CONFORMED COPY WITH EXHIBITS
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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 June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to __________
Commission File Number 33-83618
SELKIRK COGEN FUNDING CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 51-0354675
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
One Bowdoin Square, Boston, Massachusetts 02114
(Address of principal executive offices, including zip code)
(617) 227-8080
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
--- ---
As of August 1, 1996 there were 10 shares of common stock of Selkirk
Cogen Funding Corporation, $1 par value, outstanding.
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This document consists of 19 pages of which this page is page 1.
<PAGE>
TABLE OF CONTENTS
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets as of June 30, 1996
and December 31, 1995......................................... 3
Condensed Consolidated Statements of Operations for the three
and six months ended June 30, 1996 and June 30, 1995.......... 4
Condensed Consolidated Statements of Cash Flows for the three
and six months ended June 30, 1996 and June 30, 1995......... 5
Notes to Condensed Consolidated Financial Statements.......... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations......................................... 8
Liquidity and Capital Resources............................... 10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K........................ 14
SIGNATURES.......................................................... 15
2
<PAGE>
<TABLE>
SELKIRK COGEN PARTNERS, L.P.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
<CAPTION>
June 30, December 31,
1996 1995
---------- -----------
<S> <C> <C>
ASSETS
- ------
Current assets:
Cash............................................ $ 1,357 $ 2,672
Restricted funds................................ 5,445 10,010
Accounts receivable............................. 14,966 17,317
Due from affiliates............................. 17 17
Fuel inventory and supplies..................... 3,697 3,573
Other current assets............................ 981 1,012
--------- ---------
Total current assets...................... 26,463 34,601
Plant and equipment, net........................ 340,462 346,285
Long-term restricted funds...................... 20,808 20,906
Deferred financing charges, net................. 13,701 14,288
--------- ---------
Total Assets $ 401,434 $ 416,080
--------- ---------
--------- ---------
LIABILITIES AND PARTNERS' CAPITAL
- ---------------------------------
Current liabilities:
Accounts payable................................ $ 62 $ 372
Accrued bond interest payable................... 385 385
Accrued expenses................................ 10,936 12,863
Due to affiliates............................... 852 262
Advances from customer.......................... 17 153
Current portion of long-term bonds.............. 1,357 580
--------- ---------
Total current liabilities................. 13,609 14,615
Other long-term liabilities..................... 10,777 8,515
Long-term bonds, less current portion........... 390,359 391,420
General partners' capital....................... (109) 43
Limited partners' capital....................... (13,202) 1,487
--------- ---------
Total partners' capital................... (13,311) 1,530
--------- ---------
Total Liabilities and
Partners' Capital $ 401,434 $ 416,080
--------- ---------
--------- ---------
<FN>
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
3
<PAGE>
<TABLE>
SELKIRK COGEN PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
(unaudited)
<CAPTION> For the For the
Three Months Ended Six Months Ended
--------------------- --------------------
June 30, June 30, June 30, June 30,
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Operating revenues:
Electric and steam......... $ 35,996 $ 36,172 $ 73,709 $ 72,534
Gas resale................. 6,113 3,265 14,805 6,033
--------- --------- --------- ---------
Total operating
revenues.............. 42,109 39,437 88,514 78,567
Cost of revenue............. 29,833 29,666 59,666 58,156
--------- --------- --------- ---------
Gross Profit................ 12,276 9,771 28,848 20,411
Other operating expenses:
Administrative services -
affiliates............... 626 675 1,180 1,335
Other general and
administrative expenses.. 758 943 1,826 1,860
Amortization of deferred
financing charges........ 294 310 587 620
--------- --------- --------- ---------
Total other operating
expenses.............. 1,678 1,928 3,593 3,815
--------- --------- --------- ---------
Operating income............ 10,598 7,843 25,255 16,596
Net interest expense........ 8,107 8,011 16,489 16,241
--------- --------- --------- ---------
Net income (loss)........... $ 2,491 $ (168) $ 8,766 $ 355
--------- --------- --------- ---------
--------- --------- --------- ---------
Allocated to:
General partners.......... $ 25 $ (25) $ 88 $ 28
Limited partners.......... 2,466 (143) 8,678 327
--------- --------- --------- ---------
Total................... $ 2,491 $ (168) $ 8,766 $ 355
--------- --------- --------- ---------
--------- --------- --------- ---------
<FN>
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
4
<PAGE>
<TABLE>
SELKIRK COGEN PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<CAPTION>
For the For the
Three Months Ended Six Months Ended
--------------------- --------------------
June 30, June 30, June 30, June 30,
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net cash provided by (used in)
operating activities....... $ 3,333 $ (4,200) $ 18,552 $ 5,017
Cash flows provided by
(used in) investing
activities:
Plant and equipment
additions............... (62) (462) (503) (2,194)
Plant and equipment
additions - affiliates.. --- (21) --- (123)
Restricted funds......... 15,441 4,189 4,663 6,334
--------- --------- --------- ---------
Net cash provided by
investing activities.. 15,379 3,706 4,160 4,017
Cash flows provided by
(used in) financing
activities:
Cash distributions....... (19,384) --- (23,607) (4,719)
Payments of principal on
long-term debt.......... (284) --- (284) ---
Payments for cost of
financing............... --- 14 --- (185)
Advances from a
customer................ --- (5,408) (136) (5,299)
--------- --------- --------- ---------
Net cash used in
financing activities.. (19,668) (5,394) (24,027) (10,203)
Net decrease in cash........ (956) (5,888) (1,315) (1,169)
Cash at beginning
of period.................. 2,313 8,455 2,672 3,736
--------- --------- --------- ---------
Cash at end of period....... $ 1,357 $ 2,567 $ 1,357 $ 2,567
--------- --------- --------- ---------
--------- --------- --------- ---------
Supplemental disclosures of
cash flow information:
Cash paid for interest.... $ 17,328 $ 17,728 $ 17,620 $ 17,728
--------- --------- --------- ---------
--------- --------- --------- ---------
Items not affecting cash:
Preferred distribution
payable - in arrears.... $ --- $ 1,800 $ --- $ 1,800
--------- --------- --------- ---------
--------- --------- --------- ---------
--------- ---------
<FN>
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
5
<PAGE>
SELKIRK COGEN PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
consolidate Selkirk Cogen Partners, L.P. and its wholly-owned subsidiary,
Selkirk Cogen Funding Corporation, (collectively the "Partnership"). All
significant intercompany accounts and transactions have been eliminated.
The condensed consolidated financial statements for the interim periods
presented are unaudited and have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission. The information
furnished in the condensed consolidated financial statements reflects all
normal recurring adjustments which, in the opinion of management, are
necessary for a fair presentation of such financial statements. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to rules and regulations
applicable to interim financial statements. Certain reclassifications have
been made to the Condensed Consolidated Statement of Operations for the three
and six months ended June 30, 1995 to conform with the current period's basis
of presentation.
These condensed consolidated financial statements should be read in
conjunction with the audited consolidated financial statements included in
the Partnership's December 31, 1995 Annual Report on Form 10-K.
Note 2. New Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 121, Accounting for
the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of,
effective for fiscal years beginning after December 15, 1995. SFAS No. 121
establishes accounting standards for the impairment of long-lived assets and
requires that a loss be recognized for those assets if the sum of the
expected future cash flows from the use of the asset and its eventual
disposition (undiscounted) is less than the carrying amount of the asset.
The Partnership adopted SFAS No. 121 on January 1, 1996, and it did not have
a material impact on the Partnership's financial position or results of
operations.
6
<PAGE>
SELKIRK COGEN PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(continued)
Note 3. Contingency
In connection with transactions in 1994 involving the investment by
affiliates of Cogen Technology, Inc. in the Partnership and the purchase of
J. Makowski Company, Inc. by Beale Generating Company, the Partnership filed
New York State real estate transfer and gains tax returns with New York tax
authorities. The New York tax authorities have raised certain questions and
issues about such tax returns. Although the New York tax authorities have
assessed no additional tax against the Partnership or any other transferor at
this time, the issue currently is under consideration and it is possible that
the New York tax authorities will assert that additional tax is owed by the
Partnership or one or more of the other transferors in connection with these
transactions. The Partnership presently cannot predict the likelihood of the
New York tax authorities making such an assertion or, if made, the amount of
tax that might be asserted.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
----------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
Results of Operations
Three and Six Months Ended June 30, 1996 Compared to the Three and Six Months
Ended June 30, 1995:
Net income for the quarter ended June 30, 1996, was approximately $2.5
million as compared to a $0.2 million net loss for the corresponding period
in the prior year. Net income for the six months ended June 30, 1996, was
approximately $8.8 million as compared to $0.4 million for the corresponding
period in the prior year. The increase in net income for the quarter and six
months ended June 30, 1996 is primarily due to the $2.8 million and $8.8
million increases in gas resale revenues as compared to the corresponding
periods in the prior year, respectively.
Total revenues for the quarter and six months ended June 30, 1996, were
approximately $42.1 million and $88.5 million as compared to $39.4 million
and $78.6 million for the corresponding periods in the prior year,
respectively.
Electric Revenues (dollars and kWh's in millions):
- --------------------------------------------------
For the Three Months Ended
June 30, 1996 June 30, 1995
------------------------ ------------------------
Dollars kWh's Dispatch Dollars kWh's Dispatch
------- ----- -------- ------- ----- --------
Niagara Mohawk 7.3 74.4 43.91% 6.3 43.5 27.06%
Con Edison 28.1 352.9 80.33% 29.3 553.6 99.45%
For the Six Months Ended
June 30, 1996 June 30, 1995
------------------------ ------------------------
Dollars kWh's Dispatch Dollars kWh's Dispatch
------- ----- -------- ------- ----- --------
Niagara Mohawk 13.9 120.6 43.18% 13.9 149.8 46.64%
Con Edison 58.1 799.4 88.95% 57.1 1,039.6 95.86%
Revenues from Niagara Mohawk Power Corporation ("Niagara Mohawk") increased
$1.0 million and remained unchanged for the quarter and six months ended June
30, 1996 when compared to the corresponding periods in the prior year,
respectively. Increased dispatch and energy delivered at full contract rates
were the contributing factors to the increase in revenues during the quarter
ended June 30, 1996. During the quarter ended June 30, 1996, energy
delivered to Niagara Mohawk was sold entirely at full contract rates, whereas
for the quarter ended June 30, 1995, the Partnership entered into special
dispatch arrangements with Niagara Mohawk which called for the pricing of
delivered energy at variable rates less than full contract rates. Decreased
dispatch partially offset by higher energy prices was the contributing factor
to the revenues remaining unchanged during the six months ended June 30,
1996. During the six months ended June 30, 1996, Niagara Mohawk dispatched
Unit 1 on-line, at full contract rates for Ja nuary, the majority of
February, April, May and June and off-line for the entire month of March.
Energy delivered to Niagara Mohawk during the six months ended June 30, 1996,
was sold primarily at full contract rates and the Partnership entered into
few special dispatch arrangements, whereas during the six months ended June
30, 1995, the Partnership frequently entered into special dispatch
arrangements with Niagara Mohawk which called for the pricing of delivered
energy at variable rates less than full contract rates.
8
<PAGE>
Revenues from Consolidated Edison Company of New York, Inc. ("Con Edison")
decreased $1.2 million and increased $1.0 million for the quarter and six
months ended June 30, 1996, when compared to the corresponding periods in the
prior year, respectively. Decreased dispatch partially offset by higher
contract energy rates, resulting from higher index fuel prices, was the
contributing factor to the decrease in revenues during the quarter ended June
30, 1996 as compared to the corresponding period in the prior year. Higher
contract energy rates resulting from higher index fuel prices partially
offset by decreased dispatch, was the contributing factor to the increase in
revenues during the six months ended June 30, 1996. During the six months
ended June 30, 1996, energy delivered to Con Edison was sold entirely at full
contract rates, whereas for the majority of January 1995 and for a few days
in February and April 1995, the Partnership entered into special dispatch
arrangements with Con Edison. These special d ispatch arrangements called
for the pricing of delivered energy at variable rates less than full contract
rates.
Steam revenues for the quarter ended June 30, 1996, were approximately $0.6
million on 435.265 million pounds of steam delivered as compared to
approximately $0.5 million on 438.418 million pounds of steam delivered for
the corresponding period in the prior year. Steam revenues for the six
months ended June 30, 1996, were approximately $1.7 million on 1,021.256
million pounds of steam delivered as compared to approximately $1.5 million
on 998.998 million pounds delivered for the corresponding period in the prior
year. Higher index fuel pricing was the primary factor contributing to the
increase in steam revenues for the quarter ended June 30, 1996 as compared to
the corresponding period in the prior year. The increase in fuel prices and
colder than normal winter months contributed to higher steam prices and
pounds of steam sold, respectively, during the six months ended June 30, 1996
as compared to the corresponding period in the prior year. Additionally,
steam revenues for the quarter ended June 30, 1996 include a reduction of
$0.2 million to the annual true-up of $0.3 million recorded in the quarter
ended March 31, 1996. The adjustment to the annual true-up was due to steam
demand during the quarter ended June 30, 1996 being higher than the estimate
used in the quarter ended March 31, 1996 annual true-up calculation.
9
<PAGE>
Gas resale revenues for the quarter ended June 30, 1996, were approximately
$6.1 million on sales of approximately 2.4 million MMBtu's as compared to
$3.3 million on sales of approximately 1.9 million MMBtu's for the
corresponding period in the prior year. Gas resale revenues for the six
months ended June 30, 1996, were approximately $14.8 million on sales of
approximately 4.2 million MMBtu's as compared to $6.0 million on sales of
approximately 3.3 million MMBtu's for the corresponding period in the prior
year. The $2.8 million increase in gas resale revenues during the quarter
ended June 30, 1996 as compared to the corresponding period in the prior year
is primarily due to an increase in average natural gas resale prices and a
reduction in the dispatch of Unit 2 which resulted in greater volumes of
natural gas becoming available for resale. An increase in the average
natural gas resale price and a reduction in the dispatch of Units 1 and 2
were the factors contributing to the increase in gas resale revenu es for the
six months ended June 30, 1996 as compared to the corresponding period in the
prior year. The increase in average natural gas resale prices generally
resulted from the colder than normal temperatures in the Northeast region,
which caused an increase in the demand for natural gas and put capacity
constraints on natural gas pipelines.
Cost of revenues for the quarter and six months ended June 30, 1996 were
approximately $29.8 million and $59.7 million as compared to $29.7 million
and $58.2 million for the corresponding periods in the prior year,
respectively. The largest component of the increase for the six months ended
June 30, 1996 was fuel purchases which increased $1.1 million from the prior
year. This increase is primarily due to the fuel escalation clauses
contained in the firm fuel contracts.
Total other operating expenses for the quarter and six months ended June 30,
1996, of approximately $1.7 million and $3.6 million respectively, were
comparable to the corresponding periods in the prior year.
Net interest expense for the quarter and six months ended June 30, 1996, of
approximately $8.1 million and $16.5 million respectively, were comparable to
the corresponding periods in the prior year.
Liquidity and Capital Resources
Net cash flows provided by operating activities for the quarter ended June
30, 1996 were approximately $3.3 million as compared to net cash flows used
in operating activities of approximately $4.2 million for the corresponding
period in the prior year. Net cash flows provided by operating activities
increased from approximately $5.0 million for the six months ended June 30,
1995 to $18.6 million for the six months ended June 30, 1996. The increases
in net cash flows provided by operating activities were primarily due to the
$2.7 million and $8.4 million increases in net income from operations during
the quarter and six months ended June 30, 1996, respectively. The remainder
of the increases in net cash flows provided by operating activities during
the quarter and six months ended June 30, 1996 were due to normally recurring
cash receipts and disbursements within the Partnership's operating asset and
liability accounts.
10
<PAGE>
Net cash flows provided by investing activities increased from approximately
$3.7 million for the quarter ended June 30, 1995 to $15.4 million for the
quarter ended June 30, 1996. Net cash flows provided by investing activities
increased from approximately $4.0 million for the six months ended June 30,
1995 to $4.2 million for the six months ended June 30, 1996. Net cash flows
provided by investing activities primarily represent monies withdrawn from
Funds pursuant to the Depositary and Disbursement Agreement, administered by
Bankers Trust Company, as depositary agent. Monies withdrawn from the Funds
for the six months ended June 30, 1996 primarily represent distributions to
the Partners. Monies withdrawn from the Funds for the six months ended June
30, 1995 primarily represent a one-time payment to GE Plastics and a
distribution to the Partners.
Net cash flows used in financing activities increased from approximately $5.4
million for the quarter ended June 30, 1995 to $19.7 million for the quarter
ended June 30, 1996. Net cash flows used in financing activities increased
from approximately $10.2 million for the six months ended June 30, 1995 to
$24.0 million for the six months ended June 30, 1996. The increase in cash
flows used in financing activities is primarily due to a $19.4 million and
$18.9 million increase in cash distributions during the quarter and six
months ended June 30, 1996 offset by an approximate $5.3 million one-time
payment to GE Plastics during the quarter and six months ended June 30, 1995.
Con Edison by a letter dated September 19, 1994, claimed the right to acquire
that portion of Unit 2's firm natural gas supply not used in operating Unit
2, when Unit 2 is dispatched off-line or at less than full capability. The
Con Edison Power Purchase Agreement contains no express language granting Con
Edison any rights with respect to such excess natural gas. Nevertheless, Con
Edison has argued that, since payments under the contract include fixed fuel
charges which are payable whether or not Unit 2 is dispatched on-line, Con
Edison is entitled to take delivery of any excess natural gas. The
Partnership vigorously disputes the position adopted by Con Edison, based
notably on the absence of any contractual provision according Con Edison the
claimed rights but also on the fact that the Partnership has assumed the risk
under the Con Edison Power Purchase Agreement that the fuel charges payable
by Con Edison are insufficient to cover the costs actually incurred by the
Partnership. By a letter dated May 23 , 1995, Con Edison indicated its
intention to pursue the claim asserted in the September 19, 1994, letter. In
the May 23, 1995 letter, Con Edison reserved the right to claim 100% of the
margins derived from the sales of Unit 2's firm natural gas supply not used
in operating Unit 2 (non-plant gas sales) and requested that the Partnership
reduce the monthly amount invoiced to Con Edison by 50% of a calculated value
of the non-plant gas sales. The Partnership strenuously objected to Con
Edison's contentions and, at a meeting between the Partnership and Con
Edison, Con Edison agreed to continue not to deduct any amount attributable
to non-plant gas sales from payments made upon monthly invoices but stated it
would do so under protest, pending further discussions between the parties.
Since the commencement of commercial operations of Unit 2, the Partnership
made and continues to make, from time to time, excess gas lay-off sales from
Unit 2's gas supply. The Partnership does not intend to adjust the monthly i
nvoices issued to Con Edison and continues to assert that Con Edison is not
entitled to any revenues or margins derived from non-plant gas sales. In the
event Con Edison were to pursue its asserted claim, the Partnership would
expect to pursue all available legal remedies, but there can be no certainty
that the outcome of such remedial action would be favorable to the
Partnership or, if favorable, would provide for the Partnership's full
recovery of its damages.
11
<PAGE>
The Partnership's cash flows from the sale of electric output would be
materially and adversely affected if Con Edison were to prevail in its claim
to Unit 2's excess natural gas volumes and the related margins.
Niagara Mohawk PowerChoice Proposal
On October 6, 1995, Niagara Mohawk filed its "PowerChoice" proposal with the
New York State Public Service Commission ("NYPSC"). On October 12, 1995,
Niagara Mohawk filed a Report on Form 8-K with the Securities and Exchange
Commission explaining the PowerChoice proposal (the "October 12 Statement").
In the October 12 Statement, Niagara Mohawk describes a number of related
proposals to restructure the utility's business, including the reorganization
of its assets and the renegotiation of its contracts with generators which,
like the Partnership, are not regulated as utilities ("non-utility
generators"). Niagara Mohawk has proposed that, if it cannot renegotiate its
contracts with non-utility generators, it would take possession of such
independent power projects through the power of eminent domain and
subsequently sell such projects. In the October 12 Statement, Niagara Mohawk
states that it has not ruled out the ultimate possibility of a filing for
restructuring under Chapter 11 of the U.S. Bankruptcy Co de, should it not
achieve its objectives under PowerChoice and other measures fail as well.
The Partnership notes, however, Niagara Mohawk reported positive earnings
during the fourth quarter of 1995 and is seeking electric rate increases for
1996 and 1997 in a filing with the NYPSC. In January 1996, it was reported
that Niagara Mohawk's board of directors elected to eliminate its quarterly
cash dividend on its common stock. Niagara Mohawk last paid a quarterly
dividend on November 30, 1995. In April 1996, it was reported that Moody's
Investors Service ("Moody's") downgraded the long-term credit ratings of
Niagara Mohawk. Moody's reported that their action was based on the limited
progress made in achieving the goals identified in Niagara Mohawk's
PowerChoice proposal, among other financial concerns, which may ultimately
lead to a voluntary bankruptcy filing. Moody's also reported that they gave
Niagara Mohawk a "negative outlook" because of the level of uncertainty and
potential volatility of the situatio n. In May 1996, it was reported that
the NYPSC rejected Niagara Mohawk's filing request for an electric rate
increase for 1996. The NYPSC is scheduled to consider an electric rate
increase request for 1997 filed by Niagara Mohawk in early 1997. In
addition, it was reported that Niagara Mohawk had positive earnings during
the first and second quarters of 1996. The Partnership expresses no opinion
with respect to the likelihood that all or any part of Niagara Mohawk's
PowerChoice proposal (including its features relating to non-utility
generators) will eventually be adopted, in any form, by any or all of the
parties involved, nor does the Partnership express an opinion with respect to
the viability of Niagara Mohawk's proposed alternatives.
12
<PAGE>
In furtherance of Niagara Mohawk's PowerChoice proposal, Niagara Mohawk
announced on August 1, 1996 its offer to buyout 44 independent power
contracts in a proposed transaction in which a combination of cash and
securities of a newly structured Niagara Mohawk would be paid in exchange for
cancellation of these contracts. On August 1, 1996, the Partnership received
a generic proposal from Niagara Mohawk with respect to the inclusion of the
Niagara Mohawk Power Purchase Agreement in this buyout offer. The
Partnership is currently evaluating the proposal, which has been conditioned
by Niagara Mohawk on a number of factors, the satisfaction of which is
uncertain. Any settlement discussions with respect to the proposal will be
governed by strict confidentiality requirements imposed by Niagara Mohawk and
management expects that the substantive details of the buyout proposal would
be subject to negotiation and modification. Accordingly, due to the
preliminary nature and uncertainties of any such buyout discussio ns, the
Partnership believes that it would not be meaningful to comment on any
details of the proposal.
As a result of Niagara Mohawk's PowerChoice proposal, Standard & Poor's and
Moody's have given the Bonds a "negative outlook". According to such rating
agencies, these actions were motivated, in part, by the uncertainties
surrounding the effects of the PowerChoice proposal on the Partnership, as
well as by questions concerning the future financial stability of Niagara
Mohawk.
For the quarter and six months ended June 30, 1996 electric sales to Niagara
Mohawk accounted for approximately 17.3% and 15.7%, respectively, of total
project revenues. The contract with Niagara Mohawk includes provisions which
permit Niagara Mohawk to dispatch the Facility on the basis of economic, as
well as operational considerations. The Partnership continues to believe
that it has a valid and binding contract with Niagara Mohawk. The
Partnership cannot yet determine, however, what effect, if any, Niagara
Mohawk's activities regarding its PowerChoice proposal will have on the
Partnership, its business or net operating revenues.
Future operating results and cash flows from operations are dependent on,
among other things, the performance of equipment and processes as expected,
level of dispatch, fuel deliveries and price as contracted and the receipt of
certain capacity and other fixed payments. A significant change in any of
these factors could have a material adverse effect on the results for the
Partnership.
The Partnership believes that based on current conditions and circumstances
it will have sufficient liquidity available provided by cash flows from
operations to fund existing debt obligations and operating costs.
13
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(A) Exhibits
Exhibit No. Description Page No.
---------- ----------- -------
10.1 Fourth Amendment to Power Purchase 16
Agreement, dated as of June 26, 1996,
between Selkirk Cogen Partners, L.P.
(the "Partnership") and Niagara Mohawk
Power Corporation sets forth new
procedures for determining the Plant's
Dependable Maximum Net Capability.
27 Financial Data Schedule
(For electronic filing purposes only)
(B) Reports on Form 8-K
Not applicable.
Omitted from this Part II are items which are not applicable or to which the
answer is negative for the periods covered.
14
<PAGE>
SELKIRK COGEN FUNDING CORPORATION
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
SELKIRK COGEN FUNDING
CORPORATION
Date: August 13, 1996 /s/ JOHN R. COOPER
--------------------------
Name: John R. Cooper
Title: Senior Vice President and
and Chief Financial Officer
15
EXHIBIT 10.1
------------
16
<PAGE>
FOURTH AMENDMENT
THIS FOURTH AMENDMENT, made and entered into as of the 26th day of June
1996, by and between Selkirk Cogen Partners, L.P. ("Selkirk") and Niagara
Mohawk Power Corporation ("NIAGARA"). Capitalized terms not defined herein
shall have the meaning set forth in the Power Purchase Agreement (as defined
below).
WHEREAS, Selkirk (by assignment) and NIAGARA are parties to an Agreement
dated December 7, 1987, which was approved by the Public Service Commission
of the State of New York on March 30, 1988, as amended by an Amendment dated
December 14, 1989, a Second Amendment dated January 25, 1990, a Third
Amendment dated October 23, 1992, and an Agreement dated March 31, 1994
(collectively, the "Power Purchase Agreement"); and
WHEREAS, Selkirk and NIAGARA have agreed to amend the Power Purchase
Agreement to set forth new procedures for determining the PLANT's DMNC;
NOW, THEREFORE, in consideration of the premises and covenants
hereinafter set forth, the parties hereto have agreed and do hereby mutually
agree as follows:
FIRST: The last paragraph of Section I of Attachment I to the Power
Purchase Agreement is hereby amended by deleting it in its entirety and
substituting the following in lieu thereof:
"The Dependable Maximum Net Capability ("DMNC" ) shall be
determined in accordance with the testing procedures set forth in
Section VII of this Attachment I."
SECOND: Section VII(a) of Attachment I to the Power Purchase Agreement
is hereby amended as follows:
17
<PAGE>
1. by inserting in the first sentence the phrase "testing procedures set
forth in Section VII(c) of this Attachment I and Sections II (A), II
(D), VII (A) and VII (C) of" after the phrase "accordance with the";
and
2. by deleting the last sentence of Section VII(a) of Attachment I.
THIRD: Section VII(c) of Attachment I to the Power Purchase Agreement is
hereby amended by deleting it in its entirety and substituting the following
in lieu thereof:
"(c) Semi-Annual Capability Test. Throughout the term of the
Agreement, SELLER shall schedule and conduct at least one ( 1 )
Capability Test, and may, at SELLER's discretion, schedule, up to
three (3) additional Capability Tests, per Capability Demonstration
Period to determine the DMNC. For the purposes of this AGREEMENT,
the Capability Demonstration Periods shall be, in each year, between
November 1 and April 15 ("Winter Capability Demonstration Period")
and between June 1 and September 15 ("Summer Capability Demonstration
Period"). Upon completion of testing for the Capability
Demonstration Period, SELLER shall provide written notice ("DMNC
Notice") to NIAGARA of the PLANT's DMNC for that Capability
Demonstration Period and, therefore, for the corresponding "Winter
Capability Period" (November 1 through April 30) or "Summer
Capability Period" (May 1 through October 31), respectively. The
DMNC shall be the higher of: (i) the highest Capability Test during
the current Capability Demonstration Period, or (ii) the highest
Capability Test during the last like Capability Demonstration Period.
SELLER shall notify NIAGARA at least three (3) business days in
advance of any Capability Test in order to allow NIAGARA to have one
or more of its representatives present to observe the Capability
Test, except that SELLER may cancel any scheduled Capability Test by
giving NIAGARA notice by 10:00 A.M. on the day before the scheduled
Capability Test and such cancelled Capability Test shall not be
considered a Capability Test for the Capability Demonstration
Period."
FOURTH: Section VII of Attachment I to the Power Purchase Agreement is
hereby amended by adding the following as Section VII(d):
18
<PAGE>
"(d) Adjustment of Payments for Capability Test. If the DMNC for any
Winter or Summer Capability Period, as set forth in the DMNC Notice
for that Winter or Summer Capability Period (the "Effective DMNC"),
is higher or lower than the DMNC used to calculate payments for that
Winter or Summer Capability Period prior to delivery of the DMNC
Notice, then the payments for that Winter or Summer Capability Period
shall be recalculated using the Effective DMNC and either (i) SELLER
shall refund any overpayments to NIAGARA within thirty (30) days of
delivery of the DMNC Notice, or (ii) SELLER shall deliver an invoice
to NIAGARA for any underpayment which invoice NIAGARA shall pay
within thirty (30) days of receipt. No interest shall accrue on
amounts paid when due in accordance with the preceding sentence;
amounts not paid when due shall be subject to late payment charge
calculated in accordance PARAGRAPH NINTH of the Agreement."
FIFTH: All terms and conditions of the Power Purchase Agreement not
expressly amended herein shall remain in full force and effect.
SIXTH: This Fourth Amendment may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
separate counterparts shall together constitute but one and the same
instrument.
IN WITNESS WHEREOF, Selkirk and NIAGARA have caused this Fourth Amendment
to be executed by their proper officers thereunto duly authorized as of the
date written below.
SELKIRK COGEN PARTNER, L.P.
By JMC Selkirk, Inc., the Managing General Partner
By: /s/ George J. Grunbeck
_______________________
NIAGARA MOHAWK POWER CORPORATION
By: /s/ C.E. NADEAU
------------------------------
C.E. Nadeau
Vice President
Power Transactions & Planning
19
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-START> Jan-01-1996
<PERIOD-END> Jun-30-1996
<CASH> 6802
<SECURITIES> 0
<RECEIVABLES> 14983
<ALLOWANCES> 0
<INVENTORY> 3697
<CURRENT-ASSETS> 26463
<PP&E> 371203
<DEPRECIATION> 30741
<TOTAL-ASSETS> 401434
<CURRENT-LIABILITIES> 13609
<BONDS> 390359
0
0
<COMMON> 0
<OTHER-SE> (13311)
<TOTAL-LIABILITY-AND-EQUITY> 401434
<SALES> 88514
<TOTAL-REVENUES> 88514
<CGS> 59666
<TOTAL-COSTS> 59666
<OTHER-EXPENSES> 3593
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,489
<INCOME-PRETAX> 8766
<INCOME-TAX> 0
<INCOME-CONTINUING> 8766
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8766
<EPS-PRIMARY> 0
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</TABLE>
