenues 134,012,839 121,807,975
----------- -----------
Cost of Sales:
Fuel and ash 42,291,534 29,428,041
Operating and maintenance 13,801,455 13,674,954
Depreciation 11,366,169 11,458,853
---------- ----------
Total cost of sales 67,459,158 54,561,848
---------- ----------
Gross Profit 66,553,681 67,246,127
---------- ----------
Other Operating Expenses:
General and administrative 3,719,234 3,185,472
Insurance and taxes 4,820,204 4,871,790
--------- ---------
Total other operating expenses 8,539,438 8,057,262
--------- ---------
Operating Income 58,014,243 59,188,865
---------- ----------
Non-Operating Income (Expenses):
Interest expense (42,807,244) (43,158,654)
Interest/Other income (expense) 1,581,732 1,389,179
------------ -----------
Net non-operating expense (41,225,512) (41,769,475)
------------ ------------
Income before cumulative effect of
change in accounting principle 16,788,731 17,419,390
Cumulative effect of change in accounting principle 920,536 -
---------- ----------
Net Income $17,709,267 $17,419,390
=========== ===========
</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 Nine Months Ended September 30, 2000 and 1999
<S> <C> <C>
Nine Months Nine Months
Ended Ended
September 30, September 30,
2000 1999
-------------------- ----------------------
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 17,709,267 $ 17,419,390
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 11,984,594 12,068,885
Loss on disposal of equipment 1,032 -
Increase in accounts receivable (859,061) (2,367,946)
(Increase)decrease inventories and fuel reserves (1,325,012) 3,080,027
Increase in deposits and prepaids (133,645) (190,628)
Increase in accounts payable, accrued liabilities
and accrued interest 18,383,778 7,384,553
(Decrease) increase in major maintenance
reserve (920,536) 306,585
Decrease in lease payable (229,300) (213,332)
-------------------- ----------------------
Net cash provided by operating activities 44,611,117 47,487,534
-------------------- ----------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant & equipment (1,899,103) (1,385,831)
Increase in investment held by trustee (23,085,053) (25,013,144)
-------------------- ----------------------
Net cash used in investing activities (24,984,156) (26,398,975)
-------------------- ----------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of bonds (5,766,567) (4,998,000)
Capital distributions (15,300,000) (16,770,000)
Increase in working capital loan - -
-------------------- ----------------------
Net cash used in financing activities (21,066,567) (21,768,000)
-------------------- ----------------------
CHANGE IN CASH AND CASH EQUIVALENTS (1,439,606) (679,441)
CASH and CASH EQUIVALENTS, beginning of year 2,416,997 2,419,089
-------------------- ----------------------
CASH and CASH EQUIVALENTS, end of period
$ 977,391 $ 1,739,648
==================== ======================
</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 September 30, 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 Enterprises 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:
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<TABLE>
<CAPTION>
<S> <C> <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 National Energy Group,
Inc.
2. FINANCIAL STATEMENTS:
--------------------
The consolidated balance sheets as of September 30, 2000, and the
consolidated statements of operations and cash flows for the nine months ended
September 30, 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
September 30, 2000, and the results of operations and cash flows for the nine
months ended September 30, 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.
6
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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 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.
The Securities and Exchange Commission ("SEC") has recently stated that
it objects to the accrue in advance method for scheduled significant replacement
and overhaul costs. The SEC has asked the Accounting Standards Executive
Committee ("AcSEC") to issue guidance related to accounting for these costs,
which will not include the accrue in advance method. Prior to the issuance of
guidance from the AcSEC, the SEC has stated that it will allow companies to
recognize the change from accrue in advance as a cumulative effect of a change
in accounting principle. The Partnership has, therefore, changed its method of
accounting for scheduled major overhaul to the as incurred method. The
Partnership has recognized a cumulative effect of a change in accounting
principle of $920,536 in its financial statements for the period ending
September 30, 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
7
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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
on January 1, 2001.
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 September 30, 2000 and
December 31, 1999, estimated present value of this deposit was $156,413 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 September 30, 2000, the Partnership had approximately $632.0
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 nine months
ended September 30, 2000, the Partnership had total operating revenues of
approximately $134.0 million, total operating costs of approximately $76.0
million, total net interest expenses of approximately $41.2 million, and a
cumulative effect of change in accounting principle of $0.9 million, resulting
in net income of approximately $17.7 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. On July 31, 2000, FPL announced that it would
combine with Entergy Corp. FPL
8
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Group, Inc. and Entergy Corp. have stated that they will seek to consummate the
merger by late 2001. The combination remains subject to many contingencies and
regulatory approvals and the Partnership can not determine what impact, if any,
such combination would have on the Partnership or its business.
The Partnership has obtained all material environmental permits and
approvals required as of September 30, 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.
Results of Operations
For the nine months ending September 30, 2000 and 1999, the Facility
achieved an average Capacity Billing Factor of 98.31% and 100.72%, respectively.
This resulted in earning monthly capacity payments aggregating $84.5 million and
$84.3 million and bonuses aggregating $8.4 million and $8.4 million for the nine
months ended September 30, 2000 and 1999, respectively. The Capacity Billing
Factor measures the overall availability of the Facility, but gives a heavier
weighting to on-peak availability. During the nine months ended September 30,
2000, the Facility was dispatched by FPL and generated 1,782,262 megawatt-hours
compared to 1,248,743 megawatt-hours during the same period in 1999. The
increase was due to higher oil and gas prices incurred by FPL during the first
three quarters to generate energy from its facilities. The monthly dispatch rate
for the first nine months of 2000 ranged from 62% to 97%, as compared to a range
of 18% to 88% for the corresponding period in 1999.
Net income for the nine months ended September 30, 2000, was
approximately $17.7 million compared to the net income of approximately $17.4
million for the corresponding period in the prior year. The $0.3 million
increase is primarily attributable to an increase in capacity revenue of $0.2
million, a decrease in net non-operating expenses of $0.6 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 an increase in net energy
costs of $0.8 million, higher general and administrative costs of $0.5 million
primarily for legal fees for the FPL litigation and an increase in operating and
maintenance costs of $0.1 million.
9
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Electric Energy Revenues
------------------------
<TABLE>
<CAPTION>
For the nine months ended
<S> <C> <C>
September 30, 2000 September 30, 1999
------------------ ------------------
Revenues $ 134.0 million $ 121.8 million
KWhs 1,782.3 1,248.7
Average Capacity Billing Factor 98.31% 100.72%
Average Dispatch Rate 86.23% 60.88%
</TABLE>
For the nine months ended September 30, 2000, the Partnership had total
operating revenues of approximately $134.0 million as compared to $121.8 million
for the corresponding period in the prior year. The $12.2 million increase in
operating revenue is primarily due to higher energy revenue resulting from
higher dispatch by FPL.
Costs of revenues for the nine months ended September 30, 2000, were
approximately $67.5 million on sales of 1,782,262 MWhs as compared to $54.6
million on sales of 1,248,743 MWhs for the corresponding period in the prior
year. This increase is primarily a result of higher fuel and ash costs of $12.9
million resulting from higher dispatch.
Total other operating expenses for the nine months ended September 30,
2000, were approximately $8.5 million compared to the $8.1 million of total
other operating expenses for the corresponding period in the prior year. The
$0.4 million increase is due primarily to higher general and administrative
expenses for legal expenses for the FPL litigation.
Net interest expense for the nine months ended September 30, 2000, of
approximately $41.2 million compared to $41.8 million of net interest expense
for the same period in the prior year. The December 1999 maturity of Series A-8
and a June 2000 payment on Series A-9 of the first mortgage bonds decreased
interest expense by approximately $344,000. An increase in interest income of
approximately $193,000 resulted in the net decrease.
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
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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 September 30,
2000 were $769 million. The equity loan of $139 million was repaid on December
26, 1995. As of September 30, 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 nine months ended September 30, 2000 and 1999, was 9.204% and 9.177%,
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 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 September 30, 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 ("BNP") 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
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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 September 30, 2000, no
drawings have been made on the debt service reserve letter of credit. In April
2000, BNP merged with Banque Paribas and is now know as BNP Paribas.
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 September 30, 2000, seventeen 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
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 continues to investigate 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
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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 23, 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 the same day,
FPL also filed an answer to the counts that 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 that 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 that 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. On August 18, 2000 the Court issued an order denying
FPL's motion to dismiss the second amended complaint and discovery activities
have resumed while FPL and the Partnership attempt to resolve the litigation.
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.
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
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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.
Governmental Approvals
The Partnership has obtained all material environmental permits and
approvals required, as of September 30, 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
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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 nine months ended September
30, 2000, FPL has 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).
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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
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized
INDIANTOWN COGENERATION, L.P.
(Co-Registrant)
Date: November 14, 2000 ________________________
John R. Cooper
Vice President and
Chief Financial Officer
INDIANTOWN COGENERATION FUNDING
CORPORATION
(Co-Registrant)
Date: November 14, 2000 ________________________
John R. Cooper
Vice President and
Chief Financial Officer
17
