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REGISTRATION NO. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
SALTON SEA FUNDING CORPORATION
(Exact name of registrant as specified in its charter)
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DELAWARE 4911 47-0790493
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification Number)
SALTON SEA BRINE PROCESSING L.P. CALIFORNIA 4911 33-0601721
SALTON SEA POWER GENERATION L.P. CALIFORNIA 4911 33-0567411
FISH LAKE POWER LLC DELAWARE 4911 33-0453364
VULCAN POWER COMPANY NEVADA 4911 95-3992087
CALENERGY OPERATING CORPORATION DELAWARE 4911 33-0268085
SALTON SEA ROYALTY LLC DELAWARE 4911 47-0790492
VPC GEOTHERMAL LLC DELAWARE 4911 91-1244270
SAN FELIPE ENERGY COMPANY CALIFORNIA 4911 33-0315787
CONEJO ENERGY COMPANY CALIFORNIA 4911 33-0268500
NIGUEL ENERGY COMPANY CALIFORNIA 4911 33-0268502
VULCAN/BN GEOTHERMAL POWER COMPANY NEVADA 4911 95-3992087
LEATHERS, L.P. CALIFORNIA 4911 33-0305342
DEL RANCH, L.P. CALIFORNIA 4911 33-0278290
ELMORE, L.P. CALIFORNIA 4911 33-0278294
SALTON SEA POWER L.L.C. DELAWARE 4911 47-0810713
CALENERGY MINERALS LLC DELAWARE 4911 47-0810718
CE TURBO LLC DELAWARE 4911 47-0812159
CE SALTON SEA INC. DELAWARE 4911 47-0810711
SALTON SEA MINERALS CORP. DELAWARE 4911 47-0811261
(Exact name of Registrants (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
as specified in their charters) incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
302 SOUTH 36TH STREET, SUITE 400-A, OMAHA, NEBRASKA 68131 (402) 231-1641
(Address, including zip code, and telephone number, including area code, of
Salton Sea Funding Corporation's principal executive offices)
DOUGLAS L. ANDERSON, ESQ.
VICE PRESIDENT AND GENERAL COUNSEL
SALTON SEA FUNDING CORPORATION
302 SOUTH 36TH STREET, SUITE 400-A
OMAHA, NEBRASKA 68131 (402) 231-1641
(Name, address, including zip code, and telephone number, including area
code, of agent for service)
WITH COPIES TO:
PETER J. HANLON, ESQ.
WILLKIE FARR & GALLAGHER
787 SEVENTH AVENUE
NEW YORK, NEW YORK 10019 (212) 728-8227
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
after the effective date of this Registration Statement.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance
with general instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
CALCULATION OF REGISTRATION FEE
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AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES TO BE OFFERING PRICE AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED PER SECURITY (1) OFFERING PRICE (1) REGISTRATION FEE
<S> <C> <C> <C> <C>
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7.475% Senior Secured Series F Bonds
Due November 30, 2018 $285,000,000 100% $285,000,000 $79,230
Guarantees (2) (3) (3) (3) (3)
</TABLE>
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 under the Securities Act.
(2) Salton Sea Brine Processing L.P., Salton Sea Power Generation L.P.,
Fish Lake Power LLC, Vulcan Power Company, CalEnergy Operating
Corporation, Salton Sea Royalty LLC, VPC Geothermal LLC, San Felipe
Energy Company, Conejo Energy Company, Niguel Energy Company,
Vulcan/BN Geothermal Power Company, Leathers, L.P., Del Ranch, L.P.,
Elmore, L.P., Salton Sea Power L.L.C., CalEnergy Minerals LLC, CE
Turbo LLC, CE Salton Sea Inc. and Salton Sea Minerals Corp. are each
registering guarantees of the payment of the principal of, premium,
if any, and interest on the Securities being registered hereby.
Pursuant to Rule 457(n) under the Securities Act of 1933, as amended,
no registration fee is required with respect to the guarantees.
(3) Not applicable.
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SECTION 8(A), MAY DETERMINE.
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SUBJECT TO COMPLETION, DATED MAY 28, 1999
PROSPECTUS
SALTON SEA FUNDING CORPORATION
Exchange Offer for
7.475% Senior Secured Series F
Bonds Due November 30, 2018
This is an offer to exchange the outstanding, unregistered Salton Sea
Funding Corporation 7.475% Senior Secured Series F Bonds you now hold for
new, substantially identical 7.475% Senior Secured Series F Bonds that will
be free of the transfer restrictions that apply to the old bonds. This offer
will expire at 5:00 p.m., New York City time, on , 1999, unless we
extend it. You must tender the old, unregistered bonds by the deadline to
obtain new, registered bonds and the liquidity benefits they offer.
We agreed with the initial purchasers of the old bonds to make this offer
and register the issuance of the new bonds following the closing. This offer
applies to any and all old bonds tendered before the deadline.
The new bonds will not trade on any established exchange. The new bonds
have the same financial terms and covenants as the old bonds, and are subject
to the same business and financial risks.
A DESCRIPTION OF THOSE RISKS BEGINS ON PAGE 31.
The terms of the exchange offer will include the following:
o We will exchange all old securities that are validly tendered and not
withdrawn prior to the expiration of the exchange offer.
o You may withdraw tenders of old securities at any time prior to the
expiration of the exchange offer.
o We will not receive any proceeds from the exchange offer.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The date of this prospectus is May 28, 1999.
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TABLE OF CONTENTS
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PAGE
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Prospectus Summary......................................................................... 1
Risk Factors............................................................................... 31
Where You Can Find More Information........................................................ 36
Capitalization............................................................................. 37
The Exchange Offer......................................................................... 38
Selected Historical Financial and Operating Data of the Funding Corporation ............... 48
Selected Historical Combined Financial and Operating Data of the Salton Sea Guarantors .... 49
Selected Historical Combined Financial and Operating Data of the Partnership Guarantors ... 50
Selected Historical Financial and Operating Data of the Royalty Guarantor ................. 51
Management................................................................................. 52
Business of the Guarantors................................................................. 53
Summary Description of Principal Project Contracts......................................... 61
Summary Description of the Series F Securities............................................. 79
Summary Description of Principal Financing Documents....................................... 82
Plan of Distribution....................................................................... 113
Incorporation of Material Documents by Reference........................................... 114
Legal Matters.............................................................................. 114
Experts.................................................................................... 114
Independent Engineer....................................................................... 115
Consultants' Reports....................................................................... 115
Glossary of Defined Terms.................................................................. A-1
Independent Engineer's Report.............................................................. B-1
Power Market Consultant's Report........................................................... C-1
Geothermal Resource Consultant's Report.................................................... D-1
Zinc Market Consultant's Report............................................................ E-1
Part II.................................................................................... II-1
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PROSPECTUS SUMMARY
The following summary highlights selected information from this prospectus
and may not contain all of the information that is important to you. This
prospectus includes specific terms of the securities we are offering, as well
as information regarding our business and detailed financial data. We
encourage you to read the prospectus in its entirety. Unless the context
clearly indicates otherwise, the terms "we," "our" or "us" as used in this
prospectus summary refer to Salton Sea Funding Corporation, the issuer of
your securities, and to affiliates of Salton Sea Funding Corporation which
are guaranteeing your securities. You should pay special attention to the
"Risk Factors" section beginning on page 31 of this prospectus. Certain
technical terms which we use in this prospectus summary and elsewhere in this
prospectus are defined in the Glossary of Defined Terms in Appendix A.
SALTON SEA FUNDING CORPORATION
We are a special purpose Delaware corporation and an indirect wholly-owned
subsidiary of CE Generation, LLC ("CE Generation"). We were formed for the
sole purpose of issuing securities in our individual capacity as principal
and as agent acting on behalf of our affiliates which guarantee the
Securities. Our principal executive office is located at 302 South 36th
Street, Suite 400-A, Omaha, Nebraska 68131, and our telephone number is (402)
341-1644.
We have completed the following issuances and exchanges of securities:
o On July 21, 1995, we issued (1) $232,750,000 of our 6.69% Senior
Secured Series A Notes Due 2000 (the "Series A Securities"), (2)
$133,000,000 of 7.37% Senior Secured Series B Bonds Due 2005 (the
"Series B Securities") and (3) $109,250,000 of our 7.84% Senior Secured
Series C Bonds Due 2010 (the "Series C Securities" and, together with
the Series A Securities and the Series B Securities, the "Initial
Securities");
o On February 13, 1996, we consummated an exchange offer where we issued
substantially identical Initial Securities which had been registered
under the Securities Act in exchange for the unregistered Initial
Securities;
o On June 20, 1996, we issued (1) $70,000,000 of our 7.02% Senior Secured
Series D Bonds Due 2000 (the "Series D Securities") and (2) $65,000,000
of our 8.30% Senior Secured Series E Bonds Due 2011 (the "Series E
Securities" and, together with the Series D Securities, the
"Supplemental Securities");
o On July 29, 1996, we consummated an exchange offer where we issued
substantially identical Supplemental Securities which had been
registered under the Securities Act in exchange for the unregistered
Supplemental Securities; and
o On October 13, 1998, we issued $285,000,000 of our 7.475% Senior
Secured Series F Bonds Due 2018 (the "Old Securities").
We are offering to exchange Old Securities for our 7.475% Senior Secured
Series F Bonds Due 2018 which have been registered under the Securities Act
(the "New Securities").
The Initial Securities, the Supplemental Securities and the Old Securities
have received ratings of "Baa2" by Moody's Investors Service, Inc.
("Moody's") and "BBB" by Standard & Poor's Ratings Group ("S&P"). The Initial
Securities, the Supplemental Securities, the Old Securities and the New
Securities will be equivalent in right of payment and in the right to share
in the collateral. On May 31, 1999, the aggregate principal amount of all
Securities outstanding was $597,898,000. Approximately $297,102,000 of the
Initial Securities and the Supplemental Securities have been paid in full with
cash flows from our operating geothermal power plants.
CE GENERATION, LLC AND ITS MEMBERS
We (other than CalEnergy Minerals LLC and Salton Sea Minerals Corp.) are
indirect wholly-owned subsidiaries of CE Generation. CE Generation was formed
for the sole purpose of issuing securities and
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holding the equity interests in its subsidiaries. Fifty percent of the
membership interests in CE Generation are owned by MidAmerican Energy
Holdings Company ("MidAmerican") and the other fifty percent of the
membership interests in CE Generation are owned by El Paso Power Holding
Company ("El Paso Holding"). El Paso Holding is an affiliate of El Paso
Energy Corporation ("El Paso"). CalEnergy Minerals LLC is an indirect and
Salton Sea Minerals Corp. is a direct, wholly-owned subsidiary of
MidAmerican. The Securities are non-recourse to CE Generation, MidAmerican,
El Paso Holding and El Paso.
MidAmerican, which is the successor to CalEnergy Company, Inc., is a
fast-growing global energy company with an increasingly diversified portfolio
of regulated and non-regulated assets. The focus of MidAmerican has evolved
over time from development and acquisition activities in the domestic and
international power generation market to strategic electric and gas utility
acquisitions, with a particular emphasis on investment-grade countries such
as the United States, the United Kingdom, Australia, Canada, New Zealand and
the countries of Western Europe. This focus has provided MidAmerican with
increased scale, skill, revenue diversity, enhanced credit quality of cash
flows and additional growth opportunities associated with each of the
acquired businesses. MidAmerican's investments in related activities (e.g.,
producing gas fields, gas reserves and advanced utility information systems)
are primarily intended to support and augment the profitability of its
existing core businesses.
MidAmerican, through its subsidiaries, manages and currently owns
interests in over 10,000 MW of power generation facilities in operation,
construction and development worldwide, including 20 generating facilities
which it currently operates. MidAmerican first entered the energy
distribution and sales industry in 1996 with its acquisition of Northern
Electric plc, which currently has more than two million electric and gas
customers in the United Kingdom. On March 12, 1999, MidAmerican acquired
MidAmerican Energy Company, a combined electric and gas utility with electric
and gas operations in Iowa, Illinois and South Dakota and gas operations in
Nebraska.
In February 1995, MidAmerican completed the acquisition of Magma Power
Company ("Magma"). Magma had previously owned or controlled substantially all
of the assets of some of the guarantors of the Securities and 50% of the
partnership interests in some of the other guarantors. In 1996, a subsidiary
of MidAmerican acquired the remaining 50% of the partnership interests in
these other guarantors and as a result obtained 100% ownership of the
geothermal power plants which generate the cash flows that we use to make
payments on the Securities. In February 1999, MidAmerican contributed the
capital stock of Magma to CE Generation, and on March 3, 1999 MidAmerican
sold 50% of the membership interests in CE Generation to El Paso Holdings.
Magma directly or indirectly owns all of our capital stock and other
equity interests. One of the guarantors of the Securities, CalEnergy
Operating Corporation, operates each of our geothermal power plants.
Affiliates of Magma control, through a variety of fee, leasehold and royalty
interests, rights to geothermal resources for power production and minerals
recovery in the Salton Sea Known Geothermal Resource Area. We believe, and
GeothermEx, Inc. the "Geothermal Resource Consultant" concurs, that these
geothermal resources will be sufficient to operate our geothermal power
plants which are currently in operation at contract capacity under their
power purchase agreements, and our geothermal power plants and zinc recovery
facility which are currently in construction at their respective design
capacities, in each case through the final maturity date for the Securities.
El Paso Holding is an affiliate of El Paso, which provides energy
solutions through five business units: Tennessee Gas Pipeline Company, El
Paso Natural Gas Company, El Paso Field Services Company, El Paso Energy
Marketing Company and El Paso Energy International Company. El Paso, which
has over $10 billion in assets, owns the nation's only integrated
coast-to-coast natural gas pipeline system and has operations in interstate
natural gas transmission, gas gathering and processing, energy marketing and
international infrastructure development.
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THE GUARANTORS
The following companies (the "Guarantors") currently guarantee the Funding
Corporation's obligation to make payments on the Securities to the extent
described in this prospectus:
o Salton Sea Brine Processing L.P. ("SSBP");
o Salton Sea Power Generation L.P. ("SSPG");
o Fish Lake Power LLC ("Fish Lake");
o Salton Sea Power L.L.C. ("Power LLC");
o CalEnergy Operating Corporation ("CEOC");
o Vulcan Power Company ("VPC");
o VPC Geothermal LLC ("VPC Geothermal");
o Vulcan/BN Geothermal Power Company ("Vulcan");
o Elmore, L.P. ("Elmore");
o Leathers, L.P. ("Leathers");
o Del Ranch, L.P. ("Del Ranch");
o Conejo Energy Company ("Conejo");
o San Felipe Energy Company ("San Felipe");
o Niguel Energy Company ("Niguel");
o CalEnergy Minerals LLC ("Minerals LLC");
o CE Turbo LLC ("Turbo LLC");
o CE Salton Sea Inc. ("CESS");
o Salton Sea Minerals Corp. ("SSMC"); and
o Salton Sea Royalty LLC (the "Royalty Guarantor").
In this prospectus, we occasionally refer to the Guarantors in groups. The
following chart shows which Guarantors belong to which groups.
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NAME OF GROUP GUARANTORS WHICH BELONG TO THE GROUP
- ---------------------------------------- ---------------------------------------------------------
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Initial Salton Sea Guarantors ........... SSBP, SSPG and Fish Lake
Salton Sea Guarantors ................... SSBP, SSPG, Fish Lake and Power LLC
Initial Partnership Guarantors .......... CEOC and VPC
Supplemental Partnership Guarantors .... VPC Geothermal, Conejo, Niguel, San Felipe, Leathers,
Elmore, Del Ranch and Vulcan
Additional Partnership Guarantors ...... Minerals LLC and Turbo LLC
Partnership Guarantors .................. CEOC, VPC, VPC Geothermal, Conejo, Niguel, San Felipe,
Leathers, Elmore, Del Ranch, Vulcan, Minerals LLC and
Turbo LLC
Partnership Project Companies ........... Leathers, Elmore, Del Ranch, Vulcan, Minerals LLC and
Turbo LLC
</TABLE>
The Initial Salton Sea Guarantors own the following four geothermal power
plants, which are located in Imperial Valley, California in the Salton Sea
Known Geothermal Resource Area:
o a 10 MW nameplate geothermal power plant owned by SSBP and SSPG
("Salton Sea Unit I");
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o a 20 MW nameplate geothermal power plant owned by SSBP and SSPG
("Salton Sea Unit II");
o a 50 MW nameplate geothermal power plant owned by SSBP and SSPG
("Salton Sea Unit III"); and
o a 34 MW nameplate geothermal power plant owned by Fish Lake and SSPG
("Salton Sea Unit IV").
Power LLC is currently constructing a 49 MW geothermal power plant located
in the Salton Sea Known Geothermal Resource Area ("Salton Sea Unit V").
The Initial Partnership Guarantors and the Supplemental Partnership
Guarantors own the following four geothermal power plants, which are located
in Imperial Valley, California in the Salton Sea Known Geothermal Resource
Area:
o a 34 MW nameplate geothermal power plant owned by Vulcan (the "Vulcan
Project");
o a 38 MW nameplate geothermal power plant owned by Elmore (the "Elmore
Project");
o a 38 MW nameplate geothermal power plant owned by Leathers (the
"Leathers Project"); and
o a 38 MW nameplate geothermal power plant owned by Del Ranch (the "Del
Ranch Project").
Minerals LLC is currently constructing a 30,000 metric tonne/year facility
for the recovery of zinc from the geothermal brine used by our geothermal
power projects (the "Zinc Recovery Project"). Turbo LLC is currently
constructing a 10 MW geothermal power project located in Imperial Valley,
California in the Salton Sea Known Geothermal Resource Area (the "CE Turbo
Project"). Vulcan and Del Ranch are currently constructing well field brine
processing facilities near the Vulcan Project and the Del Ranch Project (the
"Region 2 Brine Facilities Construction").
In this prospectus we sometimes refer to our geothermal power plants and
our zinc recovery facility in groups. The following chart shows which
projects belong to which groups.
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NAME OF GROUP PROJECTS WHICH BELONG TO THE GROUP
- ---------------------------------- --------------------------------------------------------------
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Existing Salton Sea Projects ..... Salton Sea Unit I, Salton Sea Unit II, Salton Sea Unit III and
Salton Sea Unit IV
Salton Sea Projects ............... Salton Sea Unit I, Salton Sea Unit II, Salton Sea Unit III,
Salton Sea Unit IV and Salton Sea Unit V
Existing Partnership Projects .... Vulcan Project, Elmore Project, Leathers Project and Del Ranch
Project
Partnership Projects .............. Vulcan Project, Elmore Project, Leathers Project, Del Ranch
Project, Zinc Recovery Project and TurboExpander Project
Existing Projects ................. Salton Sea Unit I, Salton Sea Unit II, Salton Sea Unit III,
Salton Sea Unit IV, Vulcan Project, Elmore Project, Leathers
Project and Del Ranch Project
Power Projects .................... Salton Sea Unit I, Salton Sea Unit II, Salton Sea Unit III,
Salton Sea Unit IV, Salton Sea Unit V, Vulcan Project, Elmore
Project, Leathers Project, Del Ranch Project and CE Turbo
Project
New Projects ...................... Salton Sea Unit V, Zinc Recovery Project and CE Turbo Project
Region 2 Construction ............. CE Turbo Project and Region 2 Brine Facilities Construction
</TABLE>
The Royalty Guarantor has received an assignment of certain fees and
royalties paid by Elmore, Leathers and Del Ranch. These fees and royalties
are subject to netting and reduction from time to time to reflect various
operating costs, as reflected in the financial statements contained in this
prospectus.
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STRUCTURE OF AND COLLATERAL FOR THE SECURITIES
We loaned a portion of the proceeds of the sale of the Old Securities to
the Partnership Guarantors pursuant to a promissory note issued in an initial
principal amount of $201,728,000. The Partnership Guarantors are using the
proceeds of this loan for the following purposes:
o approximately $140,520,000 to finance the construction of the Zinc
Recovery Project;
o approximately $44,581,000 to finance the Region 2 Construction; and
o approximately $16,627,000 to fund capital improvements to the steam
field and related facilities for the Existing Projects (the "Additional
Capital Improvements").
We loaned another portion of the proceeds of the sale of the Old
Securities to the Salton Sea Guarantors pursuant to a promissory note issued
in an initial principal amount of $83,272,000. The Salton Sea Guarantors are
using all of the proceeds of this loan to finance the construction of Salton
Sea Unit V.
We will make payments on the Securities with the principal of and interest
paid on promissory notes issued by the Guarantors to us, including the notes
described above. The Securities are secured by a pledge of our capital stock
and are guaranteed by the Guarantors. These guarantees are secured by:
o in the case of the guarantee issued by the Salton Sea Guarantors, by a
lien on substantially all of the assets of the Salton Sea Guarantors
and a pledge of the equity interests in the Salton Sea Guarantors;
o in the case of the guarantee issued by the Partnership Guarantors, by a
lien on substantially all of the assets of the Partnership Project
Companies, a lien on the equity cash flows and royalties of the Initial
Partnership Guarantors and a pledge of the stock of and other equity
interests in the Partnership Guarantors; and
o in the case of the guarantee issued by the Royalty Guarantor, by a lien
on all royalties paid to the Royalty Guarantor and a pledge of the
capital stock of the Royalty Guarantor.
The guarantees issued by the Salton Sea Guarantors are unlimited. However,
the guarantees issued by the Partnership Guarantors and the Royalty Guarantor
are limited to the following amounts:
o for any Initial Partnership Guarantor or the Royalty Guarantor, the
total equity cash flows and royalties received by the Guarantor, minus,
without duplication, (1) any royalties paid, (2) all operating and
maintenance costs, (3) all capital expenditures and (4) debt service;
o for any Additional Partnership Guarantor, the total revenues received
by the Guarantor, minus, without duplication, (1) any royalties paid,
(2) all operating and maintenance costs, (3) all capital expenditures
and (4) debt service.
The structure has been designed to cross-collateralize cash flows from
each Guarantor without cross-collateralizing all of the Guarantors' assets.
Therefore, if a Guarantor defaults under its guarantee or its promissory note
issued to us, without causing a payment default on the Securities, then the
trustee may direct the collateral agent to exercise remedies only with
respect to the collateral securing that Guarantor's obligations. If, however,
the default causes a payment default on the Securities, then the trustee may
accelerate the Securities and direct the collateral agent to exercise
remedies against all of the collateral and, if different, the collateral
pledged by the Salton Sea Guarantors.
We are obligated at all times to maintain a debt service reserve fund
and/or an acceptable letter of credit in an aggregate amount equal to:
o through December 31, 1999, the maximum semiannual principal and
interest payments on the Securities for the remaining term of the
Securities;
o after December 31, 1999 through payment in full of the Initial
Securities and the Supplemental Securities, the maximum annual
principal and interest payments on the Securities for the remaining
term of the Securities; and
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o after payment in full of the Initial Securities and the Supplemental
Securities, (a) the maximum annual principal and interest payments on
the Series F Securities for the remaining term or (b) if we obtain a
confirmation of the current ratings of the Securities, the maximum
semiannual principal and interest payments on the Series F Securities.
TRANSACTION STRUCTURE(1)
[GRAPHIC OMITTED]
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(1) This chart reflects loans made to the Guarantors with the proceeds of
the sale of the Initial Securities and the Supplemental Securities. As
of May 31, 1999, the outstanding balances of the promissory notes
issued by the Salton Sea Guarantors, the Partnership Guarantors and the
Royalty Guarantor to us were $218,720,000, $75,666,000 and $18,512,000,
respectively. The Salton Sea Guarantors and the Partnership Guarantors
issued additional promissory notes to us in the amounts of $83,272,000
and $201,728,000, respectively, in connection with the offering of the
Old Securities.
THE PROJECTS
Since MidAmerican's acquisition of Magma, the operations of the Existing
Projects acquired in such acquisition have substantially improved, and
significant cost savings and efficiencies have been realized:
o Salton Sea Unit IV was completed adding 39.6 MW of capacity;
o pH modification was installed at Salton Sea Units I, III and IV; and
o Control room and other administrative functions were upgraded and made
more efficient.
The result has been a 17.8% increase in net output from 1,973,007 net MWh
to 2,323,341 net MWh and a 23.5% reduction in site operating costs from $64.7
million (or 3.28 cents/kWh) to $49.5 million (or 2.13 cents/kWh) between 1995
and 1997.
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Set forth below is a table describing certain characteristics of our
projects.
<TABLE>
<CAPTION>
DATE OF
FACILITY CAPACITY COMMERCIAL CONTRACT CONTRACT POWER
PROJECT (IN MW)(1)(2) OPERATION EXPIRATION TYPE PURCHASER(3)
- --------------------- ----------------- ------------ ------------ --------------- ------------------------
<S> <C> <C> <C> <C> <C>
Salton Sea Projects:
Salton Sea Unit I ... 10 7/1987 6/2017 Negotiated SCE
Salton Sea Unit II .. 20 4/1990 4/2020 SO4 Agreement SCE
Salton Sea Unit III . 49.8 2/1989 2/2019 SO4 Agreement SCE
Salton Sea Unit IV .. 39.6 5/1996 5/2026 Negotiated SCE
Salton Sea Unit V ... 49 mid-2000 N/A N/A PX/Zinc Recovery Project
-----------------
Subtotal.............. 168.4
Partnership Projects:
Vulcan ............... 34 2/1986 2/2016 SO4 Agreement SCE
Elmore ............... 38 1/1989 12/2018 SO4 Agreement SCE
Leathers ............. 38 1/1990 12/2019 SO4 Agreement SCE
Del Ranch ............ 38 1/1989 12/2018 SO4 Agreement SCE
TurboExpander Project 10 mid-2000 N/A N/A PX
-----------------
Subtotal ............. 158.0
-----------------
Total Power Projects . 326.4
Zinc Recovery Project 30,000 mid-2000 N/A N/A N/A
</TABLE>
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(1) Power Project capacity is a nominal number that varies with operating
and reservoir conditions.
(2) Power Project capacities are measured in megawatts; Zinc Recovery
Project capacity is measured in metric tonnes per year.
(3) The term "SCE" means Southern California Edison Company and the term
"PX" means the California Power Exchange.
THE EXISTING PROJECTS
Salton Sea Units I-IV. Our Existing Salton Sea Projects have an aggregate
net generating capacity of approximately 119.4 MW. All of these Projects have
executed long-term power purchase agreements providing for the sale of
capacity and energy to Southern California Edison Company ("SCE"). Some of
the basic terms of these power purchase agreements are as follows:
o Salton Sea Unit I: capacity payment and energy payment for the life of
the contract, which are subject to quarterly adjustment by reference to
various inflation-related indices.
o Salton Sea Unit II:
o fixed price capacity payments for the life of the contract;
o fixed price energy payments until April 4, 2000; and
o energy payments based on SCE's short-run avoided cost of energy after
April 4, 2000.
o Salton Sea Unit III:
o fixed price capacity payments for the life of the contract;
o fixed price energy payments until February 13, 1999; and
o energy payments based on the avoided cost of energy after February 13,
1999.
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o Salton Sea Unit IV:
o fixed price capacity payments for the life of the contract;
o for approximately 56% of the energy: (1) fixed price energy payments,
subject to adjustment by reference to inflation-related indicies,
until June 2017; and (2) energy payments based on the avoided cost of
energy after June 2017; and
o for approximately 44% of the energy: (1) energy payments based on a
fixed price schedule for the first 10 years of the contract; (2)
energy payments based on a modified avoided cost of energy for the
next 5 years of the contract; and (3) energy payments based on the
avoided cost of energy for the remaining life of the contract.
Existing Partnership Projects. Our Existing Partnership Projects have an
aggregate net generating capacity of 148 MW. The Partnership Guarantors
collectively own 100% of the Vulcan Project and 90% partnership interests in
each of the Elmore Project, the Leathers Project and the Del Ranch Project.
Magma owns the remaining 10% interests in these Projects. In connection with
the offering of the Initial Securities, Magma assigned to CEOC the
partnership distributions it receives from its interests in the Elmore
Project, the Leathers Project and the Del Ranch Project in exchange for
proprietary data and services provided by CEOC.
All of our Existing Partnership Projects have executed long-term power
purchase agreements for the sale of capacity and energy to SCE. Some of the
basic terms of these contracts are as follows:
o fixed price capacity payments for the life of the contract;
o fixed price energy payments for the first 10 years of the contract;
o energy payments based on the avoided cost of energy after the first 10
years of the contract.
The fixed price energy period expired in 1996 for the Vulcan Project, expired
in 1999 for the Del Ranch Project and the Elmore Project and will expire in
2000 for the Leathers Project.
Royalties and Royalty Projects. The Royalty Guarantor has received an
assignment from Magma of royalties received from the Leathers Project, the
Del Ranch Project and the Elmore Project in exchange for the provision to
those Projects of the rights to use geothermal resources. All of the assigned
royalties are based on a percentage of energy and capacity revenues of the
projects. The Partnership Guarantors are also entitled to receive royalties
from the Partnership Projects. Royalties are subject to netting and reduction
from time to time to reflect various operating costs, as reflected in the
financial statements contained in this prospectus.
THE NEW PROJECTS
Salton Sea Unit V. We are expanding the generating capacity of the Salton
Sea Projects by constructing Salton Sea Unit V. Some of the characteristics
of Salton Sea Unit V are expected to be as follows:
o Salton Sea Unit V is designed to be a 49 MW (net) geothermal power
plant;
o Salton Sea Unit V is designed to extract unutilized geothermal energy
from geothermal brine that has previously passed through the other
Salton Sea Projects;
o Salton Sea Unit V is designed to require an approximately 5% increase
in total brine used at the Salton Sea Projects, which can be supplied
from existing wells;
o Salton Sea Unit V's more efficient use of geothermal brine resulting
from its design is expected to make the plant very cost effective; and
o Salton Sea Unit V will sell approximately one-third of its net output
for use by the Zinc Recovery Project, and will sell the remainder of
its net output through the PX and in other market transactions.
8
<PAGE>
Salton Sea Unit V is being constructed pursuant to a date certain, fixed
price, turn-key engineering, procurement and construction contract with 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. SWEC provided the
engineering for the construction of Salton Sea Unit III and has completed
engineering, procurement, construction or other related work on twenty-seven
other geothermal power plants over the past five years. SWEC's obligations
under the construction contract for Salton Sea Unit V, including provisions
for liquidated damages of up to 20% of the contract price for certain delays
or failures to meet performance guarantees, are guaranteed by SWEC's parent,
Stone & Webster, Incorporated. Salton Sea Unit V is scheduled to commence
commercial operation in mid-2000.
Zinc Recovery Project. We are also constructing the Zinc Recovery Project.
Some of the characteristics of the Zinc Recovery Project are expected to be
as follows:
o the Zinc Recovery Project is designed to recover zinc from the
geothermal brine that has been extracted from the ground for use in the
Power Projects;
o the Zinc Recovery Project is designed to utilize geothermal brine after
the brine has been used by the Power Projects but before the brine is
re-injected into the ground.
o the Zinc Recovery Project is designed to include four facilities
located near the sites for the Existing Projects to extract a zinc
chloride solution from the brine through an ion exchange process, which
solution will be transported to a central processing plant where zinc
ingots will be produced through solvent extraction, electrowinning and
casting processes;
o the Zinc Recovery Project is designed to have a capacity of
approximately 30,000 metric tonnes per year and scheduled to commence
commercial operation in mid-2000; and
o the Zinc Recovery Project's output is expected to be sold primarily to
domestic West Coast customers such as steel companies, alloyers and
galvanizers.
The Zinc Recovery Project is being constructed pursuant to a date certain,
fixed-price, turnkey engineering, procurement and construction contract with
Kvaerner U.S. Inc. ("Kvaerner"). 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. The payment obligations of Kvaerner, including payment of
liquidated damages of up to 20% of the contract price for certain delays or
failures to meet performance guarantees, will be secured by a letter of
credit issued by Union Europeenne de CIC in an initial aggregate amount equal
to $29.6 million. The Zinc Recovery Project is scheduled to commence initial
operations in mid-2000.
Region 2 Construction. We are also constructing the CE Turbo Project. Some
of the characteristics of the CE Turbo Project are expected to be as follows:
o the CE Turbo Project is designed to generate electricity from excess
geothermal energy produced from the wells in the region of the well
field currently supplying the Vulcan Project and the Del Ranch Project;
o the CE Turbo Project is designed to have a capacity of 10 MW (net);
o the CE Turbo Project is expected to be highly cost effective because it
is designed to not require additional geothermal production or
injection wells; and
o the CE Turbo Project's net output of electricity is expected to be sold
to the Zinc Recovery Project (if Salton Sea Unit V is not delivering
power) or will be sold through the PX.
We are also upgrading the geothermal brine processing facilities at the
Vulcan Project and the Del Ranch Project with the Region 2 Brine Facilities
Construction. These upgrades will incorporate a process whereby the pH of
liquid brine is reduced by injection of a pH modification agent into the
liquid brine.
9
<PAGE>
This process results in decreased scaling and mineral buildup. In addition,
the upgrades will enable the Vulcan Project and the Del Ranch Project to
achieve economies of scale through improved brine processing systems and the
utilization of newer equipment. We expect these improvements to 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 pursuant to a date certain, fixed-price, turnkey
engineering, procurement and construction contract with SWEC. Stone &
Webster, Incorporation will guarantee the obligations of SWEC under this
contract. 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 capital costs for the new projects described above and the capital
improvements to the steam field and related facilities for the Existing
Projects are estimated as follows:
<TABLE>
<CAPTION>
ZINC REGION 2 ADDITIONAL
RECOVERY SALTON SEA CE TURBO BRINE FACILITIES CAPITAL
($ IN THOUSANDS) PROJECT UNIT V PROJECT CONSTRUCTION IMPROVEMENTS TOTAL
- --------------------------------- ---------- ------------ ---------- ---------------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Turnkey Construction Contracts $148,240 $ 91,787 $ 8,000 $41,800 $ 0 $289,827
Initial Materials and Spares 9,203 675 346 1,403 0 11,627
Transmission Line
Interconnection 0 700 0 0 0 700
Additional Capital Improvements 0 0 0 0 21,294 21,294
Construction Administration
Costs 12,662 7,721 1,301 1,221 0 22,905
Commercial Insurance
During Construction 824 409 41 118 43 1,435
Project Contingency 9,401 5,571 533 2,450 0 17,955
Financing Costs and Interest
During Construction 20,595 12,204 1,167 5,367 2,437 41,770
---------- ------------ ---------- ---------------- -------------- ----------
Total Project Cost $200,925 $119,067 $11,388 $52,359 $23,774 $407,513
</TABLE>
ADVANTAGES OF THE NEW PROJECTS
We believe that the construction of the New Projects offers the following
potential competitive benefits:
o LOW COST ZINC PRODUCER: Resource Strategies International's ("RSI")
August 14, 1998 analysis of production costs for other North American
zinc producers indicates that the Zinc Recovery Project should be the
lowest marginal cost supplier of zinc to U.S. West Coast customers.
This analysis also indicates that the Zinc Recovery Project should be
well within the lowest quartile for zinc producers in the Western
world.
o ADVANTAGEOUS LOCATION FOR ZINC SALES: RSI's notes in its report that
the United States is a net importer of zinc and virtually all of the
zinc purchased by U.S. West Coast customers is imported. We expect the
Zinc Recovery Project to have a transportation cost advantage because
it will be substantially closer to U.S. West Coast zinc customers than
those suppliers that have traditionally supplied that area.
o LOW COST POWER PRODUCER: Henwood Energy Services, Inc.'s ("Henwood")
September 1, 1998 analysis of production costs for other California
power producers found that all of the Power Projects will be low cost
producers in all years of its study. Furthermore, Henwood found that
Salton Sea Unit V and the TurboExpander Project will have operating
costs lower than all other generator types, except hydro-electric, and
will be extremely well-positioned to be dispatched each hour of the
year.
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<PAGE>
o SYNERGIES WITH EXISTING WELL FIELD FACILITIES:
o Salton Sea Unit V and the TurboExpander Project will primarily utilize
available heat and steam from existing geothermal brine processing
systems in the well field with only a slight increase in brine flow
being required.
o the brine production wells and injection wells at the steam field
serving the Existing Projects will supply the requirements of Salton
Sea Unit V and the CE Turbo Project, thereby eliminating the need for
additional investment in wells.
o the Zinc Recovery Project is designed to remove zinc from the
geothermal brine after it has been used in the geothermal power
production process.
o the Power Projects will use a pH modification agent produced as a
by-product by the Zinc Recovery Project in the pH modification
process, thus resulting in further reductions in operating costs.
o we expect that the New Projects and the Region 2 Construction, by
removing solids from the geothermal brine and by the addition of the
pH modification process, will reduce scaling of brine injection
systems and associated maintenance costs so as to provide benefits for
all of the Projects served by the wellfields.
o RENEWABLE ENERGY BENEFITS: We expect Salton Sea Unit V and the
TurboExpander Project to earn up to approximately $31 million of
financial incentives from the State of California's New Renewable
Resources Account. This account was established pursuant to California
legislation enacted in 1997. Funds are payable to geothermal plants and
other renewable energy providers on the projects' sales over the first
five years of generation. In addition, if electricity customers in
California are willing to pay a premium in order to purchase "green
power," then Salton Sea Unit V and the TurboExpander Project, as
suppliers of renewable geothermal energy, are positioned to sell power
at a premium over PX prices. This premium is not included, however, in
the projections contained in Fluor Daniel, Inc.'s Independent
Engineer's Report.
11
<PAGE>
SUMMARY OF THE EXCHANGE OFFER
On October 13, 1998, we completed the private offering of $285,000,000
aggregate principal amount of our 7.475% Senior Secured Series F Bonds due
2018. As part of that offering, we entered into a registration rights
agreement with the initial purchasers of the Old Securities in which we
agreed, among other things, to deliver this prospectus to you and to complete
an exchange offer for the Old Securities. Set forth below is a summary of
that exchange offer.
The Exchange Offer ............ We are offering to exchange up to
$285,000,000 principal amount of New
Securities which have been registered under
the Securities Act for up to $285,000,000
principal amount of Old Securities. We will
exchange Old Securities only in integral
multiples of $1,000.
In order to be exchanged, an Old Security
must be properly tendered and accepted. We
will exchange all Old Securities that are
validly tendered and not withdrawn. As of
the date of this prospectus, there are
$285,000,000 principal amount of Old
Securities outstanding. We will issue New
Securities promptly after the expiration of
the exchange offer.
Resales Without Further
Registration ................. Based on interpretations by the staff of the
Securities and Exchange Commission (the
"Commission"), we believe that the New
Securities issued in the exchange offer may
be offered for resale, resold or otherwise
transferred by you without compliance with
the registration and prospectus delivery
requirements of the Securities Act, provided
that:
o you are acquiring the New Securities in
the ordinary course of your business;
o you are not participating, do not intend
to participate and have no arrangement or
understanding with any person to
participate, in a distribution of the New
Securities; and
o you are not an "affiliate" of ours.
By tendering your bonds as described below,
you will be making representations to this
effect.
Transfer Restrictions on
New Bonds .................... If you are an affiliate of ours, are engaged
in or intend to engage in or have any
arrangement or understanding with any person
to participate in the distribution of the
New Securities:
(1) you cannot rely on the applicable
interpretations of the staff of the
Commission; and
(2) you must comply with the registration
requirements of the Securities Act in
connection with any resale transaction.
12
<PAGE>
Each broker or dealer that receives New
Securities for its own account in exchange
for Old Securities that were acquired as a
result of market-making or other trading
activities must acknowledge that it will
deliver this prospectus in connection with
any offer to resell, resale, or other
transfer of the New Securities issued in the
exchange offer.
Expiration Date ............... 5:00 p.m., New York City time, on ,
1999, unless we extend the expiration date.
Accrued Interest on the New
Securities and Old Securities
.............................. The New Securities will bear interest from
the most recent date to which interest has
been paid on the Old Securities. If your Old
Securities are accepted for exchange, then
you will waive interest on the Old
Securities accrued to the date the New
Securities are issued.
Certain Conditions to the
Exchange Offer ............... The exchange offer is subject to customary
conditions. We may assert or waive these
conditions in our sole discretion.
Procedures for Tendering
Old Securities ............... If you wish to tender your Old Securities,
you must complete, sign and date the Letter
of Transmittal, or a facsimile of it, in
accordance with its instructions and
transmit the Letter of Transmittal, together
with your Old Securities and any other
required documentation, and Chase Manhattan
Bank and Trust Company, National
Association, who is the exchange agent, must
receive such documentation at the address
set forth in the Letter of Transmittal by
5:00 p.m. New York City time, on the
expiration date. By executing the Letter of
Transmittal, you will represent to us that
you are acquiring the New Securities in the
ordinary course of your business, that you
are not participating, do not intend to
participate and have no arrangement or
understanding with any person to
participate, in the distribution of New
Securities, and that you are not an
"affiliate" of ours.
Special Procedures for
Beneficial Holders ........... If you are the beneficial holder of Old
Securities that are registered in the name
of your broker, dealer, commercial bank,
trust company or other nominee, and you wish
to tender in the exchange offer, you should
promptly contact the person in whose name
your Old Securities are registered and
instruct such person to tender on your
behalf.
Guaranteed Delivery
Procedures ................... If you wish to tender your Old Securities
and you cannot deliver your notes, the
Letter of Transmittal or any other required
documents to the Exchange Agent before the
expiration date, you may tender your Old
Securities according to the guaranteed
delivery procedures set forth in "The
Exchange Offer--Guaranteed Delivery
Procedures."
13
<PAGE>
Withdrawal Rights ............. Tenders may be withdrawn at any time before
5:00 p.m., New York City time, on the
expiration date.
Acceptance of Old Securities
and Delivery of New
Securities ................... Subject to certain conditions, we will
accept for exchange any and all Old
Securities which are properly tendered in
the exchange offer before 5:00 p.m., New
York City time, on the expiration date. The
New Securities will be delivered promptly
after the expiration date.
Exchange Agent ................ Chase Manhattan Bank and Trust Company,
National Association, is serving as Exchange
Agent in connection with the exchange offer.
Certain Federal Income Tax
Considerations ............... We believe that your exchange of Old
Securities for New Securities pursuant to
the exchange offer will not result in any
gain or loss to you for United States
federal income tax purposes.
Use of Proceeds ............... We will not receive any proceeds from the
issuance of New Securities pursuant to the
exchange offer. We will pay all expenses
incident to the exchange offer.
14
<PAGE>
SUMMARY OF THE TERMS OF THE NEW SECURITIES
The form and terms of the New Securities and the Old Securities are
identical in all material respects, except that transfer restrictions and
registration rights applicable to the Old Securities do not apply to the New
Securities. The New Securities will evidence the same debt as the Old
Securities and will be governed by the same indenture. Where we refer to
"Series F Securities" in this prospectus, we are referring to both Old
Securities and New Securities. Where we refer to "Securities" in this
prospectus, we are referring to the Initial Securities, the Supplemental
Securities and the Series F Securities.
THE SERIES F SECURITIES:
Securities Offered ............ $285,000,000 7.475% Senior Secured Series F
Bonds Due November 30, 2018.
Guarantees .................... The Salton Sea Guarantors fully guarantee
payment of the Securities. The Partnership
Guarantors and the Royalty Guarantor
guarantee payment of the Securities to the
extent of their cash flow remaining after
the payment of royalties, operating and
maintenance costs, capital expenditures and
debt service.
Maturity Date ................. November 30, 2018.
Interest Payment Dates ........ May 30 and November 30. We have made the
first two interest payments due November 30,
1998 and May 30, 1999.
Ratings of Series F Securities
.............................. "Baa2" by Moody's and "BBB" by S&P.
Denominations ................. We issued the Old Securities in authorized
denominations of $100,000 or any integral
multiple of $1,000 in excess thereof.
Initial Average Life .......... 15.50 years.
Scheduled Principal Payments .. We have agreed to make principal payments on
the Series F Securities every six months on
each May 30 and November 30, starting on May
30, 2001, in accordance with the following
schedule:
<TABLE>
<CAPTION>
PERCENTAGE OF PRINCIPAL AMOUNT
PRINCIPAL AMOUNT PAYABLE
PAYMENT DATE PAYABLE (IN $'000)
- ----------------- ---------------- ----------------
<S> <C> <C>
November 30, 1998 0.000% $ --
May 30, 1999 0.000% $ --
November 30, 1999 0.000% $ --
May 30, 2000 0.000% $ --
November 30, 2000 0.000% $ --
May 30, 2001 0.225% $ 641
November 30, 2001 0.225% $ 641
May 30, 2002 0.750% $2,137
November 30, 2002 0.750% $2,137
May 30, 2003 0.500% $1.425
November 30, 2003 0.500% $1,425
May 30, 2004 0.625% $1,781
15
<PAGE>
PERCENTAGE OF PRINCIPAL AMOUNT
PRINCIPAL AMOUNT PAYABLE
PAYMENT DATE PAYABLE (IN $'000)
- ----------------- ---------------- ----------------
November 30, 2004 0.625% $ 1,781
May 30, 2005 0.625% $ 1,781
November 30, 2005 0.625% $ 1,781
May 30, 2006 0.650% $ 1,853
November 30, 2006 0.650% $ 1,853
May 30, 2007 0.375% $ 1,070
November 30, 2007 0.375% $ 1,070
May 30, 2008 0.875% $ 2,495
November 30, 2008 0.875% $ 2,495
May 30, 2009 0.375% $ 1,069
November 30, 2009 0.375% $ 1,069
May 30, 2010 1.250% $ 3,562
November 30, 2010 1.250% $ 3,562
May 30, 2011 3.000% $ 8,550
November 30, 2011 3.000% $ 8,550
May 30, 2012 5.750% $16,387
November 30, 2012 5.750% $16,387
May 30, 2013 5.075% $14,464
November 30, 2013 5.075% $14,464
May 30, 2014 6.000% $17,100
November 30, 2014 6.000% $17,100
May 30, 2015 6.550% $18,667
November 30, 2015 6.550% $18,667
May 30, 2016 7.050% $20,092
November 30, 2016 7.050% $20,092
May 30, 2017 6.875% $19,594
November 30, 2017 6.875% $19,594
May 30, 2018 3.450% $ 9,832
November 30, 2018 3.450% $ 9,832
</TABLE>
Priority of Payments .......... We have agreed to deposit all revenues,
equity cash flows and royalties from our
operating projects into a revenue fund
established for the benefit of the holders
of the Securities and our other senior
secured debt. The collateral agent disburses
the funds in the revenue fund to pay
operating and maintenance costs for our
projects, to pay administrative costs
incurred by the secured parties, to make
payments on the Securities and our other
senior debt, to fund the debt service
reserve fund if necessary and to pay costs,
gross-ups and similar amounts owed to the
providers of our senior debt. Monies left
over in the revenue fund are transferred to
the distribution fund or distribution
suspense fund for further distribution to us
if we satisfy the distribution conditions.
Debt Service Reserve Fund ..... We have established a debt service reserve
fund for the benefit of the holders of the
Securities and the provider of the letter of
credit which we use to satisfy our debt
service reserve obligations. The financing
documents require us to deposit cash in
and/or post a letter of credit for the debt
service reserve fund in
16
<PAGE>
an amount equal to:
o through December 31, 1999, the maximum
semiannual principal and interest
payments on the Securities for the
remaining term of the Securities;
o after December 31, 1999 until we pay all
of the Securities other than the Series F
Securities in full, the maximum annual
principal and interest payments on the
Securities for the remaining term of the
Securities; and
o after we pay all of the Securities other
than the Series F Securities in full, (1)
the maximum annual principal and interest
payments on the Series F Securities for
the remaining term of the Series F
Securities or (2) if we get confirmation
of the then current ratings of the Series
F Securities, the maximum semiannual
principal and interest payments on the
Series F Securities for the remaining
term of the Series F Securities.
We do not have to fund the debt service
reserve fund in cash if we post a letter of
credit issued by a financial institution
rated at least "A" by S&P and "A2" by
Moody's. The collateral agent is required to
use the money in the debt service reserve
fund and drawings under any letter of credit
posted for the debt service reserve fund to
pay principal of and interest on the
Securities and interest on loans resulting
from drawings on the letter of credit if
there are not enough monies in our other
accounts to make these payments.
Optional Redemption ........... We may redeem all or any portion of the
Series F Securities at a redemption price
equal to:
o 100% of the principal amount of the
Series F Securities being redeemed, plus
o accrued and unpaid interest on the Series
F Securities being redeemed, plus
o a make-whole premium which is based on
the rates of comparable treasury
securities plus 50 basis points.
Mandatory Redemption .......... If one of the current power purchase
agreements for one of the Existing Projects
is terminated or is amended to reduce the
amount of capacity and energy sold under the
agreement, then we have to use the proceeds
that we receive from the power purchaser in
connection with the termination or reduction
to redeem Securities and prepay our other
senior secured debt unless we receive a
confirmation of the then current ratings of
the Securities. If we are required to redeem
Securities with the proceeds of a power
contract buy-out as described in the
previous sentence, then the redemption price
will be equal to 100% of the principal
amount of the Securities being redeemed plus
accrued and unpaid interest on the
Securities being redeemed.
17
<PAGE>
If one of the Guarantors' promissory notes
issued is accelerated, then we must redeem
an amount of Securities equal to the
principal amount of the promissory note plus
accrued and unpaid interest on the
promissory note. If we are required to
redeem Securities because of the
acceleration of a promissory note as
described in the previous sentence, then the
redemption price will be equal to 100% of
the principal amount of the Securities being
redeemed plus accrued and unpaid interest on
the Securities being redeemed.
If one of our projects is damaged, destroyed
or taken by eminent domain, or if there is a
defect in the title to the land on which a
project is located, and we cannot restore
the project or fix the title defect, then we
must use the insurance or other proceeds
that we receive in excess of certain amounts
in connection with the damage, destruction,
taking or defect to redeem Securities and
prepay our other senior secured debt. If we
are required to redeem Securities with
insurance or other proceeds as described in
the previous sentence, then the redemption
price will be equal to 100% of the principal
amount of the Securities being redeemed plus
accrued and unpaid interest on the
Securities being redeemed.
If the collateral agent forecloses on the
collateral which secures the guarantees and
receives more than $5 million from the
foreclosure, then we must use the proceeds
received by the collateral agent to redeem
Securities. If we are required to redeem
Securities with foreclosure proceeds as
described in the previous sentence, then the
redemption price will be equal to 100% of
the principal amount of the Securities being
redeemed plus accrued and unpaid interest on
the Securities being redeemed.
If we receive more than $6,000,000 of
certain net performance liquidated damages
pursuant to the construction contracts for
the New Projects and such damage payments
are not used to pay construction costs in
accordance with an approved completion plan,
then we must use the damage payments to
redeem Series F Securities. If we are
required to redeem Series F Securities with
damage payments as described in the previous
sentence, then the redemption price will be
equal to 100% of the principal amount of the
Series F Securities being redeemed plus
accrued and unpaid interest on the Series F
Securities being redeemed.
If one of our New Projects is not
substantially complete before its deadline
for substantial completion, we will be
required to redeem Series F Securities in
the following amounts unless we receive a
confirmation of the then current ratings of
the Securities:
o $140,520,000 plus all interest accrued on
the Series F Securities being redeemed if
the Zinc Recovery Project is not
substantially complete by its deadline;
18
<PAGE>
o $83,272,000 plus all interest accrued on
the Series F Securities being redeemed if
Salton Sea Unit V is not substantially
complete by its deadline; and
o $44,581,000 plus all interest accrued on
the Series F Securities being redeemed if
the Region 2 Construction is not
substantially complete by its deadline.
If we are required to redeem Series F
Securities because of the failure to
substantially complete a New Project before
the applicable deadline, then the redemption
price will be equal to 100% of the principal
amount of the Series F Securities being
redeemed plus accrued and unpaid interest on
the Series F Securities being redeemed.
Buy-Down or Ratings Affirmation
to Achieve Substantial
Completion ................... If one of our New Projects does not achieve
satisfactory results in its completion tests
and we have used reasonable efforts to
substantially complete the New Project by
the deadline for substantial completion (as
the deadline may be modified pursuant to an
approved completion plan, if applicable),
then we may choose to cause the New Project
to be substantially complete notwithstanding
its failure to test at the required
performance levels by doing either of the
following:
o redeeming enough Series F Securities, at
redemption price equal to 100% of the
Series F Securities being redeemed plus
unpaid and accrued interest on the Series
F Securities being redeemed, to cause the
minimum and average projected debt
service coverage ratios for the term of
the Series F Securities to equal or
exceed 1.4 to 1 and 1.7 to 1,
respectively; or
o taking other measures as the rating
agencies require to confirm the then
current ratings of the Securities.
Distributions ................. We may not make distributions unless we
satisfy the distribution conditions set
forth in the financing documents. These
conditions include (1) having enough funds
in our accounts to make certain upcoming
payments on the Securities and our other senior
debt, (2) not being in default on our
obligations under the indenture for the
Securities, (3) certifying that our historical
and projected debt service coverage ratios are
at least as good as the levels required by the
financing documents, (4) satisfying our debt
service reserve obligations, (5) certifying
that we have enough geothermal resources to
operate our projects at their required levels
through the final maturity date for the
Securities and (6) substantially completing
each of our New Projects by the applicable
deadline (unless we have received a
confirmation of the then current ratings for
the Securities or have redeemed the required
amount of Securities in connection with the
failure to substantially complete a New
Project).
19
<PAGE>
Ranking and Security for the
Securities ................... The Securities:
o are senior secured debt;
o will be paid with payments that we
receive from the Guarantors under their
promissory notes;
o are secured by a pledge of our capital
stock; and
o are guaranteed by the Guarantors.
Limited Recourse .............. We are the only person obligated to pay
principal of, premium, if any, and interest
on the Securities. Neither MidAmerican, El
Paso, Magma (nor any of MidAmerican's, El
Paso's, Magma's or our stockholders, officers,
directors, employees or affiliates, other than
the Guarantors) will guarantee the Securities
or has any obligation to make payments on the
Securities.
Covenants ..................... We have agreed to, among other things:
o maintain our existence;
o comply with applicable laws;
o enforce our rights against the Guarantors
under their promissory notes;
o deliver financial statements, notices of
default and other information to the
trustee and the rating agencies; and
o pay our taxes and maintain our books and
records.
We have agreed not to, among other things:
o incur debt other than as permitted under
the indenture for the Securities;
o create liens on our property other than
as permitted under the indenture for the
Securities;
o make any investment other than
investments permitted under the indenture
for the Securities;
o engage in a business other than our
current business and activities
incidental thereto;
o assign our rights under the financing
documents;
o enter into additional contracts;
o merge or consolidate with another
company;
o sell our assets; or
o make any distributions unless we satisfy
the distribution conditions.
These affirmative and negative covenants are
subject to a number of important
qualifications and exceptions set forth in
the indenture for the Securities.
20
<PAGE>
Form .......................... The Securities issued pursuant to Rule 144A
or Regulation S were initially issued in
global form through the facilities of The
Depository Trust Company, which will act as
depositary for the global securities.
Transfers of beneficial interests in these
Securities are effected only through records
maintained by The Depository Trust Company
and its participants.
THE PROJECT NOTES:
Salton Sea Project Notes ...... The Salton Sea Guarantors have jointly and
severally issued to us promissory notes in
the amounts of $246,483,000 and $83,272,000,
of which $301,992,000 remains outstanding at
May 31, 1999.
Partnership Project Notes ..... The Partnership Guarantors have jointly and
severally issued to us promissory notes in
the amounts of $24,579,000, $93,150,000 and
amount of $201,728,000, of which
$277,394,000 remains outstanding at May 31,
1999.
Royalty Project Note .......... The Royalty Guarantor has issued to us a
promissory note in the amount of
$75,000,000, of which $18,512,000 remains
outstanding at May 31, 1999.
Ranking and Security for the
Notes and Guarantee Issued by
the Salton Sea Guarantors .... The guarantee and promissory notes issued by
the Salton Sea Guarantors are senior secured
debt of the Salton Sea Guarantors. Such
guarantee and promissory notes are secured
by the following:
o an assignment of all revenues received by
the Salton Sea Guarantors from their
projects;
o a lien on substantially all of the assets
of each of the Salton Sea Guarantors;
o a collateral assignment of certain
material contracts;
o a pledge of the capital stock of (or
other equity interests in) the Salton Sea
Guarantors; and
o a lien on funds established for the
Salton Sea Guarantors under the financing
documents.
Ranking and Security for the
Notes and Guarantee Issued by
the Partnership Guarantors ... The guarantee and promissory notes issued by
the Partnership Guarantors are senior
secured debt of the Partnership Guarantors.
Such guarantee and promissory notes are
secured by the following:
o an assignment of all revenues received by
the Partnership Guarantors from their
projects;
o a lien on substantially all of the assets
of each of the Partnership Guarantors;
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<PAGE>
o a collateral assignment of certain
material contracts;
o a pledge of the capital stock of (or
other equity interests in) the
Partnership Guarantors; and
o a lien on funds established for the
Partnership Guarantors under the
financing documents.
Ranking and Security for the
Project Note and Guarantee
Issued by the Royalty
Guarantor .................... The guarantee and promissory note issued by
the Royalty Guarantor are senior secured
debt of the Royalty Guarantor. Such
guarantee and promissory note are secured by
the following collateral:
o an assignment of all royalties paid to
the Royalty Guarantor;
o a collateral assignment of certain
material contracts;
o a pledge of the capital stock of the
Royalty Guarantor; and
o a lien on the funds established for the
Royalty Guarantor under the financing
documents.
Covenants ..................... Each Guarantor has agreed, among other
things:
o not to merge or consolidate with any
other company except for another
Guarantor;
o not to enter into non-arm's length
transactions or agreements with
affiliates;
o not to incur any debt other than as
permitted under the financing documents;
o not to create any liens on its properties
other than as permitted under the
financing documents;
o not to engage in any business other than
as contemplated by the financing
documents; and
o not to amend, terminate or otherwise
modify the project documents if it would
reasonably be expected to have a material
adverse effect.
These affirmative and negative covenants are
subject to a number of important
qualifications and exceptions set forth in
the indenture for the Securities.
Capital Commitment ............ Our indirect parents, MidAmerican and El
Paso Holding, have agreed to contribute cash
equity to us in an amount of up to
$122,513,000 to fund a portion of the
budgeted costs for the construction of the
New Projects and the capital improvements to
the steam field and related facilities for
the Existing Projects.
22
<PAGE>
ESTIMATED SOURCES AND USES OF FUNDS
The following table sets forth our estimated sources and uses of funds in
connection with the construction, financing and commencement of the
commercial operation of the New Projects and the capital improvements to the
steam field and related facilities for the Existing Projects. The estimated
sources include the proceeds from the sale of the Series F Securities. The
dollar amounts shown below are in thousands.
SOURCES OF FUNDS (000'S)
<TABLE>
<CAPTION>
<S> <C>
Proceeds of the Series F Securities $285,000
Capital Contributions ............... 122,513
----------
TOTAL SOURCES OF FUNDS ............. $407,513
</TABLE>
USES OF FUNDS (000'S)
<TABLE>
<CAPTION>
<S> <C>
Zinc Recovery Project ............................ $180,330
Salton Sea Unit V ................................ 106,863
TurboExpander Project ............................ 10,221
Region 2 Brine Facilities Construction ........... 46,992
Additional Capital Improvements .................. 21,337
Financing Costs and Interest During Construction 41,770
----------
TOTAL USES OF FUNDS ............................. $407,513
</TABLE>
23
<PAGE>
The following summaries of our expert consultant's reports are qualified
by reference to the actual reports which are included in the Appendices to
this Prospectus. You should be aware that the reports have not been updated
since they were originally issued, and that some of the assumptions,
forecasts and projections underlying the reports may have materially changed
since that time.
INDEPENDENT ENGINEER'S REPORT
Fluor Daniel, Inc. (referred to in this prospectus as "Fluor Daniel" or
the "Independent Engineer") has prepared the Independent Engineer's Report
concerning certain technical, environmental and economic aspects of our
projects. The Independent Engineer's Report was prepared in connection with
the offering of the Old Securities and is attached as Appendix B to this
prospectus. Fluor Daniel is an engineering consulting firm which provides
services related to the technical, environmental and economic aspects of
power, metals and mining projects. The Independent Engineer's Report
includes, among other things, a review of the operating history and
performance of the Projects, a review of the material project documents, and
projections of our annual revenues, expenses and debt service coverage for
the term of the Securities. For purposes of preparing these projections,
Fluor Daniel relied on certain assumptions regarding material contingencies
and several other matters that are not within our control or the control of
Fluor Daniel or any other person. Fluor Daniel's assumptions for future zinc
and power prices relied on the projections of such prices prepared by
Resource Strategies International and Henwood Energy Services, Inc.,
respectively.
Subject to the information contained, and the assumptions made, in the
Independent Engineer's Report, Fluor Daniel expressed the opinions that:
EXISTING PROJECTS -- OPERATIONS AND PERFORMANCE
o The projects use commercially proven technology and the Existing
Projects are operated in accordance with recognized electric utility
industry practices.
o The useful life of the surface facilities are expected to exceed the
final maturity date of the Securities.
o The principal project participants possess the necessary experience to
successfully fulfill their obligations for the projects.
o Operating plant capacity factors used in the projections are based on
the operating results for the operating years 1995, 1996 and 1997, and
are reasonable.
o The pH modification technology is proven and reliable, as has been
shown by the eight year operating history at Salton Sea Unit II and the
two year operating history at Salton Sea Units I, III and IV. The pH
modification program should continue to increase availability and
decrease costs consistent with the assumptions used in the projections.
o The Existing Projects are expected to continue operations in accordance
with all relevant existing permits and environmental laws.
NEW PROJECTS
SALTON SEA UNIT V
o The technology upon which Salton Sea Unit V is based is proven and
reliable. The scope of work is within demonstrated capabilities of the
principal project participants. The fixed price engineering,
procurement and construction contract for Salton Sea Unit V provides
for a guaranteed completion date. Based on the expected closing date
for the Old Securities as of the date of the offering circular for the
Old Securities, it appears that the completion of Salton Sea Unit V can
be achieved within the guaranteed date set forth in the construction
contract.
24
<PAGE>
o As stated above, the pH modification technology is proven and reliable
and should continue to operate at the same or improved levels of
reliability.
o Salton Sea Unit V should meet the guaranteed performance criteria
contained in the construction contract and should comply with all
applicable environmental regulations.
o Based on the construction contract for Salton Sea Unit V, the capital
cost budget appears adequate for the facilities provided under the
contract. The guaranteed price in the construction contract, plus the
contractor's substantial prior experience with geothermal plants,
should mitigate the risk of cost overruns and schedule delays, and thus
should adequately protect both the holders of the Securities and the
owner of Salton Sea Unit V. The contractual liquidated damage
provisions provided in the construction contract (up to 20% of the
contract price) are typical for securing contractor completion of
projects utilizing proven technology such as that utilized at Salton
Sea Unit V, and should adequately protect both the holders of the
Securities and the owner.
o Based on Fluor Daniel's knowledge of conventional project financings,
the owner's costs, such as administration costs, insurance, financing
costs, contingency funds, working capital and similar costs, estimated
by the owner appear to be reasonable.
o All discretionary permit approvals have been obtained for construction.
o The useful life of Salton Sea Unit V is expected to exceed the final
maturity date of the Securities.
REGION 2 BRINE FACILITIES CONSTRUCTION
o The technology upon which brine processing is based has been
demonstrated to be proven and reliable. The fixed price construction
contract for the Region 2 Brine Facilities Construction provides for a
guaranteed completion date. Based on the expected closing date for the
Old Securities as of the date of the offering circular for the Old
Securities, it appears that completion of the Region 2 Brine Facilities
Construction can be achieved within the guaranteed date set forth in
the construction contract.
o As stated above, the pH modification technology used at the well field
serving the Existing Projects has been demonstrated to be proven and
reliable. The pH modification system should increase plant availability
and decrease operating costs for all plants served by the well field
consistent with the assumptions in the projections.
o Based on the construction contract for the Region 2 Brine Facilities
Construction, the capital cost budget appears adequate for the
facilities provided under the contract. The guaranteed price in the
construction contract, plus the contractor's substantial prior
experience with geothermal installations, should mitigate the risk of
cost overruns and schedule delays. The contractual liquidated damage
provisions in the construction contract are typical for securing
contractor completion of projects utilizing proven technology such as
that utilized for the Region 2 Brine Facilities Construction, and
should adequately protect both the holders of the Securities and the
owners.
o The Region 2 Brine Facilities Construction should meet the guaranteed
performance criteria contained in the construction contract and should
comply with all applicable environmental regulations.
o All discretionary permit approvals have been obtained for construction.
CE TURBO PROJECT
o The proposed CE Turbo Project uses technology which has been
demonstrated to be proven and reliable. The scope of work is within
demonstrated capabilities of the principal project participants which
should make the currently scheduled completion in mid-2000 achievable.
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<PAGE>
o The fixed price construction contract for the Region 2 Brine Facilities
Construction, which also encompasses the CE Turbo Project, provides for
a guaranteed completion date. Based on the expected closing date for
the Old Securities as of the date of the offering circular for the Old
Securities, it appears that completion of the CE Turbo Project can be
achieved within the guaranteed date set forth in the construction
contract.
o The construction contractor for the Region 2 Brine Facilities
Construction is recognized as an experienced contractor in this field.
o The CE Turbo Project should meet the guaranteed performance criteria
contained in the construction contract and should comply with all
current applicable environmental regulations.
o Based on the construction contract, the capital cost budget appears
adequate for the facilities provided under the contract. The guaranteed
price in the contract, plus the contractor's substantial prior
experience with geothermal power plants, should mitigate the risk of
cost overruns and schedule delays. The contractual liquidated damages
provisions in the construction contract are typical for securing
contractor completion of projects utilizing proven technology such as
that utilized at the CE Turbo Project, and should adequately protect
both the holders of the Securities and the owner.
o Based on Fluor Daniel's knowledge of conventional project financings,
the owner's costs, such as administration costs, insurance, financing
costs, contingency funds, working capital and similar costs, estimated
by the owner appear to be reasonable.
o All required discretionary permit approvals have been obtained for
construction.
o The useful life of the CE Turbo Project is expected to exceed the final
maturity date of the Securities.
ZINC RECOVERY PROJECT
o The Zinc Recovery Project is generally modeled after a demonstration
plant constructed by the owner and located in the Salton Sea Known
Geothermal Resource Area. This demonstration plant has successfully
demonstrated the recovery of zinc on a continuous basis.
o Even though the application of this technology is relatively new at the
project site, the technology has been demonstrated to be reliable. All
components of this technology, except the ion exchange process, have
been in commercial operation for several years at Tecnicas Reunidas, a
zinc extraction project in Spain. Furthermore, each of the components
has been successfully applied and proven for a number of years in other
metals industries such as copper and uranium. The scope of work is
within demonstrated capabilities of the principal project participants
which provides a high level of confidence that the expected completion
date of mid-2000 is achievable.
o The fixed price engineering, procurement and construction contract for
the Zinc Recovery Project provides for a guaranteed completion date.
Based on the expected closing date for the Old Securities as of the
date of the offering circular for the Old Securities, it appears that
completion of the Zinc Recovery Project can be achieved within the
guaranteed date set forth in the construction contract.
o The construction contractor for the Zinc Recovery Project is recognized
as an experienced contractor in this field.
o The Zinc Recovery Project should meet the guaranteed performance
criteria contained in the construction contract and should comply with
all environmental regulations.
o Based on the construction contract, the capital cost budget appears
adequate for the facilities provided under the contract. The guaranteed
price in the contract, plus the contractor's substantial prior
experience with minerals extractions, should mitigate the risk of cost
overruns
26
<PAGE>
and schedule delays. The contractual liquidated damages provisions in
the construction contract (20% of the contract price) are typical for
securing contractor completion of projects utilizing proven technology
such as that utilized in Zinc Recovery Project, and should adequately
protect both the holders of the Securities and the owner.
o Based on Fluor Daniel's knowledge of conventional project financings,
the owner's costs, such as administration costs, insurance, financing
costs, contingency funds, working capital and similar costs, estimated
by the owner appear to be reasonable.
o All required discretionary permit approvals have been obtained for the
construction of Zinc Recovery Project.
o The useful life of the Zinc Recovery Project is expected to exceed the
final maturity date of the Securities.
o Operating costs have been appropriately developed and indicate that the
Zinc Recovery Project will be the lowest cost producer of zinc in North
America. The Zinc Recovery Project's major operating cost component is
electricity which will be supplied from Salton Sea Unit V. Resin,
another major cost component, will be supplied under a contract with
The Dow Chemical Company.
FINANCIAL PROJECTIONS
o An economic/financial model has been developed (and is contained in the
Independent Engineer's Report) which represents the projected
performance of the guarantors. The assumptions underlying the
economic/financial model are reasonable, and the projected operating
results reasonably represent the future financial profile of the
guarantors.
o Projected operating and maintenance costs and capital expenditures for
major maintenance are reasonable and representative of the planned
operations of the projects.
o The financial projections, which are based on the base case assumptions
recommended by us and were found to be reasonable by Fluor Daniel,
indicate that revenues should be adequate to pay operations and
maintenance expenses and provide cash flow for debt service, with base
case debt service coverage ratios calculated from 1999 through 2018 of
1.72x minimum and 2.97x average.
o The financial projections remain stable across a range of sensitivities
and avoided cost assumptions.
ENVIRONMENTAL PERMITTING AND LICENSING
o The reviewed records show that no environmental Notices of Violation
for any media (air emissions, wastewater, solid/hazardous waste) have
been filed against the Existing Projects in the last two years.
o The Existing Projects appear to be neat and well-maintained.
o The H(2S abatement systems consist of existing biofilters for Salton
Sea Units I, II, III and IV. A review of the preliminary design
indicated that sufficient capacity appears to exist to handle any
anticipated increase of H(2S loads resulting from the operation of
Salton Sea Unit V.
o The water and brine pond designs appear adequate.
o Solid waste handling and disposal appears adequate.
o Dust control in the solid waste handling operation should be improved
by planned dust handling equipment and dust abatement measures.
o All discretionary environmental permit approvals have been received for
the proposed new construction.
27
<PAGE>
PROJECT AGREEMENTS
o Major project agreements (as listed in Attachment 2-1 to Appendix B),
including power purchase agreements, construction contracts, major
subcontracts and related contracts for transmission system
interconnection appear reasonable from a technical perspective and are
consistent with the financial projections reviewed herein.
POWER MARKET CONSULTANT'S REPORT
Henwood (sometimes referred to in this prospectus as the "Power Market
Consultant") has prepared the Power Market Consultant's Report concerning
certain industry and regulatory matters affecting the sales of electricity by
the Power Projects and providing estimates of future prices of electricity.
The Power Market Consultant's Report is attached as Appendix C to this
prospectus. Henwood is a consulting firm that provides business advisory
services, project feasibility and finance studies, and market forecasts in
electricity and gas to international firms and public authorities. The Power
Market Consultant's Report includes, among other things, an overview of the
U.S. and California power markets, a forecast of future power prices, an
assessment of our projects' competitive market position and a review of
California's green power market. For purposes of preparing such projections,
Henwood relied upon certain assumptions regarding material contingencies and
other matters that are not within our control or the control of the Henwood
or any other person.
Subject to the information contained, and the assumptions made, in the
Power Market Consultant's Report, Henwood expressed the opinions that:
o All of the Power Projects will be low cost producers in all years of
the study. The annual average operating cost of the Power Projects in
2005 is projected to be $17.81/MWh, which would make them low cost
producers. About 66 percent of the electricity produced in the Western
Systems Coordinating Council in 2005 -the first year of full
competition -is projected to be generated from units with higher
costs, a strong indication that the Power Projects will be dispatched
as base load. The new units, Salton Sea Unit V and the CE Turbo
Project, are projected to be even better positioned at $10.30 and $9.50
per MWh respectively. Of all the generation in the region, only
hydroelectric generators have lower operating costs.
o The annual average operating costs of the Power Projects, in $/MWh, are
below the annual average PX prices. In fact, the Power Projects'
operating costs are close to the projected off-peak PX price in 1999
through 2002 and significantly below that in all years after 2002.
o The low-cost relationship between PX prices and the Power Projects'
operating costs also prevails with the low gas price downside
sensitivity cases. In these cases, the operating costs are well below
the PX prices. The range of annual average PX prices in the low gas
price cases is $26.47/MWh in 2001 to $46.95/MWh in 2018.
o A significant finding of the study is that Salton Sea Unit V and the CE
Turbo Project will have operating costs lower than all other generator
types, except hydro, and will be extremely well-positioned to be
dispatched any hour in the year. These units' operating costs are
projected to be approximately $20/MWh lower than the PX prices from
1999 through 2001, a difference that is projected to increase to
$30/MWh in 2005 and to $40/MWh by 2018. This margin is so significant
that it is extremely unlikely that any new significant capacity with
lower operating costs will be built.
o We also find that the PX price will be greater than or equal to
$20.30/MWh in 96 percent of all hours in 2005. This means that the
Power Projects, with an average operating cost of $17.81/MWh, will be
below the PX price in each of those hours and will be dispatched
accordingly.
o Our base case forecast indicates that the Southern California annual PX
market clearing price will increase from $28/MWh in 1999 to $50.31/MWh
by 2018 in constant dollars -which
28
<PAGE>
translates into an average annual rate of increase of 2.92 percent over
such period. The Power Market Consultant's Report also contains
projections of SCE's avoided cost of energy that were prepared by SCE
in 1995.
o The transition of short-run avoided cost determination to competitively
determined pricing, while subject to regulatory and market dynamics, is
expected to be complete by the beginning of 2000. We forecast the
short-run avoided cost to be $30.30/MWh in 1999 on an annual average
basis.
o In addition to being low cost producers, the Power Projects have the
added competitive advantage of being a renewable (or "green") energy
resource.
o Surveys indicate that 40 to 70 percent of California residential
consumers are willing to pay a 5 to 15 percent premium for green power
products. Current retail premiums for green power products range from
0.7 to 3.1 cents per kWh.
o The State of California has established a $543 million fund to
subsidize existing and new sources of renewable energy. Henwood's
analysis of the disbursement criteria and delivery mechanisms, the
awards received by the guarantors and the guarantors' own demonstrated
expertise in acquiring such funds, all suggest that the Power Projects
will derive substantial benefits from generating clean and renewable
energy.
ZINC MARKET CONSULTANT'S REPORT
RSI (sometimes referred to in this prospectus as the "Zinc Market
Consultant") has prepared the Zinc Market Consultant's Report concerning
certain industry matters affecting the sales of zinc by the Zinc Recovery
Project and providing estimates of future prices of zinc. The Zinc Market
Consultant's Report is attached as Appendix E to this prospectus. RSI is a
consulting firm that is affiliated with CRU International Group and provides
advisory services and production cost and price forecasts to international
commodity based industries including metals, minerals and pulp and paper, as
well as financial institutions. The Zinc Market Consultant's Report includes,
among other things, an overview of the world zinc market, an assessment of
the California zinc market, the competitive position of the Zinc Recovery
Project and an analysis of the marketing plans for the Zinc Recovery Project.
For purposes of preparing such analyses, RSI relied upon certain assumptions
regarding material contingencies and other matters that are not within our
control or the control of RSI or any other person.
Subject to the information contained, and the assumptions made, in the
Zinc Market Consultant's Report, RSI expressed the opinions that:
o The Zinc Recovery Project is expected to be the lowest cost North
American zinc producer and well within the bottom quartile of all
Western producers.
o Current forecasts indicate that U.S. zinc consumption could rise to as
high as 1.54 million tonnes per annum by 2018, an increase of 270,000
tonnes per annum over current levels.
o The United States is only 31% self sufficient in zinc metal production
with three smelters located in Clarksville, Tennessee, Monaca,
Pennsylvania and Sauget, Illinois. These smelters produce 115,000,
155,000 and 82,000 metric tonnes per year respectively.
o The Zinc Recovery Project's production is expected to be readily
absorbed in California and other insular West Coast markets. The
relatively short distance to those markets will provide the project a
2-4 cents lb. advantage in freight costs over its nearest competitors
in Mexico and Canada.
o The owner's zinc marketing plan is reasonable and can be accomplished.
o The forecast for zinc prices in 1997 dollars per pound is as detailed
in the Zinc Market Consultant's Report.
29
<PAGE>
GEOTHERMAL RESOURCE CONSULTANT'S REPORT
GeothermEx, Inc. (referred to in this prospectus as "GeothermEx" or the
"Geothermal Resource Consultant") has prepared the Geothermal Resource
Consultant's Report concerning, among other things, the sufficiency of the
geothermal resources available for the use and conversion to electrical power
by the Power Projects and for the recovery of zinc by the Zinc Recovery
Project. The Geothermal Resource Consultant's Report is attached as Appendix
D to this prospectus. The Geothermal Resource Consultant's Report includes,
among other things an overview and description of the Salton Sea field, a
discussion of past and anticipated well and field behavior, an estimate of
energy and zinc reserves, and finally a review of proposed well costs. For
purposes of preparing its report, GeothermEx relied on certain assumptions
regarding material contingencies and several other matters that are not
within our control or the control of GeothermEx or any other person.
Subject to the information contained, and the assumptions made, in the
Geothermal Resource Consultant's Report, GeothermEx expressed the opinions
that:
o The Salton Sea field is highly productive and wells have historically
behaved favorably with minimal flow rate or pressure declines.
o The additional production fluid needed for Salton Sea Unit V and the CE
Turbo Project will be supplied by existing wells with spare capacity.
o Numerical simulation studies undertaken to date forecast acceptable
well behavior for the existing and planned level of power generation
and zinc recovery. Well behavior has historically been consistent with
results predicted by earlier simulation models; therefore, future well
behavior is expected to be adequate to support the Power Projects.
o The recoverable geothermal energy reserves from the reservoir are more
than sufficient to support the Existing Projects and the planned
additional increments of capacity resulting in a total capacity of
326.4 MW. GeothermEx estimates that 1,200 MW of reserves are available
within the portion of the Salton Sea field dedicated to the Power
Projects.
o The predicted gross zinc recovery rate is based on the well field
configuration for the Existing Projects and the New Projects.
Therefore, because additional zinc reserves exist in the field, this
prediction is conservative. Additional zinc could be recovered by
developing new areas of the field for geothermal fluid production.
o The recoverable reserves of geothermal energy will not be affected by
the New Projects.
o The budget for well field costs through 2018 is reasonable and should
allow the projects to achieve the forecasted levels of electrical
generationand zinc production.
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<PAGE>
RISK FACTORS
You should carefully consider the following factors before deciding to
tender your Old Securities in the exchange offer.
YOUR FAILURE TO EXCHANGE YOUR OLD SECURITIES FOR NEW SECURITIES COULD HAVE
ADVERSE CONSEQUENCES.
The Old Securities were not registered under the Securities Act or under
the securities laws of any state and may not be resold, offered for resale or
otherwise transferred unless they are subsequently registered or resold
pursuant to an exemption from the registration requirements of the Securities
Act and applicable state securities laws. If you do not exchange your
unregistered Old Securities for registered New Securities pursuant to the
exchange offer, you will not be able to resell, offer to resell or otherwise
transfer the Old Securities unless they are registered under the Securities
Act or unless you resell them, offer to resell or otherwise transfer them
under an exemption from the registration requirements of, or in a transaction
not subject to, the Securities Act. In addition, we will no longer be under
an obligation to register the Old Securities under the Securities Act except
in the limited circumstances provided under the registration rights agreement
between us and the initial purchasers of the Old Securities. In addition, to
the extent that Old Securities are tendered for exchange and accepted in the
exchange offer, the trading market for the untendered and tendered but
unaccepted Old Securities could be adversely affected.
WE ARE THE ONLY ONES REQUIRED TO MAKE PAYMENTS ON THE SECURITIES AND OUR
ABILITY TO DO SO IS DEPENDENT ON CIRCUMSTANCES BEYOND OUR CONTROL.
We are a special purpose finance subsidiary of Magma. Our ability to make
payments on the Securities will be entirely dependent on the Guarantors'
performance of their obligations under their promissory notes issued to us
and their guarantees of the Securities. The assets and cash flows of the
Guarantors are the sole source of repayment of their promissory notes and
guarantees. The Salton Sea Guarantors conduct no other business and own no
other significant assets except those related to the ownership or operation
of the Salton Sea Projects. The Partnership Project Companies conduct no
business and own no significant assets except those related to the ownership
or operation of the Partnership Projects. The other Partnership Guarantors
(CEOC, VPC, VPC Geothermal, San Felipe, Conejo and Niguel) conduct no
business except those related to the development, ownership or operation of
the Partnership Projects and the Salton Sea Projects. The Royalty Guarantor's
sole business is to receive royalty payments owed by some of the Partnership
Projects and the Royalty Guarantor conducts no other business and owns no
other assets. We cannot assure you that, if a Guarantor defaults under its
promissory note, credit agreement or guarantee, the exercise of remedies
under the note, credit agreement or guarantee, including foreclosure on the
Guarantor's assets, would provide sufficient funds to pay its obligations.
Moreover, unless such default causes a payment default under the indenture
for the Securities, you may exercise remedies only against the assets of the
defaulting Guarantor. None of our shareholders, partners or affiliates (other
than the Guarantors) or any of our or the Guarantors' officers or employees
will guarantee or be in any way liable for the payment of the Securities, the
Guarantors' notes or the guarantees. In addition, the obligations of the
Partnership Guarantors and the Royalty Guarantor under the guarantees are
limited to the revenues of these Guarantors less royalties, operating and
maintenance costs, capital expenditures and debt service. As a result,
payment of amounts owed pursuant to the Guarantors' promissory notes and
guarantees and the Securities is dependent upon the availability of
sufficient revenues from the Guarantors' businesses or holdings, after the
payment of operating expenses and the satisfaction of other obligations.
THE REVENUES FROM THE SALE OF ELECTRICITY BY THE GEOTHERMAL POWER PLANTS ARE
SUBJECT TO FLUCTUATION.
The power purchase agreements for all of our existing projects other than
Salton Sea Unit I and Salton Sea Unit IV sell electricity to SCE pursuant to
agreements which provide for both capacity payments and energy payments for a
term of 30 years. While the basis for the capacity payments is fixed for the
entire 30-year term, the price for energy in some of the agreements is fixed
only for the first ten years of the term. After ten years, the required
energy payment converts to SCE's avoided cost of energy, as determined by a
methodology approved by, and subject to change by, the California Public
Utility
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<PAGE>
Commission. Vulcan's fixed price period expired in 1996; Salton Sea Unit
III's, Del Ranch's and Elmore's fixed price periods expired in 1999; and
Salton Sea Unit II's and Leather's fixed price periods will expire in 2000.
Estimates of SCE's future avoided cost of energy vary substantially. We
cannot predict the likely level of SCE's avoided cost of energy prices under
the power purchase agreements at the expiration of the fixed price periods.
SCE's avoided cost of energy is currently substantially below the energy
prices for the fixed price periods and is expected to remain so over at least
the near term. For example, for the year ending December 31, 1998, the time
period weighted average of SCE's avoided cost of energy was 3.0 cents per kWh
and the time period weighted average of the fixed price period energy prices
was approximately 10.0 cents per kWh, which is substantially below the
contract energy prices earned for the year ended December 31, 1998. Thus, the
revenues available to us to make payments on the Securities are likely to
decline significantly after the expiration of the fixed price periods in the
power purchase agreements with SCE.
Although Salton Sea Unit V will sell approximately one-third of its net
electrical output for use by the Zinc Recovery Project. We intend to sell the
output from Salton Sea Unit V and the CE Turbo Project that is not needed by
the Zinc Recovery Project in short term transactions through the PX or in
other more advantageous transactions. The PX was recently created to
establish markets for the sale of power on a daily and an hourly basis. Thus,
we expect PX prices to have the characteristics of short-term spot prices and
to fluctuate from time to time in a manner that cannot be predicted with
accuracy and is not within our control or the control of any other person.
The projections contained in the Independent Engineer's Report utilize
predictions of PX prices as estimated by Henwood. However, we cannot assure
you that these estimates will prove to be accurate. In addition, because the
PX commenced operation only recently, on April 1, 1998, PX operating
procedures are new, not yet fully tested and subject to change.
THE REVENUES FROM THE SALE OF ZINC BY THE ZINC RECOVERY PLANT ARE SUBJECT TO
FLUCTUATION.
Most of the revenues from the zinc recovery project will be derived from
the sale of zinc. Thus, its earnings will be directly related to the price of
zinc in the domestic and world markets. Zinc prices fluctuate and are
affected by numerous factors, including expectations of inflation,
speculative activities, currency exchange rates, interest rates, global and
regional demand and production, political and economic conditions, discovery
of new deposits and production costs in major producing regions. The
aggregate effect of these factors, all of which are beyond our control, is
impossible for us to predict.
THE CONSTRUCTION OF THE NEW PROJECTS MAY BE DELAYED AND MAY COST MORE THAN WE
EXPECTED.
The three new projects are being constructed pursuant to fixed price, date
certain turnkey engineering, procurement and construction contracts. The new
projects are subject to customary risks associated with the construction of
power and metals processing plants, including risks of delays in completion,
cost overruns and failures to perform in accordance with contract terms. In
addition, the integrated process for the production of zinc from geothermal
brine that we plan to use in our Zinc Recovery Project has not been attempted
in a large scale commercial facility. Any material unremedied delay in or
unsatisfactory completion of the New Projects could have an adverse effect on
our results of operations.
THE GEOTHERMAL RESOURCES MAY NOT BE SUFFICIENT TO OPERATE THE PROJECTS FOR AS
LONG AS THE TERM OF THE SECURITIES AND THE USE OF GEOTHERMAL RESOURCES IN THE
PROJECTS MAY RESULT IN SIGNIFICANT COSTS WHICH ARE NOT WITHIN OUR CONTROL.
Geothermal exploration, development and operations are subject to
uncertainties which vary among different geothermal reservoirs and are
similar to those typically associated with oil and gas exploration and
development, including dry holes and uncontrolled releases. We can only
estimate, and cannot definitively establish, the geographic area and
sustainable output of our geothermal reservoirs because of their geological
complexities. There is, accordingly, a risk of an unexpected decline in the
capacity of geothermal wells and a risk of geothermal reservoirs not being
sufficient for sustained production of
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<PAGE>
electricity and/or zinc at the desired levels. In addition, both the cost of
operations and the operating performance of our projects may be adversely
affected by the following operating factors, among others, which may require
us to make substantial capital expenditures:
o production and injection wells can require frequent maintenance or
replacement;
o corrosion caused by high-temperature and high-salinity geothermal
fluids may require the replacement or repair of certain equipment,
vessels or pipelines; and
o new production and injection wells may be required for the maintenance
of current operating levels.
OUR BUSINESS IS SUBJECT TO SUBSTANTIAL REGULATIONS AND PERMITTING
REQUIREMENTS AND MAY BE ADVERSELY AFFECTED BY CHANGES IN THESE REGULATIONS OR
REQUIREMENTS.
We are subject to a number of environmental laws and regulations affecting
many aspects of our present and future operations, including the disposal of
various forms of materials resulting from geothermal reservoir production and
the drilling and operation of new wells. These laws and regulations generally
require us to obtain and comply with a wide variety of licenses, permits and
other approvals. We also remain subject to a varied and complex body of
environmental and energy regulations that both public officials and private
individuals may seek to enforce. We cannot assure you that existing
regulations will not be revised or that new regulations will not be adopted
or become applicable us which could have an adverse impact on our operations.
The structure of federal and state energy regulations is currently
undergoing change and has in the past, and may in the future, be the subject
of various challenges, initiatives and restructuring proposals by utilities
and other industry participants. The implementation of regulatory changes in
response to such challenges, initiatives and restructuring proposals could
result in the imposition of more comprehensive or stringent requirements on
us, electric utilities and other industry participants, which would result in
increased compliance costs and could otherwise have an adverse effect on:
o our results of operations;
o our ability to make payments on the Securities; and
o the operations and financial condition of electric utilities (including
SCE) and other industry participants.
MOST OF OUR OPERATING REVENUES ARE DERIVED FROM POWER PURCHASE AGREEMENTS
WITH ONE CUSTOMER.
Each of our existing projects relies on an agreement with SCE to generate
100% of its operating revenues. The payments under these agreements have
constituted 100% of the operating revenues of each existing project since its
inception, and are expected to continue to do so for nearly the entire life
of the Securities. Any material failure of SCE to fulfill its contractual
obligations under the power purchase agreements could have a material adverse
effect on our ability to make payments on the Securities.
THE PROCEEDS RECEIVED UNDER OUR INSURANCE POLICIES MAY NOT BE SUFFICIENT TO
COVER ALL LOSSES AND THE INSURANCE COVERAGE FOR OUR PROJECTS MAY NOT BE
AVAILABLE IN THE FUTURE ON COMMERCIALLY REASONABLE TERMS.
We currently have property, business interruption, catastrophic and
general liability insurance for our projects. Proceeds of this insurance will
be payable to the depositary for our account and will be applied as required
under the financing documents. We cannot assure you that such comprehensive
insurance coverage will be available in the future at commercially reasonable
costs or terms or that the amounts for which we are or will be insured will
cover all potential losses.
Our new projects and any new facilities at the projects will be designed
and built to withstand relatively significant levels of seismic disturbance
because geothermally active areas such as the area in which our projects are
located are subject to frequent low-level seismic disturbances, and serious
seismic disturbances are possible. However, we cannot assure you that:
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<PAGE>
o seismic disturbances of a nature and magnitude so as to cause material
damage to our projects or gathering systems, or a material change in
the nature of the geothermal resource, will not occur;
o insurance with respect to seismic disturbances will be maintained for
all of our projects;
o insurance proceeds will be adequate to cover all potential losses
sustained; or
o insurance will continue to be available in the future in amounts
adequate to insure against seismic disturbances.
FEDERAL AND STATE STATUTES MAY ALLOW COURTS, UNDER SPECIFIC CIRCUMSTANCES, TO
VOID THE GUARANTORS' AND MAGMA'S OBLIGATIONS.
We distributed a significant portion of the proceeds of the offering of
the Initial Securities to MidAmerican to repay certain non-recourse
indebtedness incurred by MidAmerican in connection with its acquisition of
Magma. At that time, the Royalty Guarantor also purchased an assignment of
royalties from Magma pursuant to an assignment agreement. Pursuant to such
agreement, Magma agreed to make payments to CEOC and to secure this payment
obligation with a collateral assignment of cash flows. At the time of the
offering of the Initial Securities, the initial Guarantors executed
guarantees of the entire amount of the Securities. In connection with the
offering of the Supplemental Securities and the offering of the Old
Securities, the Guarantors executed guarantees of the entire amount of
Securities. Under certain circumstances (including a proceeding under Title
11 of the United States Code or any similar proceeding), it is possible that
a creditor of a Guarantor or Magma could make a claim, under federal or state
fraudulent conveyance laws, that the following instruments should be
subordinated or not enforced in accordance with their terms or that payments
under these instruments (including payments to the holders of the Securities)
should be recovered:
o our claims under the credit agreements between us and the Guarantors;
o the Security holders' claims under the guarantees;
o the Royalty Guarantor's interest under its assignment agreement with
Magma; or
o CEOC's rights under its services agreement with Magma.
In order to prevail on such a claim, a claimant would have to demonstrate
that:
o either:
o the obligations incurred under any Guarantor's credit agreement or
guarantee or the transfers made under the Magma assignment agreement
or the Magma services agreement were not incurred in good faith, or
o that any Guarantor or Magma did not receive fair consideration in
connection with such obligations and transfers, and
o that any Guarantor or Magma, at the time of (1) entering into its
credit agreement and/or guarantee or the Magma assignment agreement
and/or the Magma services agreement or (2) amending or otherwise
increasing its obligations under its credit agreement and/or guarantee:
o was insolvent; or
o did not have and will not have sufficient capital for carrying on its
business or was not and will not be able to pay its debts as they
mature.
WE ARE RELYING ON PROJECTIONS OF THE FUTURE PERFORMANCE OF OUR PROJECTS.
The financing documents reflect certain assumptions with respect to our
revenue generating capacity and the costs associated with the generation of
revenue over the term of the Securities. Fluor Daniel has evaluated and
provided a report on the technical, environmental and economic aspects of the
Projects in the Independent Engineer's Report. The Independent Engineer's
Report also contains cash flow projections and a discussion of the many
assumptions utilized in preparing these projections, which you should review
carefully.
34
<PAGE>
All projections of future operations and the economic results thereof
included in the Independent Engineer's Report have been adopted by Fluor
Daniel. These cash flow projections rely in part on the projections of power
and zinc prices provided by Henwood and RSI, respectively. Our independent
auditors, Deloitte & Touche LLP, have neither examined nor compiled the
projections and, accordingly, do not express an opinion or any other form of
assurance with respect to the projections. Neither we nor any other person
has any obligation to provide the holders of the Securities with updated
reports or revised projections comparing the projections and the actual
operating results later achieved by us.
For purposes of preparing the projections, Fluor Daniel made certain
assumptions, of necessity, with respect to general business and economic
conditions, the revenues we will earn, SCE's future avoided cost of energy
and several other material contingencies and other matters that are not
within our control and the outcome of which cannot be predicted by us, Fluor
Daniel or any other person with any certainty of accuracy. These assumptions
and the other assumptions used in the projections are inherently subject to
significant uncertainties and actual results may differ, perhaps materially,
from those projected. Neither we nor any of Fluor Daniel, Henwood, RSI or any
other person assumes any responsibility for the accuracy of such projections.
Therefore, no representation is made or intended, nor should any be inferred,
with respect to the likely existence of any particular future set of facts or
circumstances. If actual results are less favorable than those shown or if
the assumptions used in formulating the projections prove to be incorrect,
our ability to make payments on the Securities and the Guarantors' ability to
make payments on their notes and guarantees may be adversely affected.
THERE IS NO EXISTING MARKET FOR THE NEW SECURITIES AND WE CANNOT ASSURE YOU
THAT AN ACTIVE TRADING MARKET WILL DEVELOP.
We are offering the New Securities to the holders of the Old Securities.
There is no existing market for the New Securities and we cannot assure you
that a market will develop. If a market for the New Securities were to
develop, future trading prices would depend on many factors, including
prevailing interest rates, our operating results and the market for similar
securities. We do not intend to apply for listing or quotation of the New
Securities on any securities exchange or stock market.
RISKS ASSOCIATED WITH THE YEAR 2000 PROBLEM COULD HAVE AN ADVERSE EFFECT ON
OUR BUSINESS.
We expect to implement successfully systems to address year 2000 issues.
We cannot assure you, however, that our year 2000 compliance will not be
delayed or require significant expenditures. Our inability to implement the
appropriate software on a timely basis could have an adverse effect on our
business. We may also suffer an adverse impact on our business if our
suppliers, customers, financial institutions, technical advisors and others
with which we conduct business are not year 2000 compliant.
FORWARD-LOOKING STATEMENTS
Some of the statements contained or incorporated by reference into this
prospectus are not historical facts, but are "forward-looking statements" as
that term is defined under the Private Securities Litigation Reform Act of
1995. We wish to caution you that these forward-looking statements are only
predictions, and actual events or results may differ materially as a result
of risks that we face, including those set forth herein under "Risk Factors."
These forward-looking statements can be identified by the use of
forward-looking terminology such as "believe," "expects," "plans," "may,"
"would," "could," "should" or "anticipates" or the negative of these words or
other variations of these words or other comparable words, or by discussions
of strategies that involve risks and uncertainties. These risks include, but
are not limited to the following:
o general economic and business conditions;
o industry trends;
o the impact of the "year 2000" issue;
o weather effects on sales and revenues;
o changes in business strategy, development plans or vendor
relationships;
o availability, term and deployment of capital;
o availability of qualified personnel; and
o changes in, or failure or inability to comply with, governmental
regulations.
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<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Commission a Registration Statement on Form S-4
(together with all amendments and exhibits, the "Registration Statement")
under the Securities Act with respect to our offering of the New Securities.
This prospectus does not contain all of the information in the Registration
Statement. You will find additional information about us and the New
Securities in the Registration Statement. Any statement made in this
prospectus concerning the provisions of legal documents are not necessarily
complete and you should read the documents that are filed as exhibits to the
Registration Statement.
We are subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and file periodic
reports, registration statements, proxy statements and other information with
the Commission. You may inspect and copy the Registration Statement,
including exhibits, and our periodic reports, registration statements, proxy
statements and other information we file with the Commission at the Public
Reference Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the regional offices of the
Commission located at Seven World Trade Center, 13th Floor, New York, New
York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such material can be obtained from the Public Reference Section of
the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. The Commission maintains a Web
site that contains reports, proxy and information statements and other
materials that are filed through the Commission's Electronic Data Gathering,
Analysis and Retrieval (EDGAR) system. This Web site can be accessed at
http://www.sec.gov.
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<PAGE>
CAPITALIZATION
The following tables set forth the individual capitalization of the
Funding Corporation and the Guarantors and the combined capitalization of the
Guarantors as of March 31, 1999
<TABLE>
<CAPTION>
AS OF MARCH 31, 1999
(DOLLARS IN
THOUSANDS
<S> <C>
CAPITALIZATION OF FUNDING CORPORATION:
Senior Secured Notes and Bonds............. $626,816
--------------------
Total Indebtedness....................... 626,816
--------------------
Capital:
Common Stock ............................. --
Additional paid-in capital ............... 5,366
Retained earnings ........................ 6,744
--------------------
Total Capital ........................... 12,110
--------------------
$638,926
====================
CAPITALIZATION OF SALTON SEA GUARANTORS:
Senior Secured Project Note (1)............ $310,030
--------------------
Total Indebtedness....................... 310,030
--------------------
Capital:
Partners' Capital ........................ 283,489
--------------------
$593,519
====================
CAPITALIZATION OF PARTNERSHIP GUARANTORS:
Senior Secured Project Note (1)............ $293,576
--------------------
Total Indebtedness....................... 293,576
--------------------
Capital:
Common Stock ............................. 3
Additional paid-in capital ............... 387,663
Retained earnings ........................ 113,713
Total Capital ........................... 501,379
--------------------
$794,955
====================
CAPITALIZATION OF ROYALTY GUARANTOR:
Senior Secured Project Note (1)............ $ 23,210
--------------------
Total Indebtedness....................... 23,210
--------------------
Capital:
Common Stock ............................. --
Additional paid-in capital ............... 1,561
Retained earnings ........................ 42,081
Total Capital ........................... 43,642
--------------------
$ 66,852
====================
COMBINED CAPITALIZATION OF THE GUARANTORS:
Senior Secured Project Note (1)............ $626,816
--------------------
Total Indebtedness....................... 626,816
--------------------
Capital:
Common Stock ............................. 3
Additional paid-in capital ............... 389,224
Retained earnings ........................ 155,794
Partners' capital ........................ 283,489
--------------------
Total Capital ........................... $828,510
====================
</TABLE>
- ------------
(1) For terms of the Project Notes, see "Summary Description of Principal
Financing Documents."
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<PAGE>
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The Funding Corporation originally sold the outstanding 7.475% Senior
Secured Series F Bonds due November 30, 2018 on October 13, 1998 in a
transaction exempt from the registration requirements of the Securities Act.
Credit Suisse First Boston Corporation and Goldman, Sachs & Co., as the
initial purchasers, subsequently resold the notes to qualified institutional
buyers in reliance on Rule 144A and under Regulation S under the Securities
Act. As of the date of this prospectus, $285 million aggregate principal
amount of unregistered bonds are outstanding.
The Funding Corporation, Credit Suisse First Boston Corporation and
Goldman, Sachs & Co. entered into an exchange and registration rights
agreement under which the Funding Corporation agreed that it would, at its
own cost, (1) use its reasonable best efforts to cause the Registration
Statement, of which this prospectus is a part, relating to the exchange offer
to be declared effective by the Commission prior to July 10, 1999, (2) keep
the exchange offer open for a period of not less than the shorter of (A) the
period ending when the last of the remaining Old Securities is tendered into
the exchange offer and (B) 30 days from the date notice is mailed to holders
of the Old Securities, and (3) maintain the Registration Statement
continuously effective for a period of not less than the longer of (A) the
period until consummation of the exchange offer and (B) 120 days after
effectiveness of the Registration Statement (subject to extension under
certain limited circumstances), provided that in the event that all resales
of New Securities covered by the Registration Statement have been made, the
Registration Statement need not remain continuously effective. The summary in
this prospectus of provisions of the registration rights agreement does not
purport to be complete and is subject to, and is qualified in its entirety
by, all the provisions of the registration rights agreement, a copy of which
is filed as an exhibit to the registration statement of which this prospectus
is a part.
RESALE OF THE NEW SECURITIES
Based on no-action letters issued by the staff of the Commission to third
parties, the Funding Corporation believes that a holder of Old Securities,
but not a holder who is an affiliate of the Funding Corporation within the
meaning of Rule 405 of the Securities Act, who exchanges Old Securities for
New Securities in the exchange offer, generally may offer the New Securities
for resale, sell the New Securities and otherwise transfer the New Securities
without further registration under the Securities Act and without delivery of
a prospectus that satisfies the requirements of Section 10 of the Securities
Act. This does not apply, however, to a holder who is an affiliate of the
Funding Corporation within the meaning of Rule 405 of the Securities Act. The
Funding Corporation also believes that a holder may offer, sell or transfer
the New Securities only if the holder acquires the New Securities in the
ordinary course of its business and is not participating, does not intend to
participate and has no arrangement or understanding with any person to
participate in a distribution of the New Securities.
Any holder of Old Securities using the exchange offer to participate in a
distribution of New Securities cannot rely on the no-action letters referred
to above. This includes a broker-dealer that acquired Old Securities directly
from the Funding Corporation, but not as a result of market-making activities
or other trading activities. Consequently, the holder must comply with the
registration and prospectus delivery requirements of the Securities Act in
the absence of an exemption from such requirements.
Each broker-dealer that receives New Securities for its own account in
exchange for Old Securities, where such Old Securities were acquired by the
broker-dealer as a result of market-making activities or other trading
activities may be a statutory underwriter and must acknowledge that it will
deliver a prospectus meeting the requirements of the Securities Act in
connection with the resale of New Securities received in exchange for Old
Securities. The letter of transmittal which accompanies this prospectus
states that by so acknowledging and by delivering a prospectus, a
participating broker-dealer will not be deemed to admit that it is an
underwriter within the meaning of the Securities Act. A participating
broker-dealer may use this prospectus, as it may be amended from time to
time, in connection with resales of New
38
<PAGE>
Securities it receives in exchange for Old Securities in the exchange offer.
The Funding Corporation will make this prospectus available to any
participating broker-dealer in connection with any resale of this kind for a
period of 30 days after the expiration date of the exchange offer. See "Plan
of Distribution".
Each holder of the Old Securities who wishes to exchange Old Securities
for New Securities in the exchange offer will be required to represent and
acknowledge, for the holder and for each beneficial owner of such Old
Securities, whether or not the beneficial owner is the holder, in the letter
of transmittal that:
o the New Securities to be acquired by the holder and each beneficial
owner, if any, are being acquired in the ordinary course of business,
o neither the holder nor any beneficial owner is an affiliate, as defined
in Rule 405 of the Securities Act, of the Funding Corporation or any of
its subsidiaries,
o any person participating in the exchange offer with the intention or
purpose of distributing New Securities received in exchange for Old
Securities, including a broker-dealer that acquired Old Securities
directly from the Funding Corporation, but not as a result of
market-making activities or other trading activities cannot rely on the
no-action letters referenced above and must comply with the
registration and prospectus delivery requirements of the Securities
Act, in connection with a secondary resale of the New Securities
acquired by such person,
o if the holder is not a broker-dealer, the holder and each beneficial
owner, if any, are not participating, do not intend to participate and
have no arrangement or understanding with any person to participate in
any distribution of the New Securities received in exchange for Old
Securities, and
o if the holder is a broker-dealer that will receive New Securities for
the holder's own account in exchange for Old Securities, the Old
Securities to be so exchanged were acquired by the holder as a result
of market-making or other trading activities and the holder will
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of such New Securities received in the
exchange offer. However, by so representing and acknowledging and by
delivering a prospectus, the holder will not be deemed to admit that it
is an underwriter within the meaning of the Securities Act.
SHELF REGISTRATION STATEMENT
If applicable law or interpretations of the staff of the SEC are changed
so that the New Securities received by holders who make all of the above
representations in the letter of transmittal are not or would not be, upon
receipt, transferrable by each such holder without restriction under the
Securities Act, the Funding Corporation will, at its cost:
o file a shelf registration statement covering resales of the Old
Securities,
o use its reasonable best efforts to cause the shelf registration
statement to be declared effective under the Securities Act on or prior
to July 10, 1999, and
o use its reasonable best efforts to keep effective the shelf
registration statement until the earlier of three years after October
13, 1998, subject to certain exceptions, or the time when all of the
applicable Old Securities are no longer outstanding.
The Funding Corporation may postpone or suspend the filing or the
effectiveness of any registration statement if such action is taken by the
Funding Corporation in good faith and for valid business reasons. The Funding
Corporation will, if and when it files the shelf registration statement,
provide to each holder of the Old Securities copies of the prospectus which
is a part of the shelf registration statement, notify each holder when the
shelf registration statement has become effective and take other actions as
are required to permit unrestricted resales of the Old Securities.
INCREASE IN INTEREST RATE
In the event that neither the exchange offer registration statement nor a
shelf registration statement has been declared effective by July 10, 1999,
the interest rate on the Old Securities will increase by 0.50%
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<PAGE>
per annum until the exchange offer registration statement or the shelf
registration statement is declared effective. Upon consummation of the
exchange offer, holders of Old Securities will not be entitled to any
increase in the rate of interest on the Old Securities, but will be entitled
to the benefits of the indenture under which the Old Securities were issued.
TERMS OF THE EXCHANGE
The Funding Corporation hereby offers, upon the terms and subject to the
conditions set forth in this prospectus and in the accompanying Letter of
Transmittal, to exchange New Securities for a like aggregate principal amount
of Old Securities properly tendered on or prior to the Expiration Date and
not properly withdrawn in accordance with the procedures described below. The
Funding Corporation will issue, promptly after the Expiration Date, the New
Securities in exchange for a like principal amount of outstanding Old
Securities tendered and accepted in connection with the exchange offer.
Holders may tender their Old Securities in whole or in part in a principal
amount of $1,000 and integral multiples thereof, provided that if any Old
Securities are tendered for exchange in part, the untendered principal amount
thereof must be $100,000 or any integral multiple of $1,000 in excess
thereof.
The exchange offer is not conditioned upon any minimum number of Old
Securities being tendered. As of the date of this prospectus, $285,000,000
aggregate principal amount of the Old Securities is outstanding.
If any tendered Old Securities are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, certificates for any such unaccepted Old Securities will be
returned, without expense to the tendering holder thereof promptly after the
Expiration Date.
Holders who tender Old Securities in connection with the exchange offer
will not be required to pay brokerage commissions or fees or, subject to the
instructions in the Letter of Transmittal, transfer taxes with respect to the
exchange of Old Securities in connection with the exchange offer. The Funding
Corporation will pay all charges and expenses, other than certain applicable
taxes described below, in connection with the exchange offer. See
"--Solicitation of Tenders; Fees and Expenses."
Neither the Board of Directors of the Funding Corporation nor the Funding
Corporation makes any recommendation to holders of Old Securities as to
whether to tender or refrain from tendering all or any portion of their Old
Securities pursuant to the exchange offer. In addition, no one has been
authorized to make any such recommendation, holders of Old Securities must
make their own decision whether to tender pursuant to the exchange offer and,
if so, the aggregate amount of Old Securities to tender after reading this
prospectus and the Letter of Transmittal and consulting with their advisers,
if any, based on their own financial position and requirements.
EXPIRATION DATE; EXTENSIONS; TERMINATION; AMENDMENTS
The exchange offer expires on the Expiration Date. The term "Expiration
Date" means 5:00 p.m., New York City time, on , unless the Funding
Corporation in its sole discretion extends the period during which the
exchange offer is open, in which case the term "Expiration Date" means the
latest time and date to which the exchange offer is extended. The Funding
Corporation may extend the exchange offer at any time and from time to time
by giving oral or written notice to the Exchange Agent and by timely public
announcement. Without limiting the manner in which the Funding Corporation
may choose to make any public announcement and subject to applicable law, the
Funding Corporation shall have no obligation to publish, advertise or
otherwise communicate any such public announcement other than by issuing a
release to an appropriate news agency. During any extension of the exchange
offer, all Old Securities previously tendered pursuant to the exchange offer
will remain subject to the exchange offer.
The Funding Corporation reserves the right (1) to delay accepting any Old
Securities, to extend the exchange offer or to terminate the exchange offer
and not accept Old Securities not previously accepted for any reason,
including if any of the events set forth herein under "--Conditions to the
Exchange Offer" occur and are not waived by the Funding Corporation, or (2)
to amend the terms of the exchange offer
40
<PAGE>
in any manner, whether prior to or after the tender of any of the Old
Securities. If any such delay, extension, termination or amendment occurs,
the Funding Corporation will give oral or written notice to the Exchange
Agent and will either issue a public announcement or give notice to the
holders of the Old Securities as promptly as practicable.
If the Funding Corporation waives any material condition to the exchange
offer, or amends the exchange offer in any other material respect, and if at
the time that notice of such waiver or amendment is first published, sent or
given to holders of Old Securities in the manner specified above, the
exchange offer is scheduled to expire at any time earlier than the expiration
of a period ending on the fifth business day from, and including, the date
that such notice is first so published, sent or given, then the exchange
offer will be extended until the expiration of such period of five business
days.
This prospectus and the related Letter of Transmittal and other relevant
materials will be mailed by the Funding Corporation to record holders of Old
Securities and will be furnished to brokers, banks and similar persons whose
names, or the names of whose nominees, appear on the lists of holders for
subsequent transmittal to beneficial owners of Old Securities.
PROCEDURES FOR TENDERING
To tender in the exchange offer, a holder must complete, sign and date the
Letter of Transmittal, or a facsimile thereof (all references in this
prospectus to the Letter of Transmittal shall be deemed to include a
facsimile thereof), have the signatures thereon guaranteed if required by the
Letter of Transmittal and mail or otherwise deliver such Letter of
Transmittal or such facsimile, together with any other required documents or
an Agent's Message in case of book-entry delivery as described below, to the
Exchange Agent prior to the Expiration Date. In addition, either (1)
certificates for such Old Securities must be received by the Exchange Agent
along with the Letter of Transmittal on or prior to the Expiration Date, (2)
a timely confirmation of a book-entry transfer (a "Book-Entry Confirmation")
of such Old Securities, if such procedure is available, into the Exchange
Agent's account at The Depository Trust Company (the "Book-Entry Transfer
Facility") pursuant to the procedure for book-entry transfer described below,
along with the Letter of Transmittal must be received by the Exchange Agent
on or prior to the Expiration Date, or (3) the holder must comply with the
guaranteed delivery procedures described below. THE METHOD OF DELIVERY OF
CERTIFICATES, THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS
AT THE OPTION AND SOLE RISK OF THE TENDERING HOLDER. IF DELIVERY IS BY MAIL,
REGISTERED MAIL (RETURN RECEIPT REQUESTED AND PROPERLY INSURED) OR AN
OVERNIGHT DELIVERY SERVICE IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME
SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR OLD
SECURITIES SHOULD BE SENT TO THE FUNDING CORPORATION. To be tendered
effectively, the Old Securities, Letter of Transmittal and all other required
documents, or, in the case of a participant in the Book-Entry Transfer
Facility, an Agent's Message, must be received by the Exchange Agent prior to
5:00 p.m., New York City time, on the Expiration Date. Except in the case of
a participant in the Book-Entry Transfer Facility who transfers Securities by
an Agent's Message, delivery of all documents must be made to the Exchange
Agent at its address set forth on the back of this prospectus. Holders may
also request their respective brokers, dealers, commercial, banks, trust
companies or nominees to effect such tender for such holders.
The tender by a holder of Old Securities will constitute an agreement
between such holder and the Funding Corporation in accordance with the terms
and subject to the conditions set forth in this prospectus and in the Letter
of Transmittal. If less than all of the Old Securities are tendered, a
tendering holder should fill in the amount of Old Securities being tendered
in the appropriate box on the Letter of Transmittal. The entire amount of Old
Securities delivered to the Exchange Agent will be deemed to have been
tendered unless otherwise indicated.
Only a holder of Old Securities may tender such Old Securities in the
exchange offer. The term "holder" with respect to the exchange offer means
any person in whose name Old Securities are registered on the books of the
Funding Corporation or any other person who has obtained a properly completed
bond power from the registered holder.
Any beneficial owner whose Old Securities are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who
wishes to tender should contact such registered holder
41
<PAGE>
promptly and instruct such registered holder to tender on his behalf. If such
beneficial owner wishes to tender on his own behalf, such beneficial owner
must, prior to completing and executing the Letter of Transmittal and
delivering his Old Securities, either make appropriate arrangements to
register ownership of the Old Securities in such owner's name or obtain a
properly completed bond power from the registered holder. The transfer of
registered ownership may take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by a firm (an "Eligible Institution") that is
a member of a recognized signature guarantee medallion program within the
meaning of Rule 17Ad-15 under the Exchange Act, unless the Old Securities
tendered pursuant thereto are tendered (1) by a registered holder who has not
completed the box entitled "Special Issuance Instructions" or "Special
Delivery Instructions" on the Letter of Transmittal or (2) for the account of
an Eligible Institution. In the event that signatures on a Letter of
Transmittal or a notice of withdrawal, as the case may be, are required to be
guaranteed, such guarantee must be by an Eligible Institution.
If the Letter of Transmittal is signed by a person other than the
registered holder of any Old Securities listed therein, such Old Securities
must be endorsed or accompanied by bond powers and a proxy which authorizes
such person to tender the Old Securities on behalf of the registered holder,
in each case as the name of the registered holder or holders appears on the
Old Securities. If the Letter of Transmittal or any Old Securities bond
powers are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary
or representative capacity, such person should so indicate when signing, and
unless waived by the Funding Corporation, evidence satisfactory to the
Funding Corporation of their authority to so act must be submitted with the
Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt) and withdrawal of the tendered Old Securities will be determined by
the Funding Corporation in its sole discretion, which determination will be
final and binding. The Funding Corporation reserves the absolute right to
reject any and all Old Securities not properly tendered or any Old Securities
which, if accepted by the Funding Corporation, would be unlawful. The Funding
Corporation also reserves the right to waive any irregularities or conditions
of tender as to particular Old Securities. The Funding Corporation's
interpretation of the terms and conditions of the exchange offer (including
the instructions in the Letter of Transmittal) will be final and binding on
all parties. Unless waived, any defects or irregularities in connection with
tenders of Old Securities must be cured within such time as the Funding
Corporation determines. None of the Funding Corporation, the Exchange Agent
or any other person will be under any duty to give notification of defects or
irregularities with respect to tenders of Old Securities, nor will any of
them incur any liability for failure to give such notification. Tenders of
Old Securities will not be deemed to have been made until such irregularities
have been cured or waived. Any Old Securities received by the Exchange Agent
that are not properly tendered and as to which the defects or irregularities
have not been timely cured or waived will be returned without cost to such
holder by the Exchange Agent to the tendering holders of Old Securities,
unless otherwise provided in the Letter of Transmittal, as soon as
practicable following the Expiration Date.
In addition, the Funding Corporation reserves the right in its sole
discretion (1) to purchase or make offers for any Old Securities that remain
outstanding subsequent to the Expiration Date or, as set forth under
"--Conditions to the exchange offer," to terminate the exchange offer and (2)
to the extent permitted by applicable law, to purchase Old Securities in the
open market, in privately negotiated transactions or otherwise. The Funding
Corporation has no present plan to acquire any Old Securities which are not
tendered in the exchange offer. The terms of any such purchases or offers
could differ from the terms of the exchange offer.
Book Entry Transfer. The Exchange Agent will make a request to establish
an account with respect to the Old Securities at the Book-Entry Transfer
Facility for purposes of the exchange offer within two business days after
the date of this prospectus. Any financial institution that is a participant
in the Book-Entry Transfer Facility's systems may book-entry deliver Old
Securities by causing the Book-Entry Transfer Facility to transfer such Old
Securities into the Exchange Agent's account at the Book-Entry
42
<PAGE>
Transfer Facility in accordance with the Book-Entry Transfer Facility's
procedures for transfer on or prior to the Expiration Date. A holder who is a
participant in the Book-Entry Transfer Facility and transfers the Securities
by an Agent's Message need not transmit the Letter of Transmittal to the
Exchange Agent to consummate the exchange.
The term "Agent's Message" means a message transmitted through electronic
means by a Book-Entry Transfer Facility to and received by the Exchange Agent
and forming a part of a book-entry confirmation, which states that the
Book-Entry Transfer Facility has received an express acknowledgment from the
participant in the Book-Entry Transfer Facility tendering the Securities that
such participant has received and agrees to be bound by the Letter of
Transmittal and/or the Notice of Guaranteed Delivery (as discussed below),
where applicable.
Guaranteed Delivery Procedures. If a registered holder of the Old
Securities desires to tender its Old Securities, and the Old Securities are
not immediately available, or time will not permit such holder's Old
Securities or other required documents to reach the Exchange Agent before the
Expiration Date, or the procedure for book-entry transfer cannot be completed
on a timely basis, a tender may be effected if:
(1) the tender is made through an Eligible Institution;
(2) on or prior to the Expiration Date, the Exchange Agent received from
such Eligible Institution a properly completed and duly executed
Letter of Transmittal (or a facsimile thereof or in the case of a
participant in the Book-Entry Transfer Facility, an Agent's Message)
and Notice of Guaranteed Delivery, substantially in the form provided
by the Funding Corporation (by facsimile transmission, mail or hand
delivery, or, in the case of a participant in the Book-Entry Transfer
Facility, by an Agent's Message), setting forth the name and address
of the holder of Old Securities and the amount of Old Securities
tendered, stating that the tender is being made thereby and
guaranteeing that within three New York Stock Exchange trading days
after the date of execution of the Notice of Guaranteed Delivery, the
certificates for all physically tendered Old Securities, in proper
form for transfer, or a Book-Entry Confirmation, as the case may be,
and any other documents required by the Letter of Transmittal, will be
deposited by the Eligible Institution with the Exchange Agent; and
(3) the certificates for all physically tendered Old Securities, in proper
form for transfer, or a Book-Entry Confirmation, as the case may be,
and any other documents required by the Letter of Transmittal are
received by the Exchange Agent within three New York Stock Exchange
trading days after the date of execution of the Notice of Guaranteed
Delivery.
A tender will be deemed to have been received as of the date when the
tendering holder's properly completed and duly signed Letter of Transmittal
accompanied by the Old Securities is received by the Exchange Agent, or in
the case of a participant in the Book-Entry Transfer Facility, as of the date
when an Agent's Message from the participant has been received by the
Exchange Agent. Issuances of New Securities in exchange for Old Securities
tendered pursuant to a Notice of Guaranteed Delivery or letter, telegram or
facsimile transmission to similar effect (as provided above) by an Eligible
Institution will be made only against deposit of the Letter of Transmittal
(and any other required documents) and the tendered Old Securities.
TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL
The Letter of Transmittal contains, among other things, the following
terms and conditions, which are part of the exchange offer.
The party tendering Old Securities for exchange (the "Transferor")
exchanges, assigns and transfers the Old Securities to the Funding
Corporation and irrevocably constitutes and appoints the Exchange Agent as
the Transferor's agent and attorney-in-fact to cause the Old Securities to be
assigned, transferred and exchanged. The Transferor represents and warrants
that it has full power and authority to tender, exchange, assign and transfer
the Old Securities and to acquire New Securities issuable upon the exchange
of such tendered Old Securities, and that, when the same are accepted for
exchange, the Funding
43
<PAGE>
Corporation will acquire good and unencumbered title to the tendered Old
Securities, free and clear of all liens, restrictions, charges and
encumbrances and not subject to any adverse claim. The Transferor also
warrants that it will, upon request, execute and deliver any additional
documents deemed by the Funding Corporation to be necessary or desirable to
complete the exchange, assignment and transfer of tendered Old Securities.
The Transferor further agrees that acceptance of any tendered Old Securities
by the Funding Corporation and the issuance of New Securities in exchange
therefor shall constitute performance in full by the Funding Corporation of
its obligations under the Registration Rights Agreement and that the Funding
Corporation shall have no further obligations or liabilities thereunder
(except in certain limited circumstances). All authority conferred by the
Transferee will survive the death or incapacity of the Transferor and every
obligation of the Transferor shall be binding upon the heirs, legal
representatives. successors, assigns, executors and administrators of such
Transferor.
By tendering Old Securities, the Transferor certifies that (1) it is not
an "affiliate" of the Funding Corporation within the meaning of Rule 405
under the Securities Act, that it is not a broker-dealer that owns Old
Securities acquired directly from the Funding Corporation, that it is
acquiring the New Securities offered hereby in the ordinary course of such
Transferor's business and that such Transferor has no arrangement with any
person to participate in the distribution of such New Securities or (2) it is
an "affiliate" (as defined above) of the Funding Corporation or of an Initial
Purchaser and that it will comply with the registration and prospectus
delivery requirements of the Securities Act to the extent applicable to it.
Each broker-dealer that receives New Securities as a result of market-making
activities or other trading activities must acknowledge that it will deliver
a prospectus in connection with any resale of such New Securities. See "Plan
of Distribution."
WITHDRAWAL RIGHTS; NONEXCHANGED OLD SECURITIES
Old Securities tendered pursuant to the exchange offer may be withdrawn at
any time prior to 5:00 p.m. New York City time, on the Expiration Date.
For a withdrawal to be effective, a written, telegraphic, telex or
facsimile transmission notice of withdrawal must be timely received by the
Exchange Agent at its address set forth on the back of this prospectus. Any
such notice of withdrawal must specify the name of the person having tendered
the Old Securities to be withdrawn, identify the Old Securities to be
withdrawn (including the principal amount of such Old Securities) and (where
certificates for Old Securities have been transmitted) specify the name in
which such Old Securities are registered if different from that of the
withdrawing holder, accompanied by evidence satisfactory to the Funding
Corporation that the person withdrawing the tender has succeeded to the
beneficial ownership of the Old Securities being withdrawn. If certificates
for Old Securities have been delivered or otherwise identified to the
Exchange Agent, then, prior to the release of such certificates, the
withdrawing holder must also submit the serial numbers of the particular
certificates to be withdrawn and a signed notice of withdrawal with
signatures guaranteed by an Eligible Institution unless such holder is an
Eligible Institution. If Old Securities have been tendered pursuant to the
procedure for book-entry transfer described above, any notice of withdrawal
must specify the name and number of the account at the Book-Entry Transfer
Facility to be credited with the withdrawn Old Securities and otherwise
comply with the procedures of such facility. If any Old Securities are
tendered for exchange but are not exchanged for any reason, or if any Old
Securities are submitted for a greater principal amount than the holder
desires to exchange, such unaccepted or nonexchanged Old Securities will be
returned to the holder thereof without cost to such holder (or, in the case
of Old Securities tendered by book-entry transfer into the Exchange Agent's
account at the Book-Entry Transfer Facility pursuant to the book-entry
transfer procedures described above, such Old Securities will be credited to
an account maintained with such Book-Entry Transfer Facility for the Old
Securities) as soon as practicable after withdrawal, rejection of tender,
termination of the exchange offer or submission of nonexchanged Old
Securities. Withdrawals of tenders of Old Securities may not be rescinded.
Old Securities properly withdrawn will not be deemed validly tendered for
purposes of the exchange offer, but may be retendered at any subsequent time
on or prior to the Expiration Date by following any of the procedures
described above under "--Procedures for Tendering."
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<PAGE>
All questions as to the validity, form and eligibility (including time of
receipt) of such withdrawal notices will be determined by the Funding
Corporation in its sole discretion, whose determination will be final and
binding on all parties. Neither the Funding Corporation, any affiliates or
assigns of the Funding Corporation, the Exchange Agent nor any other person
shall be under any duty to give any notification of any irregularities in any
notice of withdrawal or incur any liability for failure to give any such
notification.
ACCEPTANCE OF OLD SECURITIES FOR EXCHANGE; DELIVERY OF NEW SECURITIES
Upon the terms and subject to the conditions of the exchange offer, the
Funding Corporation will exchange, and will issue to the Exchange Agent, New
Securities for Old Securities validly tendered and not withdrawn promptly
after the Expiration Date. For the purposes of the exchange offer, the
Funding Corporation will be deemed to have accepted for exchange validly
tendered Old Securities when and if the Funding Corporation has given oral or
written notice thereof to the Exchange Agent. The Exchange Agent will act as
agent for the tendering holders of Old Securities for the purposes of
receiving New Securities from the Funding Corporation and causing the Old
Securities to be assigned, transferred and exchanged. Upon the terms and
subject to the conditions of the exchange offer, delivery of New Securities
to be issued in exchange for accepted Old Securities will be made by the
Exchange Agent only after timely receipt by the Exchange Agent of
certificates for such Old Securities or a timely Book-Entry Confirmation of
such Old Securities into the Exchange Agent's account at the Book-Entry
Transfer Facility, a properly completed and duly executed Letter of
Transmittal and all other required documents, or, in the case of a book-entry
delivery, an Agent's Message.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provisions of the exchange offer, or any
extension of the exchange offer, the Funding Corporation will not be required
to accept for exchange, or to exchange, any Old Securities for any New
Securities, and, as described below, may terminate the exchange offer
(whether or not any Old Securities have theretofore been accepted for
exchange) or may waive any conditions to or amend the exchange offer, if any
of the following conditions have occurred or exists or have not been
satisfied:
o the exchange offer, or the making of any exchange by a holder, violates
any applicable law or any applicable interpretation of the staff of the
Commission;
o in the reasonable judgment of the Funding Corporation, there is be
threatened, instituted or pending any action or proceeding before, or
any injunction, order or decree has been issued by, any court or
governmental agency or other governmental regulatory or administrative
agency or commission, (1) seeking to restrain or prohibit the making or
consummation of the exchange offer or any other transaction
contemplated by the exchange offer, (2) assessing or seeking any
damages as a result thereof, or (3) resulting in a material delay in
the ability of the Funding Corporation to accept for exchange or
exchange some or all of the Old Securities pursuant to the exchange
offer;
o any statute, rule, regulation, order or injunction is sought, proposed,
introduced, enacted, promulgated or deemed applicable to the exchange
offer or any of the transactions contemplated by the exchange offer by
any government or governmental authority, domestic or foreign, or any
action shall have been taken, proposed or threatened, by any
government, governmental authority, agency or court, domestic or
foreign, that in the reasonable judgment of the Funding Corporation
might directly or indirectly result in any of the consequences referred
to in clauses (1), (2) or (3) in the immediately preceding paragraph
or, in the reasonable judgment of the Funding Corporation, might result
in the holders of New Securities having obligations with respect to
resales and transfers of New Securities which are greater than those
described in the interpretations of the Staff referred to in this
prospectus, or would otherwise make it inadvisable to proceed with the
exchange offer;
o there shall have occurred (1) any general suspension of trading in, or
general limitation on prices for securities on the New York Stock
Exchange, (2) a declaration of a banking moratorium or any
45
<PAGE>
suspension of payments in respect of banks in the United States or any
limitation by any governmental agency or authority that adversely
affects the extension of credit to the Funding Corporation, or (3) a
commencement of a war, armed hostilities or other similar international
calamity directly or indirectly involving the United States; or, in the
case any of the foregoing exists at the time of commencement of the
exchange offer, a material acceleration or worsening thereof; or
o a material adverse change shall have occurred or be threatened in the
business, condition (financial or otherwise), operations, stock
ownership or prospects of the Funding Corporation.
The foregoing conditions are for the sole benefit of the Funding
Corporation and may be asserted by it with respect to all or any portion of
the exchange offer regardless of the circumstances (including any action or
inaction by the Funding Corporation) giving rise to such condition or may be
waived by the Funding Corporation in whole or in part at any time or from
time to time in their sole discretion. The failure by the Funding Corporation
at any time to exercise any of the foregoing rights will not be deemed a
waiver of any such right. and each right will be deemed an ongoing right
which may be asserted at any time or from time to time. In addition, the
Funding Corporation has reserved the right, notwithstanding the satisfaction
of each of the foregoing conditions, to amend the exchange offer.
Any determination by the Funding Corporation concerning the fulfillment or
non-fulfillment of any conditions will be final and binding upon all parties.
In addition, the Funding Corporation will not accept for exchange any Old
Securities tendered and no New Securities will be issued in exchange for any
such Old Securities, if at such time any stop order shall be threatened or in
effect with respect to (1) the Registration Statement of which this
prospectus constitutes a part or (2) the qualification of the Indenture under
the Trust Indenture Act of 1939.
EXCHANGE AGENT
Chase Manhattan Bank & Trust Company, National Association, has been
appointed as the Exchange Agent for the exchange offer. Chase Manhattan Bank
& Trust Company, National Association also acts as trustee under the
Indenture.
Delivery of the Letters of Transmittal and any other required documents,
questions, requests for assistance, and requests for additional copies of
this prospectus or of the Letter of Transmittal, should be directed to the
Exchange Agent at its address and numbers set forth on the back of this
prospectus. Except in the case of a participant in the Book-Entry Transfer
Facility who transfers Securities by an Agent's Message, delivery to an
address other than as set forth herein, or transmissions of instructions via
a facsimile or telex number other than to the Exchange Agent as set forth
herein, will not constitute a valid delivery.
SOLICITATION OF TENDERS; FEES AND EXPENSES
The Funding Corporation has not retained any dealer-manager or similar
agent in connection with the exchange offer and will not make any payments to
brokers, dealers or others for soliciting acceptances of the exchange offer.
The Funding Corporation will, however, pay the Exchange Agent reasonable and
customary fees for its services and will reimburse it for reasonable
out-of-pocket expenses in connection therewith. The Funding Corporation will
also pay brokerage houses and other custodians, nominees and fiduciaries the
reasonable out-of-pocket expenses incurred by them in forwarding copies of
this prospectus and related documents to the beneficial owners of Old
Securities, and in handling tenders for their customers. The expenses to be
incurred in connection with the exchange offer, including the fees and
expenses of the Exchange Agent and printing, accounting and legal fees, will
be paid by the Funding Corporation and are estimated at approximately
$100,000.
Holders who tender their Old Securities for exchange will not be obligated
to pay any transfer taxes in connection therewith. If, however, New
Securities are to be delivered to, or are to be issued in the name of, any
person other than a registered holder of the Old Securities tendered, of if a
transfer tax is imposed for any reason other than the exchange of Old
Securities in connection with the exchange offer, then the
46
<PAGE>
amount of any such transfer taxes (whether imposed on the registered holder
or any other persons) will be payable by the tendering holder. If
satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted with the Letter of Transmittal, the amount of such transfer taxes
will be billed directly to such tendering holder.
No person has been authorized to give any information or to make any
representations in connection with the exchange offer other than those
contained in this prospectus. If given or made, such information or
representations should not be relied upon as having been authorized by the
Funding Corporation. Neither the delivery of this prospectus nor any exchange
made under this prospectus will, under any circumstances, create any
implication that there has been no change in the affairs of the Funding
Corporation since the respective dates as of which information is given
herein. The exchange offer is not being made to (nor will tenders be accepted
from or on behalf of) holders of Old Securities in any jurisdiction in which
the making of the exchange offer or the acceptance thereof would not be in
compliance with the laws of such jurisdiction. However, the Funding
Corporation may, at its discretion, take such action as it may deem necessary
to make the exchange offer in any such jurisdiction and extend the exchange
offer to holders of Old Securities in such jurisdiction. In any jurisdiction
the securities laws or blue sky laws of which require the exchange offer to
be made by a licensed broker or dealer, the exchange offer is being made on
behalf of the Funding Corporation by one or more registered brokers or
dealers which are licensed under the laws of such jurisdiction.
APPRAISAL RIGHTS
Holders of Old Securities will not have dissenters' rights or appraisal
rights in connection with the exchange offer.
FEDERAL INCOME TAX CONSEQUENCES
The exchange of Old Securities for New Securities by holders will not be a
taxable exchange for federal income tax purposes, and holders should not
recognize any taxable gain or loss or any interest income as a result of such
exchange.
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SELECTED HISTORICAL FINANCIAL AND
OPERATING DATA OF THE FUNDING CORPORATION
(ALL DATA IN THOUSANDS, EXCEPT RATIO DATA)
The following tables set forth selected historical financial and operating
data of the Funding Corporation. The historical summary statement of
operations for each of the three years ended December 31, 1998 and the period
from June 20, 1995 (inception date) through December 31, 1995 and the
historical balance sheet data as of December 31, 1998, 1997, 1996 and 1995
have been derived from the audited historical financial statements of the
Funding Corporation. The historical summary statements of operations for the
three months ended March 31, 1999 and 1998 and the historical balance sheet
data as of March 31, 1999 and 1998 have been derived from the unaudited
historical financial statements of the Funding Corporation which, in the
opinion of management of the Funding Corporation, include all adjustments
(consisting only of recurring accruals) necessary to present fairly the
information set forth therein. The data should be read in conjunction with
the financial statements and related notes and other financial information
appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
FROM
JUNE 20, 1995
(INCEPTION) THREE MONTHS
YEAR ENDED DECEMBER 31, THROUGH ENDED MARCH 31,(1)
---------------------------------- DECEMBER 31, ----------------------
1998 1997 1996 1995 1999 1998
---------- ---------- ---------- --------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total Revenues ....................... $ 39,329 $ 40,674 $ 40,567 $ 17,577 $ 12,245 $ 9,151
General and administrative expenses . 804 748 712 -- 215 238
Interest expense ..................... 35,495 37,443 36,761 15,022 11,737 8,259
Provision for income taxes ........... 1,247 1,022 1,273 1,048 121 269
Net income ........................... 1,783 1,461 1,821 1,507 172 385
OTHER FINANCIAL DATA:
EBITDA(2) ............................ 38,525 39,926 39,855 17,577 12,030 8,913
Ratio of combined EBITDA to fixed
charges(2) .......................... 1.085 1.066 1.084 1.170 1.025 1.079
Ratio of earnings to fixed charges(3) 1.058 1.044 1.066 1.152 1.015 1.060
December 31, March 31,
-------------------------------------------------- ----------------------
1998 1997 1996 1995 1999 1998
------------------------------------- ---------- ---------- ---------- --------------- ---------- ----------
BALANCE SHEET DATA:
Total assets ......................... $659,337 $474,289 $575,989 $522,521 $694,175 $537,620
Senior secured notes and bonds ...... 626,816 448,754 538,982 452,088 626,816 448,754
Total liabilities .................... 647,399 464,134 567,295 515,571 682,065 527,080
Stockholders' equity ................. 11,938 10,155 8,694 6,950 12,110 10,540
</TABLE>
- ------------
(1) The Funding Corporation has a one percent investment in the
Guarantors whose operations are seasonal in nature, with a
disproportionate percentage of income earned in the quarter ending
September 30; therefore, operating results and ratios for interim
periods are not indicative of the results for a full fiscal year.
(2) Earnings before interest, taxes, depreciation and amortization
(EBITDA) is presented here not as a measure of operating results, but
rather as a measure of the Funding Corporation's ability to service
debt. EBITDA should not be construed as an alternative either (1) to
operating income (determined in accordance with generally accepted
accounting principles) or (2) to cash flows from operating activities
(determined in accordance with generally accepted accounting
principles).
(3) For purposes of computing historical ratios of earnings to fixed
charges, earnings are divided by fixed charges. "Earnings" represent
the aggregate of pretax income of the Funding Corporation plus fixed
charges, less capitalized interest. "Fixed Charges" represent
interest (whether expensed or capitalized) and amortization of
deferred financing fees.
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SELECTED HISTORICAL COMBINED FINANCIAL AND
OPERATING DATA OF THE SALTON SEA GUARANTORS
(ALL DATA IN THOUSANDS, EXCEPT RATIO DATA)
The following tables set forth selected historical combined financial and
operating data of the Salton Sea Guarantors. The information contained
therein was extracted from certain historical information of Magma and
certain of its affiliates. The historical summary data as of and for each of
the five years in the period ended December 31, 1998 have been derived from
the audited historical financial statements of the Salton Sea Guarantors. The
historical summary data as of and for the three months ended March 31, 1999
and 1998 have been derived from the unaudited historical financial statements
of the Salton Sea Guarantors which, in the opinion of management of the
Salton Sea Guarantors, include all adjustments (consisting only of normal
recurring accruals) necessary to present fairly the information set forth
therein. The data should be read in conjunction with the financial statements
and related notes and other financial information appearing elsewhere in this
prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,(1)
-------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1999 1998
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues ............... $107,091 $106,425 $ 91,123 $ 71,605 $ 74,998 $ 19,064 $ 20,200
Operating revenues ........... 106,274 106,252 90,982 71,605 74,576 18,272 20,185
Operating, general
administrative costs ........ 30,306 30,865 27,175 26,096 24,766 7,308 6,747
Depreciation and
amortization................. 14,857 14,689 14,272 10,556 10,049 4,022 3,714
Income from operations ...... 61,928 60,871 49,676 34,953 40,183 7,734 9,739
Interest expense, net of
capitalized interest ........ 15,989 18,055 14,645 15,605 8,240 4,372 3,928
Net income(2) ................ 45,939 42,816 35,031 17,955 31,943 3,362 5,811
OTHER FINANCIAL DATA:
Capital expenditures ......... 15,845 7,204 79,863 68,677 4,493 9,792 1,498
Combined EBITDA(4) ........... 83,658 75,560 63,948 45,509 50,232 11,756 13,453
Ratio of combined EBITDA to
combined fixed charges ..... 3.534 3.285 2.572 1.840 6.100 1.935 2.558
Ratio of earnings to fixed
charges(3) .................. 2.883 2.665 2.005 1.410 4.877 1.288 1.885
December 31, March 31,
-------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1999 1998
---------- ---------- ---------- ---------- ---------- ---------- ----------
BALANCE SHEET DATA:
Property, plant, contracts
and equipment, net .......... $480,293 $478,001 $484,182 $417,287 $204,329 $486,389 $476,111
Total assets ................. 628,515 556,353 565,934 500,400 232,914 619,626 550,071
Senior secured project note . 310,030 266,208 299,840 321,500 -- 310,030 266,208
Loans payable ................ -- -- -- -- 114,308 -- --
Total liabilities ............ 348,388 322,165 374,562 330,801 114,936 336,137 310,072
Guarantors' equity ........... 280,127 234,188 191,372 169,599 117,978 283,489 239,999
</TABLE>
- ------------
(1) The Salton Sea Guarantors' operations are seasonal in nature, with a
disproportionate percentage of income earned in the quarter ending
September 30; therefore, operating results and ratios for interim
periods are not indicative of the results for a full fiscal year.
(2) As described in Note 1 to the financial statements, the Salton Sea
Guarantors are comprised primarily of a combination of partnership
interests. The income or loss of each partnership for income tax
purposes, along with any associated tax credits, is the
responsibility of the individual partners. Accordingly, no
recognition has been given to federal or state income taxes in the
combined historical financial statements.
(3) For purposes of computing historical ratios of earnings to fixed
charges, earnings are divided by fixed charges. "Earnings" represent
the aggregate of pretax income of the Salton Sea Guarantors plus
fixed charges, less capitalized interest. "Fixed Charges" represent
interest (whether expensed or capitalized) and amortization of
deferred financing fees.
(4) Earnings before interest, taxes, depreciation and amortization
(EBITDA) is presented here not as a measure of operating results, but
rather as a measure of the Salton Sea Guarantors' ability to service
debt. EBITDA should not be construed as an alternative either (1) to
operating income (determined in accordance with generally accepted
accounting principles) or (2) to cash flows from operating activities
(determined in accordance with generally accepted accounting
principles).
49
<PAGE>
SELECTED HISTORICAL COMBINED FINANCIAL AND
OPERATING DATA OF THE PARTNERSHIP GUARANTORS
(ALL DATA IN THOUSANDS EXCEPT RATIO DATA)
The following tables set forth selected historical combined financial and
operating data of the Partnership Guarantors. The information contained
therein was extracted from certain historical information of Magma and
certain of its affiliates. The historical summary data as of and for each of
the five years in the period ended December 31, 1998, have been derived from
the historical financial statements of the Partnership Guarantors. The
historical summary data as of and for the three months ended March 31, 1999
and 1998, have been derived from the unaudited historical financial
statements of the Partnership Guarantors which, in the opinion of management
of the Partnership Guarantors, include all adjustments (consisting only of
normal recurring accruals) necessary to present fairly the information set
forth therein. The data should be read in conjunction with the financial
statements and related notes, and other financial information appearing
elsewhere in this prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,(1)
-------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1999 1998
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues ............... $172,565 $162,315 $140,226 $ 87,483 $ 76,050 $ 24,349 $ 34,831
Operating revenues ........... 165,779 158,125 132,212 76,909 70,692 22,030 34,097
Operating, general
administrative costs ........ 63,717 64,103 58,945 32,143 35,306 11,207 14,090
Depreciation and
amortization................. 48,615 38,771 33,974 18,958 9,037 6,218 10,155
Income from operations ...... 60,233 59,441 47,307 36,382 31,707 6,924 10,586
Interest expense, net of
capitalized interest ........ 3,570 4,430 4,848 8,826 3,285 3,261 835
Provision for income taxes .. 19,529 21,374 16,700 11,492 11,284 1,117 3,801
Net income ................... 37,134 33,637 25,759 14,637 17,138 2,546 5,950
OTHER FINANCIAL DATA:
Capital expenditures ......... 74,202 39,556 18,483 4,066 10,495 17,568 10,675
Combined EBITDA(2) ........... 108,848 98,212 81,281 55,340 40,744 13,142 20,741
Ratio of combined EBITDA to
combined fixed charges ..... 7.867 7.141 5.934 3.310 12.400 2.308 6.291
Ratio of earnings to fixed
charges(3) .................. 4.446 4.382 3.466 2.175 9.885 1.239 3.311
December 31, March 31,
-------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1999 1998
---------- ---------- ---------- ---------- ---------- ---------- ----------
BALANCE SHEET DATA:
Property, plant, contracts
and equipment, net .......... $399,817 $370,666 $364,849 $298,956 $137,265 $412,761 $372,730
Total assets ................. 945,576 736,783 742,183 602,172 180,443 954,850 748,966
Loans payable ................ 293,576 143,610 182,204 62,706 -- 293,576 143,610
Senior secured project note . -- -- -- 43,766 52,340 -- --
Total liabilities ............ 446,743 275,084 314,121 228,440 74,048 453,471 281,317
Guarantors' equity ........... 498,833 461,699 428,062 373,732 106,395 501,379 467,649
</TABLE>
- ------------
(1) The Partnership Guarantors' operations are seasonal in nature, with a
disproportionate percentage of income earned in the quarter ending
September 30; therefore, operating results and ratios for interim
periods are not indicative of the results for a full fiscal year.
(2) Earnings before interest, taxes, depreciation and amortization
(EBITDA) is presented here not as a measure of operating results, but
rather as a measure of the Partnership Guarantors' ability to service
debt. EBITDA should not be construed as an alternative either (1) to
operating income (determined in accordance with generally accepted
accounting principles) or (2) to cash flows from operating activities
(determined in accordance with generally accepted accounting
principles).
(3) For purposes of computing historical ratios of earnings to fixed
charges, earnings are divided by fixed charges. "Earnings" represents
the aggregate of pretax income of the Partnership Guarantors plus
fixed charges, less capitalized interest. "Fixed Charges" represents
interest (whether expensed or capitalized) and amortization of
deferred financing fees.
50
<PAGE>
SELECTED HISTORICAL FINANCIAL AND
OPERATING DATA OF THE ROYALTY GUARANTOR
(ALL DATA IN THOUSANDS, EXCEPT RATIO DATA)
The following tables set forth selected historical financial and operating
data of the Royalty Guarantor on the basis of the assignment in June 1995 of
certain royalties and fees to the Royalty Guarantor by Magma; accordingly,
this presentation is a "carve out" of information from Magma and certain of
its affiliates. The information contained therein was extracted from certain
historical information of Magma and certain of its affiliates. The historical
summary data as of and for each of the five years in the period ended
December 31, 1998 have been derived from audited historical financial
statements of the Royalty Guarantor. The historical data as of and for the
three months ended March 31, 1999 and 1998 have been derived from the
unaudited financial statements of the Royalty Guarantor which, in the opinion
of management of the Royalty Guarantor, include all adjustments (consisting
only of normal recurring accruals) necessary to present fairly the
information set forth therein. The data should be read in conjunction with
the financial statements and related notes and other financial information
appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,(1)
------------------------------------------------------------------------
1998 1997 1996 1995 1994 1999 1998
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues .............. $ 51,703 $32,231 $30,143 $ 28,383 $29,410 13,459 12,038
Operating revenues .......... 51,703 32,231 30,143 28,383 29,410 13,459 12,038
Operating, general
administrative costs ....... 8,120 7,769 7,288 6,822 20,753 1,108 1,859
Amortization ................ 9,794 9,794 10,280 11,239 -- 2,449 2,449
Income from operations ..... 33,789 14,668 12,575 10,322 8,657 9,902 7,730
Interest expense ............ 2,784 4,179 5,246 4,757 -- 468 776
Provision for income taxes . 11,508 1,828 2,560 963 -- 3,790 2,625
Net income .................. 19,497 8,661 4,769 3,510 8,657 5,644 4,329
OTHER FINANCIAL DATA:
Capital expenditures ........ -- -- -- -- -- -- --
EBITDA(3) ................... 43,583 24,462 22,855 21,561 N/A 6,942 8,309
Ratio of EBITDA to fixed
charges .................... 15.655 5.854 4.357 4.530 N/A 14.833 10.707
Ratio of earnings to fixed
charges(2) ................. 12.137 3.510 2.397 2.170 N/A 9.600 7.552
December 31, March 31,
------------------------------------------------------------------------
1998 1997 1996 1995 1994 1999 1998
--------- --------- --------- --------- --------- --------- ---------
BALANCE SHEET DATA:
Royalty Stream .............. $ 22,932 $31,818 $44,372 $ 53,744 -- $ 20,710 $29,596
Total assets ................ 107,561 86,009 91,073 117,341 -- 108,075 96,463
Senior secured project note 23,210 38,934 56,936 67,882 -- 23,210 38,934
Total liabilities ........... 69,563 67,508 81,233 89,290 -- 64,433 73,633
Guarantors' equity .......... 37,998 18,501 9,840 28,051 -- 43,642 22,830
</TABLE>
- ------------
(1) The Royalty Guarantor's operations are seasonal in nature, with a
disproportionate percentage of income earned in the quarter ending
September 30; therefore, operating results and ratios for interim
periods are not indicative of the results for a full fiscal year.
(2) For purposes of computing historical ratios of earnings to fixed
charges, earnings are divided by fixed charges. "Earnings" represent
the aggregate of pretax income of the Royalty Guarantor plus fixed
charges, less capitalized interest. "Fixed Charges" represent
interest (whether expensed or capitalized) and amortization of
deferred financing fees.
(3) Earnings before interest, taxes, depreciation and amortization
(EBITDA) is presented here not as a measure of operating results, but
rather as a measure of the Royalty Guarantor's ability to service
debt. EBITDA should not be construed as an alternative either (1) to
operating income (determined in accordance with generally accepted
accounting principles) or (2) to cash flows from operatingactivities
(determined in accordance with generally accepted accounting
principles).
51
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF THE FUNDING CORPORATION AND THE
GUARANTORS
Set forth below are the current executive officers of the Funding
Corporation and the Guarantors and their positions with the Funding Corporation
and, except as provided below, each of the Guarantors (or general partner or
manager thereof).
<TABLE>
<CAPTION>
EXECUTIVE OFFICER POSITION
- ----------------------- -------------------------------------------------
<S> <C>
Robert S. Silberman .... President and Chief Executive Officer
Brian K. Hankel......... Vice President and Treasurer
Douglas L. Anderson .... Director, Vice President and General Counsel
Patrick J. Goodman...... Director
John Harrison........... Director
Lawrence Kellerman...... Director
</TABLE>
ROBERT S. SILBERMAN, 40, President and Chief Executive Officer of the
Funding Corporation and each Guarantor (or general partner or manager thereof)
(other than Salton Sea Minerals Corp. and CalEnergy Minerals LLC), Senior Vice
President, Administration of MidAmerican and CE Generation. Mr. Silberman joined
MidAmerican in 1995. Prior to that, Mr. Silberman served as Executive Assistant
to the Chairman and Chief Executive Officer of International Paper Company, as
Director of Project Finance and Implementation for the Ogden Corporation and as
a Project Manager in Business Development for Allied-Signal, Inc. He has also
served as the Assistant Secretary of the Army for the United States Department
of Defense.
BRIAN K. HANKEL, 36, Vice President and Treasurer of the Funding Corporation
and each Guarantor (or general partner or manager thereof) (other than Salton
Sea Minerals Corp. and CalEnergy Minerals LLC), Vice President and Treasurer of
MidAmerican and CE Generation. Mr. Hankel joined MidAmerican in February 1992 as
Treasury Analyst and served in that position to December 1995. Mr. Hankel was
appointed Assistant Treasurer in January 1996 and was appointed Treasurer in
January 1997. Prior to joining MidAmerican, Mr. Hankel was a Money Position
Analyst at FirsTier Bank of Lincoln from 1988 to 1992 and Senior Credit Analyst
at FirsTier from 1987 to 1988.
DOUGLAS L. ANDERSON, 40, Vice President and General Counsel of the Funding
Corporation and each Guarantor (or general partner or manager thereof) (other
than Salton Sea Minerals Corp. and CalEnergy Minerals LLC), Assistant General
Counsel and Assistant Secretary of MidAmerican and CE Generation. Mr. Anderson
joined MidAmerican in February 1993. From 1990 to 1993, Mr. Anderson was a
business attorney with Fraser, Stryker, Vaughn, Meusey, Olson, Boyer & Cloch,
P.C. in Omaha. From 1987 through 1989, Mr. Anderson was a principal in the firm
Anderson & Anderson. Prior to that, from 1985 to 1987, he was an attorney with
Foster, Swift, Collins & Coey, P.C. in Lansing, Michigan.
PATRICK J. GOODMAN, 32, Director of the Funding Corporation and each
Guarantor (or general partner or manager thereof) (other than Salton Sea
Minerals Corp. and CalEnergy Minerals LLC), Vice President, Chief Accounting
Officer and Controller of MidAmerican and CE Generation. Mr. Goodman joined
MidAmerican in June 1995 and served as Manager of Consolidation Accounting until
September 1996 when he was promoted to Controller. Prior to joining MidAmerican,
Mr. Goodman was a certified public accountant at Coopers & Lybrand.
LARRY KELLERMAN, Director of the Funding Corporation and each Guarantor (or
general partner or manager thereof) (other than Salton Sea Minerals Corp. and
CalEnergy Minerals LLC) and President of El Paso Power Holding Company. Prior to
that he held a series of positions in the independent power industry.
JOHN HARRISON, Director of the Funding Corporation and each Guarantor (or
general partner or manager thereof) (other than Salton Sea Minerals Corp. and
CalEnergy Minerals LLC) and Chief Financial Officer, El Paso Power Holding
Company. Prior to that he held a series of financial positions in the energy
industry.
52
<PAGE>
BUSINESS OF THE GUARANTORS
GEOTHERMAL ENERGY
Geothermal energy is a clean, renewable and generally sustainable energy
source that, because it does not utilize combustion in the production of
electricity, releases significantly lower levels of emissions than result
from energy generation based on the burning of fossil fuels. Geothermal
energy is derived from the natural heat of the earth when water comes
sufficiently close to hot molten rock to heat the water to temperatures of
400 degrees Fahrenheit or more. The heated water then ascends toward the
surface of the earth where, if geological conditions are suitable for its
commercial extraction, it can be extracted by drilling geothermal wells. The
energy necessary to operate a geothermal power plant is typically obtained
from several such wells, which are drilled using established technology
similar to that employed in the oil and gas industry. Geothermal production
wells are normally located within approximately one to two miles of the power
plant as geothermal fluids cannot be transported economically over longer
distances. The geothermal reservoir is a renewable source of energy if
natural ground water sources and re-injection of extracted geothermal fluids
are adequate over the long term to replenish the geothermal reservoir after
the withdrawal of geothermal fluids. Geothermal energy facilities typically
have higher capital costs (primarily as a result of wellfield development)
but tend to have significantly lower variable costs than fossil fuel based
power plants.
THE SALTON SEA KNOWN GEOTHERMAL RESOURCE AREA
The area in which our geothermal power plants are located has been
designated as a "Known Geothermal Resource Area" by the Bureau of Land
Management pursuant to the Geothermal Steam Act of 1970. Areas are designated
as Known Geothermal Resource Areas when the Bureau of Land Management
determines that a commercially viable geothermal resource is likely to exist.
There are over 100 other Known Geothermal Resource Areas in the United
States, which are predominately located in the western states in tectonically
active regions.
The Salton Sea Known Geothermal Resource Area is located in Imperial
County, California, approximately 90 miles east of San Diego and is one of
the world's largest geothermal resource areas. The Salton Sea Known
Geothermal Resource Area is a liquid-dominated geothermal resource. The
operations in the Salton Sea Known Geothermal Resource Area benefit from,
among other things, the relatively high temperature of the geothermal fluid,
as well as relatively high pressures which naturally force the geothermal
fluid to flow up into the our power plants without the expense of pumping the
geothermal fluid to the surface.
The Salton Sea Known Geothermal Resource Area geothermal resource contains
substantial quantities of minerals, including zinc, silica, manganese, boron,
lithium and silver. These minerals are contained in the geothermal brine that
is brought to the surface by the power plants. Our new zinc recovery facility
will extract zinc from this geothermal brine after the brine has been
utilized by the Power Projects but before the brine is re-injected into the
ground.
We believe that these resources will be sufficient to operate the our
power plants at capacity, and to operate our new zinc recovery facility at
high levels, through the final maturity date of the Securities.
53
<PAGE>
POWER PRODUCTION PROCESS
The physical facilities and power generation process used for geothermal
energy production are similar at each of our power plants. The following
diagram generally illustrates the geothermal energy production process:
[GRAPHIC OMITTED]
Geothermal fluid is extracted from the underground reservoir by a series
of production wells and piped into the Power Projects. The geothermal fluids
produced at the wellhead consist of a mixture of hot brine and steam. The
heated mixture flows from the wellhead through a gathering system of
insulated steel pipes to separation vessels or separators. There additional
steam is generated by converting liquid to steam via a pressure reduction
process (generally referred to as "flashing"). The steam is then separated
from the brine and is sent to a demister in the power plant, where any
remaining water droplets are removed. This produces a stream of dry steam,
which is used by a turbine generator to produce electricity. In some cases,
the steam is used again at a lower pressure to produce additional
electricity.
The hot brine remaining after separation of steam is injected back into
the geothermal resource via a series of injection wells. Steam exhausted from
the steam turbine is passed to a surface condenser through which cold water
circulates. Moisture in the steam leaving the turbine generators condenses on
the tubes and after being cooled further in a cooling tower is used to
provide cold circulating water for the condenser or injected back into the
geothermal resource.
The Salton Sea Known Geothermal Resource Area geothermal fluids contain a
relatively high concentration of dissolved and suspended solids. As pressure
is reduced in the flashing process, solids tend to precipitate and cause
scaling and mineral buildup throughout the system. Our power projects use
certain processes to counteract the effects of these suspended solids. The
Partnership Projects currently use the "crystallizer/clarifier process" ("CRC
Process") developed by Magma in the late 1970s and early 1980s. The CRC
Process removes solids from the geothermal brine, resulting in a reduction in
the amount of scale buildup in pipe and vessels and the reduction of
congestion within the reinjection wells. The Salton Sea Projects currently
use the alternative pH Modification Process to avoid scale buildup. Certain
embodiments of this process were developed by Union Oil Company of California
and are licensed to
54
<PAGE>
Magma. The pH Modification Process inhibits precipitation of geothermal
solids by modifying the "pH" of the fluid. This process reduces the need for
crystalizers, clarifiers and associated equipment and results in performance
standards similar to those achieved by the CRC Process at significantly
reduced operating costs. For example, Salton Sea Units I and III converted to
this process in 1996, resulting in a 39.2% reduction in operating costs at
these projects from 1995 to 1997. Salton Sea Unit V and, upon completion of
the Region 2 Brine Facilities Construction, the Vulcan and Del Ranch
Projects, will employ the pH Modification Processes for brine solids control.
SALE OF POWER
Each of our existing power projects sells its net electrical output to SCE
under a separate long-term power purchase agreement. These contracts are
similar to each other in many respects. Each of these contracts, except for
two (Salton Sea Unit I and Salton Sea Unit IV), provide for fixed capacity
payments over the term of the contracts, capacity bonus payments and fixed
escalating energy prices for the first 10 years of the contract, after which
energy payments are paid at SCE's avoided cost of energy. The net output of
Salton Sea Unit V and the CE Turbo Project (to the extent not sold for use by
the Zinc Recovery Project) will be sold through the PX.
The PX is a nonprofit public benefit corporation formed under California
law to provide a competitive marketplace where buyers and sellers of power,
including utilities, end-use customers, independent power producers and power
marketers complete wholesale trades through an electronic auction. The PX
currently operates two markets: (1) a day ahead market which is comprised of
twenty-four separate concurrent auctions for each hour of the following day;
and (2) an hour ahead market for each hour of each day for which bids are due
two hours before each hour. In each market, the PX receives bids from buyers
and sellers and, based on the bids, establishes the market clearing price for
each hour and schedules deliveries from sellers whose bids did not exceed the
market clearing price to buyers whose bids were not less than the market
clearing price. All trades are executed at the market clearing price.
In addition to amounts paid through the PX, we also expect to receive
incentive payments from the State of California's New Renewable Resources
Account (the "NRRA") for energy sold by Salton Sea Unit V or the CE Turbo
Project (each a "New Power Project") through the Imperial Irrigation
District's transmission system during the first five years of operation of
each of the projects. The California Energy Commission has selected Salton
Sea Unit V to receive incentive payments from the NRRA in an amount equal to
$.0124 per kWh of energy produced, up to $25,548,364.80 in the aggregate, for
the first five years of operation. The California Energy Commission has
selected the CE Turbo Project to receive incentive payments from the NRRA in
an amount equal to $.0134 per kWh of energy produced, up to $5,751,816 in the
aggregate, for the first five years of operation. The amount of the incentive
payments for the fourth and fifth years of operation of a New Power Project
will be reduced by 25% if the actual generation from such New Power Project
over the first three years of operation averages less than 85% of the
estimated annual generation of such New Power Project (85,848,000 kWhs for
the CE Turbo Project and 412,070,400 kWhs for Salton Sea Unit V). In order
for each New Power Project to remain eligible for incentive payments, it must
continue to satisfy eligibility criteria, including ownership and fuel use
criteria, and must timely satisfy specified milestones. These milestones
include completion of construction of the project by January 1, 2002.
The State of California has also established financial incentives for
existing renewable energy power projects which are available in the 1998-2001
time period. Projects must meet specified eligibility requirements, including
date of initial operation, ownership and fuel use criteria, in order to
qualify for the incentives. Each of our existing projects other than Salton
Sea Unit I and Salton Sea Unit IV will become eligible for this program upon
expiration of the fixed price period in its power purchase agreement with
SCE. The program provides geothermal plants with a monthly amount per kWh of
power sold equal to the lesser of (1) $.01/kWh, (2) $.03/kWh minus a
calculated market clearing price and (3) a specified amount of funds
available for such month divided by eligible generation. The Vulcan Project
has already begun receiving payments under this program.
55
<PAGE>
POWER TRANSMISSION
Except for Salton Sea Unit I, which delivers its power to SCE at the
Salton Sea Unit I site, the power sold to SCE by our existing projects is
delivered to SCE after interconnection/wheeling over the local transmission
system owned by the Imperial Irrigation District, a public agency of the
State of California ("IID"), pursuant to long-term transmission agreements
and plant interconnection agreements. Salton Sea Unit V and the CE Turbo
Project have also entered into long-term transmission agreements and
interconnection agreements with IID to permit the transmission of power from
these plants to the point of interconnection of the SCE and IID systems at
Mirage. IID has also entered into an agreement to deliver power from Salton
Sea Unit V to the Zinc Recovery Project and an agreement to construct the
necessary electrical interconnection facilities to provide these services.
The transmission systems of SCE and other California investor-owned
electric utilities are administered by an independent system operator, which
has proposed that the costs of system upgrades be paid for by charges imposed
on the last parties requesting service rather than all customers.
ENERGY REGULATION
Each of the Existing Projects currently meets the requirements promulgated
under the Public Utility Regulatory Policies Act of 1978 ("PURPA") to be a
Qualifying Facility. Regulations under PURPA exempt Qualifying Facilities
from the Public Utility Holding Company Act of 1935 ("PUHCA"), most
provisions of the Federal Power Act (the "FPA") and state laws concerning
rates of electric utilities, and financial and organizational regulation of
electrical utilities. Further, regulations promulgated under PURPA require
that electric utilities interconnect with and purchase electricity generated
by Qualifying Facilities, construction of which commenced on or after
November 9, 1978, at a price based on the purchasing utility's avoided cost.
Salton Sea Unit V and the CE Turbo Project are expected to be either
Qualifying Facilities or eligible facilities owned by Exempt Wholesale
Generators. Exempt Wholesale Generators are not considered electric utility
companies under PUHCA and thus are not subject to regulation under such
statute.
ZINC RECOVERY
Our zinc recovery facility will use spent geothermal brine solution
containing dissolved zinc metal following use in the existing geothermal
power plants and the new Salton Sea Unit V power plant to produce
approximately 30,000 metric tonnes per year of special high grade (99.995%
zinc) quality zinc ingots. The Zinc Recovery Project is modeled after an
existing demonstration plant that was located at the existing wellfield and
has successfully demonstrated the recovery of zinc from the geothermal brine
feed. The following paragraphs describe the intended design of the Zinc
Recovery Project.
We intend to construct one central zinc processing solvent
extraction/electrowinning ("SX/EW") facility and four zinc ion exchange
("IX") facilities. Three of the IX facilities will be located near, and will
utilize spent brine solution after its use in, the Leathers Project, the
Elmore Project, the Vulcan Project and the Del Ranch Project. One of the IX
facilities will be located near, and will utilize spent brine solution from,
Salton Sea Unit V (after its use by Salton Sea Units I-IV). Each IX facility
will consist of columns through which the spent brine is pumped. The columns
will contain resin that is specifically designed to "load" the zinc ions from
the brine as it is pumped through the IX columns. The brine, upon passing
through the IX column train, will be routed back to existing spent brine
re-injection wells. The loaded resin will then be stripped of the zinc ions
by flushing the IX column with a solution (eluant) using water provided by a
reverse osmosis unit at each IX facility.
The zinc rich solution stripped from the IX columns (eluate) will then be
transported via pipelines to the central SX/EW facility. A total of
approximately 6 miles of pipelines are required. These pipelines follow
existing geothermal pipeline routes.
The central SX/EW facility generally will consist of a solvent extraction
("SX") train, an electrowinning ("EW") tankhouse and a zinc casting plant.
The SX train will consist of a series of mixer/settler stages through which
the eluate will flow and be mixed with an organic based extractant reagent.
The SX
56
<PAGE>
process is designed to transfer zinc in the eluate, a zinc chloride solution,
to a further purified zinc sulfate solution (electrolyte). The extraction
portion of the SX process will be performed in countercurrent stages by
mixing the eluate with a phosphoric acid metal extractant diluted into an
organic solvent (ultra-low aromatic kerosene) and mixed with the eluate,
producing an emulsion that is separated by settlers. This process is designed
to produce a zinc rich organic solution. This zinc rich organic solution will
be washed and then mixed in the SX stripping stages with a clean, dilute
sulfuric acid solution to transfer the zinc back into the clean aqueous
stream, called fresh electrolyte. The electrolyte solution will be purified
and mixed with additives prior to being pumped to the EW process. As the zinc
rich electrolyte solution flows through the EW cells, direct current will
cause the zinc to deposit on the aluminum/titanium alloy blank cathodes.
After being fully loaded, the cathodes will be harvested by a bridge crane
that will transfer them to an automated stripping machine. The stripping
machine will wash the cathodes of the remaining process fluids and remove the
deposited zinc. The aluminum/titanium alloy cathodes will be returned to the
EW cells to be re-plated.
The furnace will melt the zinc cathodes, and the molten zinc will be
continuously cast into ingots. The ingots will be removed from the molds via
a forklift and placed in storage for shipment.
SALE OF ZINC
We expect our zinc recovery facility to produce approximately 30,000
metric tonnes of refined zinc per year. After an initial five-month period of
mostly high grade (99.95% zinc) production, we expect the facility to produce
special high grade (99.995% zinc) which conforms to London Metals Exchange
specifications and continuous galvanizing grade zinc which is an alloy of
zinc containing aluminum and cadmium.
The Zinc Recovery Project will target the California market which,
according to RSI, accounts for about 7.4% of the U.S. market (94,000 metric
tonnes). RSI believes the Zinc Recovery Project will have a considerable
geographical advantage because its main competitors are located in Canada and
Mexico.
We expect to sell the zinc to California consumers such as steel mills,
galvanizers and diecast alloyers. See the "Zinc Market Consultant's Report"
attached to this prospectus as Appendix E.
PROJECT STRUCTURE
Ownership. Our Salton Sea Projects consist of Salton Sea Units I, II, III,
IV and V. All of the Salton Sea Projects are located in the Salton Sea Known
Geothermal Resource Area. The Salton Sea Guarantors collectively own 100% of
the Salton Sea Projects. SSBP is a limited partnership, with Magma owning a
99% limited partnership interest, and Salton Sea Power Company ("SSPC")
owning a 1% general partnership interest SSBP. SSPG is also a limited
partnership, with SSPC owning a 1% general partnership interest, and SSBP
owning a 99% limited partnership interest, in SSPG. SSPC and Fish Lake are
each 99% owned by Magma and 1% owned by the Funding Corporation. Power LLC is
a limited liability company, with Magma and CESS each owning a 50% interest
in Power LLC. SSBP is the owner of the wellfields and brine facilities
associated with the Salton Sea Projects and SSPG is the owner of Salton Sea
Units I, II and III. Fish Lake and SSPG own Salton Sea Unit IV. Power LLC
owns Salton Sea Unit V.
The Partnership Projects consist of five geothermal power plants (the
Vulcan Project, the Elmore Project, the Leathers Project, the Del Ranch
Project and the CE Turbo Project) and the Zinc Recovery Project. All are
located in Imperial Valley, California in the Salton Sea Known Geothermal
Resource Area.
The ownership structure of these projects is as follows:
(1) Vulcan Project. VPC owns a 50% general partnership interest in
Vulcan, a Nevada general partnership which is the owner of the Vulcan
Project. VPC also owns VPC Geothermal, which owns the remaining 50%
general partnership interest in Vulcan.
(2) Elmore Project, Leathers Project and Del Ranch Project. CEOC directly
owns a 40% general partnership interest in each of Elmore, Leathers and
Del Ranch. Magma owns a 10% limited
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partnership interest in each of Elmore, Leathers and Del Ranch. Magma has
agreed to pay to CEOC the partnership distributions it receives from its
limited partnership interests. CEOC owns Niguel, San Felipe and Conejo,
which each own a 40% general partnership interest and a 10% limited
partnership interest in Elmore, Leathers and Del Ranch, respectively.
(3) CE Turbo Project. CESS and Magma each own a 50% interest in Turbo
LLC, a Delaware limited liability company, which is the owner of the CE
Turbo Project.
(4) Zinc Recovery Project. SSMC owns all of the membership interests in
Minerals LLC, a Delaware limited liability company which is the owner of
the Zinc Recovery Project.
Operation, Maintenance and Administrative Services for the Projects. CEOC
(or VPC, in the case of the Vulcan Project) provides operations and
maintenance services for our projects pursuant to long-term operations and
maintenance agreements. As of May 1, 1999, CEOC employed 160 people at the
Salton Sea Projects and the Partnership Projects, collectively, including a
qualified technical and professional staff of approximately 35 people. Magma
provides administrative services to our projects pursuant to long-term
administrative services agreements. These services include operation,
maintenance and testing of the plants, wells and gathering and reinjection
systems, the training of personnel, obtaining parts and supplies, preparing
reports for third parties, enforcing all warranties and claims and
maintaining compliance with permit, licensing and insurance standards.
Geothermal Resources. Magma and other affiliates of who are not Guarantors
(Imperial Magma and Magma Land) control the land on which our projects are
located and rights to geothermal fluids in the Salton Sea Known Geothermal
Resource Area through a combination of fee, leasehold and royalty interests.
We have entered into long-term agreements with these affiliates to obtain the
surface rights and geothermal resource rights necessary to operate our
projects. We believe that these projects have the rights to all of the
geothermal resources necessary to operate those plants at capacity until the
final maturity date for the Securities. Desert Valley Company ("DVC"), a
wholly owned subsidiary of Magma, operates a storage and disposal site in
Imperial County, California for geothermal material. DVC has been granted a
permit allowing the storage and disposal of the our projects' non-hazardous
geothermal materials.
OPERATING HISTORY
The following tables summarize the operating history of our existing
projects in 1995-97. See the "Independent Engineer's Report" attached to this
prospectus as Appendix B.
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<TABLE>
<CAPTION>
SUMMARY OPERATING HISTORY
- -------------------------------------------------------------------------
GROSS MWH AVAILABILITY CONTRACT
GENERATED FACTOR CAPACITY FACTOR
- ------------------- ------ ------------ -------------- ---------------
SALTON SEA PROJECTS
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Salton Sea Unit I
1995 83,696 93.7% 65.1%
1996 83,196 93.5% 71.3%
1997 92,106 97.3% 84.1%
Salton Sea Unit II
1995 155,859 95.2% 112.7%
1996 159,150 93.4% 114.4%
1997 170,032 98.4% 122.3%
Salton Sea Unit III
1995 433,440 92.7% 95.5%
1996 444,960 94.6% 98.1%
1997 454,368 98.1% 101.9%
Salton Sea Unit IV
1995 NA NA NA
1996 384,494(1) 91.7%(1) 118.6%(1)
1997 402,562 95.9% 114.3%
- ------------------- ------ ------------ -------------- ---------------
Partnership Projects
- -------------------------------------------------------------------------
Del Ranch Project
1995 386,155 95.6% 115.8%
1996 396,480 98.8% 120.0%
1997 384,358 95.0% 114.9%
Vulcan Project
1995 366,670 98.7% 126.7%
1996 353,115 98.3% 122.3%
1997 317,534 91.8% 108.6%
Elmore Project
1995 393,584 98.5% 117.8%
1996 393,820 96.0% 116.1%
1997 393,328 99.0% 116.1%
Leathers Project
1995 386,488 97.4% 116.7%
1996 379,956 96.5% 113.5%
1997 397,982 99.1% 119.4%
- ------------------- ------ ------------ -------------- ---------------
</TABLE>
- ------------
(1) Commenced operation in May 1996; figures are annualized based on seven
months of operations.
ROYALTIES
The Royalty Guarantor is a single purpose entity which was established in
connection with the offering of the Initial Securities to receive royalties
from Magma. Magma has assigned the royalties it receives under its easements
with Leathers, Del Ranch and Elmore to the Royalty Guarantor. These royalties
are paid prior to the operating and maintenance expenses of the Partnership
Projects and are payable from revenues that constitute collateral securing
the Partnership Guarantors' obligations under their credit agreement and
guarantee. See "Offering Circular Summary--Structure of and Collateral for
the Securities."
Pursuant to its assignment agreement with Magma, the Royalty Guarantor
receives royalties of an aggregate amount of 21.5% of the energy revenues of
Leathers and 23.333% of the energy revenues and 1% of the capacity revenues
of each of Del Ranch and Elmore. In addition, Magma receives a special
distribution of 4.5% of Leathers' energy revenues which it pays over to CEOC
pursuant to a data and services agreement. VPC also receives Royalties equal
to 4.167% of the energy revenues of the Vulcan Project. CEOC receives
royalties on energy payments equal to 5.667%, 3.0%, and 5.667% for Elmore,
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Leathers, and Del Ranch, respectively. CEOC also receives royalties equal to
3% of capacity revenues for Elmore, Leathers, and Del Ranch. All of the
foregoing revenues and Royalties are paid from revenues that constitute
collateral securing the Partnership Guarantors' obligations under their
credit agreement and guarantee. See "Summary Description of Principal Project
Contracts--Partnership Project Contracts" and "--Royalty Project Contracts"
and "Offering Circular Summary--Structure of and Collateral for the
Securities."
INSURANCE
Our projects are currently insured under a corporate umbrella insurance
program. The program consists of $600 million for general property damage
with broad form coverages. The deductible is $25,000 per occurrence except
for damage to a turbine generator breakdown which is $500,000 per occurrence.
Business interruption and contingent business interruption coverages are
included in the limits, subject to a 25-day deductible. Catastrophic
insurance (earthquake and flood) consists of $300 million limits with an
earthquake deductible that is the higher of 5% of the loss or $2.5 million
per occurrence. General liability insurance consists of $101 million limits
with a broad based policy form and a deductible of $100,000 per occurrence.
Control of well insurance has a limit of $10 million with a deductible of
$25,000. Construction and marine cargo insurance of $316 million is in effect
for the total insurable values of our new projects and the capital
improvements we intend to make to the steam field and related facilities for
our existing projects. Earthquake coverage is being provided with a $200
million annual aggregate limit with a deductible that is the higher of 5% of
value at the time of loss or a maximum of $2.5 million. Delay in start-up
coverage provides coverage resulting from an insurable property damage claim
under the construction and marine cargo policies with a 30-day deductible.
General liability insurance consists of a $10 million limit for the new
projects during construction, providing coverage for the owners of the
projects and the contractors and subcontractors. The policies are issued by
international and domestic syndicates with each domestic company rated "A-"
or better by A.M. Best Co. Inc.
The financing documents require us to maintain or cause to be maintained
specified insurance with respect to our projects. However, we cannot assure
you that any specific insurance will continue to be available in the future
on commercially reasonable terms.
LEGAL PROCEEDINGS
Currently, our projects are parties to various minor items of litigation,
none of which, if determined adversely, would have a material adverse effect
on the projects. Set forth below is a description of one pending action in
which Del Ranch and Elmore are plaintiffs.
The power purchase agreements for the Partnership Projects provide for
energy rates of 14.6 cents per kWh in 1998. SCE paid Del Ranch and Elmore for
energy at a rate of 13.6 cents per kWh for 1998 and those partnerships have
filed a complaint against SCE seeking payment at 14.6 cents per kWh. The case
is in the early procedural stages and no trial date has been set.
ENVIRONMENTAL MATTERS
Each of our projects is subject to environmental laws and regulations at
the federal, state and local levels in connection with the development,
ownership and operation of the projects. These environmental laws and
regulations generally require that a wide variety of permits and other
approvals be obtained for the construction and operation of an
energy-producing facility and that the facility then operate in compliance
with such permits and approvals. Failure to operate the facility in
compliance with applicable laws, permits and approvals could result in the
levy of fines or curtailment of project operations by regulatory agencies.
We believe that we are in compliance in all material respects with all
applicable environmental regulatory requirements and that maintaining
compliance with current governmental requirements will not require a material
increase in capital expenditures or materially affect our financial condition
or results of operations. It is possible, however, that future developments,
such as more stringent requirements of environmental laws and enforcement
policies thereunder, could affect the costs of and the manner in which we
conduct our business.
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SUMMARY DESCRIPTION OF PRINCIPAL PROJECT CONTRACTS
The following is a summary of selected provisions of some of the principal
agreements related to the Projects and the business of the Guarantors and is
not considered to be a full statement of the terms of such agreements.
Accordingly, the following summaries are qualified by reference to each
agreement and are subject to the terms of the full text of each agreement.
Unless otherwise stated, any reference in this prospectus to any agreement
shall mean the agreement and all schedules, exhibits and attachments to the
agreement as amended, supplemented or otherwise modified and in effect as of
the date hereof. Copies of all such agreements may be obtained from the
Funding Corporation (subject to certain confidentiality restrictions). See
"Available Information."
STANDARD TERMS OF SO4 AGREEMENT
All of the power purchase agreements for the Existing Projects are SO4
Agreements, except the Salton Sea Unit I PPA and the Salton Sea Unit IV PPA.
Although these SO4 Agreements differ in some respects from the standard SO4
Agreement, many of the provisions in each Existing Project's power purchase
agreement are the same as in the standard SO4 Agreement. Set forth below is a
summary of some of the terms and provisions contained in each SO4 Agreement.
Term and Termination. Each of the SO4 Agreements for the Existing Projects
has a contract term of 30 years from the Firm Operation Date of the Projects.
Upon expiration of the contract term, the SO4 Agreement remains in effect
until either party terminates the agreement upon 90 days prior written
notice.
The Fixed Price Period is the first 10 years of the contract term. The
Avoided Cost of Energy Period begins upon expiration of the Fixed Price
Period and continues for the remainder of the contract term.
Construction, Design, Operation and Ownership of the Project. The SO4
Agreement sets forth terms for the construction, design, ownership and
operation and maintenance of the relevant Project. The Project Company
warrants that the Project will comply with applicable law and meet the
requirements of a Qualifying Facility as of the date of initial delivery of
energy and throughout the contract term. The Project Company indemnifies SCE
for any losses which SCE incurs due to the Project Company's failure to
maintain any necessary government approvals.
Power Purchase Provisions. The SO4 Agreement provides for (1) capacity
payments as described below and (2) energy payments either at an annually
escalating rate or at a levelized rate for the Fixed Rate Period and energy
payments at SCE's Avoided Cost of Energy for the Avoided Cost of Energy
Period.
Capacity Payments. A Project will qualify for a fixed annual capacity
payment (the "Firm Capacity Payment") by meeting specified performance
requirements on a monthly basis during an approximately four month on-peak
period during the months of June through September of each year. The Project
must deliver an average kWh output during specified on-peak hours of each
month in the on-peak period at a rate corresponding to at least an 80%
Contract Capacity Factor (the "Performance Requirement"). The "Contract
Capacity Factor" equals (1) a plant's actual electricity output, divided by
(2) the product of the Project's "Contract Capacity" and the number of hours
in the measurement period (less applicable maintenance and curtailment
hours). If a Project maintains the required 80% Contract Capacity Factor
during the applicable reference period, then SCE must pay a Firm Capacity
Payment equal to the product of the Contract Capacity Price set forth in the
agreement and the Project's Contract Capacity. The Firm Capacity Payment is
paid in monthly installments, and the monthly installment of the Firm
Capacity Payment may be reduced if the relevant Project has a Contract
Capacity Factor of less than 80% for the month. Capacity payments are
weighted toward the on-peak months.
The Project Company is required to annually demonstrate its ability to
provide the specified Contract Capacity by satisfying the Performance
Requirement. If the Project Company does not satisfy the Performance
Requirement, then it may be placed on probation for up to 15 months, and, if
the Project Company cannot satisfy the Performance Requirement during the
probationary period, then the Contract Capacity will be reduced to a capacity
equal to the greater of (1) what has been delivered during the
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probationary period or (2) what can reasonably be delivered by the Project
Company. Additionally, failure to satisfy the Performance Requirement will
subject the Project Company to the penalties described below. However, if the
Project Company's failure to meet the Performance Requirement is due to a
forced outage or a request by SCE to reduce delivery, then SCE must continue
to pay the full Firm Capacity Payment. If the Project Company is unable to
provide Contract Capacity due to Uncontrollable Forces, then SCE must
continue to pay the full Firm Capacity Payments for 90 days from the
occurrence of the Uncontrollable Force.
Capacity Bonus Payments. Under the SO4 Agreements, the Project Companies
are entitled to receive capacity bonus payments in an on-peak month if the
relevant Project operates at least at an 85% Contract Capacity Factor during
the on-peak hours of the on-peak month, and qualifies in respect of non-peak
months if the Contract Capacity Factors for all on-peak months have been at
least 85% and the Project operates at a Contract Capacity Factor of at least
85% during the on-peak hours of the relevant non-peak month.
Capacity bonus payments for each month increase with the level of kWhs
delivered between the 85% and 100% Contract Capacity Factor levels during the
month. The capacity bonus payment for each month is equal to a percentage of
the Firm Capacity Payment based on the Project's on-peak Contract Capacity
Factor (which percentage may not exceed 18% of one-twelfth of the Firm
Capacity Payment).
Changes in Contract Capacity. The Project Company may reduce Contract
Capacity if the Project Company gives SCE specified notice. The Project
Company must refund SCE an amount of money equal to the difference between
the accumulated monthly capacity payments paid by SCE prior to the receipt of
the reduction notice and the total monthly capacity payments SCE would have
paid based on the Adjusted Capacity Price, as well as interest at the prime
rate. If the Project Company fails to give notice, it can reduce Contract
Capacity as long as the Project Company refunds said amount plus a penalty
equal to the product of (1) the Contract Capacity being reduced, (2) the
difference between the Contract Capacity Price and the Adjusted Capacity
Price and (3) the number of years and fractions thereof (not less than one
year) by which the Project Company has been deficient in giving prescribed
notice, but if the Adjusted Capacity Price is less than the Contract Capacity
Price, then no penalty is due.
Energy Payments. In addition to capacity payments, each SO4 Agreement
provides that SCE must make monthly energy payments based on the number of
kWh of energy delivered by the relevant Project in the month. Energy payments
are weighted toward on-peak months and on-peak hours.
Annual Forecast Energy Payments. Under the Leathers SO4 Agreement, during
the Fixed Price Period the Project Company is paid a monthly energy payment
(the "Annual Forecast Energy Payment") of 15.6 cents per kWh in 1999, based
on the Forecast of Annual Marginal Cost of Energy Schedule.
Levelized Energy Payments. Under the Salton Sea Unit II and Salton Sea
Unit III SO4 Agreements (the "Levelized Energy Payment SO4 Agreements"),
during the Fixed Price Period the energy payments (the "Levelized Energy
Payments") are levelized to yield a time weighted average of 10.6 cents per
kWh for Salton Sea Unit II and 9.8 cents per kWh for Salton Sea Unit III.
During later years in the Fixed Price Period, when the Forecast of Annual
Marginal Cost of Energy Schedule price is greater than the Levelized Energy
Payment price, the relevant Project must deliver to SCE at least 70% of the
average annual kWh delivered to SCE during periods when the Levelized Energy
Payment Price was greater than the energy price in the Forecast of Annual
Marginal Cost of Energy Schedule. If the Project fails to satisfy this
performance obligation or fails to perform any other contract obligations
during the Fixed Price Period, and, at such time, the net present value of
the cumulative energy payments received exceeds the net present value of what
the Project Company would have been paid under the Annual Forecast Energy
Payment SO4 Agreements, the Project Company must refund the difference. The
Project Company must post a performance bond, guarantee, letter of credit or
other security to insure payment to SCE of any such refund. If the Project
Company fails to post security or SCE deems the security inadequate, the
Project Company will be required to refund any difference immediately and
accept payment under the Forecast of Annual Marginal Cost of Energy Schedule
until the security is reinstated.
Avoided Cost of Energy Payments. During the Avoided Cost of Energy Period,
all of the Project Companies are paid a monthly energy payment at a rate
which equals SCE's Avoided Cost of Energy.
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SCE's Avoided Cost of Energy is currently determined by an approved interim
formula which adjusts historic costs by an inflation/deflation factor
representing monthly changes in the cost of natural gas at the California
border and "time of use" adjustment factors. Consequently, during the Avoided
Cost of Energy Period under this methodology, energy payments under the SO4
Agreements will fluctuate based on the time of generation and monthly changes
in average fuel costs in the California energy market. Pursuant to
legislation recently adopted in California, upon the satisfaction of certain
conditions the Avoided Cost of Energy will be based on the clearing price
established by the PX.
The time period weighted average of SCE's Avoided Cost of Energy was 3.00
cents per kWh for the year ended December 31, 1998. In April 1995, SCE
forecast its future Avoided Cost of Energy as follows:
<TABLE>
<CAPTION>
YEAR LOW MEDIAN HIGH
- ------ ------ -------- ------
<S> <C> <C> <C>
1998 2.72 2.83 2.97
1999 2.91 2.99 3.28
2000 3.11 3.22 3.60
2001 3.30 3.46 3.91
2002 3.42 3.59 4.13
2003 3.52 3.72 4.36
2004 3.62 3.88 4.61
2005 3.72 4.11 4.86
2006 3.83 4.31 5.16
2007 3.95 4.44 5.48
2008 4.06 4.59 5.82
2009 4.18 4.74 6.19
2010 4.31 4.89 6.59
2011 4.43 5.06 7.07
2012 4.57 5.22 7.60
2013 4.70 5.40 8.16
2014 4.84 5.58 8.76
2015 4.99 5.76 9.41
</TABLE>
The Power Market Consultant's Report also contains projections of future
market prices of electricity. We have not prepared or relied upon any of
these forecasts. We believe that all forecasts of Avoided Cost of Energy are
speculative in nature and we cannot assure you that SCE's actual future
Avoided Cost of Energy will be equal to any of the above forecasts. SCE's
actual Avoided Cost of Energy will be dependent upon, among other factors,
SCE's future fuel costs, system operation characteristics, market prices for
electricity (including PX prices) and regulatory action.
Curtailment. SCE is not required to accept or purchase energy for a
maximum of 300 hours per year during off-peak hours if the purchase would
either (1) cost more than the costs SCE would incur if it utilized energy
from another source or (2) cause SCE hydro-energy to be spilled under
specified CPUC mandated conditions.
Abandonment of Project. The Project Company is deemed to have abandoned
the Project if it discontinues operation of the Project with the intent to
discontinue operation permanently. This intent is conclusively presumed if
the Project Company either gives notice to SCE of its intent or operates the
plant such that no energy is generated by the plant for 200 consecutive days.
However, if the Project is prevented from generating energy due to an
Uncontrollable Force, then such period is extended for the duration of the
Uncontrollable Force, not to exceed one year. If the Project Company abandons
the Project, SCE or any entity designated by SCE has a right of first refusal
to purchase the Project.
Insurance. The Project Company must obtain and maintain comprehensive
general liability insurance. If the Project Company fails to maintain such
insurance, then it must indemnify SCE for any liabilities which would have
been covered by the insurance.
Uncontrollable Force. Each party is relieved from its obligations under
the SO4 Agreement, other than payment obligations, when and to the extent
that the failure of performance is caused by an
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Uncontrollable Force; provided that the nonperforming party, within 2 weeks
after the occurrence of an Uncontrollable Force, gives the other party
written notice describing the particulars of the occurrence, and the
nonperforming party uses its best efforts to remedy its inability to perform.
Indemnification. Each party to the SO4 Agreement has indemnified the other
party for liability for property damage or personal injury arising out of the
indemnifying party's operation, use or ownership of its facilities, other
than for liability resulting from the indemnified party's sole negligence or
willful misconduct.
TRANSMISSION SERVICE AGREEMENTS
Salton Sea Unit I delivers electricity to SCE at the Salton Sea Unit I
site. Each of the other Existing Projects delivers electricity to SCE on
transmission lines owned by IID. These transmission lines interconnect the
operating plants with SCE's transmission system. Transmission service charges
are paid monthly to IID pursuant to Transmission Service Agreements. The
Transmission Service Agreements for Salton Sea Units II, III and IV expire in
2020, 2019 and 2026, respectively. The Transmission Service Agreements for
the Leathers Project, the Elmore Project, the Del Ranch Project and the
Vulcan Project expire in 2015.
Power LLC and Turbo LLC have entered into Transmission Service Agreements
with IID for Salton Sea Unit V and the Turbo Expander Project, respectively,
which are similar to the Transmission Service Agreements for the Existing
Projects. The terms of these new agreements are 30 years from the date of
initial service. Minerals LLC has entered into a 30-year Distribution Service
Agreement with IID to deliver power from Salton Sea Unit V to the Zinc
Recovery Project. Power LLC has also entered into a Construction Agreement
with IID, pursuant to which IID will construct the necessary transmission
facilities to provide the transmission and distribution services for the New
Projects described above.
SALTON SEA GUARANTOR PROJECT CONTRACTS
POWER PURCHASE AGREEMENTS
SALTON SEA UNIT I PPA
Salton Sea Unit I sells electricity to SCE pursuant to a negotiated power
purchase agreement dated May 8, 1987 between SCE and SSPG. The Salton Sea
Unit I PPA is not an SO4 Agreement, although as described below it contains
many of the provisions customarily found in an SO4 Agreement. See "--Standard
Terms of SO4 Agreement" above.
Term. The contract term of the Salton Sea Unit I PPA is for 30 years from
the Firm Operation Date of July 1, 1987. The Contract Capacity is 10 MW.
Capacity Payments. The Salton Sea Unit I PPA capacity payment is based on
a firm capacity price which adjusts quarterly in accordance with various
inflation-related indices. If Salton Sea Unit I is able to deliver 100% of
the Contract Capacity set forth in the agreement, Salton Sea Unit I receives
a monthly performance payment based on the then current firm capacity price
multiplied by the Contract Capacity and the energy delivered from Salton Sea
Unit I up to the Contract Capacity. Based on the current capacity price of
$127.80 per kW-year, the annual maximum capacity payment is $1,278,000. The
Salton Sea Unit I PPA does not provide for bonus capacity payments.
If Salton Sea Unit I does not meet the Salton Sea Unit I PPA performance
requirement, SCE may, in its sole discretion, place the plant on probation
for a period not to exceed 15 months. If the Salton Sea Unit I PPA
performance requirement is not met during the probationary period, SCE may
derate the Contract Capacity of the plant.
Energy Payments. Salton Sea Unit I receives a monthly energy payment
calculated using a base price, which is subject to quarterly adjustments in
accordance with various inflation-related indices. The time period weighted
average energy payment for Salton Sea Unit I was 5.4 cents per kWh for the
three months ended March 31, 1999. The energy payments under the Salton Sea
Unit I PPA never revert to SCE's Avoided Cost of Energy.
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SALTON SEA UNIT II PPA
Salton Sea Unit II sells electricity to SCE pursuant to a modified SO4
Agreement dated April 16, 1985 between SCE and SSPG. Those terms which are
generally contained in an SO4 Agreement are described in "--Standard Terms of
SO4 Agreement" above.
Term. The contract term of the Salton Sea Unit II PPA is for 30 years from
the Firm Operation Date of April 5, 1990. The Contract Capacity is 15 MW.
Capacity Payments. Salton Sea Unit II has a Contract Capacity Price of
$187 per kW-year and, based on the Contract Capacity of 15 MW, the annual
maximum capacity payment is $2,805,000.
Energy Payments. The Salton Sea Unit II PPA is a Levelized Energy Payment
SO4 Agreement. The Fixed Price Period for Salton Sea Unit II expires on April
4, 2000. During the Fixed Price Period, the energy payment is a time weighted
average of 10.6 cents per kWh. After the Fixed Price Period, energy payments
will be based on SCE's Avoided Cost of Energy. For the period from April 1,
1994 through March 31, 2004, SCE is entitled to receive, at no cost, 5% of
all energy delivered in excess of Contract Capacity.
SALTON SEA UNIT III PPA
Salton Sea Unit III sells electricity to SCE pursuant to a modified SO4
Agreement dated April 16, 1985 between SCE and SSPG. Those terms which are
generally contained in an SO4 Agreement are described in "--Standard Terms of
SO4 Agreement" above.
Term. The contract term of the Salton Sea Unit III PPA is for 30 years
from the Firm Operation Date of February 14, 1989.
Capacity Payments. Salton Sea Unit III has a Contract Capacity Price of
$175 per kW-year and, based on the Contract Capacity of 47.5 MW, the annual
maximum capacity payment is $8,312,500.
Energy Payments. The Salton Sea Unit III PPA is a Levelized Energy Payment
SO4 Agreement. The Fixed Price Period for Salton Sea Unit III expired on
February 13, 1999. As a result, energy payments for the balance of the
contract term will be based on SCE's Avoided Cost of Energy.
SALTON SEA UNIT IV PPA
Salton Sea Unit IV sells electricity to SCE pursuant to a negotiated SO4
Agreement dated November 29, 1994 between SCE and SSPG. Many of the terms of
the Salton Sea Unit IV PPA are similar to those terms customarily found in an
SO4 Agreement. See "--Standard Terms of SO4 Agreement" above.
Term. The contract term of the Salton Sea Unit IV PPA is for 30 years from
the Firm Operation Date of May 24, 1996. The Contract Capacity is 34 MW.
Capacity Payments. Salton Sea Unit IV is paid a monthly capacity payment
for satisfying certain performance requirements. Through June 30, 2017, the
capacity price is $121.72 per kW-year plus quarterly inflation-related
adjustments for 58.8% of the Contract Capacity delivered by Salton Sea Unit
IV. After June 30, 2017, SCE will not be obligated to purchase this 58.8% of
capacity. Until the end of the contract term, Salton Sea Unit IV will be paid
$158 per kW-year for 41.2% of the Contract Capacity delivered by Salton Sea
Unit IV. The 1997 capacity payment was $4,994,000. Salton Sea Unit IV may
earn capacity bonus payments based on the same criteria set forth in the
"--Standard Terms of SO4 Agreement" described above.
Energy Payments. Salton Sea Unit IV is paid a monthly energy payment equal
to the sum of the on-peak, mid-peak, off-peak and super-off-peak period
energy payments. Through June 30, 2017, the energy payments for 55.6% of the
total energy delivered by Salton Sea Unit IV (up to 110% of nameplate
capacity) will be calculated based on a base price of 4.701 cents per kWh,
adjusted pursuant to various inflation-related indices. Until the end of the
contract term, the energy payments for 44.4% of the total energy delivered
will be calculated according to a fixed price, based on an energy payment
schedule for
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the first 10 years, SCE's Avoided Cost of Energy plus a predetermined spread
per kWh for years 11 through 15 and SCE's Avoided Cost of Energy thereafter.
After June 30, 2017, all energy payments will be calculated as provided in
the chart below; however, SCE will not be obliged to purchase any energy
attributable to 55.6% of Salton Sea Unit IV's capacity. The energy payments
for the 44% portion of the agreement and, after June 30, 2017, all energy
delivered under the agreement, will be as follows:
<TABLE>
<CAPTION>
ENERGY PAYMENT
YEAR (CENTS/KWH) YEAR ENERGY PAYMENT (CENTS/KWH)
- ------ -------------- ----------- --------------------------
<S> <C> <C> <C>
1999 10.7 2006 3.5+Avoided Cost of Energy
2000 10.9 2007 2.9+Avoided Cost of Energy
2001 11.2 2008 2.2+Avoided Cost of Energy
2002 11.7 2009 1.2+Avoided Cost of Energy
2003 12.1 2010 1.0+Avoided Cost of Energy
2004 12.2 2011-2025 Avoided Cost of Energy
2005 12.4
</TABLE>
SALTON SEA UNIT V PPA
Power LLC and Minerals LLC have entered into an amended and restated power
sales agreement dated as of November 1, 1998, whereby Power LLC has agreed to
supply energy to Minerals LLC.
Conditions Precedent. Power LLC's and Mineral LLC's obligations under the
Salton Sea Unit V PPA are subject to the prior condition that both Salton Sea
Unit V and the Zinc Recovery Project are ready to commence initial operation.
Term. The contract term of the Salton Sea Unit V PPA is for 33 years from
the date of initial deliveries thereunder.
Energy Payments. Power LLC will be paid a monthly energy payment equal to
the product of (1) the total quantity in kWh of electrical energy purchased
and received by Minerals LLC under the Salton Sea Unit V PPA in the month
multiplied by (2) the product of the PX price multiplied by a percentage to
adjust for transmission losses, minus an adjustment factor based on
transmission service charges.
GEOTHERMAL SALES AND PRODUCTS SUPPLY CONTRACTS
Salton Sea Unit V. SSBP and Power LLC are parties to a geothermal products
supply contract, dated as of November 2, 1998, which requires SSBP to supply
geothermal steam and spent geothermal brine to Power LLC for Salton Sea Unit
V. The agreement has a term of 30 years, commencing on the date of initial
deliveries.
GROUND LEASES
Salton Sea Units I and II. SSBP and SSPG entered into a ground lease with
IID dated November 24, 1993. Pursuant to the Salton Sea Units I and II ground
lease, IID leases the real property on which Salton Sea Units I and II are
located, consisting of approximately 117 acres, to SSBP and SSPG for a period
of 33 years. The Salton Sea Units I and II ground lease is triple net with
original base rental payments of $400 per acre per annum. Every 5 years this
per acre price may be adjusted based on changes in the Consumer Price Index
as specified in the lease.
The Salton Sea Units I and II ground lease permits improvements and
construction to increase capacity. The rights of SSBP and SSPG under the
lease are junior and subordinate to (1) the rights of Magma Land under the
amended and restated geothermal lease and agreement dated as of November 24,
1993 between IID and Magma Land and (2) the right, title and interest of
Magma Land and SSBP under the Salton Sea Resource Easement.
The following constitute material defaults under the Salton Sea Units I
and II ground lease:
(1) failure to pay rent when due where such failure continues for 30
business days after written notice;
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(2) failure to observe or perform any material covenants under the
lease where such failure continues for 60 days after written
notice; and
(3) either of SSBP or SSPG is adjudged bankrupt or insolvent, files a
petition for bankruptcy, discontinues its business, makes a
general assignment for the benefit of creditors or has
substantially all of its assets attached for greater than 60 days.
Upon the occurrence of any of the above, IID may terminate SSBP's and
SSPG's right to possession of the premises and the Salton Sea Units I and II
ground lease will be terminated. IID is entitled to recover various damages
enumerated in the Salton Sea Units I and II ground lease in the event of
early termination of the lease.
Salton Sea Units III and IV. SSBP and SSPG are currently parties to a
ground lease with Magma Land, dated as of March 31, 1993, pursuant to which
Magma Land leases the real property on which Salton Sea Units III and IV are
located to SSBP and SSPG. Many of the terms of the lease are substantially
similar to the Salton Sea Units I and II ground lease.
Salton Sea Unit V. Power LLC is currently party to a ground lease with
Imperial Magma, dated as of October 13, 1998, pursuant to which Imperial
Magma leases the real property on which Salton Sea Unit V will be located to
Power LLC. Many of the terms of the lease are substantially similar to the
Salton Sea Units I and II ground lease and the Salton Sea Units III and IV
ground lease.
SALTON SEA RESOURCE EASEMENT AND OTHER RELATED AGREEMENTS
Salton Sea Units I-IV. SSBP and Magma Land entered into an amended and
restated easement grant deed and agreement regarding rights for geothermal
development dated as of February 23, 1994, and further amended as of July 21,
1995 and December 2, 1998 (the "Salton Sea Resource Easement"), pursuant to
which Magma Land grants to SSBP a first-priority, non-exclusive right to
extract and utilize for power production purposes the geothermal resource
underlying specific properties in the Salton Sea Known Geothermal Resource
Area. These resources supply all of the geothermal energy requirements used
by Salton Sea Units I, II, III and IV. Pursuant to the easement, Magma Land
owns the right to use any excess or unused geothermal resources, including
spent geothermal brine and brine minerals.
The Salton Sea Resource Easement became effective on February 23, 1994 and
expires on November 24, 2026.
SSBP must reimburse Magma Land for amounts Magma Land is obligated to pay
to those landowners who own the underlying rights to the geothermal resources
under various geothermal lease agreements. SSBP is obligated to pay all costs
and expenses associated with the maintenance, repair and operation of the
geothermal brine facilities. SSBP is required to comply with all laws, pay
utilities and all real and personal property taxes and maintain insurance.
Magma Land may terminate the Salton Sea Resource Easement if (1) SSBP
fails to make a payment when due and fails to cure the default within 5 days
of receiving notice of such default or (2) SSBP fails to perform or observe
any other material covenant under the Salton Sea Resource Easement and such
failure continues unremedied for a period of 30 days after notice of the
failure is given by Magma Land.
Salton Sea Unit V. Power LLC, SSBP and Magma Land entered into an
agreement regarding utilization of geothermal energy dated as of October 13,
1998, pursuant to which Magma Land grants to SSBP a license to extract and
utilize for power production purposes the geothermal resource underlying
specific properties in the Salton Sea Known Geothermal Resource Area in order
to supply the geothermal energy requirements of Salton Sea Unit V. The
agreement contemplates that SSBP and Power LLC will enter into a geothermal
products supply contract to provide geothermal energy to Salton Sea Unit V.
See "--Geothermal Sales and Products Supply Contracts--Salton Sea Unit V"
above.
OPERATING AND MAINTENANCE AGREEMENTS
Salton Sea Units I-IV. The Salton Sea Guarantors (other than Power LLC)
and CEOC entered into a second amended and restated operating and maintenance
agreement, dated as of July 15, 1995, under which CEOC is responsible for the
day-to-day operation and maintenance of the Salton Sea Projects (other than
Salton Sea Unit V).
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Salton Sea Unit V. Power LLC and CEOC entered into an operating and
maintenance agreement, dated as of October 13, 1998, under which CEOC is
responsible for the day-to-day operations and maintenance of Salton Sea Unit
V. The provisions of the Salton Sea Unit V operating and maintenance
agreement are substantially similar to those of the Salton Sea Units I-IV
operating and maintenance agreement.
ADMINISTRATIVE SERVICES AGREEMENT
Salton Sea Units I-IV. The Salton Sea Guarantors (other than Power LLC)
and Magma entered into a second amended and restated administrative services
agreement, dated as of July 15, 1995, whereby Magma agrees to provide
administrative, management and technical services for the Salton Sea Projects
(other than Salton Sea Unit V).
Salton Sea Unit V. Power LLC and Magma entered into an administrative
services agreement, dated as of October 13, 1998, whereby Magma agrees to
provide administrative, management and technical services for Salton Sea Unit
V. The core provisions of the Salton Sea Unit V administrative services
agreement are substantially similar to those of the Salton Sea Units I-IV
administrative services agreement.
TECHNOLOGY TRANSFER AGREEMENTS
Salton Sea Units I-III. SSBP and SSPG entered into a 33-year technology
transfer agreement, dated as of March 31, 1993, with Magma pursuant to which
Magma grants to SSBP and SSPG the right to use Magma's proprietary and
non-proprietary technology, leases and patents for Salton Sea Units I-III.
Magma has granted these rights to SSBP and SSPG at no cost. The agreement
also allows SSBP and SSPG to benefit from improvements and modifications to
the technology for the life of the agreement.
Salton Sea Unit IV. The right to use Magma's proprietary and
non-proprietary technology in Salton Sea Unit IV is governed by the
technology transfer agreement, dated as of February 15, 1996, among Magma,
SSBP, SSPG and Fish Lake, the terms of which are substantially similar to the
terms of the Salton Sea Units I-III technology transfer agreement.
Salton Sea Unit V. Power LLC entered into a 33-year technology transfer
agreement, dated as of October 13, 1998, with Magma. The terms of the Salton
Sea Unit V technology transfer agreement are substantially similar to those
of the Salton Sea Unit IV technology transfer agreement.
SALTON SEA UNIT V EPC CONTRACT
Under the Salton Sea Unit V EPC Contract, SWEC will design, engineer,
procure, construct, commission and test the 49 MW geothermal power production
facility constituting Salton Sea Unit V on a turnkey basis for an aggregate
fixed price of $91,787,000 (the "Salton Sea Unit V EPC Price").
Contract Price; Security for SWEC's Obligations. SWEC will be entitled to
monthly payments under a milestone payment schedule if SWEC's invoices have
been approved by Power LLC. As security for the liabilities of SWEC to Power
LLC under the Salton Sea Unit V EPC Contract, Power LLC is entitled to retain
10% of the amount due with respect to each invoice. Power LLC must pay the
retainage to SWEC following final completion of the work. In lieu of the
retainage, SWEC may post a letter of credit acceptable to Power LLC in its
good faith discretion. In addition, SWEC's obligations under the Salton Sea
Unit V EPC Contract are guaranteed by its parent company, Stone & Webster,
Incorporated.
Buy-Down Following Capacity and Reliability Tests. SWEC guarantees that
Salton Sea Unit V will satisfy performance guarantees regarding energy
production, steam production and brine temperature. SWEC must pay specified
performance liquidated damages if Salton Sea Unit V fails to satisfy the
applicable performance guarantees during the capacity test and the
reliability test, subject to the limitations on liability described below. If
SWEC has not passed the requisite tests and has not paid the specified
performance liquidated damages 90 days after the capacity test completion
deadline, SWEC must pay the performance liquidated damages. The capacity test
completion deadline is scheduled to occur 610 days after October 13, 1998, as
this deadline may be modified in accordance with the terms of
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the Salton Sea Unit V EPC Contract. If SWEC has not run a capacity test
within 90 days after the expiration of this period, SWEC must pay an amount
equal to the maximum aggregate damages and will have no right to conduct the
reliability test. In the event that SWEC has not run a reliability test by 90
days after the substantial completion deadline, SWEC must pay additional
specified performance liquidated damages calculated as if the output during
the reliability test were zero, subject to limitations on liability described
below. The substantial completion deadline is scheduled to occur 638 days
after October 13, 1998, as this deadline may be modified in accordance with
the terms of the Salton Sea Unit V EPC Contract. Power LLC, in its sole
discretion, may grant SWEC an opportunity to attempt to meet the performance
guarantees during a rerun of one or all of the performance tests in
accordance with a plan approved by Power LLC. If by the re-testing deadline,
each of the applicable performance tests has been re-run but SWEC has failed
to meet the performance guarantees, then SWEC must pay certain specified
performance liquidated damages without regard to the limitations on liability
described below. In the event Salton Sea Unit V's performance has improved as
a result of such corrective measures, Power LLC may be obligated to refund
certain liquidated damages to SWEC; provided that the refund will be first
reduced by, among other things, an amount necessary to compensate Power LLC
for any excess costs, lost revenues, consequential damages or other losses
incurred by Power LLC as a result of the rerun, and any amounts owed but not
paid to Power LLC due to the limitations on SWEC's liability under the Salton
Sea Unit V EPC Contract.
Delay Liquidated Damages; Early Completion Bonus. If SWEC fails to achieve
capacity test completion by the capacity test completion deadline, SWEC must
pay liquidated damages as follows: $15,400 per day for the first 30 days of
delay, $23,200 per day for each day of delay beyond the 30th day of delay but
prior to the 60th day of delay, and $32,750 per day for each day of delay
beyond the 60th day of delay, subject to the limitations on liability
described below. SWEC is not required to pay any delay liquidated damages for
failure to achieve substantial completion by the substantial completion
deadline. If SWEC achieves substantial completion before the deadline, then
Power LLC must pay a specified bonus as follows: $22,500 per day for the
first 16 days of early completion, and $15,400 per day for each day of early
completion in excess of 16 days up to a total of 90 days.
Warranties. SWEC provides certain warranties for the work and equipment
provided under the Salton Sea Unit V EPC Contract, which warranty will
terminate on the date that is the later of 18 months from delivery of
equipment to the site or 12 months after the date SWEC achieves substantial
completion (subject to extension for repair or replacement of items covered
by the warranty).
Adjustments to the Contract Price. In the event of an owner requested
change in the work, owner caused delay, certain changes in law or certain
unforeseen subsurface manmade conditions at the project site, the Salton Sea
Unit V EPC Price will be increased by either, at Power LLC's sole discretion,
(1) a price agreed to by Power LLC and SWEC or (2) a price calculated
pursuant to fixed unit rates identified in the Salton Sea Unit V EPC
Contract. There will be no adjustment to the Salton Sea Unit V EPC Price in
connection with a change in the work resulting from an event of force
majeure.
Delays in the Work. If an event of force majeure, an owner requested
change in the work, an owner caused delay, certain unforeseen subsurface
manmade conditions at the project site or certain changes in law delay SWEC's
performance, then SWEC will be entitled to an extension of the affected
deadlines provided SWEC satisfies certain conditions. SWEC must use
reasonable efforts to mitigate the duration of and costs arising from any
suspension or delay in performance of the work.
Events of Default. The events of default applicable to Power LLC include,
without limitation, the following: (1) Power LLC's breach of any of its
covenants under the Salton Sea Unit V EPC Contract (subject to cure periods);
(2) Power LLC's unauthorized assignment or transfer of any of its rights or
interests in the Salton Sea Unit V EPC Contract; and (3) the failure of any
representation or warranty made by Power LLC to be true (subject to cure
period). SWEC may terminate the Salton Sea Unit V EPC Contract if a Power LLC
event of default occurs, subject to exceptions specified in the Salton Sea
Unit V EPC Contract and cure rights of the Collateral Agent.
Limitations on Liability. SWEC's aggregate liability to Power LLC under
the Salton Sea Unit V EPC Contract will in no event be greater than 100% of
the Salton Sea Unit V EPC Price; provided,
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however, that no provision of the Salton Sea Unit V EPC Contract will be
construed to limit SWEC's liability or obligations (1) to achieve mechanical
completion, (2) with respect to vitiation of any insurance policy of the
Salton Sea Unit V EPC Contract, (3) with respect to any willful misconduct of
SWEC, or (4) with respect to SWEC's opportunity to re-run performance tests
as described above. SWEC's aggregate liability to Power LLC for liquidated
damages (both delay and performance based) under the Salton Sea Unit V EPC
Contract is limited to 20% of the Salton Sea Unit V EPC Price.
PARTNERSHIP GUARANTOR PROJECT CONTRACTS
POWER PURCHASE AGREEMENTS
Elmore PPA. Elmore sells electricity to SCE pursuant to an SO4 Agreement
dated June 15, 1984 between SCE and Elmore. The terms which are generally
contained in an SO4 Agreement are described in "--Standard Terms of SO4
Agreement" above. Some of the specific terms of the Elmore PPA and the
primary differences between the Elmore PPA and the terms of the standard SO4
Agreement are described below.
Term. The contract term of the Elmore PPA is for 30 years from the Firm
Operation Date of January 1, 1989.
Capacity Payments. Elmore has a Contract Capacity Price of $198 per
kW-year and, based on the Contract Capacity of 34 MW, the annual maximum
capacity payment is $6,732,000.
Energy Payments. The Elmore PPA is an Annual Forecast Energy Payment SO4
Agreement. The Fixed Price Period expired on December 31, 1998. As a result,
energy payments for the balance of the contract term will be based on SCE's
Avoided Cost of Energy.
Leathers PPA. Leathers sells electricity to SCE pursuant to an SO4
Agreement which is identical in all material respects to the Elmore PPA. Some
of the specific terms of the Leathers PPA and the primary differences between
the Leathers PPA and the Elmore PPA are described below.
Term. The contract term of the Leathers PPA is for 30 years from the Firm
Operation Date of January 1, 1990.
Capacity Payments. Leathers has a Contract Capacity Price of $187 per
kW-year and, based on the Contract Capacity of 34 MW, the annual maximum
capacity payment is $6,358,000.
Energy Payments. The Leathers PPA is an Annual Forecast Energy Payment SO4
Agreement. The Fixed Price Period expires on December 31, 1999. After the
Fixed Price Period, energy payments will be based on SCE's Avoided Cost of
Energy.
Del Ranch PPA. Del Ranch sells electricity to SCE pursuant to an SO4
Agreement which is identical in all material respects to the Elmore PPA. Some
of the specific terms of the Del Ranch PPA and the primary differences
between the Del Ranch PPA and the Elmore PPA are described below.
Term. The contract term of the Del Ranch PPA is for 30 years from the Firm
Operation Date of January 2, 1989.
Capacity Payments. Del Ranch has a Contract Capacity Price of $198 per
kW-year and, based on the Contract Capacity of 34 MW, the annual maximum
capacity payment is $6,732,000.
Energy Payments. The Del Ranch PPA is an Annual Forecast Energy Payment
SO4 Agreement. The Fixed Price Period expired on December 31, 1998. As a
result, energy payments for the balance of the contract term will be based on
SCE's Avoided Cost of Energy.
Vulcan PPA. Vulcan sells electricity to SCE pursuant to an SO4 Agreement
dated March 1, 1984 between SCE and Vulcan. The standard and principal terms
which are generally contained in an SO4 Agreement are described in
"--Standard Terms of SO4 Agreement" above. Some of the specific terms of the
Vulcan PPA and the primary differences between the Vulcan PPA and the terms
of the standard SO4 Agreement are described below.
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Term. The contract term of the Vulcan PPA is for 30 years from the Firm
Operation Date of February 10, 1986.
Capacity Payments. Vulcan has a Contract Capacity Price of $158 per
kW-year and, based on the Contract Capacity of 29.5 MW, the annual maximum
capacity payment is $4,661,000.
Energy Payments. The Vulcan PPA is an Annual Forecast Energy Payment SO4
Agreement. The Fixed Price Period expired on February 9, 1996. As a result,
energy payments for the balance of the contract term will be based on SCE's
Avoided Cost of Energy.
GROUND LEASES
Elmore. Elmore entered into a ground lease with Magma, dated as of March
14, 1988, as amended as of June 17, 1996. Pursuant to the Elmore ground
lease, Magma leases the real property on which the Elmore Project is located
to Elmore for a period of 32 years.
Magma retains under the lease the right to use the land surface to extract
and develop geothermal brine and geothermal brine scale. This includes the
right to construct, operate and maintain pipelines, buildings, equipment and
other improvements to the land, including additional geothermal power plants.
The lease permits minor alterations or additions to any improvements on
the land at a construction cost not exceeding $7,500,000. Additions or
improvements costing in excess of $7,500,000 require Magma's prior written
consent. Elmore is not permitted to assign, transfer, mortgage, sublet or
otherwise transfer or encumber any part of its interest in the lease or
premises without Magma's prior written consent, which shall not be
unreasonably withheld.
Leathers. Leathers entered into a ground lease, dated as of October 26,
1988, as amended as of June 17, 1996, with Magma. Pursuant to the Leathers
ground lease, Magma leases the real property on which the Leathers Project is
located to Leathers. The provisions of this lease are substantially similar
in most material respects to the terms of the Elmore ground lease.
Del Ranch. Del Ranch entered into a ground lease, dated as of March 14,
1988, as amended as of June 17, 1996, with Magma, pursuant to which Del Ranch
leases the real property on which the Del Ranch Project is located from
Magma. The provisions of this lease are substantially similar in all material
respects to the terms of the Elmore ground lease.
Zinc Recovery Project. Minerals LLC is party to a ground lease with
Imperial Magma, dated as of October 13, 1998, pursuant to which Imperial
Magma leases the real property on which the Zinc Recovery Project will be
located to Minerals LLC. Many of the terms of this lease are substantially
similar to the terms of the Salton Sea Units I and II ground lease and the
Salton Sea Units III and IV ground lease.
EASEMENTS
Elmore. The easement grant deed and agreement regarding rights for
geothermal development, dated as of March 14, 1988, as amended as of June 17,
1996, between Elmore and Magma, provides for royalty payments to be paid by
Elmore to Magma for the extraction and utilization of the geothermal resource
for power production purposes by the Elmore Project.
Description of Easement. Elmore has been granted by Magma a non-exclusive
right to use certain land and geothermal resources for the purpose of
producing geothermal energy from the Elmore Project. Pursuant to the
easement, Magma has reserved the right to use any excess or unused geothermal
resources, including brine minerals.
Royalty. Elmore is obligated to pay Magma a royalty equal to 21.5% of any
energy (but not capacity) revenues it receives under the Elmore PPA. The
royalty consists of two components, a grantor's fuel charge, which is 17.333%
of energy revenues, and a geothermal lessor's fee, which is 4.167% of energy
revenues. In addition, Elmore must pay Magma a resource development fee of 1%
of combined capacity and energy revenues and 0.833% of energy revenues. These
royalties are paid prior to the payment of project-level debt service
(including the Project Notes and the Guarantees) and are payable from
revenues that will constitute Partnership Collateral. See "Offering Circular
Summary--structure of and Collateral for the Securities."
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Term and Termination. The Elmore easement has a term of 32 years. Magma
has the right to terminate the easement if (1) Elmore fails to make any
payments within 3 business days of being due and fails to cure such default
within 2 business days of notice thereof, (2) during the last 5 years of the
term of the agreement, the Elmore Project is damaged or destroyed, with
damages over $7,500,000, and Magma chooses to decommission the plant, or (3)
Elmore fails to perform or observe any material covenant or condition in the
easement and fails to remedy or commence to remedy such default within 30
days.
Leathers. The easement grant deed and agreement regarding rights for
geothermal development, dated as of August 15, 1988, as amended as of June
17, 1996, between Leathers and Magma, provides for royalty payments to be
paid by Leathers to Magma for the extraction and utilization of the
geothermal resource for power production purposes.
The provisions of this agreement are identical in all material respects to
those of the Elmore easement, except that Leathers is not required to pay
Magma a continuing resource development fee. Leathers is only obligated to
pay Magma 21.5% of its energy revenues, consisting of a grantor's fuel
charge, which is 17.333% of energy revenues, and a geothermal lessor's fee,
which is 4.167% of energy revenues.
Del Ranch. The easement grant deed and agreement regarding rights for
geothermal development, dated as of March 14, 1988, as amended as of June 17,
1996, between Del Ranch and Magma, provides for royalty payments to be paid
by Del Ranch to Magma for the extraction and utilization of the geothermal
resource for power production purposes. The provisions of this agreement are
substantially similar in all material respects to those of the Elmore
easement.
Vulcan. Rights to geothermal resources have been granted to VPC (and
assigned to Vulcan) by Magma pursuant to an easement grant deed and agreement
regarding rights for geothermal development, dated as of January 19, 1988, as
amended as of June 17, 1996 and February 18, 1999. Magma has reserved the
right to use excess or unused geothermal resources, including brine minerals.
CE Turbo Project. Magma and Turbo LLC have entered into a subeasement
agreement, dated as of October 13, 1998, whereby Magma grants to Turbo LLC
the right to use the real property on which the CE Turbo Project will be
located.
Zinc Recovery Project.
Agreement Regarding Easements and Subeasements. Magma, Imperial Magma and
Minerals LLC entered into an agreement regarding easements and subeasements
dated as of February 18, 1999, pursuant to which Magma and Imperial Magma grant
to Minerals LLC easements and subeasements to permit Minerals LLC to construct,
operate and maintain the Zinc Recovery Project and associated pipelines and
equipment.
Term. The term of the agreement regarding easements and subeasements is
for 33 years, subject to earlier termination as provided therein.
Obligations. Minerals LLC must pay a nominal annual payment to Imperial
Magma and must reimburse Magma for amounts incurred by Magma and arising from
Minerals LLC's exercise of its rights under the agreement regarding easements
and subeasements. Minerals LLC is obligated to pay all costs and expenses
associated with the labor and materials furnished to Minerals LLC at or for
use on the easement areas. Minerals LLC is required to comply with all laws,
pay utilities and all real and personal property taxes and maintain
insurance.
Defaults. Minerals LLC will be in default under the agreement regarding
easements and subeasements if it fails to perform its obligations thereunder
in any material respect and fails to cure the default within 30 days of
receiving notice of such default. However, if the nature of Minerals LLC's
obligation is such that more than 30 days are required for its performance,
Minerals LLC will not be in default if it commences such performance within
the 30-day period and thereafter pursues completion of the performance with
commercially reasonable diligence.
Easement Grant Deed and Agreement Regarding Rights for Zinc
Extraction. Magma, Magma Land and Minerals LLC entered into an easement grant
deed and agreement regarding rights for zinc
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extraction dated as of February 18, 1999, pursuant to which Magma and Magma
Land grant to Minerals LLC rights to (1) extract and utilize certain spent
geothermal brine for purposes of processing, extracting and selling zinc
therefrom, and (2) use certain subsurface land to produce, extract, store,
utilize, process, reclaim, convert, sell and otherwise use the zinc contained
in certain geothermal brine and to own the zinc contained in such geothermal
brine.
Term. The term of the easement grant deed and agreement regarding rights
for zinc extraction is for 33 years.
Obligations. Minerals LLC must pay to Magma and Magma Land an aggregate
amount equal to 1.32% of the greater of (1) the gross proceeds received by
Minerals LLC from the sale of zinc or (2) the product of the total quantity
of zinc produced and made ready for sale and the applicable daily London
Metal Exchange spot price for zinc as published in the Wall Street Journal.
Default. Minerals LLC will be in default under the easement grant deed and
agreement regarding rights for zinc extraction if it fails to perform its
obligations thereunder in any material respect and fails to cure the default
within 30 days of receiving notice of the default. However, if the nature of
the obligation requires more than 30 days for its performance, Minerals LLC
will not be in default if it commences performance within the 30-day period
and thereafter pursues completion of the performance with commercially
reasonable diligence.
OPERATING AND MAINTENANCE AGREEMENTS
Elmore, Leathers, Del Ranch and Vulcan. CEOC has entered into amended and
restated operating and maintenance agreements dated as of June 17, 1996 with
each of Elmore, Leathers and Del Ranch pursuant to which CEOC agrees to
provide operating and maintenance services for each of the Elmore, Leathers
and Del Ranch Projects. CEOC entered into a construction, operating and
accounting agreement, dated as of August 30, 1985, as amended on June 17,
1996, with VPC and Vulcan, pursuant to which CEOC agrees to provide operating
and maintenance services for the Vulcan Project.
CE Turbo Project. Turbo LLC and CEOC have entered into an operating and
maintenance agreement, dated as of October 13, 1998, pursuant to which CEOC
agrees to provide operating and maintenance services for the CE Turbo
Project.
Zinc Recovery Project. Minerals LLC and CEOC have entered into a zinc
facility operating and maintenance agreement, dated as of November 1, 1998,
pursuant to which CEOC agrees to provide operating and maintenance services
for the Zinc Recovery Project.
ADMINISTRATIVE SERVICES AGREEMENTS
Elmore, Leathers, Del Ranch and Vulcan. CEOC has entered into amended and
restated administrative services agreements, each dated as of June 17, 1996,
with each of Elmore, Leathers, Del Ranch and Vulcan, pursuant to which CEOC
agrees to provide day-to-day administrative, management and technical
services for the Elmore, Leathers, Del Ranch and Vulcan Projects.
Zinc Recovery Project and CE Turbo Project. Magma has entered into
administrative services agreements, each dated as of October 13, 1998, with
each of Minerals LLC and Turbo LLC, whereby Magma agrees to provide
day-to-day administrative, management and technical services for the Zinc
Recovery Project and the CE Turbo Project.
EPC CONTRACTS
REGION 2 UPGRADE EPC CONTRACT
Under the Region 2 Upgrade EPC Contract, SWEC will, in two phases, design,
engineer, procure, construct, test and start up the Region 2 Brine Facilities
Construction and the CE Turbo Project for a fixed price of $49,800,000 (the
"Region 2 EPC Price"). The Region 2 Upgrade EPC Contract is substantially
similar to the Salton Sea Unit V EPC Contract in all material aspects except
as described below.
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Buy-Down Following Capacity and Reliability Tests. SWEC guarantees that
the Region 2 Brine Facilities Construction will satisfy performance
guarantees regarding steam production, and that the CE Turbo Project will
satisfy performance guarantees regarding energy production. SWEC must pay
specified performance liquidated damages if the Region 2 Brine Facilities
Construction fails to satisfy the applicable performance guarantees during
the capacity test and if the CE Turbo Project fails to satisfy the applicable
performance guarantees during the reliability test and the capacity test, in
each case subject to the limitations on liability described below. If SWEC
has not passed the requisite tests and has not paid the specified performance
liquidated damages 90 days, in the case of the Region 2 Brine Facilities
Construction, or 180 days, in the case of the CE Turbo Project, after the
capacity test completion deadline for such phase, SWEC must pay performance
liquidated damages at that time. The capacity test completion deadlines for
the Region 2 Brine Facilities Construction and the CE Turbo Project are,
respectively, 497 days and 520 days after October 13, 1998. In the event that
SWEC has not run a single capacity test for the Region 2 Brine Facilities
Construction prior to 90 days after the capacity test completion deadline for
such phase, SWEC must pay an amount equal to the maximum aggregate damages.
In the event that SWEC has not run a single capacity test for the CE Turbo
Project prior to 180 days after the capacity test completion deadline for
such phase, SWEC must pay an amount equal to the maximum aggregate damages.
In the event that SWEC has not run a single reliability test prior to 180
days after the substantial completion deadline for the CE Turbo Project, SWEC
must pay additional specified performance liquidated damages which will be
calculated as if the output during the reliability test were zero, subject to
the limitations on liability described below. The substantial completion
deadlines for the Region 2 Brine Facilities Construction and the CE Turbo
Project are, respectively, 497 days and 548 days after October 13, 1999, as
each deadline may be modified in accordance with the terms of the Region 2
Upgrade EPC Contract.
Delay Liquidated Damages; Early Completion Bonus. If SWEC fails to achieve
capacity test completion for the Region 2 Brine Facilities Construction by
the deadline therefor, SWEC must pay specified liquidated damages for each
day that capacity test completion is delayed beyond such deadline ("Phase One
Delay Liquidated Damages"), as follows: $15,400 per day for the first 30 days
of delay, $23,200 per day for each day of delay beyond the 30th day of delay
but prior to the 60th day of delay, and $32,750 per day for each day of delay
beyond the 60th day of delay, subject to the limitations on liability
described below. In addition, if SWEC fails to achieve capacity test
completion for the CE Turbo Project by the deadline, SWEC must pay specified
liquidated damages for each day that capacity test completion is delayed
beyond the deadline ("Phase Two Delay Liquidated Damages" and, together with
Phase One Delay Liquidated Damages, the "Delay Liquidated Damages"), as
follows: $4,000 per day for the first 30 days of delay, $6,000 per day for
each day of delay beyond the 30th day of delay but prior to the 60th day of
delay, and $8,000 per day for each day of delay beyond the 60th day of delay,
subject to the limitations on liability described below. SWEC is not required
to pay any Delay Liquidated Damages for failure to achieve substantial
completion by the deadlines for substantial completion. If SWEC achieves
substantial completion for the Region 2 Brine Facilities Construction before
the deadline, then Turbo LLC, Vulcan and Del Ranch must pay a specified bonus
for each day that substantial completion of the Region 2 Brine Facilities
Construction precedes the deadline, as follows: $7,500 per day for the first
16 days of early completion, and $11,100 per day for each day of early
completion in excess of 16 days up to a total of 90 days. In addition, if
SWEC achieves substantial completion for the CE Turbo Project before the
deadline, then Turbo LLC, Vulcan and Del Ranch must pay a specified bonus for
each day that substantial completion for the CE Turbo Project precedes the
deadline, as follows: $2,000 per day for the first 16 days of early
completion, and $4,000 per day for each day of early completion in excess of
16 days up to a total of 90 days.
Limitations on Liability. SWEC's aggregate liability to Turbo LLC, Vulcan
and Del Ranch under the Region 2 Upgrade EPC Contract will in no event be
greater than 100% of the Region 2 EPC Price; provided, however, that no
provision of the Region 2 Upgrade EPC Contract will be construed to limit
SWEC's liability or obligations (1) to achieve mechanical completion, (2)
with respect to vitiation of any insurance policy of the Region 2 Upgrade EPC
Contract, (3) with respect to any willful misconduct of SWEC, or (4) with
respect to SWEC's opportunity to re-run performance tests. SWEC's aggregate
liability to Turbo LLC, Vulcan and Del Ranch for liquidated damages (both
delay and performance based) under the Region 2 Upgrade EPC Contract is
limited to 20% of the Region 2 EPC Price.
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ZINC RECOVERY PROJECT EPC CONTRACT
Under the Zinc Recovery Project EPC Contract, Kvaerner will design,
engineer, procure, construct, test and start up the Zinc Recovery Project for
an aggregate fixed price of $148,240,000 (the "Zinc EPC Price").
Contract Price; Security for Kvaerner's Obligations. Kvaerner will be
entitled to monthly payments in accordance with a milestone payment schedule
if Kvaerner's invoices have been approved by Minerals LLC. As security for
the liabilities of Kvaerner to Minerals LLC under the Zinc Recovery Project
EPC Contract, Minerals LLC is entitled to retain 10% of the amount due with
respect to each invoice. Minerals LLC must pay the retainage to Kvaerner
following final completion of the work. In lieu of the retainage, Kvaerner
may post a letter of credit to Minerals LLC in its good faith discretion. In
addition, Kvaerner's obligations under the Zinc Recovery Project EPC Contract
must at all times be secured by one or more letters of credit in an aggregate
amount of 20% of the Zinc EPC Price. The letters of credit have been issued
by Union Europeenne de CIC, and must always be issued by a financial
institution rated "A" or better by S&P or "A2" or better by Moody's and
otherwise acceptable to Minerals LLC.
Buy-Down Following Capacity, Process and Special High Grade Zinc
Tests. Kvaerner guarantees that the Zinc Recovery Project will satisfy
performance guarantees regarding zinc recovery rates and zinc casting and
acid production rates. Kvaerner must pay specified performance liquidated
damages if the Zinc Recovery Project fails to satisfy the applicable
performance guarantees during the capacity test, the process test and the
special high grade zinc test, subject to the limitations on liability
described below. If Kvaerner has not passed the requisite tests and has not
paid the specified performance liquidated damages 60 days after the
substantial completion deadline, Kvaerner must pay the performance liquidated
damages at that time. The substantial completion deadline is scheduled to
occur 652 days after October 13, 1998, as this deadline may be modified in
accordance with the terms of the Zinc Recovery Project EPC Contract. If
Kvaerner has not run the capacity test prior to the expiration of this
period, Kvaerner must pay an amount equal to the maximum aggregate damages
and will have no right to conduct the process test or the special high grade
zinc test. If Kvaerner has not run the process test by 60 days after the
substantial completion deadline, Kvaerner must pay additional specified
performance liquidated damages which will be calculated as if the output of
such uncompleted process test were zero, subject to the limitations on
liability described below. In the event that Kvaerner has not run the special
high grade zinc test by 60 days after the special high grade zinc test
completion deadline, Kvaerner must pay additional performance liquidated
damages calculated as if the output of the uncompleted special high grade
zinc test were zero, subject to limitations on liability described below. The
special high grade zinc test completion deadline is scheduled to occur 160
days after the process test has been completed and certain other conditions
have been satisfied, as this deadline may be modified in accordance with the
terms of the Zinc Recovery Project EPC Contract. Minerals LLC, in its sole
discretion, may grant Kvaerner, upon the request of Kvaerner, an opportunity
to postpone paying performance liquidated damages otherwise due and owing to
Minerals LLC and to attempt to meet the performance guarantees during a
re-run of one or all of the performance tests in accordance with a remedial
plan approved by Minerals LLC. In return for allowing Kvaerner to re-run the
tests, Kvaerner must pay Minerals LLC monthly re-testing liquidated damages.
In addition, for each day the Zinc Recovery Project does not operate or
perform at a level greater than or equal to the level achieved during the
initial performance tests as a result of Kvaerner's corrective measures or
other acts relating to the approved remedial plan, Kvaerner must pay
specified delay liquidated damages subject to the limitations on liability
described below. If by a certain specified re-testing deadline each of the
applicable performance tests has been re-run but Kvaerner has failed to meet
the performance guarantees, then Kvaerner must pay specified performance
liquidated damages recalculated based upon the Zinc Recovery Project's
current performance, subject to the limitations on liability described below.
If, by the earlier of the completion of the activities contemplated in the
approved remedial plan or the re-testing deadline, the Zinc Recovery Project
does not perform at a level greater than or equal to the level achieved
during the initial performance tests, Kvaerner must either reinstate the Zinc
Recovery Project to the condition existing prior to Kvaerner's performance of
such corrective measures or pay the recalculated performance liquidated
damages described in the preceding sentence, in either case without regard to
the limitations on liability described below.
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Delay Liquidated Damages. If Kvaerner fails to achieve substantial
completion by the substantial completion deadline, Kvaerner must pay
liquidated damages of $16,700 per day for the first 30 days of delay, $25,100
per day for each day of delay beyond the 30th day of delay but prior to the
60th day of delay, and $34,100 per day for each day of delay beyond the 60th
day of delay, subject to the limitations on liability described below. In
addition, if Kvaerner fails to achieve special high grade zinc test
completion by the deadline therefor, Kvaerner must pay liquidated damages of
$9,000 per day for each day of delay up to and including the 60th day of
delay.
Warranties. Kvaerner provides warranties for the work and equipment
provided under the Zinc Recovery Project EPC Contract, which warranties will
terminate on the date that is 12 months after the later of (1) the date on
which Kvaerner achieves substantial completion or (2) the date when all
re-runs of performance tests have been completed or, alternatively, Kvaerner
has paid the additional liquidated damages for failing to pass the
performance tests (subject to extension for repair or replacement of items
covered by the warranties).
Adjustments to the Contract Price. In the event of an owner-requested
change in the work, owner-caused delay or certain changes in law, the Zinc
EPC Price will be increased by Kvaerner's direct costs (without overhead or
general conditions) resulting from the change in the work, delay or change in
law, less any savings or costs not incurred due to such delay. In addition,
in the case of an owner-caused delay or a change in the work requested by
Minerals LLC, the Zinc EPC Price will be increased, for profit and overhead,
by 5% of the direct costs. There will be no adjustment to the Zinc EPC Price
in connection with a change in the work resulting from an event of force
majeure.
Delays in the Work. If an event of force majeure, an owner-requested
change in the work, an owner-caused delay or certain changes in law delay
Kvaerner's performance, then Kvaerner will be entitled to an extension of the
affected deadlines, provided Kvaerner satisfies conditions to the receipt of
an extension which are set forth in the Zinc Recovery Project EPC Contract.
Kvaerner must use reasonable efforts to mitigate the duration of, and costs
arising from, any suspension or delay in performance of the work.
Events of Default. The events of default applicable to Minerals LLC
include, without limitation, the following: (1) Minerals LLC's breach of any
of its covenants under the Zinc Recovery Project EPC Contract (subject to
cure periods); (2) Minerals LLC's unauthorized assignment or transfer of any
of its rights or interests in the Zinc Recovery Project EPC Contract; and (3)
the failure of any representation or warranty made by Minerals LLC to be true
(subject to a cure period). Kvaerner may terminate the Zinc Recovery Project
EPC Contract if a Minerals LLC event of default occurs, subject to exceptions
specified in the Zinc Recovery Project EPC Contract and cure rights of the
Collateral Agent.
Limitations on Liability. Kvaerner's aggregate liability to Minerals LLC
under the Zinc Recovery Project EPC Contract will in no event be greater than
20% of the Zinc EPC Price; provided, however, that no provision of the Zinc
Recovery Project EPC Contract will be construed to limit Kvaerner's liability
or obligations (1) to achieve mechanical completion, (2) with respect to
safeguards described in the Zinc Recovery Project EPC Contract, (3) with
respect to vitiation of any insurance policy of the Zinc Recovery Project EPC
Contract, or (4) with respect to Kvaerner's obligations to reinstate the
project or pay the recalculated performance liquidated damages as described
above if the Zinc Recovery Project does not perform during re-testing at a
level greater than or equal to the project's performance achieved during the
initial performance tests. Kvaerner's aggregate liability to Minerals LLC for
liquidated damages (both delay and performance based) under the Zinc Recovery
Project EPC Contract is limited to 20% of the Zinc EPC Price.
TECHNOLOGY TRANSFER AGREEMENTS
CE Turbo Project. Turbo LLC entered into a 33-year technology transfer
agreement dated as of October 13, 1998 with Magma. The terms of the CE Turbo
Project technology transfer agreement are substantially similar to those of
the Salton Sea Units I-III technology transfer agreement. See "--Salton Sea
Guarantor Project Contracts--Technology Transfer Agreements--Salton Sea Units
I-III."
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Zinc Recovery Project. Minerals LLC entered into two 33-year technology
transfer agreements, each dated as of October 13, 1998, with each of Magma
and MidAmerican. The terms of the Zinc Recovery Project technology transfer
agreements are substantially similar to those of the Salton Sea Units I-III
technology transfer agreement. See "--Salton Sea Guarantor Project
Contracts--Technology Transfer Agreements--Salton Sea Units I-III."
OTHER AGREEMENTS
MAGMA SERVICES AGREEMENT
Pursuant to the Magma Services Agreement, Magma has agreed to pay CEOC all
Equity Cash Flows and certain Royalties payable by Elmore, Leathers and Del
Ranch in exchange for CEOC providing data and services to Magma. As security
for the obligations of Magma under the Magma Services Agreement, Magma has
collaterally assigned to CEOC its rights to the Equity Cash Flows and
Royalties. All of these Equity Cash Flows and Royalties are payable from
revenues that will constitute Partnership Collateral. See "Offering Circular
Summary--Structure of and Collateral for the Securities."
ZINC EXTRACTION SERVICES AGREEMENT
Minerals LLC, as owner, and SSBP, Elmore, VPC, Vulcan, Leathers, Power LLC
and Del Ranch (collectively, the "Operators") have entered into a zinc
extraction services agreement, dated as of February 1, 1999, whereby the
Operators agree to provide certain services for a fee and/or the right to
receive a pH modification agent produced as a by-product of the Zinc Recovery
Project.
Term. The term of the zinc extraction services agreement is for 33 years.
Obligations. Each of the Operators will perform certain services for
Minerals LLC, including:
(1) taking all reasonable actions necessary for the extraction of zinc
from Salton Sea Known Geothermal Resource Area geothermal brine,
including delivery of brine to Minerals LLC;
(2) supplying electrical energy required to operate the IX facilities;
(3) accepting delivery of a pH modification agent from Minerals LLC;
and/or
(4) any other services as may be agreed upon from time to time.
In consideration for the foregoing services, Minerals LLC will pay each of
SSBP, Elmore, VPC, Vulcan, Leathers and Del Ranch a fixed annual payment and
will bear the costs of producing and transporting the pH modification agent
so that it is available to the Operators. The parties' obligations under the
zinc extraction services agreement are subject to the requirement that the
Zinc Recovery Project is ready to commence initial operation and the
Operators are ready to commence delivery of brine and to supply electrical
energy to the IX facilities.
Indemnification/Arbitration. Each party to the zinc extraction services
agreement has agreed to indemnify each other party against any and all
liabilities arising out of the course of performance of the agreement. All
disputes arising under the zinc extraction services agreement will be settled
by arbitration.
Force Majeure. Neither Minerals LLC nor any of the Operators will be
liable for any failure or inability to perform (other than to make payments
due) under the zinc extraction services agreement due to the occurrence of an
event of force majeure. Events of force majeure are defined in the zinc
extraction services agreement in a manner usual and customary for agreements
of this type.
ROYALTY GUARANTOR PROJECT CONTRACTS
MAGMA ASSIGNMENT AGREEMENT
Magma receives Royalties from the Elmore Project, the Leathers Project and
the Del Ranch Project in exchange for leasing or subleasing a portion of
Magma's land and/or geothermal resources to Elmore, Leathers and Del Ranch
for power production purposes.
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In connection with the offering of the Initial Securities, Magma assigned
these Royalties to the Royalty Guarantor pursuant to the Magma Assignment
Agreement. However, payment of these Royalties will be made from revenues
that constitute Partnership Collateral. See "Offering Circular
Summary--Structure of and Collateral for the Securities."
Royalties received from the Elmore Project, Leathers Project and the Del
Ranch Project are payable pursuant to the Elmore easement, the Leathers
easement and the Del Ranch easement, respectively. See
"--Partnership Guarantor Project Contracts--Easements."
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SUMMARY DESCRIPTION OF THE SERIES F SECURITIES
GENERAL
The New Securities will be, and the Old Securities, the Supplemental
Securities and the Initial Securities have been, issued under the Indenture.
The following is a description of certain provisions of the Series F
Securities and, to the extent indicated, the Supplemental Securities and the
Initial Securities, and does not purport to be complete and is subject to,
and qualified in its entirety by, reference to the Series F Securities, the
Supplemental Securities, the Initial Securities and the Indenture. Unless
otherwise specified, the description applies to all of the Securities. A copy
of the Indenture has been filed with the Commission as part of our
Registration Statement. See "Where You Can Find More Information" for
information on how to obtain a copy.
The Old Securities have been, and the New Securities will be, offered in a
single series as set forth below. The Old Securities (other than Old
Securities issued to Accredited Investors) were issued in book-entry form and
in denominations of $100,000 and any integral multiple of $1,000 in excess
thereof.
The Indenture provides for the issuance of other series of senior secured
bonds or notes as from time to time may be authorized by the Funding
Corporation, subject to the limitations in the Indenture. See "Summary
Description of Principal Financing Documents--Indenture--Additional
Securities" and "--Amendments and Supplements."
The Securities are direct obligations of the Funding Corporation, secured
by the Funding Corporation Collateral and guaranteed by the Guarantors
pursuant to the Guarantees. The obligations of the Guarantors under the
Guarantees are secured by the Collateral.
PRINCIPAL AMOUNT, INTEREST RATE, FINAL MATURITY AND PAYMENT
The Old Securities have been, and the New Securities will be, issued in a
single series in the aggregate principal amount of $285,000,000, will bear
interest from their date of issuance at 7.475% per annum and will mature on
November 30, 2018.
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PAYMENT OF PRINCIPAL AND INTEREST
The principal of the Series F Securities is payable in semiannual
installments, commencing May 30, 2001, as follows:
<TABLE>
<CAPTION>
PRINCIPAL
PERCENTAGE OF AMOUNT
PRINCIPAL AMOUNT PAYABLE
PAYMENT DATE PAYABLE (IN $'000)
- ----------------- ---------------- -----------
<S> <C> <C>
November 30, 1998 0.000% $ --
May 30, 1999 0.000% $ --
November 30, 1999 0.000% $ --
May 30, 2000 0.000% $ --
November 30, 2000 0.000% $ --
May 30, 2001 0.225% $ 641
November 30, 2001 0.225% $ 641
May 30, 2002 0.750% $ 2,137
November 30, 2002 0.750% $ 2,137
May 30, 2003 0.500% $ 1,425
November 30, 2003 0.500% $ 1,425
May 30, 2004 0.625% $ 1,781
November 30, 2004 0.625% $ 1,781
May 30, 2005 0.625% $ 1,781
November 30, 2005 0.625% $ 1,781
May 30, 2006 0.650% $ 1,853
November 30, 2006 0.650% $ 1,853
May 30, 2007 0.375% $ 1,070
November 30, 2007 0.375% $ 1,070
May 30, 2008 0.875% $ 2,495
November 30, 2008 0.875% $ 2,495
May 30, 2009 0.375% $ 1,069
November 30, 2009 0.375% $ 1,069
May 30, 2010 1.250% $ 3,562
November 30, 2010 1.250% $ 3,562
May 30, 2011 3.000% $ 8,550
November 30, 2011 3.000% $ 8,550
May 30, 2012 5.750% $16,387
November 30, 2012 5.750% $16,387
May 30, 2013 5.075% $14,464
November 30, 2013 5.075% $14,464
May 30, 2014 6.000% $17,100
November 30, 2014 6.000% $17,100
May 30, 2015 6.550% $18,667
November 30, 2015 6.550% $18,667
May 30, 2016 7.050% $20,092
November 30, 2016 7.050% $20,092
May 30, 2017 6.875% $19,594
November 30, 2017 6.875% $19,594
May 30, 2018 3.450% $ 9,832
November 30, 2018 3.450% $ 9,832
</TABLE>
Interest on the Series F Securities is payable semiannually on each May 30
and November 30, commencing November 30, 1998, to the registered owners
thereof at the close of business on the May 15 and November 15, as the case
may be, preceding the Interest Payment Date. Interest is calculated on the
basis of a 360-day year, consisting of twelve 30-day months.
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OPTIONAL REDEMPTION
The Series F Securities are subject to optional redemption in whole or in
part on a pro rata basis, prior to maturity, at the option of the Funding
Corporation, at par plus accrued interest to the Redemption Date plus a
premium calculated to "make-whole" to comparable U.S. Treasury securities
plus 50 basis points.
MANDATORY REDEMPTION
The Securities (including the Series F Securities) are subject to
mandatory redemption, in whole or in part, ratably among each series at a
redemption price equal to the principal amount thereof plus accrued interest
to the Redemption Date, in the following circumstances:
(a) upon the receipt of Loss Proceeds or Eminent Domain Proceeds by the
Salton Sea Guarantors or the Partnership Project Companies if the Salton
Sea Guarantors or the Partnership Project Companies, as applicable,
determine that (1) the affected Salton Sea Project or Partnership Project
cannot be rebuilt, repaired or restored to permit operations on a
commercially reasonable basis, or the Salton Sea Guarantors or the
Partnership Project Companies, as the case may be, determine not to
rebuild, repair or restore the affected Project, and the Loss Proceeds or
Eminent Domain Proceeds exceed $15 million, in which case the amount of
such Loss Proceeds or Eminent Domain Proceeds will be available for such
redemption, or (2) only a portion of the affected Salton Sea Project or
Partnership Project is capable of being rebuilt, repaired or restored and
the amount of Loss Proceeds or Eminent Domain Proceeds exceed the cost of
rebuilding, repair or replacement by more than $15 million, in which case
only the amount of such excess Loss Proceeds or Eminent Domain Proceeds
will be made available for such redemption;
(b) upon the receipt by the Salton Sea Guarantors or the Partnership
Project Companies of proceeds in connection with a Title Event in excess
of $5,000,000, in which case the amount of such Title Event Proceeds will
be made available for such redemption, subject to reduction in the amount
of any costs expended in connection with collecting any Title Event
Proceeds and any additional costs or expenses not to exceed $25,000,000
that the Salton Sea Guarantors or the Partnership Project Companies, as
the case may be, will be subject to as a result of the Title Event;
(c) upon the receipt by the Salton Sea Guarantors or the Partnership
Guarantors of net proceeds realized in connection with a Permitted Power
Contract Buy-Out, in which case the amount of such proceeds will be made
available for such redemption, unless the Rating Agencies confirm that
such Permitted Power Contract Buy-Out will not result in a Rating
Downgrade;
(d) upon the receipt by the Partnership Guarantors of the proceeds of a
borrowing by the Partnership Project Companies which are used to fund an
equity distribution, in which case the amount of such proceeds received by
the Partnership Guarantors will be made available for such redemption
unless the Rating Agencies confirm that such borrowing and distribution
will not result in a Rating Downgrade;
(e) upon the acceleration of a Project Note, in an amount equal to the
principal amount thereof plus accrued interest; and
(f) upon the receipt of proceeds in excess of $5,000,000 arising out of
the foreclosure by the Collateral Agent of Collateral securing the
Guarantors' obligations under the Guarantees upon an event of default
under the Guarantees.
The Series F Securities are subject to mandatory redemption on a pro rata
basis if the Salton Sea Guarantors or the Partnership Guarantors receive net
performance liquidated damages in excess of $6,000,000 million pursuant to
the construction contracts for the New Projects and the damage payments are
not used to pay construction costs in accordance with an Approved Completion
Plan. The amounts available for redemption described in clauses (a) through
(d) above will also be subject to reduction by the amount of certain fees and
expenses, the amount of any Senior Debt owed under the Working Capital
Facility and the pro rata amount of any obligations in favor of the Debt
Service Reserve LOC Provider and in respect of other senior Permitted Debt as
provided in the Intercreditor Agreement.
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The Funding Corporation will be required to redeem the Series F Securities
in an aggregate principal amount of:
(1) $140,520,000, plus all accrued interest, if the Zinc Recovery Project
does not achieve Substantial Completion on or prior to its Guaranteed
Substantial Completion Date (as such date may be modified pursuant to an
Approved Completion Plan, if applicable) or if Minerals LLC abandons the
construction of the Zinc Recovery Project;
(2) $83,272,000, plus all accrued interest, if Salton Sea Unit V does not
achieve Substantial Completion on or prior to its Guaranteed Substantial
Completion Date (as such date may be modified pursuant to an Approved
Completion Plan, if applicable) or if Power LLC abandons the construction
of Salton Sea Unit V; and
(3) $44,581,000, plus all accrued interest, if the Region 2 Construction
does not achieve Substantial Completion on or prior to its Guaranteed
Substantial Completion Date (as such date may be modified pursuant to an
Approved Completion Plan, if applicable) or if Vulcan, Del Ranch and Turbo
LLC abandon the Region 2 Construction;
provided that, in any case, the Funding Corporation will not be required to
redeem the Series F Securities if the Rating Agencies confirm that the
failure to achieve Substantial Completion or the abandonment will not result
in a Rating Downgrade.
BUY-DOWN OR RATINGS AFFIRMATION TO ACHIEVE SUBSTANTIAL COMPLETION
If (1) any New Project does not achieve results which are equal to or
greater than the performance levels necessary to achieve Substantial
Completion and (2) the relevant Guarantor has used reasonable efforts to
cause the New Project to achieve Substantial Completion on or before its
Guaranteed Substantial Completion Date (as such date may be modified pursuant
to an Approved Completion Plan, if applicable), the Funding Corporation may
elect to cause the New Project to achieve Substantial Completion
notwithstanding its failure to test at the required performance levels by (a)
redeeming a principal amount of the outstanding Series F Securities, at par
plus accrued interest, which causes the minimum and average projected Debt
Service Coverage Ratios to equal or exceed 1.4 to 1 and 1.7 to 1,
respectively, or (b) taking other measures as the Rating Agencies may require
to confirm that the failure to achieve Substantial Completion on or before
the Guaranteed Substantial Completion Date will not result in a Rating
Downgrade.
RATINGS
Moody's and S&P have assigned the Series F Securities ratings of "Baa2"
and "BBB-," respectively, subject to final documentation. There is no
assurance that this credit rating will remain in effect for any given period
of time or that the rating will not be lowered, suspended or withdrawn
entirely by the applicable Rating Agency, if, in the Rating Agency's
judgment, circumstances so warrant. Any lowering, suspension or withdrawal of
the rating may have a material adverse effect on the market price or
marketability of the Series F Securities.
NATURE OF RECOURSE ON THE SECURITIES
The Funding Corporation's obligations to make payments of principal of,
premium, if any, and interest on the Securities are obligations solely of the
Funding Corporation secured solely by the Funding Corporation Collateral and
guaranteed by the Guarantors pursuant to the Guarantees. Neither the
shareholders of the Funding Corporation nor any affiliate, incorporator,
officer, director or employee thereof or of the Funding Corporation will
guarantee the payment of the Securities or has any obligation with respect to
the payment of the Securities (other than the Guarantors and with respect to
their obligations under the Transaction Documents to which they are parties).
SUMMARY DESCRIPTION OF PRINCIPAL FINANCING DOCUMENTS
The following summaries of certain provisions of the Depositary Agreement,
the Indenture, the Guarantees, the Credit Agreements and Project Notes, the
Debt Service Reserve LOC Reimbursement
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Agreement, the Security Documents, the Intercreditor Agreement and the Equity
Commitment Agreement (collectively, with the Securities, the Working Capital
Facility and any Interest Rate Protection Agreements, the "Financing
Documents") do not purport to be complete and are subject to, and are
qualified in their entirety by reference to, all of the provisions thereof,
including definitions therein of certain terms. Copies of each of the
Financing Documents have been or will be filed as exhibits to the
registration statement of which this prospectus is a part and may be obtained
from the Commission. See "Where You Can Find More Information" for
information on how to obtain copies. Capitalized terms used herein and not
otherwise defined in this prospectus have the meanings ascribed to them in
the Financing Documents.
DEPOSITARY AGREEMENT
The Collateral Agent, on behalf of the Secured Parties, has, pursuant to
the Depositary Agreement, appointed the Depositary as security agent for the
Secured Parties with respect to funds of the Guarantors in which the
Depositary has been granted a security interest. Pursuant to the terms of the
Depositary Agreement, the Depositary will hold, invest and disburse monies in
which the Depositary and/or the Collateral Agent, on behalf of the Secured
Parties and the Funding Corporation, has been granted a security interest.
Neither the Funding Corporation nor any Guarantor has any right of withdrawal
under any Fund except under circumstances established in the Depositary
Agreement.
THE DEPOSITARY AGREEMENT FUNDS
The following funds (collectively, "Funds") have been established and
created with the Depositary and pledged as security for the benefit of the
Depositary and the Collateral Agent acting on behalf of the Secured Parties
and the Funding Corporation:
o Revenue Fund
o Principal Fund
o Interest Fund
o Debt Service Reserve Fund
o Distribution Fund
o Distribution Suspense Fund
o Redemption Fund
o Loss Proceeds Fund
o Construction Period Debt Service Fund
o Zinc Construction Fund
o Salton Sea Unit V Construction Fund
o Region 2 Construction Fund
o Capital Expenditure Fund
All amounts deposited with the Depositary, at the written request and
direction of the Funding Corporation, will be invested by the Depositary in
Permitted Investments. The Principal Fund, Interest Fund, Distribution Fund
and Distribution Suspense Fund are not required to be separate accounts but
may be maintained as subaccounts of the Revenue Fund. To the extent the Debt
Service Reserve Fund is fully funded or the amounts in such Fund, together
with the Debt Service Reserve Letter of Credit, equal the Debt Service
Reserve Fund Required Balance, interest earned on the amounts in other Funds
will be transferred to the Revenue Fund.
REVENUE FUND; PRIORITY OF PAYMENTS
With the exception of revenues received by each New Project prior to
Substantial Completion of such New Project (which revenues will be deposited
in the construction fund for such New Project), all
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revenues actually received by the Salton Sea Guarantors from the Salton Sea
Projects, all revenues actually received by the Partnership Project Companies
from the Partnership Projects (net of any Royalties paid to the Royalty
Guarantor), all Equity Cash Flows and Royalties of the Partnership Guarantors
other than the Partnership Project Companies, and all Royalties received by
the Royalty Guarantor will be paid into the Revenue Fund maintained by the
Depositary for the account of each of the Guarantors. The Guarantors will
arrange for the direct payment of all such revenues into the Revenue Fund,
and no Guarantor will have any right of withdrawal under the Revenue Fund
except pursuant to the priority of payments set forth below. All Equity Cash
Flows and Royalties of the Partnership Guarantors and Royalties received by
the Royalty Guarantor which are to be paid into the Revenue Fund are made
from revenues that will constitute Partnership Collateral. See "Offering
Circular Summary--Structure of and Collateral for the Securities."
The Revenue Fund is funded:
(1) from all revenues actually received by the Salton Sea Guarantors from
the Salton Sea Projects;
(2) from all revenues actually received by the Partnership Project
Companies from the Partnership Projects;
(3) from all Equity Cash Flows and Royalties received by CEOC and VPC;
(4) to the extent not included in clause (3), all Equity Cash Flows and
Royalties received by CEOC under the Magma Services Agreement and by VPC
from the Vulcan Project;
(5) from all Royalties received by the Royalty Guarantor;
(6) to the extent the Debt Service Reserve Fund is fully funded or the
amounts in such Fund, together with the Debt Service Reserve Letter of
Credit, equal the Debt Service Reserve Fund Required Balance, any income
from the investment of monies in any of the Funds, except income from
investments in each construction fund required to be maintained in such
fund; and
(7) from other Funds as required to be transferred to the Revenue Fund
pursuant to the Depositary Agreement.
Upon receipt of a certificate from the relevant Guarantor (or its duly
authorized agent for such purposes) detailing the amounts to be paid, funds
in the Revenue Fund will be transferred via wire transfer by the Depositary:
First, as and when required, to pay Operating and Maintenance Costs
(including Working Capital Debt and Debt incurred in connection with Interest
Rate Protection Agreements) of all of the Guarantors and the Funding
Corporation, provided that, if the cumulative Operating and Maintenance Costs
of the Guarantors in any fiscal year exceed the projected Operating and
Maintenance Costs in the applicable annual Operating Budget of the Guarantors
by more than 25%, then no amounts may be withdrawn on behalf of the
Guarantors to pay non-budgeted operating costs unless (a) the Guarantors
certify that (1) such additional non-budgeted costs are reasonably designed
to permit the Guarantors to satisfy their obligations in respect of the
Project Notes and maximize their revenue and net income and (2) it is
reasonable to expect that (A) a Debt Service Coverage Ratio of at least 1.4
to 1 will be maintained for the next 12-month period if such period ends
prior to 2000 or (B) a Debt Service Coverage Ratio of at least 1.5 to 1 will
be maintained for the next 12-month period if such period ends after January
1, 2000 or (b) the Independent Engineer certifies that the additional cost is
prudent and reasonable;
Second, on a monthly basis, to the Depositary, the Trustee, the Debt
Service Reserve LOC Provider agent, the Working Capital Facility agent and
the Collateral Agent any amounts then due and payable to each of them as
fees, costs and expenses; provided, however, that if monies in the Revenue
Fund are insufficient on any date to make the payments specified in this
paragraph Second, distribution of monies will be made ratably to the
specified recipients based on the respective amounts owed to such recipients;
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Third, on a monthly basis,
(1) to the Interest Fund an amount which, together with the amount then
in such fund (and after giving effect to the moneys available from the
Construction Period Debt Service Fund to pay such interest), equals all of
the interest due or becoming due on the Securities and (without
duplication) the Project Notes on the next succeeding Interest Payment
Date;
(2) to the Principal Fund an amount which, together with the amount then
in such fund, equals all of the principal and, premium (if any) due or
becoming due on the Securities and (without duplication) the Project Notes
on the next succeeding Principal Payment Date;
(3) to the Debt Service Reserve LOC Provider an amount which equals all
of the commitment, letter of credit and fronting fees becoming due and
payable under the Debt Service Reserve LOC Reimbursement Agreement on the
next succeeding Payment Date;
(4) to a Debt Service Reserve sub-fund an amount which, together with the
amounts then in such sub-fund, equals all of the interest due or becoming
due on any Debt Service Reserve LOC Loans on the next succeeding Interest
Payment Date; and
(5) to a Debt Service Reserve sub-fund an amount which, together with the
amounts then in such sub-fund, equals all of the principal, premium (if
any) and interest due or becoming due under any Debt Service Reserve Bond
on the next succeeding Principal Payment Date;
provided, however, that if monies in the Revenue Fund are insufficient on any
date to make the payments specified in this paragraph Third, distribution of
monies will be made ratably to the specified recipients based on the
respective amounts owed to such recipients;
Fourth, on a monthly basis,
(1) to a Debt Service Reserve sub-fund an amount which, together with the
amount then in such sub-fund, equals all of the principal and certain fees
and charges related to tax gross-ups, capital adequacy costs and certain
breakage costs, in each case due or becoming due on the next Principal
Payment Date on any Debt Service Reserve LOC Loans, and
(2) if no Debt Service Reserve Letter of Credit is in place, to the Debt
Service Reserve Fund an amount as necessary to fund the Debt Service
Reserve Fund up to the Debt Service Reserve Fund Required Balance; and
Fifth, as and when required, (1) to the Debt Service Reserve LOC Provider,
or any other financial institution providing a Debt Service Reserve LOC Loan,
certain other breakage costs which are due and payable in connection with
Debt Service Reserve LOC Loans and (2) any indemnification expenses or other
amounts not otherwise paid and required to be paid to any of the Secured
Parties;
Sixth, on a monthly basis, any remaining amounts to the Distribution Fund;
and
Seventh, any amounts in the Distribution Fund which cannot be distributed
because of the failure to satisfy the distribution conditions, to the
Distribution Suspense Fund.
However, if the Securities are accelerated and no foreclosure occurs
within 180 days after the acceleration, then principal of the Debt Service
Reserve LOC Loans will be paid equally and ratably in priority Third in lieu
of priority Fourth above until such time as the foreclosure has occurred or
the acceleration has been rescinded or otherwise remedied.
Notwithstanding the foregoing provisions of priority Fourth above, if the
Debt Service Reserve Letter of Credit has not been renewed or reinstated by a
date 3.5 years prior to its stated expiration date, monies withdrawn and
transferred as specified in priority Fourth above for application in priority
Fourth will, during such 3.5 year period and until either (1) the outstanding
amount of the Debt Service Reserve Letter of Credit is reduced to zero and no
Debt Service Reserve LOC Loans are outstanding or (2) a replacement Debt
Service Reserve Letter of Credit issued by a Debt Service Reserve LOC
Provider is provided to the Trustee, be distributed ratably as follows: (a)
to the Debt Service Reserve LOC Loan
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principal sub-fund for application against the principal on any Debt Service
Reserve LOC Loans due or becoming due on the next succeeding Principal
Payment Date, and (b) to the Debt Service Reserve Fund until the amount
deposited therein equals the Debt Service Reserve Fund Required Balance.
PRINCIPAL FUND AND INTEREST FUND
Funds in the Interest Fund and the Principal Fund are utilized to make
interest and principal payments on the Project Notes and the Securities.
DEBT SERVICE RESERVE FUND
A Debt Service Reserve Fund for the benefit of the Security Holders has
been established under the Depositary Agreement and was funded on the closing
date for the Old Securities with a letter of credit (the "Debt Service
Reserve Letter of Credit") in an amount of approximately $68,297,134 issued
by Credit Suisse First Boston, New York Branch. The Debt Service Reserve
Letter of Credit was issued pursuant to a Debt Service Reserve LOC
Reimbursement Agreement which has terms substantially as described below. See
"--Debt Service Reserve LOC Reimbursement Agreement."
The Debt Service Reserve Fund may accumulate cash deposits from:
(1) the Revenue Fund, as provided above in priority Fourth under "Revenue
Fund; Priority of Payments"; and
(2) net interest earned on amounts deposited in the Debt Service Reserve
Fund.
The sum of amounts available to be drawn under the Debt Service Reserve
Letter of Credit and all cash and other Permitted Investments held in the
Debt Service Reserve Fund will, from time to time, be equal to (1) at any
given time on or prior to December 31, 1999, an amount equal to the maximum
semiannual scheduled payment of principal, premium (if any) and interest due
on the outstanding Securities; (2) at any given time subsequent to December
31, 1999 through payment in full of the Initial Securities and the
Supplemental Securities, an amount equal to the maximum annual scheduled
payment of principal, premium (if any) and interest due on the outstanding
Securities; and (3) after payment in full of the Initial Securities and the
Supplemental Securities, (a) the maximum annual scheduled payment of
principal, premium (if any) and interest due on the outstanding Series F
Securities or (b) if the Rating Agencies confirm that no Rating Downgrade
will occur as a result thereof, the maximum semiannual scheduled payment of
principal, premium (if any) and interest due on the outstanding Series F
Securities, in each case as set forth in the Depositary Agreement (the "Debt
Service Reserve Fund Required Balance"). Cash deposits in the Debt Service
Reserve Fund, in conjunction with the Debt Service Reserve Letter of Credit,
will be available in the event the Revenue Fund, the Principal Fund and the
Interest Fund lack sufficient funds on a Payment Date to meet principal and
interest payments on the Securities and interest payments on Debt Service
Reserve LOC Loans. Once the Debt Service Reserve Fund Required Balance is
reached, interest income in excess of the required balance will be
transferred to the Revenue Fund.
DISTRIBUTION FUND
The Distribution Fund is funded from monies transferred from the Revenue
Fund, as specified in the Depositary Agreement, after all other then required
amounts have been paid as provided above under "--Revenue Fund; Priority of
Payments." Distributions may be made only from and to the extent of monies on
deposit in the Distribution Fund. Distributions are subject to the prior
satisfaction of the following conditions:
(1) the amounts contained in the Principal Fund and the Interest Fund are
equal to or greater than the aggregate principal payments and interest
payments, respectively, next due on the Securities and (without
duplication) the Project Notes;
(2) no Default or Event of Default has occurred and is continuing;
(3) the Debt Service Coverage Ratio for the preceding four fiscal
quarters, taken as one accounting period (with respect to any proposed
distribution date prior to the first anniversary of the
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closing date for the Series F Securities, for the period commencing with
the closing date and ending on the first anniversary of the closing date,
projected results for any portion of such period (certified by an officer
of the Funding Corporation) will be used when actual results are not
available), is equal to or greater than 1.4 to 1, if such distribution
date occurs prior to the year 2000, and is equal to or greater than 1.5 to
1, if such distribution date occurs in or subsequent to the year 2000, in
each case as certified by an authorized officer of the Funding
Corporation;
(4) the projected Debt Service Coverage Ratio for the succeeding four
fiscal quarters, taken as one accounting period, is equal to or greater
than 1.4 to 1, if such distribution date occurs prior to the year 2000,
and is equal to or greater than 1.5 to 1, if such distribution date occurs
in or subsequent to the year 2000, in each case as certified by an
authorized officer of the Funding Corporation;
(5) the Debt Service Reserve Fund has a balance equal to or greater than
the Debt Service Reserve Fund Required Balance or one or more Debt Service
Reserve Letters of Credit at least equal to (collectively with the
balance, if any, then in such Debt Service Reserve Fund) the Debt Service
Reserve Fund Required Balance is outstanding;
(6) an authorized officer of the Funding Corporation provides a
certificate (based on customary assumptions) stating that there are
sufficient geothermal resources to operate the Power Projects at contract
capacity, and to operate the Zinc Recovery Project at a level not
materially lower than the level contemplated in the Base Case Projections
(as adjusted upon achievement of Substantial Completion, if applicable),
in each case through the final maturity date of the Securities; and
(7) Substantial Completion of each New Project has occurred on or prior
to the New Project's Guaranteed Substantial Completion Date unless (a) for
any New Project not reaching Substantial Completion by such date, the
required amount of Series F Securities has been redeemed as a result of
the New Project not reaching Substantial Completion or (b) the Rating
Agencies have confirmed that no Rating Downgrade will occur
notwithstanding the failure of the New Project to reach Substantial
Completion on or prior to its Guaranteed Substantial Completion Date. The
foregoing condition is applicable with respect to a New Project only (x)
after the New Project's Guaranteed Substantial Completion Date or (y) if
the construction of the New Project has been abandoned, in each case
unless and until the New Project has achieved Substantial Completion.
Monies which are not able to be distributed from the Distribution Fund
because of a failure to satisfy the conditions will be transferred to the
Distribution Suspense Fund. However, monies which are not able to be
distributed from the Distribution Fund because of a failure to satisfy the
condition described in clause (7) above may at the election of the Funding
Corporation be transferred to the Zinc Construction Fund, the Salton Sea Unit
V Construction Fund or the Region 2 Construction Fund, as applicable, up to
an amount necessary to complete the applicable New Project.
DISTRIBUTION SUSPENSE FUND
Funds in the Distribution Fund which may not be distributed because of a
failure to satisfy the distribution conditions will be transferred to the
Distribution Suspense Fund. Funds in the Distribution Suspense Fund may be
transferred back to the Distribution Fund and distributed when (1) all
conditions are satisfied and (2) no Default or Event of Default has occurred
and is continuing. At any time that funds in the Revenue Fund are not
sufficient to pay any amounts which are due and payable and required to be
paid with proceeds of the Revenue Fund, then funds in the Distribution
Suspense Fund will be transferred to the Revenue Fund for distribution as
required.
REDEMPTION FUND
A Redemption Fund has been established under the Depositary Agreement. The
Redemption Fund is funded from:
(1) proceeds received in connection with an Event of Loss, an Event of
Eminent Domain or a Title Event;
(2) proceeds realized in connection with a Permitted Power Contract
Buy-Out;
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(3) performance liquidated damages in excess of $6,000,000 not used to
complete the construction of a New Project in accordance with an Approved
Completion Plan; and
(4) proceeds in excess of $5,000,000 received as a result of foreclosure
by the Collateral Agent of the Collateral securing the obligations of the
Guarantors following a Trigger Event caused by an event of default under
the Guarantees.
All proceeds received in connection with an Event of Loss or a Title Event
will be deposited in the Loss Proceeds Fund and proceeds in excess of
$15,000,000 will be transferred to the Redemption Fund if not used to repair
or replace the affected project or remediate the title deficiency, as
permitted under the Indenture, and will be distributed to the Collateral
Agent for distribution after giving effect to the applicable provisions of
the Indenture, the Intercreditor Agreement and the Depositary Agreement. See
"--Intercreditor Agreement" and "Summary Description of the Series F
Securities--Mandatory Redemption."
LOSS PROCEEDS FUND
All Loss Proceeds and Eminent Domain Proceeds received by the Salton Sea
Guarantors or the Partnership Guarantors will be deposited in the Loss
Proceeds Fund subject to disbursement for repair or replacement of the assets
affected, or otherwise, as follows.
Upon the Depositary's receipt of a proper requisition from the relevant
Salton Sea Guarantor or Partnership Guarantor and approved by the Independent
Engineer, the Depositary will apply the amounts in the Loss Proceeds Fund to
the payment, or reimbursement to the extent the same have been paid or
satisfied by such Salton Sea Guarantor or Partnership Guarantor, of the costs
of repair or replacement of the relevant Salton Sea Project or Partnership
Project or any part thereof that has been affected due to an Event of Loss or
Event of Eminent Domain; provided, however, that no approval of the
Independent Engineer will be required if less than $30,000,000 in the
aggregate for all plants affected by such occurrence is requested pursuant to
such requisition or requisitions in any fiscal year.
If the Salton Sea Guarantors or the Partnership Guarantors, as applicable,
determine that the affected Salton Sea Project or Partnership Project is not
capable of being rebuilt or replaced to permit operation on a commercially
reasonable basis, or determine not to rebuild, repair or restore the affected
Project (or the Loss Proceeds and Eminent Domain Proceeds, together with any
other amounts available to such Guarantors for such rebuilding or
replacement, are not sufficient to permit such rebuilding or replacement),
and the Loss Proceeds and Eminent Domain Proceeds exceed $15,000,000, the
Depositary will transfer the Loss Proceeds and Eminent Domain Proceeds to the
Collateral Agent for distribution to the Redemption Fund in accordance with
the Indenture, the Depositary Agreement and the Intercreditor Agreement. If
only a portion of the affected Project is capable of being rebuilt or
replaced, the Depositary will transfer the Loss Proceeds and Eminent Domain
Proceeds in excess of the cost of repairing or replacing the affected Project
to the Redemption Fund in accordance with the Indenture, the Depositary
Agreement and the Intercreditor Agreement; provided that such Loss Proceeds
and Eminent Domain Proceeds exceed the cost of such repair and replacement by
$15,000,000. If the Salton Sea Guarantors or the Partnership Guarantors, as
applicable, do not rebuild or replace the affected Project and the Loss
Proceeds and Eminent Domain Proceeds are equal to or are less than
$15,000,000 or the excess Loss Proceeds and Eminent Domain Proceeds after
rebuilding and replacement of the affected Project are equal to or are less
than $15,000,000, funds in the Loss Proceeds Fund will be transferred to the
Revenue Fund for distribution to other Funds, as provided below under
"Revenue Fund; Priority of Payments." See "--Intercreditor Agreement" and
"Summary Description of the Series F Securities--Mandatory Redemption."
All Title Event Proceeds received by the Salton Sea Guarantors or the
Partnership Guarantors, as applicable, will be deposited in the Loss Proceeds
Fund subject to disbursement in connection with remedying the Title Event in
an amount not to exceed $25,000,000 and for payment of expenses incurred in
collecting such proceeds. Any Title Event Proceeds not so expended will be
transferred to the
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Redemption Fund, to the extent such proceeds exceed $5,000,000. If such
proceeds are equal to or are less than $5,000,000, then such proceeds will be
transferred to the Revenue Fund and used for payment of interest on the
Securities in amounts equal to the scheduled interest payable on the Series F
Securities.
All net performance liquidated damages received by the Salton Sea
Guarantors or the Partnership Project Companies pursuant to the construction
contracts for the New Projects will be deposited into the Loss Proceeds Fund.
Such damage payments will be available for transfer to the applicable
construction fund to complete the construction of any New Project for which
such damage payments were received in accordance with an Approved Completion
Plan. If an Approved Completion Plan has not been approved within a specified
period of time and the liquidated damages payments received in respect of any
one or more New Projects (1) exceed $6,000,000, such damage payments will be
transferred to the Redemption Fund, or (2) are less than or equal to
$6,000,000, such damage payments will be transferred to the Revenue Fund. See
"--Redemption Fund" and "--Revenue Fund; Priority of Payments."
CONSTRUCTION PERIOD DEBT SERVICE FUND
On the closing date for the Old Securities, the Construction Period Debt
Service Fund was funded with approximately $23,575,000 from the proceeds of
the Old Securities. After all of such proceeds have been utilized, the
Guarantors will deposit up to a maximum of $12,963,000 into the Construction
Period Debt Service Fund from (1) funds available to the Guarantors as
distributions in accordance with the conditions described above under
"--Distribution Fund" or (2) funds available pursuant to the Equity
Commitment Agreement, in each case in installments from time to time to pay
scheduled debt service on the Securities. Amounts on deposit in the
Construction Period Debt Service Fund will be available solely for the
payment of scheduled debt service on the Securities in amounts equal to the
scheduled debt service on the Old Securities.
ZINC CONSTRUCTION FUND
On the closing date for the Old Securities the Zinc Construction Fund was
funded with approximately $126,317,000 from the proceeds of the Old
Securities. After all of such proceeds have been utilized, MidAmerican will
deposit up to a maximum of $54,013,000 into the Zinc Construction Fund
pursuant to the Equity Commitment Agreement in installments from time to time
as necessary to complete the construction of the Zinc Recovery Project. All
revenues received by Minerals LLC from the Zinc Recovery Project prior to its
Substantial Completion will be deposited into the Zinc Construction Fund.
Until completion of the construction of the Zinc Recovery Project, amounts on
deposit in the Zinc Construction Fund will be available solely for the
payment of costs associated with the construction and operation of the Zinc
Recovery Project (collectively, "Zinc Construction Costs"). Withdrawals from
the Zinc Construction Fund will be permitted only upon receipt by the
Depositary of:
(1) a requisition certificate from Minerals LLC which (a) specifies the
Zinc Construction Costs then incurred or reasonably expected to be
incurred within the next 30 days, (b) certifies that no Default or Event
of Default has occurred and is continuing, and (c) confirms that the
activities associated with the construction of the Zinc Recovery Project
are proceeding in accordance with the construction budget and schedule for
the Zinc Recovery Project; and
(2) a certificate from the Independent Engineer (with customary
assumptions and qualifications) including, among other things, (a) a
confirmation that the Independent Engineer concurs with the statements
described in clauses (1)(a) and (1)(c) immediately above, (b) the monies
remaining on deposit after such withdrawal, together with the amounts
allocated to the Zinc Recovery Project under the Equity Commitment
Agreement or otherwise available to the Zinc Recovery Project, are
sufficient for the Zinc Recovery Project to achieve Substantial Completion
on or prior to its Guaranteed Substantial Completion Date and (c)
construction of the Zinc Recovery Project is proceeding in a satisfactory
manner in accordance with the construction contract therefor or pursuant
to an Approved Completion Plan, if applicable.
Upon completion of the construction of the Zinc Recovery Project, all amounts
on deposit in the Zinc Construction Fund will be transferred to the Revenue
Fund, the Salton Sea Unit V Construction Fund and/or the Region 2
Construction Fund, as determined by the Funding Corporation.
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SALTON SEA UNIT V CONSTRUCTION FUND
On the closing date for the Old Securities the Salton Sea Unit V
Construction Fund was funded with approximately $74,854,000 from the proceeds
of the Old Securities. After all of such proceeds have been utilized,
MidAmerican and El Paso Holding will deposit up to a maximum of $32,009,000
into the Salton Sea Unit V Construction Fund pursuant to the Equity
Commitment Agreement in installments from time to time as necessary to
complete the construction of Salton Sea Unit V. All revenues received by
Power LLC from Salton Sea Unit V prior to its Substantial Completion will be
deposited into the Salton Sea Unit V Construction Fund. Until completion of
Salton Sea Unit V, amounts on deposit in the Salton Sea Unit V Construction
Fund will be available solely for the payment of costs associated with the
construction or operation of Salton Sea Unit V (collectively, "Salton Sea
Unit V Construction Costs"). Withdrawals from the Salton Sea Unit V
Construction Fund will be permitted only upon receipt by the Depositary of:
(1) a requisition certificate from Power LLC which, among other things,
(a) specifies the Salton Sea Unit V Construction Costs then incurred or
reasonably expected to be incurred within the next 30 days, (b) certifies
that no Default or Event of Default has occurred and is continuing and (c)
confirms that the activities associated with the construction of Salton
Sea Unit V are proceeding in accordance with the approved construction
budget and schedule for Salton Sea Unit V; and
(2) a certificate from the Independent Engineer (with customary
assumptions and qualifications) including, among other things, (a) a
confirmation that the Independent Engineer concurs with the statements
described in clauses (1)(a) and (1)(c) immediately above, (b) a statement
that the monies remaining on deposit after such withdrawal, together with
the amounts allocated to Salton Sea Unit V under the Equity Commitment
Agreement or otherwise available to Salton Sea Unit V, are sufficient for
Salton Sea Unit V to achieve Substantial Completion on or prior to its
Guaranteed Substantial Completion Date (as such date may be modified
pursuant to an Approved Completion Plan, if applicable), and (c) a
statement that construction of Salton Sea Unit V is proceeding in a
satisfactory manner in accordance with the construction contract therefor
or pursuant to an Approved Completion Plan, if applicable.
Upon completion of the construction of Salton Sea Unit V, all amounts on
deposit in the Salton Sea Unit V Construction Fund will be transferred to the
Revenue Account, the Zinc Construction Fund and/or the Region 2 Construction
Fund, as determined by the Funding Corporation.
REGION 2 CONSTRUCTION FUND
On the closing date for the Old Securities the Region 2 Construction Fund
was funded with approximately $40,076,000 from the proceeds of the Old
Securities. After all of such proceeds have been utilized, MidAmerican and El
Paso Holding will deposit up to a maximum of $17,137,000 into the Region 2
Construction Fund pursuant to the Equity Commitment Agreement in installments
from time to time as necessary to complete the construction of the Region 2
Construction. All revenues received by Turbo LLC prior to Substantial
Completion of the Region 2 Construction will be deposited into the Region 2
Construction Fund. Until completion of the construction of the Turbo Project,
amounts on deposit in the Region 2 Construction Fund will be available solely
for the payment of costs associated with the Region 2 Construction or
operation of the CE Turbo Project (collectively, "Region 2 Construction
Costs"). Withdrawals from the Region 2 Construction Fund will be permitted
only upon receipt by the Depositary of a requisition certificate from Vulcan,
Del Ranch or Turbo LLC which (1) specifies the Region 2 Construction Costs
then incurred or reasonably expected to be incurred within the next 30 days,
(2) certifies that no Default or Event of Default has occurred and is
continuing and (3) confirms that the activities associated with the
construction of the Region 2 Construction are proceeding in accordance with
the approved construction budget and schedule for the Region 2 Construction.
Upon completion of the construction of the Region 2 Construction, all amounts
on deposit in the Region 2 Construction Fund will be transferred to the
Revenue Fund, the Zinc Construction Fund and/or the Salton Sea Unit V
Construction Fund, as determined by the Funding Corporation.
CAPITAL EXPENDITURE FUND
The Capital Expenditure Fund was funded with approximately $14,946,000 of
the net proceeds from the sale of the Old Securities. After all of such
proceeds have been utilized, MidAmerican and El Paso
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Holding will deposit up to a maximum of $6,391,000 into the Capital
Expenditure Fund pursuant to the Equity Commitment Agreement in installments
from time to time as necessary to complete the Additional Capital
Improvements.
Upon the Depositary's receipt of a proper requisition from the relevant
Partnership Guarantor or Salton Sea Guarantor, the Depositary will apply the
amounts in the Capital Expenditure Fund to the payment, or reimbursement to
the extent the same have been paid or satisfied by such Partnership Guarantor
or Salton Sea Guarantor, of costs incurred or reasonably expected to be
incurred during the subsequent 30 days, in connection with the modification,
improvement, reworking, maintenance and replacement from time to time of
wells, pipelines, gathering systems, equipment, facilities and other capital
expenditures in connection with or located at the Partnership Projects or the
Salton Sea Projects (collectively, the "Permitted Capital Expenditures").
Each requisition certificate submitted by such an authorized officer must
include the following:
(1) a statement specifying the costs that have been incurred or that are
reasonably expected to be incurred within the next 30 days;
(2) a confirmation that no Default or Event of Default has occurred and
is continuing; and
(3) a confirmation that the expenditures are Permitted Capital
Expenditures and are in accordance with the then current capital
expenditure budget.
Funds in the Capital Expenditure Fund must be used for Permitted Capital
Expenditures and, until all Securities are paid in full, cannot be
transferred to the Revenue Fund for distribution to other Funds.
INVESTMENT OF MONIES
Amounts deposited in the accounts and funds under the Depositary
Agreement, at the written request and direction of the Funding Corporation or
any Guarantor, will be invested by the Depositary in Permitted Investments.
Such investments will generally mature in such amounts and not later than
such times as may be necessary to provide monies when needed to make payments
from such monies as provided in the Depositary Agreement. Net interest or
gain received from such investments will be applied as provided in the
Depositary Agreement. Absent written instructions from the Funding
Corporation, the Depositary will invest the amounts held in the accounts and
funds under the Depositary Agreement in Permitted Investments described in
clause (1) of such definition. So long as an outstanding balance remains in
any of the accounts and funds under the Depositary Agreement, the Depositary
will provide the Funding Corporation and the Guarantors with monthly
statements showing the amount of all receipts, the net investment income or
gain received and collected, all disbursements and the amount then available
in each account and fund.
INDENTURE
GENERAL
The New Securities and Additional Securities, if any, will be, and the
Initial Securities, the Supplemental Securities and the Old Securities have
been, issued under the Indenture between the Funding Corporation and the
Trustee. The Funding Corporation has issued and will issue the Securities in
its individual capacity as principal and as agent on behalf of the
Guarantors. The Securities have been and will be issued in series pursuant to
one or more supplemental indentures which will set forth the terms of such
series including (1) the title of such series, (2) any limit on the aggregate
principal amount of such series that may be authenticated and delivered under
the Indenture, (3) the dates on which the principal of the Securities of such
series is payable and the amount of principal payable on such dates, (4) the
interest rate on such series and the dates interest will accrue and be
payable, (5) the place where payments under such series will be payable, (6)
the terms of any redemption provisions related to such series and (7) other
terms of such series.
ADDITIONAL SECURITIES
The Indenture provides that Additional Securities may be issued thereunder
subject to the satisfaction of conditions set forth in the Indenture. All
Additional Securities (as well as the Initial
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Securities and Supplemental Securities) will rank pari passu with the Series
F Securities, will be secured by the Funding Corporation Collateral and
guaranteed pursuant to the Guarantees and will have such terms, be in such
form and be issued at such prices as approved in writing by the Funding
Corporation. No Additional Securities (other than those used to finance
capital improvements when required for the Salton Sea Projects, the
Partnership Projects or Additional Projects to maintain compliance with
applicable law) may be issued at any time if a Default or an Event of Default
would result from the issuance of Additional Securities. All net proceeds of
Additional Securities must be loaned to the Guarantors and must be utilized
by the Guarantors for one or more of the purposes for which Permitted Debt
may be incurred.
CERTAIN COVENANTS
Actions with Respect to Credit Agreements. The Funding Corporation will
enforce all of its rights under the Credit Agreements and the Project Notes
for the benefit of the Trustee and the Security Holders. The Funding
Corporation will not grant any consents or waivers under, amend or modify any
provisions of, or otherwise modify, the Credit Agreements or the Project
Notes, except as provided below. See "--Amendment of Credit Agreements and
Project Notes."
Limitations on Debt/Liens. The Funding Corporation will not create or
incur or suffer to exist any Debt except for Permitted Debt. The Funding
Corporation will not grant, create, incur or suffer to exist any Liens upon
any of its properties except for Permitted Liens.
Limitations on Guarantees. The Funding Corporation will not contingently
or otherwise be or become liable in connection with any guarantee, except for
endorsements and similar obligations in the ordinary course of business.
Restricted Payments. The Funding Corporation will not make any Restricted
Payments or direct any Restricted Payments to be made on behalf of any
Guarantor except for payments permitted under the Depositary Agreement.
Prohibitions on Other Obligations or Assignments. The Funding Corporation
may not assign any of its rights or obligations under any Financing Document,
and may not enter into additional contracts if it would be reasonably
expected to cause a Material Adverse Effect and otherwise only as
contemplated by the Indenture.
Prohibitions on Fundamental Changes. The Funding Corporation may not enter
into any transaction of merger or consolidation, change its form of
organization or its business, liquidate, wind-up or dissolve itself or
discontinue its business, except as may be contemplated by the Financing
Documents. The Funding Corporation is also restricted from engaging in any
business other than in connection with the issuance of the Securities, the
incurrence of Permitted Debt and the performance of its obligations under the
Transaction Documents. The Funding Corporation may not lease (as lessor) or
sell, transfer, assign, hypothecate, pledge or otherwise dispose of any of
its property or assets, except as contemplated by the Financing Documents.
ADDITIONAL COVENANTS
In addition to the covenants described above, the Indenture also contains
covenants of the Funding Corporation regarding:
(1) maintenance of existence;
(2) payment of taxes;
(3) maintenance of books and records;
(4) compliance with laws;
(5) delivery to the Trustee and the Rating Agencies of compliance
certificates and of notices of events of default under the Credit
Agreements and Guarantees;
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(6) delivery to the Trustee, the Rating Agencies and any Security Holder
or beneficial owner of a Global Security upon written request of unaudited
quarterly reports of the Funding Corporation and the Guarantors for the
first three quarters of each fiscal year containing condensed financial
information and audited annual reports of the Funding Corporation and the
Guarantors; and
(7) delivery to the Trustee and any Security Holder or beneficial owner
of a Global Security upon written request of all other information
required to be delivered pursuant to Rule 144A(d)(4) under the Securities
Act in order to permit compliance by a Security Holder or beneficial owner
of a Global Security with Rule 144A in connection with the resale of the
Securities.
REDEMPTION OF SECURITIES; NOTICE
Notice to Trustee. The election or requirement of the Funding Corporation
to redeem any Securities will be evidenced by a written request of the
Funding Corporation (a "Funding Order"). If the Funding Corporation
determines or is required to redeem any Securities, the Funding Corporation
will, at least 30 days prior to the date upon which notice of redemption is
required to be given to the Security Holders (or such shorter period as may
be agreed by the Trustee), deliver to the Trustee a Funding Order specifying
the date on which the redemption will occur (the "Redemption Date") and the
series and principal amount of Securities to be redeemed.
Notice of Redemption. Notice of redemption will be given to the holders of
Securities of the series to be redeemed at least 30 days but not more than 60
days prior to the Redemption Date. All notices of redemption will state the
Redemption Date, the premium payable on redemption, if any, the portion of
the principal amount of each Security of the series to be redeemed, that on
the Redemption Date interest on the Securities to be redeemed will cease to
accrue on and after said date, the place of payment where the Securities are
to be surrendered for payment of the redemption amount, and that the
availability in the mandatory redemption fund of an amount of immediately
available funds to pay the Securities to be redeemed in full is a condition
precedent to the redemption.
Securities Payable on Redemption Date. The Securities or portions thereof
to be redeemed will, on the Redemption Date, become due and payable, and from
and after the Redemption Date the Securities to be redeemed or portions
thereof will cease to bear interest. Upon surrender of any Security for
redemption, an amount in respect of such Security or portion thereof will be
paid as provided in the terms of the Security; provided, however, that any
payment of interest on any Security the scheduled payment date of which is on
or prior to the Redemption Date will be payable to the holder of the Security
at the close of business on the record date according to the terms of the
Security and the Indenture.
EVENTS OF DEFAULT
Certain Events. The following events constitute "Events of Default" under
the Indenture:
(a) Failure to pay any principal, interest or other amounts owed on any
Security when the same becomes due and payable, whether by scheduled maturity
or required prepayment or redemption or by acceleration or otherwise, and the
failure continues for 15 days or more following the due date for payment;
(b) An event of default under a Credit Agreement or a Guarantee has
occurred and is continuing (other than an event of default related to a
failure to make payments on a Project Note or a Guarantee);
(c) Any representation or warranty made by the Funding Corporation in the
Indenture or in any other Financing Document or any representation, warranty
or statement in any certificate, financial statement or other document
furnished to the Trustee or any other person by or on behalf of the Funding
Corporation proves to have been untrue or misleading in any material respect
as of the time made, confirmed or furnished and the fact, event or
circumstance that gave rise to such inaccuracy has resulted in, or could
reasonably be expected to result in, a Material Adverse Effect and the fact,
event or circumstance continues uncured for 30 or more days from the date a
responsible officer of the Funding Corporation obtains actual knowledge of
the fact, event or circumstance; provided that if the Funding Corporation
commences and diligently pursues efforts to cure the fact, event or
circumstance within the
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30-day period and delivers written notice to the Trustee of the efforts to
cure, the Funding Corporation may continue to effect the cure, and the
misrepresentation will not be deemed an "Event of Default" for an additional
60 days so long as the Funding Corporation is diligently pursuing such cure;
(d) The Funding Corporation fails to perform or observe any covenant or
agreement contained in the Indenture regarding maintenance of existence or
restrictions on Debt, Liens, Restricted Payments, guarantees, disposition of
assets, amendments to Credit Agreements or Project Notes or taking of actions
thereunder as directed by the Required Security Holders, fundamental changes
or nature of business and the failure continues uncured for 30 or more days
from the date a responsible officer of the Funding Corporation obtains actual
knowledge of the failure;
(e) The Funding Corporation fails to perform or observe any of its
covenants contained in the Indenture (other than those contained in (d)
above) and the failure continues uncured for 60 or more days from the date a
responsible officer of the Funding Corporation obtains actual knowledge of
the failure; provided that if the Funding Corporation commences and
diligently pursues efforts to cure the default within the 60-day period, the
Funding Corporation may continue to effect the cure of the default and the
default will not be deemed an "Event of Default" for an additional 30 days so
long as the Funding Corporation is diligently pursuing the cure;
(f) Certain events involving the bankruptcy, insolvency, receivership or
reorganization of the Funding Corporation;
(g) The Funding Pledge Agreement ceases to be in full force and effect or
there is a Material Adverse Effect on the Lien purported to be granted in the
Funding Pledge Agreement such that it ceases to be a valid and perfected Lien
in favor of the Collateral Agent for the benefit of the Secured Parties on
the Funding Corporation Collateral described in the Funding Pledge Agreement
with the priority purported to be created by the Funding Pledge Agreement;
provided, however, that the Funding Corporation has 10 days to cure any such
cessation, if curable, or to furnish to the Collateral Agent with all
documents or instruments required to cure any such cessation, if curable;
(h) Any event of default under any Permitted Debt of the Funding
Corporation which results in Permitted Debt in excess of $10,000,000 becoming
due and payable prior to its stated maturity;
(i) Magma fails to perform or breaches its obligations under the Support
Letter and the failure or breach continues for 15 days or more;
(j) MidAmerican fails to perform or breaches its obligations under the
Equity Commitment Agreement and the failure or breach continues for 15 days
or more; or
(k) MidAmerican fails to maintain direct or indirect beneficial ownership
of (1) 100% of CEOC and VPC, (2) at least 50% of Minerals LLC, Power LLC and
Turbo LLC or (3) at least 50% of each of the Salton Sea Guarantors and the
Partnership Project Companies other than Minerals LLC, Power LLC and Turbo
LLC.
Control By Security Holders. The holders of not less than a majority (the
"Required Security Holders") in aggregate principal amount of the outstanding
Securities have the right to direct the time, place and method of conducting
any proceeding for any right or remedy available to the Trustee or exercising
any trust or power conferred on the Trustee in the Indenture. The Required
Security Holders, acting through the Trustee, have the right to direct the
time, place and method for exercising any right or remedy available to the
Funding Corporation under the Credit Agreements and the Project Notes;
provided that upon the occurrence of an Event of Default related to failure
to make payments on the Securities, holders of 33 1/3% in aggregate principal
amount of the outstanding Securities have the right to cause the acceleration
of any Project Note pursuant to which a payment default related to the Event
of Default has occurred.
Subject to the immediately preceding paragraph, if an Event of Default has
occurred and is continuing and as a result of, in connection with, or
pursuant to an acceleration of the Securities arising from the Event of
Default, payments on the Securities are not made when due, the Trustee is
required to enforce the Guarantees and the rights of the Security Holders
thereunder.
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Enforcement of Remedies
(a) If one or more Events of Default have occurred and are continuing,
then:
(1) in the case of an Event of Default described in clause (f) above, the
entire principal amount of the Securities outstanding, all accrued and
unpaid interest, and all premium and other amounts payable under the
Securities and the Indenture, if any, will automatically become due and
payable without presentment, demand, protest or notice of any kind; or
(2) in the case of an Event of Default described in clause (b) above
relating to certain events involving the bankruptcy, insolvency,
receivership or reorganization of any of the Guarantors, a principal
amount of the Securities outstanding (on a pro rata basis) which is equal
to the principal amount of the Project Notes automatically accelerated in
connection with such Event of Default under the Credit Agreements, all
accrued and unpaid interest, and all premium and other amounts payable
under the Securities and the Indenture, if any, will automatically become
due and payable without presentment, demand, protest or notice of any
kind; or
(3) in the case of an Event of Default described in:
(A) clause (a) above, upon the direction of the holders of no less
than 33 1/3% in aggregate principal amount of the outstanding
Securities, the Trustee will, by notice to the Funding Corporation,
declare the entire principal amount of the Securities outstanding, all
accrued and unpaid interest, and all premium and other amounts payable
under the Securities and the Indenture, if any, to be due and payable,
(B) clause (b) above (except as described in clause (2) immediately
above), upon the direction of the holders of no less than 50% in
aggregate principal amount of the outstanding Securities, the Trustee
will, by notice to the Funding Corporation, declare a principal amount
of the Securities outstanding which is equal to the principal amount
of the Project Notes related to the Credit Agreement to be accelerated
in connection with the event of default under the Credit Agreement,
all accrued and unpaid interest, and all premium and other amounts
payable under the Securities and the Indenture, if any, to be due and
payable, or
(C) clauses (c), (d), (e), (g), (h), (i), (j) or (k) above, upon the
direction of the holders of no less than 50% in aggregate principal
amount of the outstanding Securities, the Trustee will, by notice to
the Funding Corporation, declare the entire principal amount of the
Securities outstanding, all accrued and unpaid interest, and all
premium and other amounts payable under the Securities and the
Indenture, if any, to be due and payable.
If an Event of Default occurs and is continuing and is known to the
Trustee, the Trustee will mail to each Security Holder notice of the Event of
Default within 30 days after its occurrence. Except in the case of an Event
of Default in the payment of principal of or interest on any Security, the
Trustee may withhold the notice to the Security Holders if the Trustee in
good faith determines that withholding the notice is in the interest of the
Security Holders.
If an Event of Default relating to failure to pay amounts owed on the
Securities has occurred and is continuing, the Trustee may declare the
principal amount of the Securities outstanding, all accrued and unpaid
interest, and all premium and other amounts payable under the Securities and
the Indenture, if any, to be due and payable notwithstanding the absence of
direction from holders of at least 33 1/3% in aggregate principal amount of
the Securities outstanding directing the Trustee to accelerate the maturity
of the Securities unless holders of more than 66 2/3% in aggregate principal
amount of the Securities outstanding direct the Trustee not to accelerate the
maturity of the Securities, if in the good faith exercise of its discretion
the Trustee determines that such action is necessary to protect the interests
of the Security Holders.
If an Event of Default relating to an event of default under a Credit
Agreement or a Guarantee (other than an event of default related to a failure
to make payments under a Project Note or a Guarantee) has occurred and is
continuing, the Trustee may declare the principal amount of the Securities
outstanding referred to in clause (3)(B) immediately above, all accrued and
unpaid interest, and all
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premium and other amounts payable under the Securities and the Indenture, if
any, to be due and payable notwithstanding the absence of direction from
holders of at least 50% in aggregate principal amount of the Securities
outstanding directing the Trustee to accelerate the maturity of such amount
of Securities unless holders of more than 50% in aggregate principal amount
of the Securities outstanding direct the Trustee not to accelerate the
maturity of such Securities, if in the good faith exercise of its discretion
the Trustee determines that such action is necessary to protect the interests
of the Security Holders.
In addition, if one or more of the Events of Default referred to in clause
(3)(C) immediately above has occurred and is continuing, the Trustee may
declare the entire principal amount of the Securities outstanding, all
interest accrued and unpaid thereon, and all premium and other amounts
payable under the Securities and the Indenture, if any, to be due and payable
notwithstanding the absence of direction from the holders of at least 50% in
aggregate principal amount of the Securities outstanding directing the
Trustee to accelerate the maturity of the Securities unless holders of more
than 50% in aggregate principal amount of the Securities outstanding direct
the Trustee not to accelerate the maturity of the Securities if in the good
faith exercise of its discretion the Trustee determines that such action is
necessary to protect the interests of the Security Holders.
(b) At any time after the principal of the Securities has become due and
payable upon a declared acceleration, and before any judgment or decree for
the payment of the money so due, or any portion thereof, has been entered,
the holders of not less than a majority in aggregate principal amount of the
outstanding Securities, by written notice to the Funding Corporation and the
Trustee, may rescind and annul such declaration and its consequences if:
(1) there has been paid to or deposited with the Trustee a sum sufficient
to pay:
(A) all overdue interest on the Securities,
(B) the principal of and premium, if any, on any Securities that have
become due (including overdue principal) other than by the declaration
of acceleration and interest thereon at the respective rates provided
in the Securities for overdue principal,
(C) to the extent that payment of such interest is lawful, interest
upon overdue interest at the respective rates provided in the
Securities for overdue interest, and
(D) all sums paid or advanced by the Trustee and the reasonable
compensation, expenses, disbursements and advances of the Trustee, its
agents and counsel, and
(2) all Events of Default, other than the nonpayment of the principal of
the Securities that has become due solely by the acceleration, have been
cured or waived in accordance with the Indenture.
(c) If an Event of Default relating to failure to pay amounts owed on the
Securities has occurred and is continuing and an acceleration has occurred,
the Trustee may (as the holders of 33 1/3% in aggregate principal amount of
the Securities outstanding request) direct the Collateral Agent to take
possession of all Collateral pledged to secure the Project Notes to be
accelerated in connection with the Event of Default and all Collateral
pledged to secure any Guarantee under which a payment default has occurred in
connection with the failure to pay amounts owed on the Securities and,
pursuant to the Intercreditor Agreement, to sell pursuant to the procedures
contained in the Intercreditor Agreement such Collateral as and to the extent
permitted under the Intercreditor Agreement.
(d) If an Event of Default relating to an event of default under a Credit
Agreement or a Guarantee (other than an event of default related to a failure
to make payments on a Project Note or a Guarantee) has occurred and is
continuing and an acceleration has occurred, the Trustee may (as the holders
of 50% in aggregate principal amount of the Securities outstanding request)
direct the Collateral Agent to take possession of all Collateral pledged to
secure the Project Note or Project Notes to be accelerated in connection with
the Event of Default and all Collateral pledged to secure any Guarantee
pursuant to which the Event of Default has occurred and, pursuant to the
Intercreditor Agreement, to sell pursuant to the procedures contained in the
Intercreditor Agreement such Collateral as and to the extent permitted under
the Intercreditor Agreement.
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(e) If an Event of Default other than those referred to in clauses (c) and
(d) above has occurred and is continuing and an acceleration has occurred,
the Trustee may (as the holders of 50% in aggregate principal amount of the
Securities outstanding request) direct the Collateral Agent to take
possession of all Collateral and Funding Corporation Collateral and, pursuant
to the Intercreditor Agreement, to sell pursuant to the procedures contained
in the Intercreditor Agreement the Collateral and Funding Corporation
Collateral as and to the extent permitted under the Intercreditor Agreement.
(f) If one or more events of default shall have occurred and be continuing
under the Royalty Guarantee or the Partnership Guarantee, the Trustee may (as
the holders of a majority in aggregate principal amount of the Securities
outstanding request) direct the Collateral Agent to take possession of all
Collateral pledged to secure the obligations of the defaulting Guarantor
under the Royalty Guarantee or the Partnership Guarantee in connection with
the Event of Default and, pursuant to the Intercreditor Agreement, to sell
such Collateral as and to the extent permitted under the Intercreditor
Agreement. Pursuant to the Intercreditor Agreement, all monies received by
the Trustee resulting from the sale will be made available for redemption of
Securities.
Application of Monies Collected by Trustee. Any money collected or to be
applied by the Trustee after an Event of Default will be applied to amounts
owed with respect to all Securities on a pro rata basis and, in respect of
Securities of a series, will be applied ratably to the Security Holders in
the following order from time to time, on the date or dates fixed by the
Trustee:
(1) first, to the payment of all amounts due to the Trustee or any
predecessor Trustee under the Indenture;
(2) second,
(A) in case the unpaid principal amount of the outstanding Securities
of such series has not become due, to the payment of any overdue
interest, in the order of the maturity of the payments thereof, with
interest at the rates specified in the respective Securities of such
series in respect of overdue interest,
(B) in case the unpaid principal amount of a portion of the
outstanding Securities of such series has become due, first to the
payment of accrued interest on all outstanding Securities of such
series in the order of the maturity of the payments thereof, with
interest at the respective rates specified in the Securities of such
series for overdue principal, premium, if any, and overdue interest,
and next to the payment of the overdue principal on all Securities of
such series then due, or
(C) in case the unpaid principal amount of all of the outstanding
Securities of such series has become due, first to the payment of the
whole amount then due and unpaid upon the outstanding Securities of
such series for principal, premium, if any, and interest, together
with interest at the respective rates specified in the Securities of
such series for overdue principal, premium, if any, and overdue
interest; and
(3) third, in case the unpaid principal amount of all the outstanding
Securities of such series has become due, and all of the outstanding
principal, premium, if any, interest and other amounts owed in connection
with Securities of such series have been fully paid, any surplus then
remaining will be paid to the Funding Corporation, or to whomsoever may be
lawfully entitled to receive the same, or as a court of competent
jurisdiction may direct.
AMENDMENTS AND SUPPLEMENTS
The Funding Corporation and the Trustee may amend or supplement the
Indenture without the consent of the Security Holders (1) to add additional
covenants of the Funding Corporation, to surrender rights conferred upon the
Funding Corporation, or to confer additional benefits upon the Security
Holders, (2) to increase the assets securing the Funding Corporation's
obligations under the Indenture, (3) to provide for the issuance of
Additional Securities on the conditions described elsewhere in this
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prospectus, (4) for any purpose not inconsistent with the terms of the
Indenture or to cure any ambiguity, defect or inconsistency, or (5) to
reflect any amendments required by a Rating Agency in circumstances where
confirmation of the Ratings is required or permitted under the Indenture.
The Indenture may be otherwise amended or supplemented by the Funding
Corporation and the Trustee with the consent of holders of not less than 51%
in aggregate principal amount of the Securities then outstanding; provided
that no amendment or supplement may, without the consent of all of the
Security Holders, modify: (1) the principal, premium (if any) or interest
payable upon any Securities, (2) the dates on which interest on or principal
of any Securities is paid, (3) the dates of maturity of any Securities, or
(4) the procedures for amendment by a supplemental indenture.
AMENDMENT OF CREDIT AGREEMENTS AND PROJECT NOTES
The Funding Corporation and the Trustee may, without the consent of or
notice to the Security Holders, consent to any amendment or modification of
any Credit Agreement or Project Note (1) as permitted by the provisions of
the Credit Agreement or Project Note or the Indenture, (2) to cure any
ambiguity or formal defect, (3) to add additional rights in favor of the
Funding Corporation, or (4) in connection with any other amendment to the
Credit Agreement or Project Note, including any amendment required by a
Rating Agency in circumstances where confirmation of the Ratings is required
or permitted under the Indenture or the Credit Agreement. Except as described
above, neither the Funding Corporation nor the Trustee shall consent to any
other amendment or modification of a Credit Agreement or Project Note or
grant any waiver or consent thereunder without the consent of the holders of
not less than 51% in aggregate principal amount of the Securities then
outstanding. An amendment to a Credit Agreement or Project Note which changes
the amounts of payments due thereunder, the person to whom such payments are
to be made or the dates on which such payments are to be made cannot be made
without the unanimous consent of the Security Holders.
SATISFACTION AND DISCHARGE OF THE INDENTURE; DEFEASANCE
The Funding Corporation may terminate the Indenture and the Guarantees by
delivering all outstanding Securities to the Trustee for cancellation and by
paying all other sums payable under the Indenture.
Legal and covenant defeasance is permitted upon terms and conditions
customary for transactions of this nature.
TRUSTEE
There must at all times be a Trustee under the Indenture, which must be a
corporation either (a) having a combined capital and surplus of at least $50
million, or (b) having a combined capital and surplus of at least $10,000,000
and being a wholly-owned subsidiary of a corporation having a combined
capital and surplus of at least $50,000,000, in each case subject to
supervision or examination by a Federal or State or District of Columbia
authority and having a corporate trust office in New York, New York and
California, to the extent there is such an institution eligible and willing
to serve. The Funding Corporation agrees to indemnify and hold harmless the
Trustee in connection with the performance of its duties under the Indenture,
except for liability which results from the gross negligence, bad faith or
willful misconduct of the Trustee.
The Trustee may resign at any time by giving written notice thereof to the
Funding Corporation. The Trustee may be removed at any time by act of the
holders of a majority in principal amount of the outstanding Securities,
delivered to the Trustee and to the Funding Corporation. The Funding
Corporation must give notice of each resignation and removal of the Trustee
and each appointment of a successor Trustee to all Security Holders.
INFORMATION AVAILABLE TO SECURITY HOLDERS
Pursuant to the Indenture, the Funding Corporation has agreed to provide
to Security Holders and owners of beneficial interests in Securities in
global form, upon written request, such information as is
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appropriate under Rule 144A(d)(4) under the Securities Act to enable resales
of the Securities to be made pursuant to Rule 144A, including, but not
limited to, the unaudited quarterly and audited annual financial reports of
the Funding Corporation and the Guarantors.
AGENT RELATIONSHIP
Each of the Guarantors has designated the Funding Corporation as its agent
under the Indenture for the sole purpose of (1) issuing the Securities to the
extent of each Guarantor's obligations thereunder and (2) otherwise carrying
out each Guarantor's obligations and duties and exercising each Guarantor's
rights and privileges under the Indenture. Each Guarantor will indemnify
Funding Corporation against all claims arising in connection with the Funding
Corporation's performance of its obligations.
GUARANTEES
Pursuant to the Guarantees issued by the Salton Sea Guarantors, the
Partnership Guarantors and the Royalty Guarantor in favor of the Collateral
Agent for the benefit of the Secured Parties, each of the Guarantors has, on
a joint and several basis, unconditionally and irrevocably guaranteed the
payment of principal of, premium, if any, and interest on the Securities and
the other Senior Debt. The Royalty Guarantor and the Partnership Guarantors
will only be required to make payments under their Guarantees in amounts
which do not exceed their Available Cash Flow. Each Guarantee is a guarantee
of payment and the Trustee and the Collateral Agent are entitled to make
demands for payment under the Guarantees at any time that amounts due and
payable on the Senior Debt have not been paid.
Under the Guarantees, each Guarantor has agreed to be bound by and to
perform all of its covenants contained in the applicable Credit Agreement in
favor of the Trustee and the Collateral Agent from and after the date that
its Project Notes are repaid in full. Failure to perform these covenants will
result in an event of default under the Guarantee after the expiration of any
applicable grace period.
Because the Zinc Recovery Project is not required to maintain Qualifying
Facility status, MidAmerican did not contribute its indirect interests in
such Project to CE Generation. MidAmerican has agreed to guarantee the
payment by the Partnership Guarantors of a specified portion of the scheduled
debt service on the Partnership Project Loans in respect of the Zinc Recovery
Project.
CREDIT AGREEMENTS
GENERAL
Salton Sea Credit Agreement. Pursuant to the Credit Agreement between the
Salton Sea Guarantors and the Funding Corporation, as amended on the closing
date for the Old Securities (the "Salton Sea Credit Agreement"), (1) the
Initial Salton Sea Guarantors issued the Initial Salton Sea Project Note on
the closing date for the Initial Securities, payable to the Funding
Corporation, which note was amended and restated and issued by all of the
Salton Sea Guarantors (including Power LLC) on the closing date for the Old
Securities and (2) the Salton Sea Guarantors issued the Additional Salton Sea
Project Note on the closing date for the Old Securities.
Partnership Credit Agreement. Pursuant to the Credit Agreement between the
Partnership Guarantors and the Funding Corporation, as amended on the closing
date for the Supplemental Securities and on the closing date for the Old
Securities (the "Partnership Credit Agreement"), (1) the Initial Partnership
Guarantors issued the Initial Partnership Project Note on the closing date
for the Initial Securities, payable to the Funding Corporation, which note
was amended and restated and issued by the Initial Partnership Guarantors and
the Supplemental Partnership Guarantors on the closing date for the
Supplemental Securities, and was amended and restated and issued by all of
the Partnership Guarantors (including the Additional Partnership Guarantors)
on the closing date for the Old Securities, (2) the Initial Partnership
Guarantors and the Supplemental Partnership Guarantors issued the
Supplemental Partnership Project Note on the closing date for the
Supplemental Securities, payable to the Funding Corporation, which note was
amended and restated and issued by all of the Partnership Guarantors
(including the Additional Partnership Guarantors) on the closing date for the
Old Securities and (3) the Partnership Guarantors issued the Additional
Partnership Project Note on the closing date for the Old Securities, payable
to the Funding Corporation.
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Royalty Credit Agreement. Pursuant to the Credit Agreement, dated as of
the closing date for the Initial Securities, between the Royalty Guarantor
and the Funding Corporation (the "Royalty Credit Agreement"), the Royalty
Guarantor issued the Royalty Project Note payable to the Funding Corporation.
Payments on the Project Notes in the aggregate are sufficient to enable
the Funding Corporation to pay scheduled principal of, and interest on, the
Securities.
Each of the Guarantors has absolutely and unconditionally agreed to make
payments on its respective Project Notes in scheduled installments and to pay
interest, in arrears, on the unpaid principal amount of each installment. The
Salton Sea Guarantors' obligations to make payments on the Salton Sea Project
Notes, and the Partnership Guarantors' obligations to make payments on the
Partnership Project Notes, are joint and several with respect to each Salton
Sea Guarantor and each Partnership Guarantor, respectively.
OPTIONAL PREPAYMENT
Optional prepayment of the Additional Salton Sea Project Note and the
Additional Partnership Project Note is permitted so long as the proceeds of
the prepayment are utilized by the Funding Corporation to ratably redeem the
Series F Securities or in connection with the defeasance of the Securities.
Optional prepayment of the Supplemental Partnership Project Note is permitted
so long as the proceeds of the prepayment are utilized by the Funding
Corporation to ratably redeem Series E Securities or in connection with the
defeasance of the Securities. Optional prepayment of the Initial Salton Sea
Project Note and the Initial Partnership Project Note is permitted so long as
the proceeds of the prepayment are utilized by the Funding Corporation to
ratably redeem Series B Securities or Series C Securities or in connection
with the defeasance of the Securities. Optional prepayment of the Royalty
Project Note is permitted so long as the proceeds of the prepayment are
utilized by the Funding Corporation to ratably redeem Series B Securities or
in connection with the defeasance of the Securities
MANDATORY PREPAYMENT
The Salton Sea Guarantors and the Partnership Guarantors are required to
prepay their respective Project Notes (1) in connection with the failure of a
New Project to achieve Substantial Completion on or prior to its Guaranteed
Substantial Completion Date and (2) with net proceeds received by such
Guarantors in connection with an Event of Loss, a Title Event, an Event of
Eminent Domain, a Permitted Power Contract Buy-Out, or the payment of
performance liquidated damages under the construction contracts for the New
Projects, as and to the extent the Securities are required to be redeemed in
connection with the receipt of such proceeds in an amount as provided in the
Intercreditor Agreement. Additionally, the Partnership Guarantors are
required to prepay the Partnership Project Notes with proceeds received in
connection with the incurrence of Debt by the Partnership Project Companies
in order to fund equity distributions to the Partnership Guarantors. The
Royalty Project Note is not subject to mandatory prepayment except in
connection with an acceleration of the maturity of the note. See
"--Depositary Agreement," "--Intercreditor Agreement" and "Summary
Description of the Series F Securities--Mandatory Redemption."
COVENANTS
Set forth below are some of the covenants of the Guarantors contained in
their Credit Agreements.
Reporting Requirements. The Salton Sea Guarantors, the Partnership
Guarantors and the Royalty Guarantor will provide to the Funding Corporation
(1) unaudited quarterly reports for the first three quarters of each fiscal
year containing condensed financial information and audited annual reports,
(2) all other information in respect of their Projects requested by the
Funding Corporation to enable the Funding Corporation to meet its obligations
under the Indenture and (3) written notice of any default or event of default
under their Credit Agreements or any event or condition that could reasonably
be expected to result in a Material Adverse Effect. The Salton Sea Guarantors
and the Partnership Guarantors will also provide to the Funding Corporation
copies of material notices delivered in connection with any of their Project
Documents.
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Sale of Assets. With respect to the Salton Sea Guarantors and the
Partnership Guarantors, except as contemplated by the applicable Project
Documents none of the Salton Sea Guarantors or the Partnership Guarantors
will sell, lease (as lessor) or transfer (as transferor) any property or
assets material to the operation of their Projects, except in the ordinary
course of business to the extent that such property is no longer useful or
necessary in connection with the operation of the Projects; provided,
however, that the Salton Sea Guarantors will be allowed to loan useful spare
parts to the Partnership Project Companies for use in the Partnership
Projects, and the Partnership Project Companies will be allowed to loan
useful spare parts to the Salton Sea Guarantors for use in the Salton Sea
Projects.
Sale of Partnership Interests. Neither of the Initial Partnership
Guarantors will sell, transfer or convey any of their partnership interests
in the Partnership Project Companies.
Insurance. The Salton Sea Guarantors have the benefit of the insurance in
effect for the Salton Sea Projects and as is generally carried by companies
engaged in similar businesses and owning similar properties in the same
general areas and financed in a similar manner, and the Partnership Project
Companies must maintain or cause to be maintained such insurance. The Salton
Sea Guarantors and the Partnership Project Companies maintain business
interruption insurance, casualty insurance, including flood and earthquake
coverage, and primary and excess liability insurance, as well as customary
worker's compensation and automobile insurance. The Salton Sea Guarantors and
the Partnership Project Companies will not reduce or cancel insurance
coverages (or permit any of these coverages to be reduced or canceled) if the
Insurance Consultant determines that such reduction or cancellation would not
be reasonable under the circumstances and the insurance coverages sought to
be reduced or canceled are available on commercially reasonable terms or that
another level of coverage greater than that proposed by such Guarantors is
available on commercially reasonable terms (in which case the coverage may be
reduced to the higher of the available levels).
QF Status. The Salton Sea Guarantors and the Partnership Project Companies
will operate and maintain their Projects (other than the New Projects) as
Qualifying Facilities, unless the failure to operate and maintain these
Projects as Qualifying Facilities would not cause or result in (1) a breach
of the Guarantors' power purchase agreements or (2) an adverse effect on the
revenues to be received under the Guarantors' power purchase agreements. The
Salton Sea Guarantors and the Partnership Guarantors will operate and
maintain Salton Sea Unit V and the CE Turbo Project as Qualifying Facilities
or as eligible facilities owned by Exempt Wholesale Generators unless the
failure to so maintain or operate these Projects could not reasonably be
expected to have a Material Adverse Effect.
Governmental Approvals; Title. Each of the Guarantors will at all times
(1) obtain and maintain in full force and effect all material governmental
approvals and other consents and approvals required at any time in connection
with its business and (2) preserve and maintain good and valid title to its
properties and assets (subject to no Liens other than Permitted Liens),
except in each case where the failure to do so could not reasonably be
expected to have a Material Adverse Effect.
Nature of Business. None of the Partnership Guarantors will engage in any
business other than their existing businesses and the development,
acquisition, construction, operation and financing of the Partnership
Projects as contemplated by the applicable Transaction Documents; provided,
however, that (a) the Partnership Guarantors may engage in Permitted
Facilities at the Salton Sea Known Geothermal Resource Area (A) (1) for which
Permitted Debt may be incurred and (2) if the Independent Engineer certifies
that the new projects could not reasonably be expected to have an adverse
impact on the geothermal resources for the Salton Sea Projects or the
Partnership Projects or (B) if the Funding Corporation and the Guarantors
take such action as the Rating Agencies require to confirm the Investment
Grade Rating of the Securities, and (b) CEOC may enter into agreements to
provide operating and maintenance services, administrative services,
technical services or related services for Permitted Facilities owned in
whole or in part by the MidAmerican (directly or indirectly) and located in
Imperial County, California. None of the Salton Sea Guarantors will engage in
any business other than their existing businesses and the development,
acquisition, construction, operation and financing of the Salton Sea Projects
as contemplated by the Transaction Documents; provided, however, that the
Salton Sea Guarantors may engage in Permitted Facilities at the Salton Sea
Known Geothermal Resource Area
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(1) for which Permitted Debt may be incurred or (2) if the Independent
Engineer certifies that the new projects could not reasonably be expected to
have an adverse impact on the geothermal resources for the Salton Sea
Projects or the Partnership Projects or (3) if Funding Corporation and the
Guarantors take such action as the Rating Agencies require to confirm the
Investment Grade Rating of the Securities.
Compliance with Laws. Each of the Guarantors will comply with all
applicable laws, except where non-compliance could not reasonably be expected
to have a Material Adverse Effect.
Prohibition on Fundamental Changes. None of the Guarantors will enter into
any transaction of merger or consolidation, change its form of organization
or its business, liquidate or dissolve itself (or suffer any liquidation or
dissolution); provided that any Guarantor will be able to merge with or into
any other Guarantor so long as no Default or Event of Default exists or will
occur as a result thereof and subject to the satisfaction of other customary
conditions. None of the Salton Sea Guarantors or the Partnership Guarantors
will purchase or otherwise acquire all or substantially all of the assets of
any other person; provided, however, that under specified circumstances the
Salton Sea Guarantors or the Partnership Guarantors may engage in Permitted
Facilities at the Salton Sea Known Geothermal Resource Area (1) for which
Permitted Debt may be incurred or (2) if the Independent Engineer certifies
that the new projects could not reasonably be expected to have an adverse
impact on the geothermal resource for the Salton Sea Projects or the
Partnership Projects or (3) if the Funding Corporation and the Guarantors
take such action as the Rating Agencies require to confirm the Investment
Grade Rating of the Securities, and further provided that any of the
Partnership Guarantors may purchase or acquire the partnership interests or
assets of the Partnership Projects not currently owned by such Partnership
Guarantors.
Revenue Fund. The Guarantors will take all actions as may be necessary to
cause all of their revenues to be deposited in the Revenue Fund or the
applicable construction fund, in each case in accordance with the terms of
the Depositary Agreement.
Transactions with Affiliates. No Guarantor will enter into any transaction
or agreement with any of its affiliates other than (1) as contemplated by the
Transaction Documents or (2) transactions in the ordinary course of business
and on terms no less favorable to the Guarantor than the Guarantor would
obtain in an arms-length transaction with a person that is not an affiliate
of the Guarantor.
Restricted Payments. No Guarantor will make any Restricted Payments,
except as permitted under the Depositary Agreement.
Exercise of Rights. None of the Salton Sea Guarantors or the Partnership
Guarantors will exercise, or fail to exercise, their rights under the Salton
Sea Project Documents or the Partnership Project Documents, respectively, in
a manner which could reasonably be expected to result in a Material Adverse
Effect.
Amendments to Contracts. None of the Salton Sea Guarantors will terminate,
amend, replace or modify (other than immaterial amendments or modifications
as certified by the Salton Sea Guarantors) any of the Salton Sea Project
Documents unless (1) (A) the Salton Sea Guarantor certifies that the
termination, amendment, replacement or modification could not reasonably be
expected to have a Material Adverse Effect and (B) in the case of any
amendment, termination or modification of a Salton Sea Project power purchase
agreement which affects the revenues derived by any of the Salton Sea
Guarantors, the Independent Engineer certifies that the amendment,
termination or modification could not reasonably be expected to have a
Material Adverse Effect, (2) the Salton Sea Guarantors provide a letter from
the Rating Agencies confirming that the amendment, termination or
modification will not result in a Rating Downgrade or (3) the amendment,
termination or modification is required under applicable law or to maintain
the QF status of a Project.
Neither of the Initial Partnership Guarantors will terminate, amend,
replace or modify (other than immaterial amendments or modifications as
certified by the Partnership Guarantors) any of the Partnership Project
Documents unless the termination, amendment, replacement or modification (1)
could not reasonably be expected to have a Material Adverse Effect or (2) is
required under applicable law. In addition, none of the Partnership
Guarantors will terminate, amend, replace or modify (other than
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immaterial amendments or modifications as certified by the Partnership
Guarantors) any of the Partnership Project Documents unless (1)(A) the
Partnership Guarantor certifies that the termination, amendment, replacement
or modification could not reasonably be expected to have a Material Adverse
Effect and (B) in the case of any amendment, termination or modification of a
Partnership Project power purchase agreement which affects the revenues
derived by any of the Partnership Guarantors, the Independent Engineer
certifies that the amendment, termination or modification could not
reasonably be expected to have a Material Adverse Effect, (2) the Partnership
Guarantors provide a letter from the Rating Agencies confirming that the
amendment, termination or modification will not result in a Rating Downgrade,
or (3) the amendment, termination or modification is required under
applicable law or to maintain the QF status of a Project.
The Royalty Guarantor will not terminate, amend, replace or modify (other
than immaterial amendments or modifications as certified by the Royalty
Guarantor) any of the Royalty Project Documents unless (1) the Royalty
Guarantor certifies that the termination, amendment, replacement or
modification could not reasonably be expected to have a Material Adverse
Effect or (2) the Royalty Guarantor provides a letter from the Rating
Agencies confirming that the amendment, termination or modification will not
result in a Rating Downgrade. Notwithstanding the foregoing, in the case of
any amendment, termination or modification of the Magma Assignment Agreement
which affects the revenues derived by the Royalty Guarantor, no amendment,
termination or modification will be permitted if the amendment, termination
or modification could reasonably be expected to have a Material Adverse
Effect on the Royalty Guarantor's ability to meet its obligations under the
Royalty Project Note or the Royalty Guarantee. The Royalty Guarantor will not
sell, transfer or assign any of its rights under any of the Royalty Project
Documents.
Limitations on Debt/Liens. None of the Guarantors will create or incur or
suffer to exist any Debt except for Permitted Guarantor Debt. None of the
Guarantors shall grant, create, incur or suffer to exist any Liens upon any
of their properties except for Permitted Liens.
Books and Records. The Salton Sea Guarantors and the Partnership
Guarantors will maintain their books and records and give the Funding
Corporation, the Trustee, the Collateral Agent and the Independent Engineer
inspection rights.
Additional Project Documents. The Salton Sea Guarantors and the
Partnership Guarantors will perform and observe their covenants and
obligations under the Salton Sea Project Documents and the Partnership
Project Documents, respectively, in all material respects, except where the
failure to do so could not reasonably be expected to result in a Material
Adverse Effect. Neither the Salton Sea Guarantors nor the Partnership
Guarantors will be permitted to enter into any Additional Project Documents
if entering into the Additional Project Documents could reasonably be
expected to result in a Material Adverse Effect.
Information and Access. The Salton Sea Guarantors will provide the
Independent Engineer with information regarding Salton Sea Unit V which is
reasonably requested by the Independent Engineer. Power LLC will provide the
Independent Engineer with access to Salton Sea Unit V as reasonably requested
by the Independent Engineer. The Partnership Guarantors will provide the
Independent Engineer with information regarding the CE Turbo Project, the
Region 2 Brine Facilities Construction and the Zinc Recovery Project which is
reasonably requested by the Independent Engineer. The Partnership Project
Companies will provide the Independent Engineer with access to the Zinc
Recovery Project, the Region 2 Brine Facilities Construction and the CE Turbo
Project as reasonably requested by the Independent Engineer.
Additional Covenants. In addition to the covenants described above, the
Credit Agreements also contain covenants of the Guarantors regarding (1)
maintenance of existence, (2) payment of taxes and claims unless being
contested in good faith and (3) the preservation and maintenance of Liens on
the Collateral and the priority of the Liens.
EVENTS OF DEFAULT
Except as otherwise described below, each Credit Agreement currently
contains the following events of default with respect to the Guarantors party
to the Credit Agreement:
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(a) the failure by the Guarantors to pay or cause to be paid any principal
of, premium, if any, or interest, fees or any other obligations on their
Project Notes for 15 or more days after the same becomes due and payable,
whether by scheduled maturity or required prepayment or by acceleration or
otherwise, or, with respect to the Salton Sea Credit Agreement, the failure
by the Funding Corporation to pay or cause to be paid any principal of,
premium, if any, or interest on the Securities for 15 or more days after the
same becomes due and payable, whether by scheduled maturity or required
prepayment or by acceleration or otherwise;
(b) any representation or warranty made by the Guarantors under their
Credit Agreement proves to have been untrue or misleading in any material
respect as of the time made, confirmed or furnished and the fact, event or
circumstance that gave rise to the inaccuracy could reasonably be expected to
result in a Material Adverse Effect and the fact, event or circumstance
continues to be uncured for 30 or more days from the date a responsible
officer of the Guarantors has actual knowledge of the fact, event or
circumstance; provided that if the Guarantors commence efforts to cure the
fact, event or circumstance within the 30-day period, the Guarantors may
continue to effect the cure and the misrepresentation will not be deemed an
event of default for an additional 60 days so long as the Guarantors are
diligently pursuing the cure;
(c) (1) with respect to the Salton Sea Credit Agreement, the failure by
any of the Salton Sea Guarantors to perform or observe any covenant under the
Credit Agreement relating to Permitted Debt, Permitted Liens, Restricted
Payments, disposition of assets, maintenance of insurance, maintenance of
books and records, payment of taxes, fundamental changes, exercise of rights
under the Project Documents or nature of business and the failure continues
uncured for 30 or more days after a responsible officer of the Salton Sea
Guarantors has actual knowledge of the failure; (2) with respect to
Partnership Credit Agreement, the failure by any of the Partnership
Guarantors to perform or observe any covenant under the Credit Agreement
relating to Restricted Payments, disposition of assets, maintenance of
insurance, maintenance of books and records, payment of taxes, exercise of
rights under the Partnership Project Documents, amendments to the partnership
agreement of any of the Partnership Project Companies or the Partnership
Project Documents, fundamental changes or nature of business and the failure
continues uncured for 30 or more days after a responsible officer of the
Partnership Guarantors has actual knowledge of the failure; and (3) with
respect to the Royalty Credit Agreement, the failure by the Royalty Guarantor
to perform or observe any covenant under the Credit Agreement relating to
maintenance of existence, Permitted Debt, Permitted Liens, Restricted
Payments, amendments to the Magma Assignment Agreement, fundamental changes
or nature of business and the failure continues uncured for 30 or more days
after a responsible officer of the Royalty Guarantor has actual knowledge of
the failure;
(d) the failure by any of the Guarantors to perform or observe any of the
other covenants contained in their Credit Agreements or in the other
Financing Documents to which the Guarantors are party (other than the
failures described in clause (c) above) and the failure continues uncured for
60 or more days after a responsible officer of the Guarantors has actual
knowledge of the failure; provided that if the Guarantors commence and
diligently pursue efforts to cure the default within such 60-day period, the
Guarantors may continue to effect the cure of the default and the default
will not be deemed an event of default for an additional 30 days so long as
the Guarantors are diligently pursuing the cure;
(e) certain events involving the bankruptcy, insolvency, receivership or
reorganization of the Guarantors;
(f) the entry of one or more final and non-appealable judgment or
judgments for the payment of money in excess of $10,000,000 (exclusive of
judgment amounts fully covered by insurance or indemnity) against the
Guarantors which remain unpaid or unstayed for a period of 90 or more
consecutive days;
(g) an event of default under any Permitted Guarantor Debt of the Salton
Sea Guarantors or the Partnership Guarantors in excess of $10,000,000 becomes
due and payable prior to its stated maturity;
(h) the Guarantors fail to perform any of their payment obligations under
their Guarantees for 15 or more days after the obligations become due and
payable;
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(i) (1) with respect to the Salton Sea Credit Agreement, if (A) any
governmental approval required for the operation of a Project owned by the
Salton Sea Guarantors is revoked, terminated, withdrawn or ceases to be in
full force and effect, (B) the revocation, termination, withdrawal or
cessation could reasonably be expected to have a Material Adverse Effect and
(C) the revocation, termination, withdrawal or cessation is not cured for 60
days following the occurrence thereof; and (2) with respect to the
Partnership Credit Agreement, if (A) any governmental approval required for
the operation of a Project owned by the Partnership Guarantors is revoked,
terminated, withdrawn or ceases to be in full force and effect, (B) the
revocation, termination, withdrawal or cessation could reasonably be expected
to have a Material Adverse Effect and (C) the revocation, termination,
withdrawal or cessation is not cured for 60 days following the occurrence
thereof;
(j) (1) with respect to the Salton Sea Credit Agreement, any Salton Sea
Project Document ceases to be valid and binding and in full force and effect
other than as a result of an amendment, termination or Permitted Power
Contract Buy-Out permitted under the Salton Sea Credit Agreement, or any
third party that is party to a Salton Sea Project Document fails to perform
its material obligations or makes any material misrepresentation thereunder
and any such event results in a Material Adverse Effect; (2) with respect to
the Partnership Credit Agreement, any Partnership Project Document ceases to
be valid and binding and in full force and effect other than as a result of
an amendment, termination or Permitted Power Contract Pay-Out permitted under
the Partnership Credit Agreement, or any third party that is party to a
Partnership Project Document fails to perform its material obligations or
makes any material misrepresentation thereunder and any such event results in
a Material Adverse Effect; provided that no such event described in the
preceding clauses (1) and (2) will be an event of default if within 180 days
from the occurrence of any such event, the Salton Sea Guarantors or the
Partnership Guarantors, as applicable, (A) cause the third party to resume
performance or cure the misrepresentation or (B) enter into a replacement
Additional Project Document as permitted under such Credit Agreement;
(k) (1) with respect to the Salton Sea Credit Agreement, the failure of
the Salton Sea Guarantors to perform or observe any of their covenants or
obligations contained in any of the Salton Sea Project Documents if the
failure would result in the receipt of a notice of termination of the Salton
Sea Project Document or otherwise result in a Material Adverse Effect; (2)
with respect to the Partnership Credit Agreement, the failure of the
Partnership Guarantors or any other party to perform or observe any of their
covenants or obligations contained in any of the Partnership Project
Documents if the failure results in the termination of the Partnership
Project Document or otherwise results in a Material Adverse Effect; provided
that such event will not be an event of default if within 180 days from the
occurrence of any such event, the Partnership Guarantors enter into a
replacement Additional Project Document as permitted under the Partnership
Credit Agreement; and (3) with respect to the Royalty Credit Agreement, any
Royalty Project Document ceases to be valid and binding and in full force and
effect other than as a result of an amendment or a termination permitted
under the Royalty Credit Agreement and such event results in a Material
Adverse Effect; provided that such event will not be an event of default if
within 180 days from the occurrence of such event, the Royalty Guarantor
enters into a replacement Additional Project Document as permitted under the
Royalty Credit Agreement;
(l) any of the applicable Security Documents ceases to be effective or any
Lien granted therein ceases to be a valid and perfected Lien in favor of the
Collateral Agent on the Collateral described therein with the priority
purported to be created thereby; provided, however, that the Guarantors will
have 10 days to cure the cessation or to furnish to the Trustee, the
Collateral Agent or the Depositary all documents or instruments required to
cure the cessation; or
(m) an Event of Default described under clauses (c), (d), (e), (f), (g),
(h), (i), (j) or (k) of the summary of the Event of Defaults under the
Indenture occurs. See "--Indenture--Events of Default."
ENFORCEMENT OF REMEDIES
If any event of default under any particular Credit Agreement has occurred
and is continuing, then, with respect to that Credit Agreement:
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(1) in the case of an event of default under any Credit Agreement
described in clause (e) above, the entire outstanding principal amount of
the applicable Project Note or Notes, all interest accrued and unpaid
thereon, and all premium and other amounts payable under the Project Note
or Notes and the applicable Credit Agreement, if any, will automatically
become due and payable without presentment, demand, protest or notice of
any kind; or
(2) in the case of an event of default described in:
(A) clauses (a) and (h) above, upon the written direction of holders
of no less than 331/3% in aggregate principal amount of the
outstanding Securities, the Funding Corporation will declare the
outstanding principal amount of the applicable Project Note or Notes
to be accelerated and due and payable, all accrued and unpaid
interest, and all premium and other amounts payable under the
applicable Credit Agreement, if any, to be due and payable; or
(B) clauses (b), (c), (d), (f), (g), (i), (j), (k), (l) and (m)
above, upon the written direction of holders of no less than 50% in
aggregate principal amount of the outstanding Securities, the Funding
Corporation will declare the outstanding principal amount of the
applicable Project Note or Notes to be accelerated and due and
payable, all accrued and unpaid interest, and all premium and other
amounts payable under the applicable Credit Agreement, if any, to be
due and payable.
DEBT SERVICE RESERVE LOC REIMBURSEMENT AGREEMENT
The Debt Service Reserve LOC Provider, pursuant to a Debt Service Reserve
Letter of Credit and Reimbursement Agreement (the "Debt Service Reserve LOC
Reimbursement Agreement"), will provide a Debt Service Reserve Letter of
Credit for use by the Funding Corporation in funding the Debt Service Reserve
Fund.
On the closing date for the Initial Securities, the Debt Service Reserve
LOC Provider issued a Debt Service Reserve Letter of Credit for the account
of the Funding Corporation in the amount of $50,000,000. On the closing date
for the Supplemental Securities, the Debt Service Reserve Letter of Credit
Provider issued a replacement Debt Service Reserve Letter of Credit for the
account of the Funding Corporation in the amount of approximately
$71,250,000. On the closing date for the Old Securities, the Debt Service
Reserve Letter of Credit Provider issued a replacement Debt Service Reserve
Letter of Credit for the account of the Funding Corporation in the amount of
approximately $68,297,134 in favor of the Depositary as security agent for
the Secured Parties.
The Depositary may make drawings under any Debt Service Reserve Letter of
Credit upon the occurrence of the following events:
(1) there being insufficient monies in the Interest Fund or Principal
Fund on any Payment Date to pay interest or principal then due on the
Securities (after application of funds from the Debt Service Reserve
Fund);
(2) upon failure of the Funding Corporation to provide a substitute
letter of credit from another letter of credit provider within 45 days
after receipt of a notice from the Debt Service Reserve LOC Provider that
the long-term debt of such Debt Service Reserve LOC is less than "A" as
determined by S&P or "A2" as determined by Moody's;
(3) upon receipt of a notice from the Debt Service Reserve LOC Provider
that the Debt Service Reserve Letter of Credit will be terminated prior to
its stated expiration date;
(4) upon failure of the Funding Corporation to obtain an extension or
provide a replacement Debt Service Reserve Letter of Credit at least 45
days before the expiration of the Debt Service Reserve Letter of Credit;
and
(5) upon receipt of a notice from the Debt Service Reserve LOC Provider
that interest is due and payable, but unpaid, on outstanding Debt Service
Reserve LOC Loans (provided that the drawing pursuant to this clause (5),
together with all other drawings under the Debt Service Reserve Letter of
Credit in the same fiscal year, does not exceed $5,000,000 in the
aggregate).
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The Depositary will apply the proceeds of each such drawing: (x) in the case
of clauses (1) and (5) of the preceding sentence, to payment of the relevant
obligation, and (y) in the case of clauses (2), (3) and (4) of the preceding
sentence, to the Debt Service Reserve Fund until there is deposited therein
an aggregate amount equal to the Debt Service Reserve Fund Required Balance.
The amount available for drawing under the Debt Service Reserve Letter of
Credit will be reduced upon (1) the making of draws thereunder, (2) the
reduction of the Debt Service Reserve Fund Required Balance and (3) the
making of deposits of cash in the Debt Service Reserve Fund.
DEBT SERVICE RESERVE LOC LOANS
Each drawing on the Debt Service Reserve Letter of Credit submitted by the
Trustee will be converted into a loan (each converted drawing, a "Debt
Service Reserve LOC Loan").
Each Debt Service Reserve LOC Loan will be evidenced by a note (each, a
"Debt Service Reserve LOC Note") and will mature on the later of (1) 10 years
from the closing date for the Initial Securities or (2) 5 years from the
drawing giving rise to the Debt Service Reserve LOC Loan. The Funding
Corporation will repay the principal amount of each Debt Service Reserve LOC
Loan as, when and to the extent monies are made available from the Revenue
Fund pursuant to the Depositary Agreement.
CONVERSION TO DEBT SERVICE RESERVE BOND
Notwithstanding the foregoing, if (1) 50% or more of the principal amount
of any Debt Service Reserve LOC Loan remains outstanding on or after 5 years
from the drawing giving rise to such loans or (2) the principal amount of any
Debt Service Reserve LOC Loan remains outstanding on or after 10 years from
the closing date for the Initial Securities, the Debt Service Reserve LOC
Provider may, upon 30 days' prior written notice to the Funding Corporation
and the Trustee, convert the Debt Service Reserve LOC Loan into a substitute
loan (such converted loan, a "Debt Service Reserve Bond"). Each Debt Service
Reserve Bond will amortize on a basis which results in levelized payment of
the principal of and interest on the Debt Service Reserve Bond to and
including the maturity date applicable to the Debt Service Reserve Bond,
which will be the final maturity date of the Securities and will bear
interest at a fixed rate equal to the higher of (x) the interest rate last
applicable to the Debt Service Reserve LOC Loan converted into the Debt
Service Reserve Bond and (y) the then-current (at the time of conversion of
the Debt Service Reserve LOC Loan into the Debt Service Reserve Bond) rate of
interest on U.S. Treasury Notes with an average life most comparable to the
average life of the Securities plus the higher of (A) 2.50% and (B) the
spread over U.S. Treasury Notes applicable to the Supplemental Securities on
the closing date for the Supplemental Securities. The Funding Corporation
will pay interest on and principal of each Debt Service Reserve Bond on each
Principal Payment Date on a pro rata basis with payments of interest and
principal on the Securities.
EVENTS OF DEFAULT
The following events constitute events of default under the Debt Service
Reserve LOC Reimbursement Agreement:
(1) the Funding Corporation fails to pay any principal, interest or other
amounts due under or in connection with the Debt Service Reserve LOC
Reimbursement Agreement or any Debt Service Reserve Bond within 15 days
after its due date (or the case of principal and interest) and, in the
case of the failure to pay fees, costs or expenses, 15 or more days
following delivery of notice of the failure to pay to the Funding
Corporation;
(2) any representation or warranty made by or on behalf of the Funding
Corporation in the Debt Service Reserve LOC Reimbursement Agreement
(including by incorporation by reference) proves to have been untrue or
misleading in any material respect as of the time made, confirmed or
furnished and the fact, event or circumstance that gave rise to the
inaccuracy has resulted in or could reasonably be expected to have a
Material Adverse Effect and the fact, event or circumstance continues to
be uncured for 30 or more days from the date a responsible officer of the
Funding Corporation obtains
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actual knowledge of the fact, event or circumstance; provided that if the
Funding Corporation commences and diligently pursues efforts to cure the
fact, event or circumstance or the Material Adverse Effect within the
30-day period, the Funding Corporation may continue to effect the cure and
the misrepresentation will not be deemed an event of default for an
additional 60 days so long as the Funding Corporation is diligently
pursuing the cure;
(3) any provision of the Indenture, the Depositary Agreement, the Deeds
of Trust, the Guarantees or any Security Documents is terminated, amended
or otherwise modified without the prior written approval of the LOC Banks
(as defined herein) holding at least 66 2/3% of the obligations due under
the Debt Service Reserve LOC Reimbursement Agreement and/or the
commitments under the Debt Service Reserve LOC Reimbursement Agreement if
the termination, amendment or other modification would affect the priority
of payments from the Revenue Fund under the Depositary Agreement in a
manner adverse to the agent under the Debt Service Reserve LOC
Reimbursement Agreement (the "LOC Agent") or any bank party to the Debt
Service Reserve LOC Reimbursement Agreement (each, an "LOC Bank"),
increase the interest rate on the Securities other than in accordance with
the Indenture, amend the Principal Payment Dates of the Securities in a
manner adverse to the LOC Agent or any LOC Bank, or change the voting
requirements under the Intercreditor Agreement in a manner adverse to the
LOC Agent or any LOC Bank; provided that the same continues uncured for 60
or more days after an authorized officer of the Funding Corporation has
actual knowledge of the same; and provided, further that if the Funding
Corporation commences and diligently pursues efforts to cure the default
within the 60-day period, the Funding Corporation may continue to effect
the cure of the default, and the default will not be deemed an event of
default under the Debt Service Reserve LOC Reimbursement Agreement for an
additional 30 days so long as the Funding Corporation is diligently
pursuing the cure; or
(4) the Funding Corporation fails to perform certain covenants under the
Indenture incorporated by reference in the Debt Service Reserve LOC
Reimbursement Agreement, and the failure continues for 30 days after
knowledge by an authorized officer of the Funding Corporation at any time
after all outstanding amounts due in respect of the Securities have been
paid in full and the Indenture is no longer in effect;
(5) the Funding Corporation fails to perform or observe certain of its
covenants contained (including by incorporation by reference) in any other
provision of the Debt Service Reserve LOC Reimbursement Agreement and the
failure continues for 60 or more days after the Funding Corporation has
actual knowledge of the failure; provided that if the Funding Corporation
commences and diligently pursues efforts to cure the default within the
60-day period, the Funding Corporation may continue to effect the cure of
the default and the default will not be deemed an event of default for an
additional 30 days so long as the Funding Corporation is diligently
pursuing the cure;
(6) an Event of Default as described under clause (c), (d), (e), (f),
(g), (h), (i), (j) or (k) of the summary of Events of Default under the
Indenture occurs and is continuing until the earlier of the expiration of
30 days or an acceleration under the Indenture. See "--Indenture--Events
of Default"; and
(7) an event of default under a Credit Agreement or a Guarantee occurs
and is continuing after all outstanding amounts due in respect of the
Securities have been paid in full and the Indenture is no longer in
effect.
REMEDIES
Upon the occurrence of an event of default under the Debt Service LOC
Reimbursement Agreement, the Debt Service Reserve LOC Provider may terminate
the Debt Service Reserve Letter of Credit following notice as provided in the
Debt Service Reserve Letter of Credit (in which case the Depositary may draw
the full amount available under the Debt Service Reserve Letter of Credit),
accelerate any outstanding Debt Service Reserve LOC Loans or Debt Service
Reserve Bonds and terminate its commitment.
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GUARANTEES
Pursuant to the Guarantees, the Guarantors, on a joint and several basis,
unconditionally and irrevocably guarantee the payment of all amounts owed by
the Funding Corporation under the Debt Service Reserve LOC Reimbursement
Agreement; provided that the Partnership Guarantors and the Royalty Guarantor
are only required to make payments under their Guarantees in amounts from
their Available Cash Flow. The Guarantees are guarantees of payment and the
Collateral Agent is entitled to make demand for payments under the Guarantees
at any time that amounts which are due and payable have not been paid under
the Debt Service Reserve LOC Reimbursement Agreement.
EQUITY COMMITMENT AGREEMENT
Pursuant to the Equity Commitment Agreements by MidAmerican and El Paso
Holding in favor of the Guarantors and the Collateral Agent, MidAmerican and
El Paso Holding are obligated to make cash equity contributions to the
Guarantors in a maximum amount of $122,513,000 (the "Total Equity Amount") to
fund a portion of the budgeted costs for the construction of the New Projects
and the Additional Capital Improvements. This equity will be allocated by the
Guarantors as follows: (1) $54,013,000 to pay a portion of the costs for the
construction of the Zinc Recovery Project; (2) $32,009,000 to pay a portion
of the costs for the construction of Salton Sea Unit V; (3) $17,137,000 to
pay a portion of the costs for the Region 2 Construction; (4) $6,391,000 to
pay a portion of the costs for the Additional Capital Improvements; and (5)
$12,963,000 to act as a reserve for certain costs associated with the
construction of the New Projects and the Additional Capital Improvements.
Until final completion, MidAmerican and El Paso Holding will be required to
contribute equity at times necessary to pay the costs of construction of a
New Project or to pay the costs of the Additional Capital Improvements, as
the case may be, after all of the proceeds from the sale of the Old
Securities allocated for such purpose have been utilized, provided that,
until final completion, upon the occurrence of specified Events of Default
related to a New Project or the Additional Capital Improvements, unless the
defaults are timely waived, MidAmerican and El Paso Holding will be required
to contribute equity to the relevant Guarantor in an amount equal to the
portion of the Total Equity Amount allocated for a given purpose less the
aggregate of all equity contributions made for this purpose prior to the
occurrence of the Event of Default. MidAmerican's and El Paso Holding's
obligation to contribute equity to fund costs associated with the
construction of a New Project will be reduced dollar for dollar by the amount
of any net revenues received by the New Project prior to Substantial
Completion of the New Project.
If MidAmerican sells a portion of its indirect equity interests in one or
more Guarantors in accordance with the terms of the Financing Documents,
MidAmerican will be permitted to transfer a corresponding portion of its
obligations under the Equity Commitment Agreement to a transferee (1) whose
long-term unsecured debt obligations have Ratings equivalent to or better
than the then-current Ratings assigned to the Securities by Moody's and S&P
or (2) which provides an irrevocable direct pay letter of credit to support
its equity commitment obligations issued by a bank or other financial
institution rated at least "A" by S&P and "A2" by Moody's.
THE SECURITY
SHARING OF SECURITY
The Trustee, the Collateral Agent, the Depositary, the Debt Service
Reserve LOC Provider, the Guarantors and the Funding Corporation have entered
into the Intercreditor Agreement designating the Collateral Agent as the
agent for each of the Secured Parties and the Funding Corporation and
addressing, among other things, (1) the preservation and administration of
the Funding Corporation Collateral and the Collateral and (2) the disposition
of the Funding Corporation Collateral and the Collateral among the Secured
Parties upon acceleration and foreclosure. The Collateral is shared among the
Secured Parties as provided in the Intercreditor Agreement and the Depositary
Agreement. See "--Depositary Agreement" and "--Intercreditor Agreement." Any
entity that becomes a bank providing for working capital loans pursuant to
the Working Capital Facility or enters into an Interest Rate Protection
Agreement with the Funding Corporation must agree to be bound by the terms of
the Intercreditor Agreement.
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In connection with the issuance of the Initial Securities and the
Supplemental Securities, the Funding Corporation procured title insurance in
the amounts of $250 million and $96 million, respectively. In connection with
the offering of the Old Securities, the Funding Corporation procured title
insurance in the amount of $100 million. The Funding Corporation must at all
times maintain these levels of title insurance, which may be decreased for
reductions in the outstanding principal amount of the Securities, if lower,
in accordance with the terms of the title policies. Title insurance proceeds
will be shared among the Secured Parties as provided in the Intercreditor
Agreement and the Depositary Agreement.
FUNDING CORPORATION COLLATERAL
Pursuant to the Funding Pledge Agreement, Magma assigned and pledged to
the Collateral Agent a security interest in all of the capital stock of the
Funding Corporation (the "Funding Corporation Collateral") now owned by Magma
or hereafter acquired and all dividends, cash, instruments and other property
and proceeds from time to time received, receivable or otherwise distributed
in respect of or in exchange for any of the foregoing.
The security interest in the Funding Corporation Collateral is a first
priority security interest. However, absent any Trigger Event, Magma will be
able to vote, in its sole discretion, the capital stock of the Funding
Corporation; provided that no vote may be cast, and no consent, waiver or
ratification given or action taken, which would violate any provision of the
Indenture, the Securities or the Credit Agreements.
Upon satisfaction by the Funding Corporation of the conditions to
discharge the Indenture and all Senior Debt, the Lien of the Collateral Agent
on all the Funding Corporation Collateral will terminate and all the Funding
Corporation Collateral will be released without any further action by the
Collateral Agent or any other person.
DESCRIPTION OF COLLATERAL
Pledge Agreements. Each shareholder, partner or member, of each Guarantor
has assigned and pledged to the Collateral Agent for the benefit of the
Secured Parties a security interest in 100% of its capital stock or other
equity interests in the Guarantor, the right to receive dividends or
distributions on the equity interests, and the right to receive any other
proceeds from the equity interests.
Deeds of Trust and Security Documents. The Salton Sea Guarantors and the
Partnership Guarantors have entered into deeds of trust and related security
documents with the Collateral Agent for the benefit of the Secured Parties
and the Funding Corporation providing for the grant of a lien on and a
security interest in: (1) the Guarantors' material real and personal
property, including all real property interests (including fee interests,
leasehold interests and easement interests) of the Guarantors held in their
Project sites and all fixtures, equipment and improvements on the real
property interests; (2) all of the Guarantors' rights under the Salton Sea
Project Documents or the Partnership Project Documents, as applicable; (3)
all of the Guarantors' equipment, receivables, insurance proceeds, rights
pursuant to any assignable governmental approval and funds and accounts
established pursuant to the Depositary Agreement (to be held by the
Depositary as agent for the Collateral Agent), including all proceeds on the
personal property and all documents evidencing all funds and investments held
in the accounts. In addition, the Royalty Guarantor has entered into a deed
of trust and related security documents with the Collateral Agent for the
benefit of the Secured Parties and the Funding Corporation providing for the
grant of a lien on and security interest in all of the Royalty Guarantor's
rights to receive Royalties.
Pursuant to each of the Security Documents, the Collateral Agent may, upon
the occurrence of a Trigger Event and satisfaction of conditions contained in
the Intercreditor Agreement and discussed below, take possession of all
Collateral and Funding Corporation Collateral (other than the Funds being
held by the Depositary) except as remedies may be limited with respect to
certain Collateral and Funding Corporation Collateral in connection with
payment defaults and event of defaults under the Credit Agreement. The
repossessed collateral may, subject to applicable contract terms or laws (in
the case of
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governmental approvals and permits), be sold, leased or otherwise disposed of
by the Collateral Agent. The proceeds of the sale, lease or disposition will
be applied to the payment of costs and expenses of the Collateral Agent
incurred in connection therewith and to the payment of Secured Obligations
pursuant to the Intercreditor Agreement.
INTERCREDITOR AGREEMENT
The Secured Parties, the Guarantors, the Funding Corporation, the
Depositary and the Collateral Agent have entered into the Intercreditor
Agreement designating the Collateral Agent as the agent for each of the
Secured Parties and the Funding Corporation. The affirmative vote of Secured
Parties holding at least 33 1/3% of the Combined Exposure (the "Required
Secured Parties") is sufficient to direct actions of the Collateral Agent,
including the exercise of remedies following a Trigger Event (as defined
herein); provided that for purposes of directing such actions, (1) the
Funding Corporation will convey, transfer and assign its right to vote on all
matters under the Intercreditor Agreement to the Trustee and (2) the Trustee
is entitled to vote on all matters under the Intercreditor Agreement
according to the aggregate principal amount of the Securities outstanding,
subject, however, in all events to the terms and provisions of the Indenture.
Each person replacing any of the Secured Parties and each person (or trustee
for or agent of the person) providing Senior Debt to the Funding Corporation
will be required to become a party to the Intercreditor Agreement, which will
be amended to the extent necessary to accommodate the replacement or addition
of such persons.
APPLICATION OF LOSS PROCEEDS AND OTHER EXTRAORDINARY PROCEEDS
The Intercreditor Agreement provides that the Collateral Agent instructs
the Depositary to allocate, to the extent funds may be allocated, after
giving effect to the limitations and deductions permitted under the Indenture
and the Depositary Agreement, all Loss Proceeds, Eminent Domain Proceeds,
Title Event Proceeds and proceeds received in connection with a Permitted
Power Contract Buy-Out, in each case received by the Depositary, in the
following order of priorities pursuant to an allocation certificate:
(1) first, to the Collateral Agent, the Debt Service Reserve LOC Provider
agent, the Trustee and the Depositary, ratably, in an amount equal to the
administrative fees and expenses due and payable as of the date of the
distribution;
(2) second, to the banks providing for working capital loans pursuant to
the Working Capital Facility, if any, an amount equal to the unpaid Senior
Debt constituting principal, interest and commitment fees due and owing
under the Working Capital Facility;
(3) third, to the Secured Parties, ratably, an amount equal to the unpaid
amount of all Senior Debt constituting principal, interest and premium (if
any) due and owing to the Secured Parties and commitment fees and fronting
fees, if any, due and owing in respect of the Debt Service Reserve Letter
of Credit;
(4) fourth, to the Secured Parties, ratably, an amount equal to all other
unpaid amounts then due and payable in respect of all Senior Debt due and
owing to the Secured Parties;
(5) fifth to the holders of Subordinated Debt, an amount equal to the
unpaid amount of all Subordinated Debt due and owing to the holders, if
any; and
(6) sixth, to the Funding Corporation or its successors or assigns or to
whomever may be lawfully entitled to receive the same or as a court of
competent jurisdiction may direct, any surplus then remaining from the
proceeds. See "Description Of The Series F Securities--Mandatory
Redemption."
At the time the Collateral Agent is to make a distribution pursuant to
clause third in the immediately preceding paragraph, and with the same
priority as the distribution, the Collateral Agent will deposit into a
separate interest-bearing trust account to be maintained by the Collateral
Agent an amount up to the then outstanding amount of the Debt Service Reserve
Letter of Credit (which outstanding amount will shall be calculated after
giving effect to the redemption of Securities from the distribution in clause
third
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above). The Collateral Agent will hold the monies in the separate account
until receipt of a written notice or notices from the Debt Service Reserve
LOC Provider to the effect that either (x) the Depositary has made a drawing
on the Debt Service Reserve Letter of Credit, which notice will specify the
amounts of the drawings or (y) the Debt Service Reserve Letter of Credit has
expired or terminated. Upon receipt of a notice specified in (x) above, the
Collateral Agent will distribute to the Debt Service Reserve LOC Provider the
amount equal to the drawing's proportionate share of the Debt Service Reserve
Letter of Credit collateralized by the separate account specified in the
notice. Upon receipt of a notice specified in (y) above, the Collateral Agent
will distribute from the separate account (in accordance with clauses third,
fourth, fifth and sixth above and without regard to this paragraph) to the
appropriate persons an amount equal to the balance in the separate account.
TRIGGER EVENTS
Each of the following is an event of default (a "Trigger Event") under the
Intercreditor Agreement: (1) an event of default under the Indenture and an
acceleration of all or a portion of the indebtedness issued thereunder; (2)
an event of default under the Debt Service Reserve LOC Reimbursement
Agreement and an acceleration of the indebtedness incurred thereunder; (3) an
event of default" under a Senior Debt instrument and an acceleration of all
or a portion of the Debt issued thereunder in an aggregate amount in excess
of $10,000,000; and (4) certain events of default under the Salton Sea
Guarantee, the Partnership Guarantee or the Royalty Guarantee; and, in each
case, the Collateral Agent has, upon direction from the Required Secured
Parties, declared the event to be a Trigger Event.
If a Trigger Event has occurred and is continuing, and only in such event,
upon the written request of the Required Secured Parties (subject to the
requirement that the Collateral Agent give written notice of the occurrence
of such Trigger Event to the Funding Corporation and provide the Funding
Corporation a period of 60 days from its receipt of the notice to cure the
Trigger Event), the Collateral Agent will be authorized to take any and all
actions and to exercise any and all rights, remedies and options which it may
have under the Security Documents; provided, however, that if a bankruptcy
event of the Funding Corporation has caused the Trigger Event, the Collateral
Agent will automatically be authorized to take action without the written
request of the Required Secured Parties; and provided, further that, if the
Trigger Event relates to a payment default on the Securities or an event of
default under a Credit Agreement which is not a payment default that has
resulted in an acceleration of a portion of the Securities or a comparable
event of default under a Guarantee, the Collateral Agent will be authorized
only to take actions and exercise rights, remedies and options under the
Security Documents which relate to the Project Note or Notes which have or
could have been automatically accelerated or requested by the Trustee to be
accelerated in connection with the default or the Guarantee pursuant to which
the event of default has occurred.
EXERCISE OF REMEDIES AND APPLICATION OF PROCEEDS
Upon a foreclosure or other exercise of remedies following a Trigger
Event, the proceeds of any sale, disposition or other realization upon any or
all of the Collateral and Funding Corporation Collateral will be distributed
in the following order of priority (except for amounts held under the
Indenture which will be distributed to the Trustee):
(1) first, to the Trustee, the Collateral Agent, any Debt Service Reserve
LOC Provider and the Depositary, ratably, all administrative fees, costs
and expenses due and owing to these parties under the Financing Documents
and the Intercreditor Agreement;
(2) second, to the Secured Parties, ratably, an amount equal to the
unpaid amount of all Senior Debt constituting principal, interest, premium
(if any) and certain fees due and owing to the Secured Parties (including
commitment fees and fronting fees, if any, owed in respect of the Debt
Service Reserve Letter of Credit and commitment fees due and owing in
respect of the Working Capital Facility) by the Funding Corporation and
the Guarantors;
(3) third, to the Secured Parties, ratably, an amount equal to all other
unpaid amounts then due and payable in respect of all Senior Debt owed to
the Secured Parties;
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(4) fourth to the holders of Subordinated Debt, an amount equal to the
unpaid amount of all Subordinated Debt due and owing to the holders; and
(5) fifth, to the Funding Corporation (or its successors or assigns) or
to whomever a court of competent jurisdiction may direct, any surplus
remaining after giving effect to clauses first, second, third and fourth
above.
At the time the distribution is to be made pursuant to clause second
above, the Collateral Agent will set aside available monies (on a ratable
basis with the distribution) in a separate interest-bearing trust account in
an amount up to the then outstanding amount of the Debt Service Reserve
Letter of Credit (which outstanding amount will be calculated after giving
effect to the redemption of Securities from the distribution in clause second
above). Upon a subsequent draw on the Debt Service Reserve Letter of Credit,
the Collateral Agent will transfer monies from the separate account to the
Debt Service Reserve LOC Provider up to the amount so drawn on the Debt
Service Reserve Letter of Credit. Upon an expiration or termination of the
Debt Service Reserve Letter of Credit, monies in the separate account
collateralizing the Debt Service Reserve Letter of Credit will be released
and applied as set forth in clauses second, third, fourth and fifth above.
The proceeds of any sale, disposition or other realization on the
Collateral or Funding Corporation Collateral held for the benefit of some but
not all of the Secured Parties will be applied to the payment of obligations
owed to the parties for whose benefit the specific Collateral or Funding
Corporation Collateral was held.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Securities for its own account as a
result of market-making activities of other trading activities in connection
with the exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Securities. This prospectus, as it may
be amended or supplemented from time to time, may be used by participating
broker-dealers during the period referred to below in connection with resales
of New Securities received in exchange for Old Securities if the Old
Securities were acquired by the participating broker-dealers for their own
accounts as a result of the market-making or other trading activities. The
Funding Corporation has agreed that this prospectus, as it may be amended or
supplemented from time to time, may be used by a participating broker-dealer
in connection with resales of New Securities for a period ending 120 days
after the registration statement of which this prospectus is a part has been
declared effective (subject to extension under certain limited circumstances)
or, if earlier, when all New Securities have been disposed of by the
participating broker-dealer. See "The Exchange Offer--Resales of New
Securities."
The Funding Corporation will not receive any proceeds from the issuance of
the New Securities offered by this prospectus. New Securities received by
broker-dealers for their own accounts in connection with the Exchange Offer
may be sold from time to time in one or more transactions in the
over-the-counter market, in negotiated transactions, through the writing of
options on the New Securities or a combination of these methods of resale, at
market prices prevailing at the time of resale, at prices related to such
prevailing market prices or at negotiated prices. Any resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any broker-dealer
and/or the purchasers of any New Securities. Any broker-dealer that resells
New Securities that were received by it for its own account in connection
with the exchange offer and any broker-dealer that participates in a
distribution of New Securities may be deemed to be an "underwriter" within
the meaning of the Securities Act, and any profit on any resale of New
Securities and any commissions or concessions received by any of those
persons may be deemed to be underwriting compensation under the Securities
Act. The Letter of Transmittal states that by acknowledging that it will
deliver and by delivering a prospectus, a broker-dealer will not be deemed to
admit that it is a "underwriter" within the meaning of the Securities Act.
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INCORPORATION OF MATERIAL DOCUMENTS BY REFERENCE
The Commission allows us to "incorporate by reference" the information we
file with them, which means we can disclose important information to you by
referring you to those documents. The information included in the following
documents is incorporated by reference and is considered to be a part of this
prospectus. The most recent information that we file with the Commission
automatically updates and supersedes more dated information. We have
previously filed the following documents with the Commission and are
incorporating them by reference into this prospectus:
1. Our Annual Report on Form 10-K for the fiscal year ended December 31,
1998, filed on March 31, 1999, and amended on April 27, 1999;
2. Our Quarterly Report on Form 10-Q, for the quarter ended March 31,
1999, filed on May 14, 1999;
3. Our Current Report on Form 8-K, filed on February 2, 1999.
We also incorporate by reference all documents subsequently filed by us
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act until all
of the Old Securities are exchanged for New Securities.
We will provide without charge to each person, including any person having
a control relationship with that person, to whom a prospectus is delivered, a
copy of any or all of the information that has been incorporated by reference
in this prospectus but not delivered with this prospectus. If you would like
to obtain this information from us, please direct your request, either in
writing or by telephone to David C. Dickey, Salton Sea Funding Corporation,
302 South 36th Street, Suite 400A, Omaha, Nebraska, 68131, (402) 231-1644. In
order to insure timely delivery of the documents, any request should be made
five days before , 1999, which is when the exchange offer expires.
LEGAL MATTERS
Certain legal matters with respect to the New Securities will be passed
upon for the Funding Corporation and the Guarantors by Willkie Farr &
Gallagher, 787 Seventh Avenue, New York, New York and by Steven A. McArthur,
Senior Vice President of the Funding Corporation and the Guarantors.
EXPERTS
The financial statements of the Funding Corporation and the Royalty
Guarantor and the combined financial statements of Salton Sea Guarantors and
the Partnership Guarantors incorporated in this prospectus by reference from
the Funding Corporation's Annual Report on Form 10-K for the year ended
December 31, 1998 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports, which are incorporated herein by
reference, and have been so incorporated in reliance upon the reports of such
firm given upon their authority as experts in accounting and auditing.
With respect to the unaudited interim financial information for the
three-month periods ended March 31, 1999 and 1998 which is incorporated
herein by reference, Deloitte & Touche LLP have applied limited procedures in
accordance with professional standards for a review of such information.
However, as stated in their reports included in the Funding Corporation's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1999 and
incorporated by reference herein, they did not audit and they do not express
an opinion on that interim financial information. Accordingly, the degree of
reliance on their reports or such information should be restricted in light
of the limited nature of the review procedures applied. Deloitte & Touche LLP
are not subject to the liability provisions of Section 11 of the Securities
Act of 1933 for their reports on the unaudited interim financial information
because those reports are not "reports" or a "part" of the registration
statement prepared or certified by an accountant within the meaning of
Sections 7 and 11 of the Act.
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INDEPENDENT ENGINEER
Fluor Daniel, Inc. has prepared the Independent Engineer's Report included
as Appendix B to this Prospectus. The Independent Engineer's Report should be
read in its entirety by all investors for information with respect to the
Projects and the related subjects discussed therein. The Independent
Engineer's Report has been included in this Prospectus in reliance upon the
conclusions therein of Fluor Daniel, Inc. and upon such firm's experience in
preparing independent engineer's reports for independent power projects.
CONSULTANTS' REPORTS
Henwood Energy Services, Inc. has prepared the Power Market Consultant's
Report included as Appendix C to this Prospectus. The Power Market
Consultant's Report should be read in its entirety by all investors for
information with respect to certain industry and regulatory matters affecting
the sales of electricity by the Power Projects and the related subjects
discussed therein. The Power Market Consultant's Report has been included in
this Prospectus in reliance upon the conclusions therein of Henwood Energy
Services, Inc. and upon such firm's experience in providing business advisory
and other services and market forecasts in electricity and gas to
international firms and public authorities.
GeothermEx, Inc. has prepared the Geothermal Resource Consultant's Report
included as Appendix D to this Prospectus. The Geothermal Resource
Consultant's Report should be read in its entirety by all investors for
information with respect to the sufficiency of the geothermal resources
available for use and for conversion to electrical power and recovery of zinc
by the Projects and the related subjects discussed therein. The Geothermal
Resource Consultant's Report has been included in this Prospectus in reliance
upon the conclusions therein of GeothermEx, Inc. and upon such firm's
experience in preparing consultant's reports for geothermal projects.
Resource Strategies International has prepared the Zinc Market
Consultant's Report included as Appendix E to this Prospectus. The Zinc
Market Consultant's Report should be read in its entirety by all investors
for information with respect to certain industry matters affecting the sales
of zinc by the Zinc Recovery Project and the related subjects discussed
therein. The Zinc Market Consultant's Report has been included in this
Prospectus in reliance upon the conclusions therein of Resource Strategies
International and upon such firm's experience in providing advisory services
and production cost and price forecasts to international commodity based
industries as well as financial institutions.
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APPENDIX A
GLOSSARY OF DEFINED TERMS
Unless the context requires otherwise, any reference in this prospectus to
any agreement means the agreement and all schedules, exhibits and attachments
to the agreement as amended, supplemented or otherwise modified and in effect
as of the date of this prospectus, and as the same may be amended,
supplemented or otherwise modified from time to time in accordance with the
terms of the agreement and of the Transaction Documents. All terms defined
herein used in the singular have the same meanings when used in the plural
and vice versa.
Some of the terms defined below are summaries of terms defined in, and are
defined more specifically in, the Project Documents and the Financing
Documents. These summaries do not purport to be complete and are subject to,
and are qualified in their entirety by reference to, all of the provisions of
the Project Documents and the Financing Documents.
"ACCREDITED INVESTOR" means an institutional "accredited investor" within
the meaning of Subparagraph (a)(1), (2), (3) or (7) of Rule 501 under the
Securities Act.
"ADDITIONAL PARTNERSHIP PROJECT NOTE" means the promissory note in the
initial principal amount of $201,728,000 issued by the Partnership Guarantors
in favor of the Funding Corporation under the Partnership Credit Agreement on
October 13, 1998.
"ADDITIONAL PROJECT DOCUMENT" means (a) any contract or undertaking
relating to the purchase or sale of electricity from the Projects entered
into by the Guarantors after the closing date for the Initial Securities, (b)
any consent or security instrument entered into by the Guarantors or any
other relevant party in connection with an Additional Project Document, or
(c) any contract or undertaking to which Funding Corporation or any Guarantor
is a party entered into after the closing date for the Initial Securities,
relating to (1) the supply, procurement, handling or transportation of brine
to the Projects, or (2) the design, construction, operation or maintenance of
the Projects; in each of clauses (a), (b) and (c), which is material to the
applicable Project.
"ADDITIONAL PROJECTS" means Permitted Facilities developed, owned,
operated, acquired or constructed after the closing date for the Initial
Securities as may be permitted in accordance with the terms of the Financing
Documents.
"ADDITIONAL SALTON SEA PROJECT NOTE" means the promissory note in the
initial principal amount of $83,272,000 issued by the Salton Sea Guarantors
in favor of the Funding Corporation under the Salton Sea Credit Agreement on
October 13, 1998.
"ADDITIONAL SECURITIES" means any Securities issued pursuant to the
Indenture, other than the Series F Securities, the Supplemental Securities
and the Initial Securities.
"APPROVED COMPLETION PLAN" means a plan to construct and complete a New
Project using liquidated damages payments and/or other funds available to the
Funding Corporation and the relevant Guarantors, which plan includes (a) a
certificate by the relevant Guarantors, confirmed (with customary assumptions
and qualifications) as reasonable by the Independent Engineer and/or the Zinc
Market Consultant, as applicable, stating that (1) the funds available to the
Guarantors are reasonably expected to be sufficient to reach Substantial
Completion for the New Project and (2) after reaching Substantial Completion,
the minimum and average Debt Service Coverage Ratios for the term of the
Series F Securities will not be less than 1.4 to 1 and 1.7 to 1,
respectively, or (b) a confirmation from the Rating Agencies that the
construction and completion of the New Project in accordance with the plan
will not result in a Rating Downgrade.
"AVAILABLE CASH FLOW" means, for any period:
(a) for any Initial Partnership Guarantor or the Royalty
Guarantor, as applicable, the total Equity Cash Flows and
Royalties received by the Guarantor, minus, without
duplication,
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(1) any Royalties paid, (2) all Operating and Maintenance
Costs, (3) all capital expenditures for the Guarantor and its
Project and (4) debt service, all as computed by the Guarantor
for the period; and
(b) for any Additional Partnership Guarantor, the total revenues
received by the Guarantor, minus, without duplication, (1) any
Royalties paid, (2) all Operating and Maintenance Costs, (3)
all capital expenditures for the Guarantor and its Project and
(4) debt service, all as computed by the Guarantor for the
period.
"AVOIDED COST OF ENERGY" means SCE's then-current, published, short-run
avoided cost of energy.
"AVOIDED COST OF ENERGY PERIOD" means the last 20-year period of the SO4
Agreements to which the Project Companies are parties, during which the
Project Companies receive energy payments based on SCE's Avoided Cost of
Energy.
"BASE CASE PROJECTIONS" means the base case projections included in the
Independent Engineer's Report.
"BASE LOAD" means a power plant which is normally operated to supply all
or a part of the minimum load of a utility system and which, consequently,
operates at a high load factor.
"CAPACITY" means the electric power producing capability of a power plant.
"CAPITAL EXPENDITURE FUND" means the fund of such name created under the
Depositary Agreement.
"COLLATERAL" means the Salton Sea Collateral, the Partnership Collateral
and the Royalty Collateral.
"COLLATERAL AGENT" means Chase Manhattan Bank and Trust Company, National
Association, as collateral agent for the benefit of the Secured Parties and
the Funding Corporation under the Intercreditor Agreement, together with its
successors and assigns.
"COMBINED EXPOSURE" means, as of any date of calculation, the sum
(calculated without duplication) of the following, to the extent the same is
held by or represented by a Secured Party:
(1) the aggregate principal amount of all outstanding Securities;
(2) the aggregate principal amount of all Permitted Debt
outstanding (other than Subordinated Debt);
(3) the aggregate amount of all available undrawn financing
commitments under the documents governing the Permitted Debt
which the creditors party to such documents have no right to
terminate;
(4) the maximum amount available to be drawn under the Debt
Service Reserve Letter of Credit issued pursuant to the Debt
Service Reserve LOC Reimbursement Agreement (if any); and
(5) the termination payment due and owing as of the calculation
date or which the Permitted Counterparty thereunder has a
right to cause to be due and owing as of the calculation date
under any Interest Rate Protection Agreement.
"COMMERCIAL OPERATION" means the achievement by one of our geothermal
power plants or our new zinc recovery facility of certain operational
criteria under its power purchase agreement (if any) and the capability of
the plant of delivering energy in accordance with its power purchase
agreement or selling electricity or zinc into the market.
"CONSTRUCTION PERIOD DEBT SERVICE FUND" means the fund of such name
created under the Depositary Agreement.
"CONTRACT CAPACITY" means the electric power producing capability of the
relevant Project which is committed to SCE on a firm basis under the
Project's power purchase agreement.
"CONTRACT CAPACITY FACTOR" means, with respect to a particular Project,
(1) the Project's actual electricity output divided by (2) the product of the
Project's Contract Capacity and the number of hours in the measurement period
(less applicable maintenance hours).
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"CONTRACT CAPACITY PRICE" means the particular capacity payment price per
kWh stated in the relevant SO4 Agreement.
"CPUC" means the California Public Utilities Commission.
"CREDIT AGREEMENTS" means the Salton Sea Credit Agreement, the Partnership
Credit Agreement and the Royalty Credit Agreement.
"DEBT" of any person means, at any date, without duplication, (1) all
obligations of the person for borrowed money, (2) all obligations of the
person evidenced by bonds, debentures, notes or other similar instruments
(excluding "deposit only" endorsements on checks payable to the order of such
person), (3) all obligations of the person to pay the deferred purchase price
of property or services (except accounts payable and similar obligations
arising in the ordinary course of business shall not be included herein), (4)
all obligations of the person as lessee under capital leases to the extent
required to be capitalized on the books of the person in accordance with GAAP
and (5) all obligations of others of the type referred to in clause (1)
through (4) above guaranteed by the person, whether or not secured by a lien
or other security interest on any asset of the person.
"DEBT SERVICE COVERAGE RATIO" means for any period, without duplication,
the ratio of (1) (A) the sum of all revenues (including interest and fee
income but excluding any insurance proceeds and other similar non-recurring
receipts) of the Guarantors for the period, minus (B) the aggregate amount of
Operating and Maintenance Costs of the Guarantors for the period to (2) the
sum of (A) all principal, premium (if any) and interest (excluding interest
during construction) payable with respect to Permitted Debt outstanding
(other than Subordinated Debt) for the period, plus (B) the aggregate amount
of overdue principal, premium (if any) and interest (excluding interest
during construction) payments owed with respect to Permitted Debt outstanding
(other than Subordinated Debt) from previous periods, all as determined on a
cash basis in accordance with GAAP.
"DEBT SERVICE RESERVE FUND" means the fund of such name created under the
Depositary Agreement.
"DEBT SERVICE RESERVE FUND REQUIRED BALANCE" means (1) at any given time,
on or prior to December 31, 1999, an amount equal to the maximum semiannual
scheduled payment of principal, premium (if any) and interest due on the
outstanding Securities; (2) at any given time subsequent to December 31, 1999
through payment in full of the Initial Securities and the Supplemental
Securities, an amount equal to the maximum annual scheduled payment of
principal, premium (if any) and interest due on the outstanding Securities;
and (3) after payment in full of the Initial Securities and the Supplemental
Securities, (a) the maximum annual scheduled payment of principal, premium
(if any) and interest due on the outstanding Series F Securities or (b) if
the Rating Agencies confirm that no Rating Downgrade would occur as a result
thereof, the maximum semiannual scheduled payment of principal, premium (if
any) and interest due on the outstanding Series F Securities, in each case as
set forth in the Depositary Agreement.
"DEBT SERVICE RESERVE LETTER OF CREDIT" means one or more irrevocable,
direct pay letters of credit issued by the Debt Service Reserve LOC Provider
in favor of the Depositary.
"DEBT SERVICE RESERVE LOC LOAN" means each loan made by a Debt Service
Reserve LOC Provider to the Funding Corporation pursuant to the Debt Service
Reserve LOC Reimbursement Agreement.
"DEBT SERVICE RESERVE LOC PROVIDER" means the commercial bank(s) or
financial institution(s) issuing the Debt Service Reserve Letter of Credit
(and the "Agent" and "Banks" as each of these terms is defined in the Debt
Service Reserve LOC Reimbursement Agreement).
"DEBT SERVICE RESERVE LOC REIMBURSEMENT AGREEMENT" means the Amended and
Restated Debt Service Reserve Letter of Credit and Reimbursement Agreement,
dated as of the closing date for the Supplemental Securities, as amended by
the Amendment to Notes and the Amended and Restated Debt Service Reserve
Letter of Credit and Reimbursement Agreement dated as of the closing date for
the Series F Securities.
"DEL RANCH PPA" means the Long Term Power Purchase Agreement, dated
February 22, 1984, as amended, between SCE and Del Ranch, as successor to
Magma.
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"DEPOSITARY" means Chase Manhattan Bank and Trust Company, National
Association, as depositary under the Depositary Agreement.
"DEPOSITARY AGREEMENT" means the Amended and Restated Deposit and
Disbursement Agreement, dated as of October 13, 1998, among the Funding
Corporation, the Collateral Agent, the Depositary and the Guarantors.
"DISTRIBUTION FUND" means the fund of such name created under the
Depositary Agreement.
"DISTRIBUTION SUSPENSE FUND" means the fund of such name created under the
Depositary Agreement.
"ELMORE PPA" means the Long Term Power Purchase Agreement, dated June 15,
1984, as amended, between SCE and Elmore, as successor to Magma.
"EMINENT DOMAIN PROCEEDS" means all amounts and proceeds (including
instruments) received (to the extent, if any, in the case of a Partnership
Guarantor other than a Partnership Project Company, as Equity Cash Flows) in
respect of any Event of Eminent Domain, after deducting all reasonable
expenses incurred in litigating, arbitrating, compromising, settling or
consenting to the settlement of any claims against the appropriate
governmental authority.
"EQUITY CASH FLOWS" means, with respect to the Initial Partnership
Guarantors, the cash flow available to the Guarantors from equity
distributions made by the Partnership Project Companies and not otherwise
required to be used (x) for Operating and Maintenance Costs or (y) otherwise
pursuant to a Partnership Project document or financing document.
"EQUITY COMMITMENT AGREEMENT" means the Equity Commitment Agreement, dated
as of October 13, 1998, by MidAmerican in favor of the Guarantors and the
Collateral Agent.
"EVENT OF DEFAULT" means the occurrence of an event of default under the
Indenture.
"EVENT OF EMINENT DOMAIN" means any compulsory transfer or taking or
transfer under threat of compulsory transfer or taking of any material part
of the Collateral or the Projects by any governmental authority.
"EVENT OF LOSS" means an event which causes all or a portion of a Project
to be damaged, destroyed or rendered unfit for normal use for any reason
whatsoever, other than an Event of Eminent Domain or a Title Event.
"EXEMPT WHOLESALE GENERATOR" means an "exempt wholesale generator" as such
term is defined in the Energy Policy Act of 1992.
"FINANCING DOCUMENTS" means, collectively, the Credit Agreements, the
Guarantees, the Indenture, the Project Notes, the Registration Rights
Agreement, the Depositary Agreement, any Interest Rate Protection Agreements,
the Intercreditor Agreement, the Securities, the Debt Service Reserve LOC
Reimbursement Agreement, the Working Capital Facility, the Security
Documents, the Support Letter and the Equity Commitment Agreement.
"FIRM OPERATION" means, with respect to a Project, that the Project has
been determined to be a reliable source of generation, and that the Project
can be reasonably expected to operate continuously at its effective rating.
"FIRM OPERATION DATE" means the date a Project achieves Firm Operation.
"FIXED PRICE PERIOD" means the initial ten-year period of the SO4
Agreements to which some of the Project Companies are parties during which
these Project Companies receive either Annual Forecast Energy Payments or
Levelized Energy Payments, as applicable.
"FORECAST OF ANNUAL MARGINAL COST OF ENERGY SCHEDULE" means the schedule
of such name prepared by SCE in the Annual Forecast Energy Payment SO4
Agreements which provides that the energy payment price payable by SCE per
kWh is equal to 15.6 cents for 1999:
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"FUNDING CORPORATION COLLATERAL" means the pledge of the capital stock of
the Funding Corporation.
"FUNDING PLEDGE AGREEMENT" means the Stock Pledge Agreement, dated as of
the closing date for the Initial Securities, by Magma, pledging the stock of
Funding Corporation in favor of the Collateral Agent for the benefit of the
Secured Parties.
"FUNDS" means the funds established under the Depositary Agreements.
"GUARANTEED SUBSTANTIAL COMPLETION DATE" means (1) with respect to the
Zinc Recovery Project, November 30, 2001, (2) with respect to Salton Sea Unit
V, June 30, 2001, and (3) with respect to the Region 2 Construction, March 1,
2001, in each case as may be extended pursuant to an Approved Completion
Plan, if applicable.
"GUARANTEES" means, collectively, the Salton Sea Guarantee, the
Partnership Guarantee and the Royalty Guarantee.
"INDENTURE" means the Trust Indenture, dated as of the closing date for
the Initial Securities, as supplemented by the First Supplemental Indenture
thereto dated as of October 18, 1995, the Second Supplemental Indenture
thereto dated as of the closing date for the Supplemental Securities, the
Third Supplemental Indenture thereto dated as of July 29, 1996 and the Fourth
Supplemental Indenture, dated as of the closing date for the Old Securities,
each by and among the Funding Corporation and the Trustee.
"INDEPENDENT ENGINEER" means (1) with respect to any Existing Project,
Stone & Webster Engineering Corporation, and (2) with respect to any New
Project, Fluor Daniel, Inc., or, in each case, another widely recognized
independent engineering firm or engineer retained as independent engineer by
the Funding Corporation.
"INITIAL PARTNERSHIP PROJECT NOTE means the promissory note in the initial
principal amount of $75,000,000 issued by the Initial Partnership Guarantors
in favor of the Funding Corporation under the Partnership Credit Agreement on
the closing date for the Initial Securities, and reissued by the Partnership
Guarantors on the closing date for the Supplemental Securities and the
closing date for the Old Securities.
"INITIAL PURCHASERS" means Credit Suisse First Boston Corporation and
Goldman, Sachs & Co.
"INITIAL SALTON SEA PROJECT NOTE" means the promissory note in the initial
principal amount of $325,000,000 issued by the Initial Salton Sea Guarantors
in favor of the Funding Corporation under the Salton Sea Credit Agreement on
the closing date for the Initial Securities, and reissued by the Salton Sea
Guarantors on the closing date for the Old Securities.
"INSURANCE CONSULTANT" means Sedgwick James of Tennessee, Inc. or another
widely recognized insurance consulting firm retained as insurance consultant
by the Funding Corporation.
"INTERCREDITOR AGREEMENT" means the Collateral Agency and Intercreditor
Agreement, dated as of the closing date for the Initial Securities, among the
Collateral Agent, the Depositary, the Secured Parties, the Funding
Corporation and the Initial Guarantors, as amended pursuant to Amendment No.
1 thereto, dated as of the closing date for the Supplemental Securities and
as further amended by Amendment No. 2 thereto, dated as of the closing date
for the Old Securities, among the Collateral Agent, the Depositary, the
Secured Parties, the Funding Corporation and the Guarantors.
"INTEREST FUND" means the fund of such name created under the Depositary
Agreement.
"INTEREST PAYMENT DATE" means with respect to (1) any Security, each May
30th and November 30th, and (2) any Debt Service Reserve LOC Loan or Debt
Service Reserve Bond, each regularly scheduled date on which interest is due
and payable, as that date may be established from time to time pursuant to
the Debt Service Reserve LOC Reimbursement Agreement.
"INVESTMENT GRADE RATING" means a rating of "BBB-" or higher from S&P and
"Baa3" or higher from Moody's (or an equivalent rating by another nationally
recognized credit rating agency if none of such corporations is rating the
Securities).
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"KV" means "kilovolt" or one thousand volts.
"KW" means "kilowatt" or one thousand watts.
"KWH" means "kilowatt-hour" or a unit of electrical energy equal to one
kilowatt of power supplied or taken from an electric circuit steadily for one
hour.
"LEATHERS PPA" means the Long Term Power Purchase Agreement, dated as of
April 16, 1985, as amended, between SCE and Leathers, as successor to Magma.
"LETTER OF TRANSMITTAL" means the letter of transmittal which accompanies
this prospectus and which is filed as an exhibit to the registration
statement for the New Securities.
"LIENS" means any mortgage, pledge, hypothecation, assignment, mandatory
deposit arrangement with any person owning Debt of that person, encumbrance,
lien (statutory or other), preference, priority or other security agreement
of any kind or nature whatsoever which has the substantial effect of
constituting a security interest, including, without limitation, any
conditional sale or other title retention agreement, any financing lease
having substantially the same effect as any of the foregoing and the filing
of any financing statement or similar instrument under the Uniform Commercial
Code or comparable law of any jurisdiction, domestic or foreign.
"LOSS PROCEEDS" means all net proceeds from an Event of Loss, including,
without limitation, insurance proceeds or other amounts actually received (to
the extent, in the case of an Initial Partnership Guarantor or VPC
Geothermal, Conejo, Niguel and San Felipe, received in the form of Equity
Cash Flows), except proceeds of delayed opening or business interruption
insurance, on account of an event which causes all or a substantial portion
of the relevant Project to be damaged, destroyed or rendered unfit for normal
use.
"LOSS PROCEEDS FUND" means the fund of such name created under the
Depositary Agreement.
"MAGMA ASSIGNMENT AGREEMENT" means the Assignment Agreement, dated as of
June 30, 1995, by Magma in favor of the Royalty Guarantor.
"MAGMA LAND" means Magma Land Company I, a Nevada corporation.
"MAGMA SERVICES AGREEMENT" means the Services Agreement, dated as of the
closing date for the Initial Securities, between Magma and CEOC.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on (1) the
financial position or results of operation of the Funding Corporation and the
Guarantors, taken as a whole, (2) the validity or priority of the Liens on
the Collateral and the Funding Corporation Collateral, (3) the ability of the
Funding Corporation to perform its material obligations under the Indenture,
the Securities or any of the other Financing Documents to which it is a
party, (4) the ability of the Trustee to enforce any of the payment
obligations of the Funding Corporation under the Indenture or the Securities,
or (5) the ability of the Guarantors to perform any of their material
obligations under their Project Notes or the other Financing Documents to
which they are a party.
"MW" means "megawatt" or one million watts.
"MWH" means "megawatt-hour" or one thousand kilowatt-hours.
"OPERATING AND MAINTENANCE COSTS" means all amounts disbursed by or on
behalf of the Guarantors for operation, maintenance, repair, or improvement
of their Projects, including, without limitation, premiums on insurance
policies, property and other taxes, and payments under the relevant operating
and maintenance agreements, leases, royalty and other land use agreements,
and any other payments required under the Project Documents.
"OPERATING BUDGET" means a budget of Operating and Maintenance Costs, and
a long-term maintenance program with respect to the Guarantors and the
Projects owned and operated by the Guarantors, for any given fiscal year or
part thereof, and prepared on the basis of estimated requirements, showing
such costs by category for such fiscal year.
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"PARTNERSHIP COLLATERAL" means (a) an assignment of all revenues received
by the Partnership Guarantors from the Partnership Projects which will be
applied in accordance with the priorities of payment established under the
Depositary Agreement; (b) a Lien on substantially all of the assets of each
of the Partnership Guarantors and the Partnership Projects; (c) a collateral
assignment of certain material contracts; (d) a pledge of the capital stock
of (or other equity interests in) the Partnership Guarantors; (e) a Lien on
the Zinc Construction Fund, the Region 2 Construction Fund and any other
funds established for the Partnership Guarantors under the Depositary
Agreement; and (f) any other collateral securing the obligations of the
Partnership Guarantors under the Partnership Credit Agreement, the
Partnership Guarantee or any other Financing Documents to which the
Partnership Guarantors are party.
"PARTNERSHIP GUARANTEE" means the Second Amended and Restated Secured
Limited Guarantee, dated as of the closing date for the Old Securities, by
the Partnership Guarantors in favor of the Trustee and the Collateral Agent
for the benefit of the Secured Parties.
"PARTNERSHIP PROJECT DOCUMENTS" means, collectively, the construction
contracts, power purchase agreements, transmission agreements, fuel supply
agreements, fuel transportation agreements, operation and maintenance
agreements, administrative services agreements, real estate documents,
organizational documents and other material agreements entered into with
respect to the Partnership Projects, including any Additional Project
Document entered into with respect to the Partnership Projects.
"PARTNERSHIP PROJECT NOTE" means, collectively, the Initial Partnership
Project Note, the Supplemental Partnership Project Note and the Additional
Partnership Project Note.
"PARTNERSHIP SECURITY DOCUMENTS" means any security agreement, pledge
agreement, deed of trust, collateral assignment or other document pursuant to
which the Partnership Collateral is pledged to the Collateral Agent.
"PAYMENT DATE" means any Interest Payment Date or Principal Payment Date.
"PERMITTED COUNTERPARTY" means, in connection with an Interest Rate
Protection Agreement, a financial institution whose long-term senior debt is
rated at least "BBB+" by S&P and "Baa1" by Moody's or the equivalent by the
Rating Agencies.
"PERMITTED FACILITY" means (1) an electric power or thermal energy
generation or cogeneration facility or related facilities (including residual
waste management and facilities that use thermal energy from a cogeneration
facility), and its or their related electric power transmission, fuel supply
and fuel transportation facilities, together with its or their related power
supply, thermal energy and fuel contracts and other facilities, services or
goods that are ancillary, incidental, necessary or reasonably related to the
marketing, development, construction, management, servicing, ownership or
operation of the foregoing, owned by a utility or otherwise, as well as other
contractual arrangements with customers, suppliers and contractors or (2) any
infrastructure facilities related to (A) the treatment of water for municipal
and other uses, (B) the treatment and/or management of waste water, (C) the
treatment, management and/or remediation of waste, pollution and/or potential
pollutants and (D) any other process or environmental purpose.
"PERMITTED GUARANTOR DEBT" means (a) proceeds of Permitted Debt loaned to
Guarantors by the Funding Corporation, (b) guarantees by one or more of the
Guarantors of Permitted Debt, (c) the Guarantees and (d) the Project Notes.
"PERMITTED INVESTMENTS" means investments in securities that are:
(1) direct obligations of the United States, or any agency
thereof;
(2) obligations fully guaranteed by the United States or any
agency thereof;
(3) certificates of deposit or bankers acceptances issued by
commercial banks (including the Trustee or any of its
affiliates) organized under the laws of the United States or
of any political subdivision thereof or under the laws of
Canada, Japan, Switzerland or any country that is a member of
the European Economic Community having a combined
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capital and surplus of at least $250 million and having
long-term unsecured debt securities then rated "A" or better
by S&P or "A-2" or better by Moody's (but at the time of
investment not more than $25,000,000 may be invested in such
certificates of deposit from any one bank);
(4) repurchase obligations with a term of not more than seven days
for underlying securities of the types described in clauses
(1) and (2) above, entered into with any financial institution
meeting the qualifications specified in clause (3) above;
(5) open market commercial paper of any corporation incorporated
or doing business under the laws of the United States or of
any political subdivision thereof having a rating of at least
"A-1" from S&P and "P-1" from Moody's (but at the time of
investment not more than $25,000,000 may be invested in such
commercial paper from any one company);
(6) auction rate securities or money market preferred stock having
one of the two highest ratings obtainable from either S&P or
Moody's (or, if at any time neither S&P nor Moody's may be
rating such obligations, then from another nationally
recognized rating service acceptable to the Trustee); or
(7) investments in money market funds or money market mutual funds
sponsored by any securities broker dealer of recognized
national standing (or an affiliate thereof), having an
investment policy that requires substantially all the invested
assets of such fund to be invested in investments described in
any one or more of the foregoing clauses having a rating of
"A" or better by S&P or "A-2" or better by Moody's (including
money market funds for which the Depositary in its individual
capacity or any of its affiliates is investment manager or
adviser).
"PERMITTED LIEN" means, collectively:
(1) Liens specifically permitted, required by or created by, any
Security Document;
(2) Liens to secure Permitted Debt and Permitted Guarantor Debt
(other than Subordinated Debt);
(3) Liens for taxes, assessments or governmental charges which are
either not yet due or which are being diligently contested in
good faith by appropriate proceedings and for which adequate
reserves are established in accordance with GAAP;
(4) any exceptions to title which are contained in the title
policy delivered to the Collateral Agent;
(5) Liens in connection with workmen's compensation, unemployment
insurance or other social security or pension obligations;
(6) mechanic's, workmen's, materialmen's, supplier's, construction
or other like Liens arising in the ordinary course of business
or incident to the construction of any Permitted Facilities
permitted to be developed or expanded under the Transaction
Documents;
(7) servitudes, easements, rights-of-way, restrictions, minor
defects or irregularities in title and such other encumbrances
or charges against real property or interests therein as are
of a nature generally existing with respect to properties of a
similar character and which do not in any material way
interfere in any material way with the use thereof in the
business of the Guarantors; and
(8) other Liens incidental to the conduct of the Guarantors'
business or the ownership of properties and assets which were
not incurred in connection with the borrowing of money or the
obtaining of advances or credit (other than vendor's liens for
accounts payable in the ordinary course of business), and
which do not in the aggregate materially impair the use
thereof in the operation of their business.
"PERMITTED POWER CONTRACT BUY-OUT" means the termination of a Power
Purchase Agreement or the negotiated reduction of capacity and energy to be
sold under a Power Purchase Agreement other than pursuant to such agreement's
terms and the payment by SCE made in connection therewith.
A-8
<PAGE>
"PH MODIFICATION PROCESS" means the process whereby the pH of liquid
brine is reduced by injection of a pH modification agent into the liquid
brine. The pH Modification Process results in decreased scaling and mineral
buildup because solids in the more acidic liquid brine remain in solution
rather than precipitating out, as occurs if the brine is untreated.
"POWER PURCHASE AGREEMENTS" means the Del Ranch PPA, the Elmore PPA, the
Leathers PPA, the Salton Sea Unit I PPA, the Salton Sea Unit II PPA, the
Salton Sea Unit III PPA, the Salton Sea Unit IV PPA and the Vulcan PPA.
"PRINCIPAL FUND" means the fund of such name created under the Depositary
Agreement.
"PRINCIPAL PAYMENT DATE" when used with respect to (1) any Security means
the date on which all or a portion of the principal of such Security becomes
due and payable as provided therein or in the Indenture, whether on a
scheduled date for payment of principal at a Redemption Date, the final
maturity date for the Securities, a date of declaration of acceleration, or
otherwise, (2) any Debt Service Reserve Bond means each May 30th and November
30th, commencing on the first such date after the relevant conversion, and
the date on which all or a portion of the principal of such Debt Service
Reserve Bond becomes due and payable at redemption, the final maturity date
or declaration of acceleration, or otherwise or (3) any Debt Service Reserve
LOC Loan means each regularly scheduled date on which principal is due and
payable, as such date may be established from time to time, commencing on the
first such date after the applicable drawing, and any date on which principal
of such Debt Service Reserve LOC Loan becomes due and payable at redemption,
the final maturity or declaration of acceleration, or otherwise.
"PROJECT COMPANIES" means, collectively, the Salton Sea Guarantors and the
Partnership Project Companies.
"PROJECT DOCUMENTS" means, collectively, the Partnership Project
Documents, the Salton Sea Project Documents and the Magma Assignment
Agreement.
"PROJECT NOTES" mean the Partnership Project Notes, the Royalty Project
Note and the Salton Sea Project Notes and any additional notes issued under
the Partnership Credit Agreement, the Royalty Credit Agreement or the Salton
Sea Credit Agreement.
"PROJECTS" means, individually or collectively, the Del Ranch Project, the
Elmore Project, the Leathers Project, Salton Sea Unit I, Salton Sea Unit II,
Salton Sea Unit III, Salton Sea Unit IV, Salton Sea Unit V, the Vulcan
Project, the CE Turbo Project, the Zinc Recovery Project, and any other power
plant or Permitted Facility the acquisition, construction, operation or
maintenance of which is financed in whole or in part with Permitted Debt.
"PURCHASE AGREEMENT means the Purchase Agreement, dated October 7, 1998,
between the Initial Purchasers and the Funding Corporation, providing for the
sale of the Old Securities to the Initial Purchasers.
"PX" means the California Power Exchange.
"QF" OR "QUALIFYING FACILITY" means a "small power production facility" or
a "qualifying cogeneration facility" in accordance with PURPA and the rules
and regulations of FERC under PURPA relating thereto.
"QUALIFIED INSTITUTIONAL BUYERS" means "qualified institutional buyers" as
defined in Rule 144A of the Securities Act.
"RATING" means the rating of the Securities by the Rating Agencies.
"RATING AGENCY" means any of Moody's and S&P.
"RATING DOWNGRADE" means a lowering by the Rating Agencies of the then
current Ratings of the Securities.
"REDEMPTION DATE" means the date on which Funding Corporation redeems or
shall redeem any Securities in accordance with the Indenture.
A-9
<PAGE>
"REDEMPTION FUND" means the fund of such name created under the
Depositary Agreement.
"REGION 2 CONSTRUCTION FUND" means the fund of such name created under the
Depositary Agreement.
"REGION 2 UPGRADE EPC CONTRACT" means that certain Region 2 Upgrade
Engineering, Procurement, and Contraction Contract, dated September 11, 1998,
among Vulcan, Del Ranch, Turbo LLC, and SWEC.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights Agreement,
dated as of the closing date for the Old Securities, between the Funding
Corporation and the Initial Purchasers for the benefit of the holders of the
Old Securities.
"REGULATION S" means Regulation S under the Securities Act.
"REQUIRED SECURED PARTIES" means, at any time, persons that at such time
hold at least 33 1/3% of the Combined Exposure.
"REQUIRED SECURITY HOLDERS" means those Holders holding at least 50% in an
aggregate principal amount of the outstanding Securities.
"RESTRICTED PAYMENT" means, with respect to any person, (1) the
declaration and payment of distributions, dividends or any other payment made
in cash, property, obligations or other securities, (2) any payment of the
principal of or interest on any Subordinated Debt, or (3) the making of any
loans or advances to any affiliate (other than Permitted Debt); in each case
from cash, investments, securities or other funds from time to time in the
Distribution Suspense Fund or Distribution Fund.
"REVENUE FUND" means the fund of such name created under the Depositary
Agreement.
"ROYALTIES" means (1) with respect to the Royalty Guarantor, any and all
royalties received by Magma pursuant to the Partnership Project Easements, in
each case, to the extent not otherwise required to be used for Operating and
Maintenance Costs, and (2) with respect to the Initial Partnership
Guarantors, certain royalties, fees and other payments received by VPC and
CEOC under the Partnership Project project documents to the extent not
otherwise required to be used for (A) Operating and Maintenance Costs or (B)
pursuant to a Partnership Project document or financing document.
"ROYALTY COLLATERAL" means (1) an assignment of all Royalties paid to the
Royalty Guarantor which will be applied in accordance with the priorities of
payment established under the Depository Agreement, (2) a collateral
assignment of certain material contracts of the Royalty Guarantor, (3) a
pledge of the capital stock of the Royalty Guarantor, (4) a Lien on any funds
established for the Royalty Guarantor under the Depositary Agreement and (5)
any other collateral securing the obligations of the Royalty Guarantor under
the Royalty Credit Agreement, the Royalty Guarantee or any other Financing
Document to which the Royalty Guarantor is a party.
"ROYALTY GUARANTEE" means the Guarantee by the Royalty Guarantor in favor
of the Trustee and the Collateral Agent for the benefit of the Secured
Parties.
"ROYALTY PROJECT NOTE" means the promissory note in the principal amount
of $75,000,000 issued by the Royalty Guarantor in favor of the Funding
Corporation under the Royalty Credit Agreement on the closing date for the
Initial Securities.
"ROYALTY SECURITY DOCUMENTS" means any security agreement, pledge
agreement, deed of trust, collateral assignment or other document pursuant to
which the Royalty Collateral is pledged to the Collateral Agent.
"RULE 144A" means Rule 144A under the Securities Act.
"SALTON SEA COLLATERAL" means (1) an assignment of all revenues received
by the Salton Sea Guarantors from the Salton Sea Projects which will be
applied in accordance with the priorities of payment established under the
Depositary Agreement; (2) a Lien on substantially all of the assets of each
of the Salton Sea Guarantors and the Salton Sea Projects; (3) a collateral
assignment of certain material
A-10
<PAGE>
contracts; (4) a pledge of the capital stock of (or other equity interests
in) the Salton Sea Guarantors; (5) a Lien on the Salton Sea Unit V
Construction Fund and any other funds established for the Salton Sea
Guarantors under the Depositary Agreement; and (6) any other collateral
securing the obligations of the Salton Sea Guarantors under the Salton Sea
Credit Agreement, the Salton Sea Guarantee or any other Financing Document to
which the Salton Sea Guarantors are party.
"SALTON SEA GUARANTEE" means the Amended and Restated Secured Guarantee,
dated as of the closing date for the Old Securities, by the Salton Sea
Guarantors in favor of the Trustee and the Collateral Agent for the benefit
of the Secured Parties.
"SALTON SEA PROJECT DOCUMENTS" means, collectively, the construction
contracts, power purchase agreements, transmission agreements, fuel supply
agreements, fuel transportation agreements, operation and maintenance
agreements, administrative services agreements, real estate documents,
organizational documents and other material agreements entered into with
respect to the Salton Sea Projects, including any Additional Project
Documents entered into with respect to the Salton Sea Projects.
"SALTON SEA PROJECT NOTE" means, collectively, the Initial Salton Sea
Project Note and the Additional Salton Sea Project Note.
"SALTON SEA SECURITY DOCUMENTS" means any security agreement, pledge
agreement, deed of trust, collateral assignment or other document pursuant to
which the Salton Sea Collateral is pledged to the Collateral Agent.
"SALTON SEA UNIT I PPA" means the Amended and Restated Power Purchase
Agreement, dated May 8, 1987, between SSPG and SCE.
"SALTON SEA UNIT II PPA" means the Power Purchase Agreement, dated April
16, 1985, between SSPG and SCE.
"SALTON SEA UNIT III PPA" means the Power Purchase Agreement, dated April
16, 1985, between SCE and SSPG.
"SALTON SEA UNIT IV PPA" means the Consolidated, Amended and Restated
Power Purchase Agreement, dated November 29, 1994, among SCE, Fish Lake and
SSPG.
"SALTON SEA UNIT V CONSTRUCTION FUND" means the fund of such name created
under the Depositary Agreement.
"SALTON SEA UNIT V EPC CONTRACT" means that certain Salton Sea Unit 5
Engineering, Procurement, and Contraction Contract, dated September 2, 1998,
between Power LLC, as owner, and SWEC, as contractor.
"SALTON SEA UNIT V PPA" means the Power Sales Agreement, dated as of the
closing date for the Old Securities, between Power LLC and Minerals LLC.
"SECURED OBLIGATIONS" means all indebtedness, liabilities and obligations,
of whatsoever nature and howsoever evidenced (including, but not limited to,
principal, interest, fees, reimbursement obligations, penalties, indemnities
and legal and other expenses, whether due after acceleration or otherwise),
to the Secured Parties, in each case, direct or indirect, primary or
secondary, fixed or contingent, now or hereafter arising.
"SECURED PARTIES" means the Trustee, the Collateral Agent, the Depositary,
the Debt Service Reserve LOC Provider, any party that becomes a Permitted
Counterparty under an Interest Rate Protection Agreement, any party that
becomes the agent under the Working Capital Facility and any other person
that becomes a Secured Party under any Financing Document.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SECURITY" OR "SECURITIES" means any of the Old Securities, the New
Securities, the Initial Securities, the Supplemental Securities and any
Additional Securities issued pursuant to the Indenture.
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<PAGE>
"SECURITY DOCUMENTS" means, collectively, the Depositary Agreement, the
Funding Pledge Agreement, the Intercreditor Agreement, the Partnership
Security Documents, the Royalty Security Documents, the Salton Sea Security
Documents and any other document providing for any lien, pledge, encumbrance,
mortgage or security interest on any or all of the Collateral or Funding
Corporation Collateral.
"SECURITY HOLDER" means the registered holder of any Security from time to
time.
"SENIOR DEBT" means all of the Permitted Debt of the Funding Corporation
other than the Subordinated Debt.
"SO4 AGREEMENT" means an Interim Standard Offer No. 4 long-term power
purchase agreement or a modified Interim Standard Offer No. 4 long-term power
purchase agreement.
"SUBORDINATED DEBT" means Debt (and the note or other instrument
evidencing the same) which has been subordinated, on terms and conditions
substantially the same as those permitted under the Indenture, to the prior
payment of amounts owing under the Indenture and the Securities.
"SUBSTANTIAL COMPLETION" of a Project means that (1) the Project is
substantially complete in accordance with the construction contract therefor
and all applicable laws and permits, (2) all services required to be
furnished by the contractors for the Project are substantially completed and
all material equipment for the Project has been delivered and properly
incorporated, (3) all necessary performance and startup testing required for
substantial completion of the Project under its construction contract and
other significant pre-commissioning activities for the Project have been
conducted, (4) a punchlist of items to be finished or completed for the
Project has been prepared, and (5) all significant events necessary to allow
commercial operation of the Project to be declared have been met, in each
case as confirmed (with customary qualifications and assumptions) by the
Independent Engineer; provided, however, that a New Project will be deemed to
have achieved Substantial Completion notwithstanding its failure to satisfy
the conditions set forth in clauses (1) through (5) above if (a) the Funding
Corporation has redeemed an amount of Series F Securities such that the
minimum and average projected Debt Service Coverage Ratios for the term of
the Series F Securities are greater than or equal to 1.4 to 1 and 1.7 to 1,
respectively, (b) the Funding Corporation has been required to redeem, and
has redeemed, an amount of Series F Securities equal to the amount specified
for the New Project in the third paragraph under "SUMMARY DESCRIPTION OF THE
OFFERED SECURITIES--Mandatory Redemption," or (c) the Funding Corporation and
the Guarantors have taken such other measures as the Rating Agencies may
require to confirm that the failure to achieve Substantial Completion on or
before the applicable Guaranteed Substantial Completion Date will not result
in a Rating Downgrade.
"SUPPLEMENTAL PARTNERSHIP GUARANTEE" means the Amended and Restated
Guarantee, dated as of the closing date for the Supplemental Securities, by
the Initial Partnership Guarantors and the Supplemental Partnership
Guarantors in favor of the Trustee and the Collateral Agent for the benefit
of the Secured Parties.
"SUPPLEMENTAL PARTNERSHIP PROJECT NOTE" means the promissory note in the
initial principal amount of $135,000,000 issued by the Initial Partnership
Guarantors and the Supplemental Partnership Guarantors in favor of the
Funding Corporation under the Partnership Credit Agreement on the closing
date for the Supplemental Securities.
"SUPPORT LETTER" means the letter agreement, dated as of the closing date
for the Initial Securities, among Magma, the Funding Corporation and the
Initial Guarantors.
"TITLE EVENT" means the existence of any defect of title or lien or
encumbrance on a Salton Sea Project or a Partnership Project (in each case,
other than certain permitted liens) in effect on the closing date for the
Initial Securities or the closing date for the Old Securities, as applicable,
that entitles the Collateral Agent to make a claim under the policy or
policies of title insurance required pursuant to the Financing Documents.
"TITLE EVENT PROCEEDS" means all amounts and proceeds (including
instruments) received in respect of any Title Event.
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<PAGE>
"TRANSACTION DOCUMENTS" means the Project Documents and the Financing
Documents.
"TRUSTEE" means Chase Manhattan Bank and Trust Company, National
Association, as trustee under the Indenture, together with its successors and
assigns.
"UNCONTROLLABLE FORCE," with respect to any Power Purchase Agreement,
means any occurrence beyond the control of a party which causes that party to
be unable to perform its obligations under the relevant agreement and which a
party has been unable to overcome by the exercise of due diligence, including
but not limited to flood, drought, earthquake, storm, fire, pestilence,
lightning and other natural catastrophes, epidemic, war, riot, civil
disturbance or disobedience, strike, labor dispute, action or inaction of
government or other proper authority which may conflict with the terms of the
agreement, or failure, threat of failure or sabotage of facilities which have
been maintained in accordance with good engineering and operating practices
in California. The failure of the interconnecting utility to deliver
electrical energy generated by a Project to the point of interconnection is
not considered an Uncontrollable Force under the relevant Power Purchase
Agreement.
"VULCAN PPA" means the Long Term Power Purchase Agreement, dated March 1,
1984, as amended, between SCE and Vulcan, as successor to Magma Electric
Company, a Nevada corporation.
"WORKING CAPITAL DEBT" means the working capital loans provided under the
Working Capital Facility in an aggregate principal amount not to exceed
$15,000,000.
"WORKING CAPITAL FACILITY" means any agreement or agreements from time to
time in effect among Funding Corporation and banks providing for the
availability of working capital loans to the Funding Corporation and the
Guarantors.
"YIELD MAINTENANCE PREMIUM" means an amount calculated by the Funding
Corporation or any Guarantor as of the Redemption Date for any redemption of
Series F Securities as follows:
(1) the average life of the remaining scheduled payments of
principal in respect of outstanding Series F Securities (the
"Remaining Average Life") will be calculated as of the
Redemption Date;
(2) the yield to maturity will be calculated for the U.S. Treasury
security having an average life equal to the Remaining Average
Life and trading in the secondary market at the price closest
to par (the "Primary Issue"); provided, however, that if no U.
S. Treasury security has an average life equal to the
Remaining Average Life, the yields (the "Other Yields") for
the two maturities of United States Treasury securities having
average lives most closely corresponding to the Remaining
Average Life and trading in the secondary market at the price
closest to par will be calculated, and the yield to maturity
for the Primary Issue will be the yield interpolated or
extrapolated from such Other Yields on a straight-line basis,
rounding in each of such relevant periods to the nearest
month;
(3) the discounted present value of the then remaining scheduled
payments of principal and interest (but excluding that portion
of any scheduled payment of interest that is actually due and
paid on such Redemption Date) in respect of outstanding Series
F Securities will be calculated as of the Redemption Date
using a discount factor equal to the sum of (a) the yield to
maturity for the Primary Issue, plus (b) 50 basis points; and
(4) the amount of premium in respect of Series F Securities to be
redeemed will be an amount equal to (a) the discounted present
value of the Series F Securities to be redeemed determined in
accordance with clause (3) above minus (b) the unpaid
principal amount of the Series F Securities to be redeemed;
provided, however, that the premium will not be less than
zero.
"ZINC CONSTRUCTION FUND" means the fund of such name created under the
Depositary Agreement.
"ZINC RECOVERY PROJECT EPC CONTRACT" means that certain Zinc Recovery
Project Engineering, Procurement, and Contraction Contract, dated September
16, 1998, between Minerals LLC, as owner, and Kvaerner, as contractor.
A-13
<PAGE>
APPENDIX B
INDEPENDENT ENGINEER'S REPORT
SALTON SEA PROJECT ANALYSIS
PREPARED FOR
SALTON SEA FUNDING CORPORATION
SEPTEMBER 23, 1998
FLUOR DANIEL, INC.
IRVINE, CALIFORNIA
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION TITLE PAGE
- --------- --------------------------------------------------------------------------- -----
<S> <C> <C>
1.0 Executive Summary and Conclusions ......................................... B-2
1.1 Executive Summary ......................................................... B-2
1.2 Conclusions ............................................................... B-5
2.0 Scope of Services ......................................................... B-10
3.0 Facilities Overview ....................................................... B-10
3.1 General Description ....................................................... B-10
3.2 Management and Organization ............................................... B-11
3.3 Salton Sea Projects ....................................................... B-12
3.4 Partnership Projects ...................................................... B-13
3.5 Royalty Projects .......................................................... B-13
3.6 pH Modification Process ................................................... B-13
4.0 New Projects .............................................................. B-14
4.1 General Description -- Salton Sea Unit V Project .......................... B-14
4.2 General Description -- Region II Brine Facilities Construction ............ B-14
4.3 General Description -- Salton Sea Zinc Recovery Project ................... B-15
4.4 Materials of Construction ................................................. B-17
4.5 New Projects Management Organization ...................................... B-17
4.6 Project Site Geotechnical Description ..................................... B-17
4.7 Schedule .................................................................. B-18
4.8 Capital Cost Analysis ..................................................... B-19
5.0 Project Operations ........................................................ B-20
6.0 Project Contracts ......................................................... B-20
6.1 Power Purchase Agreements and Related Agreements .......................... B-20
6.2 Solids Disposal Agreements--Operating Plants .............................. B-22
6.3 Engineering, Procurement and Construction Agreements ...................... B-23
7.0 Permitting and Environmental .............................................. B-24
7.1 Environmental Compliance .................................................. B-24
7.2 Applicable Environmental Permit and Licensing Requirements ................ B-25
7.3 Environmental Requirement Compliance, Deficiencies and Limitations ........ B-25
8.0 Assessment of Financial Projections ....................................... B-25
8.1 Overview .................................................................. B-25
8.2 Base Case Projection Assumptions .......................................... B-26
8.3 Sensitivity Analysis ...................................................... B-28
8.4 Breakeven Analysis ........................................................ B-29
</TABLE>
B-1
<PAGE>
SECTION 1.0
EXECUTIVE SUMMARY AND CONCLUSIONS
1.1 EXECUTIVE SUMMARY
Presented herein is the Fluor Daniel, Inc. (Fluor Daniel) review and
analyses (the Report) as related to eight operating geothermal power plants
(the Existing Projects), two new geothermal power plants and a Zinc Recovery
Project (the New Projects), as listed below. The geothermal resource production
facilities (wellheads and related brine delivery system) are reviewed by
GeothermEx, Inc.
o Salton Sea Units I, II, III and IV, including brine modification (pH
Modification) and a planned capacity increase via a new Salton Sea Unit V
(collectively the Salton Sea Projects).
o Vulcan, Del Ranch, Elmore and Leathers, including the Region II Brine
Facilities Construction, the TurboExpander Project, and the commercial
zinc production facilities collectively known as the Zinc Recovery
Project (collectively the Partnership Projects).
o Royalty and other payments received from the Del Ranch, Elmore, and
Leathers Projects (the Royalty Projects). The Salton Sea Projects,
Partnership Projects and the Royalty Projects are collectively referred
to herein as the Projects.
NEW PROJECTS -- OVERVIEW
Salton Sea Power LLC is planning to construct a 49.0 MW net geothermal
power plant (Salton Sea Unit V Project) using proven technology designed to
produce electrical energy primarily from the Salton Sea Region I injection
brine. This brine is currently reinjected and contains over 40 MW of available
thermal energy to be used by Salton Sea Unit V. Additional power will be
produced utilizing minimal increased brine flows through the existing brine
handling facilities located at the Salton Sea Projects. Therefore, Salton Sea
Unit V will produce electrical energy by increasing the thermal efficiency of
Region I with only a limited increase in the quantity of brine production.
The Region II Brine Processing Construction will include the installation
of modern brine processing facilities to service the total brine flow to be
provided to Vulcan and Del Ranch. It is intended that these facilities will be
designed with the appropriate technology, developed and proven at the Salton
Sea, to provide for reliable steam production for power generation, and a
consistent supply of brine suitable for the ion exchange zinc recovery process.
CE Turbo LLC is planning to construct the TurboExpander Project which is
designed to provide electrical power output of 10.0 MW net. This power output
will result from increased efficiencies in the steam field and by efficiency
increases in the existing Region II brine handling facilities as a result of
the Region II Brine Processing Construction; no new production or injection
wells are required.
Additionally, CalEnergy Minerals LLC is planning to construct a commercial
scale Zinc Recovery facility to extract approximately 30,000 metric tons per
year of zinc from the geothermal brine. The Salton Sea Unit V Project and the
Region II Brine Processing Facilities are intended to complement the Zinc
Recovery Project.
Fluor Daniel has been informed that the Funding Corporation intends to
issue approximately $285 million of Senior Secured Notes and Bonds
(Securities). The net proceeds of the Securities, in addition to approximately
$122.5 million in equity to be contributed from CalEnergy or an affiliate, are
intended to be used to (1) fund the construction cost of the Salton Sea Zinc
Recovery Project, Salton Sea Unit V, and the Turboexpander Project; (2) fund
the cost of the Region II Brine Processing Construction; (3) fund certain other
capital improvements (the Capital Improvements); and (4) fund interest, other
financing costs, project administration, and other owner's costs during
construction.
B-2
<PAGE>
A summary overview of the current and intended features of the Projects is
presented in Table 1-1.
TABLE 1-1
OVERVIEW OF THE PROJECTS
<TABLE>
<CAPTION>
FACILITY(1) NET
NET OWNERSHIP COMMERCIAL POWER
CAPACITY INTEREST OPERATION CONTRACT CONTRACT POWER
(MW) (MW) (YEARS) EXPIRATION TYPE PURCHASER
------------- ----------- ------------ ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
SALTON SEA PROJECTS
Salton Sea Unit I ....... 10.0 10.0 16 6/2017 Negotiated SCE
Salton Sea Unit II ...... 20.0 20.0 8 4/2020 SO4 SCE
Salton Sea Unit III ..... 49.8 49.8 9 2/2019 SO4 SCE
Salton Sea Unit IV. ..... 39.6 39.6 2 5/2026 Negotiated SCE
Salton Sea Unit V ....... 49.0 49.0 0 N/A N/A Zinc Recovery
Project and PX
Subtotal ............. 168.4 168.4
PARTNERSHIP PROJECTS
Elmore .................. 38.0 38.0 10 12/2018 SO4 SCE
Del Ranch ............... 38.0 38.0 10 12/2018 SO4 SCE
Leathers ................ 38.0 38.0 8 12/2019 SO4 SCE
Vulcan .................. 34.0 34.0 12 2/2016 SO4 SCE
TurboExpander ........... 10.0 10.0 0 N/A N/A PX
----- -----
Subtotal ............. 158.0 158.0
----- -----
Total ................... 326.4 326.4
</TABLE>
<TABLE>
<CAPTION>
FACILITY NET
NET OWNERSHIP
CAPACITY INTEREST COMMERCIAL
(METRIC (METRIC OPERATION CONTRACT CONTRACT ZINC
TONNES/YR) TONNES/YR) (YEARS) EXPIRATION TYPE PURCHASER
------------ ------------ ----------- ------------ ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
ZINC RECOVERY PROJECT
Zinc Plant ........ 30,000 30,000 0 N/A Annual Local Market
------ ------
</TABLE>
- ----------
(1) Power Project capacity is a nominal number that varies with operating and
reservoir conditions.
B-3
<PAGE>
PROJECT LOCATION
The Salton Sea and Partnership Projects are located in Imperial County
California in the Salton Sea area. A map showing the general location of the
Salton Sea, Partnership, and Zinc Recovery Project is provided in Figure 1-1.
FIGURE 1-1
PLANT LOCATION MAP
[GRAPHIC OF MAP OMITTED]
B-4
<PAGE>
PROJECT AGREEMENTS
As shown in Table 1-1, the Existing Projects sell power to Southern
California Edison Company (SCE) in accordance with power purchase agreements
and related agreements for transmission system interconnection. Salton Sea Unit
V will sell approximately one-third of its net output to the Zinc Recovery
Project and the remainder, through the Power Exchange (PX). The TurboExpander
will sell all its power through the PX. The Zinc Recovery Project intends to
sell its zinc primarily to West Coast consumers on an open market basis.
It is understood that the Salton Sea, Partnership, and Zinc Recovery
Projects are, and will continue to be, operated by CalEnergy Operating
Corporation (CEOC). The Existing Projects have been in commercial operation for
numerous years.
Construction of a portion of the facilities to be funded by the securities
will be performed under Engineering, Procurement and Construction (EPC)
contracts, with completion and cost guarantees. The Salton Sea Unit V,
TurboExpander and Region II Brine Processing Construction Projects will be
constructed by Stone and Webster Engineering Corporation (S&W) under two
separate guaranteed price contracts. The Zinc Recovery Project will be
constructed by Kvaerner, again under a guaranteed price contract.
PROJECT PARTICIPANTS
The Salton Sea Units I, II and III are owned by Salton Sea Power
Generation L.P. (SSPG) and purchase steam from Salton Sea Brine Processing L.P.
(SSBP). SSPG and Fish Lake Power Company (FLPC) are owners of the Salton Sea
Unit IV Project. Salton Sea Unit V will be owned by Salton Sea Power L.L.C.
(Power LLC). SSPG, SSBP FLPC, and Power LLC are referred to collectively as the
"Salton Sea Guarantors".
The improvements to the brine processing facility part of the Region II
Brine Processing Construction will be owned by certain of the Existing
Projects. The TurboExpander Project will be owned by CE Turbo LLC. The Zinc
Recovery Project will be owned by CalEnergy Minerals L.L.C. Agreements were
reviewed that indicate that the Salton Sea Royalty Company (the Royalty
Guarantor) receives royalties and other payments from Leathers, Elmore, and Del
Ranch.
SCHEDULE
The commercial operation dates for Salton Sea Unit V and the Zinc Recovery
Project are currently scheduled for mid 2000. The commercial operation dates
for the TurboExpander Project and the Region II Brine Processing Construction
are currently scheduled for the first half of 2000.
1.2 CONCLUSIONS
On the basis of Fluor Daniel's review of the information provided by the
Salton Sea Funding Corporation (the Funding Corporation), and in reliance
thereon, Fluor Daniel provides the following opinions:
1.2.1 EXISTING PROJECTS -- OPERATIONS AND PERFORMANCE
o The Projects use commercially proven technology and Existing Projects
are operated in accordance with recognized electric utility industry
practices.
o The useful life of the surface facilities are expected to exceed the
final maturity date of the debt Securities.
o Principal project participants possess the necessary experience to
successfully fulfill their project obligations.
o Operating plant capacity factors (expected forced and scheduled
outages) used in the projections are based on the operating results for
the operating years 1995, 1996, and 1997, and these are felt to be
reasonable. For the years 1995 through 1997, selected highlights of the
operating history reported by the Funding Corporation are as follows:
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o Revenue increased 78 percent.
o Site operating costs decreased from 3.53 cents/net kWh to 1.84
cents/net kWh for the Salton Sea Units I-IV Projects, and from 3.17
cents/net kWh to 2.35 cents/net kWh for the Partnership Projects. For
the Existing Projects as a whole, operating costs decreased from 3.28
cents/net kWh to 2.13 cents/net kWh.
o Nominal capacity factors in 1997 were maintained at 95.5 percent for
the Salton Sea I-IV Projects, 102.3 percent for the Partnership
Projects, and 99.2 percent on a combined basis.
o The pH Modification technology is proven and reliable, as has been
shown by the eight year operating history at Salton Sea Unit II and the
two years of operating history of this technology at Salton Sea Units I,
III, and IV. The pH Modification program should continue to increase
availability and decrease costs consistent with assumptions in the
financial projections.
o The Existing Projects are expected to continue operations in accordance
with all relevant existing permits and environmental laws.
1.2.2 NEW PROJECTS
SALTON SEA UNIT V
o The technology upon which the Salton Sea Unit V is based, is proven and
reliable. The scope of work is within demonstrated capabilities of the
principal project participants. The EPC contract for the Salton Sea Unit
V Project provides for a guaranteed completion date. Based on the current
expected closing date for the Securities, it appears that the completion
of the Salton Sea Unit V Project can be achieved within the guaranteed
date in the EPC contract.
o The pH Modification technology is proven and reliable. Similar
technology has been installed and has operated successfully throughout
Salton Sea Units I -- IV. As demonstrated by the eight year operating
history at Salton Sea Unit II, and the more recent operating history of
Salton Sea Units I, III, and IV, the pH Modification program should
continue to operate at the same or improved levels of reliability.
o Reasonable selections have been made in selecting the EPC Contractor for
this work, and in preparing the list of equipment suppliers. Major
equipment suppliers approved by Power LLC are recognized as qualified
suppliers in the geothermal power industry.
o The Salton Sea Unit V Project should meet the guaranteed performance
criteria contained in the EPC contracts and should comply with all
applicable environmental regulations.
o Based on the EPC contract reviewed for the Salton Sea Unit V Project, the
capital cost budget appears adequate for the facilities provided under
this contract. The guaranteed price in the S&W contract, plus S&W's
substantial prior experience with geothermal plants, should mitigate the
risk of cost overruns and schedule delays, and should thus adequately
protect both the Bondholders and Owners. Power LLC should have adequate
Contractor resources available to cover the possibility of performance
shortfalls by S&W for the Salton Sea Unit V Project . The contractual
Liquidated Damage provisions provided in the EPC contract are typical for
securing contractor completion of projects utilizing proven technology
such as that utilized on the Salton Sea Unit V Project, and should
adequately protect both the Bondholders and the Owners.
o Based on Fluor Daniel's knowledge of conventional power project financing,
Owner's costs, such as administration costs, insurance, financing costs,
contingency funds, working capital, etc., estimated by the Funding
Corporation appear to be reasonable.
o All discretionary permit approvals have been obtained for construction.
o The useful life of the Salton Sea Unit V Project can be expected to exceed
the final maturity date of the Securities.
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REGION II BRINE PROCESSING CONSTRUCTION
o The technology upon which brine processing is based has been demonstrated
to be proven and reliable. The EPC contract for the Region II Brine
Processing Construction provides for a guaranteed completion date. Based
on the current expected closing date for the Securities, it appears that
the completion of the Region II Brine Processing Construction can be
achieved within the guaranteed date in the EPC contract.
o The pH Modification technology has been demonstrated to be proven and
reliable at the wellfield servicing the Existing Projects. Similar
technology has been serving Salton Sea Units I -- V and has a proven
operating history. The pH Modification system should increase availability
and decrease operating and maintenance costs consistent with assumptions
in the financial projections.
o Reasonable selections have been made in selecting the EPC Contractor for
this work, and in preparing the list of equipment suppliers. Major
equipment suppliers approved for this project are recognized as qualified
suppliers in the geothermal field.
o Based on the EPC contract reviews for the Region II Brine Processing
Construction, the capital cost budget appears adequate for the facilities
provided under those contracts. The guaranteed price in the S&W EPC
contract, plus S&W's substantial prior experience with geothermal
installations, should mitigate the risk of cost overruns and schedule
delays. The contractual Liquidated Damage provisions in the EPC contract
are typical for securing contractor completion of projects utilizing
proven technology such as that utilized, and should adequately protect
both the Bondholders and the Owners.
o The Region II Brine Processing Construction should meet the guaranteed
performance criteria contained in the EPC contract and should comply with
all applicable environmental regulations.
o All discretionary permit approvals have been obtained for construction.
TURBOEXPANDER PROJECT
o The proposed TurboExpander Project uses technology which has been
demonstrated to be proven and reliable. The scope of work is within
demonstrated capabilities of the principal project participants which
should make the currently scheduled completion during the first quarter of
2000 achievable.
o The EPC Contract for the Region II Brine Processing Construction, which
also encompasses the TurboExpander Project provides for a guaranteed
completion date. Based on the current expected closing date for the
Securities, it appears that the completion of the TurboExpander Project
can achieved within the guaranteed date in the EPC contract.
o S&W, the EPC contractor for this work, is recognized as an experienced
contractor in this field. The major equipment suppliers that have been
approved for S&W's selection are recognized as qualified suppliers to the
industry.
o The TurboExpander Project should meet the guaranteed performance criteria
contained in the EPC contract and should comply with all current
applicable environmental regulations.
o On the basis of the EPC contract reviewed for the TurboExpander Project,
the capital cost budget appears adequate for the facilities provided under
those contracts. The guaranteed price in the S&W contract, plus S&W's
substantial prior experience with geothermal power plants, should mitigate
the risk of cost overruns and schedule delays. CE Turbo LLC should have
adequate contractor resources available to cover the possibility of
performance shortfalls by S&W for the TurboExpander Project. The
contractual Liquidated Damages provisions in the EPC contract are typical
for securing contractor completion of projects utilizing proven technology
such as that utilized in TurboExpander Project, and should adequately
protect both the Bondholders and the Owners.
o Based on Fluor Daniel's knowledge of conventional power project financing,
the Owner's costs, such as administration costs, insurance, financing
costs, contingency funds, working capital, etc., estimated by CE Turbo LLC
appear to be reasonable.
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o All required discretionary permit approvals have been obtained for the
construction of TurboExpander Project.
o The useful life of the TurboExpander Project can be expected to exceed the
final maturity date of the Securities.
ZINC RECOVERY PROJECT
o The Zinc Recovery Project is generally modeled after a demonstration plant
located at the Elmore Project. This demonstration plant successfully
demonstrated the recovery of zinc on a continuous basis.
o Even though the application of this technology is relatively new at the
Salton Sea site, the technology has been demonstrated to be reliable. All
components of this technology, except the ion exchange process, have been
in commercial operation for several years at Tecnicas Reunidas, a zinc
extraction project in Spain. Furthermore, each of the components has been
successfully applied and proven for a number of years in other metals
industries such as copper and uranium. The scope of work is within
demonstrated capabilities of the principal project participants which
provides a high level of confidence that the expected completion date of
mid 2000 is achievable.
o The EPC contract for the Zinc Recovery Project provides for a guaranteed
completion date. Based on the current expected closing date for the
Securities, it appears that the completion of the Zinc Recovery Project
can achieved within the guaranteed date in the EPC contract.
o Kvaerner, the EPC contractor for this work, is recognized as an
experienced contractor in this field. The major equipment suppliers that
have been approved for Kvaerner's selection are recognized as qualified
suppliers to the industry.
o The Zinc Recovery Project should meet the guaranteed performance criteria
contained in the EPC contract and should comply with all environmental
regulations.
o Based on the EPC contracts reviewed for the Zinc Recovery Project, the
capital cost budget appears adequate for the facilities provided under
those contracts. The guaranteed price in the Kvaerner contract, plus
Kvaerner's substantial prior experience with minerals extraction, should
mitigate the risk of cost overruns and schedule delays. CalEnergy Minerals
LLC should have adequate contractor resources available to cover the
possibility of performance shortfalls by Kvaerner for the Zinc Recovery
Project. The contractual Liquidated Damages provisions in the EPC contract
are typical for securing contractor completion of projects utilizing
proven technology such as that utilized in Zinc Recovery Project, and
should adequately protect both the Bondholders and the Owners.
o Based on Fluor Daniel's knowledge of conventional minerals project
financing, the Owner's costs, such as administration costs, insurance,
financing costs, contingency funds, working capital, etc., estimated by
the Funding Corporation appear to be reasonable.
o All required discretionary permit approvals have been obtained for the
construction of Zinc Recovery Project.
o The useful life of the Zinc Recovery Project can be expected to exceed the
final maturity date of the Securities.
o Operating costs have been appropriately developed and indicate that the
Project will be the lowest cost producer of zinc in North America. The
Project's major operating cost component is electricity which will be
supplied from Salton Sea Unit V. Resin, another major cost component, is
supplied under a contract with The Dow Chemical Company.
FINANCIAL PROJECTIONS
o An economic/financial model has been developed by the Funding Corporation
which represents the projected performance of the Guarantors. The
assumptions underlying the economic/financial model are reasonable, and
the projected operating results reasonably represent the future financial
profile of the Guarantors.
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o Projected operating and maintenance costs and capital expenditures for
major maintenance are reasonable and representative of the planned
operations of the Salton Sea and Partnership Projects.
o Financial projections, based on the Base Case assumptions recommended by
the Funding Corporation, and found to be reasonable by Fluor Daniel,
indicate that revenues should be adequate to pay operations and
maintenance expenses and provide cash flow for debt service, with base
case debt service coverage ratios calculated from 1999 through 2018 of
1.72 minimum and 2.97 average.
o The financial projections remain stable across a range of sensitivities
and avoided cost assumptions.
ENVIRONMENTAL PERMITTING AND LICENSING
o The reviewed records show no environmental Notices of Violation for any
media (air emissions, wastewater, solid/hazardous waste) have been filed
against the Existing Projects in the last two years.
o The Existing Projects appeared to be neat and well maintained.
o The H2S abatement systems consist of existing biofilters for Salton Sea
Units I, II, III and IV. A review of the preliminary design indicated that
sufficient capacity appears to exist to handle any anticipated increase of
H2S loads resulting from the operation of Salton Sea Unit V.
o The water and brine pond designs appear adequate to minimize or eliminate
the potential for water and brine release into the underlying soil and
groundwater.
o Solid waste handling and disposal appears adequate.
o Dust control in the solid waste handling operation should be improved by
planned dust handling equipment and dust abatement measures.
o All discretionary environmental permit approvals have been received for
the proposed new construction.
PROJECT AGREEMENTS
o Major project agreements (as listed in Attachment 2-1) for the Salton Sea
Projects and Partnership Projects, including power purchase agreements,
EPC contracts, major subcontracts, and related contracts for transmission
system interconnection appear reasonable from a technical perspective and
are consistent with the financial projections reviewed herein.
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SECTION 2.0
SCOPE OF SERVICES
On the basis of information and documents provided by the Funding
Corporation, Fluor Daniel, as Independent Engineer, has reviewed certain
technical, environmental and economic aspects of the Projects as listed below:
o Current status of existing Salton Sea Funding Corporation projects
o Project participants
o Plant designs and projected performance
o Project capital cost estimates
o Operations and maintenance
o Project agreements
o Environmental permitting and licensing
o Financial projections
o Project completion testing
Fluor Daniel conducted this analysis, and prepared this report, utilizing
reasonable care and skill in applying methods of analysis consistent with
normal industry practice. In the preparation of this report and the opinions
expressed, Fluor Daniel has made certain assumptions with respect to
conditions, which may exist or events, which may occur in the future. A listing
of assumptions and documentation relied upon by Fluor Daniel in the preparation
of this report are provided in Attachment 2-1. The information set forth herein
has been obtained from sources which are believed to be reliable, but it is not
guaranteed as to accuracy or completeness by, and is not construed as a
representation by, Fluor Daniel or the Project sponsors.
SECTION 3.0
FACILITIES OVERVIEW
3.1 GENERAL DESCRIPTION
The Existing Projects consist of eight operating geothermal power plants
near the Salton Sea in the Imperial Valley of Southern California. These plants
produce net power generation of approximately 288 MW from high temperature
geothermal brines produced by drilling deep production wells into the Salton
Sea Known Geothermal Resource Area (SSKGRA). Imperial Valley brines are
characterized by heavy concentrations of compounds of silica, zinc, manganese
and other metals. Over twenty million pounds of brine per hour are produced and
flashed to supply the steam for electric power generation. After the brine is
flashed to produce steam, it is reinjected into the subsurface reservoir
through separate injection wells constructed for that purpose.
As mentioned above, the Salton Sea and Partnership Projects are located in
the SSKGRA and are within a central radius of approximately five miles. A
representative map showing approximate plant locations is provided in Figure
1-1.
Hot brine from the geothermal resource is flashed into high pressure,
standard pressure, and low pressure steam which is expanded through steam
turbine generators to produce electric power. The steam is condensed and then
used for cooling tower make-up. Excess condensate is injected back into the
geothermal reservoir. Brine from the steam flash process is further processed
to remove solids, or maintain them in solution, and is injected back into the
geothermal reservoir. The Existing Projects employ proven geothermal resource
flash technology which has been commercially operated worldwide for over 30
years.
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Plant design and operation are affected by the geothermal resource which,
in the SSKGRA, is relatively high in solids content at approximately 250,000 to
300,000 parts per million. Leathers, Elmore, Del Ranch, and Vulcan utilize the
crystallizer reactor clarifier (CRC) process to control scaling and to
precipitate solids. The majority of the solids are disposed of in an
appropriately licensed landfill and the remainder are recycled to the
crystallizers to promote crystal growth (seeding) to control scaling on vessel
walls.
Salton Sea Units I, II, III, and IV utilize the pH Modification process to
control scaling. This process involves injection of a pH modification agent
into the liquid brine resource to maintain solids in solution so that the brine
may be injected directly into the reservoir without precipitation and removal
of the solids. Implementation of this process as part of the Region II Brine
Processing Construction is expected to simplify resource handling in a similar
fashion, thus improving availability and reducing costs.
Noncondensible gases from the Existing Projects are removed from the
condensers for efficient power generation and turbine operation using a
combination of steam jet ejectors and vacuum pumps. Systems for abatement of
hydrogen sulfide present in the noncondensible gases are not currently required
for the Partnership Projects since ambient hydrogen sulfide concentrations are
at acceptable levels. However, hydrogen sulfide abatement systems were
installed for Salton Sea Units I, II, III and IV as part of an earlier Salton
Sea expansion project. The technology for such abatement systems is proven and
reliable.
The cooling systems for all operating projects consist of surface
condensers and wet mechanical draft cooling towers. Utility systems are
provided to support each operating plant. Fire protection systems are also
provided, including cooling tower wetdown systems which keep the tower wet
during shutdown periods, and fire monitors which are provided at grade around
the perimeter of each tower. Standby diesel generators are available to support
plant safety systems during shutdowns.
Brine is injected into the reservoir by injection pumps after solids
processing. Brine ponds are provided at each plant for temporary storage of
brine during startup/shutdown periods and for emergency use.
3.2 MANAGEMENT AND ORGANIZATION
An Operations Manager is responsible for operations, maintenance, and
plant performance of the Existing Projects. The Salton Sea Projects, Vulcan and
Del Ranch, and Elmore and Leathers each have a Region Supervisor who is
responsible for operations, maintenance, and plant performance. The plant's
Control Operators are trained to operate the plants, perform routine lab tests
and supervise the Outside Operators. The plant's onsite staff is trained to
conduct routine maintenance activities.
In support of these Project sites, CEOC provides centralized
administrative support, engineering support, maintenance support, and
analytical lab support. A Maintenance Supervisor is responsible for the
Mechanics as well as the Instrument and Electrical Technicians. When additional
manpower is required at the Project sites, the Central Maintenance shop
provides the necessary staff. This organization and staffing procedure is
typical for these types of plants.
Fluor Daniel is of the opinion that the overall operating and maintenance
organization is adequate to support operation of the Salton Sea and Partnership
Projects and should continue to provide operating and maintenance cost
reductions.
Safety
CEOC has an established safety program based on a Corporate Safety Manual
and Imperial Valley Site Specific Safety Procedures. These safety procedures
appear to be generally consistent with general industry practices.
CEOC is staffed with a Safety Manager and two Safety Engineers. All are
trained in Safety procedures as well as environmental response, pursuant to
stated procedures. The Safety personnel conduct ongoing safety reviews at each
of the Project sites and monthly training sessions for all-hands.
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These sessions are designed to emphasize compliance with current CEOC Safety
Procedures in place and to convey new safety procedures and execution methods.
CEOC utilizes a "Safe Work Permit" procedure that must be implemented by
maintenance and operating personnel prior to starting any work. CEOC also has a
plant lockout/tagout procedure for isolating systems for maintenance and
personnel protection.
All procedures were found to be sound and in line with safety procedures
normally found in this type of industry.
Training
CEOC has a very comprehensive training program, which includes Operator
and Maintenance Technician certification. There are five classifications of
Operators: Operator 1, 2, and 3, Control Operator, and Senior Operator. Each
classification, except Senior Operator, has a Certification Manual. The manual
contents and associated tests have been developed in accordance with CEOC's
organizational structure. The certification program includes written tests
administered by the CEOC Training Department and a plant walk-through test
conducted by the Training Review Board.
The CEOC Senior Operator classification was recently implemented, but no
certification program is currently in place. A job description and
certification testing procedure is being prepared for this new classification.
In Fluor Daniel's opinion, the program appears to be in line with training
programs found in the power industry.
Operating Procedures
Operating Procedures are in place for the Salton Sea and Partnership
Projects. They included step-by-step methods for start-up, normal operation,
and shutdown of the Projects. Fluor Daniel is of the opinion that the operating
procedures are satisfactory.
Maintenance Program
Maintenance at each plant is supervised by a Maintenance Supervisor. Most
of the routine maintenance is performed in the centralized maintenance shop
with specialty maintenance being performed by specialty contractors on a
subcontract basis. The Salton Sea and Partnership Projects are using a
commercially available Central Maintenance Management System (CMMS) software
package, which has reportedly improved management of plant maintenance
activities.
Since the Salton Sea Projects are using the pH modification process which
results in cleaner equipment than the crystallizer reactor-reactor-clarifier
process, these plants are currently on a four-year major turnaround cycle.
Major turnarounds are generally scheduled for twelve days and include process
valve maintenance, cleaning, and descaling of process pipe and vessels.
Mini-outages (three to five days) are scheduled each spring in preparation for
the summer peak runs.
For the Partnership Projects, major overhaul planning is also performed by
Central Maintenance with input from the sites. Major twelve day overhauls are
scheduled every two years with mini-outages (three to five days) scheduled each
spring in preparation for the summer peak runs.
In all plants, specialized maintenance such as turbine overhaul and
electrical protective relay calibration is performed by outside contractors.
The plants historically operate reliably as a result of these maintenance and
overhaul scheduling practices.
Fluor Daniel's review of the plants during a site walk-through found the
plants to be well maintained. Plant personnel indicated that spare parts were
available when required.
3.3 SALTON SEA PROJECTS
Salton Sea Units I and II are located adjacent to the Salton Sea; the
shoreline has appropriate dikes and levies designed to protect these units from
increases in the Salton Sea water level. The dikes appear to be adequately
maintained. Salton Sea Unit III and IV are located approximately 0.5 miles from
the Salton Sea.
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Salton Sea Unit I has been in service since 1982. Power generation
equipment consists of a 10 MW Fuji steam turbine operating with standard
pressure (SP) steam originally produced by CRC (crystallizer-reactor-clarifier)
technology. This process also produces high pressure (HP) and low pressure (LP)
steam. The generation voltage of 13.8 kV is stepped up to 34.5 kV for
transmission to Southern California Edison (SCE).
Salton Sea Unit II was placed in service in 1990. A total of three steam
turbines produce electrical power. Salton Sea Unit II was the original plant to
operate on the pH Modification process and has done so successfully for eight
years. The Mitsubishi turbine-generator produces electrical power at 4,160
volts which is stepped-up to 13.8 kV; the other generators produce power at
13.8 kV. One transformer steps-up power from these three generators to 92 kV
for transmission by the Imperial Irrigation District (IID) to the Rancho Mirage
substation for sale to SCE.
Salton Sea Unit III is a 49.8 MW plant with a Mitsubishi turbine that
operates on SP and LP steam. The turbine is a 5-stage, dual flow, condensing
turbine. Three stages of steam jet air ejectors remove noncondensible gases
from the steam. Operational flexibility provided by steam jet air ejector
trains are used to respond to varying noncondensible gas content. Commercial
operation was declared on February 14, 1989. Power is stepped up to 92 kV for
transmission by the IID to the Rancho Mirage substation for sale to SCE.
Salton Sea Unit IV is a General Electric steam turbine generator installed
next to the Salton Sea Unit III site to provide capacity of 39.6 MW. Salton Sea
Unit IV's design involved modification of existing steam and brine processing
equipment and related systems. All of the steam used is processed through this
system.
3.4 PARTNERSHIP PROJECTS
The Vulcan Project was commissioned in February 1986. It generates
electrical power for transmission to SCE via IID lines. Noncondensible gases
are directed to the cooling tower using two stages of steam jet air ejectors
and a vacuum pump. Each of these components has at least one spare. A standby
diesel generator is available to provide emergency power. Solids precipitated
from the CRC process are monitored for metals concentrations and hauled by
truck to a permitted landfill. Covered solids storage is provided onsite on a
concrete slab for emergency purposes.
Electrical power is generated at 14.4 kV and is transmitted to SCE over 92
kV IID lines. The Del Ranch and the Vulcan Projects are connected via an
electrical tie-line.
The Del Ranch Project achieved commercial operation in October 1988. The
plant is very similar to the Vulcan Project. A dual pressure nine-stage Fuji
turbine produces electrical power for transmission to SCE via IID.
Commercial operation was achieved at the Elmore Project in December 1988
and at the Leathers Project in January 1990. These two plants are identical in
all major design respects to the Del Ranch Project, including the main turbine.
Three spare turbine rotors and two spare sets of diaphragms are available for
the Del Ranch, Elmore, and Leathers Projects.
3.5 ROYALTY PROJECTS
Magma receives royalties, fees and other payments ("Royalties") from the
Leathers, Del Ranch and Elmore Projects based on a percentage of each project's
annual revenue. Total Royalties from these Partnership Projects paid to Magma
annually are projected to be $39,168,000 in 1998, stepping down to $9,097,000
in 2000 as revenues from the three Partnership Projects revert to avoided cost
pricing. The Royalties from the Leathers, Del Ranch and Elmore Projects are
included in the financial projections.
3.6 PH MODIFICATION PROCESS
The pH Modification process currently used for Salton Sea Unit I, II, III
and IV lowers the pH of the geothermal resource by injection of a pH
modification agent into the liquid brine stream. As a result,
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solids remain in solution rather than precipitate out of solution as in the CRC
process previously used at Salton Sea Units I and III, and at the Partnership
Projects. Therefore, scaling is minimized and solids in solution can be
injected into the reservoir. Certain aspects of the process were a proprietary
process developed by Unocal and subsequently licensed to Magma, which was
purchased in 1995 by CalEnergy. The pH Modification process has operated
successfully since 1990.
SECTION 4.0
NEW PROJECTS
4.1 GENERAL DESCRIPTION -- SALTON SEA UNIT V PROJECT
4.1.1 DESIGN CONSIDERATIONS
The Salton Sea Unit V geothermal power plant (49.0 MW net) will be
designed to produce electrical energy from the spent Brine that would otherwise
be reinjected following usage in Salton Sea Units I -- IV. This brine is
currently reinjected at a temperature of approximately 360 degreesF and at the
current rate contains over 40 MW of available thermal energy to be used by
Salton Sea Unit V. Additional power will be produced utilizing minimal
increased brine flows through the existing Salton Sea Units I -- IV brine
handling facilities. Therefore, the Salton Sea Unit V Project will produce
electrical energy by significantly increasing the thermal efficiency of
existing brine usage with only a minor increase in the quantity of brine
production.
The Salton Sea Unit V Project will include a multiple inlet pressure
turbine utilizing standard pressure (SP) steam, low pressure (LP) steam, and
very low pressure (VLP) steam, operating at approximately 110/30/10 psig,
respectively. Other equipment necessary for the Salton Sea Unit V Project
includes a pH modification agent handling system, wet cooling tower, surface
condenser, non-condensable gas system, electrical switchgear, and associated
cooling water pumps, condensate pumps, and brine pumps. Auxiliary equipment
includes a lube oil system, expanding the existing fire protection system, and
plant air.
Salton Sea Units I -- IV are using pH Modification of the geothermal brine
to prevent precipitation of silica dissolved in the brine during the power
production cycle. The Salton Sea Unit V Project will utilize refinements in pH
Modification technology. Additional pH modification agent will be injected into
the brine prior to flashing/cooling the brine below 360 degreesF. This has been
shown to prevent precipitation of silica at the lower temperatures, which would
otherwise cause scaling/plugging of brine handling equipment. The brine will
then be flashed to produce LP and VLP steam for conversion into electrical
power. Just before being delivered to the Zinc Recovery Plant, the remaining
brine passes through an atmospheric flash/reactor vessel which removes residual
heat and most of the silica. The silica will initially be disposed of in a
licensed landfill but may later be marketed to potential consumers such as
cement and tire manufacturers.
The facilities will produce a significant quantity of steam as part of the
brine cooling process. A majority of this steam will normally be utilized by
Salton Sea Unit V, with very low pressure steam being used by the Zinc Recovery
Project as process heat.
4.2 GENERAL DESCRIPTION -- REGION II BRINE FACILITIES CONSTRUCTION
4.2.1 TURBOEXPANDER PROJECT
The TurboExpander Project is designed to produce 10.0 MW net of electrical
power output. The TurboExpander Project will use existing unutilized geothermal
energy and additional geothermal energy made available via efficiency increases
of the existing Brine Facilities Construction; no new production or injection
wells or associated pipelines will be required. The new power generation will
be transmitted through IID power lines.
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The new turbine will be an Atlas Copco Rotoflow design. The system will
consist of a turbo-expander, a gearbox, and a generator coupled together in a
power delivery train. All auxiliary equipment required to operate the turbine
will be included in the package.
4.2.2 REGION II BRINE FACILITIES CONSTRUCTION
Project Summary
The Region II Brine Facilities Construction upgrade project will install
modern brine processing facilities designed to service the total brine flow now
provided to Vulcan and Del Ranch. These facilities will be designed with
technology developed and proven at the Salton Sea Projects, to provide steam
production for power generation. Process design and equipment specifications
will be developed and are intended to minimize the long term cost of plant
operations. The existing brine gathering system, and upgraded cement lined
production and injection systems should facilitate the conversion to the new
facilities. It is intended that proven existing designs, and equipment where
possible, will be used to minimize cost, schedule and project risk.
Silica Control Process
The silica control process for this development combines features common
to the pH Modification process and the CRC process. This process is designed to
be lower in capital cost and in projected operating cost than a traditional CRC
process. The use of pH Modification technology is designed to increase the
service interval between shutdowns of its' respective equipment. This
technology also allows a smaller, more efficient standard pressure brine-steam
separator vessel to be used in place of the two SP crystallizers required for
the current Region II SP brine flow. Two low pressure crystallizer and
atmospheric flash tank trains, a primary clarifier, a secondary clarifier,
filter press, and brine booster pump system complete the major equipment. These
are traditional CRC components, but upgraded for long term reliability and
performance.
H2S Abatement
The high pressure steam from the turboexpander will flow to a condenser,
where the additional noncondensible gas stream must be removed. An H2S
abatement unit will be added downstream of this condenser to ensure the
projected air quality standards are met. This unit will be a biofilter type
device, similar to the ones used at Salton Sea Units I -- IV.
4.3 GENERAL DESCRIPTION -- SALTON SEA ZINC RECOVERY PROJECT
4.3.1 NEW FACILITIES
This project uses spent brine solution containing dissolved zinc metal
exiting from the Existing Projects and the new Salton Sea Unit V Project as
feed to produce approximately 30,000 metric tons per year of Special High Grade
(SHG -- 99.99% pure zinc) quality zinc ingots. The Zinc Recovery Project is
modeled after an existing demonstration plant that was located at the Elmore
Project and which successfully demonstrated the recovery of zinc on a
continuous basis from the geothermal brine feed. Moreover, Tecnicas Reunidas, a
zinc recovery plant in Spain, has successfully used a substantial portion of
this technology to produce zinc.
To enable the commercial production of zinc, one central zinc processing
solvent extraction/
electrowinning (SX/EW) facility and four zinc ion exchange (IX) facilities are
to be constructed at the Existing Projects to utilize spent brine solution
exiting from the existing geothermal power plants located near each IX
facility. Each IX facility is designed to produce a purified and concentrated
product stream rich in zinc chloride as feed to the central SX/EW facility.
Each IX facility consists of IX column trains with resin that is
specifically designed to remove the zinc ions from the brine as it is pumped
through the IX columns. The brine is then routed back to existing spent brine
re-injection wells to recharge the reservoir and ultimately be produced again
as new feed to the power plants.
B-15
<PAGE>
The loaded resin is then stripped of the zinc chloride ions by flushing
the IX column. The zinc chloride rich solution from the Salton Sea Projects is
processed through a reverse osmosis (RO) unit to further concentrate the zinc.
The zinc chloride solution from all four zinc IX facilities is pumped via
cross-country pipelines to the central processing facility located at Vulcan
and Del Ranch. These pipelines follow existing geothermal pipeline routes and
are generally above ground.
IX technology has been successfully proven and long been used in the
uranium and water treatment industry. Specifically, the resin as is proposed
for the Zinc Recovery Project has been used to extract uranium in at least a
dozen plants located in the U.S.
The central processing facility consists of an iron removal process,
solvent extraction (SX) train, electrowinning (EW) tank house and a zinc
casting plant. The SX train consists of a series of mixer/settler stages
(extraction, scrubbing, and stripping) through which the zinc solution flows,
and is mixed with an organic based extractant reagent. The SX process is
designed to transfer zinc chloride in the solution to a further purified zinc
sulfate solution (electrolyte). This electrolyte is required for the EW
process.
The extraction portion of the SX process is performed in several
countercurrent stages by mixing the zinc chloride solution with an extractant
diluted by an organic solvent and mixed with the zinc solution which produces
an emulsion that is separated in settlers resulting in a zinc rich (loaded)
organic solution. The loaded organic is then washed to remove physically
entrained chloride and other impurities. This by-product stream produces a pH
modification agent which can be used at the Existing Projects. The washed,
loaded organic solution is then mixed in the SX stripping stages with the
partially zinc depleted, sulfuric acid based lean electrolyte to transfer the
zinc from the loaded organic into the clean aqueous fresh zinc sulfate
electrolyte stream.
SX technology has been successfully proven in many commercial metals
extraction and purification processes. Nearly one third of the copper produced
today comes from the heap leach/SX/EW process.
The fresh electrolyte contains some impurities such as calcium, which are
removed as a precipitate (gypsum) when cooled. The resulting small quantity of
gypsum is disposed of.
The purified electrolyte solution is then mixed with additives prior to
being pumped to the electrowinning process. Two transformer rectifiers are
required to produce the necessary direct current. As the zinc rich electrolyte
solution flows through the EW cells, the direct current causes the zinc to
deposit on the aluminum alloy blank cathodes. After being fully loaded, the
cathodes are transferred by a bridge crane to an automated stripping machine.
The stripping machine washes the cathodes of the remaining process fluids and
removes the deposited zinc. The aluminum alloy cathodes are returned to the EW
cells to be re-plated. The stockpiled zinc is transported to the furnace
charging floor or storage.
The EW technology utilized in this plant is the same process and equipment
used by essentially all of the primary zinc producers in the world. A purified
zinc electrolyte is fed to the electrolytic cells where zinc metal is plated as
zinc cathode. Partially depleted, or spent, electrolyte is then used to extract
more zinc and recycled to the EW.
The furnace is a horizontal cylindrical vessel heated by induction coils.
The zinc cathodes are placed in the furnace, melted, and then continuously cast
into jumbo ingots of Special High Grade (SHG) and Continuous Galvanizing Grade
(CGG) zinc. Provision is made in the melting/casting area to include alloying
material for production of specialty alloys.
The Zinc Recovery Project will receive its electrical power from the
affiliated Salton Sea Unit V. The TurboExpander Project provides a backup
source of power. Electrical power represents the Project's highest operating
cost. Another major consumable, resin, is supplied by The Dow Chemical Company
under a fixed price contract. IID will provide transmission services for
electrical power delivery to the Zinc Recovery Project.
The Zinc Recovery Project is expected to require an initial period of
approximately five months after Substantial Completion during which Kvaerner is
only guaranteeing the production of High Grade zinc rather than SHG. CalEnergy
Minerals LLC reported that the most conservative potential economic effect is
an insignificant 1 cent/lb. less in terms of zinc prices and $48/MT or
2.2 cents/lb/more in terms of freight costs
B-16
<PAGE>
to deliver the High Grade zinc to Midwest markets where such customers are
located. After this period, Kvaerner guarantees the production of SHG. The
financial analysis assumes the most conservative scenario (lower zinc prices
and higher freight) although CalEnergy Minerals LLC management believes that
some of the production during this period will meet SHG specifications.
4.3.2 DEMONSTRATION PLANT DESCRIPTION
The Zinc Recovery Project demonstration plant was operated onsite in order
to demonstrate technical feasibility of zinc production from geothermal brine
and produce reliable data to be used as a basis for commercial plant design.
The demonstration plant operated from June 1997, through the first quarter of
1998, in a continuous mode with minimal downtime. There was also extensive
testing in the laboratory and at a small onsite pilot plant. The pilot IX unit
was also used to confirm the process design in the geothermal brine pH
modification system.
Pilot plant testing results were used to build a larger demonstration
plant with a brine feed capacity of 42 gallons per minute. The plant has
successfully operated and consists of IX, iron removal, RO, SX and EW circuits.
Critical equipment/materials suppliers, IX resin and SX extractant suppliers,
and zinc industry consultants also participated in the development of the
demonstration plant design.
4.4 MATERIALS OF CONSTRUCTION
A review of the design documents and specifications for the mechanical
components revealed that the New Projects have specified design requirements
typically found in the geothermal and minerals recovery industries. In some
cases, the specifications and design criteria further defined very specific
requirements that are based on the operating history and proven experience with
similar equipment that has been in similar service for a number of years. As
presented on the reviewed documents, the materials of construction are
appropriate for these facilities.
4.5 NEW PROJECTS MANAGEMENT ORGANIZATION
Salton Sea Unit V will be managed as part of the Salton Sea Units I, II,
III, and IV group of units (Region I). These units are managed by a Region
Supervisor. The operations program includes a safety program, a training
program, and operating procedures. Maintenance programs include CMMS, training,
and spare parts inventory control.
A Minerals Operations Manager will be responsible for operations,
maintenance, and plant performance of the Salton Sea Zinc Recovery Project. A
Minerals Supervisor will be responsible for the operations, maintenance, and
plant performance for the extraction/electrowinning (SX/EW) facility and the
four zinc ion exchange (IX) facilities.
The plant's Control Operators are to be trained to operate the mineral
extraction plants, perform routine lab tests and supervise the Outside
Operators. The CEOC staff are to be trained to conduct routine maintenance
activities.
In support of these zinc recovery sites, CEOC will provide centralized
administrative support, engineering support, maintenance support, and
analytical lab technician support. When additional manpower is required at the
mineral recovery sites, the Central Maintenance shop will provide the necessary
staff. This organization and staffing procedure is typical for these types of
plants.
Fluor Daniel considers the overall operating and maintenance organization
planned for these new facilities to be adequate to support expanded operations.
4.6 PROJECT SITE GEOTECHNICAL DESCRIPTION
The project sites are located in the Salton Trough geologic region. This
region is a result of extensive tectonic activity due to three active or
potentially active faults in the area. The site area is classified by Uniform
Building Code (UBC) as an earthquake zone of 4.
B-17
<PAGE>
The subsurface geologic site conditions typically consist of stiff to firm
silty clay at shallow depth. At depth, loose to medium dense silty sand exist
with a potential for liquefaction. The silty clay exists with the potential for
long term settlements. The depth to groundwater at the site varies, but is in
the range of 5 to 6 feet below grade.
On the basis of a Geotechnical Report prepared by Southland Geotechnical,
the project sites are believed to be suitable for the proposed new Projects.
Foundation designs proposed in the report are similar to designs previously
used on other geothermal projects in this area which have operated for numerous
years and are believed to be adequate for these facilities.
4.7 SCHEDULE
4.7.1 SALTON SEA UNIT V PROJECT
Stone & Webster Engineering Corporation (S&W) has been selected as the
Contractor to engineer, procure, construct, and startup the Salton Sea Unit V
Project. S&W is a world-wide EPC power project Contractor with a background in,
and experience with geothermal projects. S&W has engineering and construction
experience with some of the Existing Projects, including the original design
for Salton Sea Unit III and is familiar with the site conditions and resources
of the Imperial Valley. Additionally, S&W previously worked for the Salton Sea
Funding Corporation as consultant for the existing Bondholders. Belmont
Construction (a subsidiary of S&W) will be utilized for the construction phase,
having previously performed construction services for Salton Sea Unit IV.
The project schedule milestones require:
<TABLE>
<S> <C>
o Notice to Proceed (NTP) Offering Closing Date
o Startup Commissioning 520 days from NTP
o Substantial Completion 638 days from NTP
</TABLE>
Under the EPC contract, S&W guarantees that substantial completion will be
attained within 638 days of NTP, or S&W will be assessed for delay damages.
S&W has acknowledged that the procurement, fabrication, delivery and
erection of the Turbine Generator is the critical path of the Salton Sea Unit V
Project. They have established a schedule to support the immediate award of the
Turbine Generator and other critical equipment at NTP. The overall schedule
duration is approximately 7 months for engineering, 18 months for construction,
and 4 months for startup and testing. This schedule provides that the project
be substantially complete approximately 6 weeks prior to the guaranteed
Substantial Completion milestone.
Fluor Daniel has reviewed the Salton Sea Unit V Project EPC schedule. It
appears that the EPC schedule can be achieved as indicated subject to customary
permitted delays under the contract. S&W has identified and addressed the major
project components, allowing for sufficient time and interface to meet the
schedule objectives such as tie-ins and support to other facilities. Critical
equipment deliveries are shown at 8 to 14 months and are within the current
industry parameters. Given S&W's qualifications and past experience at the
Existing Projects and elsewhere, the EPC project schedule should be achievable.
4.7.2 ZINC RECOVERY PROJECT
CalEnergy Minerals LLC has selected Kvaerner U.S. Inc. to engineer,
procure, construct, and startup the Zinc Recovery Project. Kvaerner is a
world-wide EPC contractor well experienced with various mineral processing
plants. They have indicated that they would self perform the construction of
this project.
<TABLE>
<S> <C>
The project schedule milestones require:
o Notice to proceed (NTP) Offering Closing Date
o Substantial Completion 652 days from NTP
</TABLE>
Under the EPC contract, Kvaerner guarantees that substantial completion will be
attained within 652 days of NTP, or Kvaerner will be assessed for delay
damages.
B-18
<PAGE>
Kvaerner's schedule indicates that all major process equipment would be
delivered fourteen months or less from NTP, allowing sufficient time in the
installation schedule to meet the expected completion date. Fluor Daniel has
reviewed the Project Schedule and believes that project completion is
achievable.
4.7.3 REGION II BRINE PROCESSING CONSTRUCTION
S&W has been selected as the contractor to engineer, procure, construct,
and startup the TurboExpander Project and Region II Brine Facilities
Construction. S&W has engineering and construction experience with some of the
Existing Projects, including the original design for Salton Sea Unit III and is
familiar with the site conditions and resources of the Imperial Valley.
Additionally, S&W previously worked for the Salton Sea Funding Corporation as
consultant for the existing Bondholders. Belmont Construction (a subsidiary of
S&W) will be utilized for the construction phase, having previously performed
construction services for Salton Sea Unit IV.
The Project Schedule Milestones require:
<TABLE>
<S> <C>
o Notice to Proceed (NTP) Offering Closing Date
o Startup Commissioning 400 days from NTP
o Substantial Completion -- Brine Facilities Construction 497 days from NTP
o Substantial Completion -- TurboExpander Project 548 days from NTP
</TABLE>
Under its EPC contract, S&W guarantees that substantial completion will be
attained within 497 days of NTP for the Brine Facilities Construction and 548
days of NTP for the TurboExpander Project, or S&W will be assessed for delay
damages.
S&W has acknowledged that the procurement, fabrication, delivery and
erection of the turboexpander is the critical path of the Region II facilities
construction. They have established a schedule plan to support the immediate
award of the TurboExpander and other critical equipment at NTP. Fluor Daniel
has reviewed the Region II Construction Schedule and believes Substantial
Completion can be achieved, subject to customary permitted delays under the EPC
contract.
4.8 CAPITAL COST ANALYSIS
4.8.1 SALTON SEA UNIT V PROJECT
Bids received from qualified contractors in response to the Salton Sea
Unit V Request for Proposal (RFP) were within a range limits acceptable to
CalEnergy, validating scope, performance, and criteria definitions. The fixed
price of $91.8 million equates to approximately $1,874 per net kilowatt of new
installed capacity, which is consistent with the cost of similar geothermal
facilities requiring solids removal technology.
4.8.2 ZINC RECOVERY PROJECT
The lump sum price of $148.2 million appears reasonable for this project.
4.8.3 REGION II BRINE FACILITIES CONSTRUCTION
The lump sum price of $49.8 million, which includes the TurboExpander,
appears reasonable for this project.
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<PAGE>
4.8.4 CAPITAL IMPROVEMENTS
Proceeds from the bonds and equity will also be used to fund certain
capital expenditures involving plant and wellfield facilities at Elmore and
Leathers. These costs are presented below:
<TABLE>
<CAPTION>
1998 1999 2000 TOTAL ($000'S)
---------- --------- --------- ---------------
<S> <C> <C> <C> <C>
Elmore ............ $10,817 $6,150 0 $16,967
Leathers .......... 0 $ 977 $3,393 $ 4,370
------- ------ ------ -------
Total ............. $10,817 $7,127 $3,393 $21,337
</TABLE>
At Elmore, approximately $6.4 million of the total will be used in 1998
for a regularly scheduled plant overhaul and various other capital expenditure
items. At Leathers, approximately $2.3 million will be spent in 2000 for an
overhaul. The remaining expenditures in that year are for various other plant
capital expenditure items. On the basis of past expenditures for this type of
similar installations, Fluor Daniel finds these expenditures to be reasonable.
The remaining capital expenditure amounts are wellfield related and are
separately analyzed by GeothermEx.
SECTION 5.0
PROJECT OPERATIONS
The Salton Sea and Partnership Projects use proven technology and have
operated reliably since initiating commercial operation. The most significant
operating and maintenance activities for the Salton Sea and Partnership
Projects are caused by the geothermal resource which corrodes and deposits
solids in the geothermal resource processing systems. These activities were
significantly reduced at the Salton Sea Projects with the implementation of the
pH Modification program and should be significantly reduced at Vulcan and Del
Ranch with the same system. This should result in similar decreases in cost at
Vulcan and Del Ranch.
SECTION 6.0
PROJECT CONTRACTS
6.1 POWER PURCHASE AGREEMENTS AND RELATED AGREEMENTS
Fluor Daniel reviewed the technical adequacy of the contracts and
agreements discussed below and has found them to be reasonable. The pertinent
technical obligations of the contracts are presented in this section. Energy
pricing terms were reviewed with respect to their use in the financial
projections.
6.1.1 OPERATING PLANTS
Each of the Existing Projects is subject to terms and conditions as
specified in its associated power purchase agreement. All of the contracts
include a number of identical conditions related to operation, maintenance,
metering, and other standard terms which are consistent with the financial
projection assumptions for the respective power plants. Each contract is unique
in certain aspects, such as contract capacity, payments, or contract term.
Tables 6-1 and 6-2 provide a summary of contractual terms for each power
purchase agreement. These contract quantities and prices are accurately
reflected in the financial projections.
Based upon the capacity and energy payment rates summarized in Tables 6-1
and 6-2, actual billing rates for some plants are calculated for On-Peak,
Mid-Peak, Off-Peak, and Super Off-Peak for Summer and Winter seasons as defined
by Time-of-Use Schedules published by Southern California Edison (SCE) and
approved by the California Public Utilities Commission (CPUC). These billing
rates provide for higher payments during Summer Peak, Summer Mid-Peak and
Winter Mid-Peak periods, which total 3,465 hours per year, and lower payments
during Winter Super Off-Peak which total 1,434 hours per year. Payment rates
during Summer and Winter Off-Peak periods, which include 3,861 hours, equal or
are close
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<PAGE>
to the rates shown in Tables 6-1 and 6-2. Average energy rates received in any
year could vary below the financial projections assumptions if the capacity
factor of the power plants were significantly reduced during the Summer Period
between June 1 and October 1, when energy payments equal or exceed the average
rates shown on Tables 6-1 and 6-2.
TABLE 6-1
SUMMARY OF TERMS -- POWER PURCHASE CONTRACT
SALTON SEA PROJECTS
<TABLE>
<CAPTION>
SALTON SEA
FACTORS UNIT I UNIT II UNIT III UNIT IV UNIT V
- ----------------------------- --------------- --------------------- --------------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Contract Capacity (kW) 10,000 15,000 47,500 34,000 0
As Available Capacity N/A 0 0 2,000 49,000
Capacity Payment
($/kW-year) 121.71(1) 187 175 158 Spot Price
Capacity Bonus ($/kW-year) (2) (5) (5) (5) N/A
As Available Capacity
Payment ($/kW-year) N/A N/A N/A N/A N/A
Energy Payment ($/kWh) 0.04701(3) 0.196 (Phase 1) (4) 0.098 (Phase 1) (4) 0.075 (6) Spot Price
Contract Term July 2017 April 2020 January 2019 May 2026 Spot Market
</TABLE>
Table Notes:
1. Capacity payments as of 2nd Quarter 1992, subject to quarterly adjustments
based on Bureau of Labor Statistics
2. Payment for capacity in excess of contract is based on as available capacity
price in Standard Offer No. 1 Capacity Payment Schedule. The financial
projections do not include bonus payments.
3. Energy payment as of 2nd Quarter 1992, subject to quarterly adjustments
based on Bureau of Labor Statistics. Rate applies to all energy delivered
at specified point of delivery.
4. Energy payments in Phase 2 to be equal to 100% of Tariff Schedule No. TOU-8
published avoided cost of energy rates as periodically updated.
5. For capacity factors greater than 85%, monthly payments = [(1.2 x On Peak
Capacity Factor) -- 1.02][Capacity Payment][Contract Capacity][1/12].
Proforma appropriately indicate bonuses of 18% of capacity payments.
6. 1998 weighted value.
TABLE 6-2
SUMMARY OF TERMS -- POWER PURCHASE CONTRACT
PARTNERSHIP PROJECTS
<TABLE>
<CAPTION>
FACTORS VULCAN DEL RANCH ELMORE LEATHERS TURBOEXPANDER
- ----------------------------- --------------- --------------- --------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Contract Capacity (kW) 29,500 34,000 34,000 34,000 0
As Available Capacity 4,500 4,000 4,000 4,000 10,000
Capacity Payment 158 198 198 187 Spot Price
($/kW-year)
Capacity Bonus ($/kW-year) (2) (2) (2) (2) N/A
As Available Capacity 8 8 8 8 N/A
Payment ($/kW-year)
Energy Payment ($/kWh) 0.109-0.126 0.109-0.146 0.109-0.146 0.109-0.156 Spot Price
(Phase 2) (Phase 1) (Phase 1) (Phase 1)
(Phase 2) (1) (Phase 2) (1) (Phase 2) (1)
Contract Term February 2016 January 2019 January 2019 January 2020 Spot Price
</TABLE>
B-21
<PAGE>
TABLE NOTES:
1. Energy payments in Phase 2 to be equal to 100% of Tariff Schedule No. TOU-8
published avoided cost of energy rates as periodically updated.
2. For capacity factors greater than 85%, monthly payments = [(1.2 x On Peak
Capacity Factor) -- 1.02][Capacity Payment][Contract Capacity][1/12].
Where appreciable, Proforma indicates bonuses of 18% of capacity payment.
6.1.2 SALTON SEA POWER GENERATION CAPACITY EXPANSION
Power sales for the planned Salton Sea Unit V and TurboExpander Project
are expected to be made under spot market pricing or other similar
arrangements. Henwood Energy Services has forecasted these prices to be 2.8
cents/kWh in nominal dollars in 2000, escalated to 3.7 cents/kWh in 2004, and
5.03 cents/kWh in 2018. The Henwood forecast was not reviewed by Fluor Daniel
and was only utilized in the financial projections.
6.1.3 TRANSMISSION INTERCONNECTION AGREEMENTS
Transmission lines owned and operated by IID are used to interconnect each
of the Existing Projects (except Salton Sea Unit I) with Southern California
Edison (SCE). Salton Sea Unit I delivers power directly to SCE which uses the
IID transmission lines.
Salton Sea Unit V and TurboExpander Project, described in Section 4.2
herein, will each be interconnected to a transmission line owned by IID. A
transmission agreement, and other related agreements have been executed with
IID for each of the projects and these agreements expire thirty years after the
initiation of service. Transmission service charges are included in the
financial projections.
The Existing Projects (other than Salton Sea Unit I) have the necessary
transmission service agreements in place with IID which contain transmission
entitlements equal to the requirements of the respective Projects. Agreements
provide credits equal to contributions and other financing costs to be applied
against Transmission Service Agreement charges. These credits are included in
the financial projections. SCE is responsible for transmission of power from
Salton Sea Unit I.
6.2 SOLIDS DISPOSAL AGREEMENTS--OPERATING PLANTS
Solid geothermal filter cake is disposed of in the Magma owned Desert
Valley Company monofill in accordance with the Amended and Restated Waste
Disposal Agreement of February 23, 1994; contract term is 10 years. Tipping
fees are set by the Agreement and are subject to annual adjustment based on
specified indices. These are included in the projections. This agreement may
have to be renegotiated prior to the final maturity date of the Securities.
Other solid geothermal scale, pipe, filter cake, and other materials which
are characterized as hazardous waste are transported and disposed of by Laidlaw
Environmental Services (a licensed Contractor) in accordance with an
Environmental Services Agreement in effect through April 1, 2001. This
agreement may have to be renegotiated prior to the final maturity date of the
Securities.
6.3 ENGINEERING, PROCUREMENT AND CONSTRUCTION AGREEMENTS
6.3.1 SALTON SEA UNIT V
Fluor Daniel has reviewed the EPC agreement between Salton Sea Power LLC
and Stone & Webster Engineering Corporations (S&W) for the Salton Sea Unit V
Project. The contract appears to contain typical and customary terms for fixed
price, guaranteed completion EPC contracts common to the independent power
industry and limited recourse financed projects. This agreement addresses
important issues such as guarantees, progress payment terms, schedule
commitments, safety, quality, Operator training, reporting, mechanical
completion, startup, performance testing and associated guarantees, force
majeure relief, and the limits associated with liquidated damages.
B-22
<PAGE>
Salton Sea Unit V Completion Risk
The S&W contract, with its use of demonstrated technology and experiences
subcontractors and suppliers, represents the most reasonable terms that could
be attained in the current EPC market. With the use of proven power plant
technology Fluor Daniel feels that Salton Sea Power LLC should have adequate
contractor resources available to cover the chance possibility of equipment
failures in the power generation facilities.
SSP has limited its risk of delay and performance shortfalls by including
liquidated damages (LDs) in the EPC agreement, and an owner's contingency
reserve funds. The EPC Contract liquidated damages are sized to compensate SSP
for delays and performance shortfalls up to coverage limits of 20 percent of
the fixed price, approximately $18.4 million. Fluor Daniel finds this to be
reasonable. Additionally, SSP has included $5.6 million in the construction
budget as an allowance to cover potential expenditures that are not fully
covered by the EPC contract The owner's contingency amounts to approximately
5.4 percent of the total construction budget which is not unreasonable for
projects of this nature.
6.3.2 ZINC RECOVERY PROJECT
Fluor Daniel reviewed the agreement between CalEnergy Minerals LLC and
Kvaerner U.S. Inc. for the construction of the Zinc Recovery Project. The
contract appears to contain typical and customary terms for fixed price,
guaranteed completion EPC contracts common to the independent power and process
industries and limited recourse financed projects. This agreement addresses
important issues such as guarantees, progress payment terms, schedule
commitments, safety, quality, operator training, reporting, mechanical
completion, startup, performance testing and associated guarantees, force
majeure relief, and the limits associated with liquidated damages.
Zinc Recovery Project Completion Risk
The Kvaerner contract, with its use of demonstrated technology and
experiences subcontractors and suppliers, represents the most reasonable terms
that could be attained in the current EPC market.
Clarifier operating conditions could vary significantly, based on
demonstration plant operations, and impact the ion exchange (IX) resin, this
being a component of brine feed risk. This could mean that CalEnergy Minerals
LLC would need to maintain a contingency supply of resin for that possibility.
CalEnergy Mineral's budget provides for an additional 10 percent of total resin
fill as a contingency for unfavorable clarifier operating conditions, which
Fluor Daniel feels is reasonable. Furthermore, operating procedures have been
developed to minimize this risk. Additionally, excessive pressure drop through
the IX system could restrict the brine feed to the IX. This could potentially
reduce recovery but would not completely shut down the recovery process. This
shortfall in IX capacity could be remedied with housekeeping (maintaining brine
quality) and, if necessary, with the addition of IX capacity which could be
easily accomplished as long as there is sufficient plot space for the new
components, which is the case for this facility. The IX trains are skid mounted
units, complete with the necessary piping and valving. The cost for one train,
including resin, is estimated to be around $1.5 million. If a downside case is
assumed whereby each site would need a new IX train, four new trains would be
required for a combined installed cost of around $6 million, well within the
approximately $29.6 million in liquidated damages available from the contractor
and approximately $9.4 million available in owner's contingency.
The solvent extraction part of the plant presents minimal technology risk
as this same technology has been in commercial operation for several years at
Tecnicas Reunidas in Spain. The component sizing for the SX units is comparable
to the sizing commonly used for copper SX/EW plants. Extraction of zinc in the
SX process has been demonstrated to be greater than 94 percent. Any zinc not
extracted will eventually be reintroduced into the IX as most of the SX plant
raffinate is returned to the feed brine, either directly as dilution or through
the salt wash stage of the IX elution cycle.
Zinc plating occurs in the electrowinning (EW) process. It appears that
the only risk in this process is the current efficiency (CE); that is the
actual amount of electrical energy needed to produce the zinc cathode, when
compared to the theoretical energy calculation. The plant design is based on 90
percent CE; a lower CE will mean that the cost of electrical energy per pound
of zinc product will be higher than
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<PAGE>
that cost potentially assumed in the sensitivity analysis. However, Kvaerner
has guaranteed overall electrical consumption on the Zinc Recovery Project.
Solution chemistry and housekeeping (tightness of electrical connections,
plate cleanliness, etc.) have an impact on current efficiency. While the
chemistry of the solution should be rather stable, CEOC is aware of the
necessity to maintain good electrolyte chemistry through successful operation
of the demonstration plant, and appears to have the technical capability to
successfully operate the commercial plant.
CalEnergy Minerals LLC has limited its risk of delay and performance
shortfalls by including liquidated damages (secured by a bank letter of credit)
in the Kvaerner EPC contract, and owner's contingency reserve funds. The EPC
Contract liquidated damages are sized to compensate SSP for delays and
performance shortfalls up to coverage limits of 20 percent of the fixed price,
or approximately $29.6 million. Fluor Daniel finds this to be reasonable.
Additionally, CalEnergy Minerals has included approximately $9.4 million in the
construction budget as an allowance to cover potential expenditures that are
not fully covered by the EPC contract. The owner's contingency amounts to
approximately 5.4 percent of the total construction budget which is not
unreasonable for projects of this nature. The combined cap on LD's and owner's
contingency funds appear to be consistent with, or above industry practices for
process plants.
SECTION 7.0
PERMITTING AND ENVIRONMENTAL
7.1 ENVIRONMENTAL COMPLIANCE
On July 24, 1998, Fluor Daniel conducted a walk through of the Existing
Projects in the Imperial Valley. This walk through included an environmental
overview of the facilities. Facilities' inspections included Salton Sea Units I
- -- IV, and the proposed sites for the New Projects. The environmental overview
focused on the H2S air emissions abatement systems; water and brine ponds
design and operation; stormwater control; solid waste handling and disposal;
general noise environment; the proposed Zinc Recovery Project site and the
associated solvent extraction sites.
The plants appeared neat and well maintained. The H2S abatement systems
consisted of existing biofilters for Salton Sea Units I, II, III and IV. A
review of the design indicated that there should be sufficient capacity to
handle any anticipated increase of H2S loads from Salton Sea Unit V. The water
and brine ponds design appeared adequate to minimize or eliminate the potential
for water and brine release into the underlying soil and groundwater. The
build-up of brine solids in the brine pond and subsequent land disposal should
be minimized in the future by enhanced solids retention in the brine injected
into the geothermal reservoir by project pH modification features.
Stormwater onsite is collected and injected into the geothermal reservoir.
Solid waste handling and disposal appear to be adequate. Dust control in the
solid waste handling operation should be improved by proposed dust handling
equipment and dust abatement measures.
The noise environment encountered appears to be comparable to other
similar power plant designs. Noise was qualitatively experienced within
acceptable OSHA limits near equipment. Excessive noise was not experienced at
the nearest residence. The preliminary design of the proposed ion exchange
units, central solvent extraction and electrowinning plant appeared feasible
and environmentally protective, evidenced by the pilot plant walk-through and
review of system process flow diagrams.
In reviewing two years worth of available Funding Corporation files, Fluor
Daniel has found no environmental Notices of Violation for any media (air
emissions, wastewater, solid/hazardous waste).
7.2 APPLICABLE ENVIRONMENTAL PERMIT AND LICENSING REQUIREMENTS
All Existing Projects and the New Projects have received appropriate
regulatory approvals/ exemptions in all media (air emissions,
stormwater/wastewater, brine injection), and have appropriate solid and
hazardous waste transportation and disposal contracts or agreements in place.
The New Projects have received the required Imperial County Conditional Use
Permits and Imperial County Air Pollution Control District air permits.
B-24
<PAGE>
7.3 ENVIRONMENTAL REQUIREMENT COMPLIANCE, DEFICIENCIES AND LIMITATIONS
It is the opinion of Fluor Daniel that the New Projects have appropriate
designs and have or plan to have trained personnel to comply with all
environmental laws and regulations, have received all environmental permits and
approvals, and have contracts and agreements in place with licensed waste
transportation and disposal companies. If operated in accordance with the
provided design, and good utility practices the projects should not have any
environmental deficiencies or limitations.
SECTION 8.0
ASSESSMENT OF FINANCIAL PROJECTIONS
8.1 OVERVIEW
Fluor Daniel has reviewed a projection of cash flows for the Funding
Corporation (provided by the Funding Corporation) and has analyzed the ability
of the Funding Corporation to repay anticipated Security debt service over the
next 20 years. Fluor Daniel has summarized the results of this analysis in the
table of debt coverage ratios calculated from 1999 through 2018 presented
below. In addition, Fluor Daniel has performed a series of sensitivity analyses
that are also listed on the table and described in more detail later in this
section.
SUMMARY OF DEBT COVERAGE RATIOS
<TABLE>
<CAPTION>
SCENARIO MINIMUM COVERAGE AVERAGE COVERAGE
- ------------------------------------ ------------------ -----------------
<S> <C> <C>
Base Case .......................... 1.72 2.97
Low Power Price -- Case 1 .......... 1.72 2.86
Low Power Price -- Case 2 .......... 1.71 2.76
Downside Zinc Price ................ 1.69 2.90
98% Confidence Zinc Price .......... 1.69 2.88
High O&M Cost Escalation ........... 1.71 2.80
SCE Low Avoided Cost ............... 1.78 3.02
SCE Medium Avoided Cost ............ 1.78 3.28
SCE High Avoided Cost .............. 1.78 4.24
Low Power 2/98% Zinc ............... 1.68 2.66
</TABLE>
Among the assumptions used for the analysis and detailed below, the
Funding Corporation provided the assumptions regarding debt pricing and term.
Henwood Energy Services prepared the forecasts of spot electricity prices and
Resource Strategies International (RSI) provided the zinc pricing forecast.
GeothermEx provided a forecast of the amount of zinc contained in the
geothermal brine and the zinc depletion rate.
Fluor Daniel reviewed the financial model which contains a twenty year
projection beginning in year 1998 of revenues, expenses, initial and long term
expenditures , royalties, and cash flow . The financial model projects the
financial performance of each project and consolidates the results for
measuring aggregate debt service coverage. The base case projections indicate
that project revenues from the sale of electricity for the Existing and New
Projects and the sale of zinc for the Zinc Recovery Project should be
sufficient to cover the projected annual operating expenses, post-completion
capital expenditures, and debt service for the Securities.
8.2 BASE CASE PROJECTION ASSUMPTIONS
8.2.1 CONSTRUCTION EXPENDITURES
The Funding Corporation provided what we believe to be reasonable
assumptions regarding new capital expenditures, including the construction cost
of the Salton Sea Unit V Project, the Zinc Recovery Project, the TurboExpander
Project, Region II Brine Facilities Construction and the Capital Improve-
B-25
<PAGE>
ments. As used in the summary, the Project construction costs include certain
owner's administration costs, owner's contingency funds and other costs for
construction and services not included in the fixed price EPC contracts. These
assumptions along with the financing plan, are shown below.
USES AND SOURCES OF FUNDS
(X$000'S)
<TABLE>
<CAPTION>
1998 1999 2000 TOTAL
--------- ----------- --------- ----------
<S> <C> <C> <C> <C>
Salton Sea Unit V Project ........................ 15,983 77,284 13,596 106,863
Zinc Recovery Project ............................ 31,779 104,640 43,911 180,330
TurboExpander Project ............................ 1,502 8,504 215 10,221
Region II Brine Processing Construction .......... 6,908 39,097 987 46,992
Capital Improvements ............................. 10,817 7,127 3,393 21,337
Interest and Financing Cost ...................... 9,901 21,305 10,564 41,770
------ ------- ------ -------
TOTAL USES ...................................... $76,890 $257,957 $72,666 $407,513
------- -------- ------- --------
Bond Proceeds .................................... 76,890 208,110 0 285,000
Equity ........................................... 0 49,847 72,666 122,513
------- -------- ------- --------
TOTAL SOURCES ................................... $76,890 $257,957 $72,666 $407,513
</TABLE>
8.2.2 DEBT
The assumptions regarding the sizing of the debt Securities were provided
by the Funding Corporation. As used in the Report, the projections assume
approximately 70 percent of required funding to be provided by debt and the
remaining 30 percent with cash equity contributed from CalEnergy or an
affiliate. Debt will be long term bonds issued as Series F under the existing
bonding authority priced at an assumed annual interest rate of 7.475 percent.
The final maturity is approximately 20 years after issuance with an average
life of approximately 15.5 years. No principal is due and payable during the
first three years, which corresponds to the projected construction period.
8.2.3 POWER PRODUCTION
Existing operations at the Salton Sea consist of eight power plants:
Salton Sea Units I, II, III, and IV, Vulcan, Del Ranch, Elmore, and Leathers.
These facilities have demonstrated reliable operation in the range of 95-100
percent average plant availability. The assumptions regarding future operations
are shown in the table below. The capacity factors for the Existing Projects
are shown for 1998.
PROFORMA OPERATING ASSUMPTIONS
<TABLE>
<CAPTION>
NAMEPLATE AVERAGE AVAILABILITY
LOCATION CAPACITY (KW) FACTOR (1)
- ----------------------------- --------------- ---------------------
<S> <C> <C>
Salton Sea Unit I ........... 10,000 92%
Salton Sea Unit II .......... 20,000 96%
Salton Sea Unit III ......... 49,800 98%
Salton Sea Unit IV .......... 39,650 99%
Leathers .................... 41,000 98%
Elmore ...................... 41,000 98%
Vulcan ...................... 34,000 98%
Del Ranch ................... 38,000 99%
Salton Sea Unit V ........... 49,000 95%
TurboExpander ............... 10,000 95%
------
TOTAL ...................... 332,450
</TABLE>
- ----------
(1) For years 2000 through 2004.
On the basis of past plant performance, Fluor Daniel finds the capacity
factor assumptions used in the financial projections to be reasonable.
8.2.4 ZINC PRODUCTION
Annual production of zinc will depend upon the level of zinc contained in
brine, the brine production rate, the zinc recovery factor, plant operating
efficiency and reliability, the depletion rate, and other
B-26
<PAGE>
factors. The financial projections assume that the average zinc content of the
brine is 8,639 lbs/hr (based on a the GeothermEx report) and that this rate
diminishes by 4.0 percent linearly over the first 10 years of operation. Over
the next 10 years, the zinc contained in the brine is projected to decline by
another 5.5 percent. The recovery rate of zinc contained in the brine feed is
assumed to be between 90 and 91 percent on the basis of the rate guarantees
provided by Kvaerner at Substantial Completion. The Zinc Recovery Project is
assumed to operate at an average annual capacity factor of 95 percent.
Together, these assumptions yield a first year production level of
approximately 65 million pounds of zinc declining every year thereafter as the
zinc content in the brine declines in accordance with the depletion
projections.
Zinc pricing is assumed to follow the London Metals Exchange (LME) plus a
premium reflecting current market conditions and the favorable location of the
Zinc Recovery Project which puts it closer to many zinc buyers as identified in
the independent report prepared by RSI as listed in Attachment 2-1. These
projections assume that after five months of High Grade Zinc production, 70
percent of the zinc will be sold as Special High Grade and 30 percent of the
zinc can be sold as a special Continuous Galvanizing Grade (CGG) and can be
priced at the standard Special High Grade (SHG) zinc rate.
8.2.5 REVENUES
All of the Existing Projects sell power under contract to Southern
California Edison Company. Six of the eight Existing Projects have a 10-year
provision for fixed energy pricing at rates that are now considered to be
substantially above market. These six Existing Projects have already reached,
or by 2000 will reach the expiration of the 10-year fixed energy price period
by 2000 causing a drop in project revenue. Pricing for electrical energy beyond
these fixed price termination dates will be subject to pricing under the new
deregulated wholesale power market in California. The chart showing the
forecast of gross revenues for the Projects is shown below.
SALTON SEA FUNDING CORPORATION III
PROJECTED REVENUES
[GRAPHIC OF PROJECTED REVENUES OMITTED]
8.2.6 OPERATING EXPENSES
CEOC presently operates the Existing Projects under contract to the
various ownership entities. As evidenced by the information provided by the
Funding Corporation, over the last three years operating expenses have been
reduced through consolidation of operations. Projected operating costs have
been developed in detail by CEOC and appear to be reasonable.
A significant annual expense associated with operation of each facility is
the payment of royalties for use of the geothermal brine. Under the present
ownership arrangement, the majority of royalties paid by each project flow back
to the Royalty Guarantor. This impact is captured in the cash flow analysis.
B-27
<PAGE>
8.2.7 ONGOING CAPITAL EXPENDITURE
The Funding Corporation has prepared a five-year plan for ongoing capital
expenditure. This plan was reviewed by Fluor Daniel, was determined to be
reasonable, and is used as the basis for projecting future capital expenditures
in the forecasting model. Categories of expenditure include such items as
geothermal well drilling, power plant improvements, and power plant overhaul.
8.2.8 ESCALATION
All expenses in the financial projection have been escalated at an assumed
rate of 2.5 percent, unless specified otherwise.
8.2.9 CASH FLOW
The cash flow model computes cash flow available to cover debt service.
Total expenses by facility are netted from total revenues to arrive at project
operating income. Royalties, capital expenditures, and new construction
expenditures are then calculated and subtracted from operating income to
determine cash flow available for debt service. The Base Case results in a
minimum debt service coverage calculated from 1999 through 2018 of 1.72 and an
average coverage of 2.97.
A summary of key assumptions used in the financial analysis is shown in
Attachment 8-1. The cash flow results and coverage ratios from the analysis are
shown in Attachment 8-2.
8.3 SENSITIVITY ANALYSIS
Fluor Daniel utilized the cash flow model to perform a sensitivity
analysis to examine the ability of the project to maintain debt coverage levels
under several scenarios. The three variables we adjusted for this analysis are
power price, zinc price, and the O&M escalation rate.
8.3.1 POWER PRICE
Henwood Energy Services prepared the forecast of future electric energy
prices used in the financial projections. As a downside case, Henwood also
prepared two cases based on assumptions of lower natural gas prices (10 or 15
percent). The lower natural gas forecasts were used by Henwood to forecast the
corresponding lower electrical energy prices.
Use of the Case 1 power forecast maintained minimum coverage at 1.72 but
reduced the average debt coverage from 2.97 to 2.86. Case 2 resulted in minimum
and average coverages of 1.71 and 2.76, respectively.
8.3.2 ZINC PRICE
RSI conducted the study of future zinc prices for use in the financial
projections. In addition to defining the base case zinc price, RSI also
evaluated a downside case where they used a series of zinc prices using a 98
percent confidence interval. The downside sensitivity case resulted in a
reduction in the minimum debt coverage from 1.72 to 1.69 and a reduction in
average debt coverage from 2.97 to 2.90. The 98% confidence case also brought
minimum debt coverage to 1.69 and average debt coverage to 2.88.
8.3.3 O&M COST ESCALATION
As a further sensitivity, the rate of O&M escalation was increased from
2.5 percent (inflation only) to 4 percent. This reduced the minimum debt
service coverage to 1.71 and the average to 2.80.
8.3.4 SCE AVOIDED COST
Fluor Daniel ran three sensitivity cases using avoided costs estimated in
1995 by SCE. The Low Case increased minimum coverage to 1.78 and average
coverage to 3.02. The Medium Case resulted in an increase in the minimum
coverage level to 1.78 and an increase in average coverage to 3.28. The High
Case again resulted in an increase in the minimum coverage to 1.78 and an
increase in average coverage to 4.24.
B-28
<PAGE>
8.3.5 LOW POWER CASE 2/98% ZINC
This sensitivity combines the lowest power price forecast from Henwood
(Case 2) with the lowest zinc forecast from RSI (98% Confidence Level). Minimum
coverage was reduced from 1.72 to 1.68 and average coverage declined from 2.97
to 2.66.
8.4 BREAKEVEN ANALYSIS
The following table presents the Power Exchange electric price that
maintains project debt service at a level of 1.0 or higher.
<TABLE>
<CAPTION>
BREAKEVEN (CENTS/KWH)
----------------------
YEAR NOMINAL 1998 BASE
- -------------- --------- ----------
<S> <C> <C>
1998 ......... 0.00 0.00
1999 ......... 0.00 0.00
2000 ......... 0.00 0.00
2001 ......... 0.00 0.00
2002 ......... 0.18 0.16
2003 ......... 0.48 0.42
2004 ......... 0.18 0.16
2005 ......... 0.65 0.55
2006 ......... 0.00 0.00
2007 ......... 0.40 0.32
2008 ......... 0.06 0.05
2009 ......... 0.43 0.33
2010 ......... 0.00 0.00
2011 ......... 0.00 0.00
2012 ......... 0.00 0.00
2013 ......... 0.01 0.01
2014 ......... 0.00 0.00
2015 ......... 0.00 0.00
2016 ......... 0.00 0.00
2017 ......... 0.01 0.01
2018 ......... 0.00 0.00
</TABLE>
B-29
<PAGE>
ATTACHMENT 2-1
ASSUMPTIONS, QUALIFICATIONS AND REVIEW DOCUMENTS
B-30
<PAGE>
ATTACHMENT 2-1
ASSUMPTIONS, QUALIFICATIONS AND REVIEW DOCUMENTS
THIS REPORT WAS PREPARED BY FLUOR DANIEL, INC. EXPRESSLY FOR USE BY SALTON
SEA FUNDING CORPORATION. IT IS FLUOR DANIEL'S UNDERSTANDING THAT THIS REPORT
WILL BE INCLUDED IN THE PUBLIC OFFERING MEMORANDUM AND SUBSEQUENT PROSPECTUS
FOR THE OFFERING OF THE BONDS, AS DESCRIBED HEREIN. NEITHER FLUOR DANIEL NOR
SALTON SEA FUNDING CORPORATION NOR ANY PERSON ACTING IN THEIR BEHALF, MAKES ANY
WARRANTY, EXPRESS OR IMPLIED, OR ASSUMES ANY LIABILITY WITH RESPECT TO THE USE
OF ANY INFORMATION, TECHNOLOGY, ENGINEERING, OR METHODS DISCLOSED IN THIS
REPORT.
In the preparation of this Report and the opinions contained therein,
Fluor Daniel has made certain assumptions with respect to conditions which may
exist or events which may occur in the future. While we believe these
assumptions to be reasonable for the purpose of this Report, they are dependent
upon future events and actual conditions may differ from those assumed. In
addition, we have used and relied upon certain information provided to us by
others. Neither Salton Sea Funding Corporation nor Fluor Daniel Inc. has made
an analysis, verified, or rendered an independent judgment of the validity of
the information provided by others. While it is believed that the information
contained herein will be reliable under the conditions and subject to the
limitations set forth herein, neither Salton Sea Funding Corporation nor Fluor
Daniel, Inc. guarantee the accuracy thereof. Further, some assumptions may vary
significantly due to unanticipated events and circumstances. To the extent that
actual future conditions differ from those assumed herein or provided to us by
others, the actual results will vary from those forecast. This Report
summarizes our work up to date of the Report. Thus, changed conditions
occurring or becoming known after such date could affect the material presented
to the extent of such changes.
The principal assumptions and considerations utilized by Fluor Daniel in
developing the results and conclusions presented in this report include the
following:
o Only the power plants and above ground geothermal resource piping and
processing facilities were evaluated. The adequacy, reliability, and costs
of geothermal resources and wells, including minerals extraction factors
were assessed by GeothermEx.
o The projected interest rates on the Securities, reinvestment rates, cost
of arranging the financing and the amortization schedule of the Securities
used in the debt service coverage analysis have been provided to Fluor
Daniel.
o Fluor Daniel's inspection of the existing Salton Sea operations were
limited to a visit of personnel on July 24, 1998.
o Funding Corporation provided 1997 financial statements for the Funding
Corporation and other cost accounting information as well as future
projections of cost, expenses, prices, and other key assumptions.
o Brine quantities, zinc content in the brine and depletion rates were
provided by GeothermEx.
o The zinc pricing forecast was provided by Resource Strategy International
(RSI).
o The electricity pricing forecast was provided by Henwood Energy Services.
o Fluor Daniel has not undertaken an independent review with all regulatory
agencies which could under any circumstances have jurisdictions over or
interests pertaining to the project.
B-31
<PAGE>
REVIEW DOCUMENTS
<TABLE>
<CAPTION>
DOCUMENT
DATE DOCUMENT
- ------------ -------------------------------------------------------------------------------------
<S> <C>
11/97 Feasibility Study -- Kilborn -- SNC Lavalin (without capital or operating cost data)
3/23/98 Salton Sea Zinc Recovery Project Request for EPC Bids
2/20/98 Preliminary Process Flow Diagrams and P&ID's -- Simons
9/21/98 Proforma Cost Report
9/16/98 Revised Process Equipment List -- Kvaerner
3/23/98 Salton Sea Unit V Request For EPC Bid Proposal (4 Volumes)
Various Preliminary Salton Sea Unit V Process Flow Diagrams
Various Preliminary Salton Sea Unit V Piping and Instrument Diagrams (P&ID's)
Various Preliminary Salton Sea Unit V Plot Plans
7/10/98 Preliminary Salton Sea Unit V Master Schedule
Various Preliminary Region II Process Flow Diagrams
Various Preliminary Region II Plot Plans
9/16/98 EPC Agreement between CalEnergy Minerals L.L.C and Kvaerner U.S. Inc
9/10/98 Revised PFDs -- Kvaerner
7/18/95 Salton Sea Funding Corporation Confidential Offering Circular
6/17/96 Salton Sea Funding Corporation Confidential Offering Circular
7/28/98 Lump Sum Cost Proposal -- Salton Sea Unit V
7/28/98 Memorandum of Understanding (MOU) -- Salton Sea Unit V
7/28/98 Lump Sum Cost Proposal -- Salton Sea Zinc Recovery
7/28/98 Memorandum of Understanding (MOU) -- Salton Sea Zinc Recovery
3/31/93 Technology Transfer Agreement -- Units I, II, & III
7/28/98 Second Amended and Restated Waste Disposal Agreement -- Units I, II, III, & IV
11/24/93 Ground Lease -- Units I & II
9/25/89 Plant Connection Agreement -- Unit II
7/20/88 Plant Connection Agreement -- Unit III
3/31/93 Ground Lease -- Units III & IV
7/14/95 Plant Connection Agreement -- Unit IV
2/15/96 Technology Transfer Agreement -- Unit IV
6/9/88 Plant Connection Agreement -- Del Ranch, L.P.
3/14/88 Ground Lease -- Del Ranch, L.P.
3/14/88 Technology Transfer Agreement -- Del Ranch, L.P.
6/9/88 Plant Connection Agreement -- Elmore, L.P.
3/14/88 Ground Lease -- Elmore, L.P.
3/14/88 Technology Transfer Agreement -- Elmore, L.P.
9/25/89 Plant Connection Agreement -- Leathers, L.P.
10/26/88 Ground Lease -- Leathers, L.P.
8/15/88 Technology Transfer Agreement -- Leathers, L.P.
12/6/88 Plant Connection Agreement -- Vulcan Power Company
4/14/98 IID Construction Agreement -- Salton Sea Unit V
4/1/98 IID Plant Connection Agreement -- Salton Sea Unit V
4/14/98 IID Transmission Services Agreement -- Salton Sea Unit V
5/10/96 BHP License Agreement -- Zinc Recovery Project
4/14/98 IID Distribution Services Agreement -- Zinc Recovery Project
5/1/98 Dow Resin Sales Contract -- Zinc Recovery Project
7/30/98 Lump Sum Cost Proposal -- Salton Sea Unit V Project Schedule
7/30/98 Lump Sum Cost Proposal -- Salton Sea Zinc Recovery Project Schedule
7/31/98 Preliminary Construction Schedule -- Salton Sea Unit V & Zinc Plant
</TABLE>
B-32
<PAGE>
<TABLE>
<CAPTION>
DOCUMENT
DATE DOCUMENT
---------- ----------
<S> <C>
9/11/98 Conditional Use Permit G91-0001 -- Region 11 Power Plant Modification Project
3/20/98 Draft Geotechnical Report -- Salton Sea Unit V & Zinc Extraction Facilities
8/5/98 Imperial Valley Operating Statistics
8/5/98 Excerpts from 5 Year Operating Plan
8/98 GeothermEx Report -- Assessment of the Resource Supply
8/5/98 BHP Royalty Agreement and Amendment
8/14/98 RSI Report -- Global Refined Zinc Market
8/5/98 California Energy Commission, State of California Energy Resources Conservation
and Development Commission Clearance/Acknowledgement that the Desert Valley/Salton Sea Unit V
Project is not subject to the Commission's jurisdiction.
6/26/98 Conditional Use Permit (#G94-0001) Second Amendment, Granted by Imperial County and Recorded on
6/26/98 to Allow Brine Flow Increase to Accommodate New 49 MW Power Plant Site.
6/25/98 Conditional Use Permit (#G98-0001) Granted by Imperial County and Recorded on 6/25/98 for a New
23 acre, 49 MW Power Plant generating 0.35 Tons Filter Cake per Net Megawatt.
4/23/98 Conditional Use Permit #98-0002 Granted by Imperial County and Recorded on
4/23/98 for a Central Mineral Recovery Facility to Recover Zinc and Other Precious Metals from Spent
Geothermal Fluids Prior to Injection of the Fluids.
8/5/98 Draft Conditional Use Permit Applications Including Environmental Information
Region 2 Power Plant Modification Project (dated June 1998)
7/1/98 Imperial County Air Pollution Control District, Amended Conditions For Authority
To Construct and Permit To Operate #1894C, Amended Conditions Issued 7/l/98. This permit is for
amended conditions for construction and operation of the elements in Region 1, Unit III.
8/5/98 Imperial County Air Pollution Control District Permit to Construct # 2743 -- Permit to construct Salton
Sea Unit V
8/5/98 Imperial County Air Pollution Control District Permit to Construct and Operate #2742. This permit is for
the Zinc Recovery Project including solvent extraction, electrowinning, metals melting furnace, and Dross
handling dust collection system.
8/5/98 Imperial County Public Health Department Water System Permit for 1998, Permit Number 637
4/1/96 Laidlaw Environmental Services Contract for Facilities Waste Removal and Disposal Services, dated
April 1, 1996, expiring April 1, 2001, Contract NO, 963093.
6/13/96 State of California, Department of Conservation, Division of Oil, Gas, and Geothermal Resources, Unit 3
Permanent Injection Project Approval.
4/1/98 Cal/EPA State Water Resources Control Board, Letters of Receipt and Processing of Notices of Intent (2)
to Comply with the General Permit to Discharge Stormwater Associated with Construction Activity, dated
April 1, 1998 effective 9/1/98 through 7/l/2000.
9/13/94 California Regional Water Quality control Board, Colorado River Basin, Region 7 Waste Discharge Order
(Permit) NO. 94-081 for the Injection of Brine and operation of a brine pond and Holding Basin, effective
9/13/94.
8/5/98 Material Safety Data Sheet, Nalco 1387 Scale Inhibitor (phosphonomethylated amine).
9/2/98 Salton Sea Unit V Engineering, Procurement, and Construction Contract
9/11/98 Region 11 Upgrade Engineering, Procurement, and Construction Contract
8/12/98 Amendments to Power Purchase Agreement
3/31/98 Securities and Exchange Commission Form 10-Q
12/31/97 Securities and Exchange Commission Form 10-K
</TABLE>
B-33
<PAGE>
SALTON SEA FUNDING CORPORATION
PRO FORMA FINANCIAL PROJECTIONS
BASE CASE
<TABLE>
<CAPTION>
1998 1999 2000 2001 2002
CASH FROM PROJECTS --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
REVENUES
Salton Sea Unit I & II 26,534 26,917 19,233 15,096 15,407
Salton Sea Unit III 50,692 30,895 23,484 22,522 24,138
Salton Sea Unit IV 30,716 32,061 32,898 33,573 35,018
Salton Sea Unit V 0 0 7,828 14,996 18,047
Minerals Extraction 0 0 16,117 37,270 42,408
Elmore 56,395 25,154 18,451 18,598 19,574
Del Ranch 56,490 24,853 18,458 18,251 19,632
Leathers 54,344 58,786 24,890 18,156 19,133
Vulcan 16,063 15,030 14,935 14,732 15,964
Turbo Expander 0 0 2,323 3,347 3,863
------ ------ ------ ------ ------
Total Revenues 291,235 213,697 178,618 196,540 213,184
EXPENSES
Salton Sea Unit I & II 7,438 6,374 5,560 5,100 5,268
Salton Sea Unit III 10,446 8,455 8,152 7,892 8,127
Salton Sea Unit IV 9,295 9,656 9,693 9,762 9,956
Salton Sea Unit V 0 0 2,071 3,674 4,020
Minerals Extraction 0 0 10,858 20,817 22,568
Elmore 10,573 6,765 6,331 6,949 7,412
Del Ranch 9,993 6,130 5,412 5,670 6,024
Leathers 11,361 10,022 6,929 7,061 6,996
Vulcan 4,820 4,656 4,901 4,826 4,962
Turbo Expander 0 0 621 654 671
------- ------- ------- ------- -------
Total Expenses 63,927 52,058 60,529 72,405 76,004
Project Operating Income 227,308 161,639 118,089 124,135 137,180
PROJECT ROYALTY EXPENSES
Elmore 12,820 2,885 2,783 2,847 3,141
Del Ranch 12,915 2,778 2,818 2,747 3,192
Leathers 12,305 13,614 2,778 2,843 3,136
Vulcan 445 385 392 381 445
Turbo Expander 0 0 98 121 146
------- ------- ------- ------- -------
Royalty Expenses 38,486 19,663 8,870 8,939 10,061
Cash After Royalty Payments 188,822 141,975 109,219 115,196 127,119
CAPITAL EXPENDITURES
Salton Sea Units I, II 352 770 890 450 344
Salton Sea Units III 125 4,734 4,005 3,818 305
Salton Sea Units IV 3,275 2,352 1,559 1,105 207
Salton Sea Units V 0 0 0 724 101
Minerals Extraction 0 0 0 42 87
Elmore 5,580 900 3,240 713 2,777
Del Ranch 11,024 6,859 4,203 3,585 420
Leathers 7,782 2,678 6,587 4,702 2,624
Vulcan 12,834 3,444 675 2,093 525
Turbo Expander 0 0 0 115 31
------- ------- ------- ------- -------
Total Capital Expenditures 40,972 21,737 21,159 17,347 7,421
CONSTRUCTION EXPENDITURES
Salton Sea Units V 15,983 77,284 13,596 0 0
Minerals Extraction 31,779 104,641 43,911 0 0
Elmore 10,817 6,150 0 0 0
Del Ranch 3,024 17,117 432 0 0
Leathers 0 977 3,393 0 0
Vulcan 3,884 21,980 555 0 0
Turbo Expander 1,502 8,504 215 0 0
Interest During Construction 4,669 21,304 10,564 0 0
Financing Costs 5,232 0 0 0 0
------- ------- ------- ------- -------
Total Construction Expenditures 76,890 257,957 72,666 0 0
FINANCING
Release of Bond Proceed from
Restricted Cash 76,890 208,110 0 0 0
Equity 0 49,847 72,666 0 0
------- ------- ------- ------- -------
Total Financing 76,890 257,957 72,666 0 0
OTHER
Interest Income and Other Income 21,162 6,996 2,422 2,690 3,292
------- ------- ------- ------- -------
Total Other 21,162 6,996 2,422 2,690 3,292
Cash Available for Debt Service 169,012 127,234 90,482 100,539 122,990
<CAPTION>
2003 2004 2005 2006 2007 2008
CASH FROM PROJECTS --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Salton Sea Unit I & II 15,696 16,115 16,788 17,196 17,225 17,818
Salton Sea Unit III 24,467 25,524 26,558 26,974 26,610 28,111
Salton Sea Unit IV 35,783 36,342 36,874 31,418 29,662 29,365
Salton Sea Unit V 18,842 19,494 19,005 16,359 15,946 16,949
Minerals Extraction 44,548 47,438 51,893 59,893 56,097 55,245
Elmore 20,415 20,739 22,027 21,889 22,229 22,837
Del Ranch 20,148 20,774 21,719 21,929 21,922 22,887
Leathers 19,974 20,298 21,586 21,448 21,788 22,396
Vulcan 16,283 17,000 17,673 18,028 17,855 18,886
Turbo Expander 3,910 4,114 3,374 3,281 3,237 3,507
------ ------ ------ ------ ------ ------
Total Revenues 220,067 227,838 237,497 238,416 232,572 238,000
EXPENSES
Salton Sea Unit I & II 5,055 5,229 5,356 5,383 5,574 5,651
Salton Sea Unit III 7,788 8,094 8,273 8,279 8,547 8,710
Salton Sea Unit IV 9,759 9,946 10,035 9,050 9,061 9,095
Salton Sea Unit V 4,061 4,111 4,187 4,208 4,238 4,315
Minerals Extraction 23,297 24,102 25,166 25,906 25,890 26,624
Elmore 6,869 6,761 7,660 7,517 7,335 7,567
Del Ranch 5,364 5,714 5,636 5,946 6,000 6,196
Leathers 6,534 6,610 7,179 6,806 7,610 7,341
Vulcan 4,870 5,155 5,249 5,331 5,605 5,307
Turbo Expander 678 693 678 689 697 715
------- ------- ------- ------- ------- -------
Total Expenses 74,275 76,416 79,420 79,117 80,558 81,520
Project Operating Income 145,792 151,422 158,077 159,299 152,013 156,480
PROJECT ROYALTY EXPENSES
Elmore 3,343 3,405 3,793 3,674 3,802 3,968
Del Ranch 3,265 3,445 3,704 3,718 3,713 4,015
Leathers 3,338 3,401 3,788 3,670 3,798 3,963
Vulcan 448 483 510 522 511 565
Turbo Expander 146 157 166 170 167 184
------- ------- ------- ------- ------- -------
Royalty Expenses 10,540 10,892 11,962 11,754 11,991 12,695
Cash After Royalty Payments 135,252 140,530 146,116 147,546 140,022 143,785
CAPITAL EXPENDITURES
Salton Sea Units I, II 2,105 618 509 115 539 692
Salton Sea Units III 3,764 181 845 191 1,120 200
Salton Sea Units IV 1,534 341 665 141 697 366
Salton Sea Units V 209 215 1,207 228 235 242
Minerals Extraction 179 184 190 196 202 208
Elmore 7,829 10,389 8,300 1,600 1,231 1,900
Del Ranch 1,169 442 2,699 464 475 487
Leathers 600 2,828 9,583 11,210 9,905 1,650
Vulcan 538 552 2,142 580 1,978 2,035
Turbo Expander 32 32 144 34 35 36
------- ------- ------- ------- ------- -------
Total Capital Expenditures 17,958 15,782 26,282 14,758 16,417 7,817
CONSTRUCTION EXPENDITURES
Salton Sea Units V 0 0 0 0 0 0
Minerals Extraction 0 0 0 0 0 0
Elmore 0 0 0 0 0 0
Del Ranch 0 0 0 0 0 0
Leathers 0 0 0 0 0 0
Vulcan 0 0 0 0 0 0
Turbo Expander 0 0 0 0 0 0
Interest During Construction 0 0 0 0 0 0
Financing Costs 0 0 0 0 0 0
------- ------- ------- ------- ------- -------
Total Construction Expenditures 0 0 0 0 0 0
FINANCING
Release of Bond Proceed from
Restricted Cash 0 0 0 0 0 0
Equity 0 0 0 0 0 0
------- ------- ------- ------- ------- -------
Total Financing 0 0 0 0 0 0
OTHER
Interest Income and Other Income 3,226 3,430 3,296 3,659 3,399 3,740
------- ------- ------- ------- ------- -------
Total Other 3,226 3,430 3,296 3,659 3,399 3,740
Cash Available for Debt Service 120,520 128,179 123,130 136,446 127,004 139,708
</TABLE>
B-34
<PAGE>
SALTON SEA FUNDING CORPORATION
PRO FORMA FINANCIAL PROJECTIONS
BASE CASE
<TABLE>
<CAPTION>
2009 2010 2011 2012
CASH FROM PROJECTS --------- --------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES
Salton Sea Unit I & II 17,941 18,493 18,525 18,694
Salton Sea Unit III 27,692 28,393 28,006 28,415
Salton Sea Unit IV 28,191 28,559 27,542 27,679
Salton Sea Unit V 16,772 17,173 17,267 17,232
Minerals Extraction 54,203 56,912 59,933 63,237
Elmore 22,967 23,035 23,412 23,093
Del Ranch 22,649 23,085 23,084 23,139
Leathers 22,526 22,594 22,971 22,652
Vulcan 18,496 19,062 18,878 19,109
Turbo Expander 3,405 3,553 3,506 3,565
------ ------ ------ ------
Total Revenues 234,841 240,859 243,125 246,813
EXPENSES
Salton Sea Unit I & II 5,644 5,898 5,962 5,905
Salton Sea Unit III 8,615 9,015 9,070 8,979
Salton Sea Unit IV 8,961 9,225 9,212 9,268
Salton Sea Unit V 4,324 4,377 4,407 4,437
Minerals Extraction 26,694 27,463 28,011 28,520
Elmore 7,319 7,397 7,650 8,174
Del Ranch 5,766 6,393 5,980 6,108
Leathers 7,096 7,609 7,876 7,491
Vulcan 5,375 5,463 5,774 5,875
Turbo Expander 721 737 745 758
------- ------- ------- -------
Total Expenses 80,515 83,577 84,685 85,513
Project Operating Income 154,326 157,282 158,440 161,300
PROJECT ROYALTY EXPENSES
Elmore 3,973 3,996 4,107 3,987
Del Ranch 3,880 4,043 4,011 4,034
Leathers 3,969 3,991 4,102 3,982
Vulcan 535 569 553 567
Turbo Expander 174 185 180 185
------- ------- ------- -------
Royalty Expenses 12,532 12,784 12,953 12,756
Cash After Royalty Payments 141,794 144,498 145,487 148,545
CAPITAL EXPENDITURES
Salton Sea Units I, II 573 127 604 695
Salton Sea Units III 948 210 1,256 221
Salton Sea Units IV 730 141 766 394
Salton Sea Units V 1,359 257 265 273
Minerals Extraction 214 220 227 234
Elmore 4,254 3,504 2,893 2,088
Del Ranch 4,497 512 1,460 1,501
Leathers 2,750 3,513 5,074 3,060
Vulcan 2,397 2,153 2,214 672
Turbo Expander 158 38 38 39
------- ------- ------- -------
Total Capital Expenditures 17,880 10,676 14,797 9,178
CONSTRUCTION EXPENDITURES
Salton Sea Units V 0 0 0 0
Minerals Extraction 0 0 0 0
Elmore 0 0 0 0
Del Ranch 0 0 0 0
Leathers 0 0 0 0
Vulcan 0 0 0 0
Turbo Expander 0 0 0 0
Interest During Construction 0 0 0 0
Financing Costs 0 0 0 0
------- ------- ------- -------
Total Construction Expenditures 0 0 0 0
FINANCING
Release of Bond Proceed from
Restricted Cash 0 0 0 0
Equity 0 0 0 0
------- ------- ------- -------
Total Financing 0 0 0 0
OTHER
Interest Income and Other Income 3,409 3,681 3,594 3,831
------- ------- ------- -------
Total Other 3,409 3,681 3,594 3,831
Cash Available for Debt Service 127,323 137,503 134,283 143,197
<CAPTION>
2013 2014 2015 2016 2017 2018
CASH FROM PROJECTS --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Salton Sea Unit I & II 19,235 19,749 19,981 20,533 20,126 19,386
Salton Sea Unit III 28,993 29,515 29,596 30,330 30,922 31,423
Salton Sea Unit IV 28,356 29,208 29,737 30,219 30,854 31,891
Salton Sea Unit V 17,992 18,207 18,774 18,999 19,431 19,891
Minerals Extraction 63,401 63,396 63,542 63,568 60,513 58,612
Elmore 24,066 23,948 24,765 25,166 25,582 26,000
Del Ranch 23,722 24,001 24,410 24,703 24,990 25,493
Leathers 23,624 23,507 24,324 24,725 25,141 25,559
Vulcan 19,438 19,878 20,045 16,638 15,163 15,661
Turbo Expander 3,653 3,768 3,813 3,932 4,068 4,171
------ ------ ------ ------ ------ ------
Total Revenues 252,479 255,178 258,986 258,814 256,789 258,088
EXPENSES
Salton Sea Unit I & II 6,158 6,315 6,166 6,415 6,474 6,211
Salton Sea Unit III 9,353 9,579 9,297 9,685 9,888 9,574
Salton Sea Unit IV 9,565 9,767 9,839 10,142 10,295 10,375
Salton Sea Unit V 4,509 4,546 4,610 4,653 4,713 4,772
Minerals Extraction 29,139 29,508 30,091 30,499 30,819 31,282
Elmore 9,141 8,327 8,802 8,453 8,596 8,742
Del Ranch 7,449 6,579 6,678 6,828 6,904 7,064
Leathers 8,138 8,691 9,727 8,354 8,892 9,085
Vulcan 5,700 5,762 6,069 6,093 5,834 5,981
Turbo Expander 771 786 799 814 830 846
------- ------- ------- ------- ------- -------
Total Expenses 89,924 89,861 92,079 91,936 93,245 93,932
Project Operating Income 162,555 165,317 166,906 166,877 163,544 164,156
PROJECT ROYALTY EXPENSES
Elmore 4,312 4,213 4,486 4,555 4,671 4,778
Del Ranch 4,211 4,263 4,380 4,448 4,524 4,666
Leathers 4,308 4,208 4,481 4,551 4,666 4,774
Vulcan 581 600 605 627 625 658
Turbo Expander 190 196 197 204 211 216
------- ------- ------- ------- ------- -------
Royalty Expenses 13,602 13,480 14,149 14,385 14,698 15,092
Cash After Royalty Payments 148,953 151,838 152,757 152,493 148,847 149,064
CAPITAL EXPENDITURES
Salton Sea Units I, II 2,822 140 677 779 717 155
Salton Sea Units III 4,778 232 1,409 244 1,190 256
Salton Sea Units IV 2,013 141 845 430 895 153
Salton Sea Units V 1,529 289 298 307 1,721 326
Minerals Extraction 241 248 255 263 271 279
Elmore 400 2,191 400 2,300 400 400
Del Ranch 2,404 1,586 1,631 1,672 3,759 1,757
Leathers 1,392 2,201 400 2,310 400 2,427
Vulcan 2,685 706 724 742 761 780
Turbo Expander 175 41 42 44 193 46
------- ------- ------- ------- ------- -------
Total Capital Expenditures 18,439 7,777 6,682 9,091 10,307 6,578
CONSTRUCTION EXPENDITURES
Salton Sea Units V 0 0 0 0 0 0
Minerals Extraction 0 0 0 0 0 0
Elmore 0 0 0 0 0 0
Del Ranch 0 0 0 0 0 0
Leathers 0 0 0 0 0 0
Vulcan 0 0 0 0 0 0
Turbo Expander 0 0 0 0 0 0
Interest During Construction 0 0 0 0 0 0
Financing Costs 0 0 0 0 0 0
------- ------- ------- ------- ------- -------
Total Construction Expenditures 0 0 0 0 0 0
FINANCING
Release of Bond Proceed from
Restricted Cash 0 0 0 0 0 0
Equity 0 0 0 0 0 0
------- ------- ------- ------- ------- -------
Total Financing 0 0 0 0 0 0
OTHER
Interest Income and Other Income 3,590 3,961 4,016 3,943 3,811 3,918
------- ------- ------- ------- ------- -------
Total Other 3,590 3,961 4,016 3,943 3,811 3,918
Cash Available for Debt Service 134,103 148,022 150,092 147,344 142,350 146,403
</TABLE>
B-35
<PAGE>
SALTON SEA FUNDING CORPORATION
PRO FORMA FINANCIAL PROJECTIONS
BASE CASE
<TABLE>
<CAPTION>
1998 1999 2000 2001 2002
MAGMA CASH FLOW STATEMENT ----------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
MAGMA REVENUES
Cash from Projects 169,012 127,234 90,482 100,539 122,990
Monofill Revenues 1,000 1,000 1,000 1,000 1,000
Royalties from Elmore 13,731 3,348 3,156 3,276 3,560
Royalties from Del Ranch 13,331 2,964 3,036 2,907 3,456
Royalties from Leathers 12,106 12,437 2,961 3,078 3,351
Royalties from Vulcan 406 370 374 367 406
Royalties from Turbo Expander 0 0 70 86 99
Management fee from Salton Sea Units
I, II 669 674 442 364 389
Management fee from Salton Sea Unit
III 1,264 674 570 562 612
Other Royalties 25,000 0 0 0 0
------- ------- ------ ------- -------
Total Magma Revenues 236,519 148,701 102,090 112,180 135,862
MAGMA EXPENSES/OBLIGATIONS
Pollution Control Debt Interest 0 0 0 0 0
Pollution Control Debt Principal 0 0 0 0 0
Installment Obligations 1,101 137 137 0 0
Other 0 0 0 0 0
Debt Service Reserve LC Fees/Other 952 952 904 904 904
------- ------- ------- ------- -------
Total Magma Expenses/Obligations 2,053 1,089 1,041 904 904
Cash Available for Funding Corp Debt 234,466 147,611 101,050 111,276 134,959
CASH FLOW AVAILABLE FOR BOND
PAYMENTS 1998 1999 2000 2001 2002
------- ------- ------- ------- -------
CASH FLOW FROM PROJECTS
Salton Sea Unit I & II 33,659 20,317 13,135 9,810 10,063
Salton Sea Unit III 41,224 18,193 11,638 11,108 16,138
Salton Sea Unit IV 18,645 20,604 22,241 23,330 25,539
Salton Sea Unit V 0 0 5,915 10,889 14,309
Minerals Extraction 0 0 5,404 16,862 20,296
Elmore 28,175 15,006 6,265 8,310 6,417
Del Ranch 23,178 9,335 6,191 6,420 10,270
Leathers 23,525 33,365 8,831 3,649 6,552
Vulcan (2,036) 6,725 9,214 7,637 10,309
Turbo Expander 0 0 1,648 2,525 3,097
------- ------- ------- ------- -------
Total Cash from Projects 166,371 123,545 90,482 100,539 122,990
OTHER REVENUE CASH FLOWS
Monofill Revenues 1,000 1,000 1,000 1,000 1,000
Royalties from Elmore 13,731 3,348 3,156 3,276 3,560
Royalties from Del Ranch 13,331 2,964 3,036 2,907 3,456
Royalties from Leathers 12,106 12,437 2,961 3,078 3,351
Royalties from Vulcan 406 370 374 367 406
Royalties from Turbo Expander 0 0 70 86 99
Management fee from Salton Sea Units
I, II 669 674 442 364 389
Management fee from Salton Sea Unit
III 1,264 674 570 562 612
Other Royalties 25,000 0 0 0 0
Bond Interest Income 2,641 3,689 0 0 0
------- ------- ------- ------- -------
Total Other Revenues 70,148 25,155 11,608 11,641 12,873
OTHER EXPENDITURES
Installments/Pollution Control Debt
Service 1,101 137 137 0 0
Other 0 0 0 0 0
Debt Service Reserve LC Fees/Other 952 952 904 904 904
------- ------- ------- ------- -------
Total Other Expenditures 2,053 1,089 1,041 904 904
Net Cash Available For SSFC Debt
Service 234,466 147,611 101,050 111,276 134,959
Interest (Series A/B/C) 23,583 19,094 16,667 15,596 13,996
Principal (Series A/B/C) 74,938 35,108 19,573 21,377 22,698
Interest (Series D/E) 7,933 5,810 4,362 4,040 3,944
Principal (Series D/E) 32,000 22,728 5,500 1,000 1,600
Interest (Series F) 0 0 10,739 21,280 21,128
Principal (Series F) 0 0 0 1,282 4,274
Project Debt Service 138,454 82,740 56,841 64,575 67,640
Project Debt Coverage 1.69 1.78 1.78 1.72 2.00
Minimum DCR (1999-2018) 1.72
Average DCR (1999-2018) 2.97
<CAPTION>
2003 2004 2005 2006 2007 2008
MAGMA CASH FLOW STATEMENT ------------ ------------ ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
MAGMA REVENUES
Cash from Projects 120,520 128,179 123,130 136,446 127,004 139,708
Monofill Revenues 1,000 1,000 1,000 1,000 1,000 1,000
Royalties from Elmore 3,848 3,851 4,340 4,131 4,350 4,455
Royalties from Del Ranch 3,499 3,716 3,955 3,993 3,964 4,311
Royalties from Leathers 3,631 3,632 4,106 3,902 4,116 4,214
Royalties from Vulcan 407 429 444 452 445 478
Royalties from Turbo Expander 98 105 82 85 85 94
Management fee from Salton Sea Units
I, II 393 405 423 431 430 448
Management fee from Salton Sea Unit
III 612 643 668 676 663 711
Other Royalties 0 0 0 0 0 0
------- ------- ------- ------- ------- -------
Total Magma Revenues 134,008 141,958 138,149 151,117 142,058 155,419
MAGMA EXPENSES/OBLIGATIONS
Pollution Control Debt Interest 0 0 0 0 0 0
Pollution Control Debt Principal 0 0 0 0 0 0
Installment Obligations 0 0 0 0 0 0
Other 0 0 0 0 0 0
Debt Service Reserve LC Fees/Other 904 904 904 904 904 904
------- ------- ------- ------- ------- -------
Total Magma Expenses/Obligations 904 904 904 904 904 904
Cash Available for Funding Corp Debt 133,105 141,055 137,245 150,213 141,155 154,516
CASH FLOW AVAILABLE FOR BOND
PAYMENTS 2003 2004 2005 2006 2007 2008
------- ------- ------- ------- ------- -------
CASH FLOW FROM PROJECTS
Salton Sea Unit I & II 8,770 10,550 11,223 12,019 11,417 11,791
Salton Sea Unit III 13,270 17,722 17,920 19,013 17,409 19,729
Salton Sea Unit IV 25,163 26,772 26,895 22,838 20,451 20,451
Salton Sea Unit V 14,973 15,585 13,984 12,251 11,789 12,733
Minerals Extraction 21,653 23,789 27,266 34,720 30,830 29,194
Elmore 2,439 189 2,338 9,349 10,132 9,661
Del Ranch 10,636 11,480 9,946 12,126 12,056 12,523
Leathers 9,763 7,664 1,064 (238) 489 9,701
Vulcan 10,714 11,106 10,041 11,914 10,028 11,281
Turbo Expander 3,138 3,320 2,452 2,454 2,402 2,642
------- ------- ------- ------- ------- -------
Total Cash from Projects 120,520 128,179 123,130 136,446 127,004 139,708
OTHER REVENUE CASH FLOWS
Monofill Revenues 1,000 1,000 1,000 1,000 1,000 1,000
Royalties from Elmore 3,848 3,851 4,340 4,131 4,350 4,455
Royalties from Del Ranch 3,499 3,716 3,955 3,993 3,964 4,311
Royalties from Leathers 3,631 3,632 4,106 3,902 4,116 4,214
Royalties from Vulcan 407 429 444 452 445 478
Royalties from Turbo Expander 98 105 82 85 85 94
Management fee from Salton Sea Units
I, II 393 405 423 431 430 448
Management fee from Salton Sea Unit
III 612 643 668 676 663 711
Other Royalties 0 0 0 0 0 0
Bond Interest Income 0 0 0 0 0 0
------- ------- ------- ------- ------- -------
Total Other Revenues 13,488 13,780 15,019 14,670 15,054 15,711
OTHER EXPENDITURES
Installments/Pollution Control Debt
Service 0 0 0 0 0 0
Other 0 0 0 0 0 0
Debt Service Reserve LC Fees/Other 904 904 904 904 904 904
------- ------- ------- ------- ------- -------
Total Other Expenditures 904 904 904 904 904 904
Net Cash Available For SSFC Debt
Service 133,105 141,055 137,245 150,213 141,155 154,516
Interest (Series A/B/C) 12,323 10,626 8,471 7,150 5,462 3,766
Principal (Series A/B/C) 22,237 23,776 23,312 21,537 21,505 22,037
Interest (Series D/E) 3,782 3,528 3,253 2,984 2,776 2,548
Principal (Series D/E) 3,000 3,250 3,500 2,500 2,500 3,500
Interest (Series F) 20,835 20,609 20,343 20,074 19,826 19,613
Principal (Series F) 2,850 3,562 3,562 3,706 2,140 4,990
Project Debt Service 65,027 65,351 62,441 57,951 54,209 56,454
Project Debt Coverage 2.05 2.16 2.20 2.59 2.60 2.74
Minimum DCR (1999-2018)
Average DCR (1999-2018)
</TABLE>
B-36
<PAGE>
SALTON SEA FUNDING CORPORATION
PRO FORMA FINANCIAL PROJECTIONS
BASE CASE
<TABLE>
<CAPTION>
2009 2010 2011 2012
MAGMA CASH FLOW STATEMENT ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
MAGMA REVENUES
Cash from Projects 127,323 137,503 134,283 143,197
Monofill Revenues 1,000 1,000 1,000 1,000
Royalties from Elmore 4,538 4,476 4,684 4,475
Royalties from Del Ranch 4,137 4,332 4,272 4,331
Royalties from Leathers 4,297 4,234 4,438 4,234
Royalties from Vulcan 459 480 470 479
Royalties from Turbo Expander 90 97 95 99
Management fee from Salton Sea Units I, II 449 465 463 468
Management fee from Salton Sea Unit III 689 714 697 713
Other Royalties 0 0 0 0
------- ------- ------- -------
Total Magma Revenues 142,982 153,301 150,403 158,996
MAGMA EXPENSES/OBLIGATIONS
Pollution Control Debt Interest 0 0 0 0
Pollution Control Debt Principal 0 0 0 0
Installment Obligations 0 0 0 0
Other 0 0 0 0
Debt Service Reserve LC Fees/Other 904 904 904 904
------- ------- ------- --------
Total Magma Expenses/Obligations 904 904 904 904
Cash Available for Funding Corp Debt 142,078 152,397 149,499 158,093
CASH FLOW AVAILABLE FOR BOND PAYMENTS 2009 2010 2011 2012
------- ------- ------- --------
CASH FLOW FROM PROJECTS
Salton Sea Unit I & II 12,046 12,811 12,288 12,427
Salton Sea Unit III 18,628 19,695 18,166 19,743
Salton Sea Unit IV 19,008 19,720 18,047 18,513
Salton Sea Unit V 11,394 12,884 12,941 12,866
Minerals Extraction 28,045 30,033 32,568 35,431
Elmore 7,625 8,363 9,003 9,087
Del Ranch 8,740 12,470 11,954 11,812
Leathers 8,951 7,687 6,081 8,341
Vulcan 10,468 11,176 10,622 12,324
Turbo Expander 2,417 2,664 2,613 2,654
------- ------- ------- --------
Total Cash from Projects 127,323 137,503 134,283 143,197
OTHER REVENUE CASH FLOWS
Monofill Revenues 1,000 1,000 1,000 1,000
Royalties from Elmore 4,538 4,476 4,684 4,475
Royalties from Del Ranch 4,137 4,332 4,272 4,331
Royalties from Leathers 4,297 4,234 4,438 4,234
Royalties from Vulcan 459 480 470 479
Royalties from Turbo Expander 90 97 95 99
Management fee from Salton Sea Units I, II 449 465 463 468
Management fee from Salton Sea Unit III 689 714 697 713
Other Royalties 0 0 0 0
Bond Interest Income 0 0 0 0
------- ------- ------- --------
Total Other Revenues 15,659 15,798 16,119 15,799
OTHER EXPENDITURES
Installments/Pollution Control Debt Service 0 0 0 0
Other 0 0 0 0
Debt Service Reserve LC Fees/Other 904 904 904 904
------- ------- ------- --------
Total Other Expenditures 904 904 904 904
Net Cash Available For SSFC Debt Service 142,078 152,397 149,499 158,093
Interest (Series A/B/C) 2,041 377 0 0
Principal (Series A/B/C) 21,876 9,630 0 0
Interest (Series D/E) 2,263 1,780 470 0
Principal (Series D/E) 3,250 13,500 11,322 0
Interest (Series F) 19,293 19,040 18,321 16,750
Principal (Series F) 2,138 7,124 17,100 32,774
Project Debt Service 50,861 51,451 47,213 49,524
Project Debt Coverage 2.79 2.96 3.17 3.19
Minimum DCR (1999-2018) 1.72
Average DCR (1999-2018) 2.97
<CAPTION>
2013 2014 2015 2016 2017 2018
MAGMA CASH FLOW STATEMENT ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
MAGMA REVENUES
Cash from Projects 134,103 148,022 150,092 147,344 142,350 146,403
Monofill Revenues 1,000 1,000 1,000 1,000 1,000 1,000
Royalties from Elmore 4,908 4,708 5,098 5,211 5,329 5,447
Royalties from Del Ranch 4,480 4,561 4,656 4,764 4,805 4,982
Royalties from Leathers 4,655 4,458 4,837 4,948 5,062 5,176
Royalties from Vulcan 487 499 502 399 375 395
Royalties from Turbo Expander 102 106 107 112 116 120
Management fee from Salton Sea Units I, II 483 496 500 516 501 481
Management fee from Salton Sea Unit III 727 740 740 762 775 788
Other Royalties 0 0 0 0 0 0
------- ------- ------- ------- ------- -------
Total Magma Revenues 150,946 164,590 167,531 165,056 160,313 164,791
MAGMA EXPENSES/OBLIGATIONS
Pollution Control Debt Interest 0 0 0 0 0 0
Pollution Control Debt Principal 0 0 0 0 0 0
Installment Obligations 0 0 0 0 0 0
Other 0 0 0 0 0 0
Debt Service Reserve LC Fees/Other 904 904 904 904 904 904
------- ------- ------- ------- ------- -------
Total Magma Expenses/Obligations 904 904 904 904 904 904
Cash Available for Funding Corp Debt 150,043 163,687 166,628 164,153 159,409 163,888
CASH FLOW AVAILABLE FOR BOND PAYMENTS 2013 2014 2015 2016 2017 2018
------- ------- ------- ------- ------- -------
CASH FLOW FROM PROJECTS
Salton Sea Unit I & II 10,537 13,659 13,499 13,706 13,291 13,377
Salton Sea Unit III 15,272 20,246 19,409 20,962 20,390 22,187
Salton Sea Unit IV 17,239 19,832 19,577 20,188 20,204 21,950
Salton Sea Unit V 12,283 13,740 14,246 14,425 13,354 15,200
Minerals Extraction 34,956 34,565 34,109 33,708 30,232 27,795
Elmore 10,493 9,471 11,382 10,129 12,243 12,412
Del Ranch 9,923 11,891 12,043 12,078 10,073 12,337
Leathers 10,055 8,638 9,982 9,772 11,490 9,529
Vulcan 10,759 13,161 12,994 9,427 8,161 8,469
Turbo Expander 2,586 2,819 2,850 2,949 2,912 3,147
------- ------- ------- ------- ------- -------
Total Cash from Projects 134,103 148,022 150,092 147,344 142,350 146,403
OTHER REVENUE CASH FLOWS
Monofill Revenues 1,000 1,000 1,000 1,000 1,000 1,000
Royalties from Elmore 4,908 4,708 5,098 5,211 5,329 5,447
Royalties from Del Ranch 4,480 4,561 4,656 4,764 4,805 4,982
Royalties from Leathers 4,655 4,458 4,837 4,948 5,062 5,176
Royalties from Vulcan 487 499 502 399 375 395
Royalties from Turbo Expander 102 106 107 112 116 120
Management fee from Salton Sea Units I, II 483 496 500 516 501 481
Management fee from Salton Sea Unit III 727 740 740 762 775 788
Other Royalties 0 0 0 0 0 0
Bond Interest Income 0 0 0 0 0 0
------- ------- ------- ------- ------- -------
Total Other Revenues 16,843 16,568 17,440 17,712 17,963 18,388
OTHER EXPENDITURES
Installments/Pollution Control Debt Service 0 0 0 0 0 0
Other 0 0 0 0 0 0
Debt Service Reserve LC Fees/Other 904 904 904 904 904 904
------- ------- ------- ------- ------- -------
Total Other Expenditures 904 904 904 904 904 904
Net Cash Available For SSFC Debt Service 150,043 163,687 166,628 164,153 159,409 163,888
Interest (Series A/B/C) 0 0 0 0 0 0
Principal (Series A/B/C) 0 0 0 0 0 0
Interest (Series D/E) 0 0 0 0 0 0
Principal (Series D/E) 0 0 0 0 0 0
Interest (Series F) 14,372 12,111 9,496 6,652 3,667 1,102
Principal (Series F) 28,928 34,200 37,334 40,184 39,188 19,664
Project Debt Service 43,300 46,311 46,830 46,836 42,855 20,766
Project Debt Coverage 3.47 3.53 3.56 3.50 3.72 7.89
Minimum DCR (1999-2018)
Average DCR (1999-2018)
</TABLE>
B-37
<PAGE>
SALTON SEA FUNDING CORPORATION
PRO FORMA FINANCIAL PROJECTIONS
LOW POWER PRICE -- CASE 2
<TABLE>
<CAPTION>
1998 1999 2000 2001 2002
CASH FROM PROJECTS --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
REVENUES
Salton Sea Unit I & II 26,534 26,917 19,233 15,096 14,722
Salton Sea Unit III 50,692 30,895 23,484 22,522 22,410
Salton Sea Unit IV 30,716 32,061 32,898 33,573 35,018
Salton Sea Unit V 0 0 7,643 14,400 16,342
Minerals Extraction 0 0 16,117 37,270 42,408
Elmore 56,395 25,154 18,440 18,563 18,179
Del Ranch 56,490 24,853 18,443 18,234 18,217
Leathers 54,344 58,786 24,879 18,121 17,738
Vulcan 16,063 15,030 14,922 14,719 14,704
Turbo Expander 0 0 2,270 3,219 3,506
------ ------ ------ ------ ------
Total Revenues 291,235 213,697 178,330 195,717 203,246
EXPENSES
Salton Sea Unit I & II 7,438 6,374 5,560 5,100 5,207
Salton Sea Unit III 10,446 8,455 8,152 7,892 7,972
Salton Sea Unit IV 9,295 9,656 9,693 9,762 9,956
Salton Sea Unit V 0 0 2,062 3,646 3,939
Minerals Extraction 0 0 10,788 20,572 21,874
Elmore 10,573 6,765 6,316 6,919 7,298
Del Ranch 9,993 6,130 5,395 5,646 5,902
Leathers 11,361 10,022 6,914 7,030 6,881
Vulcan 4,820 4,656 4,901 4,826 4,924
Turbo Expander 0 0 620 650 661
------- ------- ------- ------- -------
Total Expenses 63,927 52,058 60,401 72,042 74,613
Project Operating Income 227,308 161,639 117,928 123,675 128,633
PROJECT ROYALTY EXPENSES
Elmore 12,820 2,885 2,779 2,837 2,708
Del Ranch 12,915 2,778 2,814 2,743 2,752
Leathers 12,305 13,614 2,775 2,833 2,703
Vulcan 445 385 392 380 382
Turbo Expander 0 0 94 114 125
------- ------- ------- ------- -------
Royalty Expenses 38,486 19,663 8,854 8,907 8,670
Cash After Royalty Payments 188,822 141,975 109,074 114,768 119,962
CAPITAL EXPENDITURES
Salton Sea Units I, II 352 770 890 450 344
Salton Sea Units III 125 4,734 4,005 3,818 305
Salton Sea Units IV 3,275 2,352 1,559 1,105 207
Salton Sea Units V 0 0 0 724 101
Minerals Extraction 0 0 0 42 87
Elmore 5,580 900 3,240 713 2,777
Del Ranch 11,024 6,859 4,203 3,585 420
Leathers 7,782 2,678 6,587 4,702 2,624
Vulcan 12,834 3,444 675 2,093 525
Turbo Expander 0 0 0 115 31
------- ------- ------- ------- -------
Total Capital Expenditures 40,972 21,737 21,159 17,347 7,421
CONSTRUCTION EXPENDITURES
Salton Sea Units V 15,983 77,284 13,596 0 0
Minerals Extraction 31,779 104,641 43,911 0 0
Elmore 10,817 6,150 0 0 0
Del Ranch 3,024 17,117 432 0 0
Leathers 0 977 3,393 0 0
Vulcan 3,884 21,980 555 0 0
Turbo Expander 1,502 8,504 215 0 0
Interest During Construction 4,669 21,304 10,564 0 0
Financing Costs 5,232 0 0 0 0
------- ------- ------- ------- -------
Total Construction Expenditures 76,890 257,957 72,666 0 0
FINANCING
Release of Bond Proceed from Restricted
Cash 76,890 208,110 0 0 0
Equity 0 49,847 72,666 0 0
------- ------- ------- ------- -------
Total Financing 76,890 257,957 72,666 0 0
OTHER
Interest Income and Other Income 21,162 6,996 2,418 2,679 3,094
------- ------- ------- ------- -------
Total Other 21,162 6,996 2,418 2,679 3,094
Cash Available for Debt Service 169,012 127,234 90,333 100,100 115,635
<CAPTION>
2003 2004 2005 2006 2007 2008
CASH FROM PROJECTS --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Salton Sea Unit I & II 15,093 15,708 16,098 16,498 16,555 16,782
Salton Sea Unit III 22,965 24,493 24,814 25,213 24,939 25,480
Salton Sea Unit IV 35,783 36,342 36,874 30,902 29,052 28,433
Salton Sea Unit V 17,418 18,536 17,364 14,730 14,359 14,514
Minerals Extraction 44,548 47,438 51,893 59,893 56,097 55,245
Elmore 19,146 19,898 20,560 20,461 20,813 20,707
Del Ranch 18,898 19,930 20,282 20,493 20,531 20,739
Leathers 18,705 19,457 20,119 20,020 20,372 20,266
Vulcan 15,182 16,247 16,409 16,748 16,629 16,968
Turbo Expander 3,620 3,916 3,042 2,944 2,915 3,002
------ ------ ------ ------ ------ ------
Total Revenues 211,358 221,966 227,455 227,902 222,263 222,136
EXPENSES
Salton Sea Unit I & II 5,013 5,201 5,299 5,332 5,524 5,568
Salton Sea Unit III 7,684 8,022 8,130 8,149 8,422 8,498
Salton Sea Unit IV 9,759 9,946 10,035 9,014 9,025 9,036
Salton Sea Unit V 4,005 4,074 4,112 4,141 4,171 4,205
Minerals Extraction 22,817 23,784 24,524 25,336 25,326 25,701
Elmore 6,781 6,708 7,541 7,421 7,230 7,409
Del Ranch 5,283 5,658 5,527 5,846 5,904 6,031
Leathers 6,445 6,556 7,060 6,711 7,504 7,184
Vulcan 4,845 5,138 5,215 5,300 5,574 5,256
Turbo Expander 671 688 669 681 689 702
------- ------- ------- ------- ------- -------
Total Expenses 73,304 75,775 78,111 77,929 79,371 79,590
Project Operating Income 138,055 146,191 149,344 149,972 142,891 142,546
PROJECT ROYALTY EXPENSES
Elmore 3,033 3,205 3,375 3,312 3,433 3,377
Del Ranch 2,963 3,242 3,296 3,351 3,352 3,417
Leathers 3,029 3,200 3,371 3,308 3,428 3,373
Vulcan 406 454 453 469 460 479
Turbo Expander 132 148 148 153 150 156
------- ------- ------- ------- ------- -------
Royalty Expenses 9,563 10,249 10,642 10,593 10,824 10,802
Cash After Royalty Payments 128,492 135,942 138,702 139,379 132,068 131,744
CAPITAL EXPENDITURES
Salton Sea Units I, II 2,105 618 509 115 539 692
Salton Sea Units III 3,764 181 845 191 1,120 200
Salton Sea Units IV 1,534 341 665 141 697 366
Salton Sea Units V 209 215 1,207 228 235 242
Minerals Extraction 179 184 190 196 202 208
Elmore 7,829 10,389 8,300 1,600 1,231 1,900
Del Ranch 1,169 442 2,699 464 475 487
Leathers 600 2,828 9,583 11,210 9,905 1,650
Vulcan 538 552 2,142 580 1,978 2,035
Turbo Expander 32 32 144 34 35 36
------- ------- ------- ------- ------- -------
Total Capital Expenditures 17,958 15,782 26,282 14,758 16,417 7,817
CONSTRUCTION EXPENDITURES
Salton Sea Units V 0 0 0 0 0 0
Minerals Extraction 0 0 0 0 0 0
Elmore 0 0 0 0 0 0
Del Ranch 0 0 0 0 0 0
Leathers 0 0 0 0 0 0
Vulcan 0 0 0 0 0 0
Turbo Expander 0 0 0 0 0 0
Interest During Construction 0 0 0 0 0 0
Financing Costs 0 0 0 0 0 0
------- ------- ------- ------- ------- -------
Total Construction Expenditures 0 0 0 0 0 0
FINANCING
Release of Bond Proceed from Restricted
Cash 0 0 0 0 0 0
Equity 0 0 0 0 0 0
------- ------- ------- ------- ------- -------
Total Financing 0 0 0 0 0 0
OTHER
Interest Income and Other Income 3,039 3,316 3,092 3,461 3,194 3,408
------- ------- ------- ------- ------- -------
Total Other 3,039 3,316 3,092 3,461 3,194 3,408
Cash Available for Debt Service 113,573 123,476 115,512 128,082 118,844 127,336
</TABLE>
B-38
<PAGE>
SALTON SEA FUNDING CORPORATION
PRO FORMA FINANCIAL PROJECTIONS
LOW POWER PRICE -- CASE 2
<TABLE>
<CAPTION>
2009 2010 2011 2012
CASH FROM PROJECTS --------- --------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES
Salton Sea Unit I & II 17,030 17,635 17,776 18,082
Salton Sea Unit III 25,387 26,226 26,139 26,863
Salton Sea Unit IV 27,366 27,784 26,862 27,128
Salton Sea Unit V 14,610 15,169 15,496 15,792
Minerals Extraction 54,203 56,912 59,933 63,237
Elmore 21,039 21,279 21,832 21,830
Del Ranch 20,753 21,318 21,531 21,870
Leathers 20,598 20,838 21,390 21,389
Vulcan 16,825 17,485 17,510 17,977
Turbo Expander 2,966 3,138 3,146 3,268
------ ------ ------ ------
Total Revenues 220,775 227,786 231,615 237,437
EXPENSES
Salton Sea Unit I & II 5,579 5,834 5,908 5,861
Salton Sea Unit III 8,450 8,853 8,934 8,867
Salton Sea Unit IV 8,906 9,154 9,158 9,225
Salton Sea Unit V 4,236 4,293 4,334 4,378
Minerals Extraction 25,964 26,765 27,408 28,040
Elmore 7,180 7,278 7,535 8,091
Del Ranch 5,640 6,268 5,875 6,020
Leathers 6,957 7,490 7,761 7,407
Vulcan 5,336 5,423 5,740 5,847
Turbo Expander 710 726 736 751
------- ------- ------- -------
Total Expenses 78,958 82,085 83,389 84,487
Project Operating Income 141,817 145,700 148,226 152,950
PROJECT ROYALTY EXPENSES
Elmore 3,490 3,544 3,704 3,673
Del Ranch 3,408 3,587 3,617 3,717
Leathers 3,486 3,540 3,700 3,669
Vulcan 468 503 498 522
Turbo Expander 153 164 162 170
------- ------- ------- -------
Royalty Expenses 11,005 11,338 11,681 11,751
Cash After Royalty Payments 130,812 134,362 136,546 141,198
CAPITAL EXPENDITURES
Salton Sea Units I, II 573 127 604 695
Salton Sea Units III 948 210 1,256 221
Salton Sea Units IV 730 141 766 394
Salton Sea Units V 1,359 257 265 273
Minerals Extraction 214 220 227 234
Elmore 4,254 3,504 2,893 2,088
Del Ranch 4,497 512 1,460 1,501
Leathers 2,750 3,513 5,074 3,060
Vulcan 2,397 2,153 2,214 672
Turbo Expander 158 38 38 39
------- ------- ------- -------
Total Capital Expenditures 17,880 10,676 14,797 9,178
CONSTRUCTION EXPENDITURES
Salton Sea Units V 0 0 0 0
Minerals Extracfion 0 0 0 0
Elmore 0 0 0 0
Del Ranch 0 0 0 0
Leathers 0 0 0 0
Vulcan 0 0 0 0
Turbo Expander 0 0 0 0
Interest During Construction 0 0 0 0
Financing Costs 0 0 0 0
Total Construction Expenditures 0 0 0 0
------- ------- ------- -------
FINANCING
Release of Bond Proceed from
Restricted Cash 0 0 0 0
Equity 0 0 0 0
------- ------- ------- -------
Total Financing 0 0 0 0
OTHER
Interest Income and Other Income 3,106 3,401 3,350 3,629
------- ------- ------- -------
Total Other 3,106 3,401 3,350 3,629
Cash Available for Debt Service 116,038 127,088 125,098 135,649
<CAPTION>
2013 2014 2015 2016 2017 2018
CASH FROM PROJECTS --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Salton Sea Unit I & II 18,406 18,761 18,896 19,525 19,088 18,214
Salton Sea Unit III 26,899 27,024 26,894 27,793 28,301 28,468
Salton Sea Unit IV 27,605 28,317 28,750 29,320 29,933 30,836
Salton Sea Unit V 16,024 15,904 16,207 16,647 17,018 17,170
Minerals Extraction 63,401 63,396 63,542 63,568 60,513 58,612
Elmore 22,306 21,931 22,472 23,041 23,399 23,538
Del Ranch 21,997 21,970 22,160 22,629 22,873 23,092
Leathers 21,865 21,490 22,031 22,600 22,957 23,097
Vulcan 17,920 18,065 18,063 14,787 13,299 13,518
Turbo Expander 3,254 3,291 3,292 3,446 3,563 3,600
------ ------ ------ ------ ------ ------
Total Revenues 239,677 240,148 242,306 243,355 240,944 240,146
EXPENSES
Salton Sea Unit I & II 6,092 6,240 6,084 6,341 6,395 6,122
Salton Sea Unit III 9,187 9,388 9,092 9,498 9,689 9,347
Salton Sea Unit IV 9,515 9,721 9,792 10,100 10,241 10,312
Salton Sea Unit V 4,421 4,447 4,500 4,556 4,610 4,655
Minerals Extraction 28,420 28,704 29,202 29,720 30,000 30,353
Elmore 9,002 8,186 8,628 8,294 8,428 8,551
Del Ranch 7,323 6,431 6,519 6,682 6,756 6,889
Leathers 7,999 8,550 9,553 8,194 8,725 8,893
Vulcan 5,660 5,716 6,019 6,048 5,787 5,926
Turbo Expander 761 774 785 802 818 831
------- ------- ------- ------- ------- -------
Total Expenses 88,379 88,158 90,174 90,235 91,448 91,880
Project Operating Income 151,298 151,990 152,132 153,120 149,496 148,266
PROJECT ROYALTY EXPENSES
Elmore 3,826 3,680 3,877 4,014 4,098 4,124
Del Ranch 3,737 3,724 3,786 3,920 3,969 4,028
Leathers 3,822 3,676 3,872 4,009 4,093 4,120
Vulcan 514 523 521 551 547 567
Turbo Expander 168 171 170 180 185 186
------- ------- ------- ------- ------- -------
Royalty Expenses 12,067 11,774 12,226 12,673 12,893 13,025
Cash After Royalty Payments 139,231 140,216 139,906 140,447 136,603 135,242
CAPITAL EXPENDITURES
Salton Sea Units I, II 2,822 140 677 779 717 155
Salton Sea Units III 4,778 232 1,409 244 1,190 256
Salton Sea Units IV 2,013 141 845 430 895 153
Salton Sea Units V 1,529 289 298 307 1,721 326
Minerals Extraction 241 248 255 263 271 279
Elmore 400 2,191 400 2,300 400 400
Del Ranch 2,404 1,586 1,631 1,672 3,759 1,757
Leathers 1,392 2,201 400 2,310 400 2,427
Vulcan 2,685 706 724 742 761 780
Turbo Expander 175 41 42 44 193 46
------- ------- ------- ------- ------- -------
Total Capital Expenditures 18,439 7,777 6,682 9,091 10,307 6,578
CONSTRUCTION EXPENDITURES
Salton Sea Units V 0 0 0 0 0 0
Minerals Extracfion 0 0 0 0 0 0
Elmore 0 0 0 0 0 0
Del Ranch 0 0 0 0 0 0
Leathers 0 0 0 0 0 0
Vulcan 0 0 0 0 0 0
Turbo Expander 0 0 0 0 0 0
Interest During Construction 0 0 0 0 0 0
Financing Costs 0 0 0 0 0 0
Total Construction Expenditures 0 0 0 0 0 0
------- ------- ------- ------- ------- -------
FINANCING
Release of Bond Proceed from
Restricted Cash 0 0 0 0 0 0
Equity 0 0 0 0 0 0
------- ------- ------- ------- ------- -------
Total Financing 0 0 0 0 0 0
OTHER
Interest Income and Other Income 3,322 3,641 3,664 3,613 3,474 3,539
------- ------- ------- ------- ------- -------
Total Other 3,322 3,641 3,664 3,613 3,474 3,539
Cash Available for Debt Service 124,114 136,080 136,888 134,969 129,770 132,202
</TABLE>
B-39
<PAGE>
SALTON SEA FUNDING CORPORATION
PRO FORMA FINANCIAL PROJECTIONS
LOW POWER PRICE -- CASE 2
<TABLE>
<CAPTION>
1998 1999 2000 2001 2002
MAGMA CASH FLOW STATEMENT ----------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
MAGMA REVENUES
Cash from Projects 169,012 127,234 90,333 100,100 115,635
Monofill Revenues 1,000 1,000 1,000 1,000 1,000
Royalties from Elmore 13,731 3,348 3,138 3,237 3,096
Royalties from Del Ranch 13,331 2,964 3,016 2,879 2,995
Royalties from Leathers 12,106 12,437 2,943 3,040 2,904
Royalties from Vulcan 406 370 374 367 368
Royalties from Turbo Expander 0 0 68 83 89
Management fee from Salton Sea
Units I, II 669 674 442 364 369
Management fee from Salton Sea
Unit III 1,264 674 570 562 560
Other Royalties 25,000 0 0 0 0
------- ------- ------ ------- -------
Total Magma Revenues 236,519 148,701 101,884 111,632 127,015
MAGMA EXPENSES/OBLIGATIONS
Pollution Control Debt Interest 0 0 0 0 0
Pollution Control Debt Principal 0 0 0 0 0
Installment Obligations 1,101 137 137 0 0
Other 0 0 0 0 0
Debt Service Reserve LC Fees/Other 952 952 904 904 904
------- ------- ------- ------- -------
Total Magma Expenses/Obligations 2,053 1,089 1,041 904 904
Cash Available for Funding Corp Debt 234,466 147,611 100,844 110,728 126,111
CASH FLOW AVAILABLE FOR BOND
PAYMENTS 1998 1999 2000 2001 2002
------- ------- ------- ------- -------
CASH FLOW FROM PROJECTS
Salton Sea Unit I & II 33,659 20,317 13,135 9,810 9,424
Salton Sea Unit III 41,224 18,193 11,638 11,108 14,523
Salton Sea Unit IV 18,645 20,604 22,241 23,330 25,539
Salton Sea Unit V 0 0 5,734 10,306 12,641
Minerals Extraction 0 0 5,476 17,114 21,009
Elmore 28,175 15,006 6,273 8,317 5,545
Del Ranch 23,178 9,335 6,197 6,432 9,394
Leathers 23,525 33,365 8,840 3,655 5,682
Vulcan (2,036) 6,725 9,201 7,624 9,117
Turbo Expander 0 0 1,599 2,404 2,762
------- ------- ------- ------- -------
Total Cash from Projects 166,371 123,545 90,333 100,100 115,635
OTHER REVENUE CASH FLOWS
Monofill Revenues 1,000 1,000 1,000 1,000 1,000
Royalties from Elmore 13,731 3,348 3,138 3,237 3,096
Royalties from Del Ranch 13,331 2,964 3,016 2,879 2,995
Royalties from Leathers 12,106 12,437 2,943 3,040 2,904
Royalties from Vulcan 406 370 374 367 368
Royalties from Turbo Expander 0 0 68 83 89
Management fee from Salton Sea
Units I, II 669 674 442 364 369
Management fee from Salton Sea
Unit III 1,264 674 570 562 560
Other Royalties 25,000 0 0 0 0
Bond Interest Income 2,641 3,689 0 0 0
------- ------- ------- ------- -------
Total Other Revenues 70,148 25,155 11,551 11,532 11,380
OTHER EXPENDITURES
Installments/Pollution Control Debt
Service 1,101 137 137 0 0
Other 0 0 0 0 0
Debt Service Reserve LC Fees/Other 952 952 904 904 904
------- ------- ------- ------- -------
Total Other Expenditures 2,053 1,089 1,041 904 904
Net Cash Available For SSFC Debt
Service 234,466 147,611 100,844 110,728 126,111
Interest (Series A/B/C) 23,583 19,094 16,667 15,596 13,996
Principal (Series A/B/C) 74,938 35,108 19,573 21,377 22,698
Interest (Series D/E) 7,933 5,810 4,362 4,040 3,944
Principal (Series D/E) 32,000 22,728 5,500 1,000 1,600
Interest (Series F) 0 0 10,739 21,280 21,128
Principal (Series F) 0 0 0 1,282 4,274
Project Debt Service 138,454 82,740 56,841 64,575 67,640
Project Debt Coverage 1.69 1.78 1.77 1.71 1.86
Minimum DCR (1999-2018) 1.71
Average DCR (1999-2018) 2.76
<CAPTION>
2003 2004 2005 2006 2007 2008
MAGMA CASH FLOW STATEMENT ------------ ----------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
MAGMA REVENUES
Cash from Projects 113,573 123,476 115,512 128,082 118,844 127,336
Monofill Revenues 1,000 1,000 1,000 1,000 1,000 1,000
Royalties from Elmore 3,510 3,635 3,883 3,743 3,946 3,820
Royalties from Del Ranch 3,186 3,504 3,532 3,611 3,590 3,686
Royalties from Leathers 3,305 3,424 3,666 3,528 3,726 3,603
Royalties from Vulcan 382 411 410 420 415 426
Royalties from Turbo Expander 91 100 73 77 77 81
Management fee from Salton Sea
Units I, II 379 395 404 414 414 421
Management fee from Salton Sea
Unit III 577 619 621 632 622 640
Other Royalties 0 0 0 0 0 0
------- ------- ------- ------- ------- -------
Total Magma Revenues 126,003 136,566 129,101 141,507 132,634 141,013
MAGMA EXPENSES/OBLIGATIONS
Pollution Control Debt Interest 0 0 0 0 0 0
Pollution Control Debt Principal 0 0 0 0 0 0
Installment Obligations 0 0 0 0 0 0
Other 0 0 0 0 0 0
Debt Service Reserve LC Fees/Other 904 904 904 904 904 904
------- ------- ------- ------- ------- -------
Total Magma Expenses/Obligations 904 904 904 904 904 904
Cash Available for Funding Corp Debt 125,099 135,662 128,197 140,604 131,731 140,109
CASH FLOW AVAILABLE FOR BOND
PAYMENTS 2003 2004 2005 2006 2007 2008
------- ------- ------- ------- ------- -------
CASH FLOW FROM PROJECTS
Salton Sea Unit I & II 8,193 10,162 10,573 11,355 10,780 10,812
Salton Sea Unit III 11,834 16,737 16,275 17,337 15,820 17,242
Salton Sea Unit IV 25,163 26,772 26,895 22,345 19,863 19,554
Salton Sea Unit V 13,567 14,639 12,377 10,646 10,227 10,345
Minerals Extraction 22,146 24,116 27,926 35,307 31,410 30,143
Elmore 1,544 (403) 1,382 8,352 9,165 8,241
Del Ranch 9,745 10,879 9,001 11,129 11,096 11,101
Leathers 8,868 7,061 109 (1,208) (466) 8,281
Vulcan 9,651 10,382 8,837 10,685 8,853 9,451
Turbo Expander 2,862 3,132 2,138 2,133 2,097 2,166
------- ------- ------- ------- ------- -------
Total Cash from Projects 113,573 123,476 115,512 128,082 118,844 127,336
OTHER REVENUE CASH FLOWS
Monofill Revenues 1,000 1,000 1,000 1,000 1,000 1,000
Royalties from Elmore 3,510 3,635 3,883 3,743 3,946 3,820
Royalties from Del Ranch 3,186 3,504 3,532 3,611 3,590 3,686
Royalties from Leathers 3,305 3,424 3,666 3,528 3,726 3,603
Royalties from Vulcan 382 411 410 420 415 426
Royalties from Turbo Expander 91 100 73 77 77 81
Management fee from Salton Sea
Units I, II 379 395 404 414 414 421
Management fee from Salton Sea
Unit III 577 619 621 632 622 640
Other Royalties 0 0 0 0 0 0
Bond Interest Income 0 0 0 0 0 0
------- ------- ------- ------- ------- -------
Total Other Revenues 12,430 13,089 13,589 13,426 13,790 13,677
OTHER EXPENDITURES
Installments/Pollution Control Debt
Service 0 0 0 0 0 0
Other 0 0 0 0 0 0
Debt Service Reserve LC Fees/Other 904 904 904 904 904 904
------- ------- ------- ------- ------- -------
Total Other Expenditures 904 904 904 904 904 904
Net Cash Available For SSFC Debt
Service 125,099 135,662 128,197 140,604 131,731 140,109
Interest (Series A/B/C) 12,323 10,626 8,471 7,150 5,462 3,766
Principal (Series A/B/C) 22,237 23,776 23,312 21,537 21,505 22,037
Interest (Series D/E) 3,782 3,528 3,253 2,984 2,776 2,548
Principal (Series D/E) 3,000 3,250 3,500 2,500 2,500 3,500
Interest (Series F) 20,835 20,609 20,343 20,074 19,826 19,613
Principal (Series F) 2,850 3,562 3,562 3,706 2,140 4,990
Project Debt Service 65,027 65,351 62,441 57,951 54,209 56,454
Project Debt Coverage 1.92 2.08 2.05 2.43 2.43 2.48
Minimum DCR (1999-2018)
Average DCR (1999-2018)
</TABLE>
B-40
<PAGE>
SALTON SEA FUNDING CORPORATION
PRO FORMA FINANCIAL PROJECTIONS
LOW POWER PRICE -- CASE 2
<TABLE>
<CAPTION>
2009 2010 2011 2012 2013
MAGMA CASH FLOW STATEMENT ------------ ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
MAGMA REVENUES
Cash from Projects 116,038 127,088 125,098 135,649 124,114
Monofill Revenues 1,000 1,000 1,000 1,000 1,000
Royalties from Elmore 4,009 3,992 4,243 4,139 4,377
Royalties from Del Ranch 3,648 3,856 3,865 4.000 3,988
Royalties from Leathers 3,787 3,768 4,013 3,909 4,142
Royalties from Vulcan 420 441 437 452 447
Royalties from Turbo Expander 80 86 87 91 91
Management fee from Salton Sea Units I, II 427 444 445 454 461
Management fee from Salton Sea Unit III 634 660 652 675 672
Other Royalties 0 0 0 0 0
------- ------- ------- -------- -------
Total Magma Revenues 130,042 141,335 139,839 150,369 139,292
MAGMA EXPENSES/OBLIGATIONS
Pollution Control Debt Interest 0 0 0 0 0
Pollution Control Debt Principal 0 0 0 0 0
Installment Obligations 0 0 0 0 0
Other 0 0 0 0 0
Debt Service Reserve LC Fees/Other 904 904 904 904 904
------- ------- ------- -------- -------
Total Magma Expenses/Obligations 904 904 904 904 904
Cash Available for Funding Corp Debt 129,138 140,431 138,935 149,465 138,389
CASH FLOW AVAILABLE FOR BOND PAYMENTS 2009 2010 2011 2012 2013
------- ------- ------- -------- -------
CASH FLOW FROM PROJECTS
Salton Sea Unit I & II 11,177 11,994 11,574 11,844 9,753
Salton Sea Unit III 16,429 17,635 16,388 18,265 13,290
Salton Sea Unit IV 18,218 18,996 17,404 17,991 16,519
Salton Sea Unit V 9,263 10,912 11,197 11,447 10,352
Minerals Extraction 28,796 30,750 33,186 35,923 35,694
Elmore 6,282 7,144 7,912 8,197 9,328
Del Ranch 7,406 11,252 10,870 10,924 8,769
Leathers 7,609 6,468 4,990 7,451 8,890
Vulcan 8,860 9,665 9,306 11,236 9,309
Turbo Expander 1,998 2,272 2,270 2,370 2,210
------- ------- ------- -------- -------
Total Cash from Projects 116,038 127,088 125,098 135,649 124,114
OTHER REVENUE CASH FLOWS
Monofill Revenues 1,000 1,000 1,000 1,000 1,000
Royalties from Elmore 4,009 3,992 4,243 4,139 4,377
Royalties from Del Ranch 3,648 3,856 3,865 4,000 3,988
Royalties from Leathers 3,787 3,768 4,013 3,909 4,142
Royalties from Vulcan 420 441 437 452 447
Royalties from Turbo Expander 80 86 87 91 91
Management fee from Salton Sea Units I, II 427 444 445 454 461
Management fee from Salton Sea Unit III 634 660 652 675 672
Other Royalties 0 0 0 0 0
Bond Interest Income 0 0 0 0 0
------- ------- ------- -------- -------
Total Other Revenues 14,004 14,247 14,741 14,720 15,178
OTHER EXPENDITURES
Installments/Pollution Control Debt Service 0 0 0 0 0
Other 0 0 0 0 0
Debt Service Reserve LC Fees/Other 904 904 904 904 904
------- ------- ------- -------- -------
Total Other Expenditures 904 904 904 904 904
Net Cash Available For SSFC Debt Service 129,138 140,431 138,935 149,465 138,389
Interest (Series A/B/C) 2,041 377 0 0 0
Principal (Series A/B/C) 21,876 9,630 0 0 0
Interest (Series D/E) 2,263 1,780 470 0 0
Principal (Series D/E) 3,250 13,500 11,322 0 0
Interest (Series F) 19,293 19,040 18,321 16,750 14,372
Principal (Series F) 2,138 7,124 17,100 32,774 28,928
Project Debt Service 50,861 51,451 47,213 49,524 43,300
Project Debt Coverage 2.54 2.73 2.94 3.02 3.20
Minimum DCR (1999-2018) 1.71
Average DCR (1999-2018) 2.76
<CAPTION>
2014 2015 2016 2017 2018
MAGMA CASH FLOW STATEMENT ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
MAGMA REVENUES
Cash from Projects 136,080 136,888 134,969 129,770 132,202
Monofill Revenues 1,000 1,000 1,000 1,000 1,000
Royalties from Elmore 4,138 4,432 4,615 4,699 4,728
Royalties from Del Ranch 3,999 4,040 4,212 4,230 4,316
Royalties from Leathers 3,909 4,195 4,373 4,454 4,482
Royalties from Vulcan 453 451 353 328 340
Royalties from Turbo Expander 93 94 100 104 105
Management fee from Salton Sea Units I, II 471 473 491 474 452
Management fee from Salton Sea Unit III 676 672 699 709 712
Other Royalties 0 0 0 0 0
------- ------- ------- ------- -------
Total Magma Revenues 150,819 152,245 150,812 145,768 148,337
MAGMA EXPENSES/OBLIGATIONS
Pollution Control Debt Interest 0 0 0 0 0
Pollution Control Debt Principal 0 0 0 0 0
Installment Obligations 0 0 0 0 0
Other 0 0 0 0 0
Debt Service Reserve LC Fees/Other 904 904 904 904 904
------- ------- ------- ------- -------
Total Magma Expenses/Obligations 904 904 904 904 904
Cash Available for Funding Corp Debt 149,916 151,341 149,908 144,864 147,434
CASH FLOW AVAILABLE FOR BOND PAYMENTS 2014 2015 2016 2017 2018
------- ------- ------- ------- -------
CASH FLOW FROM PROJECTS
Salton Sea Unit I & II 12,721 12,469 12,746 12,305 12,266
Salton Sea Unit III 17,883 16,844 18,547 17,901 19,384
Salton Sea Unit IV 18,961 18,612 19,308 19,314 20,931
Salton Sea Unit V 11,475 11,724 12,108 10,981 12,525
Minerals Extraction 35,391 35,022 34,509 31,074 28,750
Elmore 8,090 9,830 8,666 10,761 10,750
Del Ranch 10,509 10,504 10,639 8,620 10,706
Leathers 7,256 8,432 8,308 10,008 7,867
Vulcan 11,426 11,095 7,651 6,375 6,417
Turbo Expander 2,368 2,357 2,487 2,433 2,607
------- ------- ------- ------- -------
Total Cash from Projects 136,080 136,888 134,969 129,770 132,202
OTHER REVENUE CASH FLOWS
Monofill Revenues 1,000 1,000 1,000 1,000 1,000
Royalties from Elmore 4,138 4,432 4,615 4,699 4,728
Royalties from Del Ranch 3,999 4,040 4,212 4,230 4,316
Royalties from Leathers 3,909 4,195 4,373 4,454 4,482
Royalties from Vulcan 453 451 353 328 340
Royalties from Turbo Expander 93 94 100 104 105
Management fee from Salton Sea Units I, II 471 473 491 474 452
Management fee from Salton Sea Unit III 676 672 699 709 712
Other Royalties 0 0 0 0 0
Bond Interest Income 0 0 0 6 0
------- ------- ------- ------- -------
Total Other Revenues 14,739 15,356 15,843 15,998 16,135
OTHER EXPENDITURES
Installments/Pollution Control Debt Service 0 0 0 0 0
Other 0 0 0 0 0
Debt Service Reserve LC Fees/Other 904 904 904 904 904
------- ------- ------- ------- -------
Total Other Expenditures 904 904 904 904 904
Net Cash Available For SSFC Debt Service 149,916 151,341 149,908 144,864 147,434
Interest (Series A/B/C) 0 0 0 0 0
Principal (Series A/B/C) 0 0 0 0 0
Interest (Series D/E) 0 0 0 0 0
Principal (Series D/E) 0 0 0 0 0
Interest (Series F) 12,111 9,496 6,652 3,667 1,102
Principal (Series F) 34,200 37,334 40,184 39,188 19,664
Project Debt Service 46,311 46,830 46,836 42,855 20,766
Project Debt Coverage 3.24 3.23 3.20 3.38 7.10
Minimum DCR (1999-2018) 1.71
Average DCR (1999-2018) 2.76
</TABLE>
B-41
<PAGE>
SALTON SEA FUNDING CORPORATION
PRO FORMA FINANCIAL PROJECTIONS
98% CONFIDENCE ZINC PRICE
<TABLE>
<CAPTION>
1998 1999 2000 2001 2002
CASH FROM PROJECTS --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
REVENUES
Salton Sea Unit I & II 26,534 26,917 19,233 15,096 15,407
Salton Sea Unit III 50,692 30,895 23,484 22,522 24,138
Salton Sea Unit IV 30,716 32,061 32,898 33,573 35,018
Salton Sea Unit V 0 0 7,828 14,996 18,047
Minerals Extraction 0 0 14,783 35,047 39,473
Elmore 56,395 25,154 18,451 18,598 19,574
Del Ranch 56,490 24,853 18,458 18,251 19,632
Leathers 54,344 58,786 24,890 18,156 19,133
Vulcan 16,063 15,030 14,935 14,732 15,964
Turbo Expander 0 0 2,323 3,347 3,863
------ ------ ------ ------ ------
Total Revenues 291,235 213,697 177,283 194,317 210,248
EXPENSES
Salton Sea Unit I & II 7,438 6,374 5,560 5,100 5,268
Salton Sea Unit III 10,446 8,455 8,152 7,892 8,127
Salton Sea Unit IV 9,295 9,656 9,693 9,762 9,956
Salton Sea Unit V 0 0 2,071 3,674 4,020
Minerals Extraction 0 0 10,770 20,687 22,400
Elmore 10,573 6,765 6,331 6,949 7,412
Del Ranch 9,993 6,130 5,412 5,670 6,024
Leathers 11,361 10,022 6,929 7,061 6,996
Vulcan 4,820 4,656 4,901 4,826 4,962
Turbo Expander 0 0 621 654 671
------- ------- ------- ------- -------
Total Expenses 63,927 52,058 60,440 72,275 75,835
Project Operating Income 227,308 161,639 116,843 122,042 134,413
PROJECT ROYALTY EXPENSES
Elmore 12,820 2,885 2,783 2,847 3,141
Del Ranch 12,915 2,778 2,818 2,747 3,192
Leathers 12,305 131,614 2,778 2,843 3,136
Vulcan 445 385 392 381 445
Turbo Expander 0 0 98 121 146
------- ------- ------- ------- -------
Royalty Expenses 38,486 19,663 8,870 8,939 10,061
Cash After Royalty Payments 188,822 141,975 107,973 113,103 124,353
CAPITAL EXPENDITURES
Salton Sea Units I, II 352 770 890 450 344
Salton Sea Units III 125 4,734 4,005 3,818 305
Salton Sea Units IV 3,275 2,352 1,559 1,105 207
Salton Sea Units V 0 0 0 724 101
Minerals Extraction 0 0 0 42 87
Elmore 5,580 900 3,240 713 2,777
Del Ranch 11,024 6,859 4,203 3,585 420
Leathers 7,782 2,678 6,587 4,702 2,624
Vulcan 12,834 3,444 675 2,093 525
Turbo Expander 0 0 0 115 31
------- ------- ------- ------- -------
Total Capital Expenditures 40,972 21,737 21,159 17,347 7,421
CONSTRUCTION EXPENDITURES
Salton Sea Units V 15,983 77,284 13,596 0 0
Minerals Extraction 31,779 104,641 43,911 0 0
Elmore 10,817 6,150 0 0 0
Del Ranch 3,024 17,117 432 0 0
Leathers 0 977 3,393 0 0
Vulcan 3,884 21,980 555 0 0
Turbo Expander 1,502 8,504 215 0 0
Interest During Construction 4,669 21,304 10,564 0 0
Financing Costs 5,232 0 0 0 0
------- ------- ------- ------- -------
Total Construction Expenditures 76,890 257,957 72,666 0 0
FINANCING
Release of Bond Proceed from Restricted Cash 76,890 208,110 0 0 0
Equity 0 49,847 72,666 0 0
------- ------- ------- ------- -------
Total Financing 76,890 257,957 72,666 0 0
OTHER
Interest Income and Other Income 21,162 6,996 2,387 2,633 3,216
------- ------- ------- ------- -------
Total Other 21,162 6,996 2,387 2,633 3,216
Cash Available for Debt Service 169,012 127,234 89,201 98,389 120,147
<CAPTION>
2003 2004 2005 2006 2007 2008
CASH FROM PROJECTS --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Salton Sea Unit I & II 15,696 16,115 16,788 17,196 17,225 17,818
Salton Sea Unit III 24,467 25,524 26,558 26,974 26,610 28,111
Salton Sea Unit IV 35,783 36,342 36,874 31,418 29,662 29,365
Salton Sea Unit V 18,842 19,494 19,005 16,359 15,946 16,949
Minerals Extraction 40,325 41,743 46,405 48,103 49,086 50,160
Elmore 20,415 20,739 22,027 21,889 22,229 22,837
Del Ranch 20,148 20,774 21,719 21,929 21,922 22,887
Leathers 19,974 20,298 21,586 21,448 21,788 22,396
Vulcan 16,283 17,000 17,673 18,028 17,855 18,886
Turbo Expander 3,910 4,114 3,374 3,281 3,237 3,507
------ ------ ------ ------ ------ ------
Total Revenues 215,843 222,143 232,009 226,625 225,560 232,915
EXPENSES
Salton Sea Unit I & II 5,055 5,229 5,356 5,383 5,574 5,651
Salton Sea Unit III 7,788 8,094 8,273 8,279 8,547 8,710
Salton Sea Unit IV 9,759 9,946 10,035 9,050 9,061 9,095
Salton Sea Unit V 4,061 4,111 4,187 4,208 4,238 4,315
Minerals Extraction 23,050 23,774 24,868 25,184 25,570 26,351
Elmore 6,869 6,761 7,660 7,517 7,335 7,567
Del Ranch 5,364 5,714 5,636 5,946 6,000 6,196
Leathers 6,534 6,610 7,179 6,806 7,610 7,341
Vulcan 4,870 5,155 5,249 5,331 5,605 5,307
Turbo Expander 678 693 678 689 697 715
------- ------- ------- ------- ------- -------
Total Expenses 74,029 76,088 79,121 78,394 80,238 81,247
Project Operating Income 141,815 146,055 152,888 148,231 145,322 151,668
PROJECT ROYALTY EXPENSES
Elmore 3,343 3,405 3,793 3,674 3,802 3,968
Del Ranch 3,265 3,445 3,704 3,718 3,713 4,015
Leathers 3,338 3,401 3,788 3,670 3,798 3,963
Vulcan 448 483 510 522 511 565
Turbo Expander 146 157 166 170 167 184
------- ------- ------- ------- ------- -------
Royalty Expenses 10,540 10,892 11,962 11,754 11,991 12,695
Cash After Royalty Payments 131,275 135,164 140,926 136,478 133,332 138,973
CAPITAL EXPENDITURES
Salton Sea Units I, II 2,105 618 509 115 539 692
Salton Sea Units III 3,764 181 845 191 1,120 200
Salton Sea Units IV 1,534 341 665 141 697 366
Salton Sea Units V 209 215 1,207 228 235 242
Minerals Extraction 179 184 190 196 202 208
Elmore 7,829 10,389 8,300 1,600 1,231 1,900
Del Ranch 1,169 442 2,699 464 475 487
Leathers 600 2,828 9,583 11,210 9,905 1,650
Vulcan 538 552 2,142 580 1,978 2,035
Turbo Expander 32 12 44 34 35 36
------- ------- ------- ------- ------- -------
Total Capital Expenditures 17,958 15,782 26,282 14,758 16,417 7,817
CONSTRUCTION EXPENDITURES
Salton Sea Units V 0 0 0 0 0 0
Minerals Extraction 0 0 0 0 0 0
Elmore 0 0 0 0 0 0
Del Ranch 0 0 0 0 0 0
Leathers 0 0 0 0 0 0
Vulcan 0 0 0 0 0 0
Turbo Expander 0 0 0 0 0 0
Interest During Construction 0 0 0 0 0 0
Financing Costs 0 0 0 0 0 0
------- ------- ------- ------- ------- -------
Total Construction Expenditures 0 0 0 0 0 0
FINANCING
Release of Bond Proceed from Restricted Cash 0 0 0 0 0 0
Equity 0 0 0 0 0 0
------- ------- ------- ------- ------- -------
Total Financing 0 0 0 0 0 0
OTHER
Interest Income and Other Income 3,116 3,282 3,153 3,355 3,215 3,608
------- ------- ------- ------- ------- -------
Total Other 3,116 3,282 3,153 3,355 3,215 3,608
Cash Available for Debt Service 116,433 122,664 117,797 125,074 120,129 134,764
</TABLE>
B-42
<PAGE>
SALTON SEA FUNDING CORPORATION
PRO FORMA FINANCIAL PROJECTIONS
98% CONFIDENCE ZINC PRICE
<TABLE>
<CAPTION>
2009 2010 2011 2012
CASH FROM PROJECTS --------- --------- ---------- ---------
<S> <C> <C> <C> <C>
REVENUES
Salton Sea Unit I & II 17,941 18,493 18,525 18,694
Salton Sea Unit III 27,692 28,393 28,006 28,415
Salton Sea Unit IV 28,191 28,559 27,542 27,679
Salton Sea Unit V 16,772 17,173 17,267 17,232
Minerals Extraction 51,023 51,951 52,845 53,874
Elmore 22,967 23,035 23,412 23,093
Del Ranch 22,649 23,085 23,084 23,139
Leathers 22,526 22,594 22,971 22,652
Vulcan 18,496 19,062 18,878 19,109
Turbo Expander 3,405 3,553 3,506 3,565
------ ------ ------ ------
Total Revenues 231,662 235,898 236,037 237,451
EXPENSES
Salton Sea Unit I & II 5,644 5,898 5,962 5,905
Salton Sea Unit III 8,615 9,015 9,070 8,979
Salton Sea Unit IV 8,961 9,225 9,212 9,268
Salton Sea Unit V 4,324 4,377 4,407 4,437
Minerals Extraction 26,538 27,159 27,583 27,958
Elmore 7,319 7,397 7,650 8,174
Del Ranch 5,766 6,393 5,980 6,108
Leathers 7,096 7,609 7,876 7,491
Vulcan 5,375 5,463 5,774 5,875
Turbo Expander 721 737 745 758
------- ------- ------- -------
Total Expenses 80,559 83,273 84,258 84,952
Project Operating Income 151,302 152,625 151,780 152,499
PROJECT ROYALTY EXPENSES
Elmore 3,973 3,996 4,107 3,987
Del Ranch 3,880 4,043 4,011 4,034
Leathers 3,969 3,991 4,102 3,982
Vulcan 535 569 553 567
Turbo Expander 174 185 180 185
------- ------- ------- -------
Royalty Expenses 12,532 12,784 12,953 12,756
Cash After Royalty Payments 138,771 139,841 138,826 139,743
CAPITAL EXPENDITURES
Salton Sea Units I, II 573 127 604 695
Salton Sea Unit III 948 210 1,256 221
Salton Sea Unit IV 730 141 766 394
Salton Sea Unit V 1,359 257 265 273
Minerals Extraction 214 220 227 234
Elmore 4,254 3,504 2,893 2,088
Del Ranch 4,497 512 1,460 1,501
Leathers 2,750 3,513 5,074 3,060
Vulcan 2,397 2,153 2,214 672
Turbo Expander 158 38 38 39
------- ------- ------- -------
Total Capital Expenditures 17,880 10,676 14,797 9,178
CONSTRUCTION EXPENDITURES
Salton Sea Units V 0 0 0 0
Minerals Extraction 0 0 0 0
Elmore 0 0 0 0
Del Ranch 0 0 0 0
Leathers 0 0 0 0
Vulcan 0 0 0 0
Turbo Expander 0 0 0 0
Interest During Construction 0 0 0 0
Financing Costs 0 0 0 0
------- ------- ------- -------
Total Construction Expenditures 0 0 0 0
FINANCING
Release of Bond Proceed from Restricted
Cash 0 0 0 0
Equity 0 0 0 0
------- ------- ------- -------
Total Financing 0 0 0 0
OTHER
Interest Income and Other Income 3,325 3,553 3,410 3,589
------- ------- ------- -------
Total Other 3,325 3,553 3,410 3,589
Cash Available for Debt Service 124,215 132,718 127,439 134,154
<CAPTION>
2013 2014 2015 2016 2017 2018
CASH FROM PROJECTS --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Salton Sea Unit I & II 19,235 19,749 19,981 20,533 20,126 19,386
Salton Sea Unit III 28,993 29,515 29,596 30,330 30,922 31,423
Salton Sea Unit IV 28,356 29,208 29,737 30,219 30,854 31,891
Salton Sea Unit V 17,992 18,207 18,774 18,999 19,431 19,891
Minerals Extraction 54,737 55,672 56,636 57,402 58,242 58,744
Elmore 24,066 23,948 24,765 25,166 25,582 26,000
Del Ranch 23,722 24,001 24,410 24,703 24,990 25,493
Leathers 23,624 23,507 24,324 24,725 25,141 25,559
Vulcan 19,438 19,878 20,045 16,638 15,163 15,661
Turbo Expander 3,653 3,768 3,813 3,932 4,068 4,171
------ ------ ------ ------ ------ ------
Total Revenues 243,816 247,454 252,080 252,648 254,518 258,219
EXPENSES
Salton Sea Unit I & II 6,158 6,315 6,166 6,415 6,474 6,211
Salton Sea Unit III 9,353 9,579 9,297 9,685 9,888 9,574
Salton Sea Unit IV 9,565 9,767 9,839 10,142 10,295 10,375
Salton Sea Unit V 4,509 4,546 4,610 4,653 4,713 4,772
Minerals Extraction 28,653 29,072 29,701 30,151 30,732 31,309
Elmore 9,141 8,327 8,802 8,453 8,596 8,742
Del Ranch 7,449 6,579 6,678 6,828 6,904 7,064
Leathers 8,138 8,691 9,727 8,354 8,892 9,085
Vulcan 5,700 5,762 6,069 6,093 5,834 5,981
Turbo Expander 771 786 799 814 830 846
------- ------- ------- ------- ------- -------
Total Expenses 89,438 89,424 91,689 91,588 93,157 93,959
Project Operating Income 154,378 158,030 160,391 161,060 161,361 164,261
PROJECT ROYALTY EXPENSES
Elmore 4,312 4,213 4,486 4,555 4,671 4,778
Del Ranch 4,211 4,263 4,380 4,448 4,524 4,666
Leathers 4,308 4,208 4,481 4,551 4,666 4,774
Vulcan 581 600 605 627 625 658
Turbo Expander 190 196 197 204 211 216
------- ------- ------- ------- ------- -------
Royalty Expenses 13,602 13,480 14,149 14,385 14,698 15,092
Cash After Royalty Payments 140,776 144,550 146,241 146,675 146,663 149,169
CAPITAL EXPENDITURES
Salton Sea Units I, II 2,822 140 677 779 717 155
Salton Sea Unit III 4,778 232 1,409 244 1,190 256
Salton Sea Unit IV 2,013 141 845 430 895 153
Salton Sea Unit V 1,529 289 298 307 1,721 326
Minerals Extraction 241 248 255 263 271 279
Elmore 400 2,191 400 2,300 400 400
Del Ranch 2,404 1,586 1,631 1,672 3,759 1,757
Leathers 1,392 2,201 400 2,310 400 2,427
Vulcan 2,685 706 724 742 761 780
Turbo Expander 175 41 42 44 193 46
------- ------- ------- ------- ------- -------
Total Capital Expenditures 18,439 7,777 6,682 9,091 10,307 6,578
CONSTRUCTION EXPENDITURES
Salton Sea Units V 0 0 0 0 0 0
Minerals Extraction 0 0 0 0 0 0
Elmore 0 0 0 0 0 0
Del Ranch 0 0 0 0 0 0
Leathers 0 0 0 0 0 0
Vulcan 0 0 0 0 0 0
Turbo Expander 0 0 0 0 0 0
Interest During Construction 0 0 0 0 0 0
Financing Costs 0 0 0 0 0 0
------- ------- ------- ------- ------- -------
Total Construction Expenditures 0 0 0 0 0 0
FINANCING
Release of Bond Proceed from Restricted
Cash 0 0 0 0 0 0
Equity 0 0 0 0 0 0
------- ------- ------- ------- ------- -------
Total Financing 0 0 0 0 0 0
OTHER
Interest Income and Other Income 3,365 3,761 3,837 3,783 3,751 3,921
------- ------- ------- ------- ------- -------
Total Other 3,365 3,761 3,837 3,783 3,751 3,921
Cash Available for Debt Service 125,702 140,535 143,397 141,366 140,107 146,511
</TABLE>
B-43
<PAGE>
SALTON SEA FUNDING CORPORATION
PRO FORMA FINANCIAL PROJECTIONS
98% CONFIDENCE ZINC PRICE
<TABLE>
<CAPTION>
1998 1999 2000 2001 2002
MAGMA CASH FLOW STATEMENT ----------- ------------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
MAGMA REVENUES
Cash from Projects 169,012 127,234 89,201 98,389 120,147
Monofill Revenues 1,000 1,000 1,000 1,000 1,000
Royalties from Elmore 13,731 3,348 3,156 3,276 3,560
Royalties from Del Ranch 13,331 2,964 3,036 2,907 3,456
Royalties from Leathers 12,106 12,437 2,961 3,078 3,351
Royalties from Vulcan 406 370 374 367 406
Royalties from Turbo Expander 0 0 70 86 99
Management fee from Salton Sea Units I, II 669 674 442 364 389
Management fee from Salton Sea Unit III 1,264 674 570 562 612
Other Royalties 25,000 0 0 0 0
------- ------- ------- ------- -------
Total Magma Revenues 236,519 148,701 100,809 110,030 133,020
MAGMA EXPENSES/OBLIGATIONS
Pollution Control Debt Interest 0 0 0 0 0
Pollution Control Debt Principal 0 0 0 0 0
Installment Obligations 1,101 137 137 0 0
Other 0 0 0 0 0
Debt Service Reserve LC Fees/Other 952 952 904 904 904
------- ------- ------- ------- -------
Total Magma Expenses/Obligations 2,053 1,089 1,041 904 904
Cash Available for Funding Corp Debt 234,466 147,611 99,769 109,126 132,116
CASH FLOW AVAILABLE FOR BOND PAYMENTS 1998 1999 2000 2001 2002
------- ------- ------- ------- -------
CASH FLOW FROM PROJECTS
Salton Sea Unit I & II 33,659 20,317 13,135 9,810 10,063
Salton Sea Unit III 41,224 18,193 11,638 11,108 16,138
Salton Sea Unit IV 18,645 20,604 22,241 23,330 25,539
Salton Sea Unit V 0 0 5,915 10,889 14,309
Minerals Extraction 0 0 4,123 14,712 17,454
Elmore 28,175 15,006 6,265 8,310 6,417
Del Ranch 23,178 9,335 6,191 6,420 10,270
Leathers 23,525 33,365 8,831 3,649 6,552
Vulcan (2,036) 6,725 9,214 7,637 10,309
Turbo Expander 0 0 1,648 2,525 3,097
------- ------- ------- ------- -------
Total Cash from Projects 166,371 123,545 89,201 98,389 120,147
OTHER REVENUE CASH FLOWS
Monofill Revenues 1,000 1,000 1,000 1,000 1,000
Royalties from Elmore 13,731 3,348 3,156 3,276 3,560
Royalties from Del Ranch 13,331 2,964 3,036 2,907 3,456
Royalties from Leathers 12,106 12,437 2,961 3,078 3,351
Royalties from Vulcan 406 370 374 367 406
Royalties from Turbo Expander 0 0 70 86 99
Management fee from Salton Sea Units I, II 669 674 442 364 389
Management fee from Salton Sea Unit III 1,264 674 570 562 612
Other Royalties 25,000 0 0 0 0
Bond Interest Income 2,641 3,689 (0) 0 0
------- ------- ------ ------- -------
Total Other Revenues 70,148 25,155 11,608 11,641 12,873
OTHER EXPENDITURES
Installments/Pollution Control Debt Service 1,101 137 137 0 0
Other 0 0 0 0 0
Debt Service Reserve LC Fees/Other 952 952 904 904 904
------- ------- -------- ------- -------
Total Other Expenditures 2,053 1,089 1,041 904 904
Net Cash Available For SSFC Debt Service 234,466 147,611 99,769 109,126 132,116
Interest (Series A/B/C) 23,583 19,094 16,667 15,596 13,996
Principal (Series A/B/C) 74,938 35,108 19,573 21,377 22,698
Interest (Series D/E) 7,933 5,810 4,362 4,040 3,944
Principal (Series D/E) 32,000 22,728 5,500 1,000 1,600
Interest (Series F) 0 (0) 10,739 21,280 21,128
Principal (Series F) 0 0 0 1,282 4,274
Project Debt Service 138,454 82,740 56,841 64,575 67,640
Project Debt Coverage 1.69 1.78 1.76 1.69 1.95
Minimum DCR (1999-2018) 1.69
Average DCR (1999-2018) 2.88
<CAPTION>
2003 2004 2005 2006 2007 2008
MAGMA CASH FLOW STATEMENT ------------ ------------ ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
MAGMA REVENUES
Cash from Projects 116,433 122,664 117,797 125,074 120,129 134,764
Monofill Revenues 1,000 1,000 1,000 1,000 1,000 1,000
Royalties from Elmore 3,848 3,851 4,340 4,131 4,350 4,455
Royalties from Del Ranch 3,499 3,716 3,955 3,993 3,964 4,311
Royalties from Leathers 3,631 3,632 4,106 3,902 4,116 4,214
Royalties from Vulcan 407 429 444 452 445 478
Royalties from Turbo Expander 98 105 82 85 85 94
Management fee from Salton Sea Units I, II 393 405 423 431 430 448
Management fee from Salton Sea Unit III 612 643 668 676 663 711
Other Royalties 0 0 0 0 0 0
------- ------- ------- ------- ------- -------
Total Magma Revenues 129,921 136,444 132,816 139,745 135,184 150,475
MAGMA EXPENSES/OBLIGATIONS
Pollution Control Debt Interest 0 0 0 0 0 0
Pollution Control Debt Principal 0 0 0 0 0 0
Installment Obligations 0 0 0 0 0 0
Other 0 0 0 0 0 0
Debt Service Reserve LC Fees/Other 904 904 904 904 904 904
------- ------- ------- ------- ------- -------
Total Magma Expenses/Obligations 904 904 904 904 904 904
Cash Available for Funding Corp Debt 129,017 135,540 131,913 138,841 134,280 149,572
CASH FLOW AVAILABLE FOR BOND PAYMENTS 2003 2004 2005 2006 2007 2008
------- ------- ------- ------- ------- -------
CASH FLOW FROM PROJECTS
Salton Sea Unit I & II 8,770 10,550 11,223 12,019 11,417 11,791
Salton Sea Unit III 13,270 17,722 17,920 19,013 17,409 19,729
Salton Sea Unit IV 25,163 26,772 26,895 22,838 20,451 20,451
Salton Sea Unit V 14,973 15,585 13,984 12,251 11,789 12,733
Minerals Extraction 17,565 18,275 21,934 23,348 23,955 24,250
Elmore 2,439 189 2,338 9,349 10,132 9,661
Del Ranch 10,636 11,480 9,946 12,126 12,056 12,523
Leathers 9,763 7,664 1,064 (238) 489 9,701
Vulcan 10,714 11,106 10,041 11,914 10,028 11,281
Turbo Expander 3,138 3,320 2,452 2,454 2,402 2,642
------- ------- ------- ------- ------- -------
Total Cash from Projects 116,433 122,664 117,797 125,074 120,129 134,764
OTHER REVENUE CASH FLOWS
Monofill Revenues 1,000 1,000 1,000 1,000 1,000 1,000
Royalties from Elmore 3,848 3,851 4,340 4,131 4,350 4,455
Royalties from Del Ranch 3,499 3,716 3,955 3,993 3,964 4,311
Royalties from Leathers 3,631 3,632 4,106 3,902 4,116 4,214
Royalties from Vulcan 407 429 444 452 445 478
Royalties from Turbo Expander 98 105 82 85 85 94
Management fee from Salton Sea Units I, II 393 405 423 431 430 448
Management fee from Salton Sea Unit III 612 643 668 676 663 711
Other Royalties 0 0 0 0 0 0
Bond Interest Income 0 0 0 0 0 0
------- ------- ------- ------- ------- -------
Total Other Revenues 13,488 13,780 15,019 14,670 15,054 15,711
OTHER EXPENDITURES
Installments/Pollution Control Debt Service 0 0 0 0 0 0
Other 0 0 0 0 0 0
Debt Service Reserve LC Fees/Other 904 904 904 904 904 904
------- ------- ------- ------- ------- -------
Total Other Expenditures 904 904 904 904 904 904
Net Cash Available For SSFC Debt Service 129,017 135,540 131,913 138,841 134,280 149,572
Interest (Series A/B/C) 12,323 10,626 8,471 7,150 5,462 3,766
Principal (Series A/B/C) 22,237 23,776 23,312 21,537 21,505 22,037
Interest (Series D/E) 3,782 3,528 3,253 2,984 2,776 2,548
Principal (Series D/E) 3,000 3,250 3,500 2,500 2,500 3,500
Interest (Series F) 20,835 20,609 20,343 20,074 19,826 19,613
Principal (Series F) 2,850 3,562 3,562 3,706 2,140 4,990
Project Debt Service 65,027 65,351 62,441 57,951 54,209 56,454
Project Debt Coverage 1.98 2.07 2.11 2.40 2.48 2.65
Minimum DCR (1999-2018) 1.69
Average DCR (1999-2018) 2.88
</TABLE>
B-44
<PAGE>
SALTON SEA FUNDING CORPORATION
PRO FORMA FINANCIAL PROJECTIONS
98% CONFIDENCE ZINC PRICE
<TABLE>
<CAPTION>
2009 2010 2011 2012
MAGMA CASH FLOW STATEMENT ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
MAGMA REVENUES
Cash from Projects 124,215 132,718 127,439 134,154
Monofill Revenues 1,000 1,000 1,000 1,000
Royalties from Elmore 4,538 4,476 4,684 4,475
Royalties from Del Ranch 4,137 4,332 4,272 4,331
Royalties from Leathers 4,297 4,234 4,438 4,234
Royalties from Vulcan 459 480 470 479
Royalties from Turbo Expander 90 97 95 99
Management fee from Salton Sea Units I, II 449 465 463 468
Management fee from Salton Sea Unit III 689 714 697 713
Other Royalties 0 0 0 0
------- ------- ------- -------
Total Magma Revenues 139,874 148,5l6 143,558 149,953
MAGMA EXPENSES/OBLIGATIONS
Pollution Control Debt Interest 0 0 0 0
Pollution Control Debt Principal 0 0 0 0
Installment Obligations 0 0 0 0
Other 0 0 0 0
Debt Service Reserve LC Fees/Other 904 904 904 904
------- -------- ------- -------
Total Magma Expenses/Obligations 904 904 904 904
Cash Available for Funding Corp Debt 138,971 147,613 142,655 149,050
CASH FLOW AVAILABLE FOR BOND PAYMENTS 2009 2010 2011 2012
------- -------- ------- -------
CASH FLOW FROM PROJECTS
Salton Sea Unit I & II 12,046 12,811 12,288 12,427
Salton Sea Unit III 18,628 19,695 18,166 19,743
Salton Sea Unit IV 19,008 19,720 18,047 18,513
Salton Sea Unit V 11,394 12,884 12,941 12,866
Minerals Extraction 24,938 25,248 25,723 26,388
Elmore 7,625 8,363 9,003 9,087
Del Ranch 8,740 12,470 11,954 11,812
Leathers 8,951 7,687 6,081 8,341
Vulcan 10,468 11,176 10,622 12,324
Turbo Expander 2,417 2,664 2,613 2,654
------- -------- ------- -------
Total Cash from Projects 124,215 132,718 127,439 134,154
OTHER REVENUE CASH FLOWS
Monofill Revenues 1,000 1,000 1,000 1,000
Royalties from Elmore 4,538 4,476 4,684 4,475
Royalties from Del Ranch 4,137 4,332 4,272 4,331
Royalties from Leathers 4,297 4,234 4,438 4,234
Royalties from Vulcan 459 480 470 479
Royalties from Turbo Expander 90 97 95 99
Management fee from Salton Sea Units I, II 449 465 463 468
Management fee from Salton Sea Unit III 689 714 697 713
Other Royalties 0 0 0 0
Bond Interest Income 0 0 0 0
------- -------- ------- -------
Total Other Revenues 15,659 15,798 16,119 15,799
OTHER EXPENDITURES
Installments/Pollution Control Debt Service 0 0 0 0
Other 0 0 0 0
Debt Service Reserve LC Fees/Other 904 904 904 904
------- -------- ------- -------
Total Other Expenditures 904 904 904 904
Net Cash Available For SSFC Debt Service 138,971 147,613 142,655 149,050
Interest (Series A/B/C) 2,041 377 0 0
Principal (Series A/B/C) 21,876 9,630 0 0
Interest (Series D/E) 2,263 1,780 470 0
Principal (Series D/E) 3,250 13,500 11,322 0
Interest (Series F) 19,293 19,040 18,321 16,750
Principal (Series F) 2,138 7,124 17,100 32,774
Project Debt Service 50,861 51,451 47,213 49,524
Project Debt Coverage 2.73 2.87 3.02 3.01
Minimum DCR (1999-2018) 1.69
Average DCR (1999-2018) 2.88
<CAPTION>
2013 2014 2015 2016 2017 2018
MAGMA CASH FLOW STATEMENT ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
MAGMA REVENUES
Cash from Projects 125,702 140,535 143,397 141,366 140,107 146,511
Monofill Revenues 1,000 1,000 1,000 1,000 1,000 1,000
Royalties from Elmore 4,908 4,708 5,098 5,211 5,329 5,447
Royalties from Del Ranch 4,480 4,561 4,656 4,764 4,805 4,982
Royalties from Leathers 4,655 4,458 4,837 4,948 5,062 5,176
Royalties from Vulcan 487 499 502 399 375 395
Royalties from Turbo Expander 102 106 107 112 116 120
Management fee from Salton Sea Units I, II 483 496 500 516 501 481
Management fee from Salton Sea Unit III 727 740 740 762 775 788
Other Royalties 0 0 0 0 0 0
------- ------- ------- ------- ------- -------
Total Magma Revenues 142,544 157,103 160,837 159,078 158,070 164,900
MAGMA EXPENSES/OBLIGATIONS
Pollution Control Debt Interest 0 0 0 0 0 0
Pollution Control Debt Principal 0 0 0 0 0 0
Installment Obligations 0 0 0 0 0 0
Other 0 0 0 0 0 0
Debt Service Reserve LC Fees/Other 904 904 904 904 904 904
------- ------- ------- ------- ------- -------
Total Magma Expenses/Obligations 904 904 904 904 904 904
Cash Available for Funding Corp Debt 141,641 156,200 159,933 158,175 157,166 163,996
CASH FLOW AVAILABLE FOR BOND PAYMENTS 2013 2014 2015 2016 2017 2018
------- ------- ------- ------- ------- -------
CASH FLOW FROM PROJECTS
Salton Sea Unit I & II 10,537 13,659 13,499 13,706 13,291 13,377
Salton Sea Unit III 15,272 20,246 19,409 20,962 20,390 22,187
Salton Sea Unit IV 17,239 19,832 19,577 20,188 20,204 21,950
Salton Sea Unit V 12,283 13,740 14,246 14,425 13,354 15,200
Minerals Extraction 26,554 27,078 27,414 27,730 27,988 27,903
Elmore 10,493 9,471 11,382 10,129 12,243 12,412
Del Ranch 9,923 11,891 12,043 12,078 10,073 12,337
Leathers 10,055 8,638 9,982 9,772 11,490 9,529
Vulcan 10,759 13,161 12,994 9,427 8,161 8,469
Turbo Expander 2,586 2,819 2,850 2,949 2,912 3,147
------- ------- ------- ------- ------- -------
Total Cash from Projects 125,702 140,535 143,397 141,366 140,107 146,511
OTHER REVENUE CASH FLOWS
Monofill Revenues 1,000 1,000 1,000 1,000 1,000 1,000
Royalties from Elmore 4,908 4,708 5,098 5,211 5,329 5,447
Royalties from Del Ranch 4,480 4,561 4,656 4,764 4,805 4,982
Royalties from Leathers 4,655 4,458 4,837 4,948 5,062 5,176
Royalties from Vulcan 487 499 502 399 375 395
Royalties from Turbo Expander 102 106 107 112 116 120
Management fee from Salton Sea Units I, II 483 496 500 516 501 481
Management fee from Salton Sea Unit III 727 740 740 762 775 788
Other Royalties 0 0 0 0 0 0
Bond Interest Income 0 0 0 0 0 0
------- ------- ------- ------- ------- -------
Total Other Revenues 16,843 16,568 17,440 17,712 17,963 18,388
OTHER EXPENDITURES
Installments/Pollution Control Debt Service 0 0 0 0 0 0
Other 0 0 0 0 0 0
Debt Service Reserve LC Fees/Other 904 904 904 904 904 904
------- ------- ------- ------- ------- -------
Total Other Expenditures 904 904 904 904 904 904
Net Cash Available For SSFC Debt Service 141,641 156,200 159,933 158,175 157,166 163,996
Interest (Series A/B/C) 0 0 0 0 0 0
Principal (Series A/B/C) 0 0 0 0 0 0
Interest (Series D/E) 0 0 0 0 0 0
Principal (Series D/E) 0 0 0 0 0 0
Interest (Series F) 14,372 12,111 9,496 6,652 3,667 1,102
Principal (Series F) 28,928 34,200 37,334 40,184 39,188 19,664
Project Debt Service 43,300 46,311 46,830 46,836 42,855 20,766
Project Debt Coverage 3.27 3.37 3.42 3.38 3.67 7.90
Minimum DCR (1999-2018)
Average DCR (1999-2018)
</TABLE>
B-45
<PAGE>
SALTON SEA FUNDING CORPORATION
PRO FORMA FINANCIAL PROJECTIONS
HIGH OPERATING AND MAINTENANCE COST ESCALATION
<TABLE>
<CAPTION>
1998 1999 2000 2001 2002
CASH FROM PROJECTS --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
REVENUES
Salton Sea Unit I & II 26,534 26,917 19,233 15,096 15,407
Salton Sea Unit III 50,692 30,895 23,484 22,522 24,138
Salton Sea Unit IV 30,716 32,061 32,898 33,573 35,018
Salton Sea Unit V 0 0 7,828 14,996 18,047
Minerals Extraction 0 0 16,117 37,270 42,408
Elmore 56,395 25,154 18,451 18,598 19,574
Del Ranch 56,490 24,853 18,458 18,251 19,632
Leathers 54,344 58,786 24,890 18,156 19,133
Vulcan 16,063 15,030 14,935 14,732 15,964
Turbo Expander 0 0 2,323 3,347 3,863
------ ------ ------ ------ ------
Total Revenues 291,235 213,697 178,618 196,540 213,184
EXPENSES
Salton Sea Unit I & II 7,438 6,374 5,560 5,100 5,268
Salton Sea Unit III 10,446 8,455 8,152 7,892 8,132
Salton Sea Unit IV 9,295 9,656 9,693 9,762 9,956
Salton Sea Unit V 0 0 2,091 3,730 4,111
Minerals Extraction 0 0 11,063 21,363 23,350
Elmore 10,573 6,765 6,331 6,950 7,415
Del Ranch 9,993 6,130 5,412 5,674 6,032
Leathers 11,361 10,022 6,929 7,061 6,996
Vulcan 4,820 4,656 4,901 4,826 4,963
Turbo Expander 0 0 629 666 689
------- ------- ------- ------- -------
Total Expenses 63,927 52,058 60,761 73,025 76,911
Project Operating Income 227,308 161,639 117,857 123,516 136,273
PROJECT ROYALTY EXPENSES
Elmore 12,820 2,885 2,783 2,847 3,141
Del Ranch 12,915 2,778 2,818 2,747 3,192
Leathers 12,305 13,614 2,778 2,843 3,136
Vulcan 445 385 392 381 445
Turbo Expander 0 0 98 121 146
------- ------- ------- ------- -------
Royalty Expenses 38,486 19,663 8,870 8,939 10,061
Cash After Royalty Payments 188,822 141,975 108,987 114,576 126,212
CAPITAL EXPENDITURES
Salton Sea Units I, II 352 770 890 450 344
Salton Sea Units III 125 4,734 4,005 3,818 305
Salton Sea Units IV 3,275 2,352 1,559 1,105 207
Salton Sea Units V 0 0 0 724 101
Minerals Extraction 0 0 0 42 87
Elmore 5,580 900 3,240 713 2,777
Del Ranch 11,024 6,859 4,203 3,585 420
Leathers 7,782 2,678 6,587 4,702 2,624
Vulcan 12,834 3,444 675 2,093 525
Turbo Expander 0 0 0 115 31
------- ------- ------- ------- -------
Total Capital Expenditures 40,972 21,737 21,159 17,347 7,421
CONSTRUCTION EXPENDITURES
Salton Sea Units V 15,983 77,284 13,596 0 0
Minerals Extraction 31,779 104,641 43,911 0 0
Elmore 10,817 6,150 0 0 0
Del Ranch 3,024 17,117 432 0 0
Leathers 0 977 3,393 0 0
Vulcan 3,884 21,980 555 0 0
Turbo Expander 1,502 8,504 215 0 0
Interest During Construction 4,669 21,304 10,564 0 0
Financing Costs 5,232 0 0 0 0
------- ------- ------- ------- -------
Total Construction Expenditures 76,890 257,957 72,666 0 0
FINANCING
Release of Bond Proceed from
Restricted Cash 76,890 208,110 0 0 0
Equity 0 49,847 72,666 0 0
------- ------- ------- ------- -------
Total Financing 76,890 257,957 72,666 0 0
OTHER
Interest Income and Other Income 21,162 6,996 2,416 2,673 3,267
------- ------- ------- ------- -------
Total Other 21,162 6,996 2,416 2,673 3,267
Cash Available for Debt Service 169,012 127,234 90,244 99,903 122,058
<CAPTION>
2003 2004 2005 2006 2007 2008
CASH FROM PROJECTS --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Salton Sea Unit I & II 15,696 16,115 16,788 17,196 17,225 17,818
Salton Sea Unit III 24,467 25,524 26,558 26,974 26,610 28,111
Salton Sea Unit IV 35,783 36,342 36,874 31,418 29,662 29,365
Salton Sea Unit V 18,842 19,494 19,005 16,359 15,946 16,949
Minerals Extraction 44,548 47,438 51,893 59,893 56,097 55,245
Elmore 20,415 20,739 22,027 21,889 22,229 22,837
Del Ranch 20,148 20,774 21,719 21,929 21,922 22,887
Leathers 19,974 20,298 21,586 21,448 21,788 22,396
Vulcan 16,283 17,000 17,673 18,028 17,855 18,886
Turbo Expander 3,910 4,114 3,374 3,281 3,237 3,507
------ ------ ------ ------ ------ ------
Total Revenues 220,067 227,838 237,497 238,416 232,572 238,000
EXPENSES
Salton Sea Unit I & II 5,096 5,313 5,487 5,562 5,805 5,938
Salton Sea Unit III 7,851 8,220 8,463 8,536 8,876 9,118
Salton Sea Unit IV 9,810 10,051 10,195 9,267 9,340 9,442
Salton Sea Unit V 4,179 4,257 4,363 4,416 4,479 4,591
Minerals Extraction 24,318 25,380 26,712 27,729 28,006 29,050
Elmore 6,933 6,890 7,860 7,789 7,684 7,999
Del Ranch 5,415 5,811 5,783 6,145 6,255 6,510
Leathers 6,596 6,739 7,378 7,079 7,961 7,774
Vulcan 4,919 5,254 5,402 5,541 5,875 5,641
Turbo Expander 700 721 712 729 743 768
------- ------- ------- ------- ------- -------
Total Expenses 75,817 78,637 82,354 82,793 85,025 86,831
Project Operating Income 144,250 149,201 155,143 155,623 147,546 151,169
PROJECT ROYALTY EXPENSES
Elmore 3,343 3,405 3,793 3,674 3,802 3,968
Del Ranch 3,265 3,445 3,704 3,718 3,713 4,015
Leathers 3,338 3,401 3,788 3,670 3,798 3,963
Vulcan 448 483 510 522 511 565
Turbo Expander 146 157 166 170 167 184
------- ------- ------- ------- ------- -------
Royalty Expenses 10,540 10,892 11,962 11,754 11,991 12,695
Cash After Royalty Payments 133,710 138,309 143,182 143,869 135,556 138,474
CAPITAL EXPENDITURES
Salton Sea Units I, II 2,105 618 509 115 539 692
Salton Sea Units III 3,764 181 845 191 1,120 200
Salton Sea Units IV 1,534 341 665 141 697 366
Salton Sea Units V 209 215 1,207 228 235 242
Minerals Extraction 179 184 190 196 202 208
Elmore 7,829 10,389 8,300 1,600 1,231 1,900
Del Ranch 1,169 442 2,699 464 475 487
Leathers 600 2,828 9,583 11,210 9,905 1,650
Vulcan 538 552 2,142 580 1,978 2,035
Turbo Expander 32 32 144 34 35 26
------- ------- ------- ------- ------- -------
Total Capital Expenditures 17,958 15,782 26,282 14,758 16,417 7,817
CONSTRUCTION EXPENDITURES
Salton Sea Units V 0 0 0 0 0 0
Minerals Extraction 0 0 0 0 0 0
Elmore 0 0 0 0 0 0
Del Ranch 0 0 0 0 0 0
Leathers 0 0 0 0 0 0
Vulcan 0 0 0 0 0 0
Turbo Expander 0 0 0 0 0 0
Interest During Construction 0 0 0 0 0 0
Financing Costs 0 0 0 0 0 0
------- ------- ------- ------- ------- -------
Total Construction Expenditures 0 0 0 0 0 0
FINANCING
Release of Bond Proceed from
Restricted Cash 0 0 0 0 0 0
Equity 0 0 0 0 0 0
------- ------- ------- ------- ------- -------
Total Financing 0 0 0 0 0 0
OTHER
Interest Income and Other Income 3,182 3,372 3,214 3,565 3,277 3,595
------- ------- ------- ------- ------- -------
Total Other 3,182 3,372 3,214 3,565 3,277 3,595
Cash Available for Debt Service 118,934 125,900 120,113 132,676 122,415 134,252
</TABLE>
B-46
<PAGE>
SALTON SEA FUNDING CORPORATION
PRO FORMA FINANCIAL PROJECTIONS
HIGH OPERATING AND MAINTENANCE COST ESCALATION
<TABLE>
<CAPTION>
2009 2010 2011 2012
CASH FROM PROJECTS --------- --------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES
Salton Sea Unit I & II 17,941 18,493 18,525 18,694
Salton Sea Unit III 27,692 28,393 28,006 28,415
Salton Sea Unit IV 28,191 28,559 27,542 27,679
Salton Sea Unit V 16,772 17,173 17,267 17,232
Minerals Extraction 54,203 56,912 59,933 63,237
Elmore 22,967 23,035 23,412 23,093
Del Ranch 22,649 23,085 23,084 23,139
Leathers 22,526 22,594 22,971 22,652
Vulcan 18,496 19,062 18,878 19,109
Turbo Expander 3,405 3,553 3,506 3,565
------ ------ ------ ------
Total Revenues 234,841 240,859 243,125 246,813
EXPENSES
Salton Sea Unit I & II 5,991 6,309 6,439 6,453
Salton Sea Unit III 9,106 9,590 9,738 9,745
Salton Sea Unit IV 9,378 9,717 9,784 9,924
Salton Sea Unit V 4,637 4,730 4,803 4,877
Minerals Extraction 29,448 30,561 31,473 32,367
Elmore 7,839 8,010 8,362 8,991
Del Ranch 6,143 6,836 6,493 6,695
Leathers 7,617 8,224 8,588 8,308
Vulcan 5,778 5,938 6,325 6,507
Turbo Expander 781 804 820 842
------- ------- ------- -------
Total Expenses 86,717 90,720 92,825 94,709
Project Operating Income 148,124 150,138 150,300 152,104
PROJECT ROYALTY EXPENSES
Elmore 3,973 3,996 4,107 3,987
Del Ranch 3,880 4,043 4,011 4,034
Leathers 3,969 3,991 4,102 3,982
Vulcan 535 569 553 567
Turbo Expander 174 185 180 185
------- ------- ------- -------
Royalty Expenses 12,532 12,784 12,953 12,756
Cash After Royalty Payments 135,592 137,354 137,347 139,349
CAPITAL EXPENDITURES
Salton Sea Units I, II 573 127 604 695
Salton Sea Units III 948 210 1,256 221
Salton Sea Units IV 730 141 766 394
Salton Sea Units V 1,359 257 265 273
Minerals Extraction 214 220 227 234
Elmore 4,254 3,504 2,893 2,088
Del Ranch 4,497 512 1,460 1,501
Leathers 2,750 3,513 5,074 3,060
Vulcan 2,397 2,153 2,214 672
Turbo Expander 158 38 38 39
------- ------- ------- -------
Total Capital Expenditures 17,880 10,676 14,797 9,178
CONSTRUCTION EXPENDITURES
Salton Sea Units V 0 0 0 0
Minerals Extraction 0 0 0 0
Elmore 0 0 0 0
Del Ranch 0 0 0 0
Leathers 0 0 0 0
Vulcan 0 0 0 0
Turbo Expander 0 0 0 0
Interest During Construction 0 0 0 0
Financing Costs 0 0 0 0
------- ------- ------- -------
Total Construction Expenditures 0 0 0 0
FINANCING
Release of Bond Proceed from
Restricted Cash 0 0 0 0
Equity 0 0 0 0
------- ------- ------- -------
Total Financing 0 0 0 0
OTHER
Interest Income and Other Income 3,237 3,484 3,369 3,579
------- ------- ------- -------
Total Other 3,237 3,484 3,369 3,579
Cash Available for Debt Service 120,949 130,163 125,919 133,750
<CAPTION>
2013 2014 2015 2016 2017 2018
CASH FROM PROJECTS --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Salton Sea Unit I & II 19,235 19,749 19,981 20,533 20,126 19,386
Salton Sea Unit III 28,993 29,515 29,596 30,330 30,922 31,423
Salton Sea Unit IV 28,356 29,208 29,737 30,219 30,854 31,891
Salton Sea Unit V 17,992 18,207 18,774 18,999 19,431 19,891
Minerals Extraction 63,401 63,396 63,542 63,568 60,513 58,612
Elmore 24,066 23,948 24,765 25,166 25,582 26,000
Del Ranch 23,722 24,001 24,410 24,703 24,990 25,493
Leathers 23,624 23,507 24,324 24,725 25,141 25,559
Vulcan 19,438 19,878 20,045 16,638 15,163 15,661
Turbo Expander 3,653 3,768 3,813 3,932 4,068 4,171
------ ------ ------ ------ ------ ------
Total Revenues 252,479 255,178 258,986 258,814 256,789 258,088
EXPENSES
Salton Sea Unit I & II 6,781 7,019 6,953 7,290 7,443 7,278
Salton Sea Unit III 10,223 10,559 10,392 10,903 11,234 11,058
Salton Sea Unit IV 10,308 10,603 10,774 11,180 11,444 11,641
Salton Sea Unit V 4,996 5,083 5,199 5,297 5,414 5,535
Minerals Extraction 33,390 34,185 35,217 36,099 36,916 37,902
Elmore 10,067 9,370 9,968 9,748 10,029 10,321
Del Ranch 8,116 7,329 7,516 7,759 7,933 8,197
Leathers 9,066 9,735 10,896 9,653 10,328 10,667
Vulcan 6,419 6,572 6,974 7,100 6,948 7,208
Turbo Expander 865 889 911 937 964 991
------- ------- ------- ------- ------- -------
Total Expenses 100,230 101,343 104,801 105,966 108,653 110,798
Project Operating Income 152,249 153,835 154,184 152,848 148,136 147,289
PROJECT ROYALTY EXPENSES
Elmore 4,312 4,213 4,486 4,555 4,671 4,778
Del Ranch 4,211 4,263 4,380 4,448 4,524 4,666
Leathers 4,308 4,208 4,481 4,551 4,666 4,774
Vulcan 581 600 605 627 625 658
Turbo Expander 190 196 197 204 211 216
------- ------- ------- ------- ------- -------
Royalty Expenses 13,602 13,480 14,149 14,385 14,698 15,092
Cash After Royalty Payments 138,647 140,355 140,035 138,463 133,439 132,197
CAPITAL EXPENDITURES
Salton Sea Units I, II 2,822 140 677 779 717 155
Salton Sea Units III 4,778 232 1,409 244 1,190 256
Salton Sea Units IV 2,013 141 845 430 895 153
Salton Sea Units V 1,529 289 298 307 1,721 326
Minerals Extraction 241 248 255 263 271 279
Elmore 400 2,191 400 2,300 400 400
Del Ranch 2,404 1,586 1,631 1,672 3,759 1,757
Leathers 1,392 2,201 400 2,310 400 2,427
Vulcan 2,685 706 724 742 761 780
Turbo Expander 175 41 42 44 193 46
------- ------- ------- ------- ------- -------
Total Capital Expenditures 18,439 7,777 6,682 9,091 10,307 6,578
CONSTRUCTION EXPENDITURES
Salton Sea Units V 0 0 0 0 0 0
Minerals Extraction 0 0 0 0 0 0
Elmore 0 0 0 0 0 0
Del Ranch 0 0 0 0 0 0
Leathers 0 0 0 0 0 0
Vulcan 0 0 0 0 0 0
Turbo Expander 0 0 0 0 0 0
Interest During Construction 0 0 0 0 0 0
Financing Costs 0 0 0 0 0 0
------- ------- ------- ------- ------- -------
Total Construction Expenditures 0 0 0 0 0 0
FINANCING
Release of Bond Proceed from
Restricted Cash 0 0 0 0 0 0
Equity 0 0 0 0 0 0
------- ------- ------- ------- ------- -------
Total Financing 0 0 0 0 0 0
OTHER
Interest Income and Other Income 3,306 3,646 3,667 3,559 3,385 3,456
------- ------- ------- ------- ------- -------
Total Other 3,306 3,646 3,667 3,559 3,385 3,456
Cash Available for Debt Service 123,513 136,225 137,020 132,931 126,516 129,075
</TABLE>
B-47
<PAGE>
SALTON SEA FUNDING CORPORATION
PRO FORMA FINANCIAL PROJECTIONS
HIGH OPERATING AND MAINTENANCE COST ESCALATION
<TABLE>
<CAPTION>
1998 1999 2000 2001 2002
MAGMA CASH FLOW STATEMENT ----------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
MAGMA REVENUES
Cash from Projects 169,012 127,234 90,244 99,903 122,058
Monofill Revenues 1,000 1,000 1,000 1,000 1,000
Royalties from Elmore 13,731 3,348 3,156 3,276 3,560
Royalties from Del Ranch 13,331 2,964 3,036 2,907 3,456
Royalties from Leathers 12,106 12,437 2,961 3,078 3,351
Royalties from Vulcan 406 370 374 367 406
Royalties from Turbo Expander 0 0 70 86 99
Management fee from Salton Sea Units I, II 669 674 442 364 389
Management fee from Salton Sea Unit III 1,264 674 570 562 612
Other Royalties 25,000 0 0 0 0
------- ------- ------ ------ -------
Total Magma Revenues 236,519 148,701 101,853 111,543 134,931
MAGMA EXPENSES/OBLIGATIONS
Pollution Control Debt Interest 0 0 0 0 0
Pollution Control Debt Principal 0 0 0 0 0
Installment Obligations 1,101 137 137 0 0
Other 0 0 0 0 0
Debt Service Reserve LC Fees/Other 952 952 904 904 904
------- ------- ------- ------- -------
Total Magma Expenses/Obligations 2,053 1,089 1,041 904 904
Cash Available for Funding Corp Debt 234,466 147,611 100,812 110,640 134,027
CASH FLOW AVAILABLE FOR BOND PAYMENTS 1998 1999 2000 2001 2002
------- ------- ------- ------- -------
CASH FLOW FROM PROJECTS
Salton Sea Unit I & II 33,659 20,317 13,135 9,810 10,063
Salton Sea Unit III 41,224 18,193 11,638 11,108 16,133
Salton Sea Unit IV 18,645 20,604 22,241 23,330 25,539
Salton Sea Unit V 0 0 5,895 10,832 14,215
Minerals Extraction 0 0 5,193 16,300 19,494
Elmore 28,175 15,006 6,265 8,309 6,414
Del Ranch 23,178 9,335 6,191 6,416 10,262
Leathers 23,525 33,365 8,831 3,649 6,552
Vulcan (2,036) 6,725 9,214 7,637 10,308
Turbo Expander 0 0 1,641 2,511 3,079
------- ------- ------- ------- -------
Total Cash from Projects 166,371 123,545 90,244 99,903 122,058
OTHER REVENUE CASH FLOWS
Monofill Revenues 1,000 1,000 1,000 1,000 1,000
Royalties from Elmore 13,731 3,348 3,156 3,276 3,560
Royalties from Del Ranch 13,331 2,964 3,036 2,907 3,456
Royalties from Leathers 12,106 12,437 2,961 3,078 3,351
Royalties from Vulcan 406 370 374 367 406
Royalties from Turbo Expander 0 0 70 86 99
Management fee from Salton Sea Units I, II 669 674 442 364 389
Management fee from Salton Sea Unit III 1,264 674 570 562 612
Other Royalties 25,000 0 0 0 0
Bond Interest Income 2,641 3,689 0 0 0
------- ------- ------- ------- -------
Total Other Revenues 70,148 25,155 11,608 11,641 12,873
OTHER EXPENDITURES
Instaliments/Pollution Control Debt Service 1,101 137 137 0 0
Other 0 0 0 0 0
Debt Service Reserve LC Fees/Other 952 952 904 904 904
------- ------- ------- ------- -------
Total Other Expenditures 2,053 1,089 1,041 904 904
Net Cash Available For SSFC Debt Service 234,466 147,611 100,812 110,640 134,027
Interest (Series A/B/C) 23,583 19,094 16,667 15,596 13,996
Principal (Series A/B/C) 74,938 35,108 19,573 21,377 22,698
Interest (Series D/E) 7,933 5,810 4,362 4,040 3,944
Principal (Series D/E) 32,000 22,728 5,500 1,000 1,600
Interest (Series F) 0 0 10,739 21,280 21,128
Principal (Series F) 0 0 0 1,282 4,274
Project Debt Service 138,454 82,740 56,841 64,575 67,640
Project Debt Coverage 1.69 1.78 1.77 1.71 1.98
Minimum DCR (1999-2018) 1.71
Average DCR (1999-2018) 2.80
<CAPTION>
2003 2004 2005 2006 2007 2008
MAGMA CASH FLOW STATEMENT ------------ ------------ ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
MAGMA REVENUES
Cash from Projects 118,934 125,900 120,113 132,676 122,415 134,252
Monofill Revenues 1,000 1,000 1,000 1,000 1,000 1,000
Royalties from Elmore 3,848 3,851 4,340 4,131 4,350 4,455
Royalties from Del Ranch 3,499 3,716 3,955 3,993 3,964 4,311
Royalties from Leathers 3,631 3,632 4,106 3,902 4,116 4,214
Royalties from Vulcan 407 429 444 452 445 478
Royalties from Turbo Expander 98 105 82 85 85 94
Management fee from Salton Sea Units I, II 393 405 423 431 430 448
Management fee from Salton Sea Unit III 612 643 668 676 663 711
Other Royalties 0 0 0 0 0 0
------- ------- ------- ------- ------- -------
Total Magma Revenues 132,422 139,680 135,132 147,346 137,470 149,963
MAGMA EXPENSES/OBLIGATIONS
Pollution Control Debt Interest 0 0 0 0 0 0
Pollution Control Debt Principal 0 0 0 0 0 0
Installment Obligations 0 0 0 0 0 0
Other 0 0 0 0 0 0
Debt Service Reserve LC Fees/Other 904 904 904 904 904 904
------- ------- ------- ------- ------- -------
Total Magma Expenses/Obligations 904 904 904 904 904 904
Cash Available for Funding Corp Debt 131,519 138,776 134,229 146,443 136,566 149,060
CASH FLOW AVAILABLE FOR BOND PAYMENTS 2003 2004 2005 2006 2007 2008
------- ------- ------- ------- ------- -------
CASH FLOW FROM PROJECTS
Salton Sea Unit I & II 8,728 10,464 11,089 11,835 11,179 11,496
Salton Sea Unit III 13,205 17,593 17,724 18,749 17,071 19,310
Salton Sea Unit IV 25,111 26,664 26,730 22,615 20,165 20,095
Salton Sea Unit V 14,852 15,435 13,804 12,037 11,541 12,449
Minerals Extraction 20,603 22,476 25,678 32,847 28,656 26,702
Elmore 2,374 57 2,132 9,070 9,774 9,217
Del Ranch 10,583 11,381 9,795 11,921 11,795 12,202
Leathers 9,700 7,532 860 (511) 128 9,256
Vulcan 10,663 11,005 9,885 11,699 9,751 10,938
Turbo Expander 3,115 3,292 2,417 2,413 2,355 2,588
------- ------- ------- ------- ------- -------
Total Cash from Projects 118,934 125,900 120,113 132,676 122,415 134,252
OTHER REVENUE CASH FLOWS
Monofill Revenues 1,000 1,000 1,000 1,000 1,000 1,000
Royalties from Elmore 3,848 3,851 4,340 4,131 4,350 4,455
Royalties from Del Ranch 3,499 3,716 3,955 3,993 3,964 4,311
Royalties from Leathers 3,631 3,632 4,106 3,902 4,116 4,214
Royalties from Vulcan 407 429 444 452 445 478
Royalties from Turbo Expander 98 105 82 85 85 94
Management fee from Salton Sea Units I, II 393 405 423 431 430 448
Management fee from Salton Sea Unit III 612 643 668 676 663 711
Other Royalties 0 0 0 0 0 0
Bond Interest Income 0 0 0 0 0 0
------- ------- ------- ------- ------- -------
Total Other Revenues 13,488 13,780 15,019 14,670 15,054 15,711
OTHER EXPENDITURES
Instaliments/Pollution Control Debt Service 0 0 0 0 0 0
Other 0 0 0 0 0 0
Debt Service Reserve LC Fees/Other 904 904 904 904 904 904
------- ------- ------- ------- ------- -------
Total Other Expenditures 904 904 904 904 904 904
Net Cash Available For SSFC Debt Service 131,519 138,776 134,229 146,443 136,566 149,060
Interest (Series A/B/C) 12,323 10,626 8,471 7,150 5,462 3,766
Principal (Series A/B/C) 22,237 23,776 23,312 21,537 21,505 22,037
Interest (Series D/E) 3,782 3,528 3,253 2,984 2,776 2,548
Principal (Series D/E) 3,000 3,250 3,500 2,500 2,500 3,500
Interest (Series F) 20,835 20,609 20,343 20,074 19,826 19,613
Principal (Series F) 2,850 3,562 3,562 3,706 2,140 4,990
Project Debt Service 65,027 65,351 62,441 57,951 54,209 56,454
Project Debt Coverage 2.02 2.12 2.15 2.53 2.52 2.64
Minimum DCR (1999-2018) 1.71
Average DCR (1999-2018) 2.80
</TABLE>
B-48
<PAGE>
SALTON SEA FUNDING CORPORATION
PRO FORMA FINANCIAL PROJECTIONS
HIGH OPERATING AND MAINTENANCE COST ESCALATION
<TABLE>
<CAPTION>
2009 2010 2011 2012
MAGMA CASH FLOW STATEMENT ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
MAGMA REVENUES
Cash from Projects 120,949 130,163 125,919 133,750
Monofill Revenues 1,000 1,000 1,000 1,000
Royalties from Elmore 4,538 4,476 4,684 4,475
Royalties from Del Ranch 4,137 4,332 4,272 4,331
Royalties from Leathers 4,297 4,234 4,438 4,234
Royalties from Vulcan 459 480 470 479
Royalties from Turbo Expander 90 97 95 99
Management fee from Salton Sea
Units I, II 449 465 463 468
Management fee from Salton Sea
Unit III 689 714 697 713
Other Royalties 0 0 0 0
------- ------- ------- -------
Total Magma Revenues 136,608 145,961 142,038 149,549
MAGMA EXPENSES/OBLIGATIONS
Pollution Control Debt Interest 0 0 0 0
Pollution Control Debt Principal 0 0 0 0
Installment Obligations 0 0 0 0
Other 0 0 0 0
Debt Service Reserve LC Fees/Other 904 904 904 904
------- ------- ------- -------
Total Magma Expenses/Obligations 904 904 904 904
Cash Available for Funding Corp Debt 135,704 145,057 141,135 148,645
CASH FLOW AVAILABLE FOR BOND
PAYMENTS 2009 2010 2011 2012
------- ------- ------- -------
CASH FLOW FROM PROJECTS
Salton Sea Unit I & II 11,690 12,389 11,798 11,864
Salton Sea Unit III 18,123 19,104 17,480 18,956
Salton Sea Unit IV 18,579 19,214 17,459 17,839
Salton Sea Unit V 11,071 12,520 12,534 12,414
Minerals Extraction 25,216 26,850 29,009 31,477
Elmore 7,091 7,733 8,271 8,248
Del Ranch 8,353 12,015 11,427 11,208
Leathers 8,415 7,055 5,349 7,502
Vulcan 10,054 10,688 10,055 11,673
Turbo Expander 2,355 2,595 2,535 2,568
------- ------- ------- -------
Total Cash from Projects 120,949 130,163 125,919 133,750
OTHER REVENUE CASH FLOWS
Monofill Revenues 1,000 1,000 1,000 1,000
Royalties from Elmore 4,538 4,476 4,684 4,475
Royalties from Del Ranch 4,137 4,332 4,272 4,331
Royalties from Leathers 4,297 4,234 4,438 4,234
Royalties from Vulcan 459 480 470 479
Royalties from Turbo Expander 90 97 95 99
Management fee from Salton Sea
Units I, II 449 465 463 468
Management fee from Salton Sea
Unit III 689 714 697 713
Other Royalties 0 0 0 0
Bond Interest Income 0 0 0 0
------- ------- ------- -------
Total Other Revenues 15,659 15,798 16,119 15,799
OTHER EXPENDITURES
Installments/Pollution Control Debt
Service 0 0 0 0
Other 0 0 0 0
Debt Service Reserve LC Fees/Other 904 904 904 904
------- ------- ------- -------
Total Other Expenditures 904 904 904 904
Net Cash Available For SSFC Debt
Service 135,704 145,057 141,135 148,645
Interest (Series A/B/C) 2,041 377 0 0
Principal (Series A/B/C) 21,876 9,630 0 0
Interest (Series D/E) 2,263 1,780 470 0
Principal (Series D/E) 3,250 13,500 11,322 0
Interest (Series F) 19,293 19,040 18,321 16,750
Principal (Series F) 2,138 7,124 17,100 32,774
Project Debt Service 50,861 51,451 47,213 49,524
Project Debt Coverage 2.67 2.82 2.99 3.00
Minimum DCR (1999-2018) 1.71
Average DCR (1999-2018) 2.80
<CAPTION>
2013 2014 2015 2016 2017 2018
MAGMA CASH FLOW STATEMENT ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
MAGMA REVENUES
Cash from Projects 123,513 136,225 137,020 132,931 126,516 129,075
Monofill Revenues 1,000 1,000 1,000 1,000 1,000 1,000
Royalties from Elmore 4,908 4,708 5,098 5,211 5,329 5,447
Royalties from Del Ranch 4,480 4,561 4,656 4,764 4,805 4,982
Royalties from Leathers 4,655 4,458 4,837 4,948 5,062 5,176
Royalties from Vulcan 487 499 502 399 375 395
Royalties from Turbo Expander 102 106 107 112 116 120
Management fee from Salton Sea
Units I, II 483 496 500 516 501 481
Management fee from Salton Sea
Unit III 727 740 740 762 775 788
Other Royalties 0 0 0 0 0 0
------- ------- ------- ------- ------- -------
Total Magma Revenues 140,356 152,793 154,460 150,643 144,479 147,463
MAGMA EXPENSES/OBLIGATIONS
Pollution Control Debt Interest 0 0 0 0 0 0
Pollution Control Debt Principal 0 0 0 0 0 0
Installment Obligations 0 0 0 0 0 0
Other 0 0 0 0 0 0
Debt Service Reserve LC Fees/Other 904 904 904 904 904 904
------- ------- ------- ------- ------- -------
Total Magma Expenses/Obligations 904 904 904 904 904 904
Cash Available for Funding Corp Debt 139,453 151,890 153,557 149,740 143,575 146,559
CASH FLOW AVAILABLE FOR BOND
PAYMENTS 2013 2014 2015 2016 2017 2018
------- ------- ------- ------- ------- -------
CASH FLOW FROM PROJECTS
Salton Sea Unit I & II 9,897 12,935 12,691 12,807 12,295 12,281
Salton Sea Unit III 14,378 19,239 18,284 19,711 19,007 20,662
Salton Sea Unit IV 16,476 18,973 18,616 19,122 19,023 20,650
Salton Sea Unit V 11,782 13,188 13,642 13,763 12,633 14,416
Minerals Extraction 30,588 29,759 28,842 27,954 23,967 20,993
Elmore 9,541 8,400 10,184 8,798 10,770 10,790
Del Ranch 9,237 11,121 11,182 11,122 9,015 11,173
Leathers 9,102 7,565 8,781 8,437 10,014 7,904
Vulcan 10,020 12,330 12,064 8,394 7,017 7,208
Turbo Expander 2,491 2,715 2,735 2,823 2,773 2,997
------- ------- ------- ------- ------- -------
Total Cash from Projects 123,513 136,225 137,020 132,931 126,516 129,075
OTHER REVENUE CASH FLOWS
Monofill Revenues 1,000 1,000 1,000 1,000 1,000 1,000
Royalties from Elmore 4,908 4,708 5,098 5,211 5,329 5,447
Royalties from Del Ranch 4,480 4,561 4,656 4,764 4,805 4,982
Royalties from Leathers 4,655 4,458 4,837 4,948 5,062 5,176
Royalties from Vulcan 487 499 502 399 375 395
Royalties from Turbo Expander 102 106 107 112 116 120
Management fee from Salton Sea
Units I, II 483 496 500 516 501 481
Management fee from Salton Sea
Unit III 727 740 740 762 775 788
Other Royalties 0 0 0 0 0 0
Bond Interest Income 0 0 0 0 0 0
------- ------- ------- ------- ------- -------
Total Other Revenues 16,843 16,568 17,440 17,712 17,963 18,388
OTHER EXPENDITURES
Installments/Pollution Control Debt
Service 0 0 0 0 0 0
Other 0 0 0 0 0 0
Debt Service Reserve LC Fees/Other 904 904 904 904 904 904
------- ------- ------- ------- ------- -------
Total Other Expenditures 904 904 904 904 904 904
Net Cash Available For SSFC Debt
Service 139,453 151,890 153,557 149,740 143,575 146,559
Interest (Series A/B/C) 0 0 0 0 0 0
Principal (Series A/B/C) 0 0 0 0 0 0
Interest (Series D/E) 0 0 0 0 0 0
Principal (Series D/E) 0 0 0 0 0 0
Interest (Series F) 14,372 12,111 9,496 6,652 3,667 1,102
Principal (Series F) 28,928 34,200 37,334 40,184 39,188 19,664
Project Debt Service 43,300 46,311 46,830 46,836 42,855 20,766
Project Debt Coverage 3.22 3.28 3.28 3.20 3.35 7.06
Minimum DCR (1999-2018) 1.71
Average DCR (1999-2018) 2.80
</TABLE>
B-49
<PAGE>
SALTON SEA FUNDING CORPORATION
PRO FORMA FINANCIAL PROJECTIONS
SCE HIGH AVOIDED COSTS
<TABLE>
<CAPTION>
1998 1999 2000 2001 2002
CASH FROM PROJECTS --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
REVENUES
Salton Sea Unit I & II 26,534 26,917 19,865 16,490 16,701
Salton Sea Unit III 50,692 30,895 25,644 26,151 27,403
Salton Sea Unit IV 30,716 32,061 32,898 33,573 35,018
Salton Sea Unit V 0 0 9,334 18,921 21,192
Minerals Extraction 0 0 16,117 37,270 42,408
Elmore 56,395 25,154 20,209 21,686 22,232
Del Ranch 56,490 24,853 20,247 21,222 22,300
Leathers 54,344 58,786 26,647 21,245 21,790
Vulcan 16,063 15,030 16,533 17,378 18,342
Turbo Expander 0 0 2,759 4,193 4,522
------ ------ ------ ------ ------
Total Revenues 291,235 213,697 190,255 218,128 231,908
EXPENSES
Salton Sea Unit I & II 7,438 6,374 5,617 5,214 5,362
Salton Sea Unit III 10,446 8,455 8,346 8,180 8,364
Salton Sea Unit IV 9,295 9,656 9,693 9,762 9,956
Salton Sea Unit V 0 0 2,148 3,858 4,143
Minerals Extraction 0 0 11,428 22,405 23,624
Elmore 10,573 6,765 6,504 7,224 7,586
Del Ranch 9,993 6,130 5,595 5,904 6,210
Leathers 11,361 10,022 7,102 7,335 7,169
Vulcan 4,820 4,656 4,949 4,896 5,019
Turbo Expander 0 0 634 677 687
------- ------- ------- ------- -------
Total Expenses 63,927 52,058 62,016 75,454 78,118
Project Operating Income 227,308 161,639 128,239 142,674 153,790
PROJECT ROYALTY EXPENSES
Elmore 12,820 2,885 3,331 3,701 3,799
Del Ranch 12,915 2,778 3,377 3,563 3,862
Leathers 12,305 13,614 3,327 3,697 3,795
Vulcan 445 385 472 497 540
Turbo Expander 0 0 125 168 178
------- ------- ------- ------- -------
Royalty Expenses 38,486 19,663 10,631 11,626 12,174
Cash After Royalty Payments 188,822 141,975 117,608 131,048 141,616
CAPITAL EXPENDITURES
Salton Sea Units I, II 352 770 890 450 344
Salton Sea Units III 125 4,734 4,005 3,818 305
Salton Sea Units IV 3,275 2,352 1,559 1,105 207
Salton Sea Units V 0 0 0 724 101
Minerals Extraction 0 0 0 42 87
Elmore 5,580 900 3,240 713 2,777
Del Ranch 11,024 6,859 4,203 3,585 420
Leathers 7,782 2,678 6,587 4,702 2,624
Vulcan 12,834 3,444 675 2,093 525
Turbo Expander 0 0 0 115 31
------- ------- ------- ------- -------
Total Capital Expenditures 40,972 21,737 21,159 17,347 7,421
CONSTRUCTION EXPENDITURES
Salton Sea Units V 15,983 77,284 13,596 0 0
Minerals Extraction 31,779 104,641 43,911 0 0
Elmore 10,817 6,150 0 0 0
Del Ranch 3,024 17,117 432 0 0
Leathers 0 977 3,393 0 0
Vulcan 3,884 21,980 555 0 0
Turbo Expander 1,502 8,504 215 0 0
Interest During Construction 4,669 21,304 10,564 0 0
Financing Costs 5,232 0 0 0 0
------- ------- ------- ------- -------
Total Construction Expenditures 76,890 257,957 72,666 0 0
FINANCING
Release of Bond Proceed from
Restricted Cash 76,890 208,110 0 0 0
Equity 0 49,847 72,666 0 0
------- ------- ------- ------- -------
Total Financing 76,890 257,957 72,666 0 0
OTHER
Interest Income and Other Income 21,162 6,996 2,652 3,127 3,691
------- ------- ------- ------- -------
Total Other 21,162 6,996 2,652 3,127 3,691
Cash Available for Debt Service 169,012 127,234 99,101 116,828 137,886
<CAPTION>
2003 2004 2005 2006 2007 2008
CASH FROM PROJECTS --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Salton Sea Unit I & II 17,070 17,660 18,235 19,097 19,595 20,366
Salton Sea Unit III 27,891 29,446 30,216 31,770 32,510 34,579
Salton Sea Unit IV 35,783 36,342 36,874 32,921 31,816 31,660
Salton Sea Unit V 22,098 23,130 22,438 20,793 21,556 22,945
Minerals Extraction 44,548 47,438 51,893 59,893 56,097 55,245
Elmore 23,322 23,922 25,091 25,769 27,241 28,090
Del Ranch 23,003 23,978 24,729 25,838 26,839 28,172
Leathers 22,881 23,481 24,649 25,327 26,800 27,648
Vulcan 18,795 19,860 20,324 21,519 22,182 23,603
Turbo Expander 4,571 4,866 4,071 4,199 4,375 4,747
------ ------ ------ ------ ------ ------
Total Revenues 239,962 250,122 258,520 267,126 269,012 277,055
EXPENSES
Salton Sea Unit I & II 5,160 5,347 5,462 5,533 5,758 5,844
Salton Sea Unit III 8,049 8,395 8,542 8,657 9,002 9,201
Salton Sea Unit IV 9,759 9,946 10,035 9,157 9,215 9,292
Salton Sea Unit V 4,202 4,268 4,330 4,405 4,484 4,570
Minerals Extraction 24,499 25,434 26,379 27,566 27,955 28,760
Elmore 7,091 6,984 7,885 7,795 7,722 7,931
Del Ranch 5,566 5,948 5,842 6,238 6,353 6,578
Leathers 6,755 6,833 7,405 7,084 7,997 7,705
Vulcan 4,934 5,228 5,314 5,423 5,716 5,426
Turbo Expander 695 712 695 714 727 747
------- ------- ------- ------- ------- -------
Total Expenses 76,710 79,095 81,889 82,571 84,929 86,054
Project Operating Income 163,252 171,027 176,631 184,555 184,084 191,001
PROJECT ROYALTY EXPENSES
Elmore 4,118 4,243 4,581 4,727 5,155 5,336
Del Ranch 4,021 4,294 4,473 4,784 5,034 5,400
Leathers 4,114 4,239 4,577 4,722 5,151 5,332
Vulcan 555 605 618 675 697 763
Turbo Expander 181 197 102 220 227 249
------- ------- ------- ------- ------- -------
Royalty Expenses 12,988 13,578 14,451 15,128 16,264 17,080
Cash After Royalty Payments 150,264 157,449 162,180 169,427 167,819 173,922
CAPITAL EXPENDITURES
Salton Sea Units I, II 2,105 618 509 115 539 692
Salton Sea Units III 3,764 181 845 191 1,120 200
Salton Sea Units IV 1,534 341 665 141 697 366
Salton Sea Units V 209 215 1,207 228 235 242
Minerals Extraction 179 184 190 196 202 208
Elmore 7,829 10,389 8,300 1,600 1,231 1,900
Del Ranch 1,169 442 2,699 464 475 487
Leathers 600 2,828 9,583 11,210 9,905 1,650
Vulcan 538 552 2,142 580 1,978 2,035
Turbo Expander 32 32 144 34 35 36
------- ------- ------- ------- ------- -------
Total Capital Expenditures 17,958 15,782 26,282 14,758 16,417 7,817
CONSTRUCTION EXPENDITURES
Salton Sea Units V 0 0 0 0 0 0
Minerals Extraction 0 0 0 0 0 0
Elmore 0 0 0 0 0 0
Del Ranch 0 0 0 0 0 0
Leathers 0 0 0 0 0 0
Vulcan 0 0 0 0 0 0
Turbo Expander 0 0 0 0 0 0
Interest During Construction 0 0 0 0 0 0
Financing Costs 0 0 0 0 0 0
------- ------- ------- ------- ------- -------
Total Construction Expenditures 0 0 0 0 0 0
FINANCING
Release of Bond Proceed from
Restricted Cash 0 0 0 0 0 0
Equity 0 0 0 0 0 0
------- ------- ------- ------- ------- -------
Total Financing 0 0 0 0 0 0
OTHER
Interest Income and Other Income 3,638 3,897 3,737 4,254 4,163 4,567
------- ------- ------- ------- ------- -------
Total Other 3,638 3,897 3,737 4,254 4,163 4,567
Cash Available for Debt Service 135,944 145,565 139,635 158,923 155,565 170,672
</TABLE>
B-50
<PAGE>
SALTON SEA FUNDING CORPORATION
PRO FORMA FINANCIAL PROJECTIONS
SCE HIGH AVOIDED COSTS
<TABLE>
<CAPTION>
2009 2010 2011 2012
CASH FROM PROJECTS --------- --------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES
Salton Sea Unit I & II 21,134 22,238 22,958 24,079
Salton Sea Unit III 35,760 37,840 39,045 42,091
Salton Sea Unit IV 31,086 31,942 31,573 32,529
Salton Sea Unit V 24,351 25,907 27,759 29,897
Minerals Extraction 54,203 56,912 59,933 63,237
Elmore 29,739 30,686 32,786 34,186
Del Ranch 29,292 30,787 32,282 34,309
Leathers 29,298 30,245 32,345 33,745
Vulcan 24,342 25,937 26,975 29,081
Turbo Expander 4,943 5,361 5,635 6,187
------ ------ ------ ------
Total Revenues 284,147 297,854 311,291 329,341
EXPENSES
Salton Sea Unit I & II 5,893 6,186 6,304 6,321
Salton Sea Unit III 9,243 9,740 9,918 10,040
Salton Sea Unit IV 9,238 9,543 9,591 9,718
Salton Sea Unit V 4,657 4,753 4,864 4,988
Minerals Extraction 29,474 30,585 31,781 33,041
Elmore 7,844 7,930 8,371 8,961
Del Ranch 6,246 6,953 6,637 6,933
Leathers 7,621 8,142 8,597 8,278
Vulcan 5,527 5,639 5,981 6,132
Turbo Expander 761 783 799 826
------- ------- ------- -------
Total Expenses 86,505 90,253 92,844 95,239
Project Operating Income 197,642 207,601 218,448 234,102
PROJECT ROYALTY EXPENSES
Elmore 5,813 6,015 6,628 6,944
Del Ranch 5,676 6,087 6,472 7,027
Leathers 5,808 6,010 6,623 6,939
Vulcan 787 862 899 997
Turbo Expander 257 281 293 325
------- ------- ------- -------
Royalty Expenses 18,341 19,255 20,915 22,232
Cash After Royalty Payments 179,301 188,346 197,533 211,870
CAPITAL EXPENDITURES
Salton Sea Units I, II 573 127 604 695
Salton Sea Units III 948 210 1,256 221
Salton Sea Units IV 730 141 766 394
Salton Sea Units V 1,359 257 265 273
Minerals Extraction 214 220 227 234
Elmore 4,254 3,504 2,893 2,088
Del Ranch 4,497 512 1,460 1,501
Leathers 2,750 3,513 5,074 3,060
Vulcan 2,397 2,153 2,214 672
Turbo Expander 158 38 38 39
------- ------- ------- -------
Total Capital Expenditures 17,880 10,676 14,797 9,178
CONSTRUCTION EXPENDITURES
Salton Sea Units V 0 0 0 0
Minerals Extraction 0 0 0 0
Elmore 0 0 0 0
Del Ranch 0 0 0 0
Leathers 0 0 0 0
Vulcan 0 0 0 0
Turbo Expander 0 0 0 0
Interest During Construction 0 0 0 0
Financing Costs 0 0 0 0
------- ------- ------- -------
Total Construction Expenditures 0 0 0 0
FINANCING
Release of Bond Proceed from
Restricted Cash 0 0 0 0
Equity 0 0 0 0
------- ------- ------- -------
Total Financing 0 0 0 0
OTHER
Interest Income and Other Income 4,439 4,886 5,024 5,571
------- ------- ------- -------
Total Other 4,439 4,886 5,024 5,571
Cash Available for Debt Service 165,860 182,556 187,759 208,263
<CAPTION>
2013 2014 2015 2016 2017 2018
CASH FROM PROJECTS --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Salton Sea Unit I & II 25,159 26,686 27,655 28,776 28,590 28,064
Salton Sea Unit III 43,962 47,018 48,709 51,078 52,278 53,320
Salton Sea Unit IV 33,725 35,477 36,713 37,564 38,368 39,704
Salton Sea Unit V 32,043 34,382 36,926 38,219 39,099 40,056
Minerals Extraction 63,401 63,396 63,542 63,568 60,513 58,612
Elmore 36,618 38,119 40,985 42,533 43,379 44,247
Del Ranch 36,043 38,269 40,331 41,658 42,245 43,283
Leathers 36,176 37,678 40,544 42,092 42,938 43,806
Vulcan 30,287 32,615 34,062 31,769 30,358 31,537
Turbo Expander 6,506 7,117 7,498 7,911 8,187 8,399
------ ------ ------ ------ ------ ------
Total Revenues 343,919 360,757 376,965 385,169 385,956 391,029
EXPENSES
Salton Sea Unit I & II 6,608 6,850 6,750 7,040 7,111 6,865
Salton Sea Unit III 10,487 10,927 10,747 11,262 11,494 11,223
Salton Sea Unit IV 10,054 10,343 10,444 10,740 10,915 11,016
Salton Sea Unit V 5,112 5,247 5,392 5,473 5,547 5,629
Minerals Extraction 34,055 35,184 36,383 37,057 37,459 38,058
Elmore 10,092 9,318 10,034 9,794 9,952 10,135
Del Ranch 8,316 7,619 7,802 8,055 8,104 8,336
Leathers 9,088 9,682 10,959 9,695 10,248 10,477
Vulcan 5,974 6,090 6,424 6,476 6,213 6,382
Turbo Expander 843 872 892 915 934 952
------- ------- ------- ------- ------- -------
Total Expenses 100,630 102,133 105,827 106,507 107,977 109,072
Project Operating Income 243,289 258,623 271,139 278,662 277,978 281,957
PROJECT ROYALTY EXPENSES
Elmore 7,637 7,969 8,795 9,112 9,312 9,543
Del Ranch 7,457 8,065 8,587 8,897 9,018 9,318
Leathers 7,633 7,964 8,791 9,107 9,308 9,538
Vulcan 1,038 1,146 1,197 1,265 1,257 1,325
Turbo Expander 338 374 390 412 425 436
------- ------- ------- ------- ------- -------
Royalty Expenses 24,103 25,518 27,760 28,793 29,320 30,160
Cash After Royalty Payments 219,186 233,105 243,379 249,869 248,658 251,797
CAPITAL EXPENDITURES
Salton Sea Units I, II 2,822 140 677 779 717 155
Salton Sea Units III 4,778 232 1,409 244 1,190 256
Salton Sea Units IV 2,013 141 845 430 895 153
Salton Sea Units V 1,529 289 298 307 1,721 326
Minerals Extraction 241 248 255 263 271 279
Elmore 400 2,191 400 2,300 400 400
Del Ranch 2,404 1,586 1,631 1,672 3,759 1,757
Leathers 1,392 2,201 400 2,310 400 2,427
Vulcan 2,685 706 724 742 761 780
Turbo Expander 175 41 42 44 193 46
------- ------- ------- ------- ------- -------
Total Capital Expenditures 18,439 7,777 6,682 9,091 10,307 6,578
CONSTRUCTION EXPENDITURES
Salton Sea Units V 0 0 0 0 0 0
Minerals Extraction 0 0 0 0 0 0
Elmore 0 0 0 0 0 0
Del Ranch 0 0 0 0 0 0
Leathers 0 0 0 0 0 0
Vulcan 0 0 0 0 0 0
Turbo Expander 0 0 0 0 0 0
Interest During Construction 0 0 0 0 0 0
Financing Costs 0 0 0 0 0 0
------- ------- ------- ------- ------- -------
Total Construction Expenditures 0 0 0 0 0 0
FINANCING
Release of Bond Proceed from
Restricted Cash 0 0 0 0 0 0
Equity 0 0 0 0 0 0
------- ------- ------- ------- ------- -------
Total Financing 0 0 0 0 0 0
OTHER
Interest Income and Other Income 5,521 6,196 6,509 6,621 6,554 6,746
------- ------- ------- ------- ------- -------
Total Other 5,521 6,196 6,509 6,621 6,554 6,746
Cash Available for Debt Service 206,268 231,525 243,206 247,399 244,905 251,964
</TABLE>
B-51
<PAGE>
SALTON SEA FUNDING CORPORATION
PRO FORMA FINANCIAL PROJECTIONS
SCE HIGH AVOIDED COSTS
<TABLE>
<CAPTION>
1998 1999 2000 2001 2002
MAGMA CASH FLOW STATEMENT ----------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
MAGMA REVENUES
Cash from Projects 169,012 127,234 99,101 116,828 137,886
Monofill Revenues 1,000 1,000 1,000 1,000 1,000
Royalties from Elmore 13,731 3,348 3,771 4,240 4,265
Royalties from Del Ranch 13,331 2,964 3,649 3,767 4,157
Royalties from Leathers 12,106 12,437 3,555 4,010 4,031
Royalties from Vulcan 406 370 422 437 463
Royalties from Turbo Expander 0 0 83 109 114
Management fee from Salton Sea Units I, II 669 674 461 402 421
Management fee from Salton Sea Unit III 1,264 674 635 658 691
Other Royalties 25,000 0 0 0 0
------- ------- ------ ------- -------
Total Magma Revenues 236,519 148,701 112,676 131,451 153,027
MAGMA EXPENSES/OBLIGATIONS
Pollution Control Debt Interest 0 0 0 0 0
Pollution Control Debt Principal 0 0 0 0 0
Installment Obligations 1,101 137 137 0 0
Other 0 0 0 0 0
Debt Service Reserve LC Fees/Other 952 952 904 904 904
------- ------- ------- ------- -------
Total Magma Expenses/Obligations 2,053 1,089 1,041 904 904
Cash Available for Funding Corp Debt 234,466 147,611 111,636 130,548 152,123
CASH FLOW AVAILABLE FOR BOND PAYMENTS 1998 1999 2000 2001 2002
------- ------- ------- ------- -------
CASH FLOW FROM PROJECTS
Salton Sea Unit I & II 33,659 20,317 13,726 11,124 11,297
Salton Sea Unit III 41,224 18,193 13,659 14,542 19,250
Salton Sea Unit IV 18,645 20,604 22,241 23,330 25,539
Salton Sea Unit V 0 0 7,384 14,733 17,415
Minerals Extraction 0 0 4,818 15,231 19,212
Elmore 28,175 15,006 7,329 10,324 8,292
Del Ranch 23,178 9,335 7,267 8,395 12,133
Leathers 23,525 33,365 9,897 5,663 8,428
Vulcan (2,036) 6,725 10,724 10,164 12,594
Turbo Expander 0 0 2,056 3,322 3,727
------- ------- ------- ------- -------
Total Cash from Projects 166,371 123,545 99,101 116,828 137,886
OTHER REVENUE CASH FLOWS
Monofill Revenues 1,000 1,000 1,000 1,000 1,000
Royalties from Elmore 13,731 3,348 3,771 4,240 4,265
Royalties from Del Ranch 13,331 2,964 3,649 3,767 4,157
Royalties from Leathers 12,106 12,437 3,555 4,010 4,031
Royalties from Vulcan 406 370 422 437 463
Royalties from Turbo Expander 0 0 83 109 114
Management fee from Salton Sea Units I, II 669 674 461 402 421
Management fee from Salton Sea Unit III 1,264 674 635 658 691
Other Royalties 25,000 0 0 0 0
Bond Interest Income 2,641 3,689 0 0 0
------- ------- ------- ------- -------
Total Other Revenues 70,148 25,155 13,576 14,623 15,141
OTHER EXPENDITURES
Installments/Pollution Control Debt Service 1,101 137 137 0 0
Other 0 0 0 0 0
Debt Service Reserve LC Fees/Other 952 952 904 904 904
------- ------- ------- ------- -------
Total Other Expenditures 2,053 1,089 1,041 904 904
Net Cash Available For SSFC Debt Service 234,466 147,611 111,636 130,548 152,123
Interest (Series A/B/C) 23,583 19,094 16,667 15,596 13,996
Principal (Series A/B/C) 74,938 35,108 19,573 21,377 22,698
Interest (Series D/E) 7,933 5,810 4,362 4,040 3,944
Principal (Series D/E) 32,000 22,728 5,500 1,000 1,600
Interest (Series F) 0 0 10,739 21,280 21,128
Principal (Series F) 0 0 0 1,282 4,274
Project Debt Service 138,454 82,740 56,841 64,575 67,640
Project Debt Coverage 1.69 1.78 1.96 2.02 2.25
Minimum DCR (1999-2018) 1.78
Average DCR (1999-2018) 4.24
<CAPTION>
2003 2004 2005 2006 2007 2008
MAGMA CASH FLOW STATEMENT ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
MAGMA REVENUES
Cash from Projects 135,944 145,565 139,635 158,923 155,565 170,672
Monofill Revenues 1,000 1,000 1,000 1,000 1,000 1,000
Royalties from Elmore 4,696 4,751 5,202 5,259 5,830 5,924
Royalties from Del Ranch 4,284 4,602 4,752 5,104 5,333 5,758
Royalties from Leathers 4,449 4,500 4,938 4,990 5,544 5,631
Royalties from Vulcan 471 502 509 544 557 597
Royalties from Turbo Expander 114 124 100 109 114 125
Management fee from Salton Sea Units I, II 428 444 458 481 492 513
Management fee from Salton Sea Unit III 699 744 758 802 815 874
Other Royalties 0 0 0 0 0 0
------- ------- ------- ------- ------- -------
Total Magma Revenues 152,084 162,231 157,352 177,212 175,249 191,095
MAGMA EXPENSES/OBLIGATIONS
Pollution Control Debt Interest 0 0 0 0 0 0
Pollution Control Debt Principal 0 0 0 0 0 0
Installment Obligations 0 0 0 0 0 0
Other 0 0 0 0 0 0
Debt Service Reserve LC Fees/Other 904 904 904 904 904 904
------- ------- ------- ------- ------- -------
Total Magma Expenses/Obligations 904 904 904 904 904 904
Cash Available for Funding Corp Debt 151,181 161,327 156,449 176,309 174,346 190,191
CASH FLOW AVAILABLE FOR BOND PAYMENTS 2003 2004 2005 2006 2007 2008
------- ------- ------- ------- ------- -------
CASH FLOW FROM PROJECTS
Salton Sea Unit I & II 10,075 12,017 12,601 13,819 13,664 14,210
Salton Sea Unit III 16,520 21,443 21,402 23,552 23,004 25,870
Salton Sea Unit IV 25,163 26,772 26,895 24,273 22,507 22,607
Salton Sea Unit V 18,173 19,160 17,366 16,604 17,300 18,632
Minerals Extraction 20,416 22,421 26,020 33,015 28,708 27,000
Elmore 4,402 2,369 4,444 11,967 13,494 13,278
Del Ranch 12,584 13,661 12,037 14,747 15,389 16,139
Leathers 11,726 9,844 3,171 2,375 3,850 13,318
Vulcan 13,119 13,846 12,587 15,250 14,170 15,801
Turbo Expander 3,765 4,033 3,114 3,320 3,479 3,818
------- ------- ------- ------- ------- -------
Total Cash from Projects 135,944 145,565 139,635 158,923 155,565 170,672
OTHER REVENUE CASH FLOWS
Monofill Revenues 1,000 1,000 1,000 1,000 1,000 1,000
Royalties from Elmore 4,696 4,751 5,202 5,259 5,830 5,924
Royalties from Del Ranch 4,284 4,602 4,752 5,104 5,333 5,758
Royalties from Leathers 4,449 4,500 4,938 4,990 5,544 5,631
Royalties from Vulcan 471 502 509 544 557 597
Royalties from Turbo Expander 114 124 100 109 114 125
Management fee from Salton Sea Units I, II 428 444 458 481 492 513
Management fee from Salton Sea Unit III 699 744 758 802 815 874
Other Royalties 0 0 0 0 0 0
Bond Interest Income 0 0 0 0 0 0
------- ------- ------- ------- ------- -------
Total Other Revenues 16,141 16,666 17,717 18,289 19,684 20,423
OTHER EXPENDITURES
Installments/Pollution Control Debt Service 0 0 0 0 0 0
Other 0 0 0 0 0 0
Debt Service Reserve LC Fees/Other 904 904 904 904 904 904
------- ------- ------- ------- ------- -------
Total Other Expenditures 904 904 904 904 904 904
Net Cash Available For SSFC Debt Service 151,181 161,327 156,449 176,309 174,346 190,191
Interest (Series A/B/C) 12,323 10,626 8,471 7,150 5,462 3,766
Principal (Series A/B/C) 22,237 23,776 23,312 21,537 21,505 22,037
Interest (Series D/E) 3,782 3,528 3,253 2,984 2,776 2,548
Principal (Series D/E) 3,000 3,250 3,500 2,500 2,500 3,500
Interest (Series F) 20,835 20,609 20,343 20,074 19,826 19,613
Principal (Series F) 2,850 3,562 3,562 3,706 2,140 4,990
Project Debt Service 65,027 65,351 62,441 57,951 54,209 56,454
Project Debt Coverage 2.32 2.47 2.51 3.04 3.22 3.37
Minimum DCR (1999-2018)
Average DCR (1999-2018)
</TABLE>
B-52
<PAGE>
SALTON SEA FUNDING CORPORATION
PRO FORMA FINANCIAL PROJECTIONS
SCE HIGH AVOIDED COSTS
<TABLE>
<CAPTION>
2009 2010 2011 2012
MAGMA CASH FLOW STATEMENT ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
MAGMA REVENUES
Cash from Projects 165,860 182,556 187,759 208,263
Monofill Revenues 1,000 1,000 1,000 1,000
Royalties from Elmore 6,549 6,639 7,440 7,650
Royalties from Del Ranch 5,998 6,464 6,823 7,459
Royalties from Leathers 6,238 6,320 7,097 7,295
Royalties from Vulcan 611 656 678 737
Royalties from Turbo Expander 130 143 150 166
Management fee from Salton Sea Units I, II 531 561 577 607
Management fee from Salton Sea Unit III 898 956 980 1,067
Other Royalties 0 0 0 0
------- ------- ------- -------
Total Magma Revenues 187,815 205,295 212,504 234,245
MAGMA EXPENSES/OBLIGATIONS
Pollution Control Debt Interest 0 0 0 0
Pollution Control Debt Principal 0 0 0 0
Installment Obligations 0 0 0 0
Other 0 0 0 0
Debt Service Reserve LC Fees/Other 904 904 904 904
------- ------- ------- -------
Total Magma Expenses/Obligations 904 904 904 904
Cash Available for Funding Corp Debt 186,912 204,391 211,601 233,341
CASH FLOW AVAILABLE FOR BOND PAYMENTS 2009 2010 2011 2012
------- ------- ------- -------
CASH FLOW FROM PROJECTS
Salton Sea Unit I & II 15,071 16,363 16,491 17,532
Salton Sea Unit III 26,272 28,657 28,637 32,705
Salton Sea Unit IV 21,698 22,870 21,799 23,033
Salton Sea Unit V 18,839 21,472 23,251 25,313
Minerals Extraction 25,188 26,825 28,693 30,785
Elmore 12,153 13,601 15,305 16,638
Del Ranch 13,227 17,709 18,201 19,366
Leathers 13,479 12,925 12,382 15,892
Vulcan 16,060 17,758 18,372 21,864
Turbo Expander 3,871 4,376 4,628 5,134
------- ------- ------- -------
Total Cash from Projects 165,860 182,556 187,759 208,263
OTHER REVENUE CASH FLOWS
Monofill Revenues 1,000 1,000 1,000 1,000
Royalties from Elmore 6,549 6,639 7,440 7,650
Royalties from Del Ranch 5,998 6,464 6,823 7,459
Royalties from Leathers 6,238 6,320 7,097 7,295
Royalties from Vulcan 611 656 678 737
Royalties from Turbo Expander 130 143 150 166
Management fee from Salton Sea Units I, II 531 561 577 607
Management fee from Salton Sea Unit III 898 956 980 1,067
Other Royalties 0 0 0 0
Bond Interest Income 0 0 0 0
------- ------- ------- -------
Total Other Revenues 21,955 22,739 24,745 25,981
OTHER EXPENDITURES
Installments/Pollution Control Debt Service 0 0 0 0
Other 0 0 0 0
Debt Service Reserve LC Fees/Other 904 904 904 904
------- ------- ------- -------
Total Other Expenditures 904 904 904 904
Net Cash Available For SSFC Debt Service 186,912 204,391 211,601 233,341
Interest (Series A/B/C) 2,041 377 0 0
Principal (Series A/B/C) 21,876 9,630 0 0
Interest (Series D/E) 2,263 1,780 470 0
Principal (Series D/E) 3,250 13,500 11,322 0
Interest (Series F) 19,293 19,040 18,321 16,750
Principal (Series F) 2,138 7,124 17,100 32,774
Project Debt Service 50,861 51,451 47,213 49,524
Project Debt Coverage 3.67 3.97 4.48 4.71
Minimum DCR (1999-2018) 1.78
Average DCR (1999-2018) 4.24
<CAPTION>
2013 2014 2015 2016 2017 2018
MAGMA CASH FLOW STATEMENT ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
MAGMA REVENUES
Cash from Projects 206,268 231,525 243,206 247,399 244,905 251,964
Monofill Revenues 1,000 1,000 1,000 1,000 1,000 1,000
Royalties from Elmore 8,544 8,734 9,810 10,233 10,434 10,688
Royalties from Del Ranch 7,844 8,527 9,015 9,413 9,461 9,833
Royalties from Leathers 8,163 8,339 9,384 9,794 9,988 10,233
Royalties from Vulcan 761 826 857 782 754 795
Royalties from Turbo Expander 174 192 201 213 220 226
Management fee from Salton Sea Units I, II 633 674 695 724 713 699
Management fee from Salton Sea Unit III 1,106 1,189 1,223 1,288 1,311 1,337
Other Royalties 0 0 0 0 0 0
------- ------- ------- ------- ------- -------
Total Magma Revenues 234,492 261,006 275,392 280,845 278,787 286,776
MAGMA EXPENSES/OBLIGATIONS
Pollution Control Debt Interest 0 0 0 0 0 0
Pollution Control Debt Principal 0 0 0 0 0 0
Installment Obligations 0 0 0 0 0 0
Other 0 0 0 0 0 0
Debt Service Reserve LC Fees/Other 904 904 904 904 904 904
------- ------- ------- ------- ------- -------
Total Magma Expenses/Obligations 904 904 904 904 904 904
Cash Available for Funding Corp Debt 233,589 260,102 274,488 279,941 277,883 285,873
CASH FLOW AVAILABLE FOR BOND PAYMENTS 2013 2014 2015 2016 2017 2018
------- ------- ------- ------- ------- -------
CASH FLOW FROM PROJECTS
Salton Sea Unit I & II 16,162 20,238 20,784 21,533 21,334 21,623
Salton Sea Unit III 29,486 36,845 37,557 40,660 40,683 42,992
Salton Sea Unit IV 22,255 25,679 26,124 27,120 27,288 29,321
Salton Sea Unit V 26,101 29,639 32,096 33,331 32,706 35,038
Minerals Extraction 29,905 28,733 27,644 26,970 23,410 20,834
Elmore 18,996 19,154 22,354 21,914 24,367 24,835
Del Ranch 18,357 21,575 22,925 23,668 21,952 24,528
Leathers 18,560 18,320 20,955 21,557 23,614 21,952
Vulcan 21,155 25,352 26,424 23,926 22,735 23,684
Turbo Expander 5,291 5,989 6,344 6,720 6,817 7,158
------- ------- ------- ------- ------- -------
Total Cash from Projects 206,268 231,525 243,206 247,399 244,905 251,964
OTHER REVENUE CASH FLOWS
Monofill Revenues 1,000 1,000 1,000 1,000 1,000 1,000
Royalties from Elmore 8,544 8,734 9,810 10,233 10,434 10,688
Royalties from Del Ranch 7,844 8,527 9,015 9,413 9,461 9,833
Royalties from Leathers 8,163 8,339 9,384 9,794 9,988 10,233
Royalties from Vulcan 761 826 857 782 754 795
Royalties from Turbo Expander 174 192 201 213 220 226
Management fee from Salton Sea Units I, II 633 674 695 724 713 699
Management fee from Salton Sea Unit III 1,106 1,189 1,223 1,288 1,311 1,337
Other Royalties 0 0 0 0 0 0
Bond Interest Income 0 0 0 0 0 0
------- ------- ------- ------- ------- -------
Total Other Revenues 28,225 29,481 32,185 33,446 33,882 34,812
OTHER EXPENDITURES
Installments/Pollution Control Debt Service 0 0 0 0 0 0
Other 0 0 0 0 0 0
Debt Service Reserve LC Fees/Other 904 904 904 904 904 904
------- ------- ------- ------- ------- -------
Total Other Expenditures 904 904 904 904 904 904
Net Cash Available For SSFC Debt Service 233,589 260,102 274,488 279,941 277,883 285,873
Interest (Series A/B/C) 0 0 0 0 0 0
Principal (Series A/B/C) 0 0 0 0 0 0
Interest (Series D/E) 0 0 0 0 0 0
Principal (Series D/E) 0 0 0 0 0 0
Interest (Series F) 14,372 12,111 9,496 6,652 3,667 1,102
Principal (Series F) 28,928 34,200 37,334 40,184 39,188 19,664
Project Debt Service 43,300 46,311 46,830 46,836 42,855 20,766
Project Debt Coverage 5.39 5.62 5.86 5.98 6.48 13.77
Minimum DCR (1999-2018)
Average DCR (1999-2018)
</TABLE>
B-53
<PAGE>
APPENDIX C
THE SOUTHERN CALIFORNIA ELECTRICITY MARKET AND
PRICE FORECAST
1999 -- 2018
PREPARED FOR:
SALTON SEA FUNDING CORPORATION
SEPTEMBER 1, 1998
PREPARED BY:
HENWOOD ENERGY SERVICES, INC.
2710 GATEWAY OAKS WAY, SUITE 300N
SACRAMENTO, CA 95833
<PAGE>
TABLE OF CONTENTS
THE SOUTHERN CALIFORNIA
ELECTRICITY MARKET AND
PRICE FORECAST
1999 -- 2018
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
- --------- -----
<S> <C> <C>
EXECUTIVE SUMMARY ........................................... C-4
1 THE U.S. ELECTRIC POWER MARKET .............................. C-6
1.1 INTRODUCTION ................................................ C-6
1.2 FEDERAL LEGISLATIVE AND REGULATORY INITIATIVES .............. C-6
1.2.1 Public Utility Regulatory Policies Act -- 1978 .............. C-6
1.2.2 Energy Policy Act -- 1992 ................................... C-6
1.2.3 FERC Order 888 -- 1996 ...................................... C-6
1.3 CALIFORNIA LEGISLATIVE INITIATIVES .......................... C-7
1.3.1 Assembly Bill 1890 .......................................... C-7
2 THE CALIFORNIA WHOLESALE POWER MARKET ....................... C-7
2.1 THE MARKET 1998 AND BEYOND .................................. C-7
2.1.1 Market Size ................................................. C-8
2.1.2 Diversity of Energy Supply .................................. C-8
2.1.3 California Investor Owned Utilities ......................... C-9
2.1.4 Treatment of Qualifying Facilities (QFs) .................... C-9
2.2 CALIFORNIA MUNICIPAL UTILITIES AND AUTHORITIES .............. C-9
2.3 SYSTEM RELIABILITY .......................................... C-9
2.4 PX MARKET ................................................... C-10
2.4.1 PX Prices ................................................... C-10
2.4.2 Short Run Avoided Costs ..................................... C-10
2.5 PX PRICES AS A MEASURE OF AVOIDED COST ...................... C-11
3 PX PRICE FORECAST: KEY ASSUMPTIONS AND METHODOLOGY .......... C-12
3.1 MODELING METHODOLOGY & TECHNIQUES ........................... C-12
3.2 ASSUMPTIONS REGARDING THE CALIFORNIA MARKET TRANSITION
PERIOD ..................................................... C-12
3.3 KEY ASSUMPTIONS FOR MODELING CALIFORNIA MARKET .............. C-13
3.3.1 Forecast Horizon ............................................ C-13
3.3.2 Market Structure ............................................ C-13
3.3.3 Existing Resource Base ...................................... C-13
3.3.4 Resource Retirements ........................................ C-13
3.3.5 Generic Resource Additions .................................. C-13
3.3.6 Loads ....................................................... C-14
3.3.7 Load Shape .................................................. C-14
3.3.8 Load Growth ................................................. C-14
3.3.9 Inflation ................................................... C-14
3.3.10 Fuel Prices ................................................. C-14
</TABLE>
C-1
<PAGE>
<TABLE>
<CAPTION>
SECTION PAGE
- ----------- -----
<S> <C> <C>
3.3.11 Operations & Maintenance .......................................................... C-16
3.3.12 Property Taxes .................................................................... C-16
3.3.13 Insurance ......................................................................... C-16
3.3.14 Other Costs ....................................................................... C-16
3.4 WSCC TRANSMISSION SYSTEM CONFIGURATION ............................................ C-16
3.5 HYDRO POWER ....................................................................... C-17
3.5.1 Median Year Case .................................................................. C-17
3.5.2 Transactions ...................................................................... C-17
4 PX PRICE FORECAST: RESULTS ........................................................ C-18
4.1 BASE CASE 1999-2018 ............................................................... C-18
4.2 SENSITIVITY CASES ................................................................. C-19
4.2.1 Low Gas 1 Case .................................................................... C-19
4.2.2 Low Gas 2 Case .................................................................... C-19
5 THE POWER PROJECTS AND THE CALIFORNIA MARKET ...................................... C-20
5.1 MARKET ANALYSIS RESULTS ........................................................... C-20
5.2 PX PRICES AND THE MARKET POSITION OF THE POWER PROJECTS ........................... C-23
6 THE CALIFORNIA GREEN POWER MARKET AND ITS IMPLICATIONS
FOR THE NEW POWER PROJECTS ....................................................... C-24
6.1 CEC RENEWABLE RESOURCE FUNDING .................................................... C-24
6.2 EXISTING RENEWABLE RESOURCE ACCOUNT ............................................... C-24
6.3 NEW RENEWABLE RESOURCE ACCOUNT .................................................... C-25
6.4 EMERGING RENEWABLES ACCOUNT ....................................................... C-26
6.5 CONSUMER-SIDE INCENTIVES .......................................................... C-26
6.6 DISCUSSION OF GREEN POWER MARKET BENEFITS ......................................... C-26
LIST OF APPENDICES
A SCE SRAC Forecast ................................................................. C-28
LIST OF TABLES
Table 1 1996 Net System Power (Electric Generation) ....................................... C-8
Table 2 PX Prices from April 1 to July 31 1998 Average Weekly On-Peak, Average Weekly
Off-Peak, and Average of all hours in Week ($/MWh)................................ C-10
Table 3 Southern California Edison Annual Average Short-Run Avoided Costs of Energy As
Computed Using Transition Formula and HESI Projected Gas Prices .................. C-11
Table 4 Generic Resource Characteristics (1996 dollars) ................................... C-14
Table 5 PX prices expressed as MCPs in Nominal Dollars .................................... C-18
Table 6 PX Prices Under Low Gas Case 1 .................................................... C-19
Table 7 PX Prices Under Low Gas Case 2 .................................................... C-20
Table 8 Average operating costs by plant type in the WSCC from Prosym model simulation
year 2005 ........................................................................ C-21
Table 9 PX price frequency analysis in Southern California Transmission Area, 2005 ........ C-23
Table 10 AB 1890 Accounts -- Total Funding Allocations by Technology, $Millions............. C-24
Table 11 Existing Renewable Resource Account -- Allocations by Tier, $Millions ............. C-25
Table 12 New Renewable Resource Account -- Allocations by Year, $Millions................... C-25
</TABLE>
C-2
<PAGE>
<TABLE>
<CAPTION>
SECTION PAGE
- ---------- -----
<S> <C> <C>
LIST OF FIGURES
Figure 1 WSCC Transmission System Configuration ..................... C-17
Figure 2 PX Prices & Existing Project Operating Costs, Units I to IV C-22
Figure 3 PX Prices & Existing Project Operating Costs, Other Units .. C-22
Figure 4 PX Prices & New Project Operating Costs .................... C-23
</TABLE>
C-3
<PAGE>
EXECUTIVE SUMMARY
BACKGROUND
Salton Sea Funding Corporation (the "Funding Corporation") will issue
securities to finance, among other things, two new geothermal power plants --
Salton Sea V and the Region II TurboExpander (the "New Power Projects"), which
will have a combined net generation capacity of 59 MW. The New Power Projects
are located in the Salton Sea area of California. The financing will also
encompass further investment in eight existing geothermal units (the "Existing
Projects"), which sell power to Southern California Edison under Standard Offer
contracts authorized by the California Public Utilities Commission (the
"CPUC"). The New Power Projects and Existing Projects together comprise the
"Power Projects". The financing requires an in-depth assessment of the
regulatory issues and electric energy markets in California including
information on the structure and operation of the California market and an
assessment of the competitive position of the Power Projects in the market.
Henwood Energy Services, Inc (HESI) has developed an independent
assessment of (i) the wholesale electricity market in California for the 20
year period 1999 through 2018; (ii) the competitive position of the Power
Projects in the California market, and; (iii) the outlook for renewable energy
in the emerging Green Power market.
This assessment is presented in both quantitative and qualitative fashion
as listed below:
1. A brief description of the California wholesale electricity market.
2. The key assumptions used in assessing the market and as inputs into the
HESI Electric Market Simulation System.
3. Forecasts of average electricity prices in the California market and the
methodology to develop them. HESI used its proprietary Electric Market
Simulation System (EMSS) to produce the forecasts of market clearing
prices. The base case scenario was developed using assumptions developed
and tested by HESI. Two low gas price scenarios were developed to assess
the Power Projects'sensitivity to market prices.
4. A specific competitive assessment of the Power Projects on a stand-alone
basis using revenue and variable cost estimates generated by HESI.
5. An assessment of the Power Projects within the context of the competitive
market and how the Power Projects compare with other generators.
6. An assessment of the Green Power and renewable energy markets.
7. An analysis of the changes to Qualifying Facility (QF) payments, the
transition formula for calculating such payments, and forecasts of the
payments for the Power Projects.
Based on these analyses, our report contains the following conclusions:
1. Our Base Case forecast indicates that the Southern California annual Power
Exchange (PX) market clearing price (MCP) will increase from $28/MWh in
1999 to $50.31/MWh by 2018 in constant dollars -- which translates into an
average annual rate of increase of 2.92 percent over that period.
2. We expect all of the Power Projects to be low cost producers in all years
of the study. The annual average operating cost of the Power Projects in
2005 is $17.81/MWh making them low cost producers. In fact, about 66
percent of the electricity produced in the WSCC in 2005 -- the first year
of full competition -- is generated from units with higher costs, a strong
indication that the Power Projects will be dispatched as baseload. The new
units, Salton Sea Unit V and the TurboExpander, are even better positioned
at $10.30 and $9.50 per MWh respectively. Of all the generation in the
region, only hydroelectric generators have lower operating costs.
3. The annual average operating costs of the Power Projects, in $/MWh, are
below the annual average PX prices. In fact, the Power Projects' operating
costs are close to the off-peak PX price in 1999 through 2002 and
significantly below that in all years thereafter.
C-4
<PAGE>
4. The low-cost relationship between PX prices and Power Projects' operating
costs also prevails with the Low Gas Price downside sensitivity cases. In
these cases, the operating costs are well below the PX prices. The range of
annual average PX prices in the Low Gas Cases is $26.47/MWh in 2001 to
$46.95/MWh in 2018.
5. A significant finding of the study is that Salton Sea Unit V and the
TurboExpander will have operating costs lower than all other generator
types, except hydro, and will be extremely well-positioned to be dispatched
any hour in the year. These units' operating costs are about $20/MWh lower
than the PX prices from 1999 through 2001, a difference that increases to
$30/MWh in 2005 and to $40/MWh by 2018. The margin is so significant it is
extremely unlikely that any new significant capacity with lower operating
costs will be built.
6. We also find that the PX price will be greater than or equal to $20.30/MWh
in 96 percent of all hours in 2005. This means that the Power Projects,
with an average operating cost of $17.81/MWh, will be below the PX price in
each of those hours and will be dispatched accordingly.
7. The transition of short--run avoided cost determination to competitively
determined pricing, while subject to regulatory and market dynamics, is
expected to be complete by the beginning of 2000. We forecast the SRAC to
be $30.30/MWh in 1999 on an annual average basis.
8. In addition to being low cost producers, the Power Projects have the added
competitive advantage of being a renewable and environmentally preferred
(or "green") energy resource.
o Surveys indicate that 40 to 70 percent of California residential
consumers are willing to pay a 5 to 15 percent premium for green power
products. Current retail premiums for green power products range from
0.7 to 3.1 cents per kWh.
o California is a world leader in the promotion and development of
clean renewable energy and its energy consumers are environmentally
aware. While the traditional power utilities are cutting back on
renewable expenditures, the State of California has established a $543
million fund to subsidize existing and new sources of renewable
energy. HESI's analysis of the disbursement criteria and delivery
mechanisms, as well as CalEnergy's own demonstrated expertise in
acquiring such funds, all suggest that the Power Projects will derive
substantial benefits from generating clean and renewable energy.
C-5
<PAGE>
SECTION 1.0
THE U.S. ELECTRIC POWER MARKET
1.1 INTRODUCTION
The U.S. electric power industry is undergoing a profound transformation.
The industry is evolving from a vertically integrated and cost-regulated
monopoly to one that is market-based with competitive prices. The transition
began with the passing of the Public Utility Regulatory Policies Act (PURPA) in
1978, which made it possible for non-utility generators to enter the wholesale
power market. As a result, non-utility capacity additions grew 54 percent from
1990 to 1996 while utility capacity additions during the same period grew only
2 percent. The deregulation process is likely to continue at the state level
far into the next decade.
1.2 FEDERAL LEGISLATIVE AND REGULATORY INITIATIVES
This section briefly discusses the major federal legislation and
regulation that established a framework for electric power industry
deregulation and set the stage for further legislative initiatives at the state
level.
1.2.1 PUBLIC UTILITY REGULATORY POLICIES ACT -- 1978
PURPA is one of five bills signed into law on November 9, 1978, as part of
the National Energy Act. It is the only one remaining in force. Enacted to
combat the "energy crisis," and the perceived shortage of petroleum and natural
gas, PURPA requires utilities to buy power from non-utility generating
facilities that use renewable energy sources or "cogeneration," i.e. the use of
steam both for heat and to generate electricity. The Act stipulates that
electric utilities must interconnect with and buy, at the utilities' avoided
cost, the capacity and energy offered by any non-utility facility ("Qualifying
Facility") meeting certain ownership, operating and efficiency criteria
established by the Federal Energy Regulatory Commission (FERC).
1.2.2 ENERGY POLICY ACT -- 1992
The Energy Policy Act of 1992 (EPACT) opened access to transmission
networks and exempted certain non-utilities from the restrictions of the Public
Utility Holding Company Act of 1935 (PUHCA). EPACT therefore has made it even
easier for non-utility generators to enter the wholesale market for
electricity.
The Act also created a new category of power producers, called exempt
wholesale generators (EWGs). By exempting them from PUHCA regulation, the law
eliminated a major barrier for utility-affiliated and nonaffiliated power
producers wanting to compete to build new non-rate-based power plants. EWGs
differ from PURPA QFs in two ways. First, they are not required to meet PURPA's
utility ownership, cogeneration, or renewable fuels limitations. Second,
utilities are not required to purchase power from EWGs.
In addition to giving EWGs and QFs access to distant wholesale markets,
EPACT provides transmission-dependent utilities the ability to shop for
wholesale power supplies, thus releasing them -- mostly municipals and rural
cooperatives -- from their dependency on surrounding investor-owned utilities
for wholesale power requirements. The transmission provisions of EPACT have led
to a nationwide open-access electric power transmission grid for wholesale
transactions.
1.2.3 FERC ORDER 888 -- 1996
With the passage of EPACT, Congress opened the door to wholesale
competition in the electric utility industry by authorizing FERC to establish
regulations to provide open access to the nation's transmission system. FERC's
subsequent rules, issued in April 1996 as Order 888, is designed to increase
C-6
<PAGE>
wholesale competition in the nation's transmission system, remedy undue
discrimination in transmission, and establish standards for stranded cost
recovery. A companion ruling, Order 889, requires utilities to establish
electronic systems to share information about available transmission capacity.
1.3 CALIFORNIA LEGISLATIVE INITIATIVES
1.3.1 ASSEMBLY BILL 1890
The legislation that introduced electric power deregulation in California
is Assembly Bill 1890, which achieves a number of goals, including:
o An immediate 10 percent rate reduction for residential and small commercial
users.
o A new power market structure with an Oversight Board (OB), an Independent
System Operator (ISO) and a PX.
o Limits the amount of costs (e.g. stranded assets) that are recoverable in
the transition to a deregulated market.
o Preserves public programs supporting energy efficiency, research &
development and low-income households.
o Provides approximately $540 million in subsidies to support renewable
energy programs, including geothermal power generation, such as the Power
Projects.
SECTION 2.0
THE CALIFORNIA WHOLESALE POWER MARKET
In September 1996, the California legislature passed Assembly Bill 1890
("AB 1890") that deregulated parts of the electric power business in
California. The California market, originally scheduled to begin on January 1,
1998, was delayed to March 31, 1998. At that time, the PX and ISO began
operation. AB 1890 permits a fully competitive electric generation market to
phase in over a four-year transition period between January 1998 and March 2002
(the "Transition"). At the end of the Transition period, most of the
protections afforded California's investor owned-utilities (IOUs) for past
uneconomic investments and power contracts will be removed. It is anticipated
that, eventually, municipal utilities will also permit their retail customers
to enter into direct supply agreements with competitive power suppliers.
2.1 THE MARKET 1998 AND BEYOND
With deregulation, a steadily increasing percentage of customers will be
allowed to shop for power in an open market. Customers will have direct access
to generators. No longer restricted to buying power only from their local
utility company, they can freely select the power arrangement that suits their
preferences.
On March 31, 1998, the PX began operating the day-ahead energy market, a
wholesale market-clearing auction into which PX participants bid energy supply
and demand for each of the next day's 24 hours. On the same date, the ISO took
control of the electric grid, and began operating a complementary set of
competitive auctions. The ISO relies on these auctions to manage transmission
line congestion, to procure a portion of the needed ancillary services (for
reliability purposes), and to balance physical generation with load in real
time.
During the Transition, utilities are afforded the opportunity to recover
certain "stranded costs" for generation-related investments. These costs had
been previously authorized by the CPUC for inclusion in rates, but are not
likely to be recoverable through the prices that emerge in the competitive
market. The mechanism for this cost recovery is an unavoidable Competition
Transition Charge (CTC) assessed against all customers served by the
distribution system of California IOUs.
C-7
<PAGE>
2.1.1 MARKET SIZE
California's energy market is very large, with a non-coincident peak
energy demand of 51,280 MW1 in 1996 and total energy consumption of 245,900
GWh. The average retail cost of electricity is 9.4 \c/kWh (1996 $), with total
electric revenue accounting for over $20 billion. Peak demand for electricity
is forecast to reach 68,100 megawatts by 2015 -- a growth rate of 1.5 percent
per year between 1996 and 2015.
California's three largest IOU's -- PG&E, SCE, and SDG&E account for
188,470 GWh, or approximately 77 percent, of California's statewide energy
consumption.
2.1.2 DIVERSITY OF ENERGY SUPPLY
During the 1970s, over two-thirds of California's electricity was
generated from oil and natural gas. This decade, however, California has
developed a more diverse resource mix of electricity generation. As Table 1
shows, over half of the state's 258,801 gigawatt-hours of electricity
production is now met with non-fossil fuel sources. Further, over 11 percent of
power generation is fueled by renewable energy, mainly geothermal, small hydro
and biomass (but excluding large hydro).
California leads in developing new generation technologies. It has 40
percent of the world's geothermal power plants, 30 percent of the installed
wind capacity and 90 percent of the world's solar generation. The state also
leads the nation in the amount of electricity supplied by non-utility
generators.
Table 1 also shows that just over 32 percent of electricity generation is
supplied by natural gas. Because of its cheap price and clean-burning
characteristics, natural gas has become California's fuel of choice,
particularly for electricity generation. Demand for natural gas in 1990
exceeded 2,025 trillion cubic feet and one-third of California's electrical
energy is generated by natural gas. According to the California Energy
Commission, natural gas will account for 38 percent of energy used for power
generation by 2009.
TABLE 1
1996 NET SYSTEM POWER
(ELECTRIC GENERATION)
<TABLE>
<CAPTION>
FUEL TYPE GIGAWATT-HOURS PERCENT
- ------------------------------- ---------------- ----------
<S> <C> <C>
Coal * ...................... 40,283 15.6%
Large Hydro * ............... 64,958 25.1%
Natural Gas * ............... 84,110 32.5%
Nuclear ..................... 39,753 15.4%
Other(Oil, Diesel) .......... 693 0.3%
Biomass & Waste ............. 5,848 2.3%
Geothermal .................. 13,541 5.2%
Small Hydro ................. 5,767 2.2%
Solar ....................... 807 0.3%
Wind ........................ 3,041 1.2%
------ ----
Total ....................... 258,801 100%
======= ====
</TABLE>
- ----------
* Includes out of state imports.
Source: California Energy Facts, California Energy Commission
Natural gas pipeline capacity into California stood at about 8 BCF/day in
1996. Between 1990 and 1996, interstate pipeline capacity into California
increased by 65 percent. The major sources of new capacity during this period
were the Mojave, El Paso and Tuscarora pipelines.2
- ----------
1 "Electricity Report," California Energy Commission, August 1997.
2 Deliverability on the Interstate Natural Gas Pipeline System, Energy
Information Administration, May 1998.
C-8
<PAGE>
2.1.3 CALIFORNIA INVESTOR OWNED UTILITIES
As California's utility market moves toward free competition, over 17,800
MW of generating assets owned by IOUs have been sold, or will be in the near
future. However, despite this divestiture of generation resources, the IOUs are
expected to retain ownership and control of substantial nuclear, QF, and
hydropower generation in California and jointly owned thermal coal-fired
generation outside of California.
The IOUs also buy and sell power from each other, as well as engage in
transactions with other utilities in California and the surrounding Western
states. Each has assumed responsibility for matching load and resources to
maintain frequency, and matching scheduled and actual flows at the tie points
by which utilities are connected to other power producers. Because of their
obligation to serve within their service territories, they also developed
generation and demand forecasts, operated generating plants, and entered into
long-term procurement contracts for the fuel used to generate electricity. They
also participated in short- and long-term bilateral contracts for electric
power in order to meet changes in demand and demand growth, respectively.
2.1.4 TREATMENT OF QUALIFYING FACILITIES (QFS)
Qualifying Facilities are currently compensated under a Transition Formula
- -- the Short Run Avoid Cost (SRAC) -- that in its current form is tied directly
to changes in the price of natural gas. However, this relationship is not
likely to persist much longer. The CPUC, which has the regulatory authority to
determine SRAC, in Decision 96-12-028, stated its intention to change the
formula to one based on the PX price once certain conditions are satisfied.
These conditions are that the PX is functioning properly and that either the
IOUs have divested 90 percent of their gas-fired fossil generation, or the
fossil-fired generation units owned directly or indirectly by the IOUs are
recovering all of their going forward costs from PX based prices. HESI believes
these conditions will be met by the beginning of 2000.
2.2 CALIFORNIA MUNICIPAL UTILITIES AND AUTHORITIES
While it is anticipated that municipal utilities and other governmental
authorities will participate in the PX and ISO, there is no regulatory
requirement for them to do so. The largest municipal utilities are the Los
Angeles Department of Water and Power (LADWP) and the Sacramento Municipal
Utility District (SMUD), which in combination own or control over 15,000 MW of
generating resources. To date, they have not announced plans regarding their
participation nor have they submitted their transmission resources to ISO
control. The Imperial Irrigation District has also not as yet announced plans
to turn-over its transmission system to ISO control.
2.3 SYSTEM RELIABILITY
The ISO is the entity responsible for the security and operating
reliability of the statewide electric grid. In this function, the ISO will
adhere to the North American Electric Reliability Council (NERC) and Western
Systems Coordinating Council (WSCC) standards for reliable operation.
In the near term, the new market is designed to accommodate this
centralized, third-party control structure through the combined use of two
mechanisms. One is the ISO-conducted, competitive auction for eligible
ancillary services, such as operating (spinning and non-spinning) reserve,
replacement reserve, and regulation capacity that can be controlled
electronically by the ISO.
The other mechanism available to the ISO for procurement of generating
services is the use of long-term contracts with generating facilities that are
designated as "reliability must-run" facilities. As with the ancillary service
auction, the ISO will use reliability must-run contracts to obtain operating
reserve, replacement reserve, "black start" capability, voltage support, and
regulation capacity. The prices established in these must-run contracts are
unrelated to PX market prices. Instead, they are based on the actual costs of
the generating units under contract. Most of the IOU-owned generators in
California were declared must-run by their owners. The ISO will examine each
must-run contract during the Transition and retain those required for system
reliability. The ISO's use of must-run contracts through the Transition period
was authorized by AB 1890. Service procured under must-run contracts will be
replaced by those procured competitively after the end of the AB 1890-specified
Transition period.
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<PAGE>
2.4 PX MARKET
The PX is responsible for managing the transactions for all power
auctioned through, and purchased by, market participants except those bound by
contract. It was mandated by AB 1890 and set-up as a private, non-profit
corporation subject to regulation by FERC. The different auctions include: the
Day-ahead Market, Hour-ahead Market, Real-time Market, and an Ancillary
Services Market.
The day-ahead market is the most forward-looking of the scheduled markets,
and is the largest in terms of total volume. It will give participants the
opportunity to buy and sell energy for each hour of the 24-hour trading day on
a day-ahead basis.
The hour-ahead market is also a forward-looking, scheduled market, but its
scale is much smaller in terms of both ahead-time and total volume. It will
give participants the opportunity to adjust their schedules two hours before
the hour of operation.
The real-time market is dramatically different from the scheduled
day-ahead and hour-ahead markets, in that it is not forward-looking. Rather, it
seeks to balance the real-time differences actually experienced between
scheduled and metered values for load and generation.
2.4.1 PX PRICES
The first four months of California PX prices, from April 1 through July
31, are displayed in Table 2 below. It displays the on-peak and off-peak
averages for each week in the first four months of operation.
TABLE 2
PX PRICES FROM APRIL 1 TO JULY 31 1998
AVERAGE WEEKLY ON-PEAK, AVERAGE WEEKLY OFF-PEAK, AND
AVERAGE OF ALL HOURS IN WEEK ($/MWH)
<TABLE>
<CAPTION>
WEEK ON-PEAK OFF-PEAK AVERAGE
- ------------------------ --------- ---------- ----------
<S> <C> <C> <C>
4/1 - 4/5 ............ 24.00 17.44 21.19
4/6 - 4/12 ........... 23.32 19.70 21.76
4/13 - 4/19 .......... 27.44 21.22 24.77
4/20 - 4/26 .......... 25.82 16.44 21.79
4/27 - 5/3 ........... 24.36 10.46 18.38
5/4 - 5/10 ........... 18.74 8.08 14.15
5/11 - 5/17 .......... 14.02 4.83 10.06
5/18 - 5/24 .......... 19.12 7.90 14.30
5/25 - 6/1 ........... 10.98 4.38 8.15
6/2 - 6/8 ............ 12.78 4.25 9.11
6/9 - 6/15 ........... 8.50 5.07 7.03
6/16 - 6/22 .......... 21.50 9.08 16.16
6/23 - 6/29 .......... 18.43 8.22 14.04
6/30 - 7/5 ........... 18.86 9.89 15.00
7/6 - 7/12 ........... 35.27 25.78 31.19
7/13 - 7/19 .......... 46.36 25.45 37.37
7/20 - 7/26 .......... 38.21 24.76 32.43
7/27 - 7/31 .......... 54.38 29.50 43.68
</TABLE>
2.4.2 SHORT RUN AVOIDED COSTS
All QFs are compensated on the basis of the SRAC of the IOU purchasing the
power. The Power Projects QFs currently receive payment under the SRAC
"Transition Formula" for Southern California Edison (SCE). This "formulaic"
SRAC is a linear function of the price of natural gas as measured at the
"California Border". Table 3 below presents a forecast of annual average SRAC
as computed pursuant to the existing SRAC Transition Formula for SCE. The gas
prices used to make this calculation are the same as the gas prices used in the
HESI model to produce the forecast of PX prices.
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<PAGE>
TABLE 3
SOUTHERN CALIFORNIA EDISON ANNUAL AVERAGE SHORT-RUN
AVOIDED COSTS OF ENERGY AS COMPUTED USING TRANSITION
FORMULA AND HESI PROJECTED GAS PRICES
<TABLE>
<CAPTION>
PRICE OF GAS SHORT-RUN
YEAR ($/MMBTU) AVOIDED COST ($/MWH)
- ---------------- -------------- ---------------------
<S> <C> <C>
1999 ......... 2.30 30.30
2000 ......... 2.32 31.12
2001 ......... 2.34 31.19
</TABLE>
While the SRAC is projected through 2001, we believe PX pricing will
replace SRAC pricing as early as the start of 2000.
SCE's 1995 forecast of avoided costs of energy is included in Appendix A
for comparison purposes, containing low, medium, and high forecasts.
2.5 PX PRICES AS A MEASURE OF AVOIDED COST
The SRAC Transition Formula is expected to be in effect until several
conditions are met. One is the divestiture by California IOUs of their
California fossil-fired generation, a process expected to be completed in the
next twelve months for all major utilities. The other is a determination by the
CPUC that the PX market is "functioning properly." Currently PX operations are
being gradually phased in. Once complete, the CPUC will likely wait at least
several more months before determining the PX is functioning properly, a
determination which could be subject to several months of regulatory delay.
However, if PX market prices are substantially below transition SRAC prices,
utilities will be motivated to seek a change in SRAC pricing through the CPUC
more quickly. PX trading prices through June 1998 were substantially lower than
SRAC payments, a situation that was reversed in July. HESI's market price
forecasting supports the notion that the trend of annual average PX prices
being lower than SRAC will likely continue through the Transition years
(1999-2001) of California restructuring.
Given the above considerations, the change from Transition Formula to PX
pricing should occur at the beginning of Year 2000.
C-11
<PAGE>
SECTION 3.0
PX PRICE FORECAST: KEY ASSUMPTIONS AND METHODOLOGY
3.1 MODELING METHODOLOGY & TECHNIQUES
To develop a forecast of PX market clearing prices for the Southern
California Transmission Area, simulation of the entire Western Systems
Coordinating Council (WSCC) electrical system was required. Such a simulation
requires a vast amount of data regarding power plants, fuel prices,
transmission capability and constraints, and customer demands.
HESI utilizes its proprietary Electric Market Simulation System (EMSS) and
its MULTISYM (Trade Mark) production cost model to simulate the operation of
the WSCC. EMSS is a sophisticated application of relational database
technology, which operates in conjunction with a state-of-the-art, multi-area,
chronological, production simulation model. It is used to manage the tens of
thousands of individual data points necessary to properly characterize the WSCC
electric system for the forecast.
The types of data managed by the EMSS database include the data necessary
to correctly consider the configuration of the regional transmission system.
This includes:
o individual power plant characteristics;
o transmission line interconnections, ratings, losses, and wheeling rates;
o forecasts of resource additions and fuel costs; and
o forecasts of loads for each utility in the region.
MULTISYM (Trade Mark) simulates the operation of the individual
generators, utilities and control areas (also referred to as transmission
areas) within the region, taking into consideration various system and
operational constraints. Output from the simulation is generated in hourly,
station-level detail and provided in database format. This data may then be
aggregated and sorted for any level of aggregation required by the user.
3.2 ASSUMPTIONS REGARDING THE CALIFORNIA MARKET TRANSITION PERIOD
It is assumed during the Transition period that the market will consist of
a limited number of generators that will be required to operate competitively
in the market. AB 1890-mandated regulatory Must-Take generation and regulatory
Must-Run contracts provide for the continuation of capacity payments through
Transition. Must-Take includes power from QF resources -- including the
Existing Power Projects -- nuclear units, and existing purchase power
agreements that have minimum-take provisions, is not subject to competition and
will be scheduled with the ISO on a must-take basis. Must-Run contracts are
between IOU generators and the ISO for the purposes of system reliability and
provide a capacity payment to the owners during all, or part, of the
Transition.
Must-Take units owned by municipal and public power agencies are assumed
to continue operating as they did in the past. Other Must-Take units, like QFs,
will continue to operate under existing contracts.
Units identified on the ISO's must-run list will end up with one of three
types of Must-Run contracts -- A, B, or C. This study assumes that most
Must-Run contracts will be Must-Run "B" which allows the generators to cover
its fixed costs of operation through the ISO's payment. Those units that do not
sign the "B" contract and remain on an "A" contract will generally be those
that are must-run or follow load, like hydroelectric. There will be few
Must-Run "C" contracts which dedicate the units to the ISO in exchange for full
cost recovery but do not allow the unit to bid independently into the market.
The ISO has the right to terminate any must-run contract it deems unnecessary
with a 90 day notice.
Since a majority of the generating units both inside and outside of
California will generally continue to bid to the PX just above their variable
cost of production until the end of the AB 1890 specified Transition period, we
assume that the PX closely resembles a variable cost pool in the near term. At
the end of the Transition period, fixed costs will also be recovered through
the PX. Thus, a relatively small number of units will be exposed to full
competition during the Transition period.
C-12
<PAGE>
We have forecasted the Must-Run contracts to impact the market through the
end of 2001 by putting downward pressure on PX prices. The Must-Run contract
payments cover much of the generators' costs by allowing fixed costs to be
recovered through the ISO. Thus, generators will not require higher PX prices
to recover their fixed costs. When the contracts terminate during, or at the
end of, the Transition period, all generators will be required to recover their
costs through normal, competitive trading activities. The model takes into
account the phasing out of the Must Run contracts in the Transition period,
resulting in an increase in PX prices.
3.3 KEY ASSUMPTIONS FOR MODELING CALIFORNIA MARKET
3.3.1 FORECAST HORIZON
The forecast period covers a twenty-year period beginning January 1, 1999
and ending December 31, 2018.
3.3.2 MARKET STRUCTURE
It is assumed that all generators in the WSCC, except a few in California
that were not declared Must Run, receive some payment for capacity through
2001, the end of the Transition period specified in AB 1890. From 2002 through
2018 there are no capacity payments to the California generators. We assume
non-California generators will continue to operate with regulated tariffs and
capacity payments from 2002 through 2004. We believe the market will become
fully competitive by 2005 and, from that point forward, all generators will
need to recover capacity costs through the market.
3.3. EXISTING RESOURCE BASE
All existing generation units within the WSCC are included in the
analysis. HESI's database contains information regarding all such units and
their performance characteristics. This data has been updated to reflect the
most recent filings made by utilities regarding their resources. Much of this
data was taken from the "OE-411" and is current as of January 1, 1997.
Generation resource data were also supplemented by a review of specific utility
resource plan filings and reports generated by state agencies. Existing
resources are assumed to continue operating through the forecast horizon,
except for those resources that have specific retirement dates or assumed
retirements.
3.3.4 RESOURCE RETIREMENTS
We have conservatively estimated the retirements to be only those publicly
announced, except in the case of the nuclear units. Recent CPUC decisions on
rate recovery allow California utilities to recover investments in nuclear
plants on an accelerated schedule. Investments in Diablo Canyon and Palo Verde
will therefore be fully recovered by the end of 2001 and San Onofre by the end
of 2003. After this special rate treatment period ends, these plants must
compete individually. All costs will have to be recovered in the competitive
energy market. HESI believes that Diablo Canyon and San Onofre will not be
competitive in the new environment and so will be shut down shortly after their
investments are recovered, in 2001 and 2003 respectively. Palo Verde is assumed
to operate throughout the forecast period.
3.3.5 GENERIC RESOURCE ADDITIONS
HESI believes that gas-fired combined cycle units (CC) and gas-fired
combustion turbines (CT) will be added as needed to meet the projected increase
in customer demand over the forecast period. HESI's analysis assumes that
generation resources will be added over the forecast period in a 3 CC MWs to 1
CT MW ratio for all trans-areas.
C-13
<PAGE>
Table 4 lists the cost and performance assumptions for these resources.
TABLE 4
GENERIC RESOURCE CHARACTERISTICS (1996 DOLLARS)
<TABLE>
<CAPTION>
COMBUSTION COMBINED
UNIT CHARACTERISTIC TURBINE CYCLE
- ---------------------------------------------- ------------ ---------
<S> <C> <C>
Capacity (MW) ......................... 120 240
Heat Rate (Btu/kWh) ................... 11,000 7,100
Fixed O&M ($/kW- year) ................ 3.00 10.00
Variable O&M (dollars/MWh) ............ 4.00 2.00
Forced Outage Rate (%) ................ 0.00 2.00
Maintenance Outage Rate (%) ........... 4.00 4.00
Capital Cost ($/kW) ................... 300.00 500.00
Cost of Money (%) ..................... 10% 10%
Capital Amort. Period (years) ......... 15 15
</TABLE>
3.3.6 LOADS
HESI is using the latest available data to project future customer demand
and energy requirements. This data was filed electronically by the utilities
with the Federal Energy Regulatory Commission (FERC) early in 1997, and
represents each utility's most recent recorded historic loads and their most
recent load forecast data. HESI has used data approved by the California Energy
Commission in its 1996 Electricity Report for the California utilities.
3.3.7 LOAD SHAPE
The load shape is based on recent historic load data filed with the FERC
by utilities which reflects their complete hourly loads over calendar years
1993 through 1996. HESI has used these load shapes to create a load shape
consistent with the load forecasts provided by utilities. These "synthetic"
load shapes are used to project the shapes of future utility loads based on the
load growth data described in section below.
3.3.8 LOAD GROWTH
Based on the load forecasts filed with the FERC in 1996 under Form 714 and
on more recent information filed to state regulatory agencies, including
California ER96, peak demand and energy requirements for the entire WSCC are
expected to both grow at less than 2 percent per year through the study.
3.3.9 INFLATION
General inflation drives a number of cost elements that underlie power
market prices including Operations and Maintenance (O&M) costs, the cost of new
resource additions, and is combined with expectations of real escalation to
result in future fuel prices. For this study inflation was assumed to be 2.5
percent.
3.3.10 FUEL PRICES
There are two principal fuels that drive electricity prices in the WSCC
region -- natural gas and coal.
NATURAL GAS
The natural gas price forecast utilized in this study was developed based
on the price of gas futures contracts for the 1999 period and estimates of gas
transportation costs associated with moving gas from the relevant gas basin to
the power plant. Each power plant in EMSS is assigned a fuel group. Each fuel
group is comprised of two components: a commodity price and a gas
transportation price.
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<PAGE>
Gas Commodity Prices
Gas Commodity prices are tied to the San Juan basin in the southwest and
to the AECO C Hub in Canada, the two main gas-producing basins in the WSCC
region. The price of a series of gas futures contracts for gas delivered to the
San Juan Basin was used as the basis for the study's southwest gas basin price.
Gas basin prices at the AECO C Hub were based on forward gas futures at Henry
Hub plus the price of a financial swap tying Henry Hub prices to the AECO C
Hub. Although generators within the WSCC often use gas from more than one of
these basins, it is assumed that only one gas basin will set the key marginal
gas price for each generator. Each gas basin is mapped to generation regions
within the WSCC as discussed below:
San Juan
This basin is assumed to be the dominant gas basin supply generating
stations in the New Mexico, southern Nevada, Arizona, and California.
Additional pipeline and Local Distribution Company (LDC) charges must be added
to the San Juan price to yield the delivered price of gas to each generating
unit.
Alberta
This basin is assumed to supply generating stations within Alberta; the
same gas price is also applied to generators in British Columbia. Alberta gas
is also assumed to supply electric generators located in the following states:
Washington, Oregon, Idaho, Montana, Wyoming, Utah, and Northern Nevada. Again,
gas transportation costs are added to yield the gas prices to generators in
those states.
Gas Transport Prices
Pipeline transportation costs are added to basin prices to determine
Citygate gas prices. The gas transportation price is a combination of gas
pipeline charges and the cost to move gas across a gas LDC. In many areas,
Citygate prices are the relevant marginal gas costs used by electric generators
to "dispatch" their electric systems, either because the generation owners
receive service directly from pipelines or pay only nominal additional charges
to an LDC. In other areas, additional charges for intrastate or LDC
transportation must be added to yield the dispatch price of gas. These costs
are based on the difference in historic Citygate and basin prices.
Additionally, the monthly price profile of the referenced basin's natural gas
futures contract is used to approximate the seasonality of the gas
transportation price.
Local Distribution Company Charges
For those generators with gas delivered by an LDC, additional charges must
be added. These charges were again estimated using data developed from relevant
regulatory filings and other publicly available company information. The key
generators receiving LDC gas service are California's electric generators. The
LDC charges for each of these were estimated using 1996 charges. These charges
were assumed to remain flat in nominal terms through the study horizon, based
on data that has been published by the California Energy Commission. HESI
assumes the utilities will not continue their current practice of recognizing
only a small portion of their total transportation costs in their dispatch
decisions; rather, the utilities will likely recognize their average
transportation cost in each dispatch decision, or run the risk of substantial
under-recovery of their transportation costs.
Total Gas Costs
The total cost of gas for each "gas price region" within the WSCC is
developed by combining the above costs to yield a forecast of delivered gas
prices.
COAL
HESI bases its coal prices on historic power plant specific coal price
data extracted from the "Form 423's" utilities regularly file with the FERC.
The Form 423 data include historic consumption as well as both spot and average
(transportation and so-called fixed fees included) prices. Given the
competitive
C-15
<PAGE>
nature of fuel supply markets and the current pricing of coal relative to gas,
HESI expects no coal price escalation through the forecast period. HESI used
spot coal prices to simulate the economic operation of coal plants. Spot prices
are historically about 77 percent of average prices.
3.3.11 OPERATIONS & MAINTENANCE
Power plant specific non-fuel O&M costs are reported by utilities in
annual reports to the FERC in a number of separate accounts. HESI averages
these data for the 1991 through 1995 time periods (normalized for constant year
dollars) to develop average starting O&M costs. The amounts in these various
accounts are then allocated between fixed and variable O&M. To derive a unit's
fixed O&M cost, the total O&M cost is decreased by the variable O&M cost
component. Both fixed and variable O&M costs are assumed to escalate with
inflation.
3.3.12 PROPERTY TAXES
Property taxes are set by local jurisdiction and so vary throughout the
WSCC. In California they are 1.09 percent of remaining generation station book
value. In other jurisdictions, the rates range from 0.4 percent to
approximately 4 percent. For purposes of establishing the property tax
component of going forward costs, jurisdictional tax rates will be used.
3.3.13 INSURANCE
Insurance is calculated as 0.2 percent of the remaining, undepreciated
book value of the power plant.
3.3.14 OTHER COSTS
In addition to fuel costs, a power plant operator experiences other costs
associated with the on-going business of producing power. These costs include
O&M, property taxes and insurance. For the most part, these costs can be
avoided if a facility is "mothballed" or retired, and thus are included in
power plant bids when performing competitive market analysis.
3.4 WSCC TRANSMISSION SYSTEM CONFIGURATION
In order to perform a study of the Southern California market prices
likely to result from the PX, the operation of the transmission system in the
entire WSCC region must be modeled. The transmission system configuration for
this study is shown in Figure 1. This characterization reflects the zones
proposed by the California IOUs in their PX applications to FERC.
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<PAGE>
FIGURE 1
WSCC TRANSMISSION SYSTEM CONFIGURATION
[GRAPHIC OF WSCC TRANSMISSION SYSTEM CONFIGURATION OMITTED]
3.5 HYDRO POWER
3.5.1 MEDIAN YEAR CASE
HESI utilized average or median hydro conditions depending on the WSCC
sub-region and the data available. The sources for these data follow.
PACIFIC NORTHWEST (PNW) HYDRO DATA
The hydroelectric generation in the PNW accounts for almost half of the
hydro generation in the entire WSCC. HESI used the Bonneville Power
Administration's (BPA) 1996 Pacific Northwest Loads and Resources Study to
update hydroelectric data in the PNW. HESI calculated monthly capacity and
energy values for each hydroelectric station in the PNW based on this data,
choosing the median conditions from a recorded database of 50 years.
HYDRO DATA FOR OTHER REGIONS
Hydro data for the other regions come from a number of sources and are
updated periodically by HESI.
The WSCC Coordinated Bulk Power Supply Program document was used for the
majority of the plant capacity data for plants outside the Northwest. This
document is the WSCC's response to the Department of Energy's Form OE-411. It
includes summer and winter capacity ratings for all of the existing hydro and
thermal resources in the WSCC.
The McGraw Hill Electrical World Directory of Electric Utilities (The
"Bluebook") was the source of hydro plant energy data in a number of the WSCC
regions.
3.5.2 TRANSACTIONS
HESI incorporates known firm, contracted power transactions into its
model, as reported by the WSCC in the annual FERC Form OE-411 Filing. The
transactions are reflected in the load requirements
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<PAGE>
of the buying and selling utilities, in transactions between regions, and by
adjusting the transmission capacity. Any remaining transmission capacity is
used to facilitate additional power transactions between regions.
SECTION 4.0
PX PRICE FORECAST: RESULTS
The following sections summarize the model results from the Base Case and
the two Low Gas price sensitivity cases. Gas prices are sensitized due to the
fact that gas-burning generators will continue to be marginal cost producers
and therefore a major influence on the PX price. Any additional baseload
capacity, including the New Power Projects, would be low cost producers and
price takers. Additional intermediate capacity will need to be flexible enough
to accommodate hourly load fluctuations. The gas-fired combined-cycle and
combustion turbines are the most flexible technologies to meet these needs
cost-effectively. The role of these units and the impact of gas prices in
setting the PX prices will increase over time making gas the ideal input to
vary for sensitivity. To test this sensitivity two gas price downside cases are
developed as described in the sections below.
TABLE 5
PX PRICES EXPRESSED AS MCPS IN NOMINAL DOLLARS
<TABLE>
<CAPTION>
ANNUAL AVERAGE AVERAGE
AVERAGE OFF-PEAK ON-PEAK
YEAR MCP $/MWH MCP $/MWH MCP $/MWH
- -------- ----------- ----------- ----------
<S> <C> <C> <C>
1999 28.31 23.18 33.94
2000 28.19 23.49 33.42
2001 28.16 22.71 34.16
2002 33.99 26.73 41.98
2003 35.23 27.79 43.43
2004 36.82 28.80 45.65
2005 40.09 30.97 50.14
2006 39.91 31.02 49.68
2007 40.19 31.02 50.30
2008 43.05 32.17 55.02
2009 42.04 31.77 53.35
2010 43.48 33.03 54.99
2011 43.48 33.08 54.93
2012 43.26 33.10 54.45
2013 45.70 34.37 58.18
2014 45.89 34.95 57.93
2015 47.57 35.87 60.46
2016 47.79 35.67 61.12
2017 49.16 36.78 62.79
2018 50.31 37.19 64.75
</TABLE>
4.1 BASE CASE 1999-2018
The Base Case annual average PX prices for the Southern California
transmission area are listed in Table 5.
The PX prices decrease at an annual average of 0.18 percent each year from
1999 through 2001. This is the Transition period in which most market players
bid selling prices into the market which reflect their short run marginal fuel
costs. During this period, most IOU-owned generators receive payments for
capacity from the ISO Must Run contracts, if in California, or through
traditional tariffs, if outside of California. The capacity payments cease for
most ISO-contracted Must Run generators by the end of 2001.
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<PAGE>
After the AB 1890 Transition period ends in March 2002, the power pool
should cease to behave as a marginal cost pool. We believe California
generators will begin to recover some, though not all, of their fixed costs
through their sales through the PX. However, they will continue to compete with
out-of-state generators that continue to receive capacity payments through
their regulated rates and may continue to bid as if the PX was a marginal cost
pool. This change is reflected in the average PX price increase from $28.16/MWh
in 2001 to $33.99/MWh in 2002.
The average PX prices from 2002 through 2004 increase at an annual average
rate of 2.7 percent. During this period the California generators are exposed
to the competitive market but their out-of-state competitors continue to
receive capacity payments.
We assume that the entire WSCC will be competitive starting in 2005 and
that the bidding behavior of generators reflects their efforts to recover fixed
costs through sales to the PX. The PX price increases from $36.82/MWh in 2004
to $40.09/MWh in 2005.
4.2 SENSITIVITY CASES
4.2.1 LOW GAS 1 CASE
In the Low Gas Case 1, the inflation rate was set to zero keeping the gas
price flat relative to the Base Case. The gas price decreases each year to the
point it is 10 percent below the Base Case. It was held at a constant 10
percent below the Base Case gas price in all remaining years of the analysis.
This low gas scenario, while unlikely, could occur if there was an oversupply
of gas, for which there was no market, followed by a lengthy period of recovery
and market demand.
A total of 6 simulations, representing the sample years listed in Table 6,
were run to calculate the annual average PX prices for those years (intervening
years can be interpolated).
TABLE 6
PX PRICES UNDER LOW GAS CASE 1
<TABLE>
<CAPTION>
BASE CASE LOW GAS 1 PERCENT
SAMPLE ANNUAL AVE ANNUAL AVE BELOW BASE
YEAR MCP $/MWH MCP $/MWH CASE PRICE
- -------- ------------ ------------ -----------
<S> <C> <C> <C>
2000 28.19 27.92 1.0
2001 28.16 27.86 1.1
2005 40.09 38.70 3.5
2010 43.48 40.25 7.4
2014 45.89 42.89 6.5
2018 50.31 46.95 6.7
</TABLE>
4.2.2 LOW GAS 2 CASE
In the Low Gas Case 2, a third gas price forecast is developed. The Base
Case gas price forecast is reduced by three percent each year from 1999 through
2004, so that by 2004 the gas price is 15 percent below the Base Case forecast
gas price. The Low Gas 2 gas price is then held at a constant 15 percent below
the Base Case gas price for the remaining years of the analysis. This scenario
also requires an oversupply of gas or a dramatic decline in demand followed by
a lengthy period of recovery.
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<PAGE>
A total of 6 simulations, representing the sample years listed in Table 7,
were run to calculate the annual average PX prices for those years.
TABLE 7
PX PRICES UNDER LOW GAS CASE 2
<TABLE>
<CAPTION>
BASE CASE LOW GAS 2 PERCENT
SAMPLE ANNUAL AVE ANNUAL AVE BELOW BASE
YEAR MCP $/MWH MCP $/MWH CASE PRICES
- -------- ------------ ------------ ------------
<S> <C> <C> <C>
2000 28.19 27.23 3.4
2001 28.16 26.47 6.0
2005 40.09 35.58 11.0
2010 43.48 38.47 12.0
2014 45.89 39.98 13.0
2018 50.31 43.31 14.0
</TABLE>
SECTION 5.0
THE POWER PROJECTS AND THE CALIFORNIA MARKET
5.1 MARKET ANALYSIS RESULTS
This section presents an analysis of the Power Projects and their position
in the competitive California market consisting primarily of a comparison of
unit operating cost estimates, provided by the Funding Corporation and reviewed
by Fluor Daniel, to operating costs of other types of generation, and to PX
price forecasts. Comparisons were done for the Base Case and two Low Gas price
cases for each of the units.
We expect all of the Power Projects to be low cost producers in all years
of the study. Table 8 lists the average operating costs projected in 2005 for
several categories of generators in the WSCC region including the Power
Projects. We selected the year 2005 for this analysis as it is the first year
in which we assumed a fully competitive market. The annual average of the Power
Projects in 2005 is $17.81/MWh making them low cost producers. In fact, about
66 percent of the electricity produced in the WSCC in 2005 is generated from
units with higher costs, a strong indication that the Power Projects will be
dispatched as baseload. The new units, Salton Sea Unit V and the TurboExpander,
are even better positioned at $10.30 and $9.50 per MWh respectively. Of all the
generation in the region, only hydroelectric generators have lower operating
costs.
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<PAGE>
TABLE 8
AVERAGE OPERATING COSTS BY PLANT TYPE IN THE WSCC FROM PROSYM MODEL SIMULATION
IN 20051
<TABLE>
<CAPTION>
ELECTRICITY AVERAGE OPERATING
PLANT TYPE GENERATION (GWH) COST ($/MWH)2
- -------------------------------------------- ------------------ ------------------
<S> <C> <C>
Internal Combustion Engines ......... 62 62.22
Gas Turbine ......................... 26,177 39.94
Geothermal 3 ........................ 18,890 37.49
Gas/Cogeneration .................... 21,917 26.85
Gas/Combined Cycle .................. 151,804 25.41
Other Renewables 4 .................. 6,737 23.29
Steam Plants ........................ 335,527 18.21
THE POWER PROJECTS 5 ................ 2,868 17.81
Nuclear ............................. 35,885 13.33
Wind ................................ 3,435 10.45
SALTON SEA UNIT V ................... 408 10.30
TURBOEXPANDER ....................... 84 9.50
Hydroelectric ....................... 246,434 4.916
Total ............................... 846,8677
</TABLE>
- ----------
[1] The table displays operating cost by plant-type for various plant categories
in the Prosym simulation results. The values shown are for the simulation
year 2005 and are stated in nominal dollars. These values reflect expenses
for fuel and variable operation and maintenance only. They do not include
costs associated with fixed operation and maintenance, the inclusion of
which would increase overall costs for some plants substantially. For
example, inclusion of fixed operation and maintenance in the nuclear
category would increase the cost reported in the Table from $13.33/MWh to
$34.00/MWh. In as much as it is presently unclear what portion of fixed
costs will be recovered in the competitive market and under what conditions,
the Table should be viewed as a conservative representation of the
operational costs of these plants.
[2] Cost based on fuel and variable O&M in nominal dollars
[3] The operating costs of the Geothermal category reflect the fact that many of
the utility-owned geothermal facilities have long term steam contracts with
steam suppliers. In the case of the Power Projects, the steam supply and
facility owners are all Guarantors.
[4] Includes solar, biomass, and other renewables
[5] Average cost based on weighted facility operating cost; includes Salton Sea
Units 1-5, Elmore, Leathers, Hoch, Vulcan, and TurboExpander; source: Salton
Sea Funding Corporation.
[6] Cost based on average aggregated operating expenses of hydroelectric
facilities in the WSCC as reported to FERC on FERC Form 1.
[7] The generation totals in bold are not included in the total, but are
included in the total geothermal production. They are listed here to provide
relative scale to the market.
Operating Costs of the Power Projects, in $/MWh, are compared to the Base
Case annual average PX prices in the three figures below. All units have
operating costs below the annual average PX price. Only the Leathers unit has
an operating cost above the annual average PX price, and that is only in the
first year. This occurrence is because 1) Leathers is still in the S04 fixed
price energy period, and 2) certain costs such as geothermal royalties are
directly linked to revenues. In fact, all of the Power Projects' operating
costs are close to the off-peak PX price in 1999 through 2002 and significantly
below that in all years thereafter.
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<PAGE>
FIGURE 2
PX PRICES AND PROJECT OPERATING COSTS, UNITS I TO IV
[GRAPHIC OMITTED]
FIGURE 3
PX PRICES AND PROJECT OPERATING COSTS, OTHER UNITS
[GRAPHIC OMITTED]
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<PAGE>
FIGURE 4
PX PRICES AND NEW POWER PROJECT OPERATING COSTS
[GRAPHIC OMITTED]
Most important is the comparison between the PX prices and the New Power
Projects, Salton Sea Unit V and the TurboExpander as shown in Figure 4. These
units are about $20/MWh lower than the PX prices from 1999 through 2001, a
difference that increases to $30/MWh in 2005 and to $40/MWh by 2018. The margin
is so significant it is extremely unlikely that any new generators with lower
operating costs will be built. It is very unlikely that any significant hydro
generation capacity, even with lower operating costs, due to siting and
licensing difficulties. Thus, we conclude that the New Power Projects will have
operating costs lower than all other generator types, except hydro, and will be
extremely well-positioned to be dispatched any hour in the year.
The differential between PX prices and operating costs is perpetuated in
the Low Gas Price Cases, namely, the operating costs are well below the PX
prices. The range of PX prices in the Low Gas Cases is $26.47/MWh in 2001 to
$46.95/MWh in 2018.
5.2 PX PRICES AND THE MARKET POSITION OF THE POWER PROJECTS
For an additional perspective of the relative position of the Power
Projects in the market, a table summarizing the frequency of PX prices
(Marginal Prices) is developed. This approach captures more of the hour by hour
price variability than the preceding results.
First, the hourly PX price results from the Base Case year 2005 are ranked
from highest to lowest. From this, the frequency of price levels (i.e. the
percentage of hours in which the price is at, or above, a given level) is
developed. The analysis for 2005 indicates that in 96 percent of the hours the
PX price is greater than, or equal to, $20.30/MWh. This means that the Power
Projects, with an average operating cost of $17.81/MWh will be below the PX
price 96 percent of the time.
TABLE 9
PX PRICE FREQUENCY ANALYSIS IN SOUTHERN CALIFORNIA TRANSMISSION AREA, 2005
<TABLE>
<CAPTION>
MINIMUM% OF PX PRICE
TIME $/MWH
- ------------- ---------
<S> <C>
70 28.73
75 25.65
80 24.12
85 23.15
90 21.73
95 20.68
96 20.30
</TABLE>
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<PAGE>
SECTION 6.0
THE CALIFORNIA GREEN POWER MARKET AND
ITS IMPLICATIONS FOR THE POWER PROJECTS
The sweeping regulatory changes initiated by Federal and California
regulators present significant opportunities for providers of electricity from
renewable energy sources. HESI believes a number of emerging market factors
bode well for the most efficient renewable energy projects in general including
the Existing Projects and the New Power Projects in particular. These factors
are listed and discussed below. First, however, this section presents a brief
summary of the renewable funding programs.
6.1 CEC RENEWABLE RESOURCE FUNDING
AB 1890 established a $540 million fund to promote and develop renewable
energy projects and directed the CEC to administer and distribute the funds. In
response, the CEC established four separate accounts to deliver these funds
over the period January 1, 1998 to January 1, 2002. Each account has been
allocated a fixed percentage of the total fund and a different distribution
mechanism is used for each account. The four accounts and the amount of funds
allocated to each are shown in Table 10.
TABLE 10
AB 1890 ACCOUNTS -- TOTAL FUNDING ALLOCATIONS BY TECHNOLOGY, $MILLIONS
<TABLE>
<CAPTION>
TECHNOLOGY $MILLIONS
- ---------------------------------- ----------
<S> <C>
Existing Technologies .......... 243
New Techologies ................ 162
Emerging Technologies .......... 54
Consumer-Side .................. 81
Total .......................... 540
</TABLE>
Source: Policy Report on AB 1890 Renewables Funding, Report to the Legislature,
California Energy Commission, March 1998.
The "existing" and "new" categories are the most important, accounting for
75% of the total fund disbursement. Further, these accounts are applicable to
the majority of active or economically feasible renewable energy projects in
California, including the New and Existing Projects. An existing technology
refers to a facility that started operation prior to September 23, 1996 and a
new technology means a facility that started generation on or after September
26, 1996 but before January 1, 2002.
Existing facilities that are substantially refurbished on or after
September 23, 1996 can apply for funding from the new technology category.
However, the non-refurbished portion of the facility cannot exceed 20% of the
refurbished facility's total value.
The "emerging" category is restricted to projects using small wind
turbines of 10 kW or less, fuel cell technology and solar power -- both
photovoltaic and solar thermal. A total of $54 million has been allocated to
the emerging technology account -- $10.5 million of which became available on
March 20 on a first-come, first-served basis.
The consumer-side account is designed to promote customer participation in
the renewable energy market. This fund has been allocated $81 million in total,
which in turn is divided between two sub-accounts: a customer credit account;
which has been most of the consumer-side funds, and secondly, a consumer
information account.
6.2 EXISTING RENEWABLE RESOURCE ACCOUNT
The Existing Renewable Resource Account was designed to help maintain
existing renewable technologies during the first four years of the electric
industry restructuring. The total amount of funds allocated to the existing
renewable account is $243 million, which is divided among three tiers.
C-24
<PAGE>
Existing technologies are assigned to a tier according to their cost
characteristics and potential for further cost efficiencies. Tier 1 contains
biomass and solar thermal technologies and is allocated 25% of the total
existing renewable account. Wind generation is placed in Tier 2 and is
allocated 13% of the total. Tier 3 is allocated 7% of the existing renewable
fund total and consists of geothermal, small hydro, digester gas, and municipal
solid waste and landfill gas technologies.
TABLE 11
EXISTING RENEWABLE RESOURCE ACCOUNT -- ALLOCATIONS BY TIER, $MILLIONS
<TABLE>
<CAPTION>
TIER 3 --
TIER 1 - BIOMASS, TIER 2 -- GEOTHERMAL, SMALL
SOLAR, THERMAL WIND HYDRO, OTHERS TOTAL
- ------------------- ----------- ------------------ ------
<S> <C> <C> <C>
$ 135 $ 70.2 $ 37.8 $243
</TABLE>
Source: Policy Report on AB 1890 Renewables Funding, Report to the Legislature,
California Energy Commission, March 1998, page ES-8.
The amount of funds available annually to each tier declines over the four
year period. The CEC expects renewable generation facilities to become more
cost efficient and therefore more competitive as the unregulated market
evolves.
The subsidy is distributed monthly to renewable energy suppliers through a
cents per kWh payment. However, the payment is based on the lowest of three
possible calculations: the difference between a target price and the market
clearing price (the SRAC specific to each IOU is used as a proxy for the market
clearing price at present), a pre-determined cents per kWh price cap, and a
funds adjusted price (the adjustment ensures that the amount disbursed does not
exceed the amount of funds available). The CEC designated target price and
price cap for existing technology tier 3 geothermal facilities are 3.0 and 1.0
cents per kWh, respectively. Thus the Existing Projects benefit from these
subsidies on a cent per kWh basis to the extent that the SRAC is below 3 cents
per kWh. SRAC prices applicable to Southern California Edison have recently
been in the 2.7 to 3.1 per kWh range.
6.3 NEW RENEWABLE RESOURCE ACCOUNT
The New Renewable Resources Account contains $162 million to support new
renewable electricity generation projects. According to the AB 1890
legislation, "new" in this context means a renewable energy facility located in
California that became operational on or after September 23, 1996, but prior to
January 1, 2002. As Table 12 shows, the proportion of total funds devoted to
new technologies increases from $32.4 million in 1998 to $48.6 million by 2001.
TABLE 12
NEW RENEWABLE RESOURCE ACCOUNT -- ALLOCATIONS BY YEAR,
$MILLIONS
<TABLE>
<CAPTION>
1998 1999 2000 2001 TOTAL
---------- ---------- ---------- ---------- ------
<S> <C> <C> <C> <C> <C>
New Renewables .......... $ 32.4 $ 37.8 $ 43.2 $ 48.6 $162
</TABLE>
Source: Policy Report on AB 1890 Renewables Funding, Report to the Legislature,
California Energy Commission, March 1998, page 33.
The full $162 million allocated to new renewable energy technologies was
disbursed in a single auction held in July of this year. Auction participants
were required to submit "bids" -- a cents per kWh subsidy -and an estimate of
project generation over a 5 year period (however, acceptable bids were capped
at 1.5 cents per kWh). The fund was then allocated from lowest to highest
bidder until it was exhausted. Winners will receive a payment for renewable
electric generation produced and sold in the first five years of project
operation.
The New Power Projects were awarded $31.3 million in this auction, one of
the largest subsidies granted by the CEC. This subsidy directly and positively
impacts the ability of the New Power Projects to produce competitively priced
power. HESI also notes that the award is a strong indication that the New Power
Projects are among the lowest unit cost producers of new renewable energy in
California.
C-25
<PAGE>
6.4 EMERGING RENEWABLES ACCOUNT
The purpose of the emerging renewable subsidy or Buy-Down Program is to
reduce the cost to consumers of certain renewable energy generation equipment.
Four types of renewable power generation are eligible for these funds: small
wind turbines of 10 kilowatts or less, fuel cells that convert renewable fuels
such as methane gas into electricity, and solar power -- both photovoltaic (PV)
and solar thermal. The first $10.5 million of the total $54 million allocated
to this fund became available March 20, 1998 from the CEC on a first-come,
first-served basis.
6.5 CONSUMER-SIDE INCENTIVES
The consumer-side account is designed to promote customer participation in
the renewable energy market. This account was allocated $81 million, or 15% of
the total fund. These funds in turn have been allocated to two sub-accounts, a
customer credit account, which has most of the allotted funds, and secondly, to
a consumer information account.
The customer credit account provides "credits" to consumers who purchase
CEC-registered renewable power that satisfy certain eligibility criteria.
Through this program, residential and small commercial customers' electricity
bill who purchase renewable energy will automatically be credited up to 1.5
cents for every kilowatt-hour of renewable electricity they consume up to the
total fund amount of $75.6 million. Funds for customer credits were distributed
in early 1998. For at least the first two years, payments to some customers
have a ceiling of $1,000 per year per customer. This program directly reduces
the retail cost of renewable energy and thus makes power produced by the New
Power Projects more attractive to customers who otherwise would not have
purchased renewable-based power.
The $5.4 million consumer information account is to fund a renewable
energy public information program. The objective of the program is to help
build a viable customer-driver market for renewable energy through consumer
education.
6.6 DISCUSSION OF GREEN POWER MARKET BENEFITS
The New Power Projects can earn the market clearing price by selling power
directly into the PX. However, an alternative marketing strategy exists --
tapping into the retail market by selling directly to green power marketers.
Based on our analysis, we believe this option may reap additional benefits for
the New Power Projects. This section of the report discusses the potential
benefits to the New Power Projects from participation in the California green
power energy market.
Surveys consistently show that 40 to 70 percent of California residential
customers are willing to pay a 5 to 15 percent premium for green power
products4. Current retail premiums for green power products range from about
0.7 to 3.1 cents per kWh, depending upon the percentage of renewable energy
contained in the resource mix. Assuming that 50 percent of the New Power
Projects' output is sold into the green power market and that 2.5 cents per kWh
can be obtained from such sales, assumptions we believe to be reasonable, the
New Power Projects would earn additional revenue of approximately $6.5 million
a year.
- ----------
4 See, for example a summary of customer survey results in "Selling Green Power
in California: Product, Industry, and Market Trends," by Ryan H. Wiser and
Steven J. Pickle, Ernest Orlando Lawrence Berkeley National Laboratory,
University of California, Berkeley, California, May 1998, page 5.
C-26
<PAGE>
A study by the Lawrence Berkeley Laboratory5 estimates that between 25 to
60 thousand households will have switched to a green power energy source by the
end of 19986. However, expectations among renewable energy marketers are much
higher. In proceedings before the California Energy Commission, marketers
suggested that the number of customers switching to a renewable energy source
could reach as high as 175,000 households within the first twelve months.
The study also suggests that a combination of rising consumer demand for
renewable energy and a scarcity of renewable energy projects will result in a
higher renewable energy price premium in the near future. This situation is
likely to continue until higher cost renewable projects are developed and
eventually brought on-line.
While California possesses a large amount of renewable generation, the
significant majority of it is either tied up in long term contracts with the
IOUs or is owned outright by them and thus not available to the green power
market in the near term. Consequently, the short-term supply of non-utility
renewable energy available to marketers is very small -- perhaps no more than
200 MW7. Because of this situation, new renewable resource projects that can
offer competitively priced power, such as the New Power Projects, will likely
be in a position to capture a significant portion of the rising premiums that
are excepted in the near future. Further, the improved market position of low
cost renewable energy providers is also likely to be reflected in more
attractive contract terms. According to the Lawrence Berkeley Laboratory
report, the majority of green power marketers expect contracts of one to five
years to become the standard within 5 years8. Contracts with existing renewable
energy providers are, in contrast, generally two years at a maximum.
In conclusion, the California green power market can potentially provide
significant additional benefits to the New Power Projects above and beyond the
proven financial return these plants can earn dealing through the PX market.
The Funding Corporation has indicated to HESI that while it intends to fully
exploit the green power market, none of the anticipated benefits discussed in
this section have been reflected in its analysis.
- ----------
5 The Ernest Orlando Lawrence Berkeley National Laboratory (Berkeley Lab) is a
multi-program national research facility operated by the University of
California for the Department of Energy (DOE). Its fundamental mission is to
provide national scientific leadership and technological innovation in
support of DOE's objectives. Founded in 1931, it is the oldest of the
national laboratories. The Laboratory specializes in research related to
technology and the environment, such as advanced materials science, life
sciences, energy efficiency and energy supply, and nuclear physics. The
Berkeley Lab has been awarded nine Nobel prizes in the fields of physics and
chemistry for this research.
6 IBID, page 5.
7 IBID, page 26. In comparison, the CEC estimates about 500 MW. See "Policy
Report on AB 1890 Renewables Funding: Report to the Legislature," 1997.
8 IBID, page 5.
C-27
<PAGE>
APPENDIX A
SCE'S SRAC FORECAST
FOR 1995 THROUGH 2015
<TABLE>
<CAPTION>
YEAR LOW MEDIAN HIGH
- --------------- --------- -------- ---------
<S> <C> <C> <C>
1995 .......... 2.41 2.41 2.41
1996 .......... 2.48 2.51 2.54
1997 .......... 2.55 2.60 2.68
1998 .......... 2.72 2.83 2.97
1999 .......... 2.91 2.99 3.28
2000 .......... 3.11 3.22 3.60
2001 .......... 3.30 3.46 3.91
2002 .......... 3.42 3.59 4.13
2003 .......... 3.52 3.72 4.36
2004 .......... 3.62 3.88 4.61
2005 .......... 3.72 4.11 4.86
2006 .......... 3.83 4.31 5.16
2007 .......... 3.95 4.44 5.48
2008 .......... 4.06 4.59 5.82
2009 .......... 4.18 4.74 6.19
2010 .......... 4.31 4.89 6.59
2011 .......... 4.43 5.06 7.07
2012 .......... 4.57 5.22 7.60
2013 .......... 4.70 5.40 8.16
2014 .......... 4.84 5.58 8.76
2015 .......... 4.99 5.76 9.41
</TABLE>
C-28
<PAGE>
APPENDIX D
ASSESSMENT OF THE RESOURCE SUPPLYING
GEOTHERMAL FACILITIES
AT SALTON SEA, CALIFORNIA
FOR
SALTON SEA FUNDING CORPORATION
OMAHA, NEBRASKA
BY
GEOTHERMEX, INC.
RICHMOND, CALIFORNIA
<PAGE>
AUGUST 1998
EXECUTIVE SUMMARY
Introduction
Presented herein are the review and analyses (the "Report") by GeothermEx,
Inc. ("GeothermEx") of the long-term resource sufficiency of the Salton Sea
Known Geothermal Resource Area (the "Salton Sea Field") to supply geothermal
resource to existing and proposed power plants and a proposed zinc recovery
facility, which provide revenue to the Salton Sea Guarantors, the Partnership
Guarantors and the Royalty Guarantor. Magma Power Company ("Magma"), a wholly
owned subsidiary of CalEnergy Company, Inc. ("CECI"), has established Salton
Sea Funding Corporation ("Funding Corporation") to issue notes and bonds to
investors guaranteed by, and to make loans to, each of the Salton Sea
Guarantors and the Partnership Guarantors secured by operating assets,
including the following:
o Salton Sea Guarantors: Salton Sea Units I, II, III and IV ("Salton Sea
Projects"), including the construction of Salton Sea Unit V;
o Partnership Guarantors: partnership interests in the Vulcan, Del Ranch
(Hoch), Elmore and Leathers Projects (the "Partnership Projects"),
including certain royalty and other payments; and
o Royalty Guarantor: Royalty interests paid by the Royalty Projects
consisting of three of the Partnership Projects.
Affiliates of Funding Corporation are planning to construct three
additional facilities (the "Expansion Projects") at the Salton Sea. These are:
1) Salton Sea Unit V, a 49 MW (net) facility; 2) the TurboExpander Project, a
10 MW (net) facility; and 3) a zinc recovery facility. GeothermEx has prepared
this report as an independent resource consultant for Funding Corporation and
for future potential bondholders.
Scope of Work and Assumptions
GeothermEx has reviewed the behavior of the wells and resource supplying
the existing geothermal power plants in the Salton Sea Field, located in
Imperial County, California. Well locations are shown in figure 1. The purposes
of this report are: 1) to assess the long-term resource sufficiency and
suitability for supplying the existing plants and the proposed additional
facilities mentioned above and 2) to assess the reasonableness of the projected
workover and wellfield capital budget for the program.
In the preparation of this report and the opinions expressed, GeothermEx
has made certain assumptions about conditions which may exist or events which
may occur in the future. The principal assumptions and considerations made and
the database used by GeothermEx in developing the results and conclusions
presented in this report are described below.
GeothermEx has provided several due-diligence evaluations for the Salton
Sea Projects and the Partnership Projects; the most recent of these was
prepared in 1995 in support of the initial Funding Corporation bond offering.
As such, GeothermEx holds a large amount of information on the Salton Sea
wells, which has been presented in numerous technical reports in the past.
These data were augmented in 1997 to include updated production and injection
histories from the California Division of Oil, Gas, and Geothermal Resources
(CDOGGR), the results of recent well logging, and recent chemical analyses.
For the current study, SSFC provided additional production and injection
well records, new chemical analyses, information on the drilling and logging of
recent wells, budget information for future wellfield expenditures, and design
information for the planned new facilities at Salton Sea. SSFC has also
improved upon the zinc correlations and numerical reservoir model from the 1997
work to develop the zinc forecasts presented herein. Together, all of this
information constitutes the database used in the present study. Reports that
have formed a significant part of GeothermEx's current evaluation are included
in the document list in section 6.
GeothermEx has independently reviewed and relied upon data from the Salton
Sea Field supplied by SSFC, in addition to other data mentioned above. In our
opinion, the data is reliable and accurate,
D-1
<PAGE>
based on our extensive knowledge of the resource and the history of operations
at the Salton Sea Field. In particular, the zinc analyses made since 1994 were
undertaken using sound sampling and analytical techniques, and we have a high
level of confidence in the quality and accuracy of these recent zinc data, on
which the forecasts of future zinc recovery are partially based.
Conclusions
Based upon our review and the considerations and assumptions set forth
above, we have reached the following conclusions:
o The Salton Sea Field is highly productive and wells have historically
behaved favorably with minimal flow rate or pressure declines.
o The proposed Salton Sea Unit V will utilize the heat energy in
reinjection brine which is presently supplying Units I -- IV. The
additional production fluid needed for Salton Sea Unit V will be
supplied from existing wellhead capacity.
o The additional production fluid needed for the TurboExpander Project
can also be supplied by existing wells with spare capacity without any
modification.
o Numerical simulation studies undertaken to date forecast acceptable
well behavior for the existing and planned level of power generation
and zinc recovery. Well behavior has historically been consistent with
results predicted by earlier simulation models; therefore, future well
behavior is expected to be adequate to support the Salton Sea,
Partnership and Expansion Projects.
o The recoverable geothermal energy reserves from the reservoir are more
than sufficient to support existing projects and the planned additional
increments of capacity resulting in a total capacity of 326.8 MW. We
estimate that 1,200 MW of reserves are available within the portion of
the Salton Sea Field dedicated to the Salton Sea, Partnership and
Expansion Projects.
o SSFC's forecast of gross zinc production recovery begins at 8,639
pounds per hour (about 34,000 metric tonnes per year) and declines
slightly thereafter. This forecast was validated through independent
numerical modeling performed by GeothermEx. The predicted gross zinc
recovery rate is based on the wellfield configuration for the existing
projects and the planned expansion projects. Therefore, because
additional zinc reserves exist in the field, this prediction is
conservative. Additional zinc could be recovered by developing new
areas of the field for geothermal fluid production.
o The recoverable reserves of geothermal energy will not be affected by
either the planned capacity expansion or the zinc recovery project.
o In unescalated dollars, SSFC's projected budget through 2018 includes
$77.7 million for wellfield capital (new wells, re-drills, and tie-ins)
and $43.7 million for well workovers. The budget for wellfield costs is
reasonable and should allow the SSFC facilities to achieve the
forecasted levels of electrical generation and zinc production.
1. OVERVIEW AND DESCRIPTION OF THE SALTON SEA GEOTHERMAL FIELD
1.1 Development History and Present Status
SSFC and its affiliates own and operate eight geothermal power plants and
propose to develop two additional power plants in the Salton Sea Field. The
plant names, capacities and start-up dates are listed below.
D-2
<PAGE>
<TABLE>
<CAPTION>
NOMINAL
PLANT NAME CAPACITY (NET MW) START-UP DATE
- ------------------------- ------------------- ---------------
<S> <C> <C>
Vulcan 34.0 1986
Del Ranch (Hoch) 38.0 1989
Elmore 38.0 1989
Leathers 38.0 1990
Unit I 10.0 1982
Unit II 20.0 1990
Unit III 49.8 1989
Unit IV 39.6 1996
Salton Sea Unit V 49.0 2000 (planned)
TurboExpander Project 10.0 2000 (planned)
-----
Total 326.4
</TABLE>
The ninth unit at Salton Sea (Salton Sea Unit V) is scheduled to start-up
in 2000, concurrently with a facility to recover zinc from the geothermal
brine. The TurboExpander Project is scheduled for start-up in mid-2000.
1.2 NEW PLANTS
Salton Sea Unit V is a facility designed to use the geothermal brine
separated from the standard-pressure steam (at approximately 125 pounds per
square inch absolute, or "psia") which supplies the Region 1 plants (Units I --
IV). This 360 degreesF brine is presently injected, but still contains a
significant amount of heat energy. The purpose of Salton Sea Unit V is to
recover this heat energy by flashing the 360 degreesF brine down to
approximately 20 psia. To fully supply Units I -- V, an increase in production
equivalent to about 4% of the present level of withdrawal from the reservoir in
Region 1 will be required.
A 10 net MW turboexpander will be installed near the Vulcan and Del Ranch
(Hoch) facilities. This facility will require an increase of about 3% in the
production of reservoir fluids from the region of the wellfield supplying the
Vulcan and Del Ranch (Hoch) plants.
The third of the New Projects is the zinc recovery facility. Both
GeothermEx and SSFC have independently estimated that an initial gross zinc
production rate of 8,639 pounds per hour will be available from the injection
brine using the existing wellfield configuration. This represents an initial
annual gross zinc production rate of 34,400 metric tonnes. Satellite process
facilities will be located at four existing power plant facilities: Leathers,
Elmore, Vulcan/Hoch and the Region 1 (Units I -- V) brine processing facility.
These sites will be connected by pipelines to the brine processing facility,
which will process the solution from the satellite plants into a final
marketable product of metallic zinc.
2. WELL BEHAVIOR
2.1 HISTORICAL
A total of about 130 production or injection wells have been drilled
within the Salton Sea field to date. Production and injection histories were
obtained from the archives of the CDOGGR, which receives monthly average flow
rate (or injection rate), wellhead pressure and wellhead temperature from the
field operators. To the best of our knowledge, this information represents the
most consistent and complete production and injection database available.
There are 29 production wells in the Salton Sea field with an average
capacity of 10 MW per well, which exceeds the US industry average. The plants
are often operated at higher levels than their net capacity ratings, and many
of the wells are routinely operated in a throttled condition that does not draw
on their full capacity.
Both the production and injection wells have been worked over periodically
because of scaling and corrosion. In general, these workovers have helped to
maintain the productivity and injectivity of the wells; however, as in most
geothermal projects, it has been necessary to redrill some wells because of
mechanical problems which sometimes occur during a workover operation, or
because of other mechanical damage.
D-3
<PAGE>
Despite the need for workovers and/or redrills, the project wells have
behaved very favorably to date. Flow rate declines have been small, and many
wells have excess capacity.
In May 1996, output from the field was increased when new wells were
brought on line to supply Unit IV. As shown in figure 2, production and
injection rates have been relatively stable since then.
2.2 ANTICIPATED WELL AND FIELD BEHAVIOR
It will be shown in the following chapter of this report that the
recoverable geothermal energy reserves are more than sufficient to support the
existing projects and the New Projects. While it is a necessary condition,
adequacy of geothermal reserves by itself does not guarantee commercial success
of a geothermal project. Future behavior of the field, in general, and the
wells, in particular, will dictate how much of these reserves can be
economically recovered. As mentioned above, the wells have behaved very
favorably to date, and SSFC is using numerical modeling to forecast and
optimize future well and field behavior under various operating scenarios.
GeothermEx independently developed a numerical simulation model of the
Salton Sea Field in 1997, and SSFC independently developed a numerical
simulation of the Salton Sea Field in 1998. These models are used to evaluate
future well and reservoir behavior in response to production and injection
under specified scenarios, including the modification of injection well
locations to optimize zinc recovery, and the additional reservoir production
from the wellfield of geothermal brine required to supply Salton Sea Unit V and
the TurboExpander Project. SSFC developed and utilizes its model as a reservoir
management tool, to maximize both power production and zinc recovery from the
field. The SSFC model incorporates the most recent production and injection
data, as well as current development and operational plans. The results of both
modeling efforts indicate that the existing and planned production facilities
can be supported by the existing wells (maintained as needed) and by those
budgeted wells which may be drilled in the near future.
3. RECOVERABLE GEOTHERMAL ENERGY RESERVES
This study confirms that there are sufficient geothermal energy reserves
to support the existing projects and the New Projects. For calculating the
reserves, the area under consideration includes the acreage dedicated to Units
I -- V, and the Vulcan, Del Ranch (Hoch), Elmore and Leathers units. This is
referred to herein as the "Subject Area".
The first step in making a volumetric reserve estimate is to calculate the
heat energy in place within the subject area using the subsurface temperature
distribution. The volume considered is an irregular block confined by the
downward vertical projections of the boundaries of the subject area between
elevations of -1,500 feet and -6,500 feet (msl). The volume of reservoir
considered is also limited by temperature constraints; the minimum acceptable
temperature used herein is 380 degreesF. Certain assumptions were then made
regarding the recoverability of the heat-in-place, the efficiency of converting
heat energy to electrical energy, and the annual plant capacity factor. The
methodology is described in detail below.
Reserves in a geothermal area can be expressed as the maximum electric
power plant capacity that can be supplied commercially for 30 years. Volumetric
calculation of reserves requires estimation of four parameters:
1. Gross thermal energy in place (H, Btu);
2. Fraction of the gross in-place thermal energy that can be recovered
commercially (recovery factor, R);
3. Fraction of recoverable thermal energy that can be converted to
electrical energy (conversion efficiency, E); and
4. Power plant load factor (F).
D-4
<PAGE>
Using the above-defined quantities, the maximum sustainable power plant
capacity is expressed as: H o R o E
MW = 1.11 x 10-12
(1)
F
where MW= average gross MW over 30 years.
We can calculate the gross heat in place as:
H = (Cvr + Cvb) V (T -- To) (2)
where Cvr = volumetric specific heat of rock (Btu/ft3/ degreesF)
Cvb = volumetric specific heat of brine (Btu/ft3/ degreesF)
V = reservoir bulk volume (ft3),
T = average reservoir temperature ( degreesF), and
To = a reference or base temperature ( degreesF).
Within the Subject Area, the volume of rock with temperatures exceeding
380 degreesF (parameter V in equation 2 above) was calculated to be 1.26 x 1012
cubic feet. Average temperature (T) was estimated to be 522 degreesF on the
basis of the subsurface temperature distribution.
In equation (2),
Cvr = Pr Cr (1- [symbol for reservoir porosity] o NS) (3),
and Cvb = -f Cf [symbol for reservoir porosity] o NS (4),
where Pf = bulk density of reservoir fluid,
= 60 lbs/ft3
Cf = specific heat capacity of reservoir brine,
= 0.85 Btu/lb/ degreesF,
[symbol for reservoir porosity] = reservoir porosity,
= 20%;
Pr = bulk density of rock matrix,
= 168 lbs/ft3;
Cr = specific heat capacity of rock matrix,
= 0.255 Btu/lb/ degreesF; and
NS = net sand fraction
= 0.35.
Using the above estimates of the various parameters, the heat in place (H)
is calculated for the subject area using equation 2:
H = 5.84 x 1013 (522 -- To) Btu for the subject area. (5).
Now the parameters R (recovery factor), E (conversion efficiency) and F
(power plant capacity factor) need to be estimated to complete the calculation
of gross MW available for 30 years. We assume a conversion efficiency of 15%,
which is typical for power plants like those presently in operation at Salton
Sea, and a capacity factor of 85%. The recovery factor (R) cannot be readily
estimated as it depends critically on the degree of heterogeneity in the
reservoir, whereas the model used for volumetric reserve estimation is assumed
to be homogeneous.
For the purpose of volumetric reserve estimation, the following approach
was considered to estimate an approximate value for R. In this case, R is
estimated to be 0.35, based on the reasonable assumptions that: (a) 35% of the
reservoir bulk volume is permeable because the average sand fraction in the
Salton Sea reservoir is 35%; (b) there is no in-situ boiling; and (c) the
injected water can cool the entire porous and permeable volume (sand layers) of
the reservoir (including the sand grains) to To (here assumed to
D-5
<PAGE>
be the temperature of the power plant waste water, or 225 degreesF). We have
conservatively assumed essentially no heat recovery from shale for our
single-phase heat extraction model. This assumption is balanced to some degree
by assuming that there is 100% sweep of all sand layers by injection water.
Our analysis is that 30-year energy reserves of 1,200 MW were calculated
for the subject area. A total capacity of 267.4 MW has been installed to date
and another 59 additional MW (Salton Sea Unit V and the TurboExpander) are
planned, resulting in a total capacity of 326.8 MW. Accordingly, our analysis
indicates that the energy reserves are more than sufficient to support the
existing and planned facilities within the subject property.
4. RECOVERY OF ZINC FROM THE GEOTHERMAL BRINE
4.1 INTRODUCTION
The geothermal brines produced from the Salton Sea reservoir contain a
significant amount of dissolved mineral species, including (but not limited to)
zinc, silica, manganese, lithium, lead, silver, and gold. GeothermEx has
conducted numerical modeling, theoretical studies on the solubility of
zinc-bearing minerals in geothermal brines, and the development of correlations
between zinc, dissolved solids and reservoir temperature and has refined these
correlations and incorporated them into its 1997 numerical model, which was
used to forecast zinc recovery.
A pilot plant was constructed by SSFC to demonstrate the technology used
to recover zinc from the Salton Sea geothermal brine.
SSFC has further refined the correlations between zinc and temperature and
has incorporated these into its own numerical model of the Salton Sea field
with updated data and development scenarios. This model of the field and the
zinc forecasts from it have been provided to GeothermEx for review. The results
of numerical modeling are summarized below.
4.2 REVIEW OF NUMERICAL MODEL USED TO FORECAST ZINC RECOVERY
Numerical modeling is the most accurate way to forecast future zinc
recovery from the field. Unlike volumetric estimation or analytical simulation,
it can account for changes in temperature, pressure and zinc concentrations in
the reservoir under various production and injection schemes, and it is the
industry standard method for predicting geothermal well and reservoir behavior.
SSFC's numerical model of the Salton Sea Field was developed using TETRAD,
a commercially available simulator which is widely used in the geothermal
industry. GeothermEx routinely uses this software to evaluate specific aspects
of geothermal fluid production and injection for many clients, and considers it
valid for forecasting zinc recovery. GeothermEx used this software in its 1997
modeling effort and in its assessment of the currently proposed development.
As mentioned in the introduction, GeothermEx believes that the data on
which the SSFC model is based is accurate and reliable. The SSFC model was
derived from a thorough review of the geological and reservoir engineering data
for the Salton Sea Field. These data, combined with a study of reservoir fluid
chemistry and a detailed evaluation of numerous brine samples and well logs
have demonstrated a strong correlation between reservoir temperature and zinc
concentrations in the brine. In both the GeothermEx and SSFC models, this
direct zinc-temperature correlation is used in the model to determine the
initial zinc concentration in the reservoir. In GeothermEx's opinion, the SSFC
model was developed in a prudent manner and yields reasonable results.
Additionally, GeothermEx has updated the forecast from its own 1997 model
to reflect the anticipated increase in production rates and some additional
refinement of the zinc correlations to capture most of the major updates in the
SSFC model. GeothermEx then compared its updated forecast to the SSFC model,
and found that the results agreed within 3% on an average annual basis. The
fact that two independently constructed models yielded consistent results gives
GeothermEx additional confidence that the production and zinc forecasts in
SSFC's model are reasonable.
D-6
<PAGE>
4.3 ZINC RECOVERY FORECASTS
Figure 3 presents SSFC's base case simulator forecast of zinc production
rate (in pounds per hour) as a function of time from the anticipated start-up
of the zinc recovery facility in January 2000. The forecast starts at a gross
zinc production rate of about 8,600 lbs/hour and declines by about 4.0% during
the first 10 years of operation. During the next 10 years, a further 5.5%
decline in the zinc production rate occurs. This represents an initial annual
gross zinc recovery of 34,300 metric tonnes per year. As indicated in Table 1,
after 10 and 20 years, respectively, this would decline to approximately 33,000
and 31,200 metric tonnes per year, respectively.
This forecast of zinc production is conservative as the predicted decline
in zinc production is attributable to the simulated return of zinc-depleted
injection fluid to the main production zone and recirculation of injected fluid
within the reservoir. The vast majority of wells have shown no evidence for
recirculation of injected fluid in the data observed to date. Thus, the actual
amount of recirculation is likely to be less than is forecasted by the
simulation model. SSFC's development scenario includes a prudent and reasonable
mitigation plan to move some injection from the central production area to the
periphery of the field, should this become necessary. The cost of this
mitigation plan is included in the budget forecasts. Both the mitigation plan
and the zinc production rate forecasted by the SSFC model appear reasonable to
GeothermEx.
Finally, it should be noted that recoverable geothermal energy reserves of
the Salton Sea field are not affected by either the production of zinc or the
planned capacity addition.
5. REVIEW OF FUTURE WELLFIELD COSTS
SSFC's estimate of projected wellfield costs includes two components. The
first component is wellfield capital, which comprises new production wells, new
injection wells, and tie-ins for these wells (that is, connections from the
wellheads to the gathering system pipelines). The second component is workovers
(that is, repairs of existing wells to correct such problems as wellbore
scaling or casing damage). Figure 4 shows the projected annual expenditures for
these components through the year 2020. The dollar values in figure 4 and in
the following discussion are in unescalated 1998 dollars.
The total projected budget for wellfield costs from 1998 to 2020 is $121.4
million, of which $77.7 million is for wellfield capital and $43.7 million is
for workovers. Wellfield costs are expected to be higher in the first four
years (through 2001), reflecting the planned drilling of several new production
wells with titanium casing and several new injection wells. Workover costs are
also somewhat higher in the first few years, reflecting continuing repairs to
older wells with carbon steel casing that are being gradually replaced by new
wells. The titanium casing in the new production wells is less prone to
wellbore scaling, and the injection water after start-up of the zinc extraction
facilities is expected to have less entrained solids, which should extend the
lives of the injection wells. For these reasons, annual workover expenditures
after the first few years of the project life are expected to be lower.
GeothermEx agrees with this conclusion.
New production wells with titanium casing are expected to cost about $4
million each. New injection wells are expected to cost somewhat less (about
$2.5 million each) because they do not require titanium casing. A re-drill
(that is, a well drilled to a new down-hole location from an existing wellhead)
is expected to cost about $0.8 million. The number, timing, and location of new
wells during the project life will depend on field performance. However, the
projected budget contains sufficient funds for roughly 11 new producers, 10 new
injectors, and 10 re-drills, including the costs of tie-ins for these wells. In
GeothermEx's opinion, the budget amounts are reasonable estimates for the
forecasted levels of electrical generation and zinc production over the next 20
years.
D-7
<PAGE>
6. DOCUMENT LIST
ADA International Consulting, Ltd., "TETRAD Version 12.0 User's Manual."
Calgary, Alberta, Canada. Reservoir simulation software.
California Division of Oil, Gas, and Geothermal Resources, "Monthly
Reports of Geothermal Operations." Production and injection statistics for
Salton Sea wells.
-- maps of existing and proposed well locations in Salton Sea Field
-- recent production and injection statistics for Salton Sea wells
-- database of chemical analyses from Salton Sea wells
-- input deck for SSFC's numerical simulation of Salton Sea Field using
TETRAD software
-- Imperial Valley Capital Expenditures by Year (budget forecast of
wellfield costs)
GeothermEx (1995), "Assessment of the Geothermal Resource Underlying
Geothermal Power Projects, Salton Sea Geothermal Field, California." Report
prepared for Salton Sea Funding Corporation, Omaha, Nebraska.
McKibben, M.A., and Elders, W.A. (1985), "Fe-Zn-Cu-Pb mineralization in
the Salton Sea geothermal system, Imperial Valley, California." Economic
Geology, vol. 80, pp. 539-559.
D-8
<PAGE>
TABLE 1: SSFC PREDICTION OF GROSS ZINC RECOVERY, SALTON SEA GEOTHERMAL FIELD
<TABLE>
<CAPTION>
TIME CUMULATIVE ZINC ANNUAL ZINC ANNUAL ZINC
(YEARS SINCE START-UP) PRODUCTION (POUNDS) PRODUCTION (POUNDS) PRODUCTION (METRIC TONNES)
- ------------------------ --------------------- --------------------- ---------------------------
<S> <C> <C> <C>
0 0 0 0
1 75,691,098 75,691,098 34,327
2 151,006,305 75,315,207 34,157
3 225,881,216 74,874,991 33,957
4 300,457,522 74,576,306 33,821
5 374,742,249 74,284,727 33,689
6 448,751,791 74,009,542 33,564
7 522,467,412 73,715,621 33,431
8 595,831,733 73,364,321 33,272
9 668,850,609 73,018,876 33,115
10 741,543,947 72,693,338 32,968
11 813,864,907 72,320,960 32,799
12 885,799,437 71,934,530 32,623
13 957,335,827 71,536,390 32,443
14 1,028,485,787 71,149,960 32,268
15 1,099,190,767 70,704,980 32,066
16 1,169,497,607 70,306,840 31,885
17 1,239,406,307 69,908,700 31,705
18 1,308,928,577 69,522,270 31,529
19 1,378,076,127 69,147,550 31,359
20 1,446,813,827 68,737,700 31,174
</TABLE>
1998 GeothermEx, Inc.
D-9
<PAGE>
[GRAPHIC OF MAP OMITTED]
D-10
<PAGE>
[GRAPHIC OF HISTORICAL PRODUCTION AND INJECTION RATES OMITTED]
D-11
<PAGE>
[GRAPHIC OF PREDICTION OF FUTURE ZINC PRODUCTION AT SALTON SEA OMITTED]
D-12
<PAGE>
FIGURE 4. PROJECTED EXPENDITURES FOR WELLFIELD CAPITAL AND WORKOVERS AT
THE GUARANTORS' GEOTHERMAL FACILITIES AT SALTON SEA, CALIFORNIA
[GRAPHIC OF THE GUARANTOR'S GEOTHERMAL FACILITIES AT SALTON SEA ,CA OMITTED]
D-13
<PAGE>
APPENDIX E
CALENERGY MINERALS
AND THE
GLOBAL REFINED ZINC MARKET
AUGUST 14, 1998
RESOURCE STRATEGIES
626 WEST LINCOLN HIGHWAY
EXTON, PA 19341 USA
TEL: (610) 269-6900
FAX: (610) 269-7600
HTTP://WWW.RSIC.COM
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Executive Summary .......................................................... E-2
Introduction ............................................................... E-4
Project Description ........................................................ E-4
Comparison with Traditional Zinc Production Methods ........................ E-5
The World Refined Zinc Market .............................................. E-6
o Zinc Consumption in the United States, California and the West Coast E-8
-> United States ....................................................... E-8
-> California .......................................................... E-8
-> West Coast .......................................................... E-9
o Zinc Supply in the United States and California ..................... E-10
-> United States ....................................................... E-10
o Supply and Demand Balances .......................................... E-12
o The Pricing Structure of the Zinc Market ............................ E-12
The Competitive Position of the Salton Sea Project ......................... E-14
o Cost of Production .................................................. E-14
o Competitive Position in the California Market ....................... E-15
Projecting Future Revenues ................................................. E-15
o Long-Term Zinc Price Forecast ....................................... E-16
Zinc Marketing Plan ........................................................ E-17
o Conclusion .......................................................... E-17
</TABLE>
E-1
<PAGE>
EXECUTIVE SUMMARY
Salton Sea Funding Corporation (SSFC), through its subsidiary, CalEnergy
Minerals, is planning to develop the Salton Sea Zinc project and produce
approximately 30,000 metric tonnes of refined zinc per year in a processing
facility that will utilize geothermal brine associated with ten geothermal
power plants in the Imperial Valley, Southern California.
Because zinc is typically obtained by the mining, smelting, and refining
of zinc-containing ores, the traditional zinc mining and smelting complexes are
large in terms of surface area and require significant capital expenditures.
These characteristics, along with environmental concerns, are an effective
barrier to entry for new smelting complexes in the USA.
The Salton Sea installation is much more compact and far less
environmentally intrusive than a traditional mining and smelting venture which
can cause significant disruption to the landscape, alter watercourses and
require extensive monitoring of emissions. By comparison, the Salton Sea
project is more an industrial process than an extraction facility. Furthermore,
the by-products generated by the project will be used in the generation of
geothermal power, thereby increasing the efficiency of the local power
generating system.
In 1997, USA zinc consumption was 1.265 million tonnes. Current forecasts
indicate that zinc consumption could rise as high as 1.54 million tonnes per
annum by 2018, an increase of 270,000 tonnes per annum. Currently, the USA is
only 31% self-sufficient in zinc metal production and must therefore import
almost 70% of its needs. The cost of freight is the main factor that determines
which part of the USA will be supplied by a particular exporter. As a result,
exporters tend to sell metal into the market that is geographically closest to
them. For example, in the case of Canada, the USA's largest zinc provider, one
smelter is in the West, while the other three are in the central and eastern
parts of the country. The cost of freight also factors into the distribution of
local production. It is noteworthy that none of the USA zinc smelters ship to
the West Coast because they are better situated to serve the larger Midwest and
Eastern markets.
The Salton Sea project has the advantage of being able to produce
relatively small amounts of high grade zinc that can serve a local market of
significant size, that is, California and the West Coast of the USA. This
market is expected to expand by about 33,000 tonnes over the life of the Salton
Sea project from a level of 105,000 tonnes in 1997 to a level of 138,000 tonnes
in 2018. Since there is no local production of zinc on the USA West Coast, we
believe it is reasonable to project that the Salton Sea production can be
readily absorbed in the Californian and other West Coast markets.
According to operating cost figures recommended by SSFC and found to be
reasonable by Fluor Daniel as the Independent Engineer, we estimate using RSI
methodology that the Salton Sea project will be the lowest cost producer of
zinc for it is well within the bottom quartile of the Western mine cash
operating cost curve after by-product credits. Historical price experience over
the last 28 years has established a price of around 48 cents per pound ($1,050
per tonne) in real terms which reflects the long-run marginal cost of
production. For example, SSFC has quoted zinc production costs of 22.9 cents
per pound ($505 per tonne) in 2007 before by-product credits and 18.4 cents per
pound ($405 per tonne) after by-product credits (in 1997 dollars). Fluor
Daniel, as Independent Engineer, has confirmed that the operating costs of
CalEnergy Minerals used in the production cost calculation by RSI are
reasonable. In addition to low operating costs, the Salton Sea project will
also have important savings of 2-4 cents per pound as a result of the
comparably short delivery distance to its local market.
An important point to note about the market for zinc is that it is a
global commodity market where the price is determined by a terminal market, the
London Metal Exchange. Since the LME is both a buyer and seller of last resort,
when supply exceeds demand, producers can and do deliver metal into an exchange
warehouse. Therefore, in a global commodity market like that for zinc, sellers
never face the prospect of being unable to sell their metal once it has met LME
specifications and has been registered as a deliverable brand. As far as the
Salton Sea project is concerned, there are two LME warehouses in California.
Thus, once the project's metal is registered, it can be delivered to one of
these warehouses if a suitable trade customer cannot be located.
E-2
<PAGE>
The table below sets forth our forecast of the zinc metal prices and
premia that should be used in the financing of the Salton Sea Zinc Project. We
have used Monte Carlo risk analysis to construct a base case, a downside case
and a price forecast that can be achieved given a 98% confidence level.
RECOMMENDED FUTURE ZINC PRICES TO BE USED IN FINANCING
THE SALTON SEA ZINC PROJECT
(US CENTS/LB -- 1997 PRICES)
<TABLE>
<CAPTION>
2000-2004 2005-2015 2000-2018
----------- ----------- ----------
<S> <C> <C> <C>
Base .......................... 49.08 57.92 54.61
Downside Case ................. 46.49 52.81 50.26
98% Confidence Level .......... 43.91 49.76 49.26
SHG Premium ................... 4.40 4.37 4.23
CGG Premium ................... 10.01 10.09 9.91
</TABLE>
E-3
<PAGE>
CALENERGY MINERALS
AND THE
GLOBAL REFINED ZINC MARKET
INTRODUCTION
SSFC, through its subsidiary, CalEnergy Minerals, is planning to develop
the Salton Sea Zinc project and produce around 30,000 tonnes of refined zinc
per year in a processing facility that will utilize geothermal brine feeding
ten geothermal power plants in the Imperial Valley, Southern California.
CalEnergy Minerals will therefore be a new entrant to the 7.8 million
tonnes global zinc market valued at $10.14 billion in 1997. Western World zinc
consumption has not grown as fast as aggregated world industrial production but
it is an essential metal used in industrial processes involving corrosion
prevention, the production of diecast alloy components, brasses and bronzes as
well as zinc chemicals. Over the past 20 years, Western zinc consumption has
been growing at an average rate of 1.7%; in the next 20 years, with the
expansion of China and the eventual recovery of the other surrounding markets
in Asia, global growth prospects for this metal will increase to 2.5% per
annum.
The refined zinc market is a global commodity market where the price is
set by trading on the London Metal Exchange (LME). There are also regional
differences in premia over the LME price which reflect the cost of financing
and delivery of the metal into the respective regional markets.
PROJECT DESCRIPTION
The SSFC geothermal power plants use hot brines from an underground
reservoir to generate steam which, in turn, drive a number of turbines to
generate electrical power. Currently, the hot brines emerge from the ground at
around 600o F and upon entering each individual power station circuit, steam
for the turbines is generated. After passing through the power station
circuits, these brines are currently reinjected or returned to the underground
reservoir.
However, these geothermal brines are rich in a number of metallic salts
including zinc, silica, manganese and iron and, as a result of several years of
research and the successful operation of a pilot plant, an extraction process
has been perfected that can produce high purity zinc from these brines before
they are returned to the underground reservoir.
This process is based on proven industrial processes involving:
o Ion exchange
o Purification
o Solvent extraction
o Electrowinning
o Metal alloying and casting
The Salton Sea project will establish four ion-exchange sites, located
near the SSFC power plants. Each ion exchange site consists of a number of ion
exchange columns, arranged in trains, which treat the brine and remove the
zinc. These zinc-rich solutions from the ion exchange plants will then be piped
to a central processing plant and the depleted brines pumped back to the
underground reservoir. The pipeline network will also carry secondary flows of
brine and process liquid between the central processing plant and the ion
exchange plants.
The central processing plant will then purify the zinc-rich liquor and
through the use of solvent extraction and electrowinning, produce zinc cathodes
which will then be melted to produce zinc ingot of ASTM (American Society for
Testing and Materials) and, eventually, LME quality and continuous galvanizing
grade alloys.
The process is dependent on use of ion exchange resins and solvent
extraction reagents. These are readily available and produced for the solvent
extraction industry by leading specialist chemical
E-4
<PAGE>
companies such as Dow Chemical, Henkel, Allied Colloids and Zeneca. The
electrowinning and alloying and casting stages will use standard metallurgical
practice and equipment.
COMPARISON WITH TRADITIONAL ZINC PRODUCTION METHODS
Zinc is typically obtained by the mining, smelting, and refining of zinc
containing ores. Frequently, zinc minerals are associated with copper, lead,
tin and cadmium containing minerals which have to be separated before zinc can
be smelted and refined.
The traditional refined zinc operation involves the discovery and
development of mineral reserves, the mining of zinc ore, crushing and grinding
that ore in a concentrator and producing a zinc concentrate for smelting.
Smelting and refining can be carried out at or near the mine site but a
significant amount of zinc concentrates are shipped for refining at third party
smelters.
Traditional mining and smelting complexes are large in terms of surface
area; they involve the operation of large pieces of mechanical equipment for
mining, transportation, crushing and grinding together with the installation of
large smelters and refineries. Hence they involve significant capital
expenditure and require operation at high throughputs in order to achieve
economies of scale and to generate high enough returns for the initial
investment. Today, Resource Strategies believes that a new zinc mining and
refining complex will have to operate at a level of around 200,000 tonnes of
refined zinc per year in order to generate sufficient returns on capital costs
ranging between $600 to $730 million over a 20 year life. This means that new
installations will have to be located within easy access of relatively large
and high grade zinc deposits for them to be viable and today, these deposits
are often located in regions distant from their markets. These characteristics,
in addition to environmental concerns, are an effective barrier to entry for
new smelting complexes in the USA.
In terms of capital cost, the amount required to complete the zinc plant
will be around $150 million, much less than a traditional zinc project. The
project is more capital intensive on a per tonne basis than a traditional
mining and smelting project but this will be offset by lower operating costs.
The Salton Sea project therefore has the advantage of being able to
produce relatively small amounts of high grade zinc that can serve a local
market. The installation is, by comparison, much more compact and far less
environmentally intrusive than a traditional mining and smelting venture. For
example, the ion exchange columns will be located at the existing power station
sites, the pipelines will follow existing pipeline corridors and the central
production plant will be another building on an existing power station site. A
traditional mining and smelting operation causes significant disruption to the
landscape, it can alter watercourses and requires extensive monitoring of
emissions, so by comparison, the Salton Sea project is more an industrial
process than an extraction facility. Furthermore, by-products generated by the
process are used in the generation of geothermal power, thereby increasing the
efficiency of the current generating system.
E-5
<PAGE>
THE WORLD REFINED ZINC MARKET
THE WORLD REFINED ZINC MARKET
1997-2018
1997 2007 2018
E. Bloc 18.6% E. Bloc 28.8% E. Bloc 28.9%
Other 28.2% Other 25.0% Other 27.5%
Japan 9.7% Japan 7.0% Japan 5.3%
US 16.2% US 14.7% US 13.1%
W. Europe 27.3% W. Europe 24.6% W. Europe 25.2%
7.80 Million Tonnes 10.02 Million Tonnes 13.24 Million Tonnes
Source: CRU International, Resource Strategies
Expected Long-Term
Average Annual Growth -- 2.5%
As shown in the chart above, the world zinc market was 7.8 million tonnes
in 1997 and is forecast to grow to just over 10 million tonnes in 2007. By
2018, Resource Strategies expects the world market for refined zinc to be in
the order of 13.24 million tonnes which represents an average growth over the
next 20 years of 2.5% per annum.
The main end-uses for zinc are in galvanizing, diecast alloys and the
production of brasses and bronzes. Recent trends have shown a strong reduction
in the use of zinc diecast alloys in the automobile industry but a more than
compensating growth in galvanizing. Continuous galvanizing for the automotive
and appliance markets has shown strong growth over the past fifteen years and
is forecast to be the strongest growing sector over the next 20 years as shown
in the graph below.
WESTERN WORLD ZINC CONSUMPTION BY END USE
1997-2018
1997 2007 2018
Other 16.8% Other 16.2% Other 15.5%
Brasses 13.0% Brasses 11.3% Brasses 10.0%
Die Casting 16.0% Die Casting 15.6% Die Casting 15.3%
Other Galv 20.7% Other Galv 19.9% Other Galv 18.8%
Galv Sheet 33.5% Galv Sheet 36.9% Galv Sheet 40.5%
6.36 Million Tonnes 7.65 Million Tonnes 13.24 Million Tonnes
Source: CRU International, Resource Strategies
The graph on page six shows the history of the zinc price since 1970 and
illustrates the typically cyclical nature of price movements of commodity
markets. The graph shows that zinc prices in real terms
E-6
<PAGE>
peaked in 1973, 1988-9 and to a lesser extent, in 1997. In 1988-9 as well as in
early 1997, the price rises were caused by relatively short term periods of
tightness in supply. In 1988, demand in North America and Western Europe was
strong and the former Soviet Union and China were important buyers of Western
zinc. Prices rose in spite of the fact that the market fundamentals were
indicating a potential oversupply; several traders had to cover short term
positions and at the time, both the Russians and Chinese were willing to pay
high prices as well as high premia. However, by the end of 1989, oversupply of
metal in Europe combined with technical and speculative influences caused a
rapid price fall. Since 1990, prices fell steadily until the end of 1996,
falling to below $1000 per tonne in 1993 and 1994.
With respect to more recent price movements, 1997 was a year of sharp
price fluctuation. During the first half of the year, consumption was strong,
LME stocks dropped by 100,000 tonnes and prices rose to $1,700 per tonne.
However during the second half of the year, massive exports from China, a
collapse in Asian demand and an increase in the supply of refined zinc lead to
prices falling to $1,100 per tonne. In 1998, alongside further weakness in
demand, refined supply has also fallen; LME stocks have decreased by 110,000
tonnes but in the expectation that supply will move above demand, prices have
languished around $1,056 per tonne.
[GRAPHIC OF HISTORY OF ZINC PRICES OMITTED]
It is also interesting to note that a clearly defined floor of around
$1,050 per tonne (approximately 48 cents/lb.) in real terms has been established
over the past 28 years which reflects the long-run marginal cost of production.
In 1971, real annual average prices fell to $1,138 per tonne; in 1986 prices
fell to $1,062 per tonne; in 1993 they were $1,052 per tonne and $1,045 in
1996.
E-7
<PAGE>
ZINC CONSUMPTION IN THE UNITED STATES, CALIFORNIA AND THE WEST COAST
UNITED STATES
Zinc consumption in the USA was 1.265 million tonnes in 1997; current
forecasts indicate that zinc consumption could rise as high as 1.54 million
tonnes per annum by 2018, an increase of 270,000 tonnes per annum. The United
States market, into which the Salton Sea product will be sold, imports 70% of
its needs and is expected to remain at this level over the forecast period.
Total USA consumption in 1997 was 1,265,000 tonnes, broken down as
follows:
<TABLE>
<S> <C> <C>
Galvanizing 695,000 tonnes 55%
Diecasting 224,000 tonnes 18%
Brass 170,000 tonnes 13%
Rolled Zinc 70,000 tonnes 6%
Zinc Oxide 80,000 tonnes 6%
Misc. 26,000 tonnes 2%
------------------ --
TOTAL 1,265,000 TONNES 100%
</TABLE>
CALIFORNIA
As a result of a recent market survey carried out by Resource Strategies,
we estimate the zinc market in California is about 94,000 tonnes accounting for
about 7.4% of total USA consumption. Three grades of zinc are available: High
Grade (HG) zinc produced to ASTM standards, having a purity of 99.95% zinc;
Special High Grade (SHG) zinc which conforms to LME specifications with a
purity of 99.995% zinc and Continuous Galvanizing Grade (CGG) which is an alloy
of zinc containing aluminium and cadmium produced to specific customer
requirements. USA consumers tend to use HG zinc when this is available.
There are no brass mills, zinc rolling mills or zinc oxide plants in
California, so the consumption in the state is quite different from the current
USA pattern. In the state of California, we estimate that galvanizing accounts
for 51,000 tonnes (55%) of the total and zinc alloys 41,000 tonnes (45%). We
have also developed a more detailed breakdown of these categories. We estimate
that the total galvanized consumption of 51,000 tonnes includes 43,500 tonnes
of sheet and strip galvanizing, 5,000 tonnes of continuous galvanizing of
extruded tube and 2,500 tonnes of after-fabrication hot dip galvanizing. Of the
alloy total of 41,000 tonnes, 40,000 tonnes would be used in zinc diecasting
alloys and 1,000 tonnes in aluminum-based alloys.
The most complex market sector is sheet galvanizing; there are four steel
mills in California producing coated steel; three are conventional galvanizing
lines, while the fourth coats its steel with a zinc-aluminum alloy to produce a
product called Zincalume.
The four California steel mills that have continuous galvanizing lines
are:
o PINOLE POINT STEEL, RICHMOND: The company consumes 12,700 tonnes
annually of zinc and most of it is contained in alloy supplied directly
from its zinc suppliers. It buys about 1,500 tonnes as high grade zinc.
o CALIFORNIA STEEL, FONTANA: The company uses 11,000 tpy of zinc. It
buys master alloy and special high-grade (SHG) zinc and produces its own
specification alloy.
o USS-POSCO, PITTSBURGH: This is the biggest galvanized producer in
California consuming about 16,800 tpy of zinc. It buys around 14,000
tonnes of CGG and the rest as SHG zinc and master alloy and then blends
to specification.
o BHP STEEL USA, RANCHO CUCAMONGA: This is the Zincalume line. The
amount of zinc in the coating is less than half that of conventional
galvanized steel (34.3 lb/tonne vs. 77.2 lb/tonne). Annual zinc purchases
total 4,200 tonnes. The company buys SHG and primary aluminum and
produces the alloy in-house.
E-8
<PAGE>
These steel mills have the option of purchasing from their zinc suppliers,
the exact specification CGG alloy needed for a particular application or they
can buy a "master" alloy containing the required ingredients of aluminium and
cadmium, and SHG zinc separately, and blend them to the exact specification
needed for a particular production run. The specification of the CGG alloy will
vary according to the end use in which the galvanized sheet will be used, e.g.
automotive, appliance or construction applications. Different mills also have
their own preferences based on their equipment and operating experience. A
large zinc producer may offer as many as 15 or 20 different CGG alloys.
The after-fabrication galvanizing market in California holds a much
smaller share of the total galvanizing market than is the case nationwide.
While the total USA after-fabrication market is about 180,000 tonnes or 25% of
the galvanizing market, in California it is only 2,500 tonnes or 5%. There are
only six companies and six plants doing after-fabrication hot dip galvanizing
in California. The American Galvanizers Association reports that there are two
plants in the San Francisco area, two in Los Angeles and two in San Diego.
There are a handful of steel tube makers that continuously galvanize the
tube as it is extruded. We estimate they consume about 5,000 tpy.
There are three independent zinc diecast alloyers in California. These
alloy makers purchase zinc and other alloying metals from producers and then
produce alloys used by diecasters. They also serve to recycle scrap generated
by the diecasters.
The three are Semco in City of Industry, Custom Alloy in Lynwood and Atlas
Pacific in Paramount. We estimate they consume a combined 40,000 tpy of zinc,
with Semco being the largest. In summary, therefore, the zinc consumption of
California is primarily in the form of SHG zinc as shown below:
<TABLE>
<CAPTION>
PROCESS SHG/HG CGG
- -------------------------------- ---------- ---------
<S> <C> <C>
Continuous Sheet Galvanizing 19,500 t 26,000 t
Diecast Alloyers 40,000 t
Tube Makers 5,000 t
After-Fab Galvanizers 2,500 t
Aluminum Alloys 1,000 t
---------- ---------
TOTAL 68,000 T 26,000 T
</TABLE>
WEST COAST
As far as the West Coast of the USA, is concerned, Washington state and
Northwest Mexico are expected to be potential markets for Salton Sea zinc. BHP
also recently opened a conventional galvanizing line in Washington state that
consumes about 9,000 tpy of zinc that it buys as specification grade alloy from
Cominco in British Columbia. In Northwestern Mexico, around the cities of
Mexicali and Tijuana, with combined population of around 3 million people,
there is minor zinc consumption in after-fabrication galvanizing and brass
making.
We therefore estimate, that the total market for the three grades of zinc
in the expanded West Coast region must be at least 105,000 tonnes per annum
assuming that Northwest Mexico is using a conservative 2,000 tonnes per year.
The breakdown in alloys is shown below:
<TABLE>
<CAPTION>
STATE/REGION SHG/HG CGG
- -------------- ---------- ---------
<S> <C> <C>
California 68,000 t 26,000 t
Washington 9,000 t
NW Mexico 2,000 t
---------- ---------
TOTAL 70,000 T 35,000 T
</TABLE>
From world and regional consumption patterns, CRU International and
Resource Strategies project that Western World zinc demand will grow at an
annual growth rate of around 2.5% from 1997 to 2018. In a longer term survey
carried out by Resource Strategies, we expect the consumption of zinc in the
United States to increase from 1.265 million tonnes in 1997 to 1.45 million
tonnes in 2007 and 1.67 million
E-9
<PAGE>
tonnes in 2018. If California's share of the national total remains constant,
which is a reasonable assumption, consumption in the state by 2007 would be
about 108,000 tonnes per year rising to around 124,000 tonnes by 2018. If the
West Coast market for zinc grows at the same average rate predicted for North
America over the period, we expect this market to be in excess of 138,000
tonnes by 2018.
The market for zinc in California and the West Coast is significant, and
over the life of the Salton Sea project, this combined market is expected to
grow by about 33,000 tonnes from 105,000 tonnes in 1997 to 138,000 tonnes in
2018 on the basis of conservative growth forecasts. Bearing in mind that there
is no local production of zinc on the USA West Coast, we believe that providing
production meets the normal quality requirements, the Salton Sea production can
be readily absorbed in the Californian and other West Coast markets at present.
Future growth prospects reinforce this view.
ZINC SUPPLY IN THE UNITED STATES AND CALIFORNIA
UNITED STATES
The USA is only 31% self sufficient in zinc metal production. The largest
zinc mine in the country is Red Dog in Alaska, which is owned by Cominco. The
concentrates are smelted at Cominco's Trail smelter in British Columbia and by
other smelters around the world.
In 1997 the USA produced 387,000 tonnes of slab zinc and imported 876,000
tonnes. The three USA smelters are all located in the eastern half of the
country. They are, with their rated capacities:
<TABLE>
<S> <C> <C>
SAVAGE ZINC Clarksville, TN 115,000 tpy
ZINC CORP. OF AMERICA Monaca, PA 155,000 tpy
BIG RIVER ZINC Sauget, IL 82,000 tpy
------------
TOTAL 353,000 tpy
</TABLE>
Big River is now owned by Korea Zinc and Savage is an Australian company.
Both of America's NAFTA partners are significant zinc producers. In 1997
Canada produced 700,000 tonnes and Mexico 229,000. The smelters in these
countries and their rated capacities are as follows:
<TABLE>
<S> <C> <C> <C>
CANADA: Noranda Vallefield, Que 250,000 tpy
Cominco Trail, BC 290,000 tpy
Hudson Bay Flin Flon, Man 95,000 tpy
Falconbridge Timmins, Ont 145,000 tpy
------------
TOTAL 780,000 TPY
MEXICO: Penoles Torreon 130,000 tpy
IMMSA San Luis Potosi 113,000 tpy
------------
TOTAL 243,000 TPY
</TABLE>
Source: CRU International
The major foreign supplier to the USA zinc market is Canada. In 1997 it
supplied 473,000 tonnes or 54% of the total. The eight largest suppliers,
accounting for 88% of total imports, were as follows:
<TABLE>
<S> <C>
Canada 473,000 tonnes
Spain 99,000 tonnes
Mexico 83,000 tonnes
Russia 34,000 tonnes
Brazil 22,000 tonnes
Korea 21,000 tonnes
Peru 18,000 tonnes
Kazakhstan 18,000 tonnes
---------------
TOTAL 768,000 TONNES
</TABLE>
The cost of freight is the main factor that determines which part of the
USA will be supplied by a particular importer. For example, European exporters
will ship zinc to East Coast ports and the Great
E-10
<PAGE>
Lakes ports via the St. Lawrence Seaway. Asian exporters will ship to West
Coast ports. Exporters such as Peru have the option of shipping to the West
Coast or using the Panama Canal to reach the Gulf Coast.
In the case of Canada, the Cominco smelter is in the western part of the
country, while the other three smelters are in the central and eastern parts of
the country. Thus, Cominco is the only Canadian smelter to ship zinc to the
West Coast of the USA.
The two Mexican smelters are somewhat better placed to ship into the USA
Gulf region, but they also rail some of their output into the USA Southwest.
None of the USA smelters ship to the West Coast; they are better situated
to serve the larger Midwest and Eastern markets.
Since data to determine the tonnage of imports consumed in California is
scarce, we have developed an estimate of the sources of supply for the
California market based on interviews with consumers and merchants; this is as
follows:
<TABLE>
<S> <C>
Canada 49,000 tonnes
Mexico 17,000 tonnes
Korea 15,000 tonnes
China 5,000 tonnes
Peru 5,000 tonnes
Australia 3,000 tonnes
--------------
TOTAL 94,000 TONNES
</TABLE>
Of the six significant exporters to the California zinc market, five are
now facing diminished demand in their domestic markets as a result of economic
uncertainty in Asia. Competition to sell more zinc in the USA has already
intensified, especially on the West Coast. This intensified competition may
mean that some suppliers will reduce their West Coast marketing efforts. Mexico
would be the most likely candidate to try to sell more elsewhere in the USA and
less in California.
The biggest potential impact on the California supply pattern over the
life of the Salton Sea project will result from new capacity overseas whose
production may be competitive when delivered into the California market.
However, when recovery of the Asian economies gets underway, we expect these
same countries to be the fastest growing markets for zinc, so the pressure to
export to the West Coast of the USA will be significantly reduced.
Korea Zinc has recently completed an 85,000 tpy expansion at Onsan and is
now constructing a new 170,000 tpy smelter at Townsville, Australia, which is
due on stream in 2000. It plans to market the Townsville production in
Southeast Asia. We therefore expect Korea Zinc to continue selling into the USA
West Coast by using production from Onsan. Thus, assuming a recovery in Asian
zinc demand shortly after 2000, this new Australian capacity should not affect
exports to California.
Cominco is considering an expansion from 120,000 tpy to 240,000 tpy at its
Cajamarquilla smelter in Peru. This project could be postponed since much of
the increased production is targeted for Asia. We do not expect the company to
switch supply destinations as Cominco can more economically supply its
California customers from its British Columbia smelter.
Penoles is expanding its Torreon, Mexico, smelter from 135,000 tpy to
220,000 tpy in 1999. It is possible that Penoles could try to sell some of this
increased output in California.
All matters considered, we expect no major shifts in the California supply
pattern once economic recovery commences in Asia. We expect Cominco to remain
the dominant supplier, followed by Penoles, Korea Zinc and IMMSA.
E-11
<PAGE>
SUPPLY AND DEMAND BALANCES
Over the life of the Salton Sea project, we expect all of the metal
consumed in California to be supplied by imports from Canada, Mexico and Korea,
and from Salton Sea production. As we will discuss in a later section, the
Salton Sea project will have important transportation advantages over the other
suppliers. Secondly, as far as the wider United States market is concerned, we
expect the country to remain a large importer of zinc; by 2018 we expect
consumption to be 1.54 million tonnes of zinc per year. The only expansion on
the horizon is the Savage Resources smelter at Clarkesville which will increase
production by around 200,000 tonnes of zinc. This metal is unlikely to be
competitive when delivered to the West Coast.
THE PRICING STRUCTURE OF THE ZINC MARKET
The zinc prices paid by industrial consumers have two components, the
BASIC ZINC PRICE and a PREMIUM that generally reflects both the cost of
delivery into a particular region and the grade of zinc sold. Zinc prices in
the Western World are determined by the London Metal Exchange (LME). Through
daily trading, prices are established for metal to be delivered in the current
month, three months forward and for selected months extending out for 27
months. These prices reflect the current worldwide supply/ demand balance, the
level of stocks, and the perception of changes likely over the next year or
two. As far as the Salton Sea project is concerned, there are two premiums, one
for the standard metal (SHG) that reflects the cost of delivery and a
galvanizing grade premium (CGG) which includes the cost of alloying as well as
delivery.
The purity standard of traded zinc has been the cause of intermittent
discussion within the LME over the past 25 years. The LME used to trade Good
Ordinary Brand zinc and High Grade zinc but these contracts were gradually
upgraded to the current Special High Grade contract.
The advantage that the LME brings to both producers and consumers is that
not only does it provide a mechanism for pricing the six major primary metals,
but it is also the buyer and seller of last resort. A producer can always sell
zinc into the LME at market prices and deliver the metal to an LME warehouse.
Similarly, a consumer can always buy zinc and take delivery from an LME
warehouse.
Although the LME sets the metal price, very little of the trading involves
the exchange of physical metal. In 1997, the LME traded 7.675 million lots of
SHG zinc equivalent to 191.9 million tonnes of material, nearly 25 times the
global consumption of the metal.
Most of the trading on the LME involves price hedging where a producer can
set a price for future delivery or a consumer can fix a price for a future
purchase, irrespective of what the LME price will be on the day of delivery or
purchase. In most cases, these are paper transactions and do not entail
exchange of physical metal.
One other important point to note about the zinc market is that as the LME
is a buyer and seller of last resort, when supply exceeds demand, producers can
and do deliver metal into an exchange warehouse. There is the cost of
physically delivering the metal to the warehouse and sacrificing the premium,
but producers never face the prospect of not being able to sell their metal
once it has met LME specifications and becomes registered as a deliverable
brand. As far as the Salton Sea project is concerned, there are two LME
warehouses in California; so when the project metal is registered, it can be
delivered to one of these warehouses if it cannot find a suitable trade
customer. Typically for new zinc smelters, the LME brand registration
procedure, including sampling and testing, which often takes six to eighteen
months to obtain, is not a crucial factor in successfully marketing metal
during the initial months of operation. Many consumers require metal
specifications which are frequently more stringent than the LME's, so the
establishment of consistent product quality for both SHG and CGG zinc is more
important than pure pricing considerations.
CE Minerals' marketing strategy for the period prior to obtaining the LME
standard is to target the CGG market in California; there is no LME requirement
for CGG. CE Minerals intends to work closely with the four West Coast sheet
galvanizers to ensure customer specifications are met. This is described more
fully in the marketing section.
E-12
<PAGE>
The amount of the PREMIUM over the LME price reflects both what it would
cost a consumer to buy metal from an LME warehouse and ship it to his plant.
The shippable cost would be the fee paid to the warehouse to withdraw the
metal, the fee paid to the LME broker to buy the metal, the freight cost from
warehouse to plant, and import tariffs, if any.
Premiums in general will vary regionally based on market conditions of
supply and demand. Europe, for example, is a net exporter of zinc and hence has
low premiums. The USA is a net importer and thus has higher premiums. Producers
must bear the freight cost to ship to a more distant market and, consequently,
will be willing to accept a lower premium on sales made in their home markets
where delivery costs are lower. According to Metals Week, a McGraw Hill
publication which conducts regular market surveys, North American SHG and
galvanizer grade prices are presently 5.25 cents/lb and 11.25 cents/lb
respectively over the SHG LME zinc price.
Normally USA premiums are lowest on the East and Gulf Coasts since most
offshore suppliers (excluding Canada and Mexico) ship across the Atlantic.
Midwest premiums are higher reflecting the cost of shipping product through the
St. Lawrence Seaway to ports on the Great Lakes. West Coast premiums are about
1 cent/lb higher than East and Gulf Coast premia because competition from
imports is normally less severe. With zinc demand from East Asia slackening,
the competition to sell more zinc on the West Coast has intensified and
premiums are now about 1 cent/lb below the rest of the country. Over time, we
expect West Coast premiums to range from 4 cents/lb to 6 cents/lb for SHG zinc
and 10 cents/lb to 12 cents/lb for CGG zinc in nominal terms. In times of high
prices, the premia in the East and Gulf Coasts have risen to 10 cents/lb and
fallen to 1 cent/lb in times of very low prices.
E-13
<PAGE>
THE COMPETITIVE POSITION OF THE SALTON SEA PROJECT
The competitive position of the Salton Sea project will be defined by the
cost that the project incurs in producing refined zinc and the costs of
delivering its metal to its consumers.
COSTS OF PRODUCTION
According to operating cost figures recommended by SSFC and found to be
reasonable by Fluor Daniel as independent engineer, we estimate using RSI
methodology the Salton Sea project is well within the bottom quartile of the
Western World mine cash operating cost curve after by-product credits, as shown
in the chart below. Essentially, this means that the project will be amongst
the lowest cost producers of zinc. The graph shows the costs of production of
all the Western World zinc producers on an accumulated tonnage basis.
CRU International is forecasting that of the 5.3 million tonnes of
capacity surveyed, the cost of production of zinc will range from below zero to
around $1,300 per tonne in 2007 after the inclusion of by-product credits. Some
mines have a cost less than zero by this calculation because they have high
quantities of lead and silver, which, in effect, are valued higher than their
production costs. Using this data, Resource Strategies estimates that by 2007,
around 700,000 tonnes of world capacity will have lower costs than the Salton
Sea project but around 5.6 million tonnes of capacity will have higher
production costs.
[GRAPHIC OF WESTERN WORLD ZINC CASH COST CURVES OMITTED]
SSFC has recommended zinc production costs of 22.9 cents/lb ($505 per
tonne) for 2007 before by-product credits and, 18.4 cents/lb ($405 per tonne)
after by-product credits at 1997 prices. The Independent Engineer has found
these costs to be reasonable.
We have outlined the physical differences between the Salton Sea project
and traditional methods of production, but in terms of the production of
refined zinc, the above production figures are directly comparable and indicate
that the project is very competitive.
E-14
<PAGE>
COMPETITIVE POSITION IN THE CALIFORNIAN MARKET
More specifically, the Salton Sea project is also seen to be competitive
in terms of the companies currently supplying the Californian market. As the
chart below illustrates, the project has lower production costs than Cominco,
the largest supplier at present, as well as the two Mexican companies, Penoles
and IMMSA.
ESTIMATED PRODUCTION COSTS OF LEADING
ZINC SUPPLIERS IN CALIFORNIAN MARKET
Salton Sea Penoles IMMSA Cominco
18.4 18.5 20.6 40.0
When the cost of delivering metal into the Californian market is
considered in addition to production costs, the Salton Sea project will have a
further advantage. SSFC has indicated that its average delivery costs will be
in the order of 1.7 cents/lb. Current West Coast zinc premia, which essentially
reflect the cost of delivery, are around 4 to 6 cents/lb, so this advantage
could be as much as a further 2 to 4 cents/lb.
PROJECTING FUTURE REVENUES
The future revenues of the Salton Sea zinc extraction project will be
linked to the prevailing market price of zinc. As outlined in an earlier
section of this report, zinc is traded on the London Metal Exchange, so the
price is set daily and, as a last resort, metal can be delivered to an approved
LME warehouse and sold. This, however, is an inefficient way of selling this
material as normally, a price premium over and above that quoted on the LME, is
charged by metal producers. Furthermore, around half of the production may be
sold as continuous galvanizing grade which itself cannot be delivered to an LME
warehouse but also commands an important premium.
For the Salton Sea project, future revenues will therefore be a function
of the future zinc price and the specific premia connected with LME quality
zinc and approved galvanizing grade alloys. However, Resource Strategies
believes that future zinc prices used in the evaluation of debt and equity
investment must be related to the level of risk to the extent that our
forecasts could be inaccurate.
E-15
<PAGE>
LONG-TERM ZINC PRICE FORECAST
Resource Strategies has produced a long-term zinc price forecast to 2018.
This forecast is summarized in the chart below.
[GRAPHIC OF LONG-TERM ZINC PRICE FORECAST 2000 TO 2018 OMITTED]
This forecast has been prepared from an analysis of current and future
patterns of production and consumption and the relative changes in LME stocks,
which currently stand at around 375,000 tonnes. Over the next 20 years,
Resource Strategies is expecting a double peak in zinc prices. In our base
case, the current low prices are expected to continue to well beyond 2000, but
shortly after 2004 when the renewed levels of Asian demand feed through to
depressed stock levels, prices are expected to rise strongly to around 66
cents/lb in 2006 which will encourage investment in new production. As a result
of this new investment, we then expect another cycle of lower prices followed
by reduction in stocks and another price increase. Our downside case assumes
that the recession in Asia will be deeper and longer, and the decrease in
stocks, necessary before there can be any increases in price, will be more
gradual.
The tables below show the results of probabilistic simulation analysis,
which assigns confidence levels to zinc price variations. The methodology
associated with this analysis is detailed in the appendix.
RECOMMENDED FUTURE ZINC PRICES TO BE USED IN FINANCING
THE SALTON SEA ZINC PROJECT
(US C/LB -- 1997 PRICES)
<TABLE>
<CAPTION>
CONFIDENCE LEVEL 2000-2004 2005 - 2015 2000 - 2018
- ---------------------- ----------- ------------- ------------
<S> <C> <C> <C>
Base Case 49.08 57.92 54.61
Downside Case 46.49 52.81 50.26
98% Confidence Level 43.91 49.76 49.26
</TABLE>
- ----------
Source: Resource Strategies
To summarize, the table on the following page details our price forecasts
on an annual basis for our base case and downside scenarios as well as the
premia for SHG and CGG grades.
E-16
<PAGE>
LONG-TERM PRICE FORECAST (1997 CENTS/LB)
2000 -- 2018
<TABLE>
<CAPTION>
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Base Case 48.5 47.2 48.1 49.9 51.7 56.7 66.2 56.9 55.7 53.1
Downside 45.6 44.0 46.4 47.7 48.7 50.8 55.3 54.4 53.5 49.9
SHG Premium 3.7 4.5 4.4 4.3 5.0 4.9 4.8 4.7 4.6 4.5
CGG Premium
a. alloy element 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0
b. market 4.6 5.4 5.3 5.2 5.9 5.7 5.6 5.5 5.3 5.2
Market entry discount (0.9) (0.5) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Total CGG Premiuim 8.7 10.0 10.3 10.2 10.9 10.7 10.6 10.5 10.3 10.2
2010 2011 2012 2013 2014 2015 2016 2017 2018
----- ----- ----- ----- ----- ----- ----- ----- -----
Base Case 56.0 58.2 60.6 59.0 57.9 56.9 55.5 50.8 48.8
Downside 52.6 53.3 54.0 54.4 52.2 50.4 48.4 47.0 46.1
SHG Premium 4.4 4.2 4.1 4.0 3.9 3.8 3.8 3.7 3.0
CGG Premium
a. alloy element 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0
b. market 5.1 5.0 4.8 4.7 4.6 4.5 4.4 4.3 3.6
Market entry discount 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Total CGG Premium 10.1 10.0 9.8 9.7 9.6 9.5 9.4 9.3 8.6
</TABLE>
- ----------
SOURCE: Resource Strategies
ZINC MARKETING PLAN
We have reviewed an outline marketing plan for the Salton Sea production
which is detailed below. The marketing plan contains the following primary
elements:
1.) Goal -- become a major supplier to the West Coast market focusing on
steel companies and alloyers. Become the supplier of choice to alloyers
and the number two supplier to steel companies.
2.) Products -- ASTM SHG purity of 99.99%; production split of 70% SHG
(special high grade) zinc for steel companies, alloyers and other
galvanizers; 30% CGG (continuous galvanizing grade) zinc for steel
companies.
3.) Produce product in one ton jumbo ingots.
4.) Pricing based on market standard terms of LME plus premium, fob
customer.
5.) Make direct sales using a dedicated sales team consisting of: salesman,
logistics manager, administrative assistant, and technical support from a
metallurgist and engineers. Hire the marketing staff in advance of
start-up.
6.) Use trucks as the primary mode of delivery with rail deliveries as
appropriate to distant customers.
7.) Accomplish market entry by producing on-specification products and
using discounts of 1 cent/lb of zinc in 2000 and 1/2 cent/lb in 2001.
8.) Obtain LME registration as soon as possible.
CONCLUSION:
In our review and discussion we focused on the following key points:
E-17
<PAGE>
1.) the local market for zinc and continuous galvanizing grade material
2.) the form of the material required by the market
3.) levels of impurities in the end product
4.) sales strategy
We have been satisfied that management is aware of the major issues and is
formatting plans with these points in mind.
We believe this marketing plan is reasonable and can be accomplished.
APPENDIX
RESOURCE STRATEGIES APPROACH TO METAL PRICE VARIATIONS
Resource Strategies' approach to examining potential metal price
variability is to use a probability simulation technique in order to assign
levels of confidence with a range of future metal prices.
The methodology used by Resource Strategies to quantify this risk is based
on Monte Carlo risk analysis. This is a well known statistical technique
utilizing a model, which, in the case of the Salton Sea project, identifies the
key drivers of uncertainty surrounding the zinc price and quantifies their
potential effect on the future zinc price over the forecast period.
The key variables or uncertainties that drive the metal price such as
macroeconomic trends, timing of the next point of change in the supply/demand
balance, the rate at which changes may occur, the price elasticity effect on
the use of the metal, and changes in short and long run marginal costs of
production, are quantified so that the potential affect of each driver can be
assessed. This is usually done by specifying a frequency distribution; a normal
distribution is most commonly used to describe many natural, economic and
business risks, which can easily be quantified in terms of a median value and a
standard deviation. Some of the risks associated with the above parameters may
require different risk distributions in order to describe how the parameter may
change over time.
The Monte Carlo simulation process uses random number generation to select
values from every distribution pattern associated with each variable or
uncertainty in order to calculate the potential effect on the metal price. By
repeating the simulation a large number of times, this procedure yields a
frequency distribution for a range of metal prices. Essentially, the model is
simulating every possible permutation and combination of assumptions in
accordance with the probabilities specified.
In the case of the CRU International forecast of the zinc price, our Monte
Carlo simulation has indicated that as a result of the possible changes in the
timing of many new projects worldwide during the period 2000 to 2005, there is
an important downside risk that metal prices will be lower than indicated.
E-18
<PAGE>
The chart below shows the skewed distribution of the level of risk associated
with the metal price over this period, indicating that prices are likely to be
lower rather than higher than the base case forecast.
[GRAPHIC OF FREQUENCY CHART OMITTED]
In the chart below, the distribution of this risk is seen to adopt a far
more normal pattern for the period 2005 to 2015, indicating that prices for
this period in the life of the project are likely to be higher on average.
[GRAPHIC OF FREQUENCY CHART OMITTED]
E-19
<PAGE>
For the first 15 years of the project, that is assessing the risk of
variation of the zinc price during the period overall, our model has also
indicated a more normal distribution. This indicates that over the life of the
project average prices will be higher than those achieved in the first five
years.
We recommend that in order to assess the price beneath which future zinc
prices will not fall, a probability level of 2% indicated by the risk analysis
is used. This corresponds with a 98% confidence level.
E-20
<PAGE>
APPENDIX F
FORM OF LETTER TO BE DELIVERED BY ACCREDITED INVESTORS
Salton Sea Funding Corporation
302 South 36th Street, Suite 400-A
Omaha, Nebraska 68131
Credit Suisse First Boston Corporation
Goldman, Sachs & Co.
c/o Credit Suisse First Boston Corporation
Eleven Madison Avenue
New York, NY 10010-3629
Attention: Transactions Advisory Group
Dear Sirs:
We are delivering this letter in connection with an offering of
$285,000,000 7.475% Senior Secured Series F Bonds Due November 30, 2018 (the
"Securities") of Salton Sea Funding Corporation, a Delaware corporation (the
"Company"), all as described in the Confidential Offering Circular (the
"Offering Circular") relating to the offering.
We hereby confirm that:
(i) we are an "accredited investor" within the meaning of Rule 501(a)(1),
(2) or (3) under the Securities Act of 1933, as amended (the "Securities Act"),
or an entity in which all of the equity owners are accredited investors within
the meaning of Rule 501(a)(1), (2) or (3) under the Securities Act (an
"Institutional Accredited Investor");
(ii) (A) any purchase of the Securities by us will be for our own account
or for the account of one or more other Institutional Accredited Investors or
as fiduciary for the account of one or more trusts, each of which is an
"accredited investor" within the meaning of Rule 501(a)(7) under the Securities
Act and for each of which we exercise sole investment discretion or (B) we are
a "bank", within the meaning of Section 3(a)(2) of the Securities Act, or a
"savings and loan association" or other institution described in Section
3(a)(5)(A) of the Securities Act that is acquiring the Securities as fiduciary
for the account of one or more institutions for which we exercise sole
investment discretion;
(iii) in the event that we purchase any of the Securities, we will acquire
Securities having a minimum purchase price of not less than $100,000 for our
own account or for any separate account for which we are acting;
(iv) we have such knowledge and experience in financial and business
matters that we are capable of evaluating the merits and risks of purchasing
the Securities;
(v) we are not acquiring the Securities with a view to distribution
thereof or with any present intention of offering or selling any of the
Securities, except inside the United States in accordance with Rule 144A under
the Securities Act or outside the United States in accordance with Regulation S
under the Securities Act, as provided below; provided that the disposition of
our property and the property of any accounts for which we are acting as
fiduciary shall remain at all times within our control; and
(vi) we have received a copy of the Offering Circular relating to the
offering of the Securities and acknowledge that we have had access to such
financial and other information, and have been afforded the opportunity to ask
such questions of representatives of the Company and receive answers thereto,
as we deem necessary in connection with our decision to purchase the
Securities.
We understand that the Securities are being offered in a transaction not
involving any public offering within the United States within the meaning of
the Securities Act and that the Securities have not been and will not be
registered under the Securities Act, and we agree, on our own behalf and on
behalf of each
F-1
<PAGE>
account for which we acquire any Securities, that if in the future we decide to
resell, pledge or otherwise transfer such Securities, such Securities may be
offered, resold, pledged or otherwise transferred only (i) inside the United
States to a person who we reasonably believe is a "qualified institutional
buyer" (as defined in Rule 144A under the Securities Act) in a transaction with
meeting the requirements of Rule 144A, or (ii) outside the United States in a
transaction in accordance Rule 904 under the Securities Act, (iii) pursuant to
an exemption from registration under the Securities Act provided by Rule 144
thereunder (if available) or (iv) pursuant to an effective registration
statement under the Securities Act, in each of these cases (i) through (iv), in
accordance with any applicable securities laws of any State of the United
States or any other applicable jurisdiction. We understand that the registrar
and transfer agent for the Securities will not be required to accept for
registration or transfer any Securities acquired by us, except upon
presentation of evidence satisfactory to the Company and the transfer agent
that the foregoing restrictions on transfer have been complied with. We further
understand that any Securities acquired by us, will be in the form of
definitive physical certificates and that such certificates will bear a legend
reflecting the substance of this paragraph.
We acknowledge that you, the Company and others will rely upon our
confirmations, acknowledgments and agreements set forth herein, and we agree to
notify you promptly in writing if any of our representations or warranties
herein ceases to be accurate and complete.
THIS LETTER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF
LAWS.
Date:
--------------------------------- -------------------------------------
(Name of Purchaser)
By:
-----------------------------------
Name:
Title:
Address:
F-2
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Each of the Funding Corporation (a Delaware corporation), CEOC (a Delaware
corporation), CESS (a Delaware corporation) and SSMC (a Delaware corporation)
is empowered by Section 145 of the Delaware General Corporation Law, subject
to the procedures and limitations stated therein, VPC (a Nevada corporation)
is empowered by Section 78.751 of the Nevada General Corporation Law, subject
to the procedures and limitations stated therein, each of San Felipe (a
California corporation), Conejo (a California corporation) and Niguel (a
California corporation) is empowered by Section 317 of California General
Corporation Law, subject to the procedures and limitations stated therein,
and each of Fish Lake (a Delaware limited liability company), Power LLC (a
Delaware limited liability company), VPC Geothermal (a Delaware limited
liability company), Minerals LLC (a Delaware limited liability company), Turbo
LLC (a Delaware limited liability company) and the Royalty Guarantor (a Delaware
limited liability company) is empowered by Section 18-108 of the Delaware
Limited Liability Company Act, subject to the procedures and limitations stated
therein, to indemnify any person against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with any threatened, pending or completed action, suit or
proceeding in which such person is made a party by reason of his being or having
been a director, officer, employee or agent of the Funding Corporation, CEOC,
CESS, SSMC, VPC, San Felipe, Conejo, Niguel, Fish Lake, Power LLC, VPC
Geothermal, Minerals LLC, Turbo LLC and the Royalty Guarantor, respectively. The
statutes provide that indemnification pursuant to their provisions is not
exclusive of other rights of indemnification to which a person may be entitled
under any by-law, agreement, vote of stockholders or disinterested directors, or
otherwise. The Certificates of Incorporation and/or by-laws of the Funding
Corporation, CEOC, CESS and SSMC provide for indemnification of the directors
and officers of such entities to the full extent permitted by the Delaware
General Corporation Law. The by-laws of VPC provide for indemnification of the
directors and officers of such entities to the full extent permitted by the
Nevada General Corporation Law. The Certificates of Incorporation and/or by-laws
of San Felipe, Conejo and Niguel provide for indemnification of the directors
and officers of such entities to the full extent permitted by the California
General Corporation Law. The limited liability company operating agreements of
Fish Lake, Power LLC, VPC Geothermal, Minerals LLC, Turbo LLC and the Royalty
Guarantor provide for indemnification of the managers, officers and directors of
such entities to the full extent permitted by the Delaware Limited Liability
Company Act.
Section 15643 of the California Revised Limited Partnership Act empowers
SSBP (a California limited partnership), SSPG (a California limited
partnership) Leathers (a California limited partnership), Del Ranch (a
California limited partnership), and Elmore (a California limited
partnership), to indemnify a general partner who has paid more than his share
of partnership obligations. Section 87.180 of the Uniform Partnership Act of
Nevada, absent all agreement to the contrary, empowers Vulcan (a Nevada
general partnership) to indemnify its partners for acts or omissions taken in
good faith. The general partnership agreement of Vulcan does not contain
provisions to the contrary.
Section 102(b)(7) of the Delaware General Corporation Law permits a
provision in the certificate of incorporation of each corporation
incorporated thereunder, such as the Funding Corporation, CEOC, CESS and
SSMC, eliminating or limiting, with certain exceptions, the personal
liability of a director to the corporation or its stockholders for monetary
damages for certain breaches of fiduciary duty as a director. The
Certificates of Incorporation of the Funding Corporation, CEOC, CESS and SSMC
provide for eliminating the personal liability of directors to the full
extent permitted by the Delaware General Corporation Law.
MidAmerican maintains an insurance policy providing for indemnification of
the officers and directors of its subsidiaries and certain other persons
against liabilities and expenses incurred by any of them in certain stated
proceedings and under certain stated conditions.
II-1
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- --------------- ------------------------------------------------------------------------------------------------
<S> <C>
3.1 Articles of Incorporation of the Funding Corporation (incorporated by reference to Exhibit 3.1
to the Funding Corporation Registration Statement on Form S-4 dated August 9, 1995, 33-95538
("Funding Corporation Form S-4")).
3.2 By-laws of the Funding Corporation (incorporated by reference to Exhibit 3.2 to the Funding
Corporation Form S-4).
3.3 Limited Partnership Agreement of SSBP (incorporated by reference to Exhibit 3.3 to the Funding
Corporation Form S-4).
3.4 Limited Partnership Agreement of SSPG (incorporated by reference to Exhibit 3.4 to the Funding
Corporation Form S-4).
3.5* Certificate of Formation of Fish Lake.
3.6* Limited Liability Company Agreement of Fish Lake.
3.7 Articles of Incorporation of VPC (incorporated by reference to Exhibit 3.7 to the Funding
Corporation Form S-4).
3.8 By-laws of VPC (incorporated by reference to Exhibit 3.8 to the Funding Corporation Form S-4).
3.9 Articles of Incorporation of CEOC (incorporated by reference to Exhibit 3.9 to the Funding
Corporation Form S-4).
3.10 By-laws of CEOC (incorporated by reference to Exhibit 3.10 to the Funding Corporation Form S-4).
3.11* Certificate of Formation of the Royalty Guarantor.
3.12* Limited Liability Company Agreement of the Royalty Guarantor.
3.13* Certificate of Formation of VPC Geothermal.
3.14* Limited Liability Company Agreement of VPC Geothermal.
3.15 Articles of Incorporation of San Felipe (incorporated by reference to Exhibit 3.15 to the
Funding Corporation Registration Statement on Form S-4 dated July 2, 1996, 333-07527 ("Funding
Corporation II Form S-4")).
3.16 By-laws of San Felipe (incorporated by reference to Exhibit 3.16 to the Funding Corporation II
Form S-4).
3.17 Articles of Incorporation of Conejo (incorporated by reference to Exhibit 3.17 to the Funding
Corporation II Form S-4).
3.18 By-laws of Conejo (incorporated by reference to Exhibit 3.18 to the Funding Corporation II Form
S-4).
3.19 Articles of Incorporation of Niguel (incorporated by reference to Exhibit 3.19 to the Funding
Corporation II Form S-4).
3.20 By-laws of Niguel (incorporated by reference to Exhibit 3.20 to the Funding Corporation II Form
S-4).
II-2
<PAGE>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- --------------- ------------------------------------------------------------------------------------------------
3.21 General Partnership Agreement of Vulcan (incorporated by reference to Exhibit 3.21 to the
Funding Corporation II Form S-4).
3.22 Limited Partnership Agreement of Leathers (incorporated by reference to Exhibit 3.22 to the
Funding Corporation II Form S-4).
3.23 Amended and Restated Limited Partnership Agreement of Del Ranch (incorporated by reference to
Exhibit 3.23 to the Funding Corporation II Form S-4).
3.24 Amended and Restated Limited Partnership Agreement of Elmore (incorporated by reference to
Exhibit 3.24 to the Funding Corporation II Form S-4).
3.25* Certificate of Formation of Minerals LLC.
3.26* Limited Liability Company Agreement of Minerals LLC.
3.27* Certificate of Formation of Turbo LLC.
3.28* Limited Liability Company Agreement of Turbo LLC.
3.29* Articles of Incorporation of CESS.
3.30* By-laws of CESS.
3.31* Articles of Incorporation of SSMC.
3.32* By-laws of SSMC.
4.1(a) Indenture, dated as of July 21, 1995, between Chemical Trust Company of California and the
Funding Corporation (incorporated by reference to Exhibit 4.1(a) to the Funding Corporation Form
S-4).
4.1(b) First Supplemental Indenture, dated as of October 18, 1995, between Chemical Trust Company of
California and the Funding Corporation (incorporated by reference to Exhibit 4.1(b) to the
Funding Corporation Form S-4).
4.1(c) Second Supplemental Indenture, dated as of June 20, 1996, between Chemical Trust Company of
California and the Funding Corporation (incorporated by reference to Exhibit 4.1(c) to the
Funding Corporation II Form S-4).
4.1(d) Third Supplemental Indenture between Chemical Trust Company of California and the Funding
Corporation (incorporated by reference to Exhibit 4.1(d) to the Funding Corporation II Form
S-4).
4.1(e) Fourth Supplemental Indenture between Chase Manhattan Bank and Trust Company, National
Association and the Funding Corporation (incorporated by reference to Exhibit 4.1(e) to the
Funding Corporation's Form 10-K/A dated March 27, 1999 (the "Form 10-K/A")).
4.1(f)** Fifth Supplemental Indenture between Chase Manhattan Bank and Trust Company, National
Association and the Funding Corporation.
4.2 Amended and Restated Salton Sea Secured Guarantee, dated as of July 21, 1995, by SSBP, SSPG and
Fish Lake in favor of Chemical Trust Company of California (incorporated by reference to Exhibit
4.2 to the Funding Corporation Form S-4).
II-3
<PAGE>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- --------------- ------------------------------------------------------------------------------------------------
4.3 Second Amended and Restated Partnership Secured Limited Guarantee, dated as of October 13, 1998
by CEOC, VPC, Conejo, Niguel, San Felipe, BNG, Del Ranch, Elmore, Leathers, Vulcan, Minerals LLC
and Turbo LLC in favor of Chemical Trust Company of California (incorporated by reference to
Exhibit 4.3(c) to the Form 10-K/A).
4.4 Royalty Guarantor Secured Limited Guarantee, dated as of July 21, 1995, by the Royalty Guarantor
in favor of Chemical Trust Company of California (incorporated by reference to Exhibit 4.4 to
the Funding Corporation Form S-4).
4.5(a) Exchange and Registration Rights Agreement, dated July 21, 1995, by and among CS First Boston
Corporation, Lehman Brothers Inc. and the Funding Corporation (incorporated by reference to
Exhibit 4.5 to the Funding Corporation Form S-4).
4.5(b) Exchange and Registration Rights Agreement, dated June 20, 1996, by and between CS First Boston
Corporation and the Funding Corporation (incorporated by reference to Exhibit 4.5 to the Funding
Corporation II Form S-4).
4.5(c)** Exchange and Registration Rights Agreement, dated October 13, 1998, by and among CS First Boston
Corporation, Goldman, Sachs & Co. and the Funding Corporation.
4.6(a) Collateral Agency and Intercreditor Agreement, dated as of July 21, 1995, by and among Credit
Suisse, Chemical Trust Company of California, the Funding Corporation and the Guarantors
(incorporated by reference to Exhibit 4.6 to the Funding Corporation Form S-4).
4.6(b) First Amendment to the Collateral Agency and Intercreditor Agreement, dated as of June 20, 1996,
by and among Credit Suisse, Chemical Trust Company of California, the Funding Corporation and
the Guarantors (incorporated by reference to Exhibit 4.6(b) to the Funding Corporation II Form
S-4).
4.6(c) Second Amendment to the Collateral Agency and Intercreditor Agreement, dated as of October 13,
1998, by and among Credit Suisse, Chemical Trust Company of California, the Funding Corporation
and the Guarantors (incorporated by reference to Exhibit 4.6(c) to the Form 10-K/A).
4.7 Stock Pledge Agreement, dated as of July 21, 1995, by Magma Power Company in favor of Chemical
Trust Company of California (incorporated by reference to Exhibit 4.7 to the Funding Corporation
Form S-4).
4.8(a) Purchase Agreement, dated July 18, 1995, by and among CS First Boston Corporation, Lehman
Brothers Inc., the Guarantors and the Funding Corporation (incorporated by reference to Exhibit
4.8 to the Funding Corporation Form S-4).
4.8(b) Purchase Agreement, dated June 17, 1996, by and among CS First Boston Corporation, the
Guarantors and the Funding Corporation (incorporated by reference to Exhibit 4.8 to the Funding
Corporation II Form S-4).
4.8(c) Purchase Agreement, dated October 13, 1998 by and among CS First Boston Corporation, the
Guarantors and the Funding Corporation (incorporated by reference to Exhibit 4.8(c) to the Form
10-K/A).
4.9 Support Letter, dated as of July 21, 1995, by and among Magma Power Company, the Funding
Corporation and the Guarantors (incorporated by reference to Exhibit 4.9 to the Funding
Corporation Form S-4).
II-4
<PAGE>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- --------------- ------------------------------------------------------------------------------------------------
4.10 Debt Service Reserve Letter of Credit and Reimbursement Agreement, dated as of July 21, 1995, by
and among the Funding Corporation, certain banks and Credit Suisse, as agent (incorporated by
reference to Exhibit 4.10 to the Funding Corporation Form S-4).
4.10(a) Amendment to Notes and to Amended Debt Service Reserve Letter of Credit and Reimbursement
Agreement, dated October 13, 1998, by and among the Funding Corporation, certain banks and
Credit Suisse, as agent (incorporated by reference to Exhibit 4.10(a) to the Form 10-K/A).
4.11 Revolving Credit Agreement, dated as of July 21, 1995, by and among Credit Suisse and the
Funding Corporation (incorporated by reference to Exhibit 4.11 to the Funding Corporation Form
S-4).
4.12 Amended and Restated Salton Sea Credit Agreement, dated October 13, 1998, by and among SSBP,
SSPG, Power LLC and Fish Lake (incorporated by reference to Exhibit 4.12 to the Funding
Corporation Form S-4).
4.13 Salton Sea Project Note (SSI), dated October 13, 1998, by SSBP, SSPG, Power LLC and Fish Lake in
favor of the Funding Corporation (incorporated by reference to Exhibit 4.13(a) to the Form
10-K/A).
4.13(a) Salton Sea Project Note (SSIII), dated October 13, 1998, by SSBP, SSPG, Power LLC and Fish Lake
in favor of the Funding Corporation (incorporated by reference to Exhibit 4.13(b) to the Form
10-K/A).
4.14 Amended and Restated Deposit and Disbursement Agreement, dated as of October 13, 1998, by and
among the Funding Corporation, Chemical Trust Company of California and the Guarantors
(incorporated by reference to Exhibit 4.14(c) to the Form 10-K/A).
4.15 Partnership Interest Pledge Agreement, dated as of July 21, 1995, by Magma Power Company and
Salton Sea Power Company in favor of Chemical Trust Company of California (incorporated by
reference to Exhibit 4.15 to the Funding Corporation Form S-4).
4.16 Partnership Interest Pledge Agreement, dated as of July 21, 1995, by SSBP and Salton Sea Power
Company in favor of Chemical Trust Company of California (incorporated by reference to Exhibit
4.16 to the Funding Corporation Form S-4).
4.17 Stock Pledge Agreement (pledge of Stock of Fish Lake by Magma Power Company and the Funding
Corporation), dated as of July 21, 1995, by Magma Power Company and the Funding Corporation in
favor of Chemical Trust Company of California (incorporated by reference to Exhibit 4.17 to the
Funding Corporation Form S-4).
4.18 Intentionally Omitted.
4.19 Second Amended and Restated Partnership Guarantors Credit Agreement, dated October 13, 1998, by
and among the Partnership Guarantors and the Funding Corporation (incorporated by reference to
Exhibit 4.19(c) to the Form 10-K/A).
4.20 Partnership Guarantors Security Agreement and Assignment of Rights, dated as of July 21, 1995,
by CEOC and VPC in favor of Chemical Trust Company of California (incorporated by reference to
Exhibit 4.20 to the Funding Corporation Form S-4).
4.21 Stock Pledge Agreement (pledge of Stock of CEOC by Magma Power Company and the Funding
Corporation), dated as of July 21, 1995, by Magma Power Company and Funding Corporation in favor
of Chemical Trust Company of California (incorporated by reference to Exhibit 4.21 to the
Funding Corporation Form S-4).
II-5
<PAGE>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- --------------- ------------------------------------------------------------------------------------------------
4.22 Stock Pledge Agreement (pledge of Stock of VPC by Magma Power Company and the Funding
Corporation), dated as of July 21, 1995, by Magma Power Company and the Funding Corporation in
favor of Chemical Trust Company of California (incorporated by reference to Exhibit 4.22 to the
Funding Corporation Form S-4).
4.23 Royalty Guarantor Credit Agreement, among the Royalty Guarantor and the Funding Corporation,
dated as of July 21, 1995 (incorporated by reference to Exhibit 4.23 to the Funding Corporation
Form S-4).
4.24 Royalty Project Note, dated as of July 21, 1995, by the Royalty Guarantor in favor of the
Funding Corporation (incorporated by reference to Exhibit 4.24 to the Funding Corporation Form
S-4).
4.25 Royalty Security Agreement and Assignment of Revenues, dated as of July 21, 1995, by the Royalty
Guarantor in favor of Chemical Trust Company of California (incorporated by reference to Exhibit
4.25 to the Funding Corporation Form S-4).
4.26 Royalty Deed of Trust, dated as of July 21, 1995, by the Royalty Guarantor to Chicago Title
Company for the use and benefit of Chemical Trust Company of California (incorporated by
reference to Exhibit 4.26 to the Funding Corporation Form S-4).
4.27 Stock Pledge Agreement (pledge of Stock of Royalty Guarantor by Magma Power Company and the
Funding Corporation), dated as of July 21, 1995, by Magma Power Company and the Funding
Corporation in favor of Chemical Trust Company of California (incorporated by reference to
Exhibit 4.27 to the Funding Corporation Form S-4).
4.28 Collateral Assignment of the Imperial Irrigation District Agreements, dated as of July 21, 1995,
by SSBP, SSPG and Fish Lake in favor of Chemical Trust Company of California (incorporated by
reference to Exhibit 4.28 to the Funding Corporation Form S-4).
4.29 Collateral Assignments of Certain Salton Sea Agreements, dated as of July 21, 1995, by SSBP,
SSPG and Fish Lake in favor of Chemical Trust Company of California (incorporated by reference
to Exhibit 4.29 to the Funding Corporation Form S-4).
4.30 Debt Service Reserve Letter of Credit by Credit Suisse in favor of Chemical Trust Company of
California (incorporated by reference to Exhibit 4.30 to the Funding Corporation Form S-4).
4.31 Partnership Project Note (SSI), dated October 13, 1998, by VPC, CEOC, Conejo, San Felipe,
Niguel, VPC Geothermal, Del Ranch, Elmore, Leathers, Vulcan, Turbo LLC and Minerals LLC in favor
of the Funding Corporation (incorporated by reference to Exhibit 4.31(a) to the Form 10-K/A).
4.31(a) Partnership Project Note (SSII), dated October 13, 1998, by VPC, CEOC, Conejo, San Felipe,
Niguel, VPC Geothermal, Del Ranch, Elmore, Leathers, Vulcan, Turbo LLC and Minerals LLC in favor
of the Funding Corporation (incorporated by reference to Exhibit 4.31(b) to the Form 10-K/A).
4.31(b) Partnership Project Note (SSIII), dated October 13, 1998, by VPC, CEOC, Conejo, San Felipe,
Niguel, VPC Geothermal, Del Ranch, Elmore, Leathers, Vulcan, Turbo LLC and Minerals LLC in favor
of the Funding Corporation (incorporated by reference to Exhibit 4.31(c) to the Form 10-K/A).
4.32 Collateral Assignment of the Imperial Irrigation District Agreements, dated as of June 20, 1996,
by Vulcan, Elmore, Leathers, VPC and Del Ranch in favor of Chemical Trust Company of California
(incorporated by reference to Exhibit 4.29 to the Funding Corporation II Form S-4).
II-6
<PAGE>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- --------------- ------------------------------------------------------------------------------------------------
4.33 Collateral Assignments of Certain Partnership Agreements, dated as of June 20, 1996, by Vulcan
Elmore, Leathers and Del Ranch in favor of Chemical Trust Company of California (incorporated by
reference to Exhibit 4.31 to the Funding Corporation II Form S-4).
4.34 Debt Service Reserve Letter of Credit by Credit Suisse in favor of Chemical Trust Company of
California (incorporated by reference to Exhibit 4.32 to the Funding Corporation II Form S-4).
4.35 Intentionally Omitted.
4.36 Intentionally Omitted.
4.37 Deed of Trust, dated as of June 20, 1996, by Vulcan to Chicago Title Company for the use and
benefit of Chemical Trust Company of California (incorporated by reference to Exhibit 4.35 to
the Funding Corporation II Form S-4).
4.37(a) First Amendment to Deed of Trust, dated October 13, 1998 by Vulcan to Chicago Title Company for
the use and benefit of Chemical Trust Company of California (incorporated by reference to
Exhibit 4.37(a) to the Form 10-K/A).
4.38 Deed of Trust, dated as of June 20, 1996, by Elmore to Chicago Title Company for the use and
benefit of Chemical Trust Company of California (incorporated by reference to Exhibit 4.36 to
the Funding Corporation II Form S-4).
4.38(a) First Amendment to Deed of Trust, dated October 13, 1998, by Elmore to Chicago Title Company for
the use and benefit of Chemical Trust Company of California (incorporated by reference to
Exhibit 4.38(a) to the Form 10-K/A).
4.39 Deed of Trust, dated as of June 20, 1996, by Leathers to Chicago Title Company for the use and
benefit of Chemical Trust Company of California (incorporated by reference to Exhibit 4.37 to
the Funding Corporation II Form S-4).
4.39(a) First Amendment to Deed of Trust, dated October 13, 1998, by Leathers to Chicago Title Company
for the use and benefit of Chemical Trust Company of California (incorporated by reference to
Exhibit 4.39(a) to the Form 10-K/A).
4.40 Deed of Trust, dated as of June 20, 1996, by Del Ranch to Chicago Title Company for the use and
benefit of Chemical Trust Company of California (incorporated by reference to Exhibit 4.38 to
the Funding Corporation II Form S-4).
4.40(a) First Amendment to Deed of Trust, dated October 13, 1998, by Del Ranch to Chicago Title Company
for the use and benefit of Chemical Trust Company of California (incorporated by reference to
Exhibit 4.40(a) to the Form 10-K/A).
4.41 Stock Pledge Agreement, Dated as of June 20, 1996, by CEOC, pledging the stock of Conejo, Niguel
and San Felipe in favor of Chemical Trust Company of California for the benefit of the Secured
Parties and the Funding Corporation (incorporated by reference to Exhibit 4.39 to the Funding
Corporation II Form S-4).
4.42 Stock Pledge Agreement, dated as of June 20, 1996, by VPC, pledging the stock of BNG in favor of
Chemical Trust Company of California for the benefit of the Secured Parties and the Funding
Corporation (incorporated by reference to Exhibit 4.40 to the Funding Corporation II Form S-4).
II-7
<PAGE>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- --------------- ------------------------------------------------------------------------------------------------
4.43 Partnership Interest Pledge Agreement, dated as of June 20, 1996, by VPC and BNG, pledging the
partnership interests in Vulcan in favor of Chemical Trust Company of California for the benefit
of the Secured Parties and the Funding Corporation (incorporated by reference to Exhibit 4.41 to
the Funding Corporation II Form S-4).
4.44 Partnership Interest Pledge Agreement, dated as of June 20, 1996, by Magma, CEOC and each of
Conejo, Niguel, San Felipe, respectively, pledging the partnership interests in Del Ranch,
Elmore and Leathers, respectively, in favor of Chemical Trust Company of California for the
benefit of the Secured Parties and the Funding Corporation (incorporated by reference to Exhibit
4.42 to the Funding Corporation II Form S-4).
4.45 Agreement regarding Security Documents, dated as of June 20, 1996, by and among the Initial
Guarantors, Magma, Sspc, the Funding Corporation and Chemical Trust Company of California
(incorporated by reference to Exhibit 4.45 to the Funding Corporation II Form S-4).
5.1* Opinion of Willkie Farr & Gallagher.
5.2* Opinion of Latham & Watkins.
5.3* Opinion of Lionel Sawyer & Collins.
10.1(a) Salton Sea Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing, dated as
of July 21, 1995, by SSBP, SSPG and Fish Lake to Chicago Title Company for the use and benefit
of Chemical Trust Company of California (incorporated by reference to Exhibit 10.1 to the
Funding Corporation Form S-4) .
10.1(b) First Amendment to Salton Sea Deed of Trust, Assignment of Rents, Security Agreement and Fixed
Filing, dated as of June 20, 1996, by SSBP, SSPG and Fish Lake to Chicago Title Company for the
use and benefit of Chemical Trust Company of California (incorporated by reference to Exhibit
10.2 to the Funding Corporation II Form S-4).
10.1(c) Second Amendment to Salton Sea Deed of Trust, Assignment of Rents, Security Agreement and Fixed
Filing, dated as of October 13, 1998, by SSBP, SSPG and Fish Lake to Chicago Title Company for
the use and benefit of Chemical Trust Company of California (incorporated by reference to
Exhibit 10.1(c) to the Form 10-K/A).
10.2 Collateral Assignment of Southern California Edison Company Agreements, dated as of July 21,
1995, by SSPG and Fish Lake in favor of Chemical Trust Company of California (incorporated by
reference to Exhibit 10.3 to the Funding Corporation Form S-4).
10.3 Contract for the Purchase and Sale of Electric Power from the Salton Sea Geothermal Facility,
dated May 9, 1987 (the "Unit 1 Power Purchase Agreement"), between Southern California Edison
Company and Earth Energy, Inc. (incorporated by reference to Exhibit 10.4 to the Funding
Corporation Form S-4).
10.4 Amendment No. 1 to the Unit 1 Power Purchase Agreement, dated as of March 30, 1993, between
Southern California Edison Company and Earth Energy, Inc. (incorporated by reference to Exhibit
10.5 to the Funding Corporation Form S-4).
10.5 Amendment No. 2 to Unit 1 Power Purchase Agreement, dated November 29, 1994, between Southern
California Edison Company and SSPG (incorporated by reference to Exhibit 10.6 to the Funding
Corporation Form S-4).
II-8
<PAGE>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- --------------- ------------------------------------------------------------------------------------------------
10.6 Contract for the Purchase and Sale of Electric Power, dated April 16, 1985 (the "Unit 2 Power
Purchase Agreement"), between Southern California Edison Company and Westmoreland Geothermal
Associates (incorporated by reference to Exhibit 10.7 to the Funding Corporation Form S-4).
10.7 Amendment No. 1 to Unit 2 Power Purchase Agreement, dated as of December 18, 1987, between
Southern California Edison Company and Earth Energy, Inc. (incorporated by reference to Exhibit
10.8 to the Funding Corporation Form S-4).
10.8 Power Purchase Contract, dated April 16, 1985 (the "Unit 3 Power Purchase Agreement"), between
Southern California Edison Company and Union Oil Company of California (incorporated by
reference to Exhibit 10.9 to the Funding Corporation Form S-4).
10.9 Power Purchase Contract (the "Unit 4 Power Purchase Agreement"), dated November 29, 1994,
between Southern California Edison Company, SSPG and Fish Lake (incorporated by reference to
Exhibit 10.10 to the Funding Corporation Form S-4).
10.10 Plant Connection Agreement (Unit 2), dated October 3, 1989, between the Imperial Irrigation
District and Earth Energy, Inc. (incorporated by reference to Exhibit 10.11 to the Funding
Corporation Form S-4).
10.11 Plant Connection Agreement, dated August 2, 1988 (Unit 3), between the Imperial Irrigation
District and Desert Power Company (incorporated by reference to Exhibit 10.12 to the Funding
Corporation Form S-4).
10.12 Imperial Irrigation District Funding and Construction Agreements as amended (Units 2 and 3),
dated as of June 29, 1987, among the Imperial Irrigation District, Earth Energy, Inc., Chevron
Geothermal Company of California, Geo East Mesa No. 3, Inc., Magma Power Company, Desert Power
Company, Geo East Mesa No. 2, Inc., Heber Geothermal Company, Ormesa Geothermal, Ormesa
Geothermal II, Vulcan/BN Geothermal Power Company, Union Oil Company of California, Del Ranch
L.P., Elmore L.P., Leathers L.P., Geo East Mesa Limited Partnership and Imperial Resource
Recovery Associates, L.P. (incorporated by reference to Exhibit 10.13 to the Funding Corporation
Form S-4).
10.13 Transmission Service Agreement, dated as of October 3, 1989 (Unit 2), between the Imperial
Irrigation District and Earth Energy, Inc. (incorporated by reference to Exhibit 10.14 to the
Funding Corporation Form S-4).
10.14 Transmission Service Agreement, dated as of August 2, 1988 (Unit 3), between the Imperial
Irrigation District and Desert Power Company (incorporated by reference to Exhibit 10.15 to the
Funding Corporation Form S-4).
10.15 Plant Connection Agreement (Unit 4), dated as of July 14, 1995, by and between the Imperial
Irrigation District, SSPG and Fish Lake (incorporated by reference to Exhibit 10.16 to the
Funding Corporation Form S-4).
10.16 Letter Agreement, dated February 2, 1995, between Magma Power Company and the Imperial
Irrigation District (incorporated by reference to Exhibit 10.17 to the Funding Corporation Form
S-4).
10.17 Transmission Service Agreement (Unit 4), dated as of July 14, 1995, by and between the Imperial
Irrigation District, SSPG and Fish Lake (incorporated by reference to Exhibit 10.18 to the
Funding Corporation Form S-4).
10.18 Transmission Line Construction Agreement (Unit 4), dated July 14, 1995, between the Imperial
Irrigation District, SSPG and Fish Lake (incorporated by reference to Exhibit 10.19 to the
Funding Corporation Form S-4).
II-9
<PAGE>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- --------------- ------------------------------------------------------------------------------------------------
10.19 Funding Agreement, dated June 15, 1988 (Unit 2), between Southern California Edison Company and
Earth Energy, Inc. (incorporated by reference to Exhibit 10.20 to the Funding Corporation Form
S-4).
10.20 Second Amended and Restated Administrative Services Agreement, by and among CEOC, SSBP, SSPG and
Fish Lake, dated as of July 15, 1995 (incorporated by reference to Exhibit 10.21 to the Funding
Corporation Form S-4).
10.21 Second Amended and Restated Operating and Maintenance Agreement, dated as of July 15, 1995, by
and among Magma Power Company, SSBP, SSPG and Fish Lake (incorporated by reference to Exhibit
10.22 to the Funding Corporation Form S-4).
10.22 Intentionally Omitted.
10.23 Collateral Assignment of Southern California Edison Company Agreements, dated as of June 20,
1996, by Vulcan, Elmore, Leathers and Del Ranch in favor of Chemical Trust Company of California
(incorporated by reference to Exhibit 10.23 to the Funding Corporation II Form S-4).
10.24 Administrative Services Agreement, dated as of June 17, 1996, between CEOC and Vulcan
(incorporated by reference to Exhibit 10.24 to the Funding Corporation II Form S-4).
10.25 Amended and Restated Construction, Operating and Accounting Agreement, dated as of June 17,
1996, between VPC and Vulcan (incorporated by reference to Exhibit 10.25 to the Funding
Corporation II Form S-4).
10.26 Long Term Power Purchase Contract, dated March 1, 1984, as amended, between SCE and Vulcan, as
successor to Magma Electric Company (incorporated by reference to Exhibit 10.26 to the Funding
Corporation II Form S-4).
10.27 Transmission Service Agreement, dated December 1, 1988, between VPC and IID (incorporated by
reference to Exhibit 10.27 to the Funding Corporation II Form S-4).
10.28 Plant Connection Agreement, dated as of December 1, 1988, between VPC and IID (incorporated by
reference to Exhibit 10.28 to the Funding Corporation II Form S-4).
10.29 Amended and Restated Administrative Services Agreement, dated as of June 17, 1996 between CEOC
and Elmore (incorporated by reference to Exhibit 10.29 to the Funding Corporation II Form S-4).
10.30 Amended and Restated Operating and Maintenance Agreement, dated as of June 17, 1996, between
CEOC and Elmore (incorporated by reference to Exhibit 10.30 to the Funding Corporation II Form
S-4).
10.31 Long Term Power Purchase Contract, dated June 15, 1984, as amended, between SCE and Elmore, as
successor to Magma Electric Company (incorporated by reference to Exhibit 10.31 to the Funding
Corporation II Form S-4).
10.32 Transmission Service Agreement, dated as of August 2, 1988, as amended, between Elmore and IID
(incorporated by reference to Exhibit 10.32 to the Funding Corporation II Form S-4).
10.33 Plant Connection Agreement, dated as of August 2, 1988, between Elmore and IID (incorporated by
reference to Exhibit 10.33 to the Funding Corporation II Form S-4).
10.34 Amended and Restated Administrative Services Agreement, dated as of June 17, 1996, between CEOC
and Leathers (incorporated by reference to Exhibit 10.34 to the Funding Corporation II Form
S-4).
II-10
<PAGE>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- --------------- ------------------------------------------------------------------------------------------------
10.35 Amended and Restated Operating and Maintenance Agreement, dated as of June 17, 1996, between
CEOC and Leathers (incorporated by reference to Exhibit 10.35 to the Funding Corporation II Form
S-4).
10.36 Long Term Power Purchase Contract, dated August 16, 1985, as amended, between SCE and Leathers,
as successor to Imperial Energy Corporation (incorporated by reference to Exhibit 10.36 to the
Funding Corporation II Form S-4).
10.37 Transmission Service Agreement, dated as of October 3, 1989, as amended, between Leathers and
IID (incorporated by reference to Exhibit 10.37 to the Funding Corporation II Form S-4).
10.38 Plant Connection Agreement, dated as of October 3, 1989, between Leathers and IID (incorporated
by reference to Exhibit 10.38 to the Funding Corporation II Form S-4).
10.39 Amended and Restated Administrative Services Agreement, dated as of June 17, 1996, between CEOC
and Del Ranch (incorporated by reference to Exhibit 10.39 to the Funding Corporation II Form
S-4).
10.40 Amended and Restated Operating and Maintenance Agreement, dated as of June 17, 1996, between
CEOC and Del Ranch (incorporated by reference to Exhibit 10.40 to the Funding Corporation II
Form S-4).
10.41 Long Term Power Purchase Contract, dated February 22, 1984, as amended, between SCE and Del
Ranch, as successor to Magma (incorporated by reference to Exhibit 10.41 to the Funding
Corporation II Form S-4).
10.42 Transmission Service Agreement, dated as of August 2, 1988, as amended, between Del Ranch and
IID (incorporated by reference to Exhibit 10.42 to the Funding Corporation II Form S-4).
10.43 Plant Connection Agreement, dated as of August 2, 1988, between Del Ranch and IID (incorporated
by reference to Exhibit 10.43 to the Funding Corporation II Form S-4).
10.44 Funding Agreement, dated May 18, 1990, between SCE and Del Ranch (incorporated by reference to
Exhibit 10.44 to the Funding Corporation II Form S-4).
10.45 Funding Agreement, dated May 18, 1990, between SCE and Elmore (incorporated by reference to
Exhibit 10.45 to the Funding Corporation II Form S-4).
10.46 Funding Agreement, dated June 15, 1990, between SCE and Leathers (incorporated by reference to
Exhibit 10.46 to the Funding Corporation II Form S-4).
10.47 Funding Agreement, dated May 18, 1990, between SCE and Leathers (incorporated by reference to
Exhibit 10.47 to the Funding Corporation II Form S-4).
10.48 Funding Agreement, dated May 18, 1990, between SCE and Vulcan (incorporated by reference to
Exhibit 10.48 to the Funding Corporation II Form S-4).
12.1** Statement regarding computation of Salton Sea Funding Corporation ratio of earnings to fixed
charges.
12.2** Statement regarding computation of Salton Sea Guarantors ratio of earnings to fixed charges.
12.3** Statement regarding computation of Partnership Guarantors ratio of earnings to fixed charges.
II-11
<PAGE>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- --------------- ------------------------------------------------------------------------------------------------
12.4** Statement regarding computation of Royalty Guarantor's ratio of earnings to fixed charges.
15.1** Awareness letter of Deloitte & Touche LLP.
21.1* Subsidiaries of the Registrants.
23.1* Consent of Willkie Farr & Gallagher (included in their opinion filed as Exhibit 5.1).
23.2** Consent of Fluor Daniel, Inc.
23.3** Consent of Henwood Energy Services, Inc.
23.4** Consent of Deloitte & Touche LLP, independent public accountants.
23.5** Consent of Geothermex, Inc.
23.6* Consent of Latham & Watkins (included in their opinion filed as Exhibit 5.2).
23.7* Consent of Lionel Sawyer & Collins (included in their opinion filed as Exhibit 5.3).
23.8** Consent of Resource Strategies International.
23.9** Consent of Deloitte & Touche LLP.
24.1 Power of Attorney (included on signature page).
25.1* Statement on Form T-1 of Eligibility of Trustee.
27. Financial Data Schedule (incorporated by reference to Exhibit 27 to the Funding Corporation's
Form 10-Q dated May 14, 1999).
99.1* Form of Letter of Transmittal.
99.2* Form of Notice of Guaranteed Delivery.
99.3* Letter to Clients.
99.4* Letter to Securities Dealers, Commercial Banks, Trust Companies and Other Nominees.
</TABLE>
- ------------
* To be filed by amendment.
** Filed herewith.
ITEM 22. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrants pursuant to the provisions described under Item 20 above, or
otherwise, the Registrants have been advised that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the Registrants of expenses incurred or paid by a
director, officer or controlling person of the Registrants in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the Registrants will, unless in the opinion of their counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement on Form S-4 to be signed on its
behalf by the undersigned thereunto duly authorized, in the City of Omaha,
State of Nebraska, on May 28, 1999.
SALTON SEA FUNDING CORPORATION
By: /s/ Robert S. Silberman
---------------------------------
Robert S. Silberman
President and Chief Executive
Officer
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints Douglas L. Anderson and
Brian K. Hankel, as his/her true and lawful attorneys-in-fact and agents,
jointly and severally, with full power of substitution and resubstitution,
for and in his/her stead, in any and all capacities, to sign on his/her
behalf this registration statement on Form S-4 (the "Registration Statement")
in connection with Salton Sea Funding Corporation's offer to exchange 7.475%
Senior Secured Series F Bonds Due November 30, 2018 for any and all of its
outstanding 7.475% Senior Secured Series F Bonds Due November 30, 2018, and
to execute any amendments thereto (including post-effective amendments) or
certificates that may be required in connection with the Registration
Statement, and to file the same, with all exhibits thereto, and all other
documents in connection therewith, with the Securities and Exchange
Commission and granting unto said attorneys-in-fact and agents, jointly and
severally, the full power and authority to do and perform each and every act
and thing necessary or advisable to all intents and purposes as he/she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, jointly and severally, or his/her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement on Form S-4 to be signed on its
behalf by the undersigned, each thereunto duly authorized in the City of Omaha,
State of Nebraska, and, with respect to Mr. Harrison, City of Des Moines, State
of Iowa, on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------- ------------------------------------------ ----------------
<S> <C> <C>
/s/ Robert S. Silberman President and Chief Executive Officer May 28, 1999
--------------------------- (Principal Executive Officer)
Robert S. Silberman
/s/ Brian K. Hankel Treasurer, Chief Financial Officer and May 28, 1999
--------------------------- Chief Accounting Officer
Brian K. Hankel (Principal Financial Officer and
Principal Accounting Officer)
/s/ Douglas L. Anderson Director, Vice President, and May 28, 1999
--------------------------- General Counsel
Douglas L. Anderson
/s/ Patrick J. Goodman Director May 28, 1999
---------------------------
Patrick J. Goodman
/s/ John Harrison Director May 28, 1999
---------------------------
John Harrison
</TABLE>
II-13
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement on Form S-4 to be signed on its
behalf by the undersigned thereunto duly authorized, in the City of Omaha,
State of Nebraska, on May 28, 1999.
SALTON SEA BRINE PROCESSING L.P.
By: Salton Sea Power Company,
---------------------------------
as its general partner
By: /s/ Robert S. Silberman
---------------------------------
Robert S. Silberman
President and Chief Executive
Officer
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints Douglas L. Anderson and
Brian K. Hankel, as his/her true and lawful attorneys-in-fact and agents,
jointly and severally, with full power of substitution and resubstitution,
for and in his/her stead, in any and all capacities, to sign on his/her
behalf this registration statement on Form S-4 (the "Registration Statement")
in connection with Salton Sea Funding Corporation's offer to exchange 7.475%
Senior Secured Series F Bonds Due November 30, 2018 for any and all of its
outstanding 7.475% Senior Secured Series F Bonds Due November 30, 2018, and
to execute any amendments thereto (including post-effective amendments) or
certificates that may be required in connection with the Registration
Statement, and to file the same, with all exhibits thereto, and all other
documents in connection therewith, with the Securities and Exchange
Commission and granting unto said attorneys-in-fact and agents, jointly and
severally, the full power and authority to do and perform each and every act
and thing necessary or advisable to all intents and purposes as he/she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, jointly and severally, or his/her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement on Form S-4 to be signed on its
behalf by the undersigned, each thereunto duly authorized in the City of Omaha,
State of Nebraska, and, with respect to Mr. Harrison, City of Des Moines, State
of Iowa, on the dates indicated
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------- ------------------------------------------ ----------------
<S> <C> <C>
/s/ Robert S. Silberman President and Chief Executive Officer May 28, 1999
--------------------------- (Principal Executive Officer)
Robert S. Silberman
/s/ Brian K. Hankel Treasurer, Chief Financial Officer and May 28, 1999
--------------------------- Chief Accounting Officer
Brian K. Hankel (Principal Financial Officer and
Principal Accounting Officer)
/s/ Douglas L. Anderson Director, Vice President, and May 28, 1999
--------------------------- General Counsel
Douglas L. Anderson
/s/ Patrick J. Goodman Director May 28, 1999
---------------------------
Patrick J. Goodman
/s/ John Harrison Director May 28, 1999
---------------------------
John Harrison
</TABLE>
II-14
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement on Form S-4 to be signed on its
behalf by the undersigned thereunto duly authorized, in the City of Omaha,
State of Nebraska, on May 28, 1999.
SALTON SEA POWER GENERATION L.P.
By: Salton Sea Power Company,
---------------------------------
as its general partner
By: /s/ Robert S. Silberman
---------------------------------
Robert S. Silberman
President and Chief Executive
Officer
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints Douglas L. Anderson and
Brian K. Hankel, as his/her true and lawful attorneys-in-fact and agents,
jointly and severally, with full power of substitution and resubstitution,
for and in his/her stead, in any and all capacities, to sign on his/her
behalf this registration statement on Form S-4 (the "Registration Statement")
in connection with Salton Sea Funding Corporation's offer to exchange 7.475%
Senior Secured Series F Bonds Due November 30, 2018 for any and all of its
outstanding 7.475% Senior Secured Series F Bonds Due November 30, 2018, and
to execute any amendments thereto (including post-effective amendments) or
certificates that may be required in connection with the Registration
Statement, and to file the same, with all exhibits thereto, and all other
documents in connection therewith, with the Securities and Exchange
Commission and granting unto said attorneys-in-fact and agents, jointly and
severally, the full power and authority to do and perform each and every act
and thing necessary or advisable to all intents and purposes as he/she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, jointly and severally, or his/her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement on Form S-4 to be signed on its
behalf by the undersigned, each thereunto duly authorized in the City of Omaha,
State of Nebraska, and, with respect to Mr. Harrison, City of Des Moines, State
of Iowa, on the dates indicated
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------- ------------------------------------------ ----------------
<S> <C> <C>
/s/ Robert S. Silberman President and Chief Executive Officer May 28, 1999
--------------------------- (Principal Executive Officer)
Robert S. Silberman
/s/ Brian K. Hankel Treasurer, Chief Financial Officer and May 28, 1999
--------------------------- Chief Accounting Officer
Brian K. Hankel (Principal Financial Officer and
Principal Accounting Officer)
/s/ Douglas L. Anderson Director, Vice President, and May 28, 1999
--------------------------- General Counsel
Douglas L. Anderson
/s/ Patrick J. Goodman Director May 28, 1999
---------------------------
Patrick J. Goodman
/s/ John Harrison Director May 28, 1999
---------------------------
John Harrison
</TABLE>
II-15
<PAGE>
.
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement on Form S-4 to be signed on its
behalf by the undersigned thereunto duly authorized, in the City of Omaha,
State of Nebraska, on May 28, 1999.
FISH LAKE POWER LLC
By: /s/ Robert S. Silberman
---------------------------------
Robert S. Silberman
President and Chief Executive
Officer
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints Douglas L. Anderson and
Brian K. Hankel, as his/her true and lawful attorneys-in-fact and agents,
jointly and severally, with full power of substitution and resubstitution,
for and in his/her stead, in any and all capacities, to sign on his/her
behalf this registration statement on Form S-4 (the "Registration Statement")
in connection with Salton Sea Funding Corporation's offer to exchange 7.475%
Senior Secured Series F Bonds Due November 30, 2018 for any and all of its
outstanding 7.475% Senior Secured Series F Bonds Due November 30, 2018, and
to execute any amendments thereto (including post-effective amendments) or
certificates that may be required in connection with the Registration
Statement, and to file the same, with all exhibits thereto, and all other
documents in connection therewith, with the Securities and Exchange
Commission and granting unto said attorneys-in-fact and agents, jointly and
severally, the full power and authority to do and perform each and every act
and thing necessary or advisable to all intents and purposes as he/she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, jointly and severally, or his/her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement on Form S-4 to be signed on its
behalf by the undersigned, each thereunto duly authorized in the City of Omaha,
State of Nebraska, and, with respect to Mr. Harrison, City of Des Moines, State
of Iowa, on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------- ------------------------------------------ ----------------
<S> <C> <C>
/s/ Robert S. Silberman President and Chief Executive Officer May 28, 1999
--------------------------- (Principal Executive Officer)
Robert S. Silberman
/s/ Brian K. Hankel Treasurer, Chief Financial Officer and May 28, 1999
--------------------------- Chief Accounting Officer
Brian K. Hankel (Principal Financial Officer and
Principal Accounting Officer)
/s/ Douglas L. Anderson Director, Vice President, and May 28, 1999
--------------------------- General Counsel
Douglas L. Anderson
/s/ Patrick J. Goodman Director May 28, 1999
---------------------------
Patrick J. Goodman
/s/ John Harrison Director May 28, 1999
---------------------------
John Harrison
</TABLE>
II-16
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement on Form S-4 to be signed on its
behalf by the undersigned thereunto duly authorized, in the City of Omaha,
State of Nebraska, on May 28, 1999.
VULCAN POWER COMPANY
By: /s/ Robert S. Silberman
---------------------------------
Robert S. Silberman
President and Chief Executive
Officer
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints Douglas L. Anderson and
Brian K. Hankel, as his/her true and lawful attorneys-in-fact and agents,
jointly and severally, with full power of substitution and resubstitution,
for and in his/her stead, in any and all capacities, to sign on his/her
behalf this registration statement on Form S-4 (the "Registration Statement")
in connection with Salton Sea Funding Corporation's offer to exchange 7.475%
Senior Secured Series F Bonds Due November 30, 2018 for any and all of its
outstanding 7.475% Senior Secured Series F Bonds Due November 30, 2018, and
to execute any amendments thereto (including post-effective amendments) or
certificates that may be required in connection with the Registration
Statement, and to file the same, with all exhibits thereto, and all other
documents in connection therewith, with the Securities and Exchange
Commission and granting unto said attorneys-in-fact and agents, jointly and
severally, the full power and authority to do and perform each and every act
and thing necessary or advisable to all intents and purposes as he/she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, jointly and severally, or his/her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement on Form S-4 to be signed on its
behalf by the undersigned, each thereunto duly authorized in the City of Omaha,
State of Nebraska, and, with respect to Mr. Harrison, City of Des Moines, State
of Iowa, on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------- ------------------------------------------ ----------------
<S> <C> <C>
/s/ Robert S. Silberman President and Chief Executive Officer May 28, 1999
--------------------------- (Principal Executive Officer)
Robert S. Silberman
/s/ Brian K. Hankel Treasurer, Chief Financial Officer and May 28, 1999
--------------------------- Chief Accounting Officer
Brian K. Hankel (Principal Financial Officer and
Principal Accounting Officer)
/s/ Douglas L. Anderson Director, Vice President, and May 28, 1999
--------------------------- General Counsel
Douglas L. Anderson
/s/ Patrick J. Goodman Director May 28, 1999
---------------------------
Patrick J. Goodman
/s/ John Harrison Director May 28, 1999
---------------------------
John Harrison
</TABLE>
II-17
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement on Form S-4 to be signed on its
behalf by the undersigned thereunto duly authorized, in the City of Omaha,
State of Nebraska, on May 28, 1999.
CALENERGY OPERATING CORPORATION
By: /s/ Robert S. Silberman
---------------------------------
Robert S. Silberman
President and Chief Executive
Officer
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints Douglas L. Anderson and
Brian K. Hankel, as his/her true and lawful attorneys-in-fact and agents,
jointly and severally, with full power of substitution and resubstitution,
for and in his/her stead, in any and all capacities, to sign on his/her
behalf this registration statement on Form S-4 (the "Registration Statement")
in connection with Salton Sea Funding Corporation's offer to exchange 7.475%
Senior Secured Series F Bonds Due November 30, 2018 for any and all of its
outstanding 7.475% Senior Secured Series F Bonds Due November 30, 2018, and
to execute any amendments thereto (including post-effective amendments) or
certificates that may be required in connection with the Registration
Statement, and to file the same, with all exhibits thereto, and all other
documents in connection therewith, with the Securities and Exchange
Commission and granting unto said attorneys-in-fact and agents, jointly and
severally, the full power and authority to do and perform each and every act
and thing necessary or advisable to all intents and purposes as he/she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, jointly and severally, or his/her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement on Form S-4 to be signed on its
behalf by the undersigned, each thereunto duly authorized in the City of Omaha,
State of Nebraska, and, with respect to Mr. Harrison, City of Des Moines, State
of Iowa, on the dates indicated
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------- ------------------------------------------ ----------------
<S> <C> <C>
/s/ Robert S. Silberman President and Chief Executive Officer May 28, 1999
--------------------------- (Principal Executive Officer)
Robert S. Silberman
/s/ Brian K. Hankel Treasurer, Chief Financial Officer and May 28, 1999
--------------------------- Chief Accounting Officer
Brian K. Hankel (Principal Financial Officer and
Principal Accounting Officer)
/s/ Douglas L. Anderson Director, Vice President, and May 28, 1999
--------------------------- General Counsel
Douglas L. Anderson
/s/ Patrick J. Goodman Director May 28, 1999
---------------------------
Patrick J. Goodman
/s/ John Harrison Director May 28, 1999
---------------------------
John Harrison
</TABLE>
II-18
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement on Form S-4 to be signed on its
behalf by the undersigned thereunto duly authorized, in the City of Omaha,
State of Nebraska, on May 28, 1999.
SALTON SEA ROYALTY LLC
By: /s/ Robert S. Silberman
---------------------------------
Robert S. Silberman
President and Chief Executive
Officer
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints Douglas L. Anderson and
Brian K. Hankel, as his/her true and lawful attorneys-in-fact and agents,
jointly and severally, with full power of substitution and resubstitution,
for and in his/her stead, in any and all capacities, to sign on his/her
behalf this registration statement on Form S-4 (the "Registration Statement")
in connection with Salton Sea Funding Corporation's offer to exchange 7.475%
Senior Secured Series F Bonds Due November 30, 2018 for any and all of its
outstanding 7.475% Senior Secured Series F Bonds Due November 30, 2018, and
to execute any amendments thereto (including post-effective amendments) or
certificates that may be required in connection with the Registration
Statement, and to file the same, with all exhibits thereto, and all other
documents in connection therewith, with the Securities and Exchange
Commission and granting unto said attorneys-in-fact and agents, jointly and
severally, the full power and authority to do and perform each and every act
and thing necessary or advisable to all intents and purposes as he/she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, jointly and severally, or his/her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement on Form S-4 to be signed on its
behalf by the undersigned, each thereunto duly authoirized in the City of Omaha,
State of Nebraska, and, with respect to Mr. Harrison, in the City of Des Moines,
State of Iowa, on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------- ------------------------------------------ ----------------
<S> <C> <C>
/s/ Robert S. Silberman President and Chief Executive Officer May 28, 1999
--------------------------- (Principal Executive Officer)
Robert S. Silberman
/s/ Brian K. Hankel Treasurer, Chief Financial Officer and May 28, 1999
--------------------------- Chief Accounting Officer
Brian K. Hankel (Principal Financial Officer and
Principal Accounting Officer)
/s/ Douglas L. Anderson Director, Vice President, and May 28, 1999
--------------------------- General Counsel
Douglas L. Anderson
/s/ Patrick J. Goodman Director May 28, 1999
---------------------------
Patrick J. Goodman
/s/ John Harrison Director May 28, 1999
---------------------------
John Harrison
</TABLE>
II-19
<PAGE>
.
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement on Form S-4 to be signed on its
behalf by the undersigned thereunto duly authorized, in the City of Omaha,
State of Nebraska, on May 28, 1999.
VPC GEOTHERMAL LLC
By: /s/ Robert S. Silberman
---------------------------------
Robert S. Silberman
President and Chief Executive
Officer
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints Douglas L. Anderson and
Brian K. Hankel, as his/her true and lawful attorneys-in-fact and agents,
jointly and severally, with full power of substitution and resubstitution,
for and in his/her stead, in any and all capacities, to sign on his/her
behalf this registration statement on Form S-4 (the "Registration Statement")
in connection with Salton Sea Funding Corporation's offer to exchange 7.475%
Senior Secured Series F Bonds Due November 30, 2018 for any and all of its
outstanding 7.475% Senior Secured Series F Bonds Due November 30, 2018, and
to execute any amendments thereto (including post-effective amendments) or
certificates that may be required in connection with the Registration
Statement, and to file the same, with all exhibits thereto, and all other
documents in connection therewith, with the Securities and Exchange
Commission and granting unto said attorneys-in-fact and agents, jointly and
severally, the full power and authority to do and perform each and every act
and thing necessary or advisable to all intents and purposes as he/she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, jointly and severally, or his/her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement on Form S-4 to be signed on its
behalf by the undersigned, each thereunto duly authorized in the City of Omaha,
State of Nebraska, and, with respect to Mr. Harrison, City of Des Moines, State
of Iowa, on the dates indicated
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------- ------------------------------------------ ----------------
<S> <C> <C>
/s/ Robert S. Silberman President and Chief Executive Officer May 28, 1999
--------------------------- (Principal Executive Officer)
Robert S. Silberman
/s/ Brian K. Hankel Treasurer, Chief Financial Officer and May 28, 1999
--------------------------- Chief Accounting Officer
Brian K. Hankel (Principal Financial Officer and
Principal Accounting Officer)
/s/ Douglas L. Anderson Director, Vice President, and May 28, 1999
--------------------------- General Counsel
Douglas L. Anderson
/s/ Patrick J. Goodman Director May 28, 1999
---------------------------
Patrick J. Goodman
/s/ John Harrison Director May 28, 1999
---------------------------
John Harrison
</TABLE>
II-20
<PAGE>
.
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement on Form S-4 to be signed on its
behalf by the undersigned thereunto duly authorized, in the City of Omaha,
State of Nebraska, on May 28, 1999.
SAN FELIPE ENERGY COMPANY
By: /s/ Robert S. Silberman
---------------------------------
Robert S. Silberman
President and Chief Executive
Officer
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints Douglas L. Anderson and
Brian K. Hankel, as his/her true and lawful attorneys-in-fact and agents,
jointly and severally, with full power of substitution and resubstitution,
for and in his/her stead, in any and all capacities, to sign on his/her
behalf this registration statement on Form S-4 (the "Registration Statement")
in connection with Salton Sea Funding Corporation's offer to exchange 7.475%
Senior Secured Series F Bonds Due November 30, 2018 for any and all of its
outstanding 7.475% Senior Secured Series F Bonds Due November 30, 2018, and
to execute any amendments thereto (including post-effective amendments) or
certificates that may be required in connection with the Registration
Statement, and to file the same, with all exhibits thereto, and all other
documents in connection therewith, with the Securities and Exchange
Commission and granting unto said attorneys-in-fact and agents, jointly and
severally, the full power and authority to do and perform each and every act
and thing necessary or advisable to all intents and purposes as he/she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, jointly and severally, or his/her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement on Form S-4 to be signed on its
behalf by the undersigned, each thereunto duly authorized in the City of Omaha,
State of Nebraska, and, with respect to Mr. Harrison, City of Des Moines, State
of Iowa, on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------- ------------------------------------------ ----------------
<S> <C> <C>
/s/ Robert S. Silberman President and Chief Executive Officer May 28, 1999
--------------------------- (Principal Executive Officer)
Robert S. Silberman
/s/ Brian K. Hankel Treasurer, Chief Financial Officer and May 28, 1999
--------------------------- Chief Accounting Officer
Brian K. Hankel (Principal Financial Officer and
Principal Accounting Officer)
/s/ Douglas L. Anderson Director, Vice President, and May 28, 1999
--------------------------- General Counsel
Douglas L. Anderson
/s/ Patrick J. Goodman Director May 28, 1999
---------------------------
Patrick J. Goodman
/s/ John Harrison Director May 28, 1999
---------------------------
John Harrison
</TABLE>
II-21
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement on Form S-4 to be signed on its
behalf by the undersigned thereunto duly authorized, in the City of Omaha,
State of Nebraska, on May 28, 1999.
CONEJO ENERGY COMPANY
By: /s/ Robert S. Silberman
---------------------------------
Robert S. Silberman
President and Chief Executive
Officer
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints Douglas L. Anderson and
Brian K. Hankel, as his/her true and lawful attorneys-in-fact and agents,
jointly and severally, with full power of substitution and resubstitution,
for and in his/her stead, in any and all capacities, to sign on his/her
behalf this registration statement on Form S-4 (the "Registration Statement")
in connection with Salton Sea Funding Corporation's offer to exchange 7.475%
Senior Secured Series F Bonds Due November 30, 2018 for any and all of its
outstanding 7.475% Senior Secured Series F Bonds Due November 30, 2018, and
to execute any amendments thereto (including post-effective amendments) or
certificates that may be required in connection with the Registration
Statement, and to file the same, with all exhibits thereto, and all other
documents in connection therewith, with the Securities and Exchange
Commission and granting unto said attorneys-in-fact and agents, jointly and
severally, the full power and authority to do and perform each and every act
and thing necessary or advisable to all intents and purposes as he/she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, jointly and severally, or his/her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement on Form S-4 to be signed on its
behalf by the undersigned, each thereunto duly authorized in the City of Omaha,
State of Nebraska, and, with respect to Mr. Harrison, City of Des Moines, State
of Iowa, on the dates indicated
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------- ------------------------------------------ ----------------
<S> <C> <C>
/s/ Robert S. Silberman President and Chief Executive Officer May 28, 1999
--------------------------- (Principal Executive Officer)
Robert S. Silberman
/s/ Brian K. Hankel Treasurer, Chief Financial Officer and May 28, 1999
--------------------------- Chief Accounting Officer
Brian K. Hankel (Principal Financial Officer and
Principal Accounting Officer)
/s/ Douglas L. Anderson Director, Vice President, and May 28, 1999
--------------------------- General Counsel
Douglas L. Anderson
/s/ Patrick J. Goodman Director May 28, 1999
---------------------------
Patrick J. Goodman
/s/ John Harrison Director May 28, 1999
---------------------------
John Harrison
</TABLE>
II-22
<PAGE>
.
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement on Form S-4 to be signed on its
behalf by the undersigned thereunto duly authorized, in the City of Omaha,
State of Nebraska, on May 28, 1999.
NIGUEL ENERGY COMPANY
By: /s/ Robert S. Silberman
---------------------------------
Robert S. Silberman
President and Chief Executive
Officer
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints Douglas L. Anderson and
Brian K. Hankel, as his/her true and lawful attorneys-in-fact and agents,
jointly and severally, with full power of substitution and resubstitution,
for and in his/her stead, in any and all capacities, to sign on his/her
behalf this registration statement on Form S-4 (the "Registration Statement")
in connection with Salton Sea Funding Corporation's offer to exchange 7.475%
Senior Secured Series F Bonds Due November 30, 2018 for any and all of its
outstanding 7.475% Senior Secured Series F Bonds Due November 30, 2018, and
to execute any amendments thereto (including post-effective amendments) or
certificates that may be required in connection with the Registration
Statement, and to file the same, with all exhibits thereto, and all other
documents in connection therewith, with the Securities and Exchange
Commission and granting unto said attorneys-in-fact and agents, jointly and
severally, the full power and authority to do and perform each and every act
and thing necessary or advisable to all intents and purposes as he/she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, jointly and severally, or his/her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement on Form S-4 to be signed on its
behalf by the undersigned, each thereunto duly authorized in the City of Omaha,
State of Nebraska, and, with respect to Mr. Harrison, City of Des Moines, State
of Iowa, on the dates indicated
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------- ------------------------------------------ ----------------
<S> <C> <C>
/s/ Robert S. Silberman President and Chief Executive Officer May 28, 1999
--------------------------- (Principal Executive Officer)
Robert S. Silberman
/s/ Brian K. Hankel Treasurer, Chief Financial Officer and May 28, 1999
--------------------------- Chief Accounting Officer
Brian K. Hankel (Principal Financial Officer and
Principal Accounting Officer)
/s/ Douglas L. Anderson Director, Vice President, and May 28, 1999
--------------------------- General Counsel
Douglas L. Anderson
/s/ Patrick J. Goodman Director May 28, 1999
---------------------------
Patrick J. Goodman
/s/ John Harrison Director May 28, 1999
---------------------------
John Harrison
</TABLE>
II-23
<PAGE>
.
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement on Form S-4 to be signed on its
behalf by the undersigned thereunto duly authorized, in the City of Omaha,
State of Nebraska, on May 28, 1999.
VULCAN/BN GEOTHERMAL POWER COMPANY
By: Vulcan Power Company,
---------------------------------
its general partner
By: /s/ Robert S. Silberman
---------------------------------
Robert S. Silberman
President and Chief Executive
Officer
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints Douglas L. Anderson and
Brian K. Hankel, as his/her true and lawful attorneys-in-fact and agents,
jointly and severally, with full power of substitution and resubstitution,
for and in his/her stead, in any and all capacities, to sign on his/her
behalf this registration statement on Form S-4 (the "Registration Statement")
in connection with Salton Sea Funding Corporation's offer to exchange 7.475%
Senior Secured Series F Bonds Due November 30, 2018 for any and all of its
outstanding 7.475% Senior Secured Series F Bonds Due November 30, 2018, and
to execute any amendments thereto (including post-effective amendments) or
certificates that may be required in connection with the Registration
Statement, and to file the same, with all exhibits thereto, and all other
documents in connection therewith, with the Securities and Exchange
Commission and granting unto said attorneys-in-fact and agents, jointly and
severally, the full power and authority to do and perform each and every act
and thing necessary or advisable to all intents and purposes as he/she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, jointly and severally, or his/her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement on Form S-4 to be signed on its
behalf by the undersigned, each thereunto duly authorized in the City of Omaha,
State of Nebraska, and, with respect to Mr. Harrison, City of Des Moines, State
of Iowa, on the dates indicated
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------- ------------------------------------------ ----------------
<S> <C> <C>
/s/ Robert S. Silberman President and Chief Executive Officer May 28, 1999
--------------------------- (Principal Executive Officer)
Robert S. Silberman
/s/ Brian K. Hankel Treasurer, Chief Financial Officer and May 28, 1999
--------------------------- Chief Accounting Officer
Brian K. Hankel (Principal Financial Officer and
Principal Accounting Officer)
/s/ Douglas L. Anderson Director, Vice President, and May 28, 1999
--------------------------- General Counsel
Douglas L. Anderson
/s/ Patrick J. Goodman Director May 28, 1999
---------------------------
Patrick J. Goodman
/s/ John Harrison Director May 28, 1999
---------------------------
John Harrison
</TABLE>
II-24
<PAGE>
.
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement on Form S-4 to be signed on its
behalf by the undersigned thereunto duly authorized, in the City of Omaha,
State of Nebraska, on May 28, 1999.
LEATHERS, L.P.
By: CalEnergy Operating Corporation,
---------------------------------
its general partner
By: /s/ Robert S. Silberman
---------------------------------
Robert S. Silberman
President and Chief Executive
Officer
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints Douglas L. Anderson and
Brian K. Hankel, as his/her true and lawful attorneys-in-fact and agents,
jointly and severally, with full power of substitution and resubstitution,
for and in his/her stead, in any and all capacities, to sign on his/her
behalf this registration statement on Form S-4 (the "Registration Statement")
in connection with Salton Sea Funding Corporation's offer to exchange 7.475%
Senior Secured Series F Bonds Due November 30, 2018 for any and all of its
outstanding 7.475% Senior Secured Series F Bonds Due November 30, 2018, and
to execute any amendments thereto (including post-effective amendments) or
certificates that may be required in connection with the Registration
Statement, and to file the same, with all exhibits thereto, and all other
documents in connection therewith, with the Securities and Exchange
Commission and granting unto said attorneys-in-fact and agents, jointly and
severally, the full power and authority to do and perform each and every act
and thing necessary or advisable to all intents and purposes as he/she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, jointly and severally, or his/her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement on Form S-4 to be signed on its
behalf by the undersigned, each thereunto duly authorized in the City of Omaha,
State of Nebraska, and, with respect to Mr. Harrison, City of Des Moines, State
of Iowa, on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------- ------------------------------------------ ----------------
<S> <C> <C>
/s/ Robert S. Silberman President and Chief Executive Officer May 28, 1999
--------------------------- (Principal Executive Officer)
Robert S. Silberman
/s/ Brian K. Hankel Treasurer, Chief Financial Officer and May 28, 1999
--------------------------- Chief Accounting Officer
Brian K. Hankel (Principal Financial Officer and
Principal Accounting Officer)
/s/ Douglas L. Anderson Director, Vice President, and May 28, 1999
--------------------------- General Counsel
Douglas L. Anderson
/s/ Patrick J. Goodman Director May 28, 1999
---------------------------
Patrick J. Goodman
/s/ John Harrison Director May 28, 1999
---------------------------
John Harrison
</TABLE>
II-25
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement on Form S-4 to be signed on its
behalf by the undersigned thereunto duly authorized, in the City of Omaha,
State of Nebraska, on May 28, 1999.
DEL RANCH, L.P.
By: CalEnergy Operating Corporation,
---------------------------------
its general partner
By: /s/ Robert S. Silberman
---------------------------------
Robert S. Silberman
President and Chief Executive
Officer
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints Douglas L. Anderson and
Brian K. Hankel, as his/her true and lawful attorneys-in-fact and agents,
jointly and severally, with full power of substitution and resubstitution,
for and in his/her stead, in any and all capacities, to sign on his/her
behalf this registration statement on Form S-4 (the "Registration Statement")
in connection with Salton Sea Funding Corporation's offer to exchange 7.475%
Senior Secured Series F Bonds Due November 30, 2018 for any and all of its
outstanding 7.475% Senior Secured Series F Bonds Due November 30, 2018, and
to execute any amendments thereto (including post-effective amendments) or
certificates that may be required in connection with the Registration
Statement, and to file the same, with all exhibits thereto, and all other
documents in connection therewith, with the Securities and Exchange
Commission and granting unto said attorneys-in-fact and agents, jointly and
severally, the full power and authority to do and perform each and every act
and thing necessary or advisable to all intents and purposes as he/she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, jointly and severally, or his/her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement on Form S-4 to be signed on its
behalf by the undersigned, each thereunto duly authorized in the City of Omaha,
State of Nebraska, and, with respect to Mr. Harrison, City of Des Moines, State
of Iowa, on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------- ------------------------------------------ ----------------
<S> <C> <C>
/s/ Robert S. Silberman President and Chief Executive Officer May 28, 1999
--------------------------- (Principal Executive Officer)
Robert S. Silberman
/s/ Brian K. Hankel Treasurer, Chief Financial Officer and May 28, 1999
--------------------------- Chief Accounting Officer
Brian K. Hankel (Principal Financial Officer and
Principal Accounting Officer)
/s/ Douglas L. Anderson Director, Vice President, and May 28, 1999
--------------------------- General Counsel
Douglas L. Anderson
/s/ Patrick J. Goodman Director May 28, 1999
---------------------------
Patrick J. Goodman
/s/ John Harrison Director May 28, 1999
---------------------------
John Harrison
</TABLE>
II-26
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement on Form S-4 to be signed on its
behalf by the undersigned thereunto duly authorized, in the City of Omaha,
State of Nebraska, on May 28, 1999.
ELMORE, L.P.
By: CalEnergy Operating Corporation,
---------------------------------
its general partner
By: /s/ Robert S. Silberman
---------------------------------
Robert S. Silberman
President and Chief Executive
Officer
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints Douglas L. Anderson and
Brian K. Hankel, as his/her true and lawful attorneys-in-fact and agents,
jointly and severally, with full power of substitution and resubstitution,
for and in his/her stead, in any and all capacities, to sign on his/her
behalf this registration statement on Form S-4 (the "Registration Statement")
in connection with Salton Sea Funding Corporation's offer to exchange 7.475%
Senior Secured Series F Bonds Due November 30, 2018 for any and all of its
outstanding 7.475% Senior Secured Series F Bonds Due November 30, 2018, and
to execute any amendments thereto (including post-effective amendments) or
certificates that may be required in connection with the Registration
Statement, and to file the same, with all exhibits thereto, and all other
documents in connection therewith, with the Securities and Exchange
Commission and granting unto said attorneys-in-fact and agents, jointly and
severally, the full power and authority to do and perform each and every act
and thing necessary or advisable to all intents and purposes as he/she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, jointly and severally, or his/her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement on Form S-4 to be signed on its
behalf by the undersigned, each thereunto duly authorized in the City of Omaha,
State of Nebraska, and, with respect to Mr. Harrison, City of Des Moines, State
of Iowa, on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------- ------------------------------------------ ----------------
<S> <C> <C>
/s/ Robert S. Silberman President and Chief Executive Officer May 28, 1999
--------------------------- (Principal Executive Officer)
Robert S. Silberman
/s/ Brian K. Hankel Treasurer, Chief Financial Officer and May 28, 1999
--------------------------- Chief Accounting Officer
Brian K. Hankel (Principal Financial Officer and
Principal Accounting Officer)
/s/ Douglas L. Anderson Director, Vice President, and May 28, 1999
--------------------------- General Counsel
Douglas L. Anderson
/s/ Patrick J. Goodman Director May 28, 1999
---------------------------
Patrick J. Goodman
/s/ John Harrison Director May 28, 1999
---------------------------
John Harrison
</TABLE>
II-27
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement on Form S-4 to be signed on its
behalf by the undersigned thereunto duly authorized, in the City of Omaha,
State of Nebraska, on May 28, 1999.
SALTON SEA POWER L.L.C.
By: CE Salton Sea Inc., its manager
By: /s/ Robert S. Silberman
---------------------------------
Robert S. Silberman
President and Chief Executive
Officer
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints Douglas L. Anderson and
Brian K. Hankel, as his/her true and lawful attorneys-in-fact and agents,
jointly and severally, with full power of substitution and resubstitution,
for and in his/her stead, in any and all capacities, to sign on his/her
behalf this registration statement on Form S-4 (the "Registration Statement")
in connection with Salton Sea Funding Corporation's offer to exchange 7.475%
Senior Secured Series F Bonds Due November 30, 2018 for any and all of its
outstanding 7.475% Senior Secured Series F Bonds Due November 30, 2018, and
to execute any amendments thereto (including post-effective amendments) or
certificates that may be required in connection with the Registration
Statement, and to file the same, with all exhibits thereto, and all other
documents in connection therewith, with the Securities and Exchange
Commission and granting unto said attorneys-in-fact and agents, jointly and
severally, the full power and authority to do and perform each and every act
and thing necessary or advisable to all intents and purposes as he/she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, jointly and severally, or his/her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement on Form S-4 to be signed on its
behalf by the undersigned, each thereunto duly authorized in the City of Omaha,
State of Nebraska, and, with respect to Mr. Harrison, City of Des Moines, State
of Iowa, on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------- ------------------------------------------ ----------------
<S> <C> <C>
/s/ Robert S. Silberman President and Chief Executive Officer May 28, 1999
--------------------------- (Principal Executive Officer)
Robert S. Silberman
/s/ Brian K. Hankel Treasurer, Chief Financial Officer and May 28, 1999
--------------------------- Chief Accounting Officer
Brian K. Hankel (Principal Financial Officer and
Principal Accounting Officer)
/s/ Douglas L. Anderson Director, Vice President, and May 28, 1999
--------------------------- General Counsel
Douglas L. Anderson
/s/ Patrick J. Goodman Director May 28, 1999
---------------------------
Patrick J. Goodman
/s/ John Harrison Director May 28, 1999
---------------------------
John Harrison
</TABLE>
II-28
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement on Form S-4 to be signed on its
behalf by the undersigned thereunto duly authorized, in the City of Omaha,
State of Nebraska, on May 28, 1999.
CALENERGY MINERALS LLC
By: CE Salton Sea Inc., its manager
By: /s/ David L. Sokol
---------------------------------
David L. Sokol
President and Chief Executive
Officer
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints Douglas L. Anderson and
Brian K. Hankel, as his/her true and lawful attorneys-in-fact and agents,
jointly and severally, with full power of substitution and resubstitution,
for and in his/her stead, in any and all capacities, to sign on his/her
behalf this registration statement on Form S-4 (the "Registration Statement")
in connection with Salton Sea Funding Corporation's offer to exchange 7.475%
Senior Secured Series F Bonds Due November 30, 2018 for any and all of its
outstanding 7.475% Senior Secured Series F Bonds Due November 30, 2018, and
to execute any amendments thereto (including post-effective amendments) or
certificates that may be required in connection with the Registration
Statement, and to file the same, with all exhibits thereto, and all other
documents in connection therewith, with the Securities and Exchange
Commission and granting unto said attorneys-in-fact and agents, jointly and
severally, the full power and authority to do and perform each and every act
and thing necessary or advisable to all intents and purposes as he/she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, jointly and severally, or his/her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement on Form S-4 to be signed on its
behalf by the undersigned, each thereunto duly authorized in the City of
Omaha, State of Nebraska, on the dates indicated
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------- ------------------------------------------ ----------------
<S> <C> <C>
/s/ David L. Sokol Director, Chairman of the Board and May 28, 1999
--------------------------- Chief Executive Officer (Principal
David L. Sokol Executive Officer)
/s/ Gregory E. Abel Director, President and Chief May 28, 1999
--------------------------- Operating Officer
Gregory E. Abel
/s/ Steven A. McArthur Director, Senior Vice President, and May 28, 1999
--------------------------- Secretary
Steven A. McArthur
/s/ Patrick J. Goodman Senior Vice President, May 28, 1999
--------------------------- Chief Financial Officer and
Patrick J. Goodman Chief Accounting Officer
(Principal Financial Officer and
Principal Accounting Officer)
</TABLE>
II-29
<PAGE>
.
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement on Form S-4 to be signed on its
behalf by the undersigned thereunto duly authorized, in the City of Omaha,
State of Nebraska, on May 28, 1999.
CE TURBO LLC
By: /s/ Robert S. Silberman
---------------------------------
Robert S. Silberman
President and Chief Executive
Officer
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints Douglas L. Anderson and
Brian K. Hankel, as his/her true and lawful attorneys-in-fact and agents,
jointly and severally, with full power of substitution and resubstitution,
for and in his/her stead, in any and all capacities, to sign on his/her
behalf this registration statement on Form S-4 (the "Registration Statement")
in connection with Salton Sea Funding Corporation's offer to exchange 7.475%
Senior Secured Series F Bonds Due November 30, 2018 for any and all of its
outstanding 7.475% Senior Secured Series F Bonds Due November 30, 2018, and
to execute any amendments thereto (including post-effective amendments) or
certificates that may be required in connection with the Registration
Statement, and to file the same, with all exhibits thereto, and all other
documents in connection therewith, with the Securities and Exchange
Commission and granting unto said attorneys-in-fact and agents, jointly and
severally, the full power and authority to do and perform each and every act
and thing necessary or advisable to all intents and purposes as he/she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, jointly and severally, or his/her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement on Form S-4 to be signed on its
behalf by the undersigned, each thereunto duly authorized in the City of Omaha,
State of Nebraska, and, with respect to Mr. Harrison, City of Des Moines, State
of Iowa, on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------- ------------------------------------------ ----------------
<S> <C> <C>
/s/ Robert S. Silberman President and Chief Executive Officer May 28, 1999
--------------------------- (Principal Executive Officer)
Robert S. Silberman
/s/ Brian K. Hankel Treasurer, Chief Financial Officer and May 28, 1999
--------------------------- Chief Accounting Officer
Brian K. Hankel (Principal Financial Officer and
Principal Accounting Officer)
/s/ Douglas L. Anderson Director, Vice President, and May 28, 1999
--------------------------- General Counsel
Douglas L. Anderson
/s/ Patrick J. Goodman Director May 28, 1999
---------------------------
Patrick J. Goodman
/s/ John Harrison Director May 28, 1999
---------------------------
John Harrison
/s/ Lawrence Kellerman Director May 28, 1999
---------------------------
Lawrence Kellerman
</TABLE>
II-30
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement on Form S-4 to be signed on its
behalf by the undersigned thereunto duly authorized, in the City of Omaha,
State of Nebraska, on May 28, 1999.
CE SALTON SEA INC.
By: /s/ Robert S. Silberman
---------------------------------
Robert S. Silberman
President and Chief Executive
Officer
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints Douglas L. Anderson and
Brian K. Hankel, as his/her true and lawful attorneys-in-fact and agents,
jointly and severally, with full power of substitution and resubstitution,
for and in his/her stead, in any and all capacities, to sign on his/her
behalf this registration statement on Form S-4 (the "Registration Statement")
in connection with Salton Sea Funding Corporation's offer to exchange 7.475%
Senior Secured Series F Bonds Due November 30, 2018 for any and all of its
outstanding 7.475% Senior Secured Series F Bonds Due November 30, 2018, and
to execute any amendments thereto (including post-effective amendments) or
certificates that may be required in connection with the Registration
Statement, and to file the same, with all exhibits thereto, and all other
documents in connection therewith, with the Securities and Exchange
Commission and granting unto said attorneys-in-fact and agents, jointly and
severally, the full power and authority to do and perform each and every act
and thing necessary or advisable to all intents and purposes as he/she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, jointly and severally, or his/her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement on Form S-4 to be signed on its
behalf by the undersigned, each thereunto duly authorized in the City of Omaha,
State of Nebraska, and, with respect to Mr. Harrison, City of Des Moines, State
of Iowa, on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------- ------------------------------------------ ----------------
<S> <C> <C>
/s/ Robert S. Silberman President and Chief Executive Officer May 28, 1999
--------------------------- (Principal Executive Officer)
Robert S. Silberman
/s/ Brian K. Hankel Treasurer, Chief Financial Officer and May 28, 1999
--------------------------- Chief Accounting Officer
Brian K. Hankel (Principal Financial Officer and
Principal Accounting Officer)
/s/ Douglas L. Anderson Director, Vice President, and May 28, 1999
--------------------------- General Counsel
Douglas L. Anderson
/s/ Patrick J. Goodman Director May 28, 1999
---------------------------
Patrick J. Goodman
/s/ John Harrison Director May 28, 1999
---------------------------
John Harrison
</TABLE>
II-31
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement on Form S-4 to be signed on its
behalf by the undersigned thereunto duly authorized, in the City of Omaha,
State of Nebraska, on May 28, 1999.
SALTON SEA MINERALS CORP.
By: /s/ David L. Sokol
---------------------------------
David L. Sokol
Chairman of the Board and Chief
Executive Officer
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints Douglas L. Anderson and
Brian K. Hankel, as his/her true and lawful attorneys-in-fact and agents,
jointly and severally, with full power of substitution and resubstitution,
for and in his/her stead, in any and all capacities, to sign on his/her
behalf this registration statement on Form S-4 (the "Registration Statement")
in connection with Salton Sea Funding Corporation's offer to exchange 7.475%
Senior Secured Series F Bonds Due November 30, 2018 for any and all of its
outstanding 7.475% Senior Secured Series F Bonds Due November 30, 2018, and
to execute any amendments thereto (including post-effective amendments) or
certificates that may be required in connection with the Registration
Statement, and to file the same, with all exhibits thereto, and all other
documents in connection therewith, with the Securities and Exchange
Commission and granting unto said attorneys-in-fact and agents, jointly and
severally, the full power and authority to do and perform each and every act
and thing necessary or advisable to all intents and purposes as he/she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, jointly and severally, or his/her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement on Form S-4 to be signed on its
behalf by the undersigned, each thereunto duly authorized in the City of
Omaha, State of Nebraska, on the dates indicated
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------- ------------------------------------------ ----------------
<S> <C> <C>
/s/ David L. Sokol Director, Chairman of the Board and May 28, 1999
--------------------------- Chief Executive Officer (Principal
David L. Sokol Executive Officer)
/s/ Gregory E. Abel Director, President and Chief May 28, 1999
--------------------------- Operating Officer
Gregory E. Abel
/s/ Steven A. McArthur Director, Senior Vice President, and May 28, 1999
--------------------------- Secretary
Steven A. McArthur
/s/ Patrick J. Goodman Senior Vice President, May 28, 1999
--------------------------- Chief Financial Officer and
Patrick J. Goodman Chief Accounting Officer
(Principal Financial Officer and
Principal Accounting Officer)
</TABLE>
II-32
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- --------------- ------------------------------------------------------------------------------------------------
<S> <C>
3.1 Articles of Incorporation of the Funding Corporation (incorporated by reference to Exhibit 3.1
to the Funding Corporation Registration Statement on Form S-4 dated August 9, 1995, 33-95538
("Funding Corporation Form S-4")).
3.2 By-laws of the Funding Corporation (incorporated by reference to Exhibit 3.2 to the Funding
Corporation Form S-4).
3.3 Limited Partnership Agreement of SSBP (incorporated by reference to Exhibit 3.3 to the Funding
Corporation Form S-4).
3.4 Limited Partnership Agreement of SSPG (incorporated by reference to Exhibit 3.4 to the Funding
Corporation Form S-4).
3.5* Certificate of Formation of Fish Lake.
3.6* Limited Liability Company Agreement of Fish Lake.
3.7 Articles of Incorporation of VPC (incorporated by reference to Exhibit 3.7 to the Funding
Corporation Form S-4).
3.8 By-laws of VPC (incorporated by reference to Exhibit 3.8 to the Funding Corporation Form S-4).
3.9 Articles of Incorporation of CEOC (incorporated by reference to Exhibit 3.9 to the Funding
Corporation Form S-4).
3.10 By-laws of CEOC (incorporated by reference to Exhibit 3.10 to the Funding Corporation Form S-4).
3.11* Certificate of Formation of the Royalty Guarantor.
3.12* Limited Liability Company Agreement of the Royalty Guarantor.
3.13* Certificate of Formation of VPC Geothermal.
3.14* Limited Liability Company Agreement of VPC Geothermal.
3.15 Articles of Incorporation of San Felipe (incorporated by reference to Exhibit 3.15 to the
Funding Corporation Registration Statement on Form S-4 dated July 2, 1996, 333-07527 ("Funding
Corporation II Form S-4")).
3.16 By-laws of San Felipe (incorporated by reference to Exhibit 3.16 to the Funding Corporation II
Form S-4).
3.17 Articles of Incorporation of Conejo (incorporated by reference to Exhibit 3.17 to the Funding
Corporation II Form S-4).
3.18 By-laws of Conejo (incorporated by reference to Exhibit 3.18 to the Funding Corporation II Form
S-4).
3.19 Articles of Incorporation of Niguel (incorporated by reference to Exhibit 3.19 to the Funding
Corporation II Form S-4).
3.20 By-laws of Niguel (incorporated by reference to Exhibit 3.20 to the Funding Corporation II Form
S-4).
<PAGE>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- --------------- ------------------------------------------------------------------------------------------------
3.21 General Partnership Agreement of Vulcan (incorporated by reference to Exhibit 3.21 to the
Funding Corporation II Form S-4).
3.22 Limited Partnership Agreement of Leathers (incorporated by reference to Exhibit 3.22 to the
Funding Corporation II Form S-4).
3.23 Amended and Restated Limited Partnership Agreement of Del Ranch (incorporated by reference to
Exhibit 3.23 to the Funding Corporation II Form S-4).
3.24 Amended and Restated Limited Partnership Agreement of Elmore (incorporated by reference to
Exhibit 3.24 to the Funding Corporation II Form S-4).
3.25* Certificate of Formation of Minerals LLC.
3.26* Limited Liability Company Agreement of Minerals LLC.
3.27* Certificate of Formation of Turbo LLC.
3.28* Limited Liability Company Agreement of Turbo LLC.
3.29* Articles of Incorporation of CESS.
3.30* By-laws of CESS.
3.31* Articles of Incorporation of SSMC.
3.32* By-laws of SSMC.
4.1(a) Indenture, dated as of July 21, 1995, between Chemical Trust Company of California and the
Funding Corporation (incorporated by reference to Exhibit 4.1(a) to the Funding Corporation Form
S-4).
4.1(b) First Supplemental Indenture, dated as of October 18, 1995, between Chemical Trust Company of
California and the Funding Corporation (incorporated by reference to Exhibit 4.1(b) to the
Funding Corporation Form S-4).
4.1(c) Second Supplemental Indenture, dated as of June 20, 1996, between Chemical Trust Company of
California and the Funding Corporation (incorporated by reference to Exhibit 4.1(c) to the
Funding Corporation II Form S-4).
4.1(d) Third Supplemental Indenture between Chemical Trust Company of California and the Funding
Corporation (incorporated by reference to Exhibit 4.1(d) to the Funding Corporation II Form
S-4).
4.1(e) Fourth Supplemental Indenture between Chase Manhattan Bank and Trust Company, National
Association and the Funding Corporation (incorporated by reference to Exhibit 4.1(e) to the
Funding Corporation's Form 10-K/A dated March 27, 1999 (the "Form 10-K/A")).
4.1(f)** Fifth Supplemental Indenture between Chase Manhattan Bank and Trust Company, National
Association and the Funding Corporation.
4.2 Amended and Restated Salton Sea Secured Guarantee, dated as of July 21, 1995, by SSBP, SSPG and
Fish Lake in favor of Chemical Trust Company of California (incorporated by reference to Exhibit
4.2 to the Funding Corporation Form S-4).
<PAGE>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- --------------- ------------------------------------------------------------------------------------------------
4.3 Second Amended and Restated Partnership Secured Limited Guarantee, dated as of October 13, 1998
by CEOC, VPC, Conejo, Niguel, San Felipe, BNG, Del Ranch, Elmore, Leathers, Vulcan, Minerals LLC
and Turbo LLC in favor of Chemical Trust Company of California (incorporated by reference to
Exhibit 4.3(c) to the Form 10-K/A).
4.4 Royalty Guarantor Secured Limited Guarantee, dated as of July 21, 1995, by the Royalty Guarantor
in favor of Chemical Trust Company of California (incorporated by reference to Exhibit 4.4 to
the Funding Corporation Form S-4).
4.5(a) Exchange and Registration Rights Agreement, dated July 21, 1995, by and among CS First Boston
Corporation, Lehman Brothers Inc. and the Funding Corporation (incorporated by reference to
Exhibit 4.5 to the Funding Corporation Form S-4).
4.5(b) Exchange and Registration Rights Agreement, dated June 20, 1996, by and between CS First Boston
Corporation and the Funding Corporation (incorporated by reference to Exhibit 4.5 to the Funding
Corporation II Form S-4).
4.5(c)** Exchange and Registration Rights Agreement, dated October 13, 1998, by and among CS First Boston
Corporation, Goldman, Sachs & Co. and the Funding Corporation.
4.6(a) Collateral Agency and Intercreditor Agreement, dated as of July 21, 1995, by and among Credit
Suisse, Chemical Trust Company of California, the Funding Corporation and the Guarantors
(incorporated by reference to Exhibit 4.6 to the Funding Corporation Form S-4).
4.6(b) First Amendment to the Collateral Agency and Intercreditor Agreement, dated as of June 20, 1996,
by and among Credit Suisse, Chemical Trust Company of California, the Funding Corporation and
the Guarantors (incorporated by reference to Exhibit 4.6(b) to the Funding Corporation II Form
S-4).
4.6(c) Second Amendment to the Collateral Agency and Intercreditor Agreement, dated as of October 13,
1998, by and among Credit Suisse, Chemical Trust Company of California, the Funding Corporation
and the Guarantors (incorporated by reference to Exhibit 4.6(c) to the Form 10-K/A).
4.7 Stock Pledge Agreement, dated as of July 21, 1995, by Magma Power Company in favor of Chemical
Trust Company of California (incorporated by reference to Exhibit 4.7 to the Funding Corporation
Form S-4).
4.8(a) Purchase Agreement, dated July 18, 1995, by and among CS First Boston Corporation, Lehman
Brothers Inc., the Guarantors and the Funding Corporation (incorporated by reference to Exhibit
4.8 to the Funding Corporation Form S-4).
4.8(b) Purchase Agreement, dated June 17, 1996, by and among CS First Boston Corporation, the
Guarantors and the Funding Corporation (incorporated by reference to Exhibit 4.8 to the Funding
Corporation II Form S-4).
4.8(c) Purchase Agreement, dated October 13, 1998 by and among CS First Boston Corporation, the
Guarantors and the Funding Corporation (incorporated by reference to Exhibit 4.8(c) to the Form
10-K/A).
4.9 Support Letter, dated as of July 21, 1995, by and among Magma Power Company, the Funding
Corporation and the Guarantors (incorporated by reference to Exhibit 4.9 to the Funding
Corporation Form S-4).
<PAGE>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- --------------- ------------------------------------------------------------------------------------------------
4.10 Debt Service Reserve Letter of Credit and Reimbursement Agreement, dated as of July 21, 1995, by
and among the Funding Corporation, certain banks and Credit Suisse, as agent (incorporated by
reference to Exhibit 4.10 to the Funding Corporation Form S-4).
4.10(a) Amendment to Notes and to Amended Debt Service Reserve Letter of Credit and Reimbursement
Agreement, dated October 13, 1998, by and among the Funding Corporation, certain banks and
Credit Suisse, as agent (incorporated by reference to Exhibit 4.10(a) to the Form 10-K/A).
4.11 Revolving Credit Agreement, dated as of July 21, 1995, by and among Credit Suisse and the
Funding Corporation (incorporated by reference to Exhibit 4.11 to the Funding Corporation Form
S-4).
4.12 Amended and Restated Salton Sea Credit Agreement, dated October 13, 1998, by and among SSBP,
SSPG, Power LLC and Fish Lake (incorporated by reference to Exhibit 4.12 to the Funding
Corporation Form S-4).
4.13 Salton Sea Project Note (SSI), dated October 13, 1998, by SSBP, SSPG, Power LLC and Fish Lake in
favor of the Funding Corporation (incorporated by reference to Exhibit 4.13(a) to the Form
10-K/A).
4.13(a) Salton Sea Project Note (SSIII), dated October 13, 1998, by SSBP, SSPG, Power LLC and Fish Lake
in favor of the Funding Corporation (incorporated by reference to Exhibit 4.13(b) to the Form
10-K/A).
4.14 Amended and Restated Deposit and Disbursement Agreement, dated as of October 13, 1998, by and
among the Funding Corporation, Chemical Trust Company of California and the Guarantors
(incorporated by reference to Exhibit 4.14(c) to the Form 10-K/A).
4.15 Partnership Interest Pledge Agreement, dated as of July 21, 1995, by Magma Power Company and
Salton Sea Power Company in favor of Chemical Trust Company of California (incorporated by
reference to Exhibit 4.15 to the Funding Corporation Form S-4).
4.16 Partnership Interest Pledge Agreement, dated as of July 21, 1995, by SSBP and Salton Sea Power
Company in favor of Chemical Trust Company of California (incorporated by reference to Exhibit
4.16 to the Funding Corporation Form S-4).
4.17 Stock Pledge Agreement (pledge of Stock of Fish Lake by Magma Power Company and the Funding
Corporation), dated as of July 21, 1995, by Magma Power Company and the Funding Corporation in
favor of Chemical Trust Company of California (incorporated by reference to Exhibit 4.17 to the
Funding Corporation Form S-4).
4.18 Intentionally Omitted.
4.19 Second Amended and Restated Partnership Guarantors Credit Agreement, dated October 13, 1998, by
and among the Partnership Guarantors and the Funding Corporation (incorporated by reference to
Exhibit 4.19(c) to the Form 10-K/A).
4.20 Partnership Guarantors Security Agreement and Assignment of Rights, dated as of July 21, 1995,
by CEOC and VPC in favor of Chemical Trust Company of California (incorporated by reference to
Exhibit 4.20 to the Funding Corporation Form S-4).
4.21 Stock Pledge Agreement (pledge of Stock of CEOC by Magma Power Company and the Funding
Corporation), dated as of July 21, 1995, by Magma Power Company and Funding Corporation in favor
of Chemical Trust Company of California (incorporated by reference to Exhibit 4.21 to the
Funding Corporation Form S-4).
<PAGE>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- --------------- ------------------------------------------------------------------------------------------------
4.22 Stock Pledge Agreement (pledge of Stock of VPC by Magma Power Company and the Funding
Corporation), dated as of July 21, 1995, by Magma Power Company and the Funding Corporation in
favor of Chemical Trust Company of California (incorporated by reference to Exhibit 4.22 to the
Funding Corporation Form S-4).
4.23 Royalty Guarantor Credit Agreement, among the Royalty Guarantor and the Funding Corporation,
dated as of July 21, 1995 (incorporated by reference to Exhibit 4.23 to the Funding Corporation
Form S-4).
4.24 Royalty Project Note, dated as of July 21, 1995, by the Royalty Guarantor in favor of the
Funding Corporation (incorporated by reference to Exhibit 4.24 to the Funding Corporation Form
S-4).
4.25 Royalty Security Agreement and Assignment of Revenues, dated as of July 21, 1995, by the Royalty
Guarantor in favor of Chemical Trust Company of California (incorporated by reference to Exhibit
4.25 to the Funding Corporation Form S-4).
4.26 Royalty Deed of Trust, dated as of July 21, 1995, by the Royalty Guarantor to Chicago Title
Company for the use and benefit of Chemical Trust Company of California (incorporated by
reference to Exhibit 4.26 to the Funding Corporation Form S-4).
4.27 Stock Pledge Agreement (pledge of Stock of Royalty Guarantor by Magma Power Company and the
Funding Corporation), dated as of July 21, 1995, by Magma Power Company and the Funding
Corporation in favor of Chemical Trust Company of California (incorporated by reference to
Exhibit 4.27 to the Funding Corporation Form S-4).
4.28 Collateral Assignment of the Imperial Irrigation District Agreements, dated as of July 21, 1995,
by SSBP, SSPG and Fish Lake in favor of Chemical Trust Company of California (incorporated by
reference to Exhibit 4.28 to the Funding Corporation Form S-4).
4.29 Collateral Assignments of Certain Salton Sea Agreements, dated as of July 21, 1995, by SSBP,
SSPG and Fish Lake in favor of Chemical Trust Company of California (incorporated by reference
to Exhibit 4.29 to the Funding Corporation Form S-4).
4.30 Debt Service Reserve Letter of Credit by Credit Suisse in favor of Chemical Trust Company of
California (incorporated by reference to Exhibit 4.30 to the Funding Corporation Form S-4).
4.31 Partnership Project Note (SSI), dated October 13, 1998, by VPC, CEOC, Conejo, San Felipe,
Niguel, VPC Geothermal, Del Ranch, Elmore, Leathers, Vulcan, Turbo LLC and Minerals LLC in favor
of the Funding Corporation (incorporated by reference to Exhibit 4.31(a) to the Form 10-K/A).
4.31(a) Partnership Project Note (SSII), dated October 13, 1998, by VPC, CEOC, Conejo, San Felipe,
Niguel, VPC Geothermal, Del Ranch, Elmore, Leathers, Vulcan, Turbo LLC and Minerals LLC in favor
of the Funding Corporation (incorporated by reference to Exhibit 4.31(b) to the Form 10-K/A).
4.31(b) Partnership Project Note (SSIII), dated October 13, 1998, by VPC, CEOC, Conejo, San Felipe,
Niguel, VPC Geothermal, Del Ranch, Elmore, Leathers, Vulcan, Turbo LLC and Minerals LLC in favor
of the Funding Corporation (incorporated by reference to Exhibit 4.31(c) to the Form 10-K/A).
4.32 Collateral Assignment of the Imperial Irrigation District Agreements, dated as of June 20, 1996,
by Vulcan, Elmore, Leathers, VPC and Del Ranch in favor of Chemical Trust Company of California
(incorporated by reference to Exhibit 4.29 to the Funding Corporation II Form S-4).
<PAGE>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- --------------- ------------------------------------------------------------------------------------------------
4.33 Collateral Assignments of Certain Partnership Agreements, dated as of June 20, 1996, by Vulcan
Elmore, Leathers and Del Ranch in favor of Chemical Trust Company of California (incorporated by
reference to Exhibit 4.31 to the Funding Corporation II Form S-4).
4.34 Debt Service Reserve Letter of Credit by Credit Suisse in favor of Chemical Trust Company of
California (incorporated by reference to Exhibit 4.32 to the Funding Corporation II Form S-4).
4.35 Intentionally Omitted.
4.36 Intentionally Omitted.
4.37 Deed of Trust, dated as of June 20, 1996, by Vulcan to Chicago Title Company for the use and
benefit of Chemical Trust Company of California (incorporated by reference to Exhibit 4.35 to
the Funding Corporation II Form S-4).
4.37(a) First Amendment to Deed of Trust, dated October 13, 1998 by Vulcan to Chicago Title Company for
the use and benefit of Chemical Trust Company of California (incorporated by reference to
Exhibit 4.37(a) to the Form 10-K/A).
4.38 Deed of Trust, dated as of June 20, 1996, by Elmore to Chicago Title Company for the use and
benefit of Chemical Trust Company of California (incorporated by reference to Exhibit 4.36 to
the Funding Corporation II Form S-4).
4.38(a) First Amendment to Deed of Trust, dated October 13, 1998, by Elmore to Chicago Title Company for
the use and benefit of Chemical Trust Company of California (incorporated by reference to
Exhibit 4.38(a) to the Form 10-K/A).
4.39 Deed of Trust, dated as of June 20, 1996, by Leathers to Chicago Title Company for the use and
benefit of Chemical Trust Company of California (incorporated by reference to Exhibit 4.37 to
the Funding Corporation II Form S-4).
4.39(a) First Amendment to Deed of Trust, dated October 13, 1998, by Leathers to Chicago Title Company
for the use and benefit of Chemical Trust Company of California (incorporated by reference to
Exhibit 4.39(a) to the Form 10-K/A).
4.40 Deed of Trust, dated as of June 20, 1996, by Del Ranch to Chicago Title Company for the use and
benefit of Chemical Trust Company of California (incorporated by reference to Exhibit 4.38 to
the Funding Corporation II Form S-4).
4.40(a) First Amendment to Deed of Trust, dated October 13, 1998, by Del Ranch to Chicago Title Company
for the use and benefit of Chemical Trust Company of California (incorporated by reference to
Exhibit 4.40(a) to the Form 10-K/A).
4.41 Stock Pledge Agreement, Dated as of June 20, 1996, by CEOC, pledging the stock of Conejo, Niguel
and San Felipe in favor of Chemical Trust Company of California for the benefit of the Secured
Parties and the Funding Corporation (incorporated by reference to Exhibit 4.39 to the Funding
Corporation II Form S-4).
4.42 Stock Pledge Agreement, dated as of June 20, 1996, by VPC, pledging the stock of BNG in favor of
Chemical Trust Company of California for the benefit of the Secured Parties and the Funding
Corporation (incorporated by reference to Exhibit 4.40 to the Funding Corporation II Form S-4).
<PAGE>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- --------------- ------------------------------------------------------------------------------------------------
4.43 Partnership Interest Pledge Agreement, dated as of June 20, 1996, by VPC and BNG, pledging the
partnership interests in Vulcan in favor of Chemical Trust Company of California for the benefit
of the Secured Parties and the Funding Corporation (incorporated by reference to Exhibit 4.41 to
the Funding Corporation II Form S-4).
4.44 Partnership Interest Pledge Agreement, dated as of June 20, 1996, by Magma, CEOC and each of
Conejo, Niguel, San Felipe, respectively, pledging the partnership interests in Del Ranch,
Elmore and Leathers, respectively, in favor of Chemical Trust Company of California for the
benefit of the Secured Parties and the Funding Corporation (incorporated by reference to Exhibit
4.42 to the Funding Corporation II Form S-4).
4.45 Agreement regarding Security Documents, dated as of June 20, 1996, by and among the Initial
Guarantors, Magma, Sspc, the Funding Corporation and Chemical Trust Company of California
(incorporated by reference to Exhibit 4.45 to the Funding Corporation II Form S-4).
5.1* Opinion of Willkie Farr & Gallagher.
5.2* Opinion of Latham & Watkins.
5.3* Opinion of Lionel Sawyer & Collins.
10.1(a) Salton Sea Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing, dated as
of July 21, 1995, by SSBP, SSPG and Fish Lake to Chicago Title Company for the use and benefit
of Chemical Trust Company of California (incorporated by reference to Exhibit 10.1 to the
Funding Corporation Form S-4) .
10.1(b) First Amendment to Salton Sea Deed of Trust, Assignment of Rents, Security Agreement and Fixed
Filing, dated as of June 20, 1996, by SSBP, SSPG and Fish Lake to Chicago Title Company for the
use and benefit of Chemical Trust Company of California (incorporated by reference to Exhibit
10.2 to the Funding Corporation II Form S-4).
10.1(c) Second Amendment to Salton Sea Deed of Trust, Assignment of Rents, Security Agreement and Fixed
Filing, dated as of October 13, 1998, by SSBP, SSPG and Fish Lake to Chicago Title Company for
the use and benefit of Chemical Trust Company of California (incorporated by reference to
Exhibit 10.1(c) to the Form 10-K/A).
10.2 Collateral Assignment of Southern California Edison Company Agreements, dated as of July 21,
1995, by SSPG and Fish Lake in favor of Chemical Trust Company of California (incorporated by
reference to Exhibit 10.3 to the Funding Corporation Form S-4).
10.3 Contract for the Purchase and Sale of Electric Power from the Salton Sea Geothermal Facility,
dated May 9, 1987 (the "Unit 1 Power Purchase Agreement"), between Southern California Edison
Company and Earth Energy, Inc. (incorporated by reference to Exhibit 10.4 to the Funding
Corporation Form S-4).
10.4 Amendment No. 1 to the Unit 1 Power Purchase Agreement, dated as of March 30, 1993, between
Southern California Edison Company and Earth Energy, Inc. (incorporated by reference to Exhibit
10.5 to the Funding Corporation Form S-4).
10.5 Amendment No. 2 to Unit 1 Power Purchase Agreement, dated November 29, 1994, between Southern
California Edison Company and SSPG (incorporated by reference to Exhibit 10.6 to the Funding
Corporation Form S-4).
<PAGE>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- --------------- ------------------------------------------------------------------------------------------------
10.6 Contract for the Purchase and Sale of Electric Power, dated April 16, 1985 (the "Unit 2 Power
Purchase Agreement"), between Southern California Edison Company and Westmoreland Geothermal
Associates (incorporated by reference to Exhibit 10.7 to the Funding Corporation Form S-4).
10.7 Amendment No. 1 to Unit 2 Power Purchase Agreement, dated as of December 18, 1987, between
Southern California Edison Company and Earth Energy, Inc. (incorporated by reference to Exhibit
10.8 to the Funding Corporation Form S-4).
10.8 Power Purchase Contract, dated April 16, 1985 (the "Unit 3 Power Purchase Agreement"), between
Southern California Edison Company and Union Oil Company of California (incorporated by
reference to Exhibit 10.9 to the Funding Corporation Form S-4).
10.9 Power Purchase Contract (the "Unit 4 Power Purchase Agreement"), dated November 29, 1994,
between Southern California Edison Company, SSPG and Fish Lake (incorporated by reference to
Exhibit 10.10 to the Funding Corporation Form S-4).
10.10 Plant Connection Agreement (Unit 2), dated October 3, 1989, between the Imperial Irrigation
District and Earth Energy, Inc. (incorporated by reference to Exhibit 10.11 to the Funding
Corporation Form S-4).
10.11 Plant Connection Agreement, dated August 2, 1988 (Unit 3), between the Imperial Irrigation
District and Desert Power Company (incorporated by reference to Exhibit 10.12 to the Funding
Corporation Form S-4).
10.12 Imperial Irrigation District Funding and Construction Agreements as amended (Units 2 and 3),
dated as of June 29, 1987, among the Imperial Irrigation District, Earth Energy, Inc., Chevron
Geothermal Company of California, Geo East Mesa No. 3, Inc., Magma Power Company, Desert Power
Company, Geo East Mesa No. 2, Inc., Heber Geothermal Company, Ormesa Geothermal, Ormesa
Geothermal II, Vulcan/BN Geothermal Power Company, Union Oil Company of California, Del Ranch
L.P., Elmore L.P., Leathers L.P., Geo East Mesa Limited Partnership and Imperial Resource
Recovery Associates, L.P. (incorporated by reference to Exhibit 10.13 to the Funding Corporation
Form S-4).
10.13 Transmission Service Agreement, dated as of October 3, 1989 (Unit 2), between the Imperial
Irrigation District and Earth Energy, Inc. (incorporated by reference to Exhibit 10.14 to the
Funding Corporation Form S-4).
10.14 Transmission Service Agreement, dated as of August 2, 1988 (Unit 3), between the Imperial
Irrigation District and Desert Power Company (incorporated by reference to Exhibit 10.15 to the
Funding Corporation Form S-4).
10.15 Plant Connection Agreement (Unit 4), dated as of July 14, 1995, by and between the Imperial
Irrigation District, SSPG and Fish Lake (incorporated by reference to Exhibit 10.16 to the
Funding Corporation Form S-4).
10.16 Letter Agreement, dated February 2, 1995, between Magma Power Company and the Imperial
Irrigation District (incorporated by reference to Exhibit 10.17 to the Funding Corporation Form
S-4).
10.17 Transmission Service Agreement (Unit 4), dated as of July 14, 1995, by and between the Imperial
Irrigation District, SSPG and Fish Lake (incorporated by reference to Exhibit 10.18 to the
Funding Corporation Form S-4).
10.18 Transmission Line Construction Agreement (Unit 4), dated July 14, 1995, between the Imperial
Irrigation District, SSPG and Fish Lake (incorporated by reference to Exhibit 10.19 to the
Funding Corporation Form S-4).
<PAGE>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- --------------- ------------------------------------------------------------------------------------------------
10.19 Funding Agreement, dated June 15, 1988 (Unit 2), between Southern California Edison Company and
Earth Energy, Inc. (incorporated by reference to Exhibit 10.20 to the Funding Corporation Form
S-4).
10.20 Second Amended and Restated Administrative Services Agreement, by and among CEOC, SSBP, SSPG and
Fish Lake, dated as of July 15, 1995 (incorporated by reference to Exhibit 10.21 to the Funding
Corporation Form S-4).
10.21 Second Amended and Restated Operating and Maintenance Agreement, dated as of July 15, 1995, by
and among Magma Power Company, SSBP, SSPG and Fish Lake (incorporated by reference to Exhibit
10.22 to the Funding Corporation Form S-4).
10.22 Intentionally Omitted.
10.23 Collateral Assignment of Southern California Edison Company Agreements, dated as of June 20,
1996, by Vulcan, Elmore, Leathers and Del Ranch in favor of Chemical Trust Company of California
(incorporated by reference to Exhibit 10.23 to the Funding Corporation II Form S-4).
10.24 Administrative Services Agreement, dated as of June 17, 1996, between CEOC and Vulcan
(incorporated by reference to Exhibit 10.24 to the Funding Corporation II Form S-4).
10.25 Amended and Restated Construction, Operating and Accounting Agreement, dated as of June 17,
1996, between VPC and Vulcan (incorporated by reference to Exhibit 10.25 to the Funding
Corporation II Form S-4).
10.26 Long Term Power Purchase Contract, dated March 1, 1984, as amended, between SCE and Vulcan, as
successor to Magma Electric Company (incorporated by reference to Exhibit 10.26 to the Funding
Corporation II Form S-4).
10.27 Transmission Service Agreement, dated December 1, 1988, between VPC and IID (incorporated by
reference to Exhibit 10.27 to the Funding Corporation II Form S-4).
10.28 Plant Connection Agreement, dated as of December 1, 1988, between VPC and IID (incorporated by
reference to Exhibit 10.28 to the Funding Corporation II Form S-4).
10.29 Amended and Restated Administrative Services Agreement, dated as of June 17, 1996 between CEOC
and Elmore (incorporated by reference to Exhibit 10.29 to the Funding Corporation II Form S-4).
10.30 Amended and Restated Operating and Maintenance Agreement, dated as of June 17, 1996, between
CEOC and Elmore (incorporated by reference to Exhibit 10.30 to the Funding Corporation II Form
S-4).
10.31 Long Term Power Purchase Contract, dated June 15, 1984, as amended, between SCE and Elmore, as
successor to Magma Electric Company (incorporated by reference to Exhibit 10.31 to the Funding
Corporation II Form S-4).
10.32 Transmission Service Agreement, dated as of August 2, 1988, as amended, between Elmore and IID
(incorporated by reference to Exhibit 10.32 to the Funding Corporation II Form S-4).
10.33 Plant Connection Agreement, dated as of August 2, 1988, between Elmore and IID (incorporated by
reference to Exhibit 10.33 to the Funding Corporation II Form S-4).
10.34 Amended and Restated Administrative Services Agreement, dated as of June 17, 1996, between CEOC
and Leathers (incorporated by reference to Exhibit 10.34 to the Funding Corporation II Form
S-4).
<PAGE>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- --------------- ------------------------------------------------------------------------------------------------
10.35 Amended and Restated Operating and Maintenance Agreement, dated as of June 17, 1996, between
CEOC and Leathers (incorporated by reference to Exhibit 10.35 to the Funding Corporation II Form
S-4).
10.36 Long Term Power Purchase Contract, dated August 16, 1985, as amended, between SCE and Leathers,
as successor to Imperial Energy Corporation (incorporated by reference to Exhibit 10.36 to the
Funding Corporation II Form S-4).
10.37 Transmission Service Agreement, dated as of October 3, 1989, as amended, between Leathers and
IID (incorporated by reference to Exhibit 10.37 to the Funding Corporation II Form S-4).
10.38 Plant Connection Agreement, dated as of October 3, 1989, between Leathers and IID (incorporated
by reference to Exhibit 10.38 to the Funding Corporation II Form S-4).
10.39 Amended and Restated Administrative Services Agreement, dated as of June 17, 1996, between CEOC
and Del Ranch (incorporated by reference to Exhibit 10.39 to the Funding Corporation II Form
S-4).
10.40 Amended and Restated Operating and Maintenance Agreement, dated as of June 17, 1996, between
CEOC and Del Ranch (incorporated by reference to Exhibit 10.40 to the Funding Corporation II
Form S-4).
10.41 Long Term Power Purchase Contract, dated February 22, 1984, as amended, between SCE and Del
Ranch, as successor to Magma (incorporated by reference to Exhibit 10.41 to the Funding
Corporation II Form S-4).
10.42 Transmission Service Agreement, dated as of August 2, 1988, as amended, between Del Ranch and
IID (incorporated by reference to Exhibit 10.42 to the Funding Corporation II Form S-4).
10.43 Plant Connection Agreement, dated as of August 2, 1988, between Del Ranch and IID (incorporated
by reference to Exhibit 10.43 to the Funding Corporation II Form S-4).
10.44 Funding Agreement, dated May 18, 1990, between SCE and Del Ranch (incorporated by reference to
Exhibit 10.44 to the Funding Corporation II Form S-4).
10.45 Funding Agreement, dated May 18, 1990, between SCE and Elmore (incorporated by reference to
Exhibit 10.45 to the Funding Corporation II Form S-4).
10.46 Funding Agreement, dated June 15, 1990, between SCE and Leathers (incorporated by reference to
Exhibit 10.46 to the Funding Corporation II Form S-4).
10.47 Funding Agreement, dated May 18, 1990, between SCE and Leathers (incorporated by reference to
Exhibit 10.47 to the Funding Corporation II Form S-4).
10.48 Funding Agreement, dated May 18, 1990, between SCE and Vulcan (incorporated by reference to
Exhibit 10.48 to the Funding Corporation II Form S-4).
12.1** Statement regarding computation of Salton Sea Funding Corporation ratio of earnings to fixed
charges.
12.2** Statement regarding computation of Salton Sea Guarantors ratio of earnings to fixed charges.
12.3** Statement regarding computation of Partnership Guarantors ratio of earnings to fixed charges.
<PAGE>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- --------------- ------------------------------------------------------------------------------------------------
12.4** Statement regarding computation of Royalty Guarantor's ratio of earnings to fixed charges.
15.1** Awareness letter of Deloitte & Touche LLP.
21.1* Subsidiaries of the Registrants.
23.1* Consent of Willkie Farr & Gallagher (included in their opinion filed as Exhibit 5.1).
23.2** Consent of Fluor Daniel, Inc.
23.3** Consent of Henwood Energy Services, Inc.
23.4** Consent of Deloitte & Touche LLP, independent public accountants.
23.5** Consent of Geothermex, Inc.
23.6* Consent of Latham & Watkins (included in their opinion filed as Exhibit 5.2).
23.7* Consent of Lionel Sawyer & Collins (included in their opinion filed as Exhibit 5.3).
23.8** Consent of Resource Strategies International.
23.9** Consent of Deloitte & Touche LLP.
24.1 Power of Attorney (included on signature page).
25.1* Statement on Form T-1 of Eligibility of Trustee.
27. Financial Data Schedule (incorporated by reference to Exhibit 27 to the Funding Corporation's
Form 10-Q dated May 14, 1999).
99.1* Form of Letter of Transmittal.
99.2* Form of Notice of Guaranteed Delivery.
99.3* Letter to Clients.
99.4* Letter to Securities Dealers, Commercial Banks, Trust Companies and Other Nominees.
</TABLE>
- ------------
* To be filed by amendment.
** Filed herewith.
<PAGE>
FIFTH SUPPLEMENTAL INDENTURE
----------------------------
This FIFTH SUPPLEMENTAL INDENTURE, dated as of February ___,
1999 (this "Supplemental Indenture"), is by and between SALTON SEA FUNDING
CORPORATION, a Delaware corporation (the "Funding Corporation"), and CHASE
MANHATTAN BANK AND TRUST COMPANY, NATIONAL ASSOCIATION, a banking association
organized under the federal laws of the United States of America, as Trustee
(together with its successors in such capacity, the "Trustee").
W I T N E S S E T H:
WHEREAS, the Funding Corporation and the Trustee have entered
into that certain Trust Indenture dated as of July 21, 1995 (as amended,
modified or supplemented by that certain First Supplemental Indenture dated as
of October 18, 1995, that certain Second Supplemental Indenture dated as of June
20, 1996, that certain Third Supplemental Indenture dated as of July 29, 1996,
that certain Fourth Supplemental Indenture dated as of October 13, 1998 and this
Supplemental Indenture, and as subsequently amended, modified or supplemented,
the "Indenture") by and between the Funding Corporation and the Trustee;
WHEREAS, the Funding Corporation has been formed for the sole
purpose of issuing securities under the Indenture, as principal and as agent for
the Guarantors (as defined in the Indenture), and for entering into those
transactions incidental thereto;
WHEREAS, (i) the Salton Sea Guarantors have guaranteed to the
Trustee the payment of principal, premium (if any), interest and other amounts
due from the Funding Corporation to the Secured Parties, and (ii) the
Partnership Guarantors and the Royalty Guarantor have guaranteed to the Trustee
the payment of principal, premium (if any), interest and other amounts due from
the Funding Corporation to the Secured Parties up to an amount equal to, with
respect to the Partnership Guarantors and the Royalty Guarantor, such
Guarantors' Available Cash Flow;
WHEREAS, Funding Corporation is a wholly-owned subsidiary of
Magma and Magma is a wholly-owned subsidiary of CalEnergy. After the execution
of this Supplemental Indenture, CalEnergy intends to divest 50% of its indirect
interests in the Funding Corporation, and 50% of its interests in Magma and,
except as provided below, the Guarantors (the "Divestiture"). The Divestiture is
intended to permit the geothermal power generating facilities located in
Imperial Valley, California, which are owned by indirect subsidiaries of
CalEnergy (the "Power Projects"), to maintain their status as Qualifying
Facilities following CalEnergy's acquisition of MidAmerican Energy Holdings
Company, an Iowa corporation ("MidAmerican"). The Funding Corporation, pursuant
to that certain Consent Solicitation dated as of February ____, 1999 (the
"Consent Solicitation"), has sought and received the consent of the Holders of
not less than 51% in the aggregate principal amount of the Securities then
Outstanding (the "Requisite Consents"), to amend or waive certain restrictive
covenants and other provisions in the Indenture, thereby removing any Events of
Default under the Indenture that would result in connection with CalEnergy's
consummation of the Divestiture;
<PAGE>
WHEREAS, prior to the consummation of the Divestiture, each of
three Guarantors, Fish Lake, the Royalty Guarantor and BN/Geothermal propose to
be converted from a corporation to a Delaware limited liability company (the
"LLC Restructuring"). The LLC Restructuring will be implemented through the
merger of each of the aforementioned corporate Guarantors into newly-formed
limited liability company Guarantors, Fish Lake Power LLC, Salton Sea Royalty
LLC and VPC Geothermal LLC, which are owned by the same parent companies in the
same proportions as such aforementioned corporate Guarantors. The Funding
Corporation, pursuant to the Consent Solicitation, has sought and received the
Requisite Consents of the Holders to waive certain covenants in the Indenture
and the Credit Agreements, thereby removing any Events of Default under the
Indenture and the Credit Agreements that would result from the consummation of
the LLC Restructuring;
WHEREAS, the Zinc Project is not a Power Project and is
currently owned by Minerals LLC. SSMC and Magma each own a 50% membership
interest in Minerals LLC. CalEnergy intends to retain 100% of its interest in
the Zinc Project, which will be accomplished, prior to the consummation of the
Divestiture, by: (i) a contribution by Magma to SSMC of Magma's membership
interests in Minerals LLC, (ii) a dividend to CalEnergy of Magma's membership
interests in Minerals LLC and Magma's stock in SSMC, and (iii) if applicable, a
dividend to CalEnergy via Magma of the Funding Corporation's stock in SSMC
(collectively, the "Zinc Project Restructuring"). This will result in CalEnergy
owning 100% of the stock of SSMC and SSMC owning 100% of the membership
interests in Minerals LLC. The Funding Corporation, pursuant to the Consent
Solicitation, has sought and received the Requisite Consents of the Holders to
waive certain covenants in the Indenture, thereby removing any Events of Default
under the Indenture that would result from the consummation of the Zinc Project
Restructuring;
WHEREAS, Fish Lake Power LLC, Salton Sea Royalty LLC and VPC
Geothermal LLC wish to confirm their assumption of the obligations of Fish Lake,
the Royalty Guarantor and BN/Geothermal, respectively;
WHEREAS, prior to the consummation of the Divestiture, Funding
Corporation desires to increase the assets securing the Guarantors' obligations
under the Credit Agreements and Funding Corporation's obligations under the
Indenture by adding two additional Guarantors: CESS and SSMC;
WHEREAS, prior to the consummation of the Divestiture, Magma
intends to contribute to CESS Magma's membership interests in Power LLC and
Turbo LLC. This will result in CESS owning 100% of the membership interests of
Power LLC and Turbo LLC;
WHEREAS, prior to the consummation of the Divestiture,
CalEnergy desires to increase the assets securing the Partnership Guarantors'
obligations under the Partnership Credit Agreement by entering into that certain
guarantee (the "CalEnergy Guarantee") pursuant to which CalEnergy shall
guarantee (subject to its right to terminate or amend such guarantee) certain of
the regularly scheduled payment obligations of the Partnership Guarantors to
Funding Corporation under that certain promissory note dated October 13, 1998 in
the amount of
2
<PAGE>
$201,728,000 executed by the Partnership Guarantors in favor of Funding
Corporation pursuant to the Partnership Credit Agreement in connection with the
sale of the Series F Securities;
WHEREAS, Section 8.1 of the Indenture provides that the terms
thereof may be amended or supplemented from time to time by the Funding
Corporation and the Trustee, without the consent of the Holders, pursuant to a
supplemental indenture, for one or more of the purposes set forth therein, which
purposes include, without limitation, to increase the assets securing the
Funding Corporation's obligations under the Indenture and to cure any ambiguity
or to correct or supplement any provisions which may be defective or
inconsistent with any other provision therein;
WHEREAS, Section 8.2 of the Indenture provides that the terms
thereof may be amended or supplemented from time to time (subject to certain
limitations which are not applicable here) pursuant to a supplemental indenture
approved by the Requisite Consents of the Holders, for the purpose of adding any
mutually agreeable provisions to or changing in any manner or eliminating any of
the provisions of, the Indenture;
WHEREAS, Section 8.3 of the Indenture provides that the terms
of the Credit Agreements or Project Notes may be amended or supplemented from
time to time by the Funding Corporation and the Trustee, without the consent of
the Holders, for one or more of the purposes set forth therein, which purposes
include, without limitation, to increase the assets securing the Guarantors'
obligations under the Credit Agreements or the Project Notes and to cure any
ambiguity or to correct or supplement any provisions which may be defective or
inconsistent with any other provision therein;
WHEREAS, Section 8.3 of the Indenture provides that the terms
of the Credit Agreements and the Project Notes may be amended or supplemented
from time to time and the Funding Corporation and the Trustee may grant a waiver
or consent thereunder (subject to certain limitations which are not applicable
here) with the Requisite Consents of the Holders;
WHEREAS, the Funding Corporation and the Trustee desire to
amend Sections 5.19 and 8.3 of the Indenture to add additional covenants of the
Funding Corporation and to confer upon the Holders additional rights with
respect to the CalEnergy Guarantee;
WHEREAS, the execution and delivery of this Supplemental
Indenture have been duly authorized and all things necessary to make this
Supplemental Indenture a valid and binding agreement have been done.
NOW, THEREFORE, for and in consideration of the premises and
of the covenants herein contained and of the purchase of the Securities by the
Holders (as defined in the Indenture) thereof, it is mutually covenanted and
agreed, for the benefit of the parties hereto and the equal and proportionate
benefit of all Holders of the Securities, as follows:
SECTION 1. Definitions. Capitalized terms used in this Supplemental Indenture
and not otherwise defined herein shall have the meanings ascribed to such terms
in the Indenture.
3
<PAGE>
SECTION 2. Amendments To Indenture.
-----------------------
(a) Section 5.15 of the Indenture is hereby amended so that
the Zinc Project Restructuring and the LLC Restructuring, together with any
transactions in connection therewith, do not constitute a breach of such
provision or result in an Event of Default under the Indenture.
(b) Section 6.1(i) of the Indenture is hereby amended
and restated to read in its entirety as follows:
"CalEnergy shall cease to beneficially own and
control, directly or indirectly, (i) at least 50% of the outstanding
shares of capital stock of CEOC or VPC, (ii) at least 50% of the
general partnership interests and economic interests of SSBP, SSPG,
Elmore, Leathers, Del Ranch and Vulcan, (iii) at least 50% of the
voting interests and economic interests in Fish Lake, and (iv) at least
50% of the membership voting interests and economic interests in each
of Minerals LLC, Power LLC and Turbo LLC; or"
(c) Exhibit A of the Indenture is hereby amended by inserting
the following new definitions in the appropriate alphabetical order:
(i) "Fish Lake LLC" means Fish Lake Power LLC, a
Delaware limited liability company."
(ii) "Imperial Magma LLC" means Imperial Magma LLC, a
Delaware limited liability company."
(iii) "LLC Restructuring Effective Date" means the
effective date of the LLC Restructuring."
(iv) "Royalty LLC" means Salton Sea Royalty LLC, a
Delaware limited liability company."
(v) "VPC LLC" means VPC Geothermal LLC, a Delaware
limited liability company."
(d) Exhibit A of the Indenture is hereby amended by:
(i) deleting the definition of "Magma" and replacing
it with the following definition:
""Magma" means Magma Power Company, a Nevada
corporation."
(e) From and after the LLC Restructuring Effective Date:
(i) Section 5.19 of the Indenture is hereby amended
and restated to read in its entirety as follows:
4
<PAGE>
"Credit Agreements, Project Notes and CalEnergy
Guarantee. (a) The Funding Corporation shall not consent to, enter into
or grant any amendment, waiver, consent, change or modification to any
Credit Agreement, any Project Note or the CalEnergy Guarantee, except
as in compliance with Section 8.3.
(b) The Funding Corporation will enforce all of its
rights under the Credit Agreements, the Project Notes and the CalEnergy
Guarantee for the benefit of the Trustee and the Holders. The Funding
Corporation shall exercise all remedies under the Credit Agreements and
the Project Notes (including acceleration of the Project Notes) as
directed by the Required Holders in accordance with the terms hereof
and the Intercreditor Agreement."
(ii) Section 8.3 of the Indenture is hereby amended
and restated to read in its entirety as follows:
"Amendment of Credit Agreements, Project Notes and
CalEnergy Guarantee. The Funding Corporation and the Trustee may
without the consent of or notice to the Holders consent to: (a) any
amendment or modification of any Credit Agreement, any Project Note or
the CalEnergy Guarantee (i) to add additional covenants of the
Guarantors party thereto, to surrender any rights or power therein
conferred upon any Guarantor or to confer upon the Funding Corporation
any additional rights, remedies, benefits, powers or authorities that
may lawfully be conferred; (ii) to increase the assets securing the
Guarantors' obligations thereunder; (iii) to provide for the issuance
of additional Project Notes in connection with the issuance of
Additional Securities; (iv) for any purpose not inconsistent with the
terms of this Indenture or the Credit Agreements, the Project Notes or
the CalEnergy Guarantee, to cure any ambiguity or to correct or
supplement any provision contained in the Credit Agreements, the
Project Notes or the CalEnergy Guarantee which may be defective or
inconsistent with any provision contained therein; or (v) in connection
with and to reflect any amendments to the provisions thereof required
by the Rating Agencies in circumstances where confirmation of the
Ratings are required under the Credit Agreements in connection with the
incurrence of Permitted Debt or the taking (or refraining from taking)
of other actions by the Guarantors; and (b) any other amendment or
modification or any termination of the CalEnergy Guarantee; provided
that, in connection therewith, each of the Rating Agencies confirms
that such amendment, modification or termination will not result in a
lowering of the existing ratings assigned to the Securities at the time
of any such action. Except as otherwise provided in this Section 8.3,
neither the Funding Corporation nor the Trustee shall consent to any
other amendment or modification of any Credit Agreement, any Project
Note or the CalEnergy Guarantee or grant any waiver or consent
thereunder without the written approval or consent of the Holders of
not less than 51 percent in aggregate principal amount of the
Securities then Outstanding. Any amendment or change to a Credit
Agreement or a Project Note which changes (i) the amount of payments
due thereunder, (ii) the Person to whom such payments are to be made or
(iii) the dates on which such payments are to be made shall not be made
without the
5
<PAGE>
unanimous consent of the Holders."
(iii) Exhibit A to the Indenture shall be deemed to
have been amended by deleting the definition of "BN/Geothermal" and all
other references in the Indenture to BN/Geothermal shall be deemed to
be references to VPC LLC;
(iv) Exhibit A to the Indenture shall be deemed to
have been amended by deleting
the definition of "Fish Lake" and all other references in the Indenture to Fish
Lake shall be deemed to be references to Fish Lake LLC;
(f) In addition, from and after the LLC Restructuring
Effective Date, Exhibit A of the Indenture shall be deemed to have been amended
by:
(i) "CalEnergy Guarantee" means that certain
CalEnergy Guarantee dated as of February ___, 1999 executed by
CalEnergy in favor of Funding Corporation."
(ii) deleting the clause (i)(A) from the second and
third lines of the definition of "Debt Service Coverage Ratio" and replacing it
with the following clause:
"(i)(A) the sum of all revenues (including interest
and fee income but excluding any insurance proceeds and other similar
non-recurring receipts) of the Guarantors for such period plus, to the
extent not included therein, the sum of all payments with respect to
Indebtedness (as such term is defined in the CalEnergy Guarantee) made
by CalEnergy to Funding Corporation under the CalEnergy Guarantee for
such period";
(iii) deleting the definition of "Partnership
Guarantors" and replacing it with the following definition:
""Partnership Guarantors" means each of CEOC, VPC,
VPC LLC, Niguel, San Felipe, Conejo, Vulcan, Elmore, Leathers, Del
Ranch, Minerals LLC, Turbo LLC, CESS and SSMC";
(iv) deleting the definition of "Partnership
Guarantors Pledge Agreement" and replacing it with the following definition:
""Partnership Guarantors Pledge Agreements" means (i) the
Stock Pledge Agreement dated as of July 21, 1995 by Magma and the
Funding Corporation pledging the stock of CEOC, in favor of the
Collateral Agent for the benefit of the Secured Parties and the Funding
Corporation, (ii) the Stock Pledge Agreement dated as of July 21, 1995
by Magma and the Funding Corporation pledging the stock of VPC, in
favor of the Collateral Agent for the benefit of the Secured Parties
and the Funding Corporation, (iii) the Stock Pledge Agreement dated as
of June 20, 1996 by CEOC pledging the stock of San Felipe, Conejo and
Niguel, in favor of the Collateral Agent for the benefit of the Secured
Parties and the Funding Corporation, (iv) the Partnership Interest
Pledge Agreement dated as of June 20, 1996 by VPC and VPC LLC (as
successor by merger to
6
<PAGE>
BN/Geothermal) pledging the partnership interests in Vulcan, in favor
of the Collateral Agent for the benefit of the Secured Parties and the
Funding Corporation, (v) the Partnership Interest Pledge Agreement
dated as of June 20, 1996 by Magma, CEOC and San Felipe, pledging the
partnership interests in Leathers, in favor of the Collateral Agent for
the benefit of the Secured Parties and the Funding Corporation, (vi)
the Partnership Interest Pledge Agreement dated as of June 20, 1996 by
Magma, CEOC and Conejo, pledging the partnership interests in Del
Ranch, in favor of the Collateral Agent for the benefit of the Secured
Parties and the Funding Corporation, (vii) the Partnership Interest
Pledge Agreement dated as of June 20, 1996 by Magma, CEOC and Niguel,
pledging the partnership interests in Elmore, in favor of the
Collateral Agent for the benefit of the Secured Parties and the Funding
Corporation, (viii) the Membership Interest Pledge Agreement dated as
of February ___, 1999 by VPC pledging the membership interests in VPC
LLC, in favor of the Collateral Agent for the benefit of the Secured
Parties and the Funding Corporation, (ix) the Amended & Restated
Membership Interest Pledge Agreement dated as of February ___, 1999 by
SSMC pledging the membership interest in Minerals LLC, in favor of the
Collateral Agent for the benefit of the Secured Parties and the Funding
Corporation, (x) the Amended & Restated Membership Interest Pledge
Agreement dated as of February __, 1999 by CESS pledging the membership
interest in Turbo LLC, in favor of the Collateral Agent for the benefit
of the Secured Parties and the Funding Corporation, (xi) the Stock
Pledge Agreement dated as of February ___, 1999 by Magma pledging the
stock of CESS in favor of the Collateral Agent for the benefit of
Secured Parties and the Funding Corporation, and (xii) the Stock Pledge
Agreement dated as of February ___, 1999 by CalEnergy pledging the
stock of SSMC in favor of the Collateral Agent for the benefit of
Secured Parties and the Funding Corporation."
(v) deleting the definition of "Royalty Guarantor"
and replacing it with the following definition:
""Royalty Guarantor" means Royalty LLC."
(vi) deleting the definition of "Royalty Pledge
Agreement" and replacing it with the following definition:
""Royalty Pledge Agreement" means the Membership Interest
Pledge Agreement dated as February ___, 1999 by Magma and the Funding
Corporation pledging the membership interest of the Royalty LLC in
favor of the Collateral Agent for the benefit of the Secured Parties."
(vii) deleting clause (iii) of the definition of
"Royalty Collateral" and replacing it with the following clause:
"(iii) a pledge of the membership interests of the Royalty
Guarantor,"
(viii) deleting clause (iv) of the definition of
"Salton Sea Collateral" and replacing it with the following clause:
7
<PAGE>
"(iv) a pledge of the capital stock of or partnership
or membership interests in the Salton Sea Guarantors,"
(ix) deleting the definition of "Salton Sea
Guarantors" and replacing it with the following definition:
""Salton Sea Guarantors" means each of SSBP, SSPG, Fish Lake
LLC, Power LLC and CESS.";
(x) deleting the definition of "Salton Sea Guarantors
Pledge Agreements" and replacing it with the following definition:
""Salton Sea Guarantors Pledge Agreements" means: (i) the
Partnership Interest Pledge Agreement, dated as of July 21, 1995, by
Magma and SSPC, pledging the partnership interests in SSBP, in favor of
the Collateral Agent for the benefit of the Secured Parties and the
Funding Corporation, (ii) the Partnership Interest Pledge Agreement,
dated as of July 21, 1995, by SSPC and SSBP, pledging the partnership
interests in SSPG, in favor of the Collateral Agent for the benefit of
the Secured Parties and the Funding Corporation, (iii) the Membership
Interest Pledge Agreement, dated as of February __, 1999, by Magma and
the Funding Corporation, pledging the membership interests in Fish Lake
LLC in favor of the Collateral Agent for the benefit of the Secured
Parties and the Funding Corporation, (iv) the Amended & Restated
Membership Interest Pledge Agreement, dated as of February ___, 1999,
by CESS, pledging the membership interests in Power LLC, in favor of
the Collateral Agent for the benefit of the Secured Parties and the
Funding Corporation, and (v) the Stock Pledge Agreement dated as of
February ___, 1999, by Magma, pledging the stock of CESS in favor of
the Collateral Agent for the benefit of the Secured Parties and the
Funding Corporation."
SECTION 3. Additional Documents, Financing Statements, Etc. The Trustee, the
Collateral Agent, the Depositary Agent, the Funding Corporation, SSPC and each
Guarantor shall (and the Funding Corporation shall cause SSPC and each Guarantor
to) execute and deliver any additional Financing Document or any amendment or
modification to any Financing Document as reasonably required to implement this
Supplemental Indenture, the Divestiture, the Zinc Project Restructuring or the
LLC Restructuring. The Trustee, the Collateral Agent, the Depositary Agent, the
Funding Corporation, SSPC and the Guarantors shall (and the Funding Corporation
shall cause SSPC and each Guarantor to) execute and deliver, as requested by
either the Trustee or the Funding Corporation, such other documents as shall
reasonably be necessary or advisable in order to effect or protect the rights
and remedies of Funding Corporation and the Secured Parties granted or provided
for by the Indenture or the other Financing Documents to which the Funding
Corporation or the Guarantors are party and to consummate this Supplemental
Indenture, the Divestiture, the Zinc Project Restructuring and the LLC
Restructuring. The Trustee, the Collateral Agent, the Depositary Agent, the
Funding Corporation, SSPC and the Guarantors shall, at the Funding Corporation's
and the Guarantors' expense, (and the Funding Corporation shall cause SSPC and
each Guarantor to) take all reasonable actions (a) that are requested by Funding
Corporation or the Trustee or (b) that an Authorized Officer of the
8
<PAGE>
Guarantors has actual knowledge are necessary as a legal matter, to establish,
maintain and perfect the first priority security interests of Funding
Corporation and the Secured Parties. Without limiting the generality of the
foregoing, the Guarantors shall execute or cause to be executed and shall file
or cause to be filed such Financing Statements, continuation statements, and
fixture filings and such mortgages, or deeds of trust in all places necessary or
advisable (in the opinion of counsel for Collateral Agent) to establish,
maintain and perfect such security interests.
SECTION 4. Effect Of Supplemental Indenture. Upon the execution of this
Supplemental Indenture, the Indenture shall be modified in accordance herewith,
and this Supplemental Indenture shall form a part of the Indenture for all
purposes; and every Holder of Securities previously or thereafter authenticated
and delivered under the Indenture shall be bound by the terms hereof. This
Supplemental Indenture shall be construed as supplemental to the Indenture and
shall form a part thereof, and the Indenture is hereby incorporated by reference
herein and hereby ratified, approved and confirmed. From and after the date
hereof, whenever referred to in any Financing Document, the Indenture shall mean
the Indenture as modified, amended and supplemented by this Supplemental
Indenture.
SECTION 5. Headings For Convenience Only. The descriptive headings in this
Supplemental Indenture are inserted for convenience only and shall not control
or affect the meaning or construction of any of the provisions hereof.
SECTION 6. Counterparts. This Supplemental Indenture may be executed in any
number of counterparts, each of which when so executed and delivered shall be an
original; but such counterparts shall together constitute but one and the same
instrument.
SECTION 7. APPLICABLE LAW. THIS SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING
EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAWS (OTHER THAN SECTION 5-1401 OF THE
NEW YORK GENERAL OBLIGATIONS LAW).
SECTION 8. Limitation Of Liability. Section 13.12 of the Indenture is
incorporated herein by reference as if set forth in full herein.
9
<PAGE>
IN WITNESS WHEREOF, Salton Sea Funding Corporation has caused this Supplemental
Indenture to be executed and its corporate seal to be hereunto affixed, attested
by one of its duly authorized officers and Chase Manhattan Bank and Trust
Company, National Association, has caused this Supplemental Indenture to be
executed by one of its duly authorized officers, all as of the day and year
first above written.
[SEAL] SALTON SEA FUNDING CORPORATION,
as principal and as agent for the Guarantors
By: /s/ Gregory E. Abel
----------------------------
Name: Gregory E. Abel
Title: President and CEO
Attest:
Title: /s/ Douglas L. Anderson
----------------------------
Assistant Secretary
CHASE MANHATTAN BANK AND TRUST
COMPANY, NATIONAL ASSOCIATION,
as Trustee
By: /s/ Rose T. Maravilla
----------------------------
Name: Rose T. Maravilla
Title: Assistant Vice President
10
<PAGE>
TABLE OF CONTENTS
-----------------
SECTION 1. Definitions 3
-----------
SECTION 2. Amendments To Indenture. 4
-----------------------
SECTION 3. Additional Documents, Financing Statements, Etc 6
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SECTION 4. Effect Of Supplemental Indenture 9
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SECTION 5. Headings For Convenience Only 9
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SECTION 6. Counterparts 9
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SECTION 7. APPLICABLE LAW 9
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SECTION 8. Limitation Of Liability 9
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EXCHANGE AND REGISTRATION RIGHTS AGREEMENT
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SALTON SEA FUNDING CORPORATION
$285,000,000 7.475% Series F Senior Secured Bonds
Due November 30, 2018
October 13, 1998
Credit Suisse First Boston Corporation
Goldman, Sachs & Co.
c/o Credit Suisse First Boston Corporation
Eleven Madison Avenue
New York, New York 10010
Ladies and Gentlemen:
In connection with the issue and sale of $285,000,000 principal amount
of 7.475% Series F Senior Secured Bonds Due November 30, 2018 (the "Additional
Securities") issued by Salton Sea Funding Corporation, a Delaware corporation
(the "Company") pursuant to the terms of the Indenture (as defined below) and as
an inducement to Credit Suisse First Boston Corporation and Goldman, Sachs & Co.
(the "Initial Purchasers") to enter into the Purchase Agree ment dated October
13, 1998 (the "Purchase Agreement") among the Company, Salton Sea Brine
Processing L.P., Salton Sea Power Generation L.P., Fish Lake Power Company,
Salton Sea Power L.L.C., CalEnergy Operating Corporation, Vulcan Power Company,
BN Geothermal, Inc., San Felipe Energy Company, Conejo Energy Company, Niguel
Energy Company, Vulcan/BN Geothermal Power Compa ny, Leathers, L.P., Elmore,
L.P., Del Ranch, L.P., CalEnergy Minerals LLC, CE Turbo LLC, Salton Sea Royalty
Company and the Initial Purchasers, the Company hereby agrees to provide the
registration rights set forth in this Registration Rights Agreement (this
"Agreement") for the benefit of the holders of the Additional Securities. The
execution of this Agreement is a condition to the purchase of the Additional
Securities under the Purchase Agreement.
<PAGE>
SECTION 1. Definitions. Capitalized terms used herein without
definition shall have the respective meanings ascribed thereto, whether
expressly or by reference to another agreement or document, in the Indenture.
The definitions set forth in this Agreement shall equally apply to both the
singular and plural forms of the terms defined. As used in this Agreement, the
following terms shall have the fol lowing meanings:
"Additional Securities" shall have the meaning set forth in the first
paragraph of this Agreement.
"Advice" shall have the meaning set forth in the last paragraph of
Section 5 of this Agreement.
"Affiliate", with respect to any Person, shall mean any other Person
that directly or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with such first Person. The term
"control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management or policies of a Person, whether
through the ownership of voting securities or by contract or otherwise. For
purposes of Section 2, an "Affiliate" of the Company shall mean and include, in
addition, any Person deemed an affiliate thereof under the Securities Act or the
Exchange Act in connection with the Exchange Offer.
"Closing Date" shall mean the date of the initial issuance and sale of
the Additional Securities.
"Commission" shall mean the United States Securities and Exchange
Commission.
"Company" shall have the meaning set forth in the first paragraph of
this Agreement.
"Cure Date" shall have the meaning set forth in Section 4(a) of this
Agreement.
"Effective Date" shall mean the date which is 270 days after the
Closing Date.
"Effective Period" shall have the meaning set forth in Section 3(a) of
this Agreement.
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"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission promulgated thereunder.
"Exchange Offer" shall have the meaning set forth in Section 2(a) of
this Agreement.
"Exchange Offer Registration Statement" shall have the meaning set
forth in Section 2(a) of this Agreement.
"Exchange Period" shall have the meaning set forth in Section 2(a) of
this Agreement.
"Exchange Securities" shall have the meaning set forth in Section 2(a)
of this Agreement.
A "holder" of Registrable Securities shall mean the registered holder
of such securities or any beneficial owner thereof.
"Holder Indemnified Party" shall have the meaning set forth in Section
8(a) of this Agreement.
"Holder Information" shall have the meaning set forth in Section 8(a)
of this Agreement.
"Illiquidity Event" with respect to the Additional Securities shall
mean any of the following events:
(a) as of the Effective Date, both (i) an Exchange Offer Registration
Statement (which, if applicable pursuant to Section 2(a), covers resales of
such Exchange Securities) has not become effective and (ii) the Registrable
Securities are not the subject of an Initial Shelf Registration Statement
which has become effective; or
(b) the Exchange Securities offered in exchange for the Registrable
Securities are the subject of an Exchange Offer Registration Statement which
was effective (and which, if applicable pursuant to Section 2(a), covered
resales of such Exchange Securities) but which ceased to be effective for
any reason prior to the end of the Exchange Period; or
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(c) the Registrable Securities are the subject of an Initial Shelf
Registration Statement or Subsequent Shelf Registration Statement which was
effective but which has ceased to be effective for any reason prior to the
end of the Effective Period.
An Illiquidity Event shall be deemed to cease to exist on the date
subsequent to the occurrence of such Illiquidity Event on which:
(i) in the case of an Illiquidity Event described in clause (a) above,
either (i) an Exchange Offer Registration Statement (which, if applicable
pursuant to Section 2(a), covers resales of the Exchange Securities
exchanged for such Registrable Securities) shall become effective and an
Exchange Offer for such Registrable Securities shall have commenced or (ii)
an Initial Shelf Registration Statement covering such Registrable Securities
shall become effective; or
(ii) in the case of an Illiquidity Event described in clause (b) above,
either (i) an Exchange Offer Registration Statement (which, if applicable
pursuant to Section 2(a), covers resales of the Exchange Securities offered
in exchange for such Additional Securities) shall become effective and an
Exchange Offer for such Registrable Securities shall have commenced pursuant
to an Exchange Offer Registration Statement or (ii) an Initial Shelf
Registra tion Statement covering such Registrable Securities shall become
effective; or
(iii) in the case of an Illiquidity Event described in clause (c)
above, a Subsequent Shelf Registration Statement covering such Registrable
Securities shall become effective.
"Indenture" shall mean the Trust Indenture dated as of July 21, 1995,
as supplemented by (i) the First Supplemental Indenture dated as of October 18,
1995, (ii) the Second Supplemental Indenture dated as of June 20, 1996, (iii)
the Third Supplemental Indenture dated as of July 29, 1996 and (iv) the Fourth
Supplemental Indenture dated as of October 13, 1998, and as further amended or
supplemented from time to time in accordance with the terms thereof, between
the Company and the Trustee, and pursuant to which the Additional Securities
are to be issued.
"Initial Purchasers" shall have the meaning set forth in the first
paragraph of this Agreement.
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"Initial Shelf Registration Statement" shall have the meaning set forth
in Section 3(a) of this Agreement.
"Inspectors" shall have the meaning set forth in Section 5(m) of this
Agreement.
"Managing Underwriters" shall mean the investment banker or investment
bankers and manager or managers that shall administer an Underwritten Offering.
"NASD" shall mean the National Association of Securities Dealers, Inc.
"Prospectus" shall mean the prospectus included in any Registration
Statement (including, without limitation, a prospectus that discloses
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A promulgated under the
Securities Act), as amended or supplemented by any prospectus supplement, and
all other amendments and supplements to the Prospectus, including post-effective
amendments and all material incorporated by reference into such prospectus.
"Purchase Agreement" shall have the meaning set forth in the first
paragraph of this Agreement.
"Records" shall have the meaning set forth in Section 5(m) of this
Agreement.
"Registrable Securities" shall mean the Additional Securities upon
original issuance thereof and at all times subsequent thereto until, in the case
of any such Additional Security, (i) a Registration Statement covering such
Additional Security, or the Exchange Security to be exchanged for such
Additional Security (and, in the case of any Resale Security, any resale
thereof), has been declared effective and such Additional Security has been
disposed of or exchanged (or, in any case where such Registration Statement
covers the resale of Resale Securities, such Additional Security has been
exchanged and the Resale Security received therefor has been resold), as the
case may be, in accordance with such effective Registration Statement, (ii) such
Additional Security is sold in compliance with Rule 144 or would be permitted to
be sold pursuant to Rule 144(k), (iii) such Additional Security shall have been
otherwise transferred and a new certificate therefor not bearing a
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legend restricting further transfer shall have been delivered by or on behalf of
the Company and such Additional Security shall be tradeable by each holder
thereof without restriction under the Securities Act or the Exchange Act and
without material restriction under the applicable blue sky or state securities
laws or (iv) such Additional Security ceases to be outstanding.
"Registration Statement" shall mean any registration statement
(including any Shelf Registration Statement) of the Company that covers any of
the Registrable Securities or the Exchange Securities, as the case may be,
pursuant to the provisions of this Agreement, including the Prospectus which is
part of such Registration Statement, amendments (including post-effective
amendments) and supplements to such Registration Statement and all exhibits and
appendices to any of the foregoing. For purposes of the foregoing, unless the
context requires otherwise, a Registration Statement for an Exchange Offer shall
not be deemed to cover Registrable Securities held by a Restricted Person
unless such Registration Statement covers the resale of Resale Securities to be
received by such Restricted Person pursuant to such Exchange Offer and any such
Additional Securities shall continue to be Registrable Securities.
"Resale Initial Purchaser" shall have the meaning set forth in Section
8(a) of this Agreement.
"Resale Securities" shall mean any Exchange Security received by a
Restricted Person pursuant to an Exchange Offer, and at all times subsequent
thereto, until, subject to the time periods set forth herein, such Exchange
Security has been resold by such Restricted Person.
"Restricted Person" shall mean (a) any Affiliate of the Company, (b)
any Initial Purchaser or (c) any Affiliate of any Initial Purchaser (other than
Affiliates of such Initial Purchaser that (i) are acquiring Exchange Securities
in the ordinary course of business and do not have an arrangement with any
Person to distribute Exchange Securities and (ii) may trade such Exchange
Securities without restriction under the Securities Act).
"Rule 144" shall mean Rule 144 under the Securities Act, as such Rule
may be amended from time to time, or any similar rule or regulation hereafter
adopted by the Commission.
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"Rule 144A" shall mean Rule 144A under the Securities Act, as such Rule
may be amended from time to time, or any similar rule or regulation hereafter
adopted by the Commission.
"Rule 415" shall mean Rule 415 under the Securities Act, as such Rule
may be amended from time to time, or any similar rule or regulation hereafter
adopted by the Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended, and
the rules and regulations of the Commission promulgated thereunder.
"Shelf Notice" shall have the meaning set forth in Section 2(b) of this
Agreement.
"Shelf Registration Statement" shall have the meaning set forth in
Section 3(b) of this Agreement.
"Special Counsel" shall mean Skadden, Arps, Slate, Meagher & Flom LLP,
special counsel to the Initial Purchasers, or any other firm acceptable to the
Company, acting as special counsel to the holders of Registrable Securities or
Exchange Securities.
"Subsequent Shelf Registration Statement" shall have the meaning set
forth in Section 3(b) of this Agreement.
"TIA" shall mean the Trust Indenture Act of 1939, as amended, and the
rules and regulations of the Commission promulgated thereunder.
"Trustee" shall mean Chase Manhattan Bank and Trust Company, National
Association, its successors and any successor trustee under the Indenture.
"Underwritten Registration" or "Underwritten Offering" shall mean a
registration in which securities are sold to an underwriter or group of
underwriters for reoffering to the public.
SECTION 2. Exchange Offer.
(a) Unless the Company determines in good faith that the Exchange Offer
shall not be permissible under applicable law or Commission policy, the
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Company shall prepare and cause to be filed with the Commission as soon as
reasonably practicable after the Closing Date, subject to Sections 2(b) and
2(c) of this Agreement, a Registration Statement (an "Exchange Offer
Registration Statement") for an offer to exchange (an "Exchange Offer") the
Registrable Securities (subject to Section 2(c)) for a like aggregate principal
amount of debt securities of the Company that are in all material respects
substantially identical to the Additional Securities (the "Exchange Securities")
(and which are entitled to the benefits of the Indenture, which shall be
qualified under the TIA in connection with such registration, or a trust
indenture which is substantially identical in all material respects to the
Indenture), other than (i) such changes to the Indenture or any such
substantially identical indenture as the Trustee and the Company may deem
necessary in connection with the Trustee's rights and duties or to comply with
any requirements of the Commission to effect or maintain the qualification
thereof under the TIA and (ii) such changes relating to restrictions on transfer
set forth in the Indenture. The Exchange Offer shall be registered under the
Securities Act on the appropriate form of Registration Statement and shall
comply with all applicable tender offer rules and regulations under the Exchange
Act and with all other applicable laws. Subject to the terms and limitations of
Section 2(c), such Exchange Offer Registration Statement may also cover any
resales of Exchange Securities by any Restricted Person, in the manner or
manners designated by them which, in any event, is reasonably acceptable to the
Company.
The Company shall use its reasonable best efforts to (i) cause the
Exchange Offer Registration Statement to become effective under the Securities
Act on or prior to the Effective Date, (ii) keep the Exchange Offer open for a
period of not less than the shorter of (A) the period ending when the last
remaining Additional Security is tendered into the Exchange Offer and (B) 30
days from the date notice is mailed to the holders of Additional Securities
(provided that in no event shall such period be less than the period required
under applicable Federal and state securities laws), and (iii) maintain such
Exchange Offer Registration Statement continuously effective for a period (the
"Exchange Period") of not less than the longer of (A) the period until the
consummation of the Exchange Offer and (B) 120 days after effectiveness of the
Exchange Offer Registration Statement, provided however, that in the event that
all resales of Exchange Securities (including, subject to the time periods set
forth herein, any Resale Securities and including, subject to the time periods
set forth herein, any resales by broker-dealers that receive Exchange
Securities for their own account pursuant to the Exchange Offer) covered by
such Exchange Offer Registration Statement have been made, the Exchange Offer
Registration Statement need not remain continuously effective for the period
set forth in
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clause (B) above. Upon consummation of the Exchange Offer, the Company shall
deliver to the Trustee under the Indenture for cancellation all Additional
Securities tendered by the holders thereof pursuant to the Exchange Offer and
not withdrawn prior to the date of consummation of the Exchange Offer. Each
Restricted Person shall notify the Company promptly after reselling all Resale
Securities held by such Restricted Person which are covered by any such
Registration Statement.
Each holder of Registrable Securities to be exchanged in the Exchange
Offer (other than any Restricted Person) shall be required as a condition to
participating in the Exchange Offer to represent that (i) it is not an Affiliate
of the Company, (ii) any Exchange Securities to be received by it shall be
acquired in the ordinary course of its business and (iii) that at the time of
the consummation of the Exchange Offer it shall have no arrangement with any
person to participate in the distribution (within the meaning of the Securities
Act) of the Exchange Securities. Upon consummation of an Exchange Offer in
accordance with this Section 2 and compliance with the other provisions of this
Section 2, the Company shall, subject to Sections 2(b) and 2(c), have no further
obligation to register Registrable Securities pursuant to Section 3(a) of this
Agreement; provided that the other provisions of this Agreement shall continue
to apply as set forth in such provisions.
(b) In the event that the Company reasonably determines in good faith
that (i) the Exchange Securities would not, upon receipt in the Exchange Offer
by any holder of Registrable Securities (other than any Restricted Person and
other than any holder who is not acquiring such Exchange Securities in the
ordinary course of business or who has an arrangement with any person to
participate in the distribution of such Exchange Securities), be tradeable by
each holder thereof without restriction under the Securities Act and the
Exchange Act and without restriction under applicable blue sky or state
securities laws, (ii) after conferring with counsel, the Commission is unlikely
to permit the Exchange Offer Registration Statement to become effective prior to
the Effective Date (except in the circumstances set forth in Section 2(c)) or
(iii) the Exchange Offer may not be made in compliance with applicable laws,
then the Company shall promptly deliver notice thereof (the "Shelf Notice") to
the holders of the Registrable Securities and the Trustee and shall thereafter
file an Initial Shelf Registration Statement pursuant to, and otherwise comply
with, the provisions of Section 3(a). Following the delivery of a Shelf Notice
in accordance with this Section 2(b) and compliance with Section 3(a), the
Company shall not have any further obligation under this Section 2.
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(c) In the event that the Company reasonably determines in good faith
that (i) the Exchange Securities would not, upon consummation of any resale
thereof by a Restricted Person to any Person other than another Restricted
Person, be tradeable by each holder thereof without restriction under the
Securities Act (other than applicable prospectus requirements) and the Exchange
Act and without restriction under applicable blue sky or state securities laws
or (ii) the Commission is unlikely to permit the Exchange Offer Registration
Statement to become effective prior to the Effective Date solely because such
Registration Statement covers resales of the Exchange Securities by Restricted
Persons, then the Company shall promptly deliver a Shelf Notice to the
Restricted Persons who are holders of Registrable Securities and to the Trustee,
and the Company shall thereafter file an Initial Shelf Registration Statement
with respect to any such Registrable Securities pursuant to, and otherwise
comply with, the provisions of Section 3(a); provided that such Initial Shelf
Registration Statement shall only cover resales of Registrable Securities by
Restricted Persons if a Shelf Notice is not then otherwise required to be
delivered pursuant to Section 2(b); and, provided, further that such Initial
Shelf Registration Statement covering Registrable Securities held by Restricted
Persons shall be kept effective for at least a period of 120 days and is not
required to remain effective with respect to Registrable Securities held by
Restricted Persons thereafter. Following the delivery of a Shelf Notice in
accordance with this Section 2(c) and compliance with Section 3(a), the Company
shall not have any further obligation under this Section 2 with respect to the
filing of an offer to exchange the Registrable Securities held by the Restricted
Persons (including, without limitation, any obligation to provide that an
Exchange Offer Registration Statement filed pursuant to Section 2(a) cover
resales of Exchange Securities by Restricted Persons); provided that the
provisions of this Section 2 shall otherwise remain in full force and effect
with respect to Registrable Securities held by any person other than a
Restricted Person.
SECTION 3. Shelf Registration; Registrable Securities. With respect to
the Registrable Securities, if a Shelf Notice is delivered in accordance with
Section 2(b) or 2(c) of this Agreement, then the Company shall comply with the
following provisions of this Section 3:
(a) Initial Shelf Registration. The Company shall prepare and cause to
be filed with the Commission a Registration Statement for an offering to be made
on a continuous basis other than pursuant to an Underwritten Offer pursuant to
Rule 415 covering all of the Registrable Securities (or, if a Shelf Notice is
delivered solely pursuant to Section 2(c), all of the Registrable Securities
held by any Restricted Persons) (the "Initial Shelf Registration Statement");
provided, however, that no
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holder shall be entitled to have its Registrable Securities covered by such
Initial Shelf Registration Statement unless such holder agrees in writing,
within 10 Business Days after actual receipt of a request therefrom, to be
bound by all the provisions of this Agreement applicable to such holder. No
holder shall be entitled to the benefits of Section 4 of this Agreement unless
and until such holder shall have provided all information reasonably requested
by the Company (after conferring with counsel), and such holder shall not be
entitled to such benefits with respect to any period during which such
information was not provided. Each holder to which any Shelf Registration
Statement is being effected agrees to furnish promptly to the Company all
information required to be disclosed in order to make the information previously
furnished to the Company by such holder not materially misleading. The Initial
Shelf Registration Statement shall be an appropriate form permitting
registration of such Registrable Securities for resale by the holders thereof
in the manner or manners reasonably designated by them (but excluding any
Underwritten Offerings). The Company shall use its reasonable best efforts to
(A) cause the Initial Shelf Registration Statement to be declared effective
under the Securities Act on or prior to the Effective Date and (B) keep the
Initial Shelf Registration Statement continuously effective under the
Securities Act for a period of three years after the Closing Date (subject to
extension pursuant to the last paragraph of Section 5 and subject, with respect
to Registrable Securities held by Restricted Persons, to the limitations set
forth in Section 2(c)) (such three-year period, as it may be extended, being
the "Effective Period"), or such shorter period ending when (1) all
Registrable Securities covered by the Initial Shelf Registration Statement have
been sold or (2) a Subsequent Shelf Registration Statement covering all of such
Registrable Securities remaining unsold has been declared effective under the
Securities Act or (3) all Registrable Securities may be sold pursuant to
subsection (k) of Rule 144.
Notwithstanding any other provision hereof, the Company may postpone or
suspend the filing or the effectiveness of a Registration Statement (or any
amendments or supplements thereto), if (1) such action is required by applicable
law, or (2) such action is taken by the Company in good faith and for valid
business reasons (not including avoidance of the Company's obligations
hereunder), including the acquisition or divestiture of assets, other pending
corporate developments, public filings with the Commission or other similar
events, so long as the Company promptly thereafter complies with the
requirements of Section 5(b) hereof, if applicable. Notwithstanding the
occurrence of any event referred to in the immediately preceding sentence (a
"Suspension"), such event shall not suspend, postpone or in any other manner
affect the running of the time period after which an Illiquidity Event shall be
deemed to occur and, if the filing or effectiveness of a Registration
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Statement is postponed or suspended as a result of a Suspension, an Illiquidity
Event shall nonetheless exist if all other requirements set forth for the
occurrence of an Illiquidity Event shall be satisfied, and the provisions of
Section 4 requiring the accrual payment of additional interest, as set forth in
such Section, on the Registrable Securities, shall be applicable.
(b) Subsequent Shelf Registrations. If the Initial Shelf Registration
Statement or any Subsequent Shelf Registration Statement ceases to be effective
for any reason at any time during the Effective Period after the Effective Date,
the Company may attempt to obtain the withdrawal of any order suspending the
effectiveness thereof, and may amend such Initial Shelf Registration Statement
or Subsequent Shelf Registration Statement in a manner reasonably expected to
obtain the withdrawal of the order suspending the effectiveness thereof, or file
an additional "shelf" Registration Statement applicable to the Additional
Securities pursuant to Rule 415 covering all of such Registrable Securities
remaining unsold (a "Subsequent Shelf Registration Statement"). If a Subsequent
Shelf Registration Statement is declared effective, the Company shall use its
reasonable best efforts to keep such Shelf Registration Statement continuously
effective for a period after the date of such effectiveness equal in length to
the length of the Effective Period plus the aggregate number of days from the
date of the order suspending the effectiveness of the Initial Shelf Registration
Statement or any Subsequent Shelf Registration Statement to the date of the
effectiveness of the Subsequent Shelf Registration Statement. As used herein,
the term "Shelf Registration Statement" means the Initial Shelf Registration
Statement and any Subsequent Shelf Registration Statement.
SECTION 4. Additional Interest for Illiquidity.
(a) The Company acknowledges and agrees that the Initial Purchasers
(and any subsequent holders of the Additional Securities) have acquired the
Additional Securities in reliance on the Company's covenant to use its
reasonable best efforts to (i) cause to become effective on or prior to the
Effective Date (A) the Exchange Offer Registration Statement or (B) an Initial
Shelf Registration Statement, and (ii) maintain the respective effectiveness
of such Registration Statements as described herein. The Company further
acknowledges and agrees that the failure of the Company to fulfill such
covenants will have an adverse effect on the holders of the Additional
Securities. Therefore, the Company agrees that from and after the date on which
any Illiquidity Event occurs, additional interest (in addition to the interest
otherwise payable with respect to the Registrable Securities) shall accrue
with respect to the Additional Securities until but not including the date on
which
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such Illiquidity Event shall cease to exist (and provided no other Illiquidity
Event with respect to any Additional Securities shall then be continuing), at
the rate of one half of one percent (0.50%) per annum, which additional interest
shall be payable by the Company to the holders of all Additional Securities at
the times, in the manner and subject to the same terms and conditions set forth
in the Indenture, as nearly as may be, as though the interest rates provided in
such Additional Securities had been increased by one half of one percent (0.50%)
per annum. Notwithstanding that the Illiquidity Event may cease to exist, in the
event that an Exchange Offer Registration Statement or an Initial Shelf
Registration Statement has not become effective within two years after the
Closing Date, the interest rates on the Additional Securities otherwise payable
as provided in the Indenture shall permanently remain increased by such one half
of one percent (0.50%) per annum. Subject to the provisions of this Section 4,
the Company agrees that it shall be liable to the holders of all Additional
Securities for the payment of any and all additional interest on the Additional
Securities that shall accrue pursuant to this Section 4.
Any such additional interest accrued on any such Additional Securities
but unpaid on the date on which such interest ceases to accrue (the "Cure Date")
shall be due and payable on the first interest payment date following the next
record date following such Cure Date (or the record date occurring on such Cure
Date, if such Cure Date is a record date) to the holders of record of such
Additional Securities on such record date.
(b) The Company shall promptly notify the holders of the Additional
Securities and the Trustee of the occurrence of any Illiquidity Event of which
it has knowledge.
Notwithstanding the foregoing, the Company shall not be required to pay
the additional interest described in clause (a) of this Section 4 to a holder
with respect to the Registrable Securities held by such holder if the applicable
Illiquidity Event arises by reason of the failure of such holder to provide such
information as (i) the Company may reasonably request, with reasonable prior
written notice, for use in the Shelf Registration Statement or any Prospectus
included therein to the extent the Company reasonably determines that such
information is required to be included therein by applicable law, (ii) the NASD
or the Commission may request in connection with such Shelf Registration
Statement, or (iii) is required to comply with the agreements of such holder
contained in clause (a) of Section 3 to the extent compliance thereof is
necessary for the Shelf Registration Statement to be declared effective.
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SECTION 5. Registration Procedures. In connection with the
registration of any Registrable Securities or Exchange Securities pursuant to
Sections 2 and 3 hereof, the Company shall use its reasonable best efforts to
effect such registration to permit the sale of such Registrable Securities or
Exchange Securities in accordance with any permitted intended method or methods
of disposition thereof, and pursuant thereto the Company shall:
(a) prepare and cause to be filed with the Commission a Registration
Statement or Registration Statements as prescribed by Sections 2 and 3 of this
Agreement, and use its best efforts to cause each such Registration Statement to
become effective and remain effective for the applicable period as provided
herein; provided, however, that (i) during the period in which the Initial
Registration Statement is open for the Restricted Persons, the Company shall
afford any Restricted Person which is a holder of Registrable Securities or
Exchange Securities and the Special Counsel, upon such holder's written request
to the Company, an opportunity to review copies of all such documents proposed
to be filed, and (ii) if such filing is pursuant to Section 3, before filing any
Registration Statement or Prospectus or any amendments or supplements thereto
(including documents that would be incorporated therein by reference after the
initial filing of the Registration Statement), the Company shall afford the
Special Counsel for all holders of the Registrable Securities covered by such
Registration Statement an opportunity to review copies of all such documents
proposed to be filed;
(b) prepare and cause to be filed with the Commission such amendments
and post-effective amendments to each Shelf Registration Statement as may be
necessary to keep such Registration Statement continuously effective for the
applicable period as provided herein; cause the related Prospectus to be
supplemented by any required Prospectus supplement, and as so supplemented to be
filed pursuant to Rule 424 (or any similar provisions then in force) under the
Securities Act; and comply with the provisions of the Securities Act, the
Exchange Act and the rules and regulations of the Commission promulgated
thereunder with respect to the disposition of all securities covered by such
Registration Statement as so amended or in such Prospectus as so supplemented in
accordance with the intended methods of disposition by the sellers of
Registrable Securities covered thereby set forth therein;
(c) if a Shelf Registration Statement is filed pursuant to Section 3
hereof, notify the selling holders of Registrable Securities promptly after the
Company becomes aware thereof, and confirm such notice in writing, (i) when a
Prospectus or any Prospectus supplement or post-effective amendment has been
filed, and, with
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respect to a Registration Statement or any post-effective amendment, when the
same has become effective, (ii) of any request by the Commission for amendments
or supplements to the Registration Statement or the Prospectus or for
additional information, (iii) of the issuance by the Commission of any stop
order suspending the effectiveness of a Registration Statement or of any order
preventing or suspending the use of any preliminary prospectus or Prospectus or
the initiation of any proceedings for that purpose, (iv) of the receipt by the
Company of any notification with respect to the suspension of the qualification
or exemption from qualification of a Registration Statement or any of the
Registrable Securities for offer or sale in any jurisdiction, or the initiation
of any proceeding for such purpose, (v) of the existence of any fact known to
the Company which results in such Registration Statement or related Prospectus
or any document incorporated therein by reference containing any untrue
statement of a material fact or omitting to state any material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading (which notice may be
accompanied by an instruction that such notice constitutes material non-public
information and to suspend the use of the prospectus until the requisite changes
have been made, and which instruction shall require that such holders shall not
communicate such material non-public information to any third party and shall
not sell or purchase, or offer to sell or purchase, any securities of the
Company after receipt of such notice) and (vi) if the Company reasonably
determines that the filing of a post-effective amendment to such Registration
Statement would be appropriate;
(d) if a Shelf Registration Statement is filed pursuant to Section 3,
use its reasonable efforts to prevent the issuance of any order suspending the
effectiveness of a Registration Statement or of any order preventing or
suspending the use of a Prospectus or suspending the qualification (or exemption
from qualification) of any of the Registrable Securities for sale in any
jurisdiction and, if any such order is issued, to obtain the withdrawal of any
such order at the earliest possible moment;
(e) if a Shelf Registration Statement is filed pursuant to Section 3,
furnish to each selling holder of Registrable Securities who so requests (at
such holder's address set forth in the Securities Register) without charge, one
conformed copy of the Registration Statement or Registration Statements and each
post-effective amendment thereto, including financial statements and schedules,
all documents incorporated therein by reference and all exhibits (including
those incorporated by reference);
15
<PAGE>
(f) if a Shelf Registration Statement is filed pursuant to Section 3,
deliver to each selling holder of Registrable Securities without charge, as many
copies of the Prospectus (including each preliminary prospectus) and each
amendment or supplement thereto as such persons may reasonably request; and,
subject to the last paragraph of this Section 5, the Company hereby consents to
the use of such Prospectus and each amendment or supplement thereto by each of
the selling holders of Registrable Securities and the underwriters, if any, in
connection with the offering and sale of the Registrable Securities covered by
such Prospectus and any amendment or supplement thereto;
(g) prior to any public offering of Registrable Securities, register or
qualify, or cooperate with the selling holders of Registrable Securities, the
underwriters, if any, and their respective counsel in connection with the
registration or qualification (or exemption from such registration or
qualification) of such Registrable Securities for offer and sale under the
securities or blue sky laws of such jurisdictions within the United States as
the selling holders reasonably request in writing (provided that, if Registrable
Securities are offered other than through an Underwrit ten Offering, the Company
agrees to cause its counsel to perform blue sky investigations and file
registrations and qualifications required to be filed pursuant to this Section
5(g)); keep each such registration or qualification (or exemption therefrom)
effective during the period such Registration Statement is required to be kept
effective; and do any and all other acts or things necessary or advisable to
enable the disposition in such jurisdictions of the Registrable Securities
covered by the applicable Registration Statement; provided, however, that the
Company will not be re quired to qualify as a foreign corporation, or to do
business, to file a general consent or take any action which would subject it to
service of process in any jurisdiction or take any action which would subject
itself to taxation in any such jurisdiction;
(h) if a Shelf Registration Statement is filed pursuant to Section 3,
cooperate with the Trustee and the selling holders of Registrable Securities to
facilitate the timely preparation and delivery of certificates representing
Registrable Securities to be sold, which certificates shall not bear any
restrictive legends and shall be in a form eligible for deposit with The
Depository Trust Company, and enable such Registrable Securities to be in such
authorized denominations and registered in such names as the holders may
reasonably request at least three Business Days prior to any such sale;
(i) if a Shelf Registration Statement is filed pursuant to Section 3,
upon the occurrence of any event contemplated by Section 5(c), prepare a
supplement or post-effective amendment to the Registration Statement or a
supple-
16
<PAGE>
ment to the related Prospectus or any document incorporated therein by reference
or file any other required document so that, as thereafter delivered to the
purchasers of the Registrable Securities, such Prospectus will not contain an
untrue statement of a material fact or omit to state a material fact necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading. If the Company so notifies the holders to suspend the
use of the Prospectus after the occurrence of such an event, the holders shall
suspend use of the Prospectus, and not communicate such material non-public
information to any third party, and not sell or purchase, or offer to sell or
purchase, any securities of the Company, until the Company has amended or
supplemented the Prospectus to correct such misstatement or omission;
(j) use its reasonable best efforts to cause the Registrable Securities
covered by the Registration Statement to continue to be rated by the rating
agencies that initially rated the Additional Securities during the period that
the Registration Statement is required hereunder to remain effective (it being
acknowledged, however, that the foregoing shall not be deemed to require the
Company to maintain the rating of such Registrable Securities at the rating
given the Additional Securities);
(k) prior to the effective date of the first Registration Statement
relating to the Registrable Securities or the Exchange Securities, as the case
may be, (i) provide the Trustee with printed certificates for such securities in
definitive form or in a global form eligible for deposit with The Depository
Trust Company and (ii) provide a CUSIP number for such Registrable Securities or
Exchange Securities represented by such certificates;
(l) if a Shelf Registration Statement is filed pursuant to Section 3,
enter into such reasonably required agreements and take all other appropriate
actions in order to expedite or facilitate the registration or the disposition
of such Registrable Securities;
(m) in the event of any Underwritten Offering (which shall only be
undertaken at the option of the Company), if a Shelf Registration Statement is
filed pursuant to Section 3, make available prior to the filing thereof for
inspection by a representative of the holders of a majority in aggregate
principal amount of the Registrable Securities being sold, and the Special
Counsel, on the one hand, or underwriter on the other hand (collectively, the
"Inspectors"), during reasonable business hours, all financial and other
records, pertinent corporate documents and
17
<PAGE>
properties of the Company and its subsidiaries (collectively, the "Records"),
and cause the officers, directors and employees of the Company and its
subsidiaries to supply all relevant information as shall be reasonably necessary
to enable them to exercise any applicable due diligence responsibilities;
provided, however, that, as a condition to supplying such information, the
Company shall receive an agreement in writing from the Special Counsel agreeing
that any information that is designated in writing by the Company, in good
faith, as confidential at the time of delivery of such information shall be kept
confidential by such Inspector (other than as to holders of Registrable
Securities) and by any holders of Registrable Securities receiving such
information, unless (i) disclosure of such information is required pursuant to
applicable law or by court or administrative order, (ii) disclosure of such
information is, in the reasonable opinion of counsel to the Company, necessary
to avoid or correct a misstatement or omission of a material fact in the
Registration Statement, Prospectus or any supplement or post-effective amendment
thereto or disclosure is otherwise required by law, (iii) such information
becomes generally available to the public other than as a result of a disclosure
by any Inspector or any such holder of Registrable Securities in violation of
this Section 5(m) or (iv) such information is approved for release by the
Company, in writing;
(n) use its best efforts to cause the Indenture or the trust indenture
provided for in Section 2, as the case may be, to be qualified under the TIA not
later than the effective date of such Registration Statement; and, in connection
therewith, cooperate with the Trustee under the Indenture and the holders of the
Registrable Securities to effect such changes to the Indenture as may be
required for the Indenture to be so qualified in accordance with the terms of
the TIA and execute, and use its best efforts to cause such Trustee to execute,
all documents as may be required to effect such changes, and all other forms and
documents required to be filed with the Commission to enable the Indenture or
the trust indenture provided for in Section 2 to be so qualified in a timely
manner;
(o) otherwise use its reasonable best efforts to comply with all
applicable rules and regulations of the Commission.
For purposes of the covenants set forth in this Section 5, references
to a Shelf Registration Statement, including a Shelf Registration Statement
filed pursuant to Section 3, shall be deemed to include any Registration
Statement, filed pursuant to Section 2, which covers, for the period set forth
therein, resales of Exchange Securities held by Restricted Persons as provided
in Section 2, and, in connection with such resales such Restricted Persons
shall be entitled to exercise all
18
<PAGE>
rights, receive all notices and copies of documents, and otherwise receive all
benefits afforded to sellers or holders of Registrable Securities under this
Section 5 in connection with a Shelf Registration Statement. Without limiting
the generality of the foregoing, the Company agrees to fulfill its obligations
set forth in Sections 5(a), (b), (c), (d), (e), (f), (h), (i), (l) and (m) with
respect to any such Registration Statement filed pursuant to Section 2 insofar
as it covers such resales.
The Company may require each seller of Registrable Securities as to
which any registration is being effected, as a condition thereto, to furnish to
the Company such information regarding the holder and the distribution of such
Registrable Securities as the Company may, from time to time, request in
writing, including without limitation stating that (i) it is not an Affiliate of
the Company, (ii) the amount of Registrable Securities held by such holder prior
to the Exchange Offer, (iii) the amount of Registrable Securities owned by such
holder to be exchanged in the Exchange Offer and representing that such holder
is not engaged in, and does not intend to engage in, and has no arrangement or
understanding with any Person to participate in, a distribution of the Exchange
Securities to be issued, and (iv) it is acquiring the Exchange Securities in its
ordinary course of business and to covenant and agree to promptly notify the
Company if any such information so provided by such seller ceases to be true and
correct and will promptly thereafter furnish the Company with corrected
information. The Company may exclude from such registration the Registrable
Securities of any Person who fails to furnish such information within a
reasonable time after receiving such request.
Each holder of Registrable Securities agrees by acquisition of such
Registrable Securities that, upon receipt of any notice from the Company of the
happening of any event of the kind described in Section 5(c)(ii), 5(c)(iii),
5(c)(v) or 5(c)(vi) hereof, such holder shall forthwith discontinue disposition
of such Registrable Securities covered by such Registration Statement or
Prospectus until such holder is advised in writing (the "Advice") by the Company
that the use of the applicable Prospectus may be resumed, and has received
copies of any amendments or supplements thereto and, if so directed by the
Company, such holder will deliver to the Company (at its expense) all copies in
its possession, other than permanent file copies then in such holder's
possession, of the prospectus covering such Registrable Securities current at
the time of receipt of such notice, or certify in writing as to the destruction
thereof. In the event the Company shall give any such notice, the length of the
Effective Period shall be extended by the number of days during such period from
and including the date of the giving of such notice to and including the date
when each seller of Registrable Securities covered by such Registration
Statement
19
<PAGE>
shall have received (x) the copies of the supplemented or amended Prospectus
contemplated by Section 5(i) or (y) the Advice.
SECTION 6. Delivery of Prospectus; Notification Upon Resale. The
Initial Purchasers acknowledge that it is the position of the staff of the
Commission that any broker-dealer that receives Exchange Securities for its own
account in exchange for Registrable Securities pursuant to the Exchange Offer
must deliver a prospectus in connection with any resale of such Resale
Securities. By so acknowledging, such Initial Purchasers shall not be deemed to
admit that, by delivering a prospectus, it is an underwriter within the meaning
of the Securities Act.
The Initial Purchasers shall notify the Company promptly upon the
completion of the resale of the Resale Securities received by such Initial
Purchasers pursuant to the Exchange Offer.
SECTION 7. Registration Expenses.
The Company shall bear all expenses incurred in connection with the
performance of its obligations under Sections 2, 3 and 4; provided, however,
that the Company shall bear or reimburse the holders for the reasonable fees and
disbursements of only one counsel, the Special Counsel, in accordance with the
terms of the Purchase Agreement; provided, further, however, that if the Company
permits an Underwritten Offering, the Company shall not be responsible for any
fees and expenses of any underwriter, including any underwriting discounts and
commissions or any legal fees and expenses of counsel to the underwriters
(except for the reasonable fees and disbursements of counsel in connection with
state securities or blue sky qualification of any of the Registrable Securities
or the Exchange Securities).
SECTION 8. Indemnification and Contribution.
(a) The Company agrees to (A) indemnify and hold harmless each holder
of Registrable Securities (including any Initial Purchaser which holds
Registrable Securities, including Resale Securities, for its own account (each,
a "Resale Initial Purchaser") and each Person, if any, who controls any such
Person within the meaning of either the Securities Act or the Exchange Act and
each director, officer, employee or agent of each such Person (each a "Holder
Indemnified Party") against any and all losses, claims, damages or liabilities,
joint or several, to which they or any of them are subject under the Securities
Act, the Exchange Act or otherwise,
20
<PAGE>
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in any Registration Statement covering
Registrable Securities held by such person or any Prospectus relating to any
such Registration Statement, or any amendment thereof or supplement thereto and
all documents incorporated by reference therein, or arise out of or are based
upon the omission or alleged omission to state therein a material fact necessary
in order to make the statements therein, in light of the circumstances in which
they were made, not misleading, and (B) reimburse each such Holder Indemnified
Party for any legal or other expenses reasonably incurred by them in connection
with investigating or defending any such loss, claim, damage, liability or
action as such expenses are incurred; provided, however, that the Company will
not be liable in any such case to the extent that any such loss, claim, damage
or liability arises out of or is based upon any such untrue statement or alleged
untrue statement or omission or alleged omission made in such Registration
Statement or Prospectus, or in any amendment thereof or supplement thereto, in
reliance upon and in conformity with written information relating to such holder
provided by such holder to the Company specifically for use therein
(collectively, the "Holder Information"); provided, further, however, that the
indemnity obligations arising out of this Section 8 with respect to any untrue
statement or alleged untrue statement or omission or alleged omission made in
any preliminary Prospectus shall not inure to the benefit of any holder or any
controlling Person of such holder if such holder failed to send or deliver to
the Person asserting any such losses a copy of the final Prospectus with or
prior to the delivery of the written confirmation of the sale of the Registrable
Securities or the Exchange Securities, as the case may be, and such final
Prospectus would have cured the untrue statement or omission giving rise to such
losses if the Company had previously furnished copies thereof to such holder.
This indemnity agreement will be in addition to any liability which the Company
may otherwise have.
(b) As a condition to the inclusion of a holder's Registrable
Securities in a Registration Statement, such holder shall agree to (i) indemnify
and hold harmless the Company and each person who controls the Company within
the meaning of either the Securities Act or the Exchange Act, and each director,
officer, employee or agent of each such person, against any and all losses,
claims, damages or liabilities, joint or several, to which they or any of them
are subject under the Securities Act, the Exchange Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in a Registration Statement covering Registrable
Securities held by such holder or any
21
<PAGE>
Prospectus relating to any such Registration Statement or in any amendment
thereof or supplement thereto, or arise out of or are based upon the omission or
alleged omission to state therein a material fact necessary in order to make the
statements therein, in light of the circumstances in which they were made, not
misleading, and (ii) reimburse each such indemnified party for any legal or
other expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action as such expenses are
incurred; in each and every case under clause (i) and (ii) above to the extent,
but only to the extent, that such untrue statement or alleged untrue statement
or omission or alleged omission was made in such Registration Statement or
Prospectus or in any amendment thereof or supplement thereto, in reliance upon
and in conformity with the Holder Information. This indemnity agreement will be
in addition to any liability which any such holder may otherwise have. In no
event shall the liability of any selling holder of Registrable Securities
hereunder be greater in amount than the dollar amount of the proceeds (net of
payment of all expenses) received by such holder upon the sale (or, in the case
of Resale Securities, the resale) of the Registrable Securities giving rise to
such indem nification obligation.
(c) Promptly after receipt by an indemnified party under this Section 8
of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section 8, notify the indemnifying party in writing of the commencement thereof
(enclosing a copy of all papers served); but the omission to so notify the
indemnifying party (i) shall not relieve it from liability under paragraph (a)
or (b) above unless and to the extent it did not otherwise learn of such action
and such omission results in the forfeiture by the indemnifying party or
material impairment of substantial rights and defenses and (ii) shall not, in
any event, relieve the indemnifying party from any obligations to any
indemnified party other than the indemnification obligations provided in
paragraph (a) or (b) above. In case any such action is brought against any
indemnified party, and it notifies the indemnifying party of the commencement
thereof, the indemnifying party shall be entitled to participate therein and, to
the extent that it may wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel reasonably satisfactory
to such indemnified party. After notice from the indemnifying party to such
indemnified party of its election to so assume the defense of such claim or
action, the indemnifying party will not be liable to such indemnified party
under this Section 8 for any legal or other expenses subsequently incurred by
such indemnified party in connection with the defense thereof other than costs
of investigation; provided that if (i) the defendants in any such action include
both the indemnified party and the
22
<PAGE>
indemnifying party, the indemnified party shall have received the written
opinion of counsel reasonably acceptable to the indemnifying party that
representation of both parties by the same counsel would be inappropriate due to
actual or likely conflicts of interest between them, or (ii) the indemnifying
party shall not have employed counsel for the indemnified party to represent the
indemnified party within a reasonable time after notice of the institution of
such action, then the indemnified party or parties shall have the right to
select one firm of separate counsel (in addition to the fees and expenses of
local counsel) to assert any separate legal defenses and to otherwise defend
such action on behalf of such indemnified party or parties. No indemnifying
party shall be liable for any settlement of any action or claim for monetary
damages which an indemnified party may effect without the written consent of the
indemnifying party, which consent shall not be unreasonably withheld.
(d) If the indemnification provided for in Section 8(a) or (b) hereof
is for any reason, other than as specified in such provisions, unavailable to or
insufficient to hold harmless an indemnified party, then each indemnifying
party shall contribute to the aggregate losses, claims, damages or liabilities
(or actions in respect thereof) referred to in Section 8(a) or (b) hereof in
such proportion as is appropriate to reflect the relative fault and benefits to
the Company on the one hand and such holders on the other hand in connection
with the statements or omissions which resulted in such losses, claims, damages
or liabilities (or actions in respect thereof) as well as any other relevant
equitable considerations. The relative fault of the Company and such holders
shall be determined by reference to, among other things, the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
any untrue statement or omission. The obligations of the holders in this Section
8(d) are several in proportion to their respective obligations hereunder and not
joint. Notwithstanding the provisions of this Section 8(d), in no event shall
any holder of Registrable Securities be required to contribute any amount which
is in excess of (i) the aggregate principal amount of Additional Securities sold
or exchanged by such holder less (ii) the amount of any damages that such
person has otherwise been required to pay by reason of such alleged untrue
statement or omission. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 8, each Holder Indemnified Party
shall have the same rights to contribution as a holder, and each person who
controls the Company within the meaning of either the Securities Act or the
Exchange Act and each officer, director, employee and agent of such person,
shall have the same rights to contribution as the Company,
23
<PAGE>
subject in each case to the applicable terms and conditions of this Section
8(d). Any party entitled to contribution will, promptly after receipt of notice
of commencement of any action, suit or proceeding against such party in respect
of which a claim for contribution may be made against another party or parties
under this Section 8(d), notify such party or parties from whom contribution may
be sought; but the omission to so notify such party or parties (x) shall not
relieve the party or parties from whom contribution may be sought from any
liability under this paragraph (d) unless and to the extent it did not otherwise
learn of such action and such omission results in the forfeiture by the party or
parties from whom contribution may be sought or material impairment of
substantial rights and defenses and (y) shall not, in any event, relieve such
party or parties from any obligations other than under this Section 8(d).
(e) The provisions of this Section 8 will remain in full force and
effect, regardless of any investigation made by or on behalf of any holder of
Registrable Securities, the Initial Purchasers, the Company or any of the
officers, directors or controlling persons referred to in this Section 8 and
will survive the sale (or, in the case of Resale Securities, the resale) by a
holder of Registrable Securities of such Registrable Securities.
SECTION 9. Underwritten Registrations (If Any). No holder may
participate in any Underwritten Registration, which Underwritten Registration
shall only be undertaken at the option of the Company, unless such holder (a)
agrees to sell such holder's Additional Securities on the basis provided in any
underwriting arrangements approved by the persons entitled hereunder to approve
such arrangements and (b) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents required
under the terms of such underwriting arrangements.
SECTION 10. Termination. In the event that no Additional Securities
are sold to the Initial Purchasers pursuant to the Purchase Agreement, this
Agreement shall automatically terminate, without liability on the part of any
party. Upon the fulfillment of all obligations on the part of the Company to
register the Additional Securities as set forth herein (including maintaining
the effectiveness of any applicable Registration Statements), this Agreement
shall terminate; provided that the provisions of Sections 7 and 8 hereof shall
survive any termination and remain in full force and effect.
SECTION 11. Miscellaneous.
24
<PAGE>
(a) No Inconsistent Agreements. The Company has not, as of the date
hereof, entered into, and shall not, on or after the date hereof, enter into,
any agreement with respect to its securities that is inconsistent with the
rights granted to the holders of Registrable Securities herein or otherwise
conflicts with the provisions hereof.
(b) Amendments and Waivers. The provisions of this Agreement, including
the provisions of this sentence, may not be amended, modified or supplemented,
and waivers or consents to departures from the provisions hereof may not be
given, unless the Company has obtained the written consent of holders of at
least a majority of the then outstanding aggregate principal amount of the
Registrable Securities (or, after the consummation of any Exchange Offer in
accordance with Section 2, of Exchange Securities); provided that, with respect
to any matter that directly or indirectly affects the rights of any Restricted
Person hereunder occurring within the period in which the Initial Registration
Statement is open for the Restricted Persons, the Company shall obtain the
written consent of each such Restricted Person against which such amendment,
modification, supplement, waiver or consent is to be effective. Notwithstanding
the foregoing (except for the foregoing proviso), a waiver or consent to
departure from the provisions hereof with respect to a matter that relates
exclusively to the rights of holders of Registrable Securities whose securities
are being sold or exchanged pursuant to a Registration Statement and that does
not directly or indirectly affect the rights of other holders of Registrable
Securities may be given by holders of at least a majority in aggregate principal
amount of the Registrable Securities being sold or exchanged by such holders
pursuant to such Registration Statement; provided, however, that the provisions
of this sentence may not be amended, modified or supplemented except in
accordance with the provisions of the immediately preceding sentence.
Notwithstanding the foregoing, a waiver or consent to departure from the
provisions hereof with respect to a matter that relates exclusively to the
rights of Resale Initial Purchasers and that does not directly or indirectly
affect the rights of holders of Registrable Securities or Exchange Securities
may be given by each of the Resale Initial Purchasers affected thereby.
(c) Notices. All notices and other communications (including, without
limitation, any notices or other communications to the Trustee) provided for or
permitted hereunder shall be made in writing and delivered by hand delivery,
registered first-class mail, next-day air courier or telecopier:
25
<PAGE>
(i) if to a holder of Registrable Securities, at the most current
address given by such holder to the Company in accordance with the
provisions of this Section 11(c), which address initially is, with respect
to the Initial Purchasers, at the address set forth in the Purchase
Agreement and thereafter at the address for such holders of Registrable
Securities set forth in the Security Register applicable to such Registrable
Securities; and
(ii) if to the Company, initially at the address set forth in the
Purchase Agreement and thereafter at such other address, notice of which is
given in accordance with the provisions of this Section 11(c).
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; five Business Days after
being deposited in the mail, postage prepaid, if mailed; one Business Day after
being timely delivered to a next-day air courier; and when received, if
telecopied.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address specified in the Indenture.
(d) Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the successors and assigns of each of the parties hereto,
including without limitation and without the need for an express assignment or
any consent by the Company thereto, subsequent holders of Registrable
Securities.
(e) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(f) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(g) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES
OF CONFLICTS OF LAWS. Each of the parties hereto hereby submits to the
non-exclusive jurisdiction of the Federal and State Courts of the Borough of
Manhattan in the City of New York in any suit or proceeding arising out of or
relating to this Agreement or the transactions contemplated hereby.
26
<PAGE>
(h) Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions hereof shall not be in any way impaired or affected
thereby, it being intended that all of the rights and privileges of the parties
shall be enforceable to the fullest extent permitted by law.
(i) Entire Agreement. This Agreement, together with the Purchase
Agreement, is intended by the parties as a final expression of their agreement,
and is intended to be a complete and exclusive statement of the agreement and
understanding of the parties hereto in respect of the subject matter contained
herein and therein. There are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein and therein. This
Agreement, together with the Purchase Agreement, supersedes all prior agreements
and understandings between the parties with respect to such subject matter.
(j) Securities Held by the Company, etc. Whenever the consent or
approval of holders of a specified percentage of principal amount of Registrable
Securities is required hereunder, Registrable Securities held by the Company or
any of its Affiliates (other than subsequent holders of Registrable Securities
if such subsequent holders are deemed to be Affiliates solely by reason of their
holdings of such Registrable Securities) shall not be counted in determining
whether such consent or approval was given by the holders of such required
percentage.
27
<PAGE>
Please confirm that the foregoing correctly sets forth this agreement
between the Company and you.
Very truly yours,
SALTON SEA FUNDING CORPORATION
By: /s/ Steven A. McArthur
------------------------------------
Name: Steven A. McArthur
Title: Executive Vice President and
General Counsel
Accepted in New York, New York
October 13, 1998
CREDIT SUISSE FIRST BOSTON CORPORATION
GOLDMAN, SACHS & CO.
By: CREDIT SUISSE FIRST BOSTON CORPORATION
By: /s/ Jonathan Bram
------------------------------------
Name: Jonathan Bram
Title: Managing Director
Signature Page to Registration Rights Agreement
<PAGE>
EXHIBIT 12.1
SALTON SEA FUNDING CORPORATION
RATIO OF EARNINGS TO FIXED CHARGES
(AMOUNTS IN THOUSANDS, EXCEPT RATIO)
<TABLE>
<CAPTION>
FROM
JUNE 20, 1995
(INCEPTION THREE MONTHS
DATE) ENDED
YEAR ENDED DECEMBER 31, THROUGH MARCH 31,
DECEMBER 31,
---------------------------- -----------------
1998 1997 1996 1995 1999 1998
-------- -------- -------- -------------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Pre-tax income from continuing
operations 3,030 2,483 3,094 2,555 293 654
Undistributed earnings of less
than 50% subsidiaries (980) (851) (656) (271) (116) (161)
-------- -------- -------- -------------- -------- -------
2,050 1,632 2,438 2,284 177 493
Fixed charges:
Interest expense and
amortization of deferred
finance charges on all
indebtedness 35,495 37,443 36,761 15,022 11,737 8,259
-------- -------- -------- -------------- -------- -------
Total fixed charges 35,495 37,443 36,761 15,022 11,737 8,259
Earnings before income taxes
and fixed charges 37,545 39,075 39,199 17,306 11,914 8,752
Ratio of earnings to fixed
charges 1.058 1.044 1.066 1.152 1.015 1.060
</TABLE>
<PAGE>
EXHIBIT 12.2
SALTON SEA GUARANTORS
RATIO OF EARNINGS TO FIXED CHARGES
(AMOUNTS IN THOUSANDS, EXCEPT RATIO)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-----------------------------------------------------------------------
1998 1997 1996 1995 1994 1999 1998
--------- --------- ---------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Pre-tax income from continuing
operations 45,939 42,816 35,031 19,348 31,943 3,362 5,811
Capitalized interest, net of
amortization (5,024) (4,513) (10,033) (9,178) -- (1,612) (1,154)
--------- --------- ---------- -------- -------- --------- ---------
Fixed charges: 40,915 38,303 24,998 10,170 31,943 1,750 4,657
Interest expense and
amortization of deferred
finance charges on all
indebtedness 21,730 23,004 24,866 24,783 8,240 6,076 5,260
--------- --------- ---------- -------- -------- --------- ---------
Total fixed charges 21,730 23,004 24,866 24,783 8,240 6,076 5,260
Earnings before income taxes
and fixed charges 62,645 61,307 49,864 34,953 40,183 7,826 9,917
Ratio of earnings to fixed
charges 2.883 2.665 2.005 1.410 4.877 1.288 1.885
</TABLE>
<PAGE>
EXHIBIT 12.3
PARTNERSHIP GUARANTORS
RATIO OF EARNINGS TO FIXED CHARGES
(AMOUNTS IN THOUSANDS, EXCEPT RATIO)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
1998 1997 1996 1995 1994 1999 1998
--------- --------- --------- --------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Pre-tax income from continuing
operations 56,663 55,011 42,459 27,556 28,422 3,663 9,751
Capitalized interest, net of
amortization (8,983) (8,501) (8,687) (7,900) 765 (2,301) (2,133)
--------- --------- --------- --------- -------- --------- ---------
47,680 46,510 33,772 19,656 29,187 1,362 7,618
Fixed charges:
Interest expense and
amortization of deferred
finance charges on all
indebtedness 13,836 13,753 13,697 16,726 3,285 5,694 3,297
--------- --------- --------- --------- -------- --------- ---------
Total fixed charges 13,836 13,753 13,697 16,726 3,285 5,694 3,297
Earnings before income taxes
and fixed charges 61,516 60,263 47,469 36,382 32,472 7,056 10,915
Ratio of earnings to fixed
charges 4.446 4.382 3.466 2.175 9.885 1.239 3.311
</TABLE>
<PAGE>
EXHIBIT 12.4
ROYALTY GUARANTOR
RATIO OF EARNINGS TO FIXED CHARGES
(AMOUNTS IN THOUSANDS, EXCEPT RATIO)
<TABLE>
<CAPTION>
Three Months Ended
Year Ended December 31, March 31,
---------------------------------------------- -------------------
1998 1997 1996 1995 1999 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Pre-tax income from continuing operations 31,005 10,489 7,329 5,565 9,434 6,954
---------------------------------------------- -------------------
31,005 10,489 7,329 5,565 9,434 6,954
Fixed charges:
Internet expense and amortization of deferred
finance charges on all indebtedness 2,784 4,179 5,246 4,757 468 776
---------------------------------------------- -------------------
Total fixed charges 2,784 4,179 5,246 4,757 468 776
Earnings before income taxes and fixed charges 33,789 14,668 12,575 10,322 9,902 7,730
Ratio of earnings to fixed charges 12.137 3.510 2.397 2.170 21.158 9.961
</TABLE>
<PAGE>
15.1
May 20, 1999
Salton Sea Funding Corporation
302 South 36th Street, Suite 400-A
Omaha, Nebraska
We have made a reveiw, in accordance with standards established by the American
Institute of Certified Public Accountants, of the unaudited interim financial
information of Salton Sea Funding Corporation, Salton Sea Guarantors,
Partnership Guarantors, and Salton Sea Royalty Company for the periods ended
March 31, 1999 and 1998, as indicated in our reports dated April 28, 1999;
because we did not perform an audit, we expressed no opinion on that
information.
We are aware that our reports referred to above, which were included in your
Quarterly Report on Form 10-Q for the quarter ended March 31, 1999 are being
used in this Registration Statement. We also are aware that the aforementioned
reports, pursuant to Rule 436(c) under the Securities Act of 1933, are not
considered a part of the Registration Statement prepared or certified by an
accountant or a report prepared or certified by an accountant within the
meaning of Sections 7 and 11 of that Act.
/s/ Deloitte & Touche
- ---------------------
DELOITTE & TOUCHE LLP
Omaha, Nebraska
<PAGE>
EXHIBIT 23.2
[FLUOR DANIEL, INC. LETTERHEAD]
May 28, 1999
MidAmerican Energy Holding Company
302 South 36th Street, Suite 400
Omaha, Nebraska 68131
Attention: Mr. James A. Flores
Vice President, Project Finance
Subject: Salton Sea Funding Corporation
$285,000,000 7.475% Senior Secured Series F Bonds Due
November 30, 2018
This letter is furnished relating to the sale by Salton Sea Funding Corporation
(the "Issuer") of $285,000,000 of 7.475% Senior Secured Series F Bonds Due
November 30, 2018 (the "Securities") as more fully described in the Registration
Statement of Salton Sea Funding Corporation, Salton Sea Brine Processing L.P.,
Salton Sea Power Generation L.P., Fish Lake Power LLC, Vulcan Power Company,
CalEnergy Operating Corporation, Salton Sea Royalty LLC. VPC Geothermal LLC,
San Felipe Energy Company, Conejo Energy Company, Niguel Energy Company, Vulcan/
BN Geothermal Power Company, Leathers, L.P., Del Ranch L.P., Elmore, L.P.,
Salton Sea Power L.L.C., CalEnergy Minerals LLC, CE Turbo LLC, CE Salton Sea
Inc. and Salton Sea Minerals Corp. on Form S-4 dated May 27, 1999 filed with
the Securities and Exchange Commission by the Issuer (the "Registration
Statement"), and prepared in connection with the sale of the Securities.
Fluor Daniel, Inc. was retained as the Independent Engineer by CalEnergy Company
(predecessor of MidAmerican) and it prepared an Independent Engineer's Report
dated September 23, 1998 (the "Report") included as Appendix B to the
Registration Statement. Such Report contains facts, opinions and conclusions of
the Independent Engineer and is subject to various qualifications, assumptions
and conditions applicable thereto. Further, such Report is valid as of
September 23, 1998.
On the basis of the foregoing, Fluor Daniel, Inc. Consents to the inclusion of
the Report in the Registration Statement.
Very truly yours,
/s/ Alvin Ayria
- --------------------
Alvin Ayria
<PAGE>
EXHIBIT 23.3
[LETTERHEAD OF HENWOOD ENERGY SERVICES, INC.]
POWER MARKET CONSULTANT'S CONSENT
We consent to the incorporation in this Registration Statement of Salton Sea
Funding Corporation, Salton Sea Brine Processing L.P., Salton Sea Power
Generation L.P., Fish lake Power LLC, Vulcan Power Company, CalEnergy Operating
Corporation, Salton Sea Royalty LLC, VPC Geothermal LLC, San Felipe Energy
Company, Conejo Energy Company, Niguel Energy Company, Vulcan/BN Geothermal
Power Company, Leathers, L.P., Del Ranch L.P., Elmore, L.P., Salton Sea Power
L.L.C., CalEnergy Minerals LLC, CE Turbo LLC, CE Salton Sea Inc. and Salton
Sea Minerals Corp. on Form S-4 of our report dated September 1, 1998 of our
analysis of the wholesale electricity market in California, the competitive
position of the Power Projects (as defined in our report) in California and
the outlook of renewable energy in the emerging "Green Power" market.
HENWOOD ENERGY SERVICES, INC.
/s/ Kevin D. Woodruff
- ------------------------------------
By: Kevin D. Woodruff
Title: Principal Consultant
Sacramento, California
May 24, 1999
<PAGE>
EXHIBIT 23.5
[LETTERHEAD OF GEOTHERMEX, INC.]
GEOTHERMAL RESOURCE CONSULTANT'S CONSENT
We consent to the incorporation in this Registration Statement of Salton Sea
Funding Corporation, Salton Sea Brine Processing L.P., salton Sea Power
Generation L.P., Fish Lake Power LLC, Vulcan Power Company, CalEnergy Operating
Corporation, Salton Sea Royalty LLC, VPC Geothermal LLC, San Felipe Energy
Company, Conejo Energy Company, Niguel Energy Company, Vulcan/BN Geothermal
Power Company, Leathers, L.P., Del Ranch L.P., Elmore, L.P., Salton Sea Power
L.L.C., CalEnergy Minerals LLC, CE Turbo LLC, CE Salton Sea Inc. and Salton
Sea Minerals Corp. on Form S-4 of our report dated August 1998 of our analysis
of the long-term resource sufficiency of the Salton Sea Known Geothermal
Resource Area.
GEOTHERMEX, INC.
/s/ Subir K. Sanyal
- ---------------------------------------
By: Subir K. Sanyal
Title: President
Richmond, California
May 24, 1999
<PAGE>
EXHIBIT 23.8
[LETTERHEAD OF RESOURCE STRATEGIES INTERNATIONAL]
ZINC MARKET CONSULTANT'S CONSENT
We consent to the incorporation in this Registration Statement of Salton Sea
Funding Corporation, Salton Sea Brine Processing L.P., Salton Sea Power
Generation L.P., Fish Lake Power LLC, Vulcan Power Company, CalEnergy Operating
Corporation, Salton Sea Royalty LLC, VPC Geothermal LLC, San Felipe Energy
Company, Conejo Energy Company, Niguel Energy Company, Vulcan/BN Geothermal
Power Company, Leathers, L.P., Del Ranch L.P., Elmore, L.P., Salton Sea Power
L.L.C., CalEnergy Minerals LLC, CE Turbo LLC, CE Salton Sea Inc. and Salton
Sea Minerals Corp. on Form S-4 of our report dated August 14, 1998 of our
analysis of the zinc market.
RSI CONSULTING LTD
/s/ Peter J. Searle
- -----------------------------------------
By: Peter J. Searle
Title: General Manager - North America
Exton, Pennsylvania
May 25, 1999
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement
of Salton Sea Funding Corporation on Form S-4 of our reports dated January 28,
1999 (March 3, 199 as to Note 4 to the financial statements of Salton Sea
Funding Corporation, Note 6 to the combined financial statements of Salton
Sea Guarantors, Note 10 to the combined financial statements of Partnership
Guarantors, and Note 5 to the financial statements of Salton Sea Royalty
Company), appearing in the Annual Report on Form 10-K of Salton Sea Funding
Corporation for the year ended December 31, 1998 and to the reference to us
under the heading "Experts" in the Prospectus, which is part of this
Registration Statement.
/s/ Deloitte & Touche
DELOITTE & TOUCHE LLP
Omaha, Nebraska
May 20, 1999
