SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Annual Report Pursuant to Section 13 or 15 (d) of
the Securities Exchange Act of 1934
For the quarterly period ended June 30, 1999
Commission File No. 33-95538
SALTON SEA FUNDING CORPORATION
(Exact name of registrant as specified in its charter)
47-0790493
(IRS Employer Identification No.)
Salton Sea Brine Processing L.P. California 33-0601721
Salton Sea Power Generation L.P. California 33-0567411
Fish Lake Power LLC Delaware 33-0453364
Vulcan Power Company Nevada 95-3992087
CalEnergy Operating Corporation Delaware 33-0268085
Salton Sea Royalty LLC Delaware 47-0790492
VPC Geothermal LLC Delaware 91-1244270
San Felipe Energy Company California 33-0315787
Conejo Energy Company California 33-0268500
Niguel Energy Company California 33-0268502
Vulcan/BN Geothermal Power Company Nevada 33-3992087
Leathers, L.P. California 33-0305342
Del Ranch, L.P. California 33-0278290
Elmore, L.P. California 33-0278294
Salton Sea Power LLC Delaware 47-0810713
CalEnergy Minerals LLC Delaware 47-0810718
CE Turbo LLC Delaware 47-0812159
CE Salton Sea Inc. Delaware 47-0810711
Salton Sea Minerals Corporation Delaware 47-0811261
(Exact name of Registrants (State or other (I.R.S. Employer
as specified in their charters) jurisdiction of Identification No.)
incorporation or organization)
302 S. 36th Street, Suite 400-A, Omaha, NE 68131
(Address of principal executive offices and Zip Code of Salton
Sea Funding Corporation)
Salton Sea Funding Corporation's telephone number, including area
code: (402) 231-1641
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
All common stock of Salton Sea Funding Corporation is indirectly
held by Magma Power Company. 100 shares of Common Stock were
outstanding on June 30, 1999.
<PAGE>
SALTON SEA FUNDING CORPORATION
Form 10-Q
June 30, 1999
_____________
C O N T E N T S
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements Page
SALTON SEA FUNDING CORPORATION
Independent Accountants' Report 4
Balance Sheets, June 30, 1999 and December 31, 1998 5
Statements of Operations for the Three and Six Months Ended
June 30, 1999 and 1998 6
Statements of Cash Flows for the Six Months Ended
June 30, 1999 and 1998 7
Notes to Financial Statements 8
SALTON SEA GUARANTORS
Independent Accountants' Report 9
Combined Balance Sheets, June 30, 1999 and December 31, 1998 10
Combined Statements of Operations for the Three and Six Months
Ended June 30, 1999 and 1998 11
Combined Statements of Cash Flows for the Six Months Ended
June 30, 1999 and 1998 12
Notes to Combined Financial Statements 13
<PAGE>
PARTNERSHIP GUARANTORS
Independent Accountants' Report 14
Combined Balance Sheets, June 30, 1999 and December 31, 1998 15
Combined Statements of Operations for the Three and Six Months
Ended June 30, 1999 and 1998 16
Combined Statements of Cash Flows for the Six Months Ended
June 30, 1999 and 1998 17
Notes to Combined Financial Statements 18
SALTON SEA ROYALTY COMPANY
Independent Accountants' Report 19
Balance Sheets, June 30, 1999 and December 31, 1998 20
Statements of Operations for the Three and Six Months Ended
June 30, 1999 and 1998 21
Statements of Cash Flows for the Six Months Ended
June 30, 1999 and 1998 22
Notes to Financial Statements 23
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 24
PART II: OTHER INFORMATION
Item 1. Legal Proceedings 33
Item 2. Changes in Securities 33
Item 3. Defaults on Senior Securities 33
Item 4. Submission of Matters to a Vote of Security Holders 33
Item 5. Other Information 33
Item 6. Exhibits and Reports on Form 8-K 33
Signatures 34
Exhibit Index 35
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors and Stockholder
Salton Sea Funding Corporation
Omaha, Nebraska
We have reviewed the accompanying balance sheet of the Salton Sea
Funding Corporation as of June 30, 1999, and the related
statements of operations for the three and six month periods
ended June 30, 1999 and 1998 and cash flows for the six month
periods ended June 30, 1999 and 1998. These financial statements
are the responsibility of the Company's management.
We conducted our review in accordance with standards established
by the American Institute of Certified Public Accountants. A
review of interim financial information consists principally of
applying analytical procedures to financial data and of making
inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material
modifications that should be made to such financial statements
for them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted
auditing standards, the balance sheet of Salton Sea Funding
Corporation as of December 31, 1998, and the related statements
of operations, stockholder's equity, and cash flows for the year
then ended (not presented herein); and in our report dated
January 28, 1999, (March 3, 1999 as to Note 4) we expressed an
unqualified opinion on those financial statements. In our
opinion, the information set forth in the accompanying balance
sheet as of December 31, 1998 is fairly stated, in all material
respects, in relation to the balance sheet from which it has been
derived.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
July 26, 1999
<PAGE>
SALTON SEA FUNDING CORPORATION
BALANCE SHEETS
(Dollars in Thousands, Except per Share Amounts)
June 30, December 31,
1999 1998
___________ __________
(unaudited)
ASSETS
Cash $ 12,349 $ 17,629
Prepaid expenses and other assets 4,695 6,768
Secured project notes from Guarantors 597,898 626,816
Investment in 1% of net assets of
Guarantors 8,332 8,124
__________ __________
$ 623,274 $ 659,337
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Accrued liabilities $ 3,740 $ 3,971
Due to affiliates 9,369 16,612
Senior secured notes and bonds 597,898 626,816
__________ __________
Total liabilities 611,007 647,399
Stockholder's equity:
Common stock--authorized 1,000
shares, par value $.01 per share;
issued and outstanding 100 shares --- ---
Additional paid-in capital 5,366 5,366
Retained earnings 6,901 6,572
__________ __________
Total stockholder's equity 12,267 11,938
__________ __________
$ 623,274 $ 659,337
========== ==========
The accompanying notes are an integral part of these financial statements.
<PAGE>
SALTON SEA FUNDING CORPORATION
STATEMENTS OF OPERATIONS
(Dollars in Thousands)
(Unaudited)
Three Months Ended June 30 Six Months Ended June 30,
1999 1998 1999 1998
Revenues:
Interest income $ 11,982 $ 8,719 $ 24,111 $ 17,709
Equity in earnings of
Guarantors 92 236 208 397
Total revenues 12,074 8,955 24,319 18,106
_________ ________ _______ _______
Expenses:
General and administrative
expenses 188 235 403 473
Interest expense 11,622 8,020 23,359 16,279
_________ ________ _______ _______
Total expenses 11,810 8,255 23,762 16,752
_________ ________ _______ _______
Income before income taxes 264 700 557 1,354
Provision for income taxes 107 286 228 555
_________ ________ _______ _______
Net income $ 157 $ 414 $ 329 $ 799
========= ======== ======= =======
The accompanying notes are an integral part of these financial statements.
<PAGE>
SALTON SEA FUNDING CORPORATION
STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
Six Months Ended
June 30,
1999 1998
Cash flows from operating activities:
Net income $ 329 $ 799
Adjustments to reconcile net income to net
cash flows from operating activities:
Equity in earnings of guarantors (208) (397)
Changes in assets and liabilities:
Prepaid expenses and other assets 2,073 296
Accrued liabilities (231) (375)
__________ _________
Net cash flows from operating activities 1,963 323
__________ ________
Cash flows from investing activities:
Principal repayments of secured project notes
from Guarantors 28,918 53,469
__________ _________
Net cash flows from investing activities 28,918 53,469
________ _________
Cash flows from financing activities:
Decrease in due to affiliates (7,243) (9,907)
Repayment of senior secured notes and bonds (28,918) (53,469)
__________ _________
Net cash flows from financing activities (36,161) (63,376)
__________ _________
Net change in cash (5,280) (9,584)
Cash at the beginning of period 17,629 15,568
__________ _________
Cash at the end of period $ 12,349 $ 5,984
========== =========
The accompanying notes are an integral part of these financial statements.
<PAGE>
SALTON SEA FUNDING CORPORATION
NOTES TO FINANCIAL STATEMENTS
(in thousands)
_____________________
1. General:
In the opinion of management of the Salton Sea Funding
Corporation (the "Funding Corporation"), the accompanying
unaudited financial statements contain all adjustments
(consisting only of normal recurring accruals) necessary to
present fairly the financial position as of June 30, 1999 and the
results of operations for the three and six months ended June 30,
1999 and 1998 and cash flows for the six months ended June 30,
1999 and 1998. The results of operations for the three and six
months ended June 30, 1999 and 1998 are not necessarily
indicative of the results to be expected for the full year.
The unaudited financial statements shall be read in conjunction
with the financial statements included in the Funding
Corporation's annual report on Form 10-K for the year ended
December 31, 1998.
The Funding Corporation was formed on June 20, 1995 for the sole
purpose of acting as issuer of senior secured notes and bonds.
2. Disposition of power generation assets:
On February 8, 1999, MidAmerican Energy Holdings Company, the
successor to CalEnergy Company, Inc. ("MidAmerican") created a
new subsidiary, CE Generation LLC ("CE Generation") and
subsequently transferred its interest in the power generation
assets in the Imperial Valley to CE Generation. On March 3,
1999, MidAmerican closed the sale of 50% of its ownership
interests in CE Generation to an affiliate of El Paso Energy
Corporation.
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors and Stockholder
Magma Power Company
Omaha, Nebraska
We have reviewed the accompanying combined balance sheet of the
Salton Sea Guarantors as of June 30, 1999, and the related
combined statements of operations for the three and six month
periods ended June 30, 1999 and 1998 and cash flows for the six
month periods ended June 30, 1999 and 1998. These financial
statements are the responsibility of the Salton Sea Guarantors'
management.
We conducted our review in accordance with standards established
by the American Institute of Certified Public Accountants. A
review of interim financial information consists principally of
applying analytical procedures to financial data and of making
inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material
modifications that should be made to such combined financial
statements for them to be in conformity with generally accepted
accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the combined balance sheet of the Salton Sea
Guarantors as of December 31, 1998, and the related combined
statements of operations, Guarantors' equity, and cash flows for
the year then ended (not presented herein); and in our report
dated January 28, 1999, (March 3, 1999 as to Note 6), we
expressed an unqualified opinion on those combined financial
statements. In our opinion, the information set forth in the
accompanying combined balance sheet as of December 31, 1998 is
fairly stated, in all material respects, in relation to the
combined balance sheet from which it has been derived.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
July 26, 1999
<PAGE>
SALTON SEA GUARANTORS
COMBINED BALANCE SHEETS
(Dollars in Thousands)
June 30, December 31,
1999 1998
__________ _________
(unaudited)
ASSETS
Restricted cash $ 49,348 $ 71,673
Accounts receivable 20,258 15,957
Prepaid expenses and other assets 10,390 12,410
Property, plant, contracts and
equipment, net 500,131 480,293
Excess of cost over fair value of net assets
acquired, net 47,530 48,182
_________ _________
$ 627,657 $ 628,515
======== ========
LIABILITIES AND GUARANTORS' EQUITY
Liabilities:
Accounts payable $ 560 $ 504
Accrued liabilities 9,043 7,166
Due to affiliates 27,172 30,688
Senior secured project note 301,992 310,030
_________ _________
Total liabilities 338,767 348,388
Total Guarantors' equity 288,890 280,127
_________ _________
$ 627,657 $ 628,515
========= =========
The accompanying notes are an integral part of these financial statements.
<PAGE>
SALTON SEA GUARANTORS
COMBINED STATEMENTS OF OPERATIONS
(Dollars in Thousands)
(Unaudited)
Three Months Ended Six Months Ended
June 30 June 30
___________ ___________
1999 1998 1999 1998
________ ________ ________ _______
Revenues:
Sales of electricity $ 19,546 $ 27,612 $ 37,818 $ 47,797
Interest and other income 651 7 1,443 22
_______ _______ _______ _______
Total revenues 20,197 27,619 39,261 47,819
_______ _______ _______ _______
Expenses:
Operating, general and administration 6,227 7,800 13,535 14,547
Depreciation and amortization 4,421 3,726 8,443 7,440
Interest expense 6,095 5,199 12,171 10,459
Less capitalized interest (1,947) (1,280) (3,651) (2,612)
_______ _______ _______ _______
Total expenses 14,796 15,445 30,498 29,834
_______ _______ _______ _______
Net income $ 5,401 $ 12,174 $ 8,763 $ 17,985
======= ======= ======= =======
The accompanying notes are an integral part of these financial statements.
<PAGE>
SALTON SEA GUARANTORS
COMBINED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
Six Months Ended
June 30,
____________________
1999 1998
Cash flows from operating activities:
Net income $ 8,763 $ 17,985
Adjustments to reconcile net income to net
cash flows from operating activities:
Depreciation and amortization 8,443 7,440
Changes in assets and liabilities:
Accounts receivable (4,301) (3,789)
Prepaid expenses and other assets 2,020 1,897
Accounts payable and accrued liabilities 1,933 (1,152)
_________ _________
Net cash flows from operating activities 16,858 22,381
_________ _________
Cash flows from investing activities:
Capital expenditures (27,629) (3,610)
Decrease in restricted cash 22,325 ---
_________ _________
Net cash flows from investing activities (5,304) (3,610)
Cash flows from financing activities:
Increase (decrease) in due to affiliates (3,516) 954
Repayments of senior secured project note (8,038) (19,725)
__________ _________
Net cash flows from financing activities (11,554) (18,771)
_________ _________
Net change in cash --- ---
Cash at beginning of period --- ---
_________ _________
Cash at end of period $ --- $ ---
========= =========
The accompanying notes are an integral part of these financial statements.
<PAGE>
SALTON SEA GUARANTORS
NOTES TO COMBINED FINANCIAL STATEMENTS
(in thousands)
____________________
1. General:
In the opinion of management of the Salton Sea Guarantors (the
"Guarantors"), the accompanying unaudited combined financial
statements contain all adjustments (consisting only of normal
recurring accruals) necessary to present fairly the financial
position as of June 30, 1999 and the results of operations for
the three and six months ended June 30, 1999 and 1998 and cash
flows for the six months ended June 30, 1999 and 1998. The
results of operations for the three and six months ended June 30,
1999 and 1998 are not necessarily indicative of the results to be
expected for the full year.
The unaudited combined financial statements shall be read in
conjunction with the financial statements included in the Funding
Corporation's annual report on Form 10-K for the year ended
December 31, 1998.
The combined financial statements include the accounts of the
partnerships in which the Guarantors have a 100% interest.
2. Disposition of power generation assets:
On February 8, 1999, MidAmerican Energy Holdings Company, the
successor to CalEnergy Company, Inc. ("MidAmerican") created a
new subsidiary, CE Generation LLC ("CE Generation") and
subsequently transferred its interest in the power generation
assets in the Imperial Valley to CE Generation. On March 3,
1999, MidAmerican closed the sale of 50% of its ownership
interests in CE Generation to an affiliate of El Paso Energy
Corporation.
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors and Stockholder
Magma Power Company
Omaha, Nebraska
We have reviewed the accompanying combined balance sheet of the
Partnership Guarantors as of June 30, 1999, and the related
combined statements of operations for the three and six month
periods ended June 30 1999 and 1998 and cash flows for the six
month periods ended June 30, 1999 and 1998. These financial
statements are the responsibility of the Partnership Guarantors'
management.
We conducted our review in accordance with standards established
by the American Institute of Certified Public Accountants. A
review of interim financial information consists principally of
applying analytical procedures to financial data and of making
inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material
modifications that should be made to such combined financial
statements for them to be in conformity with generally accepted
accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the combined balance sheet of the Partnership
Guarantors as of December 31, 1998, and the related combined
statements of operations, Guarantors' equity and cash flows for
the year then ended (not presented herein); and in our report
dated January 28, 1999, (March 3, 1999 as to Note 10), we
expressed an unqualified opinion on those combined financial
statements. In our opinion, the information set forth in the
accompanying combined balance sheet as of December 31, 1998 is
fairly stated, in all material respects, in relation to the
combined balance sheet from which it has been derived.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
July 26, 1999
<PAGE>
PARTNERSHIP GUARANTORS
COMBINED BALANCE SHEETS
(Dollars in Thousands)
June 30, December 31,
1999 1998
(unaudited)
ASSETS
Restricted cash $ 128,352 $ 164,983
Accounts receivable 24,710 33,404
Prepaid expenses and other assets 23,516 23,088
Due from affiliates 119,803 121,130
Property, plant, contracts and equipment, net 446,636 399,817
Management fee 71,041 71,596
Excess of cost over fair value of net assets
acquired, net 129,776 131,558
_________ _________
$ 943,834 $ 945,576
========= =========
LIABILITIES AND GUARANTORS' EQUITY
Liabilities:
Accounts payable $ 3,686 $ 1,879
Accrued liabilities 55,687 53,647
Senior secured project notes 277,394 293,576
Deferred income taxes 101,772 97,641
_________ _________
Total liabilities 438,539 446,743
Commitments and Contingencies (Note 3)
Guarantors' equity:
Common stock 3 3
Additional paid-in capital 387,663 387,663
Retained earnings 117,629 111,167
_________ _________
Total Guarantors' equity 505,295 498,833
_________ _________
$ 943,834 $ 945,576
========= =========
The accompanying notes are an integral part of these financial statements.
<PAGE>
PARTNERSHIP GUARANTORS
COMBINED STATEMENTS OF OPERATIONS
(Dollars in Thousands)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
_________ _________ _________ _________
Revenues:
Sales of electricity $ 24,222 $ 39,574 $ 46,252 $ 73,671
Interest and other income 2,155 1,298 4,474 2,032
_________ _________ _________ _________
Total revenues 26,377 40,872 50,726 75,703
_________ _________ _________ _________
Expenses:
Operating, general and administration 11,858 15,694 23,065 29,784
Depreciation and amortization 6,262 14,011 12,480 24,166
Interest expense 5,641 2,456 11,335 5,753
Less capitalized interest (4,314) (2,425) (6,747) (4,887)
_________ _________ _________ _________
Total expenses 19,447 29,736 40,133 54,816
_________ _________ _________ _________
Income before income taxes 6,930 11,136 10,593 20,887
Provision for income taxes 3,014 4,357 4,131 8,158
_________ _________ _________ _________
Net income $ 3,916 $ 6,779 $ 6,462 $ 12,729
========= ========= ========= =========
The accompanying notes are an integral part of these financial statements.
<PAGE>
PARTNERSHIP GUARANTORS
COMBINED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
Six Months Ended
June 30,
1999 1998
_________ _________
Cash flows from operating activities:
Net income $ 6,462 $ 12,729
Adjustments to reconcile net income to net
cash flows from operating activities:
Depreciation and amortization 12,480 24,166
Deferred income taxes 4,131 8,158
Changes in assets and liabilities:
Accounts receivable 8,694 (10,280)
Prepaid expenses and other assets (428) (3,197)
Accounts payable and accrued
liabilities 3,847 (1,348)
_________ _________
Net cash flows from operating activities 35,186 30,228
_________ _________
Cash flows from investing activities:
Capital expenditures (56,111) (19,671)
Decrease in restricted cash 36,631 ---
Management fee (851) (1,479)
_________ _________
Net cash flows from investing activities (20,331) (21,150)
_________ _________
Cash flows from financing activities:
Repayments of senior secured project notes (16,182) (25,881)
Decrease in due from affiliates 1,327 16,803
_________ _________
Net cash flows from financing activities (14,855) (9,078)
_________ _________
Net change in cash --- ---
Cash at beginning of period --- ---
_________ _________
Cash at end of period $ --- $ ---
========= =========
The accompanying notes are an integral part of these financial statements.
<PAGE>
PARTNERSHIP GUARANTORS
NOTES TO COMBINED FINANCIAL STATEMENTS
(in thousands)
____________________
1. General:
In the opinion of management of the Partnership Guarantors (the
"Guarantors"), the accompanying unaudited combined financial
statements contain all adjustments (consisting only of normal
recurring accruals) necessary to present fairly the financial
position as of June 30, 1999 and the results of operations for
the three and six months ended June 30, 1999 and 1998 and cash
flows for the six months ended June 30, 1999 and 1998. The
results of operations for the three and six months ended June 30,
1999 and 1998 are not necessarily indicative of the results to be
expected for the full year.
The unaudited combined financial statements shall be read in
conjunction with the financial statements included in the Funding
Corporation's annual report on Form 10-K for the year ended
December 31, 1998.
The combined financial statements include the proportionate share
of the accounts of the partnerships in which the Guarantors have
an interest.
2. Disposition of power generation assets:
On February 8, 1999, MidAmerican Energy Holdings Company, the
successor to CalEnergy Company, Inc. ("MidAmerican") created a
new subsidiary, CE Generation LLC ("CE Generation") and
subsequently transferred its interest in the power generation
assets in the Imperial Valley to CE Generation. On March 3,
1999, MidAmerican closed the sale of 50% of its ownership
interests in CE Generation to an affiliate of El Paso Energy
Corporation.
3. Contingencies:
On February 26, 1998, Del Ranch and Elmore initiated an action
against Edison in Imperial County Superior Court for payment for
energy delivered to Edison pursuant to long term power sale
agreements at the escalated rate of 14.6 cents for 1998. For the
Elmore and Del Ranch partnerships, Edison has asserted that
prices should not be escalated for 1998 and made payments for
energy deliveries at 13.6 cents per kWh in 1998. That action is
in the early discovery stages and the Del Ranch and Elmore
partnerships intend to vigorously prosecute all available claims.
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors and Stockholder
Magma Power Company
Omaha, Nebraska
We have reviewed the accompanying balance sheet of the Salton Sea
Royalty Company as of June 30, 1999, and the related statements
of operations for the three and six month periods ended June 30,
1999 and 1998 and cash flows for the six month periods ended June
30, 1999 and 1998. These financial statements are the
responsibility of the Salton Sea Royalty Company's management.
We conducted our review in accordance with standards established
by the American Institute of Certified Public Accountants. A
review of interim financial information consists principally of
applying analytical procedures to financial data and of making
inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material
modifications that should be made to such financial statements
for them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted
auditing standards, the balance sheet of the Salton Sea Royalty
Company as of December 31, 1998, and the related statements of
operations, equity, and cash flows for the year then ended (not
presented herein); and in our report dated January 28, 1999,
(March 3, 1999 as to Note 5), we expressed an unqualified opinion
on those financial statements. In our opinion, the information
set forth in the accompanying balance sheet as of December 31,
1998 is fairly stated, in all material respects, in relation to
the balance sheet from which it has been derived.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
July 26, 1999
<PAGE>
SALTON SEA ROYALTY COMPANY
BALANCE SHEETS
(Dollars in Thousands, Except per Share Amounts)
June 30, December 31,
1999 1998
___________ ___________
(unaudited)
ASSETS
Due from affiliates $ 51,182 $ 50,928
Royalty stream, net 18,489 22,932
Excess of cost over fair value of net assets
acquired, net 32,734 33,188
Prepaid expenses and other assets 374 513
__________ __________
$ 102,779 $ 107,561
========== ==========
LIABILITIES AND EQUITY
Liabilities:
Accrued liabilities $ 35,668 $ 39,584
Senior secured project note 18,512 23,210
Deferred income taxes 5,014 6,769
__________ __________
Total liabilities 59,194 69,563
Equity:
Common stock, par value $.01 per share; 100
share authorized, issued and outstanding - -
Additional paid-in capital 1,561 1,561
Retained earnings 42,024 36,437
__________ __________
Total equity 43,585 37,998
__________ __________
$ 102,779 $ 107,561
========== ==========
The accompanying notes are an integral part of these financial statements.
<PAGE>
SALTON SEA ROYALTY COMPANY
STATEMENTS OF OPERATIONS
(Dollars in Thousands)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
___________________ _________________
1999 1998 1999 1998
_______ _______ _______ _______
Revenues:
Royalty income $ 3,770 $12,642 $17,229 $24,680
Expenses:
Operating, general and
administrative expenses 1,046 2,032 2,154 3,891
Amortization of royalty stream
and goodwill 2,448 2,448 4,897 4,897
Interest expense 446 739 914 1,515
________ ________ ________ ________
Total expenses 3,940 5,219 7,965 10,303
________ ________ ________ ________
Income (loss) before income taxes (170) 7,423 9,264 14,377
Provision for (benefit from) income taxes (113) 2,791 3,677 5,416
________ ________ ________ ________
Net income (loss) $ (57) $ 4,632 $ 5,587 $ 8,961
======== ======== ======== ========
The accompanying notes are an integral part of these financial statements.
<PAGE>
SALTON SEA ROYALTY COMPANY
STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
Six Months Ended
June 30,
_______ _______
1999 1998
_______ _______
Cash flows from operating activities:
Net income $ 5,587 $ 8,961
Adjustments to reconcile net income to net
cash flows from operating activities:
Amortization of royalty stream and goodwill 4,897 4,897
Changes in assets and liabilities:
Prepaid expenses and other assets 139 234
Accrued liabilities and deferred income taxes (5,671) 11,047
Net cash flows from operating activities 4,952 25,139
Net cash flows from financing activities:
Increase in due from affiliates (254) (17,276)
Repayment of senior secured project note (4,698) (7,863)
_________ _________
Net cash flows from financing activities (4,952) (25,139)
Net change in cash --- ---
Cash at beginning of period --- ---
_________ _________
Cash at end of period $ --- $ ---
========= =========
The accompanying notes are an integral part of these financial statements.
<PAGE>
SALTON SEA ROYALTY COMPANY
NOTES TO FINANCIAL STATEMENTS
(in thousands)
____________________
1. General:
In the opinion of management of the Salton Sea Royalty Company
(the "Company"), the accompanying unaudited financial statements
contain all adjustments (consisting only of normal recurring
accruals) necessary to present fairly the financial position as
of June 30, 1999 and the results of operations for the three and
six months ended June 30, 1999 and 1998 and cash flows for the
six months ended June 30, 1999 and 1998. The results of
operations for the three and six months ended June 30, 1999 and
1998 are not necessarily indicative of the results to be expected
for the full year.
The unaudited financial statements shall be read in conjunction
with the financial statements included in the Funding
Corporation's annual report on Form 10-K for the year ended
December 31, 1998.
2. Disposition of power generation assets:
On February 8, 1999, MidAmerican Energy Holdings Company, the
successor to CalEnergy Company, Inc. ("MidAmerican") created a
new subsidiary, CE Generation LLC ("CE Generation") and
subsequently transferred its interest in the power generation
assets in the Imperial Valley to CE Generation. On March 3,
1999, MidAmerican closed the sale of 50% of its ownership
interests in CE Generation to an affiliate of El Paso Energy
Corporation.
<PAGE>
THE SALTON SEA FUNDING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands, except per kwh data)
_________________________________
Results of Operations:
The following is management's discussion and analysis of certain
significant factors which have affected the Salton Sea Funding
Corporation's (the "Funding Corporation") and the Salton Sea
Guarantors, the Partnership Guarantors and the Salton Sea Royalty
Company's (collectively, the "Guarantors") financial condition
and results of operations during the periods included in the
accompanying statements of operations.
Funding Corporation was organized for the sole purpose of acting
as issuer of senior secured notes and bonds (the "Securities").
The Securities are payable from the proceeds of payments made of
principal and interest on the senior secured project notes by the
Guarantors to the Funding Corporation. The Securities are
guaranteed on a joint and several basis by the Guarantors. The
guarantees of the Partnership Guarantors and Salton Sea Royalty
Company are limited to available cash flow. The Funding
Corporation does not conduct any operations apart from the
Securities.
The Vulcan, Leathers, Del Ranch and Elmore partnerships
(collectively, the "Partnership Projects") sell all electricity
generated by the respective plants pursuant to four long-term SO4
Agreements between the projects and Southern California Edison
Company ("Edison"). These SO4 Agreements provide for capacity
payments, capacity bonus payments and energy payments. Edison
makes fixed annual capacity payments to the projects and, to the
extent that capacity factors exceed certain benchmarks, is
required to make capacity bonus payments. The price for capacity
and capacity bonus payments is fixed for the life of the SO4
Agreements and the capacity payments are significantly higher in
the months of June through September. Energy is sold at
increasing scheduled rates for the first ten years of each plants
operations and thereafter at Edison's Avoided Cost of Energy.
The scheduled energy price periods of the Partnership Project SO4
Agreements extended until February 1996 for the Vulcan
Partnership, December 1998 for the Hoch (Del Ranch) and Elmore
Partnerships, and extend until December 1999 for the Leathers
Partnership.
For 1999, Vulcan, Hoch and Elmore are receiving Edison's Avoided
Cost of Energy pursuant to their respective SO4 Agreements. The
SO4 Agreement for Leathers provides for energy rates of 15.6
cents per kWh in 1999.
<PAGE>
THE SALTON SEA FUNDING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands, except per kwh data)
_________________________________
Results of Operations: (continued)
The Salton Sea I Project sells electricity to Edison pursuant to
a 30-year negotiated power purchase agreement, as amended (the
"Salton Sea I PPA"), which provides for capacity and energy
payments. The energy payment is calculated using a Base Price
which is subject to quarterly adjustments based on a basket of
indices. The time period weighted average energy payment for
Salton Sea I was 5.4 cents per kWh during the six months ended
June 30, 1999. As the Salton Sea I PPA is not an SO4 Agreement,
the energy payments do not revert to Edison's Avoided Cost of
Energy.
The Salton Sea II and Salton Sea III Projects sell electricity to
Edison pursuant to 30-year modified SO4 Agreements that provide
for capacity payments, capacity bonus payments and energy
payments. The price for contract capacity and contract capacity
bonus payments is fixed for the life of the modified SO4
Agreements. The energy payments for the first ten year period,
which expires April 4, 2000 for Salton Sea II and expired on
February 13, 1999 for Salton Sea III, are levelized at a time
period weighted average of 10.6 cents per kWh and 9.8 cents per
kWh for Salton Sea II and Salton Sea III, respectively.
Thereafter, the monthly energy payments will be at Edison's
Avoided Cost of Energy. For Salton Sea II only, Edison is
entitled to receive, at no cost, 5% of all energy delivered in
excess of 80% of contract capacity through March 31, 2004.
The Salton Sea IV Project sells electricity to Edison pursuant to
a modified SO4 agreement which provides for contract capacity
payments on 34 MW of capacity at two different rates based on the
respective contract capacities deemed attributable to the
original Salton Sea PPA option (20 MW) and to the original Fish
Lake PPA (14 MW). The capacity payment price for the 20 MW
portion adjusts quarterly based upon specified indices and the
capacity payment price for the 14 MW portion is a fixed levelized
rate. The energy payment (for deliveries up to a rate of 39.6
MW) is at a fixed price for 55.6% of the total energy delivered
by Salton Sea IV and is based on an energy payment schedule for
44.4% of the total energy delivered by Salton Sea IV. The
contract has a 30-year term but Edison is not required to
purchase the 20 MW of capacity and energy originally attributable
to the Salton Sea I PPA option after September 30, 2017, the
original termination date of the Salton Sea I PPA.
For the six months ended June 30, 1999, Edison's average Avoided
Cost of Energy was 2.7 cents per kWh which is substantially below
the contract energy prices earned for the six months ended June
30, 1999. Estimates of Edison's future Avoided Cost of Energy
vary substantially from year to year.
<PAGE>
THE SALTON SEA FUNDING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands, except per kwh data)
_________________________________
Results of Operations: (continued)
The Company cannot predict the likely level of Avoided Cost of
Energy prices under the SO4 Agreements and the modified SO4
Agreements at the expiration of the scheduled payment periods.
The revenues generated by each of the projects operating under
such Agreements will likely decline significantly after the
expiration of the respective scheduled payment periods.
The following data includes the aggregate capacity and
electricity production of Salton Sea Units I, II, III and IV:
Three Months Ended Six Months Ended
June 30, June 30,
_____________________ __________________
1999 1998 1999 1998
________ ________ ______ _______
Overall capacity factor 93.3% 98.0% 88.6% 90.2%
Capacity (NMW) (average) 119.4 119.4 119.4 119.4
kWh produced (in thousands) 243,300 258,000 459,300 467,900
The overall capacity factor for the Salton Sea Projects decreased
marginally for the six months ended June 30, 1999 compared to the
same period in 1998 due to reduced production at Region I.
The following data includes the aggregate capacity and
electricity production of Vulcan, Del Ranch, Elmore and Leathers:
Three Months Ended Six Months Ended
June 30, June 30,
____________________ _________________
1999 1998 1999 1998
________ _________ ________ _______
Overall capacity factor 94.6% 93.5% 100.7% 95.9%
Capacity (NMW) (average) 148 148 148 148
kWh produced (in thousands) 305,900 302,100 647,400 616,600
The overall capacity factor for the Partnership Projects
increased for the six months ended June 30, 1999 compared to the
same period in 1998 due to scheduled overhauls at Leathers and
Elmore in 1998.
<PAGE>
THE SALTON SEA FUNDING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands, except per kwh data)
_________________________________
Results of Operations: (continued)
Revenues:
The Salton Sea Guarantors' sales of electricity decreased to
$19,546 for the three months ended June 30, 1999 from $27,612 for
the same period in 1998, a 29.2% decrease. For the six months
ended June 30, 1999, revenues decreased to $37,818 from $47,797
in 1998, a 20.9% decrease. These decreases were primarily due to
the expiration of the fixed price period at Salton Sea Unit III
in February, 1999.
The Partnership Guarantors' sales of electricity decreased to
$24,222 for the three months ended June 30, 1999 from $39,574 for
the same period in 1998, a 38.8% decrease. For the six month
period ended June 30, 1999, sales of electricity decreased to
$46,252 from $73,671 in 1998, a 37.2% decrease. These decreases
were due to the expiration of the scheduled price period at
Elmore and Del Ranch at December 31, 1998.
The Royalty Guarantor revenue decreased to $3,770 for the three
months ended June 30, 1999 from $12,642 for the same period last
year. For the six month period ended June 30, 1999, revenue
decreased to $17,229 from $24,680 in 1998. This decrease was due
primarily to a decrease in East Mesa royalty income related to a
royalty settlement and a reduction in royalty income from Del
Ranch and Elmore due to lower revenue.
Operating Expenses:
The Salton Sea Guarantors' operating expenses, which include
royalty, operating, and general and administrative expenses,
decreased to $6,227, for the three months ended June 30, 1999
from $7,800 for the same period in 1998. For the six month
period ended June 30, 1999, operating expenses decreased to
$13,535 from $14,547 in 1998. These decreases were primarily due
to lower royalty costs resulting from lower revenues.
The Partnership Guarantors' operating expenses, which include
royalty, operating, and general and administrative expenses,
decreased to $11,858 for the three months ended June 30, 1999
from $15,694 for the same period in 1998. For the six month
period ended June 30, 1999, operating expenses decreased to
$23,065 from $29,784 in 1998, a 22.6% decrease. These decreases
were primarily due to a reduction in royalty expenses due to the
lower revenues.
The Royalty Guarantors' operating expenses decreased to $1,046
for the three months ended June 30, 1999 from $2,032 for the same
period in 1998, a 48.5% decrease. For the six month period ended
June 30, 1999, operating expenses decreased to $2,154 from $3,891
in 1998, a 44.6% decrease. These decreases were due to lower
royalty costs due to the end of the scheduled price period at Del
Ranch and Elmore.
Depreciation and Amortization:
The Salton Sea Guarantors' depreciation and amortization
increased to $4,421 for the three months ended June 30, 1999 from
$3,726 for the same period of 1998, an 18.7% increase. For the
six month period ended June 30, 1999, depreciation and
amortization increased to $8,443 from $7,440 in 1998. The
increase was due to an increase in step up depreciation charges.
<PAGE>
THE SALTON SEA FUNDING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands, except per kwh data)
_________________________________
Results of Operations: (continued)
The Partnership Guarantors' depreciation and amortization
decreased to $6,262 for the three months ended June 30, 1999 from
$14,011 for the same period in 1998. For the six month period
ended June 30, 1999, depreciation and amortization decreased to
$12,480 from $24,166 in 1998. The decrease was due primarily to
lower step up depreciation amortization after the end of the
scheduled price period at Del Ranch and Elmore.
The Royalty Guarantors' amortization was $2,448 for the three
months ended June 30, 1999 compared to $2,448 for the same period
of 1998. For the six month period ended June 30, 1999,
amortization was $4,897 compared to $4,897 in 1998.
Interest Expense:
The Salton Sea Guarantors' interest expense, net of capitalized
amounts, increased to $4,148 for the three months ended June 30,
1999 from $3,919 for the same period in 1998, a 5.8% increase.
For the six month period ended June 30, 1999, interest expense,
net of capitalized amounts, increased to $8,520 from $7,847 in
1998. The increases were primarily due to increased indebtedness
from the issuance of the Series F notes in October 1998.
The Partnership Guarantors' interest expense, net of capitalized
amounts, increased to $1,327 for the three months ended June 30,
1999 from $31 for the same period in 1998. For the six month
period ended June 30, 1999, interest expense, net of capitalized
amounts, increased to $4,588 from $866. The increases were
primarily due to increased indebtedness from the issuance of the
Series F notes in October 1998.
The Royalty Guarantors' interest expense decreased to $446 for
the three months ended June 30, 1999 from $739 from the same
period in 1998. For the six month period ended June 30, 1999,
interest expense decreased to $914 from $1,515 in 1998. The
decrease was due to reduced indebtedness.
Income Tax Provision:
The Salton Sea Guarantors are comprised of partnerships. Income
taxes are the responsibility of the partners and Salton Sea
Guarantors have no obligation to provide funds to the partners
for payment of any tax liabilities. Accordingly, the Salton Sea
Guarantors have no tax obligations.
The Partnership Guarantors income tax provision decreased to
$2,297 for the three months ended June 30, 1999 from $4,357 for
the same period in 1998, a 47.3% decrease. For the six month
period ended June 30, 1999, the provision for income taxes
decreased to $3,414 from $8,158 in 1998. This decrease was
primarily due to a lower pre-tax income. Income taxes will be
paid by the parent of the Guarantors from distributions to the
parent company by the Guarantors which occur after operating
expenses and debt service.
<PAGE>
THE SALTON SEA FUNDING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands, except per kwh data)
_________________________________
Results of Operations: (continued)
The Royalty Guarantor's income tax benefit was $113 for the three
months ended June 30, 1999 compared to an income tax provision of
$2,791 for the same period in 1998. For the six month period
ended June 30, 1999, income tax provision decreased to $3,677
from $5,416 in 1998. These decreases were primarily due to lower
pre-tax income. Tax obligations of the Royalty Guarantor will be
remitted to the parent company only to the extent of cash flows
available after operating expenses and debt service.
Net Income:
The Salton Sea Funding Corporation's net income for the three
months ended June 30, 1999 decreased to $161 compared to $414 for
the same period in 1998. For the six month period ended June 30,
1999, net income decreased to $333 from $799 in 1998. The net
income primarily represents interest income and expense, net of
applicable tax, and the Salton Sea Funding Corporation's 1%
equity in earnings of the Guarantors.
The Salton Sea Guarantors' net income decreased to $5,401 for the
three months ended June 30, 1999 compared to $12,174 for the same
period of 1998. For the six month period ended June 30, 1999,
net income decreased to $8,763 compared to $17,985 in 1998.
The Partnership Guarantors' net income decreased to $4,633 for
the three months ended June 30, 1999 compared to $6,779 for the
same period of 1998. For the six month period ended June 30,
1999, net income decreased to $7,179 from $12,729 in 1998.
The Royalty Guarantors' net loss was $57 for the three months
ended June 30, 1999 compared to net income of $4,632 for the same
period of 1998. For the six month period ended June 30, 1999,
net income decreased to $5,587 from $8,961 in 1998.
Liquidity and Capital Resources:
CalEnergy Minerals LLC, a Partnership Guarantor ("Minerals LLC"),
developed and owns the rights to proprietary processes for the
extraction of zinc from elements in solution in the geothermal
brine and fluids utilized at its Imperial Valley plants (the
"Zinc Recovery Project") as well as the production of power to be
used in the extraction process. A pilot plant has successfully
produced commercial quality zinc at the Company's Imperial Valley
Project.
Minerals LLC is constructing the Zinc Recovery Project which will
recover zinc from the geothermal brine (the "Zinc Recovery
Project"). Four facilities will be installed near the Imperial
Valley Project sites to extract a zinc chloride solution from the
brine through an ion exchange process. This solution will be
transported to a central processing plant where zinc ingots will
be produced through solvent extraction, electrowinning and
casting processes. The Zinc Recovery Project is designed to have
a capacity of approximately 30,000 metric tonnes per year and is
scheduled to commence commercial operation in mid-2000.
The zinc produced by the Zinc Recovery Project is expected to be
sold primarily to U.S. West Coast customers such as steel
companies, alloyers and galvanizers.
<PAGE>
THE SALTON SEA FUNDING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands, except per kwh data)
_________________________________
Liquidity and Capital Resources: (continued)
The Zinc Recovery Project is being constructed by Kvaerner U.S.
Inc. ("Kvaerner") pursuant to a date certain, fixed-price,
turnkey engineering, procurement and construction contract (the
"Zinc Recovery Project EPC Contract"). Kvaerner is a wholly-
owned indirect subsidiary of Kvaerner ASA, an internationally
recognized engineering and construction firm experienced in the
metals, mining and processing industries. Total project costs of
the Zinc Recovery Project are expected to be approximately
$200,900. Minerals LLC has incurred approximately $43,200 of
such costs through June 30, 1999.
Salton Sea Power LLC, a Salton Sea Guarantor, is constructing
Salton Sea V. Salton Sea V will be a 49 net MW geothermal power
plant which will sell approximately one-third of its net output
to the Zinc Recovery Project. The remainder will be sold through
the California Power Exchange ("PX").
Salton Sea V is being constructed pursuant to a date certain,
fixed price, turn-key engineering, procurement and construction
contract (the "Salton Sea V EPC Contract") by Stone & Webster
Engineering Corporation ("SWEC"). SWEC is one of the world's
leading engineering and construction firms for the construction
of electric power plants and, in particular, geothermal power
plants. Salton Sea V is scheduled to commence commercial
operation in mid-2000. Total project costs of Salton Sea V are
expected to be approximately $119,100. Salton Sea Power LLC has
incurred approximately $32,400 of such costs through June 30,
1999.
CE Turbo LLC, a Partnership Guarantor, is constructing the CE
Turbo Project. The CE Turbo Project will have a capacity of 10
net MW. The net output of the CE Turbo Project will be sold to
the Zinc Recovery Project or sold through the PX.
The Partnership Projects are upgrading the geothermal brine
processing facilities at the Vulcan and Del Ranch Projects with
the Region 2 Brine Facilities Construction. In addition to
incorporating the pH modification process, which has reduced
operating costs at the Salton Sea Projects, the new, more
efficient facilities will achieve economies through improved
brine processing systems and the utilization of more modern
equipment. The Partnership Projects expect these improvements
will reduce brine-handling operating costs at the Vulcan Project
and the Del Ranch Project.
The CE Turbo Project and the Region 2 Brine Facilities
Construction are being constructed by SWEC pursuant to a date
certain, fixed price, turnkey engineering, procurement and
construction contract (the "Region 2 Upgrade EPC Contract"). The
obligations of SWEC are guaranteed by Stone & Webster,
Incorporated. The CE Turbo Project is scheduled to commence
initial operations in mid-2000 and the Region 2 Brine Facilities
Construction is scheduled to be completed in early-2000. Total
project costs for both the CE Turbo Project and the Region 2
Brine Facilities Construction are expected to be approximately
$63,700.
Total equity funding for these projects is expected to be
approximately $122,500.
<PAGE>
THE SALTON SEA FUNDING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands, except per kwh data)
_________________________________
Liquidity and Capital Resources: (continued)
The operating Salton Sea Guarantors' only source of revenue is
payments received pursuant to long term power sales agreements
with Edison, other than interest earned on funds on deposit. The
operating Partnership Guarantors' primary source of revenue is
payments received pursuant to long term power sales agreements
with Edison. The Royalty Guarantor's only source of revenue is
Royalties received pursuant to resource lease agreements with the
Partnership Projects. These payments, for each of the
Guarantors, are expected to be sufficient to fund operating and
maintenance expenses, payments of interest and principal on the
Securities, projected capital expenditures and debt service
reserve fund requirements.
What is generally known as the year 2000 ("Y2K") computer issue
arose because many existing computer programs and embedded
systems use only the last two digits to refer to a year.
Therefore, those computer programs do not properly distinguish
between a year that begins with "20" instead of "19". If not
corrected, many computer applications could fail or create
erroneous results. The failure to correct a material Y2K item
could result in an interruption in, or a failure of, certain
normal business activities or operations including the
generation, distribution, and supply of electricity. Such
failures could materially and adversely affect the Company's
results of operations, liquidity and financial condition.
The Y2K issue creates uncertainty for the Company from potential
issues with its own computer systems and from third parties with
whom the Company deals on transactions worldwide. The Company's
operations utilize systems and equipment provided by other
organizations. As a result, Y2K readiness of suppliers, vendors,
service providers or customers could impact the Company's
operations.
The Company is assessing the readiness of such constituent
entities and the impacts on those entities that rely upon the
Company's services. The Company is unable to determine at this
time whether the consequences of Y2K failures of third parties
will have a material impact on the Company's results of
operations, liquidity or financial condition.
The Company has commenced, for all of its information systems, a
Y2K date conversion project to address all necessary code
changes, testing and implementation in order to resolve the Y2K
issue. The Company created a Y2K project team to identify,
assess and correct all of its information technology (IT) and non-
IT systems, as well as, identify and assess third party systems.
The Company has identified and assessed substantially all of its
IT and non-IT systems and is currently in the process of
repairing or replacing those systems which it believes are not
year 2000 compliant. Through June 30, 1999, the Company is
approximately 100% complete in repairing or replacing those
systems.
<PAGE>
THE SALTON SEA FUNDING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands, except per kwh data)
_________________________________
Liquidity and Capital Resources: (continued)
Total Y2K expenditures, for both repairing or replacing non-
compliant systems, are expected to total approximately $100. The
Company has renovated or replaced several non-compliant systems
to gain enhanced functionalities. The cost of these types of
renovations and replacements is not reported herein since their
development and installation were not driven by Y2K concerns.
The Company is not aware of any additional material costs needed
to be incurred to bring all of its systems into compliance;
however, there is no assurance that additional costs will not be
incurred.
A contingency plan identifying credible worst-case scenarios is
being developed. The contingency plan is comprised of both
mitigation and recovery aspects. Mitigation entails planning to
reduce the impact of unresolved year 2000 problems, and recovery
entails planning to restore services in the event that year 2000
problems occur. It is expected that the contingency plan will be
complete by mid-year 1999.
Although management believes that the Y2K project will be
substantially complete before January 1, 2000, any unforeseen
failures of the Company's and/or third parties' computer systems
could have a material impact on the Company's ability to conduct
its business.
Certain information included in this report contains forward-
looking statements made pursuant to the Private Securities
Litigation Reform Act of 1995 ("Reform Act"). Such statements
are based on current expectations and involve a number of known
and unknown risks and uncertainties that could cause the actual
results and performance of the Company to differ materially from
any expected future results or performance, expressed or implied,
by the forward-looking statements. In connection with the safe
harbor provisions of the Reform Act, the Company has identified
important factors that could cause actual results to differ
materially from such expectations, including development
uncertainty, operating uncertainty, acquisition uncertainty,
uncertainties relating to doing business outside of the United
States, uncertainties relating to geothermal resources,
uncertainties relating to domestic and international economic and
political conditions and uncertainties regarding the impact of
regulations, changes in government policy, industry deregulation
and competition. Reference is made to all of the Company's SEC
filings, incorporated herein by reference, for a description of
such factors. The Company assumes no responsibility to update
forward-looking information contained herein.
<PAGE>
SALTON SEA FUNDING CORPORATION
PART II - OTHER INFORMATION
Item 1 - Legal proceedings.
Neither the Salton Sea Funding Corporation nor the
Guarantors are parties to any material legal matters except
those described in Footnote 3 of the Partnership Guarantors
financial statements.
Item 2 - Changes in Securities.
Not applicable.
Item 3 - Default on Senior Securities.
Not applicable.
Item 4 - Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 5 - Other Information.
Not applicable.
Item 6 - Exhibits and Reports on Form 8-K.
(a) Exhibits:
Exhibit 27 - Financial Data Schedule
(b) Report on Form 8-K:
Not applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934 the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
SALTON SEA FUNDING CORPORATION
Date: August 12, 1999 /s/ Patrick J. Goodman
Patrick J. Goodman
Senior Vice President and
Chief Financial Officer
<PAGE>
EXHIBIT INDEX
Exhibit Page
No. No.
_______ ______
27 Financial Data Schedule 36
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 12,349
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 623,274
<CURRENT-LIABILITIES> 0
<BONDS> 597,898
0
0
<COMMON> 0
<OTHER-SE> 12,267
<TOTAL-LIABILITY-AND-EQUITY> 623,274
<SALES> 0
<TOTAL-REVENUES> 24,319
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 403
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23,359
<INCOME-PRETAX> 557
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</TABLE>
