SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year-Ended December 31, 1996
Commission File Number 33-95928
LS Power Funding Corporation
(Exact name of registrant as specified in its charter)
Delaware 81-0502366
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
402 East Main Street, Bozeman, MT 59715, (406) 587-7397
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
LSP-Cottage Grove, L.P.
LSP-Whitewater Limited Partnership
(Exact name of registrant as specified in its charter)
Delaware 81-0493289
Delaware 81-0493287
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Numbers)
402 East Main Street, Bozeman, MT 59715, (406) 587-6325
402 East Main Street, Bozeman, MT 59715, (406) 587-6122
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
7.19% Senior Secured Bonds Due 2010, Series A of
LS Power Funding Corporation
8.08% Senior Secured Bonds Due 2016, Series A of
LS Power Funding Corporation
7.19% First Mortgage Bonds of LSP-Cottage Grove, L.P.
8.08% First Mortgage Bonds of LSP-Cottage Grove, L.P.
7.19% First Mortgage Bonds of LSP-Whitewater Limited Partnership
8.08% First Mortgage Bonds of LSP-Whitewater Limited Partnership
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months, and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. X
<PAGE>
LS Power Funding Corporation
LSP-Cottage Grove, L.P.
LSP-Whitewater Limited Partnership
Form 10-K Index
Page
PART I
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . 17
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . 17
Item 4. Submission of Matters to a Vote of Security Holders . . . . 18
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters . . . . . . . . . . . . . . . . 18
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . 18
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . 20
Item 8. Financial Statements and Supplementary Data . . . . . . . . 21
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . . . . . . . . . 21
PART III
Item 10. Directors and Executive Officers of the Registrant . . . . . 22
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . 23
Item 12. Security Ownership of Certain
Beneficial Owners and Management . . . . . . . . . . . . . 24
Item 13. Certain Relationships and Related Transactions . . . . . . . 24
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . 26
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . 27
Financial Statement Index . . . . . . . . . . . . . . . . F-1
Exhibits Index . . . . . . . . . . . . . . . . . . . . . . EI-1
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<PAGE>
PART I/ITEM 1. BUSINESS
ORGANIZATION
Cottage Grove
LSP-Cottage Grove, L.P. ("Cottage Grove") is a single purpose Delaware
limited partnership established on December 14, 1993 to develop, finance,
construct, own, operate and manage a gas-fired cogeneration facility located
in Cottage Grove, Minnesota (the "Cottage Grove Power Plant"). The general
partner of Cottage Grove is LSP-Cottage Grove, Inc., a Delaware corporation
which is a wholly-owned subsidiary of Granite Power Partners, L.P., a
Delaware limited partnership ("Granite"). The general partner of Granite is
LS Power Corporation, a Delaware corporation ("LS Power"). LSP-Cottage Grove,
Inc. is a one percent general partner of Cottage Grove. Granite and TPC
Cottage Grove, Inc., a Delaware corporation ("TPC Cottage Grove"), are the
sole limited partners of Cottage Grove, owning approximately 72% and 27%
limited partnership interests, respectively, although such percentages remain
subject to adjustment under certain circumstances to provide a particular rate
of return on the equity contribution of TPC Cottage Grove as set forth in
Cottage Grove's partnership agreement.
Whitewater
LSP-Whitewater Limited Partnership ("Whitewater", and collectively with
Cottage Grove, the "Partnerships") is a single purpose Delaware limited
partnership established on December 14, 1993 to develop, finance, construct,
own, operate and manage a gas-fired cogeneration facility located in
Whitewater, Wisconsin (the "Whitewater Power Plant", and collectively with the
Cottage Grove Power Plant, the "Power Plants" or "Projects"). The general
partner of Whitewater is LSP-Whitewater I, Inc., a Delaware corporation (along
with LSP-Cottage Grove, Inc., the "General Partners", and each individually a
"General Partner") which is a wholly-owned subsidiary of Granite.
LSP-Whitewater I, Inc. is a one percent general partner of Whitewater. Granite
and TPC Whitewater, Inc., a Delaware corporation ("TPC Whitewater"), are the
sole limited partners of Whitewater, owning approximately 73% and 26% limited
partnership interests, respectively, although such percentages remain subject
to adjustment under certain circumstances to provide a particular rate of
return on the equity contribution of TPC Whitewater as set forth in
Whitewater's partnership agreement.
Funding
LS Power Funding Corporation ("Funding") was established on June 23, 1995
as a special purpose Delaware corporation to issue debt securities in
connection with financing the construction of the Power Plants. Funding's sole
business activities are limited to maintaining its organization and activities
necessary pursuant to the offering of the Senior Secured Bonds (defined below)
and its acquisition of the First Mortgage Bonds (defined below) from the
Partnerships.
The Senior Secured Bonds are the following:
7.19% Senior Secured Bonds Due 2010, Series A
of LS Power Funding Corporation
8.08% Senior Secured Bonds Due 2016, Series A
of LS Power Funding Corporation
The First Mortgage Bonds are the following:
7.19% First Mortgage Bonds of LSP-Cottage Grove, L.P.
8.08% First Mortgage Bonds of LSP-Cottage Grove, L.P.
7.19% First Mortgage Bonds of LSP-Whitewater Limited Partnership
8.08% First Mortgage Bonds of LSP-Whitewater Limited Partnership
Cottage Grove and Whitewater each own 50% of the outstanding stock of
Funding.
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THE POWER PLANTS
The Cottage Grove Power Plant
The Cottage Grove Power Plant will be a dispatchable, combined-cycle
natural gas-fired (with fuel oil back-up) cogeneration facility designed to
generate approximately 245 megawatts of electrical capacity measured at
summer conditions, and 262 megawatts of electrical capacity measured at
winter conditions, with a maximum of 190,000 pounds per hour of steam. The
Cottage Grove Power Plant will be a "topping-cycle cogeneration facility",
which means that when the power plant is operated in a combined-cycle mode, it
uses natural gas or fuel oil to produce electricity, and the reject heat from
power production is then used to provide steam to its steam purchaser. The
Cottage Grove Power Plant is scheduled to commence commercial operation by
May 31, 1997 and will consist of a single combustion turbine-generator unit,
a heat recovery steam generator, a steam turbine-generator unit, auxiliary
boilers, and all required buildings and accessory equipment. The auxiliary
boilers will be used to provide steam to the Minnesota Mining and
Manufacturing Company's ("3M") Cottage Grove facility, Cottage Grove's steam
purchaser, when the Cottage Grove Power Plant is off-line. The Cottage Grove
Power Plant will not produce operating revenues until commencement of
commercial operation.
All of the electric capacity and energy generated by the Cottage Grove
Power Plant will be sold to Northern States Power Company ("NSP" or, as the
context requires, the "Power Purchaser") under a 30-year power purchase
agreement. The thermal energy generated by the Cottage Grove Power Plant will
be sold in the form of steam to 3M under a 30-year steam supply agreement.
Natural gas for the Cottage Grove Power Plant will be purchased pursuant to
20-year contracts with Natural Gas Clearinghouse ("NGC") and Aquila Energy
Marketing Corporation ("Aquila"), a subsidiary of UtiliCorp United Inc.
("UtiliCorp"). Interstate gas transportation will be provided by Northern
Natural Gas Company ("Northern Natural") and local gas transportation will be
provided by Peoples Natural Gas Company ("Peoples"), a division of UtiliCorp,
each pursuant to a 20-year contract subject to a 10-year renewal option.
Northern Natural will additionally provide gas storage services pursuant to a
20-year contract subject to a 10-year renewal option. The Cottage Grove Power
Plant is designed to operate as a Qualifying Facility ("QF") under the Public
Utility Regulatory Policies Act of 1978 ("PURPA") and the regulations
promulgated thereunder.
The Whitewater Power Plant
The Whitewater Power Plant will be a dispatchable, combined-cycle natural
gas-fired (with fuel oil back-up) cogeneration facility designed to generate
approximately 245 megawatts of electrical capacity measured at summer
conditions and 262 megawatts of electrical capacity measured at winter
conditions, with a maximum of 190,000 pounds per hour of steam. The Whitewater
Power Plant will be a "topping-cycle cogeneration facility". The Whitewater
Power Plant is scheduled to commence commercial operation by June 1, 1997 and
will consist of a single combustion turbine-generator unit, a heat recovery
steam generator, a steam turbine-generator unit, auxiliary boilers, and all
required buildings and accessory equipment. The auxiliary boilers will be used
to provide thermal energy to Whitewater's thermal energy purchasers when the
Whitewater Power Plant is off-line. The Whitewater Power Plant will not
produce operating revenues until commencement of commercial operation.
Whitewater will sell up to 236.5 megawatts of electric capacity and
associated energy generated by the Whitewater Power Plant to Wisconsin
Electric Power Company ("WEPCO" or, as the context requires, the "Power
Purchaser") pursuant to a power purchase agreement terminating on May 31, 2022
with two five-year renewal options. Whitewater may also sell to third parties
up to 12 megawatts of electric capacity and any energy which is not dispatched
by WEPCO. The thermal energy generated by the Whitewater Power Plant will be
provided in the form of steam to the University of Wisconsin-Whitewater ("UWW")
under a steam supply agreement expiring on June 30, 2005 and in the form of
hot water to a greenhouse owned by Whitewater and located adjacent to the
Whitewater Power Plant. Natural gas for the Power Plant will be purchased
pursuant to 20-year contracts with NGC and Aquila. Interstate gas
transportation will be provided by Northern Natural pursuant to a 20-year
contract subject to a 10-year renewal option, and local gas transportation will
be provided by Wisconsin Natural Gas Company ("WNG") pursuant to a 25-year
contract with two five-year renewal options. Additionally, Northern Natural
will provide gas storage services pursuant to a 20-year contract subject to a
10-year renewal option. The Whitewater Power Plant is designed to operate as a
QF under PURPA and the regulations promulgated thereunder.
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<PAGE>
CONSTRUCTION
The Cottage Grove Power Plant
The Cottage Grove Power Plant is being constructed by Westinghouse Electric
Corporation ("Westinghouse Electric" or the "Contractor") pursuant to a turnkey
construction contract (the "Cottage Grove Construction Contract").
Westinghouse Electric has agreed to complete the construction and start-up of
the Power Plant to specified performance levels within 23 months of commencing
work (unless such time period is adjusted in accordance with the construction
contract). Westinghouse began construction of the Cottage Grove Power Plant on
June 30, 1995. As of December 31, 1996, engineering, procurement and
construction was estimated to be 86% complete.
The Whitewater Power Plant
The Whitewater Power Plant is being constructed by Westinghouse Electric
pursuant to a turnkey construction contract (the "Whitewater Construction
Contract" and, together with the Cottage Grove Construction Contract, the
"Construction Contracts"). Westinghouse Electric has agreed to complete the
construction and start-up of the Power Plant to specified performance levels
within 23 months of commencing work (unless such time period is adjusted in
accordance with the construction contract). Westinghouse began construction
of the Whitewater Power Plant on June 30, 1995. As of December 31, 1996,
engineering, procurement and construction was estimated to be 91% complete.
Greenhouse
Whitewater has entered into a construction contract (the "Dominion
Construction Contract") with Dominion under which Dominion is required to
design, engineer, procure, interconnect, construct and start-up a greenhouse
(the "Greenhouse") adjacent to the Whitewater site, as well as perform certain
other obligations. The contract price to be paid by Whitewater will be equal
to Dominion's cost of labor, insurance, materials and equipment plus Dominion's
mark-up thereon. The Dominion Construction Contract established a 19-month
construction schedule for the Greenhouse. Dominion was given notice to
proceed with procurement and construction on July 11, 1995. As of December
31, 1996, engineering and construction was estimated to be 90% complete.
General
As with any major construction effort, construction of the Power Plants and
the Greenhouse involves many risks, including shortages of materials and labor,
work stoppages, labor disputes, weather interferences, engineering,
environmental permitting or geological problems and unanticipated cost
increases for reasons beyond the control of the Contractor, the occurrence of
which could give rise to delays, cost overruns or performance deficiencies, or
otherwise adversely affect the design or operation of the Power Plants or the
Greenhouse.
PROJECT MANAGEMENT
LS Power provides certain management and administration services to the
Partnerships, including supervision of the Contractor and the Operator,
pursuant to management services agreements with the Partnerships and the
General Partners. See Part III, Item 13 - "Certain Relationships and Related
Transactions".
OPERATIONS AND MAINTENANCE
Operations and Maintenance Agreements
Each of the Cottage Grove and Whitewater Power Plants will be operated by
Westinghouse Operating Services Company, Inc. ("Westinghouse Services")
pursuant to a seven-year operations and maintenance agreement (an "O&M
Agreement" and collectively, the "O&M Agreements" ). Under each O&M Agreement,
Westinghouse Services is required to provide certain services during the
pre-operational phase of the related Power Plant as well as services following
commercial operation. As compensation for its services, Westinghouse Services
will be reimbursed under each O&M Agreement on a monthly basis for certain
approved costs incurred in connection with operating the related Power Plant
and will receive (i) a fixed monthly fee during the pre-operational phase of
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such Power Plant and (ii) an annual management fee during the operational
years of such Power Plant. The Partnerships will contract directly with
certain subcontractors for materials and services which are outside the scope
of Westinghouse Service's obligations under the O&M Agreements, including
major maintenance of the Power Plants. Westinghouse Services will also be
subject to an annual performance bonus or penalty payment depending on each
Power Plant's availability relative to certain performance criteria reflecting
aspects of similar criteria contained in the Power Purchase Agreements.
Furthermore, Westinghouse Services is subject to a penalty payment depending
upon each Power Plant's ability to produce an uninterrupted supply of thermal
energy.
Parts Agreements
Cottage Grove and Whitewater have each entered into a parts agreement
(a "Parts Agreement" and collectively, the "Parts Agreements") with
Westinghouse Electric. Under each Parts Agreement, Westinghouse Electric will
provide a spare set of certain major combustion turbine parts (including
combustors, fuel nozzles, transitions, turbine blades and vanes and various
other items), as well as repair or replace specified parts during certain
scheduled and unscheduled outages of the related Power Plant. Pursuant to each
Parts Agreement, Westinghouse Electric is paid an annual fee for 12 years. In
addition, Westinghouse Electric will provide certain Westinghouse Electric
parts at a discount from the list price for the life of the related Power
Plant as well as repair certain parts at cost plus a certain percentage markup
for the duration of the financing of such Power Plant.
Greenhouse
Whitewater previously entered into a lease agreement (the "Dominion Lease")
with Dominion Growers/Whitewater, L.C. ("Dominion"). Under the Dominion
Lease, Whitewater agreed to lease to Dominion the Greenhouse and an
approximate 38-acre parcel of land upon which the Greenhouse is being
constructed. The Dominion Lease was to commence upon substantial completion
of construction of the Greenhouse and expire on the later of (i) the 25th
anniversary of the Whitewater Commercial Operations Date, and (ii) May 31,
2022.
Due to changed circumstances occurring in 1996, Whitewater and Dominion
have agreed to terminate the Dominion Lease and the related hot water supply
agreement with Dominion. To replace these Dominion arrangements, Whitewater
will enter into an operational services agreement (the "Greenhouse Operational
Services Agreement") with FloriCulture, Inc. ("FloriCulture"), an affiliate of
Whitewater, which will operate the Greenhouse for the benefit of Whitewater.
Under the terms of the Greenhouse Operational Services Agreement,
FloriCulture will be required to provide all the services necessary to produce,
market, and sell horticultural products and to operate and maintain the
Greenhouse facility. As compensation for its services, FloriCulture will be
reimbursed on a monthly basis for its approved costs in connection with
conducting the Greenhouse business and operating the Greenhouse facility, and
will receive an annual management fee equal to 12% of Whitewater's net profit
from the operation of the Greenhouse. The term of the Greenhouse Operational
Services Agreement will expire on May 31, 2022.
SALE OF CAPACITY AND ELECTRICITY
Cottage Grove
Cottage Grove, as seller, and NSP, as purchaser, have entered into a power
purchase agreement, dated May 9, 1994 (the "Cottage Grove Power Purchase
Agreement"). Under and subject to the terms of the Cottage Grove Power Purchase
Agreement, NSP is obligated to purchase electric capacity made available to it
and associated energy which NSP chooses to dispatch from Cottage Grove
beginning on the date the Cottage Grove Power Plant achieves commercial
operations (the "Cottage Grove Commercial Operations Date"), scheduled to
occur by May 31, 1997 and extending for 30 years after the Cottage Grove
Commercial Operations Date.
Payments by NSP to Cottage Grove under the Cottage Grove Power Purchase
Agreement will consist of (i) capacity payments and (ii) energy payments. The
capacity payments to be made by NSP are based on the Power Plant's tested
capacity and availability, and have three components: one rate component based
on a fixed schedule and two rate components that escalate in accordance with
changes in published indices. NSP is required to make capacity payments to
Cottage Grove on a monthly basis for electric capacity made available to NSP,
regardless of the level of dispatch. Capacity payments from NSP are subject
to adjustment on the basis of performance-based factors which reflect the
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Cottage Grove Power Plant's semi-annually tested capacity and its rolling
12-month average and on-peak availability. Capacity payments are also adjusted
for transmission losses or gains relative to a reference plant (the "Capacity
Loss Factor").
Under the Cottage Grove Power Purchase Agreement, NSP has full dispatch
discretion over energy to be delivered by the Cottage Grove Power Plant subject
to certain agreed dispatch parameters. This offers NSP the flexibility to call
upon the Cottage Grove Power Plant to deliver energy when it is the lowest cost
unused variable energy source available to NSP. There is no contractual
minimum amount of energy that NSP must purchase from Cottage Grove.
Energy payments for energy delivered by the Cottage Grove Power Plant will
vary in accordance with a published monthly spot natural gas index or, in case
of dispatch in excess of 16 hours per day, with the Cottage Grove Power Plant's
actual fuel costs. The prices that Cottage Grove will pay for natural gas
pursuant to its gas supply contracts vary in accordance with the same monthly
spot natural gas index as the related variable energy rate contained in the
Cottage Grove Power Purchase Agreement or, in some circumstances, in accordance
with daily spot prices for natural gas. While the gas pricing and gas
transportation escalation rates under Cottage Grove's gas supply and
transportation agreements are designed to generally track corresponding
revenues derived under the Cottage Grove Power Purchase Agreement, there can
be no assurance that such pricing components will match corresponding revenue
streams under all operating and escalation environments.
The Cottage Grove Power Purchase Agreement establishes target dates for
certain pre-completion milestones as well as a May 1, 1997 target date for the
Cottage Grove Commercial Operations Date. The commercial operation target
date may be extended on a monthly basis for up to 26 months by Cottage Grove
subject to payment by Cottage Grove of an extension fee for each month which
occurs after May 31, 1997 (although no extension fee is payable for up to 270
days of force majeure delay). The Cottage Grove Commercial Operations Date
cannot occur until certain plant tests and requirements are satisfied and in
any case cannot occur prior to April 1, 1997. Failure to achieve commercial
operation on or prior to the extended target date constitutes a default by
Cottage Grove entitling NSP the right to terminate the Cottage Grove Power
Purchase Agreement.
Following the 10th anniversary of the Cottage Grove Commercial Operations
Date, if NSP fails to obtain or is denied authorization by any governmental
authority having jurisdiction over NSP's retail rates and charges, granting
it the right to recover from its customers any payments made to Cottage Grove
under the Cottage Grove Power Purchase Agreement, any such disallowance will
be monitored in a tracking account and the unpaid balance in the tracking
account shall accrue interest at 8.7 percent per annum. Within 30 days after
Cottage Grove's First Mortgage Bonds have been fully retired, NSP may begin
reducing payments to Cottage Grove to (i) ensure the payments are in-line with
Minnesota Public Utility Commission rates and (ii) begin amortizing the balance
in the tracking account. Should NSP exercise its right to reduce payments, the
maximum reduction is 75 percent of the payment otherwise due for the period.
Whitewater
Whitewater, as seller, and WEPCO, as purchaser, have entered into a power
purchase agreement dated as of December 21, 1993 (as amended, the "Whitewater
Power Purchase Agreement"). Under and subject to the terms of the Whitewater
Power Purchase Agreement, WEPCO is obligated to purchase the electric capacity
made available to it up to 236.5 megawatts and associated energy which WEPCO
chooses to dispatch beginning on the date the Whitewater Power Plant achieves
commercial operations (the "Whitewater Commercial Operations Date", and
collectively with the Cottage Grove Commercial Operations Date, the "Commercial
Operations Dates"), scheduled to occur on June 1, 1997 and extending through
May 31, 2022.
Payments by WEPCO to Whitewater under the Whitewater Power Purchase
Agreement will consist of (i) capacity payments and (ii) energy payments. The
capacity payments made by WEPCO are based on the Power Plant's tested capacity
and availability and have three rate components: a rate component based on a
fixed schedule, a fixed operation and maintenance rate component escalating in
accordance with changes in a published index, and a fixed gas transport rate
component escalating in a similar manner. WEPCO is required to make capacity
payments to Whitewater on a monthly basis for electric generating capacity
made available to WEPCO, regardless of the amount of electric energy actually
dispatched. Capacity payments from WEPCO are subject to adjustment on the
basis of performance-based factors which reflect the Whitewater Power Plant's
semi-annually tested capacity and average and on-peak availability for the
preceding contract year.
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Under the Whitewater Power Purchase Agreement, WEPCO has full dispatch
discretion over energy to be delivered by the Whitewater Power Plant subject
to certain agreed dispatch parameters. This offers WEPCO the flexibility to
call upon the Whitewater Power Plant to deliver energy when it is the lowest
cost unused variable energy source available to WEPCO. There is no contractual
minimum amount of energy that WEPCO must purchase from Whitewater.
Energy payments for energy delivered by the Whitewater Power Plant vary in
accordance with a published monthly spot natural gas index or with the
Whitewater Power Plant's actual fuel costs. The prices that Whitewater will
pay for natural gas pursuant to its gas supply contracts vary in accordance
with the same monthly spot natural gas index as the related variable energy
rate contained in the Whitewater Power Purchase Agreement or, in some
circumstances, in accordance with daily spot prices for natural gas. While
the gas pricing and gas transportation escalation rates under Whitewater's gas
supply and transportation agreements are designed to generally track
corresponding revenues derived under the Whitewater Power Purchase Agreement,
there can be no assurance that such pricing components will match corresponding
revenue streams under all operating and escalation environments.
The Whitewater Power Purchase Agreement provides a milestone date of
June 1, 1997 for the commercial operation of the Whitewater Power Plant. This
milestone is subject to extension (i) for reasons of force majeure up to 12
months plus the remaining unused milestone extension applicable to the
preconstruction milestones, (ii) for certain reasons relating to the litigation
contesting the Wisconsin Public Service Commission's ("Wisconsin PSC")
selection of Whitewater, and (iii) for any reason up to the amount of unused
milestone extensions applicable to the preconstruction milestones. Any
extension not resulting from force majeure or the PSC litigation requires
Whitewater to pay an extension fee. Except as permitted by a litigation delay,
the commercial operation of the Power Plant may not be extended beyond June 1,
1999. Notwithstanding an extension of the milestone for commercial operation,
if commercial operation is delayed beyond June 1, 1997 for any reason other
than a litigation delay, Whitewater is obligated to compensate WEPCO for the
incremental cost of replacement power. Certain force majeure events may provide
partial relief from this requirement. Commercial operation of the Whitewater
Power Plant may not occur until it has been substantially completed and tested
in accordance with procedures set forth in the Whitewater Power Purchase
Agreement. A failure to achieve commercial operation on or before June 1,
1999, except to the extent resulting from the PSC litigation, will provide
WEPCO the right to terminate the Whitewater Power Purchase Agreement.
Subject to certain limitations, the capacity payments from WEPCO may be
reduced to the extent that WEPCO's senior debt instruments are downgraded by
any two of Standard & Poor's Corporation, Moody's Investors Services, Inc. and
Duff & Phelps as a result of WEPCO's long term power purchase obligations under
the Whitewater Power Purchase Agreement. So long as Whitewater's First
Mortgage Bonds are outstanding, the reduction may not exceed the level
necessary to cause Whitewater's debt service coverage ratio to be less than
1.4 in any month, with such ratio calculated on a rolling average of the four
fiscal quarters immediately preceding the proposed adjustment. After
Whitewater's First Mortgage Bonds have been repaid, the reduction may not
exceed 50 percent of the Power Plant's revenues minus expenses. Reductions
precluded by application of the above limitations are accumulated in a tracking
account with interest accruing at the base or prime lending rate set from time
to time by The Chase Manhattan Bank, N.A. or its successor. Tracking account
balances are to be repaid when possible, subject to the limitations described
above, or may be applied to WEPCO's purchase of the Whitewater Power Plant at
the expiration of the Whitewater Power Purchase Agreement.
In the event that at any time WEPCO is denied rate recovery from its
customers of any payment to be made to Whitewater under the Whitewater Power
Purchase Agreement by an applicable regulatory authority, WEPCO's payments to
Whitewater may be correspondingly reduced, subject to certain limitations.
While Whitewater's First Mortgage Bonds are outstanding, the capacity payments
may be reduced by the annual regulatory disallowance provided that the
reduction may not cause Whitewater's debt service coverage ratio to be less
than 1.4 in any month calculated on a rolling average of the four fiscal
quarters preceding the proposed adjustment. After Whitewater's First Mortgage
Bonds are repaid, reductions may not exceed 50 percent of the Whitewater Power
Plant's revenues minus expenses. Reductions precluded by these restrictions
are accumulated in a tracking account with repayment subject to the same
provisions as for bond downgrading adjustments discussed above.
Qualifying Facility Status
The Cottage Grove Power Plant and the Whitewater Power Plant are each
certified as a QF under PURPA and the regulations of the Federal Energy
Regulatory Commission ("FERC") promulgated thereunder. Each Partnership has
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additionally self-certified its respective Power Plant as a QF to reflect
updates to the configuration of its Power Plant since the original FERC QF
certification orders. Additionally, on May 9, 1996, Cottage Grove's application
for recertification of QF status to cover certain changes to the ownership of
Cottage Grove and certain additional changes in the Power Plant configuration
was granted by the FERC. While loss of QF status does not result in a default
under the Power Purchase Agreements, it can result in a reduction in payments
under the Cottage Grove Power Purchase Agreement to the lower of FERC approved
rates or the contract rates, or under the Whitewater Power Purchase Agreement
to the lower of FERC approved rates or rates reflecting a five percent discount
from the capacity component of the contract rates. Under its respective Power
Purchase Agreement, each Partnership may regain full contract rates if it
regains QF status that has been lost. In addition, a loss of QF status will
cause the rates and certain organizational and financial affairs of the
affected Partnership to become subject to regulation by the FERC, possibly
result in both Partnerships to become regulated under the Public Utility
Holding Company Act of 1935, as amended ("PUHCA"), and to the extent not
preempted by the Federal Power Act, as amended ("FPA"), fall within the
jurisdiction of the applicable state public utility commission.
Merger of NSP and Wisconsin Energy Corporation
Wisconsin Energy Corporation, the parent company of WEPCO, and NSP have
announced a proposed merger, the closing of which is subject to certain
regulatory approvals. The Partnerships do not expect the consummation of
the merger to have any material impact on the ability of either WEPCO or NSP
to fully perform its obligations under its respective Power Purchase Agreement.
THERMAL ENERGY SALES
The Cottage Grove Power Plant
Cottage Grove has entered into a steam supply agreement, as amended, with
3M (the "3M Thermal Energy Agreement"), which provides for Cottage Grove to
supply the steam requirements of 3M's manufacturing plant in Cottage Grove,
Minnesota. The Cottage Grove Power Plant will be capable of delivering up to
190,000 pounds of steam per hour through its cogeneration process and,
alternatively, up to 160,000 pounds of steam per hour in the aggregate through
two auxiliary steam generators (the "Auxiliary Boilers") which will be used
when NSP has not dispatched the Power Plant or when the cogeneration process
is otherwise unavailable. Steam from the Cottage Grove Power Plant is intended
to replace steam which is currently generated by 3M's coal-fired boilers. The
term of the 3M Thermal Energy Agreement extends for an initial period of 30
years from the date upon which the first deliveries of steam are made, which
term may be extended upon terms and conditions mutually satisfactory to
Cottage Grove and 3M.
The 3M Thermal Energy Agreement obligates Cottage Grove to supply all of
3M's steam requirements up to a maximum of 664 million pounds of steam annually
at a rate not to exceed 190,000 pounds per hour when the Cottage Grove Power
Plant's cogeneration process is operating and 160,000 pounds per hour when the
steam is generated by the Auxiliary Boilers (the "Maximum 3M Purchase Amount").
For the first ten years after Cottage Grove commences steam delivery to 3M, 3M
must take and use, at a minimum, the amount of steam necessary to maintain the
Cottage Grove Power Plant's status as a QF (the "Minimum 3M Purchase Amount").
Thereafter, if 3M takes less than the Minimum 3M Purchase Amount, Cottage Grove
may reduce the Maximum 3M Purchase Amount and sell steam in excess of such
reduction to other steam purchasers. In the event Cottage Grove delivers steam
which does not conform to the specifications in the 3M Thermal Energy
Agreement, Cottage Grove must discontinue such delivery (unless otherwise
requested by 3M) and take prompt action to correct such non-conformance at no
cost to 3M. The 3M Thermal Energy Agreement also provides that 3M will, in
addition to returning the condensate to the Cottage Grove Power Plant, supply
a quantity of cooling and potable water anticipated to be sufficient to
satisfy the requirements of the Cottage Grove Power Plant and, to the extent
consistent with certain governmental permits and regulations, to accept the
Cottage Grove Power Plant's wastewater and sanitary wastewater into 3M's
existing discharge systems. 3M has the right to reduce the water supply to the
Power Plant in the event that it cannot satisfy both its own and Cottage
Grove's requirements; however, Cottage Grove has drilled and tested for
capacity a back-up well as a reserve in the event of any reasonably anticipated
shortfalls in water supply from 3M.
Cottage Grove is obligated to supply steam to 3M on a non-interruptible
basis, except during periods of force majeure, emergency conditions affecting
the Cottage Grove Power Plant and periods when 3M is unable to accept steam
9
due to repair or maintenance of its manufacturing plant. In the event of any
failure to supply 3M, other than as a result of force majeure or the acts or
omissions of 3M, Cottage Grove must reimburse 3M for its incremental costs.
The Whitewater Power Plant
University of Wisconsin-Whitewater
Whitewater has entered into a steam supply agreement with the Department of
Administration of the State of Wisconsin ("DOA"), which provides for Whitewater
to supply the steam requirements of UWW (the "UWW Thermal Energy Agreement").
The initial term of the UWW Thermal Energy Agreement runs through June 30, 2005
(the "UWW Initial Term"). The DOA has the option to extend the UWW Initial
Term for up to four extension periods of four years each.
The UWW Thermal Energy Agreement obligates Whitewater to supply all of
UWW's steam requirements up to a maximum of 350 million pounds of steam
annually at a rate not to exceed 100,000 pounds per hour (the "Maximum UWW
Purchase Amount"). DOA may also request, and Whitewater must use reasonable
efforts to supply, steam in excess of the Maximum UWW Purchase Amount. DOA is
not obligated to take any minimum annual or hourly quantity of steam. In the
event Whitewater delivers steam that does not conform to the specifications set
forth in the UWW Thermal Energy Agreement, Whitewater must discontinue such
delivery (unless otherwise requested by DOA) and, at its own cost, take
prompt action to correct such non-conformance.
Whitewater has agreed to reimburse DOA for costs up to $500,000 incurred to
repair and recondition one of UWW's existing steam boilers for use as a back-up
boiler and to modify the operations of the UWW heating plant where its boilers
are located. Whitewater has also agreed to pay the annual costs to maintain
the back up boiler in a standby mode.
Whitewater is obligated to supply steam to UWW on a non-interruptible basis,
except during periods of force majeure, emergency conditions affecting the
Whitewater Power Plant and periods when UWW is unable to accept steam due to
necessary repair or maintenance to the UWW steam piping system. In the event of
any failure to supply UWW, other than as a result of force majeure or the acts
or omissions of UWW, Whitewater must reimburse UWW for its incremental costs.
Greenhouse
Whitewater previously entered into a hot water supply agreement with
Dominion to supply the hot water requirements of the Greenhouse. As discussed
above, Whitewater and Dominion have now agreed to terminate this hot water
supply agreement and the related lease of the Greenhouse. However, under the
terms of the Greenhouse Operational Services Agreement, Whitewater will
continue to supply the hot water requirements of the Greenhouse, which are
expected to be the same as they would have been under the Dominion
arrangements. See Operations and Maintenance; Greenhouse.
GAS SUPPLY
Each of Cottage Grove and Whitewater has executed gas supply contracts with
substantially identical terms, with the exception of volume of gas under
contract, which difference is primarily a result of varying contractual
requirements in the Cottage Grove and Whitewater Power Purchase Agreements.
Specifically, each Partnership has entered into (i) a gas sales contract with
NGC, as amended (the "NGC Gas Supply Contracts"), and (ii) a gas sales
contract with Aquila, as amended (the "Aquila Gas Supply Contracts," and
together with the NGC Gas Supply Contracts, the "Gas Supply Contracts") to
collectively service 100 percent of the expected gas requirements of its
Power Plant.
The Aquila Gas Supply Contracts and the NGC Gas Supply Contracts each
provide for the sale of up to 17,060 MMBtu per day of gas to Cottage Grove
and up to 11,855 MMBtu per day of gas to Whitewater. Under the Gas Supply
Contracts, except during periods of force majeure or default by a Partnership,
NGC and Aquila (together, the "Gas Suppliers") are required to supply on a
firm basis to the point of demarcation between the field zone and the market
zone of Northern Natural (the "Demarcation Point"), all gas properly nominated
by each Partnership. If the Gas Suppliers fail to deliver properly nominated
gas to the Demarcation Point for any reason other than force majeure or a
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Partnership's failure to pay for past deliveries, Cottage Grove or Whitewater,
as the case may be, has the right to buy replacement gas (or fuel oil) from
other sources and charge the applicable Gas Supplier for the direct increased
cost (including transportation charges), if any, of using such gas or fuel oil.
Under the Gas Supply Contracts, there are three categories of gas, Tier I
Gas, Tier II Gas, and Tier III Gas. Tier I Gas is "baseload" gas, nominated
prior to the commencement of each month at a set volume for such month.
Tier II Gas is "TOK-swing" gas, nominated prior to the commencement of each
month at a set volume with the ability to reduce daily volumes to reflect daily
swings in gas needs at the Power Plants. Tier III Gas is "spot-swing" gas,
nominated on a monthly basis (in the case of Aquila) and daily basis (in the
case of both NGC and Aquila) to fulfill daily swings in Power Plant
requirements not met by Tier I Gas and/or Tier II Gas.
The price for Tier I Gas is equal to a published price for
first-of-the-month spot natural gas delivered to Northern Natural in Texas,
Oklahoma and Kansas (the "TOK Price"), plus a percentage fee. The price for
Tier II Gas is equal to the TOK Price plus a reservation fee payable on all
Tier II volumes nominated, regardless of whether such volumes are actually
purchased by such Partnership. The price for Tier III Gas is calculated on a
daily cost basis which could vary above or below the first-of-the-month TOK
Price. The TOK Price, or, in some circumstances, actual fuel cost is used as
the basis for the price payable for variable energy under the Power Purchase
Agreements.
Under the Gas Supply Contracts, the Partnerships are subject to an annual
minimum take requirement for Tier I Gas equal to 40 percent of the annualized
maximum quantity, with, under the NGC Gas Supply Contracts, one-half of
Tier II Gas quantities counting towards the minimum take requirement. The
Partnerships may satisfy the minimum take requirements by delivering gas to
the Power Plants, taking gas into storage or by remarketing gas to third
parties. In the event of two consecutive annual minimum take shortfalls,
Aquila has the right to reduce the volumes deliverable under the applicable
Aquila Gas Supply Contract. On a monthly basis, Whitewater and Cottage Grove
are required to take all Tier I Gas nominated for such month, make other
arrangements for the disposition thereof, or pay certain penalties.
The primary term of each Gas Supply Contract is 20 years beginning with the
Commercial Operations Date of the respective Power Plant. Following the end
of the primary term, the NGC Gas Supply Contracts may be extended at the
Partnership's option for an additional five-year term. The Aquila Gas Supply
Contracts extend beyond the primary term on a year-to-year basis, unless
affirmatively terminated by one of the parties thereto.
The Gas Supply Contracts may be terminated prior to expiration in the event
the corresponding Power Purchase Agreement is terminated without replacement
or in certain other instances of default. Events of default include bankruptcy
or insolvency proceedings, legal process against the contract itself, false
representations or warranties, unexcused failure to deliver gas, continued
failure to pay for gas after suspension of deliveries by the applicable Gas
Supplier or any other continued material breach. In addition, the Gas
Suppliers have the right to terminate each of the Gas Supply Contracts if the
respective Commercial Operations Date does not occur before April 1, 1998.
GAS TRANSPORTATION
The Cottage Grove Power Plant
Cottage Grove has entered into various gas transportation agreements with
Northern Natural (collectively, the "Cottage Grove Northern Transportation
Agreements") pursuant to an agreement among Cottage Grove, Northern Natural
and Peoples (the "Cottage Grove Letter Agreement"). The Cottage Grove Letter
Agreement and the Cottage Grove Northern Transportation Agreements (the
"Cottage Grove Northern Agreements") have a term of 20 years, subject to a
10-year option to renew by Cottage Grove, and set forth the terms and
conditions under which Northern Natural agrees to transport on both a firm and
interruptible basis the gas purchased by Cottage Grove pursuant to the Cottage
Grove Gas Supply Contracts. Under the Cottage Grove Northern Agreements, gas
will be transported from Northern Natural's field zone to the Demarcation Point
on an interruptible basis, and from the Demarcation Point to the
interconnection of the facilities of Northern Natural and Peoples (the "Cottage
Grove TBS") on a firm basis. Subject to certain restrictions (including
minimum and maximum injection and withdrawal rates), the Cottage Grove Northern
Agreements also provide firm storage service at Northern Natural's gas storage
facility in the market zone of an aggregate volume of gas sufficient to supply
the Power Plant for approximately 29 days.
11
Cottage Grove has also entered into an agreement with Peoples that provides
for the transportation from the Cottage Grove TBS to the Cottage Grove Power
Plant of 29,120 MMBtu per day on a firm basis and excess gas required by the
Cottage Grove Power Plant on an interruptible basis (the "Peoples Agreement",
and together with the Cottage Grove Northern Agreements, the "Cottage Grove
Transportation Agreements").
Under the Cottage Grove Letter Agreement, Peoples agrees to release to
Cottage Grove 34,120 MMBtu/day of firm capacity it currently holds on Northern
Natural's system for gas transportation under the Cottage Grove Transportation
Agreements from the Demarcation Point to the Cottage Grove TBS. Northern
Natural has agreed to construct, maintain and own at its expense the Cottage
Grove TBS and other facilities necessary to effectuate the services described
above. In order to secure its payment obligations under the Cottage Grove
Letter Agreement, Cottage Grove is required to obtain a $1,500,000 letter of
credit or a guaranty from an investment grade entity.
The Peoples Agreement provides for the construction of an approximately one
mile long pipeline at Peoples' expense from the Cottage Grove TBS to the
Cottage Grove Power Plant. The agreement designates Peoples as Cottage Grove's
agent with respect to nominations on Northern Natural's system and requires
Peoples to sell gas, if available, to Cottage Grove in case of a failure of
any of Cottage Grove's supplies under the Cottage Grove Gas Supply Agreements.
In addition, the Peoples Agreement provides various balancing services which
augment the balancing rights held by Cottage Grove under the Cottage Grove
Northern Agreements. For up to 20 days of each "heating period" (i.e., an
interval beginning December 1 and extending to the end of the following
February) Peoples has the option to retain the gas destined for the Cottage
Grove Power Plant for its own use, subject to proper notice and the
reimbursement of Cottage Grove for replacement fuel costs. As payment for such
option, Cottage Grove receives a monthly payment during the heating period.
In addition, on any day during each heating period on which Cottage Grove
nominates a quantity of gas and transportation from the Gas Suppliers and
Northern Natural less than 29,120 MMBtu, Peoples may require Cottage Grove to
nominate and deliver to Peoples the difference between the quantities actually
nominated and 29,120 MMBtu, subject to compliance with Northern Natural's
tariffs, agreement between Peoples and NSP and payment to Cottage Grove of its
actual cost of gas and gas transportation with respect to such differential
quantities.
The Whitewater Power Plant
Whitewater has entered into various gas transportation agreements with
Northern Natural (collectively, the "Whitewater Northern Agreements"). The
Whitewater Northern Agreements have a term of 20 years, with a 10-year option
to renew by Whitewater, and set forth the terms and conditions under which
Northern Natural agrees to transport, on both a firm and interruptible basis,
the gas purchased by Whitewater pursuant to the Whitewater Gas Supply
Contracts. Under the Whitewater Northern Agreements, gas will be transported
from Northern Natural's field zone to the Demarcation Point on an
interruptible basis, and from the Demarcation Point to the interconnection of
the facilities of Northern Natural and WNG (the "Whitewater TBS") on a firm
basis. Subject to certain restrictions (including the minimum and maximum
injection and withdrawal rates), the Whitewater Northern Agreements also
provide for firm storage service at Northern Natural's gas storage facility in
the market zone of an aggregate volume of gas sufficient to supply the Power
Plant for approximately 21 days. Finally, the Whitewater Northern Agreements
provide for interruptible storage service at Northern Natural's gas storage
facility in the market area, subject to its availability.
Under the Whitewater Northern Agreements, Northern Natural agrees to
provide 30,400 MMBtu/day (the "MDQ") of firm capacity for the transportation
of gas from the Demarcation Point to the Whitewater TBS. Northern Natural has
also agreed to construct, maintain and own the Whitewater TBS and other
facilities necessary to effectuate the services described above. As a
contribution towards the cost of these facilities, Whitewater has made a
payment to Northern Natural of $2,500,000. In order to secure its payment
obligations under the Whitewater Northern Agreements, Whitewater is required
to obtain a $1,500,000 letter of credit or a guaranty from an investment grade
entity.
Whitewater has also entered into an agreement with WNG which provides for
the transportation of all gas required by the Whitewater Power Plant from the
Whitewater TBS to the Whitewater Power Plant (the "WNG Agreement", and
together with the Whitewater Northern Agreements, the "Whitewater
Transportation Agreements"). The WNG Agreement provides for the construction
of an approximately five mile long pipeline from the Whitewater TBS to the
Whitewater site. The cost of construction will be paid for by Whitewater, up
to a maximum of $1,455,000. The WNG Agreement extends for an initial term of
25 years (with two optional five-year extensions), and provides for the firm
transport of the daily and hourly gas requirements of the Whitewater Power
Plant.
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Whitewater has entered into an agreement, as amended, with Wisconsin Power
& Light Company ("WP&L") which provides WP&L with the ability to purchase a
portion of Whitewater's daily gas supply and interstate transportation
capacity in return for the payment of a monthly fee to Whitewater and
reimbursement of Whitewater's incremental costs (the "WP&L Agreement"). The
WP&L Agreement permits WP&L to purchase from Whitewater up to 15,000 MMBtu/day
of gas and up to 10,400 MMBtu/day of interstate transportation capacity, not
to exceed in the aggregate 508,000 MMBtu/year of combined gas and
transportation capacity. In exchange, WP&L will pay Whitewater a monthly fee
and the incremental costs incurred for replacement gas or fuel oil. The term
of the WP&L Agreement commences in 1997 and continues for three years, with
an option in favor of WP&L to extend the term for an additional three years.
DEPENDENCE ON THIRD PARTIES
Each Partnership is highly dependent on a single utility for purchases of
electric generating capacity and energy from its respective Power Plant, a
single operator to perform the operation and maintenance of its respective
Power Plant and, in the case of the Cottage Grove Power Plant, a single steam
purchaser for purchases of thermal energy. In addition, each Partnership has
contracted with only two gas companies, Aquila and NGC, to supply the gas
requirements of the Power Plants, and has contracted with a single interstate
gas transporter, Northern Natural, to transport gas. Any material breach by
any one of these parties of their respective obligations to either Partnership
could affect the ability of the applicable Partnership to make payments under
its First Mortgage Bonds and consequently Funding's ability to make payments
on the Senior Secured Bonds. In addition, bankruptcy or insolvency of certain
other parties or defaults by such parties relative to their contractual or
regulatory obligations could adversely affect the ability of a Partnership to
make payments to Funding with respect to such Partnership's First Mortgage
Bonds. If a project agreement were to be terminated due to a breach of such
project agreement, the affected Partnership's ability to enter into a
substitute agreement having substantially equivalent terms and conditions, or
with an equally creditworthy third party, is uncertain.
THE INDEPENDENT POWER MARKET
Utilities in the United States have been the predominant producers of
electric power intended primarily for sale to third parties since the early
1900s; however, the enactment of PURPA removed certain regulatory constraints
relating to the production and sale of electric energy by certain non-utility
power producers and required electric utilities to buy electricity from
certain types of non-utility power producers under certain conditions, thereby
encouraging companies other than electric utilities to enter the electric
power production market. Concurrently, there has been a decline in the
construction of large generating plants by electric utilities for reasons
largely unrelated to the growth of the independent power industry, including
advances in generating plant technology and increasingly stringent
environmental regulation. As a result, a market for electric power produced by
independent power producers unaffiliated with utilities such as the
Partnerships has developed in the United States since the enactment of PURPA.
The Energy Policy Act of 1992 expands certain exemptions previously
available only under PURPA and provides for the ability of independent power
producers to compete in a non-regulated fashion without having to qualify as
QF under PURPA. In addition, over the last several years, various state
utility commissions have opened the electrical generation market to
competition not only from QFs but to non-QF independent power producers as
well as competitive proposals from other utilities and power marketers. These
developments have generally required that independent power projects must now
be viewed as "least-cost" with such a showing being demonstrated through a
competitive procurement process, such as those which resulted in the selection
of the Cottage Grove Power Plant and Whitewater Power Plant.
REGULATION
General
The Partnerships are required to comply with numerous Federal, state and
local statutory and regulatory standards and obtain and maintain numerous
permits and approvals relating to energy, the environment and other laws
required for the operation of the Power Plants. The permits and regulatory
approvals that have been issued to the Partnerships contain certain conditions.
13
Failure to satisfy any such conditions or approvals could prevent the
completion or operation of either Power Plant and a modification of such
conditions could result in additional costs. There can be no assurance that
either Power Plant will continue to operate in accordance with the conditions
established by the permits or approvals or that the Partnerships or third
parties will be able to obtain any outstanding permits required for the
completion and operation of the Power Plants. Laws and regulations affecting
Funding, the Partnerships and the Power Plants may change during the period in
which the Senior Secured Bonds are scheduled to be outstanding, and such
changes could adversely affect Funding or the Partnerships. For example,
changes in laws or regulations (including but not limited to environmental
laws and regulations) could impose more stringent or comprehensive
requirements on the operation or maintenance of the Power Plants, resulting in
increased compliance costs or the reduction of certain benefits currently
available to the Partnerships, or could expose Funding or the Partnerships to
liabilities for previous actions taken in compliance with all laws in effect
at the time or for actions taken by or conditions caused by unrelated third
parties.
PURPA
PURPA and the regulations promulgated thereunder by FERC provide an
electric generating facility with rate and regulatory incentives if the
facility is a QF. Under PURPA, a topping-cycle cogeneration facility is a QF
if (i) the facility sequentially produces both electricity and a useful
thermal energy output during any calendar year (and first 12 months of
operation) which constitutes at least five percent of its total energy output
and which is used for industrial commercial, heating or cooling purposes,
(ii) during any calendar year (and first 12 months of operation) the sum of
the useful power output of the facility plus one-half of its useful thermal
energy output equals or exceeds 42.5 percent of the total energy input of
natural gas and oil, or, in the event that the facility's useful thermal energy
output is less than 15 percent of the facility's total energy output, such sum
equals or exceeds 45 percent of such total energy input and (iii) the facility
is not owned by a person primarily engaged in the generation or sale of
electric energy (other than from QFs and other types of exempt facilities) or
more than 50 percent owned by an electric utility, electric utility holding
company, or a wholly or partially owned subsidiary of an electric utility or
an electric utility holding company. PURPA and the regulations promulgated
thereunder exempt QFs from PUHCA, most provisions of the FPA and certain
state laws relating to rates, and financial and organizational regulations
matters of public utilities.
The Partnerships expect the Power Plants to continue to meet all of the
criteria required for designation as QFs under PURPA. If either Power Plant
were to fail to meet such criteria, the related Partnership may become subject
to regulation as a public utility company or its equivalent under PUHCA, the
FPA and state utility laws. Furthermore, as a result of the loss of QF status
on one Power Plant, and the possible creation of a holding company, the other
Power Plant may lose its QF status due to a violation of PURPA's ownership
restrictions.
PUHCA
PUHCA provides that any corporation, partnership or other entity, or
organized group of persons which owns, controls or holds the power to vote 10
percent or more of the outstanding voting securities of a "public utility
company" or a company which is a "holding company" of a "public utility
company" is subject to registration with the United States Securities and
Exchange Commission (the "Commission") and regulation under PUHCA, unless
eligible for an exemption or a Commission order declaring it not to be a
holding company is issued. PUHCA requires registration for a holding company
of a public utility company, and requires a public utility holding company to
limit its utility operations to a single integrated utility system and to
divest any other operations not functionally related to the operation of the
utility system. In addition, a public utility company which is a subsidiary of
a registered holding company under PUHCA is subject to financial
organizational and rate regulation, including approval by the Commission of
its financing transactions.
The Energy Policy Act of 1992 (the "Policy Act") contains amendments to
PUHCA which may allow the Partnerships to operate their businesses without
becoming subject to PUHCA in the event that either Power Plant loses its
status as a QF. Under the Policy Act, a company engaged exclusively in the
business of owning and/or operating one or more facilities used for the
generation of electric energy exclusively for sale at wholesale may be
exempted from PUHCA. In order to qualify for such an exemption, a company must
apply to the FERC for a determination of eligibility, pursuant to implementing
rules promulgated by the FERC. Both Whitewater and Cottage Grove were granted
exempt wholesale generator status by the FERC on October 17, 1996.
Notwithstanding this exemption, in the event that QF status is revoked, the
applicable Partnership would be subject to regulation under the FPA and the
capacity and energy rates, as described below, would have to be approved by
FERC.
14
FPA
Under the FPA, the FERC has exclusive rate-making jurisdiction over
wholesale sales of electricity and transmission in interstate commerce. These
rates may be based on a cost-of-service approach or a market-based approach.
If a Power Plant were to lose its QF status, the rates set forth in each of
the Power Purchase Agreements would have to be filed with FERC and would be
subject to review and acceptance by the FERC under the FPA. The Whitewater
Power Purchase Agreement provides for a reduction in capacity payment rates in
such event to the lower of a five percent discount from the contract rates,
or FERC approved rates. The Cottage Grove Power Purchase Agreement provides
for Cottage Grove to receive the lower of FERC approved rates or the contract
rates.
The FPA and the FERC's authority thereunder also subject public utilities
to various other requirements, including accounting and record-keeping
requirements, FERC approval requirements applicable to activities such as
selling, leasing or otherwise disposing of certain facilities, FERC approval
requirements for mergers, consolidations, acquisitions, the issuance of
securities and assumption of liabilities, and certain restrictions regarding
affiliations of officers and directors. Upon a loss of QF status, the affected
Partnership would become subject to such requirements and although it could
make application for specific exemptions, there is no assurance such
application would be successful.
State Regulation
If the Whitewater Power Plant loses its QF status, it would, absent a
successful request for exemption, become subject to a wide range of Wisconsin
statutes and regulations applicable to Wisconsin public utilities, including
the requirement of the approval by the Wisconsin PSC for the issuance of
securities and the need to file periodic detailed information on financial and
organizational matters.
The rates charged to Whitewater under the WNG Agreement are subject to
approval by the Wisconsin PSC. The criteria for approval by the Wisconsin PSC
is related to its determination that such rates are compensatory. If the rates
are determined by the Wisconsin PSC to be non-compensatory, and the Wisconsin
PSC requires WNG to increase the rates, Whitewater shall be subject to such
increased rates.
Wisconsin law prohibits the granting or transfer of any licenses, permits
and franchises to own or operate equipment to produce light, heat or power to
any foreign corporation. Local counsel does not believe that the Wisconsin law
applies to Whitewater. However, if it is determined that this prohibition
does apply, Whitewater's Certificate of Public Convenience and Necessity
("CPCN") could be determined to be invalid. If this were to occur, Whitewater's
ability to repay the Whitewater First Mortgage Bonds could be materially
delayed or impaired.
The Whitewater Power Purchase Agreement includes a requirement for the
approval of the Whitewater Power Purchase Agreement by the Michigan Public
Service Commission. If such approval is not obtained the capacity payments
may be reduced in proportion to WEPCO's Michigan electricity sales
(approximately 2.5 percent) to the extent WEPCO is unable to recover the
applicable portion of the capacity payments from its Michigan customers.
In the first quarter of 1996, WEPCO sought and received a 5 year moratorium
on the filing of capacity contracts in Michigan, thus eliminating this
requirement for the Whitewater Power Purchase Agreement for this period.
Whitewater has subsequently proposed that the Michigan PSC approval
requirement and related capacity reduction provision be deleted by amendment.
WEPCO has tentatively agreed to accept this proposal. Payments under the
Whitewater Power Purchase Agreement would remain subject to the general
regulatory reduction provisions discussed above. See Sale of Capacity and
Electricity; Whitewater.
Gas Supply and Transportation
The gas transportation agreements serving each Power Plant are subject in
various respects to the regulatory authority of governmental entities having
jurisdiction, including but not limited to (i) for Cottage Grove, the
Minnesota Environmental Quality Board ("MEQB"), the Minnesota Department of
Natural Resources, the Minnesota Public Utilities Commission and the FERC and
(ii) for Whitewater, the Wisconsin Department of Natural Resources, the
Wisconsin PSC and the FERC. Peoples has obtained approval from the MEQB for
siting and construction of the pipeline facilities from Northern Natural's
existing mainline to the Cottage Grove Power Plant. WNG must obtain approval
from the Wisconsin PSC for the rates for transport service under the WNG
Agreement for Whitewater. Northern Natural must obtain approval from the FERC
for a certificate of public convenience and necessity for the facility
15
construction required by Northern Natural for each Power Plant; such approval
has been obtained with respect to Whitewater. If the outstanding required
approvals are not granted as anticipated, the Commercial Operations Dates
and/or the quality or cost of transport service to the Power Plants and/or the
cost to complete construction may be negatively impacted.
Further, there is no guarantee that changes in regulatory rules or
oversight by such agencies would not adversely affect the economics of Cottage
Grove and Whitewater or their access to gas supplies. Similarly, modifications
to tariff provisions could result in a disallowance of any price discounts
existing under the transportation agreements.
Environmental Matters
As with any facility similar to the Power Plants, the Partnerships are
required to comply with a number of statutes and regulations relating to
protection of the environment, the public and the safety and health of the
personnel operating the Power Plants during the construction and operation of
the Power Plants. Such statutes and regulations include: (i) regulation of
hazardous materials associated with each Power Plant, (ii) regulation of noise
emissions from the Power Plants, (iii) safety and health standards related to
Power Plant construction and operation, (iv) regulations requiring certain
practices and procedures applicable to the operation of the Power Plants,
including permitting requirements that apply to air emissions, process
wastewater and stormwater discharges and (v) other environmental protection
requirements including, without limitation, emission and discharge standards
relating to air and water pollutants, land use regulations, wild life
conservation and fuel storage.
While the Partnerships believe that the use of natural gas provides
comparative environmental advantages over other fossil fuel-fired power
production technologies, there can be no assurance that environmental or other
laws and regulations adopted in the future will not impose significant
constraints and increased costs on the Power Plants' operations. In addition,
the Partnerships may be liable for the investigation and removal of hazardous
materials on the Power Plants' sites even if the Partnerships are not the
source of such hazardous materials. Specifically, the Whitewater site boundary
is situated approximately one quarter of a mile away from a landfill under
which groundwater contamination has been discovered. To the extent that such
contamination has reached or reaches the Whitewater Power Plant site, there is
a possibility that the Whitewater Power Plant would be responsible for the
costs of remediating such contamination from off-site sources that is
subsequently identified at the site. There can be no assurance that such
remediation costs payable by Whitewater, if any, in connection with such
contamination will not have a material adverse effect on the ability of
Whitewater to make payments on its First Mortgage Bonds.
The Partnerships must also comply with certain environmental conditions
described in the approval orders issued by the appropriate state and Federal
agencies for the Power Plants. Failure to comply with any such statutes,
regulations or approvals could have an adverse effect on the Power Plants,
including civil or criminal liability, the imposition of cleanup liens, fines,
penalties and expenditures of funds to bring the Power Plants into compliance
or the loss of authorization to continue to operate.
COMPETITION
The demand for power in the United States traditionally has been met by
utility construction of large-scale electric generation projects under
rate-base regulation. PURPA removed certain regulatory constraints relating
to the production and sale of electric energy by eligible non-utilities and
required electric utilities to buy electricity from various types of
non-utility power producers under certain conditions, thereby encouraging
companies other than electric utilities to enter the electric power production
market. Concurrently, there has been a decline in the construction of large
generating plants by electric utilities. In addition to independent power
producers, subsidiaries of fuel supply companies, engineering companies,
equipment manufacturers and other industrial companies, as well as
subsidiaries of a number of regulated utilities, have entered the non-utility
power market. Since the Partnerships have long-term contracts to sell
electric generating capacity and energy from the Power Plants, it is not
expected that competitive forces will have a significant effect on the
business of the Partnership. Nevertheless, each of the Power Purchase
Agreements permits the purchasing utility to schedule the respective Power
Plant for dispatch on an economic basis, which takes into account the variable
cost of electricity to be delivered by the Power Plant compared to the
variable cost of electricity available to the purchasing utility from other
sources. Accordingly, competitive forces may in the future have some effect
on the dispatch levels of the Power Plants.
16
The FERC and numerous state utility regulatory commission have continued to
pursue proceedings to deregulate the generation and sale of electricity. In
several states, including Wisconsin and Minnesota, commissions have initiated
proceedings to examine or develop methods for making the retail sale of
electricity competitive. These proceedings remain at early stages in
Wisconsin and Minnesota, and the potential impact of these proceedings on the
Projects is unknown at this time.
EMPLOYEES
Funding and the Partnerships have no employees and do not anticipate having
any employees in the future. Each Partnership has a management services
agreement which provides for LS Power to perform management services for each
Partnership. See Part III, Item 13 - "Certain Relationships and Related
Transactions".
PART I/ITEM 2. PROPERTIES
Cottage Grove
Cottage Grove owns a 13 acre tract of land located in the City of Cottage
Grove, Washington County, Minnesota, on which the Cottage Grove Power Plant is
being constructed.
Whitewater
Whitewater owns a 35 acre tract of land located in the City of Whitewater,
Wisconsin on which the Whitewater Power Plant and the substation for the
Power Plant are being constructed (the "Whitewater Site"). Whitewater also
owns a 93 acre tract of land, adjacent to the Whitewater Site and located in
the City of Whitewater, Wisconsin, on which the Greenhouse is being
constructed.
PART I/ITEM 3. LEGAL PROCEEDINGS
Neither Funding nor Cottage Grove is a party to any legal proceedings.
Whitewater
The Wisconsin PSC's decisions regarding the selection of LS Power in the
competitive bidding process and the subsequent issuance of Whitewater's CPCN
permit were challenged. LS Power and/or Whitewater were parties to the legal
proceedings described below in support of the Wisconsin PSC.
Selection Order Litigation
On November 5, 1993, the Wisconsin PSC issued a joint order in Application
of WEPCO Power Company for Authority to Construct and Place a Nominal 210 MW
Combined-Cycle Cogeneration Facility (the "Kimberly Project") With Associated
Transmission Facilities, located in Outagamie County, and Application of
Wisconsin Gas Company for Authority to Construct and Place in Operation a
Natural Gas Pipe Line in Outagamie County to Serve WEPCO Power Company's
Proposed Kimberly Cogeneration Facility (collectively, the "Selection Order")
which resulted in the selection of the Whitewater Power Plant as the winner
in a competitive bidding process for a power sales agreement with WEPCO and
the right to apply for a CPCN authorizing the construction of the Whitewater
Power Plant.
Shortly after the Wisconsin PSC issued the Selection Order, petitions for
judicial review of the Selection Order were filed in the Wisconsin State
Circuit Court naming the Wisconsin PSC as respondent and calling into question
the selection of the Whitewater Power Plant (the "Selection Order Actions").
Four of these petitions were filed by or on behalf of losing projects in the
competition. The fifth petition, by the Citizens Utility Board, was withdrawn
early in the proceedings.
17
The Selection Order Actions were ultimately consolidated in the Court of
Dane County. The petitioners sought to vacate the Selection Order and the
institution of new proceedings before the Wisconsin PSC to determine who would
receive the power purchase agreement with WEPCO.
On August 25, 1994, the Wisconsin PSC issued an order approving the
Whitewater Power Purchase Agreement (the "Approval Order"). From February
through September 23, 1994, one losing project filed a series of petitions for
judicial review challenging resulting actions by the Wisconsin PSC which
culminated in the Approval Order. On October 31, 1994, Circuit Court, Dane
County consolidated all such petitions with the Selection Order Actions.
On March 21, 1995, the Circuit Court, Dane County affirmed the Selection
Order in all respects material to the selection of the Whitewater Power Plant.
The Circuit Court, Dane County also: (1) affirmed the Wisconsin PSC's approval
of Whitewater's contract with WEPCO, and (2) affirmed the Approval Order and
the related Wisconsin PSC orders. Only one party, Repap Wisconsin, Inc.
("Repap"), filed an appeal on May 1, 1995 with the Wisconsin Court of Appeals,
District 4 (the "Court of Appeals").
In a decision dated May 23, 1996, the Court of Appeals affirmed the Circuit
Court, Dane County's decision in all respects relevant to the Wisconsin PSC's
selection of the Whitewater Power Plant as the winning project. Repap
subsequently petitioned the Wisconsin Supreme Court requesting further review
of the case. This petition was denied by the Wisconsin Supreme Court on
July 29, 1996, thus terminating the Selection Order Litigation.
CPCN Ligation
On March 6, 1995, the Wisconsin PSC issued an order granting Whitewater a
CPCN for the Whitewater Power Plant (the "CPCN Order"). Shortly thereafter two
petitions for judicial review of the CPCN Order were filed: one in the
Circuit Court, Dane County, Repap Wisconsin, Inc. v. Public Service Commission
of Wisconsin (filed on April 7, 1995); and one in the Circuit Court, Walworth
County, Troy-Hygro, Inc. v. Public Service Commission of Wisconsin (filed on
April 6, 1995). The Troy-Hygro petition was withdrawn and dismissed by an
order dated May 2, 1995, leaving only the Repap action pending.
By letter dated September 13, 1995, Repap, LS Power and the Wisconsin PSC
stipulated to a stay of the petition pending a decision on Repap's appeal to
the Court of Appeals. The stipulated order for stay of proceedings was issued
October 19, 1995.
Following the termination of the Selection Order Litigation, the parties to
the CPCN Litigation agreed to dismiss that case with prejudice and an Order for
Dismissal was issued on November 4, 1996, thus terminating the CPCN Litigation.
PART I/ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II/ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
There is no established public market for Funding's common stock. The 100
issued and outstanding shares of common stock of Funding, $0.01 par value per
share, are owned by the Partnerships. All of the equity in the Partnerships
is held by the partners of the Partnerships and, therefore, there is no
established public market for the equity of the Partnerships.
PART II/ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data have been taken from the audited
financial statements of Funding, Cottage Grove and Whitewater. The
information set forth below should be read in conjunction with "Management
18
Discussion and Analysis of Financial Condition and Results of Operations"
under Item 7 and the financial statements and related notes included under
Item 8.
Since their formation in 1993, the Partnerships have been developing and
constructing their respective Power Plants and have generated no operating
revenues and expenses. Accordingly, only balance sheet data is presented for
the Partnerships.
Statement of Operations Data:
For the Period from
For the Year Ended June 23, 1995 (inception)
December 31, 1996 to December 31, 1995
Funding:
Interest income $25,886,196 $12,943,098
Interest expense 25,886,196 12,943,098
Net income (loss) $ --- $ ---
Balance Sheet Data:
Funding was established on June 23, 1995, while the Partnerships were
established on December 14, 1993. Therefore, only four years of data are
presented.
December 31,
1996 1995 1994 1993
Funding:
Current assets $1,000 1,000 N/A N/A
Current liabilities --- --- N/A N/A
Total assets 332,001,000 332,001,000 N/A N/A
Total long-term debt,
net of current
maturities 332,000,000 332,000,000 N/A N/A
Stockholders' equity 1,000 1,000 N/A N/A
Cottage Grove:
Current assets $103,224 67,956 1,000 1,000
Current liabilities 5,581,535 5,950,465 --- ---
Investments held
by trustee 28,108,244 111,303,563 --- ---
Plant, property and
equipment 125,596,814 42,719,871 --- ---
Total assets 160,582,535 160,951,465 1,000 1,000
Total long-term debt,
net of current
maturities 155,000,000 155,000,000 --- ---
Partners' capital 1,000 1,000 1,000 1,000
Whitewater:
Current assets $101,689 72,016 1,000 1,000
Current liabilities 13,616,709 6,249,962 --- ---
Investments held
by trustee 34,414,528 126,688,250 --- ---
Plant, property and
equipment 149,232,431 49,531,408 --- ---
Total assets 190,617,709 183,250,962 1,000 1,000
Total long-term debt,
net of current
maturities 177,000,000 177,000,000 --- ---
Partners' capital 1,000 1,000 1,000 1,000
19
<PAGE>
PART II/ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General
Since their formation in 1993, the Partnerships have been developing and
constructing their respective Power Plants and have generated no operating
revenues or expenses.
Liquidity and Capital Resources
The $332,000,000 of proceeds received by Funding from the sale of the
Senior Secured Bonds were used by Funding to acquire (i) $155,000,000 of
Cottage Grove First Mortgage Bonds and (ii) $177,000,000 of Whitewater First
Mortgage Bonds. In addition to the proceeds of the First Mortgage Bonds, each
Partnership will receive equity contributions from each of TPC Cottage Grove
and TPC Whitewater, in the respective amounts of $18,167,000 for Cottage Grove
and $20,556,000 for Whitewater (the "Equity Contribution Amounts"). Each
Equity Contribution Amount is supported by an irrevocable direct pay letter
of credit for the account of each of Cottage Grove or Whitewater, as the case
may be. The net proceeds of the sale of each Partnership's First Mortgage
Bonds together with other sources of funds available to such Partnership are
being used to: (i) finance the development, design, engineering,
construction, testing, inspection and start-up of its Power Plant and (ii)
maintain a debt service reserve fund as required by certain financing
documents, currently equal to $6,043,000 and $6,900,000 for Cottage Grove
and Whitewater, respectively.
As required by the financing documents, both Cottage Grove and Whitewater
have set aside certain funds to pay for project cost overruns, including
change orders to the Construction Contracts and any other reasonable
contingencies, during construction (the "Contingency Fund"). Upon the
issuance of the First Mortgage Bonds on June 30, 1995, the Partnerships
deposited $9,841,000 and $10,972,000 to their respective Contingency Fund
accounts. At December 31, 1996, the balance of the Contingency Fund accounts
were $9,184,531 for Cottage Grove and $10,226,456 for Whitewater.
In addition to funds received through the acquisition of the First Mortgage
Bonds by Funding and through the Equity Contribution Amount, each Partnership
may receive on its behalf certain letters of credit to be issued pursuant to
a letter of credit facility. Each letter of credit facility provides for
letters of credit in a face amount not to exceed $5,000,000 for Whitewater and
$5,500,000 for Cottage Grove which may be drawn on by the respective
Partnership from time to time. Such letters of credit will satisfy certain
requirements of the Partnerships under various project agreements.
In order to provide for the Partnerships' working capital needs, each
Partnership has also entered into a working capital facility. Each working
capital facility will provide for working capital loans in an aggregate
principal amount not to exceed $3,000,000 for each Partnership.
In the event that the sources of funds described above are insufficient to
pay for completion of its Power Plant, each Partnership has the right under
the applicable Partnership bond indenture to issue additional senior debt to
pay for such completion subject to certain restrictions which include meeting
certain debt service coverage ratio tests specified therein and the right to
request additional equity contributions from its partners. However, the
partners have no obligation to provide additional equity and no assurance can
be given that adequate additional funds would be obtainable from these sources
at affordable rates in the event of an increase in the cost of completion of a
Power Plant over the applicable Partnership's available resources.
The Partnerships expect that payments from the Power Purchasers under the
Power Purchase Agreements shall provide the substantial majority of the
revenues of each of the Partnerships. Under and subject to the terms of the
Power Purchase Agreements, each Power Purchaser is obligated to purchase
electric capacity made available to it and energy which it requests from the
related Partnership. With respect to the Cottage Grove Power Plant, such
purchases begin on the date when commercial operation begins, which may not
occur prior to April 1, 1997, and extend for 30 years. Under the Whitewater
Power Purchase Agreement, payments begin on the date when commercial operation
begins, which may not occur prior to June 1, 1997, and extend through
May 31, 2022. For additional information regarding NSP and WEPCO, reference
is made to the respective Annual Reports filed on Form 10-K, the Quarterly
Reports filed on Form 10-Q, proxy, and any other filings made by NSP and WEPCO
with the Securities and Exchange Commission (the "Commission").
20
Capacity payments by each of NSP and WEPCO are based on the tested capacity
and availability of the Power Plants and are unaffected by levels of dispatch.
Each Power Plant's capacity is subject to semi-annual verification through
testing. Capacity payments are subject to reduction if a Power Plant is
operating at reduced or degraded capacity at the time of such test, although
each Power Plant is permitted a retest subject to certain retest limitations.
Also, capacity payments for each Power Plant are subject to rebate or
reduction if the respective Power Plant does not maintain certain minimum
levels of availability: the Cottage Grove Power Plant must maintain a rolling
12-month average availability of 90 percent and a rolling 12-month on-peak
availability of 95 percent, while the Whitewater Power Plant must maintain an
annual average and on-peak availability of 90 percent. Finally, under the
Cottage Grove Power Purchase Agreement, capacity payments are further adjusted
by, among other things, the Capacity Loss Factor. The Capacity Loss Factor
will be determined in accordance with procedures jointly agreed to between
Cottage Grove and NSP, and may vary on a year to year basis between a value of
0.92 and 1.02. NSP estimated a 1994 Capacity Loss Factor of 1.0098. A
material adverse effect on capacity revenues to Cottage Grove could occur if
the Capacity Loss Factor is determined to be materially less than 1.0098 in a
particular year. Each Partnership is dependent on capacity payments and other
fixed payments under its Power Purchase Agreement to meet its fixed
obligations, including the payment of debt service under each Partnership's
First Mortgage Bonds (which will be Funding's sole source of revenues for
payment of debt service under the Senior Secured Bonds). The Partnerships
expect to achieve the minimum capacity and availability levels; however, any
material shortfall in tested capacity or availability over a significant
period could result in a shortage of funds to the Partnerships.
Energy payments will be paid by NSP and WEPCO on the actual electric energy
delivered by each respective Power Plant. The Power Purchase Agreements each
provide the Power Purchasers with the contractual right to dispatch the
related Power Plant, at full capacity, partial capacity or off-line. The
Partnerships' revenues from the sale of electricity could be adversely
affected during periods when the Power Plants are dispatched at partial
capability or off-line for a significant period of time.
As with any power generation facility, operation of the Power Plants will
involve certain risks, including the performance of a Power Plant below
expected levels of output or efficiency, interruptions in fuel supply, pipeline
disruptions, disruptions in the supply of thermal or electrical energy, power
shut-downs due to the breakdown or failure of equipment or processes,
violation of permit requirements (whether through operation, or change in law),
operator error, labor disputes or catastrophic events such as fires,
earthquakes, explosions, floods or other similar occurrences affecting a Power
Plant or its power purchasers, thermal energy purchasers, fuel suppliers or
fuel transporters. The occurrence of any of these events could significantly
reduce or eliminate revenues generated by a Power Plant or significantly
increase the expenses of that Power Plant, thereby impacting the ability of a
Partnership to make payments of the amounts necessary to fund principal of and
interest on its First Mortgage Bonds, and consequently Funding's ability to
make payments of principal of and interest on the Senior Secured Bonds. Not
all risks are insured and the proceeds of such insurance applicable to
covered risks may not be adequate to cover a Power Plant's lost revenues or
increased expenses. In addition, extended unavailability under the Power
Purchase Agreements, which may result from one or more of such events, may
entitle the Power Purchaser to terminate its Power Purchase Agreement.
PART II/ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See financial statements commencing at F-1.
PART II/ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
21
<PAGE>
PART III/ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors and Executive Officers of the General Partners
Each Partnership Agreement provides that all management functions of the
respective Partnership are the responsibility of the General Partner, subject
to certain conditions and limitations. All of the stock of each General
Partner is owned by Granite, the general partner of which is LS Power. The
officers of the General Partner concurrently serve as officers of LS Power.
The following table sets forth the names and positions of the directors and
executive officers of each General Partner. Directors are elected annually
and each elected director holds office until a successor is elected. Officers
are chosen from time to time by vote of the board of directors.
Name Age Officer Position
Michael Liebelson (Director) 41 Managing Director and Treasurer
Mikhail Segal (Director) 46 Managing Director and
Assistant Secretary
Clarence J. Heller 41 Executive Vice President
Frank E. Hardenbergh 53 Vice President and Secretary
Greg Stricker 33 Assistant Treasurer
Richard L. Taiano (Director) 31 ---
Michael Liebelson is a co-founder of LS Power and has been a Director of
each General Partner and of LS Power since their formation in 1993 and 1990,
respectively. Prior to the formation of LS Power, he served for three years
as co-head of Commercial Union Energy Corporation ("CU Energy"). At CU Energy,
Mr. Liebelson was responsible for co-managing and obtaining funding for the
Commercial Union Energy Partnership, L.P. ("CUEP"), an institutional equity
fund aimed at the development and financing of independent power projects.
Prior to joining CU Energy, Mr. Liebelson worked for Ahlstrom Pyropower
Corporation ("Pyropower") where he started and headed Pyropower's energy
project development division and directed the development and financing of
three projects. Prior to his employment with Pyropower he held various
financial and project management positions with Air Products and Chemicals,
Inc., and Exxon. Mr. Liebelson holds a B.S. in Chemical Engineering from the
University of California at Berkeley and an M.B.A. from the Wharton School of
the University of Pennsylvania.
Mikhail Segal is a co-founder of LS Power and has been a Director of each
General Partner and of LS Power since their formation. Prior to the formation
of LS Power, Mr. Segal served for three years as co-head of CU Energy. At CU
Energy, Mr. Segal was responsible for co-managing and obtaining funding for
CUEP. Prior to joining CU Energy, Mr. Segal was President of ENESCO-The
Energy Systems Company ("ENESCO"), a private developer of cogeneration
projects. From 1979 to 1985, Mr. Segal was employed by LEMCO Engineers, Inc.,
an engineering and consulting firm providing services to electric utilities
("LEMCO"), where he held various positions, including General Manager of Power
Generation and Systems Planning. Prior to that time, Mr. Segal worked for the
Department of Energy in the former Soviet Union. Mr. Segal holds an M.S. in
Electrical Engineering from Kharkov Polytech Institute in the former Soviet
Union.
Clarence J. Heller has been a Vice President of LS Power since 1991 and the
Executive Vice President since January 1994. Mr. Heller has also served as
Vice President of each General Partner since 1994. Mr. Heller is responsible
for coordinating all development activities within LS Power including project
conceptualization, contract negotiations, environmental permitting, regulatory
approvals, and project financing. Prior to joining LS Power, Mr. Heller served
as Vice President, Central Region for Y&A Engineers, an electric utility
consulting firm. From 1985 to 1987, Mr. Heller held the position of Vice
President, Operations of ENESCO and functioned as project manager for the
development of a waste coal-fired independent power project. From 1977 to
1985, Mr. Heller served in various management and design capacities at LEMCO,
providing transmission system engineering services to electric utilities. Mr.
Heller is a registered Professional Engineer with the Missouri Board for
Architects, Engineers and Land Surveyors, and holds a B.S. in Electrical
Engineering from the University of Missouri-Rolla and an M.B.A. from
Washington University.
Frank E. Hardenbergh is the Vice President, General Counsel and Secretary
of LS Power and has been with the company since December 1993. Mr. Hardenbergh
also serves as Vice President and Secretary of each General Partner. Prior to
joining LS Power, Mr. Hardenbergh served as Senior Vice President, General
Counsel and member of the Management Committee of the Commercial Union Capital
22
Group ("CU Capital Group") from 1985 through 1993 with senior business
responsibilities in project finance and energy development. Before joining the
CU Capital Group, Mr. Hardenbergh was Associate General Counsel of the
Commercial Union Insurance Companies assigned to non-insurance operations,
including the CU Capital Group. Prior to joining the Commercial Union Insurance
Companies, Mr. Hardenbergh was employed at the Boston law firm of Peabody &
Arnold. Mr. Hardenbergh holds a J.D. and a B.A. from the University of North
Carolina at Chapel Hill.
Greg Stricker is the Controller and Assistant Treasurer of LS Power and is
responsible for the accounting, administrative and financial reporting needs
of LS Power. He is a Certified Public Accountant with eleven years of
experience in public and private accounting. Mr. Stricker began his career
with KPMG Peat Marwick LLP, where he worked for five years and attained the
position of Manager. Prior to coming to LS Power, Mr. Stricker held a
controller position with the Northern Rockies Cancer Center where his duties
included the management of a full accounting department. Mr. Stricker holds a
B.S. in Business Administration from Montana State University.
Richard L. Taiano serves as an independent director of each General Partner.
Prior to his appointment, Mr. Taiano had no relationship to either General
Partner or its affiliates. Mr. Taiano is an Assistant Vice President of Lord
Securities and is responsible for daily cash management and accounting for the
special purpose companies managed by the firm. Prior to joining Lord
Securities in 1992, Mr. Taiano was with Goldman, Sachs & Co. where he started
in 1987 and was an associate in the Controllers Department from 1987 to
February, 1995, serving in the London, Tokyo, Hong Kong, and New York offices
of the firm.
Directors and Executive Officers of Funding
The following table sets forth the names and positions of the individuals
who will comprise the directors and executive officers of Funding. Directors
will be elected annually and each elected director will hold office until a
successor is elected. Officers will be chosen from time to time by vote of the
board of directors.
Name Age Officer Position
Michael Liebelson (Director) 41 Managing Director and Treasurer
Mikhail Segal (Director) 46 Managing Director and
Assistant Secretary
Clarence J. Heller 41 Executive Vice President
Frank E. Hardenbergh 53 Vice President and Secretary
Greg Stricker 33 Assistant Treasurer
Peter H. Sorensen (Director) 37 ---
Peter H. Sorensen serves as an independent director of Funding. Prior to
his appointment, Mr. Sorensen had no relationship to Funding or its
affiliates. Mr. Sorensen started with Lord Securities in April, 1986 and
currently supervises the administration of the special purpose financing
companies managed by the firm. As President of Lord Securities, he assists in
the structuring of the related finance programs, oversees all legal and rating
agency matters and works on the development of new business. Mr. Sorensen
holds a B.S. in Business Administration from Barrington College, R.I.
For biographical information on each of the above listed persons other than
Mr. Sorensen, see "-Directors and Executive Officers of the General Partners"
above.
PART III/ITEM 11. EXECUTIVE COMPENSATION
None of the officers or directors of Funding or the General Partners have
received or, it is anticipated, will receive compensation for their services
from Funding or from the General Partners except that Lord Securities is paid
a fee for providing the services of Mr. Taiano and Mr. Sorensen. The directors
and executive officers of LS Power are compensated by LS Power and are not
entitled to any direct compensation from the Partnerships. However, LS Power
is paid a management fee and is reimbursed for certain expenses by the
Partnerships as described under Part III/Item 13 - "Certain Relationships and
Related Transactions".
23
<PAGE>
PART III/ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS & MANAGEMENT
The following information is given with respect to the partnership interest
in LSP-Cottage Grove, L.P. held by persons who are beneficial owners of more
than 5% of such interests of persons who are partners or executive officers of
Cottage Grove.
Title Name and Address Nature of Percentage
of Class of Beneficial Owner Ownership Interest
General Partnership
Interest LSP-Cottage Grove, Inc. General Partner 1%
Limited Partnership
Interest Granite Limited Partner 72.22%*
Limited Partnership
Interest TPC Cottage Grove Limited Partner 26.78%*
* Percentages remain subject to adjustment under certain circumstances to
provide a particular rate of return on the equity contribution of TPC
Cottage Grove, Inc., as set forth in the Cottage Grove partnership agreement.
The following information is given with respect to the partnership interest
in LSP-Whitewater Limited Partnership held by persons who are beneficial
owners of more than 5% of such interests of persons who are partners or
executive officers of Whitewater.
Title Name and Address Nature of Percentage
of Class of Beneficial Owner Ownership Interest
General Partnership
Interest LSP-Whitewater I, Inc. General Partner 1%
Limited Partnership
Interest Granite Limited Partner 73.17%*
Limited Partnership
Interest TPC Whitewater Limited Partner 25.83%*
* Percentages remain subject to adjustment under certain circumstances to
provide a particular rate of return on the equity contribution of TPC
Whitewater, Inc., as set forth in the Whitewater partnership agreement.
Except as specifically provided or required by law, the limited partners of
Cottage Grove and Whitewater may not participate in the management or control
of the respective Partnerships. Thus, although each General Partner has a 1%
interest in its Partnership, it has sole responsibility for the management of
such Partnership. All of the outstanding capital stock of each of the General
Partners is owned by Granite. LS Power, as general partner of Granite,
controls the business affairs of Granite in accordance with Granite's
partnership agreement. See Part III/Item 13 - "Certain Relationships and
Related Transactions".
The following information is given with respect to the beneficial ownership
of the outstanding capital stock of Funding.
Title Name and Address Nature of Percentage
of Class of Beneficial Owner Ownership Interest
Common Stock Cottage Grove 50 shares 50%
Common Stock Whitewater 50 shares 50%
PART III/ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Each Partnership believes that, taking into consideration all of their
terms and conditions, the transactions with the related parties described
below are at least as favorable to it as those which could have been obtained
from unrelated parties in arms-length transactions.
LS Power. LS Power is the developer of the Power Plants and provides
certain management services to each Partnership and each General Partner
pursuant to management services agreements ("MSA"). Under the MSAs, LS Power
manages the business affairs of each Partnership during construction and
operation of the related Power Plant and is responsible for supervising each
Partnership's, and monitoring each counterparty's, compliance with all
contracts to which each Partnership is a party. Under the MSAs, each
Partnership pays LS Power as compensation for its services a monthly
management fee of $60,000 during construction, and $50,000 during operation
(both in 1995 dollars) which fees will be escalated annually beginning on
January 1, 1996 pursuant to a rate of change in a consumer-price related
index. LS Power is also reimbursed for its reasonable and necessary expenses
24
incurred in performing its services, including the salaries of its personnel
to the extent related to services required under the MSAs. The amounts payable
by each Partnership to LS Power under the MSAs are designated as operating
expenses under the depositary agreements and therefore are paid prior to
interest and principal on such Partnership's First Mortgage Bonds. For the
year ended December 31, 1996, LS Power received payments pursuant to the MSAs
of $1,391,147 and $1,391,512 from Cottage Grove and Whitewater, respectively.
FloriCulture. FloriCulture is a single purpose, wholly-owned subsidiary
subsidiary of LS Power formed to operate the Greenhouse for the benefit of
Whitewater. Whitewater and FloriCulture will enter into the Greenhouse
Operational Services Agreement, whereby FloriCulture will be required to
provide all the services necessary to produce, market, and sell horticultural
products and to operate and maintain the Greenhouse. As compensation for
its services, FloriCulture will be reimbursed on a monthly basis for its
approved costs in connection with conducting the Greenhouse business and
operating the Greenhouse facility, and will receive an annual management fee
equal to 12% of Whitewater's net profit from the operation of the Greenhouse.
The term of the Greenhouse Operational Services Agreement will expire on
May 31, 2022.
Granite. Granite, a limited partnership among LS Power, Chase Manhattan
Capital Corporation and a trust (the "Cogen Trust"), provided the development
financing for the Power Plants through June 30, 1995. Granite's costs to
develop the Power Plants were financed through loans from Tomen Power
Corporation, a California corporation ("Tomen"). These loans were repaid from
amounts received by Granite from Cottage Grove and Whitewater on June 30,
1995. On June 30, 1995, Granite received payments for development fees and
reimbursement of certain development costs totaling $11,730,000 and $
12,020,000 from Cottage Grove and Whitewater, respectively. Also, Whitewater
reimbursed $140,000 to Granite for purchase of its project site.
The limited partnership agreement for each of Cottage Grove and Whitewater
provides for a distribution to Granite of any construction funds remaining at
the time construction of its Power Plant is complete.
Granite owns 100 percent of the capital stock each of LSP-Cottage Grove,
Inc., the general partner of Cottage Grove, and LSP-Whitewater I, Inc, the
general partner of Whitewater. LS Power, as general partner of Granite,
controls the business affairs of Granite in accordance with Granite's
partnership agreement.
LSP-Cottage Grove, Inc. LSP-Cottage Grove, Inc. is the general partner of
Cottage Grove and is a wholly-owned subsidiary of Granite. LSP-Cottage Grove,
Inc. has no assets other than its general partnership interest in Cottage
Grove. The officers of LSP-Cottage Grove, Inc. concurrently serve as officers
of LS Power but do not and will not receive compensation in the former
capacity. LSP-Cottage Grove, Inc. is a party to an MSA with LS Power.
LSP-Whitewater I, Inc. LSP-Whitewater I, Inc. is the general partner of
Whitewater and is a wholly-owned subsidiary of Granite. LSP-Whitewater I,
Inc. has no assets other than its general partnership interest in Whitewater.
The officers of LSP-Whitewater I, Inc. concurrently serve as officers of LS
Power but do not and will not receive compensation in the former capacity.
LSP-Whitewater I, Inc. is a party to an MSA with LS Power.
TPC Cottage Grove & TPC Whitewater. TPC Cottage Grove and TPC Whitewater
are both wholly-owned subsidiaries of Tomen and were formed for the sole
purpose of holding a limited partnership interest in the related Partnership.
Relationship of Funding and the Partnerships
Each Partnership owns 50 percent of the capital stock of Funding. Each
Partnership has designated Funding as its agent for certain purposes including
issuing the Senior Secured Bonds. Each Partnership has indemnified Funding
against all claims arising in connection with Funding's performance of its
obligations.
25
<PAGE>
PART IV/ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
(a) 1 Financial Statements
See Index to Financial Statements on page F-1.
(a) 2 Financial Statement Schedules
All schedules are omitted since the information is not required or because
such information is included in the financial statements and notes thereto.
(a) 3 Exhibits
The exhibits listed on the accompanying Exhibits Index are filed as part of
this report.
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the last quarter of the
period covered by this report.
26
<PAGE>
SIGNATURES: Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf of the undersigned, thereunto duly authorized.
LS POWER FUNDING CORPORATION
By: /s/ Michael S. Liebelson
Name: Michael S. Liebelson
Title: Managing Director
Date: March 28, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ Michael S. Liebelson Managing Director, Treasurer
Michael S. Liebelson and Director
/s/ Mikhail Segal Managing Director, Asst. Secretary
Mikhail Segal and Director
/s/ Greg L. Stricker Assistant Treasurer
Greg L. Stricker
27
<PAGE>
SIGNATURES: Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf of the undersigned, thereunto duly authorized.
LSP-COTTAGE GROVE, L.P.
By: LSP-Cottage Grove, Inc.
Its: General Partner
By: /s/ Michael S. Liebelson
Name: Michael S. Liebelson
Title: Managing Director
Date: March 28, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ Michael S. Liebelson Managing Director, Treasurer
Michael S. Liebelson and Director
/s/ Mikhail Segal Managing Director, Asst. Secretary
Mikhail Segal and Director
/s/ Greg L. Stricker Assistant Treasurer
Greg L. Stricker
28
<PAGE>
SIGNATURES: Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf of the undersigned, thereunto duly authorized.
LSP-WHITEWATER LIMITED PARTNERSHIP
By: LSP-Whitewater I, Inc.
Its: General Partner
By: /s/ Michael S. Liebelson
Name: Michael S. Liebelson
Title: Managing Director
Date: March 28, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ Michael S. Liebelson Managing Director, Treasurer
Michael S. Liebelson and Director
/s/ Mikhail Segal Managing Director, Asst. Secretary
Mikhail Segal and Director
/s/ Greg L. Stricker Assistant Treasurer
Greg L. Stricker
29
<PAGE>
LS Power Funding Corporation
LSP-Cottage Grove, L.P.
LSP-Whitewater Limited Partnership
Financial Statement Index
Page
LS POWER FUNDING CORPORATION
Independent Auditors' Report. . . . . . . . . . . . . . . . . . . F-2
Balance Sheets as of December 31, 1996 and 1995 . . . . . . . . . F-3
Statements of Operations for the year ended
December 31, 1996 and for the Period from
Inception (June 23, 1995) to December 31, 1995 . . . . . . . . . F-4
Statements of Changes in Stockholders' Equity
for the year ended December 31, 1996 and for the
Period from Inception (June 23, 1995) to December 31, 1995 . . . F-5
Statements of Cash Flows for the year ended
December 31, 1996 and for the Period from
Inception (June 23, 1995) to December 31, 1995 . . . . . . . . . F-6
Notes to Financial Statements . . . . . . . . . . . . . . . . . . F-7
LSP-COTTAGE GROVE, L.P.
Independent Auditors' Report. . . . . . . . . . . . . . . . . . . F-10
Balance Sheets as of December 31, 1996 and 1995 . . . . . . . . . F-11
Statements of Changes in Partners' Capital for the years ended
December 31, 1996, 1995 and 1994, and the Period from
Inception (December 14, 1993) to December 31, 1996. . . . . . . F-12
Statements of Cash Flows for the Period for the years ended
December 31, 1996, 1995 and 1994, and the Period from
Inception (December 14, 1993) to December 31, 1996. . . . . . . F-13
Notes to Financial Statements . . . . . . . . . . . . . . . . . . F-14
LSP-WHITEWATER LIMITED PARTNERSHIP
Independent Auditors' Report. . . . . . . . . . . . . . . . . . . F-20
Balance Sheets as of December 31, 1996 and 1995 . . . . . . . . . F-21
Statements of Changes in Partners' Capital for the years ended
December 31, 1996, 1995 and 1994, and the Period from
Inception (December 14, 1993) to December 31, 1996. . . . . . . F-22
Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994, and the Period from
Inception (December 14, 1993) to December 31, 1996. . . . . . . F-23
Notes to Financial Statements . . . . . . . . . . . . . . . . . . F-24
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
LS Power Funding Corporation:
We have audited the accompanying balance sheets of LS Power Funding
Corporation as of December 31, 1996 and 1995 and the related statements of
operations, changes in stockholders' equity, and cash flows for the year ended
December 31, 1996 and for the period from inception (June 23, 1995) to
December 31, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of LS Power Funding
Corporation as of December 31, 1996 and 1995, and the results of its
operations and its cash flows for the year ended December 31, 1996 and the
period from inception (June 23, 1995) to December 31, 1995 in conformity with
generally accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
Billings, Montana
February 13, 1997
F-2
<PAGE>
LS POWER FUNDING CORPORATION
BALANCE SHEETS
December 31,
1996 1995
ASSETS
CURRENT ASSET - Cash $ 1,000 $ 1,000
INVESTMENT IN FIRST MORTGAGE BONDS 332,000,000 332,000,000
Total Assets $332,001,000 $332,001,000
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITY - Senior Secured Bonds Payable $332,000,000 $332,000,000
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, 1,000 shares
authorized, 100 shares issued
and outstanding 1 1
Additional paid-in capital 999 999
Total Stockholders' Equity 1,000 1,000
Total Liabilities and Stockholders' Equity $332,001,000 $332,001,000
See accompanying notes to financial statements.
F-3
<PAGE>
LS POWER FUNDING CORPORATION
STATEMENTS OF OPERATIONS
Inception
Year Ended (June 23, 1995)
December 31, to December 31,
1996 1995
Interest Income $25,886,196 $12,943,098
Interest Expense 25,886,196 12,943,098
Net Income (Loss) $ --- $ ---
See accompanying notes to financial statements
F-4
<PAGE>
LS POWER FUNDING CORPORATION
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Year Ended December 31, 1996,
and the Period from Inception (June 23, 1995)
to December 31, 1995
Total
Common Additional Stockholders'
Stock Paid-In Capital Equity
Sale of Common Stock
at Inception $1 $999 $1,000
Balance, December 31,
1996 and 1995 $1 $999 $1,000
See accompanying notes to financial statements.
F-5
<PAGE>
LS POWER FUNDING CORPORATION
STATEMENTS OF CASH FLOWS
Inception
Year Ended (June 23, 1995)
December 31, to December 31,
1996 1995
Cash Flows From Investing Activities:
Cash paid for investment
in First Mortgage Bonds $ --- $(332,000,000)
Cash used in investing activities --- (332,000,000)
Cash Flows From Financing Activities:
Proceeds from Senior Secured Bonds --- 332,000,000
Proceeds from sale of common stock --- 1,000
Cash provided by financing activities --- 332,001,000
Increase in cash --- 1,000
Cash at beginning of period 1,000 ---
Cash at end of period $1,000 $ 1,000
See accompanying notes to financial statements.
F-6
<PAGE>
LS POWER FUNDING CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
LS Power Funding Corporation ("Funding") was established on June 23, 1995
as a special purpose funding corporation to issue debt securities in
connection with financing construction of two gas fired cogeneration
facilities, one located in Cottage Grove, Minnesota and the other located in
Whitewater, Wisconsin. LSP-Cottage Grove, L.P.("Cottage Grove") and
LSP-Whitewater Limited Partnership ("Whitewater") are single purpose Delaware
limited partnerships established to develop, finance, construct, own, operate
and manage the facilities at Cottage Grove and Whitewater, respectively.
Cottage Grove and Whitewater each own 50% of the outstanding stock of
Funding. Funding's sole business activities are limited to maintaining its
organization, the offering of the Senior Secured Bonds, and its acquisition
of the First Mortgage Bonds issued by Cottage Grove and Whitewater.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Statements of Cash Flows
For purposes of reporting cash flows, cash equivalents include short-term
investments with original maturities of three months or less.
3. INVESTMENT IN FIRST MORTGAGE BONDS
Investment in First Mortgage Bonds consists of the following at
December 31, 1996 and 1995:
7.19% Cottage Grove First Mortgage Bonds
due June 30, 2010 $ 49,278,000
8.08% Cottage Grove First Mortgage Bonds
due December 30, 2016 105,722,000
7.19% Whitewater First Mortgage Bonds
due June 30, 2010 56,273,000
8.08% Whitewater First Mortgage Bonds
due December 30, 2016 120,727,000
$332,000,000
The First Mortgage Bonds issued by Cottage Grove and Whitewater are
secured by substantially all of the assets of the respective partnership.
The collateral securing the obligations of one partnership does not secure the
obligations of the other partnership. The carrying value approximates market
value at December 31, 1996 and 1995.
F-7
<PAGE>
LS POWER FUNDING CORPORATION
NOTES TO FINANCIAL STATEMENTS - (Continued)
The following are summarized balance sheets of Cottage Grove and Whitewater
as of December 31, 1996:
Cottage Grove Whitewater
Current assets $ 103,224 $ 101,689
Investments held by trustee 28,108,244 34,414,528
Plant, property and equipment, net 125,596,814 149,232,431
Debt issuance and financing costs, net 6,773,753 6,868,561
Other assets 500 500
Total assets $160,582,535 $190,617,709
Current liabilities $ 5,581,535 $ 13,616,709
First Mortgage Bonds Payable 155,000,000 177,000,000
Partners' capital 1,000 1,000
Total liabilities and
partners' capital $160,582,535 $190,617,709
4. SENIOR SECURED BONDS PAYABLE
Bonds Payable consists of the following at December 31, 1996 and 1995:
7.19% Senior Secured Bonds due
June 30, 2010 ("2010 Bonds") $105,551,000
8.08% Senior Secured Bonds due
December 30, 2016 ("2016 Bonds") 226,449,000
$332,000,000
On June 30, 1995, Funding issued and sold $332,000,000 of Senior Secured
Bonds. All of the First Mortgage Bonds issued by Cottage Grove and Whitewater
were purchased with the entire proceeds from the Senior Secured Bonds. The
repayment terms of the First Mortgage Bonds collectively coincide with those
of the Senior Secured Bonds. Interest is payable semi-annually on June 30 and
December 30 of each year, commencing December 30, 1995. Principal on the
bonds is also payable semi-annually in varying amounts beginning on June 30,
2000 for the 2010 Bonds, and beginning on December 30, 2010 for the 2016
Bonds. The Senior Secured Bonds collectively have an initial weighted average
maturity of approximately 17 years.
The bonds are secured primarily by a pledge of Funding's investment in the
First Mortgage Bonds. Since Funding is a special purpose corporation formed
to issue the Senior Secured Bonds, Funding's ability to make payments of
principal and interest on the Senior Secured Bonds is entirely dependent on
Cottage Grove's and Whitewater's performance of its obligations under its
First Mortgage Bonds. The obligations of Cottage Grove and Whitewater under
their First Mortgage Bonds are obligations solely of the respective
partnerships.
The trust indenture for the Senior Secured Bonds contains certain covenants
including, among others, limitations or restrictions relating to the use of
the proceeds of the Senior Secured Bonds, actions with respect to the First
Mortgage Bonds, and additional debt other than the Senior Secured Bonds. The
trust indenture also describes events of default of the Senior Secured Bonds
which include, among others, events involving bankruptcy of Funding and the
failure of Cottage Grove and Whitewater to own 100 percent of the capital
stock of Funding.
F-8
<PAGE>
LS POWER FUNDING CORPORATION
NOTES TO FINANCIAL STATEMENTS - (Concluded)
The effective interest rate on the Senior Secured Bonds approximates
Funding's current comparable long-term borrowing rate. Accordingly, the fair
value of the Senior Secured Bonds approximates the carrying value at
December 31, 1996 and 1995.
F-9
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Partners
LSP-Cottage Grove, L.P.:
We have audited the accompanying balance sheets of LSP-Cottage Grove, L.P.
(a Delaware limited partnership in the development stage) as of December 31,
1996 and 1995 and the related statements of changes in partners' capital and
cash flows for each of the years in the three-year period ended December 31,
1996 and the period from inception (December 14, 1993) to December 31, 1996.
These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above presents fairly,
in all material respects, the financial position of LSP-Cottage Grove, L.P.
(a Delaware limited partnership in the development stage) as of December 31,
1996 and 1995 and changes in its partners' capital and its cash flows for each
of the years in the three-year period ended December 31, 1996 and for the
period from inception (December 14, 1993) to December 31, 1996, in conformity
with generally accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
Billings, Montana
February 13, 1997
F-10
<PAGE>
LSP-COTTAGE GROVE, L.P.
(a Delaware Limited Partnership in the Development Stage)
BALANCE SHEETS
December 31,
1996 1995
ASSETS
CURRENT ASSETS:
Cash $ 103,224 $ 55,030
Other current assets --- 12,926
Total Current Assets 103,224 67,956
INVESTMENTS HELD BY TRUSTEE,
stated at cost which
approximates market value 28,108,244 111,303,563
PLANT, PROPERTY AND EQUIPMENT 125,596,814 42,719,871
DEBT ISSUANCE AND FINANCING COSTS,
net of accumulated amortization
of $348,386 and $109,215,
respectively 6,773,753 6,859,575
OTHER ASSETS 500 500
Total Assets $160,582,535 $160,951,465
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITY - Accounts payable $ 5,581,535 $ 5,950,465
FIRST MORTGAGE BONDS PAYABLE 155,000,000 155,000,000
Total Liabilities 160,581,535 160,950,465
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL 1,000 1,000
Total Liabilities and
Partners' Capital $160,582,535 $160,951,465
See accompanying notes to financial statements.
F-11
<PAGE>
LSP-COTTAGE GROVE, L.P.
(a Delaware Limited Partnership in the Development Stage)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
For the Years Ended December 31, 1996, 1995 and 1994,
and the Period from Inception (December 14, 1993) to December 31, 1996
General
Limited Partners Partner
TPC Cottage Granite Power LSP-Cottage
Grove, Inc. Partners, L.P. Grove, Inc. Total
Capital Contributions
at Inception $ --- $990 $10 $1,000
Balance, December 31,
1996, 1995 and 1994 $ --- $990 $10 $1,000
See accompanying notes to financial statements.
F-12
<PAGE>
LSP-COTTAGE GROVE, L.P.
(a Delaware Limited Partnership in the Development Stage)
STATEMENTS OF CASH FLOWS
December 14,
1993
(Inception) to
Years Ended December 31, December 31,
1996 1995 1994 1996
Cash Flows From
Investing Activities:
Acquisition of land
and improvements $ --- $ (97,590) $ --- $ (97,590)
Payments on
construction
in progress (87,156,988) (40,289,136) --- (127,446,124)
Investments held by
trustee --- (155,000,000) --- (155,000,000)
Investments drawn for
construction 87,358,531 47,410,046 --- 134,768,577
Investment in LS Power
Funding Corporation --- (500) --- (500)
Cash provided (used) by
investing activities 201,543 (147,977,180) --- (147,775,637)
Cash Flows From
Financing Activities:
Debt issuance and
financing costs (153,349) (6,968,790) --- (7,122,139)
Proceeds from First
Mortgage Bonds --- 155,000,000 --- 155,000,000
Capital contribution --- --- --- 1,000
Cash provided (used) by
financing activities (153,349) 148,031,210 --- 147,878,861
Increase in cash 48,194 54,030 --- 103,224
Cash, beginning of period 55,030 1,000 1,000 ---
Cash, end of period $ 103,224 $ 55,030 $1,000 $ 103,224
RECONCILIATION OF CHANGES
IN CONSTRUCTION IN
PROGRESS
Increase in total
construction in
progress $(82,876,943) $ (42,622,281) $ --- $(125,499,224)
Amortization of debt
issuance and
financing costs 239,171 109,215 --- 348,386
Interest income on
investments held
by trustee (4,163,212) (3,713,609) --- (7,876,821)
Decrease (increase) in
other current assets 12,926 (12,926) --- ---
Increase (decrease) in
accounts payable (368,930) 5,950,465 --- 5,581,535
Payments on construction
in progress $(87,156,988) $ (40,289,136) $ --- $(127,446,124)
See accompanying notes to financial statements.
F-13
<PAGE>
LSP-COTTAGE GROVE, L.P.
(a Delaware Limited Partnership in the Development Stage)
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
LSP-Cottage Grove, L.P. (the "Partnership") is a Delaware limited
partnership that was formed on December 14, 1993 to develop, finance,
construct, own and operate a gas fired cogeneration facility with a design
capacity of approximately 245 megawatts to be located in Cottage Grove,
Minnesota (the "Cottage Grove Project"). The general partner of the
Partnership is LSP-Cottage Grove, Inc., a wholly owned subsidiary of Granite
Power Partners, L.P., a Delaware limited partnership ("Granite").
LSP-Cottage Grove, Inc. is a one percent general partner of the Partnership.
Granite and TPC Cottage Grove, Inc., a Delaware corporation, are the sole
limited partners of the Partnership, owning approximately 72% and 27% limited
partnership interests, respectively. The general partner of Granite is LS
Power Corporation ("LS Power"), a Delaware corporation.
The Partnership holds a 50% equity ownership interest in LS Power Funding
Corporation ("Funding"), which was established on June 23, 1995 as a special
purpose funding corporation to issue debt securities (the "Senior Secured
Bonds") in connection with financing construction of the Cottage Grove Project
and a similar gas fired cogeneration facility to be located in Whitewater,
Wisconsin (the "Whitewater Project"). On June 30, 1995, a portion of the
proceeds from the offering and sale of the Senior Secured Bonds issued by
Funding was used to purchase $155 million of First Mortgage Bonds issued
simultaneously by the Partnership. The investment in Funding is accounted
for using the equity method.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Partnership has been in the development stage since its inception and
is not expected to generate any operating revenues until the project achieves
commercial operations. As with any new business venture of this size and
nature, the ultimate operation of the Cottage Grove Project could be affected
by many factors. Construction of the project is expected to be completed in
May, 1997.
Construction in Progress
All development and construction costs incurred are capitalized. Interest
costs (including amortization of debt issuance and financing costs), net of
interest income on excess proceeds, are capitalized during construction. As
of December 31, 1996 and 1995, capitalized interest including amortization of
debt issuance and financing costs was $10,599,704 and $2,438,319, respectively
($10,251,318 and $2,329,104, respectively, before amortization). Cash paid
for interest was $18,128,139 since inception, $12,085,426 for the year ended
December 31, 1996 and $6,042,713 for the year ended December 31, 1995.
Debt Issuance and Financing Costs
The Partnership amortizes deferred debt issuance and financing costs over
the term of the related debt using the effective interest method. Accumulated
amortization of deferred financing costs is included in interest and
capitalized as part of construction in progress in the accompanying financial
statements.
F-14
<PAGE>
LSP-COTTAGE GROVE, L.P.
(a Delaware Limited Partnership in the Development Stage)
NOTES TO FINANCIAL STATEMENTS - (Continued)
Federal and State Income Taxes
Since the Partnership is not an income tax paying entity, the accompanying
financial statements do not reflect any income tax effects.
Statements of Cash Flows
For purposes of reporting cash flows, cash equivalents include unrestricted
short-term investments with original maturities of three months or less.
Investments Held by Trustee
Investments held by trustee represent overnight repurchase obligations
secured by U.S. Treasury notes. The use of funds held by the trustee is
restricted to payment of project costs, including payment of interest on the
First Mortgage Bonds. These investments are carried at cost, which
approximated market at December 31, 1996 and 1995.
Current Liabilities
As of December 31, 1996 and 1995, all current liabilities were considered
project costs and were eligible for payment from funds held by the trustee.
Use of Estimates
Management of the Partnership makes a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare financial statements in conformity
with generally accepted accounting principles. Actual results could differ
from those estimates.
Impairment and Disposal of Long-lived Assets
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting
for the Impairment of Long-lived Assets and for Long-lived Assets to be
Disposed Of," requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or circumstances
indicate that the carrying amount of an asset may not be recoverable. An
impairment loss is recognized if the sum of the expected future cash flows is
less than the carrying amount of the asset. SFAS No. 121 was adopted
January 1, 1996 and did not have an impact on the Partnership's financial
position.
F-15
<PAGE>
LSP-COTTAGE GROVE, L.P.
(a Delaware Limited Partnership in the Development Stage)
NOTES TO FINANCIAL STATEMENTS - (Continued)
3. PLANT, PROPERTY AND EQUIPMENT
Plant, property and equipment consists of:
December 31,
1996 1995
Land and improvements $ 97,590 $ 97,590
Construction in progress 125,499,224 42,622,281
$125,596,814 $42,719,871
4. OTHER ASSETS
Other Assets represents the cost of the Partnership's 50% equity ownership
interest in Funding. The following is summarized financial information for
Funding:
Statement of Operations Data:
For the Year Inception
Ended (June 23, 1995)
December 31, to December 31,
1996 1995
Interest income $25,886,196 $12,943,098
Interest expense 25,886,196 12,943,098
Net income (loss) $ --- $ ---
Balance Sheet Data:
December 31,
1996 and 1995
Current assets $ 1,000
Investment in First Mortgage Bonds 332,000,000
Total assets $332,001,000
Senior Secured Bonds payable $332,000,000
Stockholders' equity 1,000
Total liabilities and stockholders' equity $332,001,000
5. FIRST MORTGAGE BONDS PAYABLE
First Mortgage Bonds Payable consists of the following at December 31,
1996 and 1995:
7.19% First Mortgage Bonds
due June 30, 2010 ("2010 Bonds") $ 49,278,000
8.08% First Mortgage Bonds
due December 30, 2016 ("2016 Bonds") 105,722,000
$155,000,000
F-16
<PAGE>
LSP-COTTAGE GROVE, L.P.
(a Delaware Limited Partnership in the Development Stage)
NOTES TO FINANCIAL STATEMENTS - (Continued)
On June 30, 1995, the Partnership issued and sold $155,000,000 of First
Mortgage Bonds to Funding. The bonds are secured by substantially all assets
of the Partnership. Interest is payable semi-annually on June 30 and
December 30 of each year, commencing December 30, 1995. Principal on the
bonds is also payable semi-annually in varying amounts beginning on June 30,
2000 for the 2010 Bonds, and beginning on December 30, 2010 for the 2016
Bonds. The First Mortgage Bonds collectively have an initial weighted average
maturity of approximately 17 years.
The trust indenture and other financing documents for the First Mortgage
Bonds include a number of covenants with which the Partnership must comply.
These covenants include, among others, compliance with certain reporting
requirements and limitations of activities relating to the bond proceeds,
additional debt, new and existing agreements, partnership distributions and
other activities. The trust indenture also describes events of default of
the First Mortgage Bonds which include, among others, certain events involving
bankruptcy of the Partnership and failure to maintain and comply with
agreements made by the Partnership.
The effective interest rate on the First Mortgage Bonds approximates the
Partnership's current comparable long-term borrowing rate. Accordingly, the
fair value of the First Mortgage Bonds approximates the carrying value at
December 31, 1996 and 1995.
6. CREDIT AGREEMENT
The Partnership has entered into a Credit Agreement which provides for
working capital loans of up to $3,000,000 and letter of credit commitments of
up to $5,500,000. The interest rate for loans made under the Credit
Agreement is based upon various short-term indices at the Partnership's
option and is determined separately for each draw. These commitments will
expire on June 30, 2002, with earlier expiration possible should completion of
the project not be achieved as scheduled. The Credit Agreement includes
commitment fees, payable quarterly in arrears, ranging from .25 percent to
.375 percent on the daily average unused amount of the commitment until the
Credit Agreement is terminated. For all periods through December 31, 1996,
no working capital loans or letters of credit had been issued under the Credit
Agreement.
7. STATUS OF CONTRACTS
The Partnership has entered into a 30 year power sales contract with
Northern States Power Company ("NSP"). The power sales contract is subject to
termination if specified construction, energy delivery and other milestone
deadlines are not met. The power sales contract requires delivery of energy
by May, 1997. The milestone for the delivery of energy may be extended on a
month-to-month basis for up to 26 months for a fee of $266,667 per month.
Other milestones may be extended up to an aggregate of 12 months for a fee of
$50,000 per month.
The Partnership has entered into a 30 year thermal energy sales agreement
with Minnesota Mining and Manufacturing Company ("3M"). The thermal energy
sales agreement provides for the Partnership to supply steam to 3M's
manufacturing plant in Cottage Grove, Minnesota.
F-17
<PAGE>
LSP-COTTAGE GROVE, L.P.
(a Delaware Limited Partnership in the Development Stage)
NOTES TO FINANCIAL STATEMENTS - (Continued)
The Partnership has entered into a $109 million turnkey construction
contract (inclusive of executed change orders) with Westinghouse Electric
Corporation ("Westinghouse Electric"). Westinghouse Electric has committed to
complete the construction and start-up of the Cottage Grove Project to
specified performance levels by May 31, 1997 and is required under the
contract to pay certain liquidated damages in the event of a delay. As of
December 31, 1996, engineering, procurement and construction was estimated to
be 86% complete and total costs incurred to date under the construction
contract were approximately $94,887,000. As with any major construction
effort, construction of the Cottage Grove Project involves many risks,
including shortages of materials and labor, work stoppages, labor disputes,
weather interferences, engineering, environmental permitting or geological
problems and unanticipated cost increases for reasons beyond the control of
Westinghouse Electric, the occurrence of which could give rise to delays, cost
overruns or performance deficiencies, or otherwise adversely affect the
design or operation of the Cottage Grove Project.
The Cottage Grove Project will be operated and maintained under an
operations and maintenance agreement with Westinghouse Operating Services
Company, Inc. ("Westinghouse Services"). The term of the operations and
maintenance agreement extends for an initial period of seven years. The
Partnership has the option to extend the term of the agreement for two
additional seven-year terms, provided that the Partnership and Westinghouse
Services mutually agree in writing as to the terms of such extension.
The Partnership has entered into 20 year gas supply agreements with both
Natural Gas Clearing House and Aquila Gas Pipeline Corporation to provide
100% of the Cottage Grove Project's natural gas requirements. The Partnership
has also entered into 20 year gas transportation agreements with Northern
Natural Company and Peoples Natural Gas Company.
These and other contracts and activities incident to the ultimate operation
of the Cottage Grove Project will require various other commitments and
obligations by the Partnership. Additionally, the contracts contain various
restrictive covenants which allow the contracted party to terminate the
contract upon the occurrence of specified events or, in certain cases,
default under other contractual commitments.
8. DEPENDENCE ON THIRD PARTIES
The Partnership is highly dependent on a single utility for purchases of
electric generating capacity and energy from its power plant, a single
operator to perform the operation and maintenance of its power plant, and a
single steam purchaser for purchases of thermal energy. In addition, the
Partnership has contracted with two gas companies to supply the gas
requirements of the Power Plant, and has contracted with a single interstate
gas transporter to transport gas. Any material breach by any one of these
parties of their respective obligations to the Partnership could affect the
ability of the Partnership to make payments under its First Mortgage Bonds.
In addition, bankruptcy or insolvency of certain other parties or defaults by
such parties relative to their contractual or regulatory obligations could
adversely affect the ability of the Partnership to make payments under its
First Mortgage Bonds. If an agreement were to be terminated due to a breach
of such agreement, the Partnership's ability to enter into a substitute
agreement having substantially equivalent terms and conditions, or with an
equally creditworthy third party, is uncertain.
F-18
<PAGE>
LSP-COTTAGE GROVE, L.P.
(a Delaware Limited Partnership in the Development Stage)
NOTES TO FINANCIAL STATEMENTS - (Concluded)
9. RELATED PARTY TRANSACTIONS
The initial costs incurred to develop the Cottage Grove Project, consisting
principally of site development costs, engineering fees, legal fees,
permitting costs, interest and LS Power employee costs, were incurred by
Granite. At June 30, 1995, the Partnership paid development fees and
reimbursed certain costs totaling approximately $11,730,000 to Granite.
These payments have been capitalized and are included in construction in
progress.
LS Power provides certain management services to the Partnership pursuant
to a management services agreement. Under this agreement, LS Power manages
the business affairs of the Partnership during construction and operation of
the Cottage Grove Project. As compensation for its services, LS Power
receives a monthly management fee of $60,000 during construction, and $50,000
during operation (both in 1995 dollars). These fees are escalated annually
beginning on January 1, 1996 pursuant to the rate of change in a
consumer-price related index. LS Power is also reimbursed for its reasonable
and necessary expenses incurred in performing its services, including salaries
of its personnel to the extent related to services provided under the
agreement. The Partnership paid $1,391,147 and $514,868 to LS Power during
the years ended December 31, 1996 and 1995, respectively.
10. PARTNERS' CAPITAL
TPC Cottage Grove, Inc. ("TPC"), a Delaware corporation, has agreed to
contribute $18,167,000 of equity for the financing of the development,
construction and completion of the Cottage Grove Project. TPC will contribute
the required amount pursuant to an Equity Contribution Agreement. TPC's
equity contribution is supported by an irrevocable direct pay letter of
credit. In return for TPC's commitment, TPC received a limited partner
interest in the Partnership of approximately 27% and equity commitment fees of
$350,000. The exact amount of TPC's interest is subject to adjustment upon
completion of construction of the project.
Profits, losses and distributions will be allocated based on the respective
partnership interests. Distributions will be made in accordance with the
trust indenture and other financing documents. Such distributions are subject
to the prior satisfaction of a number of conditions including, among others,
maintenance of required funding levels in various trustee accounts and
compliance with minimum levels of current and projected debt service coverage.
F-19
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Partners
LSP-Whitewater Limited Partnership:
We have audited the accompanying balance sheets of LSP-Whitewater Limited
Partnership (Delaware limited partnership in the development stage) as of
December 31, 1996 and 1995 and the related statements of changes in partners'
capital and cash flows for each of the years in the three-year period ended
December 31, 1996 and for the period from inception (December 14, 1993) to
December 31, 1996. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of LSP-Whitewater Limited
Partnership (a Delaware limited partnership in the development stage) as of
December 31, 1996 and 1995 and changes in its partners' capital and its cash
flows for each of the years in the three-year period ended December 31, 1996
and for the period from inception (December 14, 1993) to December 31, 1996, in
conformity with generally accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
Billings, Montana
February 13, 1997
F-20
<PAGE>
LSP-WHITEWATER LIMITED PARTNERSHIP
(a Delaware Limited Partnership in the Development Stage)
BALANCE SHEETS
December 31,
1996 1995
ASSETS
CURRENT ASSETS:
Cash $ 101,114 $ 71,441
Other current assets 575 575
Total Current Assets 101,689 72,016
INVESTMENTS HELD BY TRUSTEE, stated at
cost which approximates market value 34,414,528 126,688,250
PLANT, PROPERTY AND EQUIPMENT 149,232,431 49,531,408
DEBT ISSUANCE AND FINANCING COSTS, net of
accumulated amortization of $354,879 and
$111,303, respectively 6,868,561 6,958,788
OTHER ASSETS 500 500
Total Assets $190,617,709 $183,250,962
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITY - Accounts payable $ 13,616,709 $ 6,249,962
FIRST MORTGAGE BONDS PAYABLE 177,000,000 177,000,000
Total Liabilities 190,616,709 183,249,962
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL 1,000 1,000
Total Liabilities and Partners' Capital $190,617,709 $183,250,962
See accompanying notes to financial statements.
F-21
<PAGE>
LSP-WHITEWATER LIMITED PARTNERSHIP
(a Delaware Limited Partnership in the Development Stage)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
For the Years Ended December 31, 1996, 1995 and 1994,
and the Period from Inception (December 14, 1993) to December 31, 1996
General
Limited Partners Partner
TPC Whitewater Granite Power LSP-Whitewater
Inc. Partners, L.P. I, Inc. Total
Capital Contributions
at Inception $ --- $999 $1 $1,000
Balance, December 31,
1996, 1995 and 1994 $ --- $999 $1 $1,000
See accompanying notes to financial statements.
F-22
<PAGE>
LSP-WHITEWATER LIMITED PARTNERSHIP
(a Delaware Limited Partnership in the Development Stage)
STATEMENTS OF CASH FLOWS
December 14,
1993 (inception)
Years Ended December 31, to December 31,
1996 1995 1994 1996
Cash Flows From
Investing Activities:
Acquisition of land
and improvements $ (145,765) $ (3,392,516) $ --- $ (3,538,281)
Payments on
construction
in progress (96,746,638) (43,984,101) --- (140,730,739)
Investments held
by trustee --- (177,000,000) --- (177,000,000)
Investments drawn
for construction 97,075,425 54,517,649 --- 151,593,074
Investment in LS Power
Funding Corporation --- (500) --- (500)
Cash provided (used)
in investing activities 183,022 (169,859,468) --- (169,676,446)
Cash Flows From
Financing Activities:
Debt issuance and
financing costs (153,349) (7,070,091) --- (7,223,440)
Proceeds from First
Mortgage Bonds --- 177,000,000 --- 177,000,000
Capital contributions --- --- --- 1,000
Cash provided (used)
in financing activities (153,349) 169,929,909 --- 169,777,560
Increase in cash 29,673 70,441 --- 101,114
Cash, beginning of period 71,441 1,000 1,000 ---
Cash, end of period $ 101,114 $ 71,441 $1,000 $ 101,114
RECONCILIATION OF CHANGES IN
CONSTRUCTION IN PROGRESS
Increase in total
construction in
progress $(99,555,258) $ (46,138,892) $ --- $(145,694,150)
Amortization of
debt issuance
and financing costs 243,576 111,303 --- 354,879
Interest income
on investments held
by trustee (4,801,703) (4,205,899) --- (9,007,602)
Increase in other
current assets --- (575) --- (575)
Increase in
accounts payable 7,366,747 6,249,962 --- 13,616,709
Payments on
construction
in progress $(96,746,638) $ (43,984,101) $ --- $(140,730,739)
See accompanying notes to financial statements.
F-23
<PAGE>
LSP-WHITEWATER LIMITED PARTNERSHIP
(a Delaware Limited Partnership in the Development Stage)
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
LSP-Whitewater Limited Partnership (the "Partnership") is a Delaware
limited partnership that was formed on December 14, 1993 to develop, finance,
construct, own and operate a gas-fired cogeneration facility with a design
capacity of approximately 245 megawatts to be located in Whitewater, Wisconsin
(the "Whitewater Project"). The general partner of the Partnership is
LSP-Whitewater I, Inc., a wholly owned subsidiary of Granite Power Partners,
L.P., a Delaware limited partnership ("Granite"). LSP-Whitewater I, Inc. is
a one percent general partner of the Partnership. Granite and TPC Whitewater,
Inc., a Delaware corporation, are the sole limited partners of the
Partnership, owning approximately 73% and 26% limited partnership interests,
respectively. The general partner of Granite is LS Power Corporation
("LS Power"), a Delaware corporation.
The Partnership holds a 50% equity ownership interest in LS Power Funding
Corporation ("Funding"), which was established on June 23, 1995 as a special
purpose Delaware corporation to issue debt securities (the "Senior Secured
Bonds") in connection with financing construction of the Whitewater Project
and a similar gas-fired cogeneration facility to be located in Cottage Grove,
Minnesota (the "Cottage Grove Project"). On June 30, 1995, a portion of the
proceeds from the offering and sale of the Senior Secured Bonds issued by
Funding was used to purchase $177 million of First Mortgage Bonds issued
simultaneously by the Partnership. The investment in Funding is accounted for
using the equity method.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Partnership has been in the development stage since its inception and
is not expected to generate any operating revenues until the project achieves
commercial operations. As with any new business venture of this size and
nature, the ultimate operation of the Whitewater Project could be affected by
many factors. Construction of the project is expected to be completed in
May, 1997.
Construction in Progress
All development and construction costs incurred are capitalized. Interest
costs (including amortization of debt issuance and financing costs), net of
interest income on excess proceeds, are capitalized during construction. As
of December 31, 1996 and 1995, capitalized interest including amortization of
debt issuance and financing costs was $12,048,433 and $2,805,789,
respectively ($11,693,554 and $2,694,486, respectively, before amortization).
Cash paid for interest was $20,701,155 since inception, $13,800,770 for the
year ended December 31, 1996 and $6,900,385 for the year ended December 31,
1995.
Debt Issuance and Financing Costs
The Partnership amortizes deferred debt issuance and financing costs over
the term of the related debt using the effective interest method. Accumulated
amortization of deferred financing costs is included in interest and
capitalized as part of construction in progress in the accompanying financial
statements.
F-24
<PAGE>
LSP-WHITEWATER LIMITED PARTNERSHIP
(a Delaware Limited Partnership in the Development Stage)
NOTES TO FINANCIAL STATEMENTS - (Continued)
Federal and State Income Taxes
Since the Partnership is not an income tax paying entity, the accompanying
financial statements do not reflect any income tax effects.
Statements of Cash Flows
For purposes of reporting cash flows, cash equivalents include unrestricted
short-term investments with original maturities of three months or less.
Investments Held by Trustee
Investments held by trustee represent overnight repurchase obligations
secured by U.S. Treasury notes. The use of funds held by the trustee is
restricted to payment of project costs, including payment of interest on the
First Mortgage Bonds. These investments are carried at cost, which
approximated market at December 31, 1996 and 1995.
Current Liabilities
As of December 31, 1996 and 1995, all current liabilities were considered
project costs and were eligible for payment from funds held by the trustee.
Use of Estimates
Management of the Partnership makes a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare financial statements in
conformity with generally accepted accounting principles. Actual results
could differ from those estimates.
Impairment and Disposal of Long-lived Assets
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting
for the Impairment of Long-lived Assets and for Long-lived Assets to be
Disposed Of," requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or circumstances
indicate that the carrying amount of an asset may not be recoverable. An
impairment loss is recognized if the sum of the expected future cash flows is
less than the carrying amount of the asset. SFAS No. 121 was adopted
January 1, 1996 and did not have an impact on the Partnership's financial
position.
3. PLANT, PROPERTY AND EQUIPMENT
Plant, property and equipment consists of:
F-25
<PAGE>
LSP-WHITEWATER LIMITED PARTNERSHIP
(a Delaware Limited Partnership in the Development Stage)
NOTES TO FINANCIAL STATEMENTS - (Continued)
December 31,
1996 1995
Land and improvements $ 3,538,281 $ 1,391,295
Deposit for land purchase --- 2,001,221
Construction in progress 145,694,150 46,138,892
$149,232,431 $49,531,408
Deposit for land purchase represented amounts held in an escrow account for
the purchase of land on which a portion of a transmission line was
constructed. The land purchase was completed in 1996.
4. OTHER ASSETS
Other assets represents the cost of the Partnership's 50% equity ownership
interest in Funding. The following is summarized financial information for
Funding:
Statement of Operations Data:
For the Year Inception
Ended (June 23, 1995)
December 31, to December 31,
1996 1995
Interest income $25,886,196 $12,943,098
Interest expense 25,886,196 12,943,098
Net income (loss) $ --- $ ---
Balance Sheet Data:
December 31,
1996 and 1995
Current assets $ 1,000
Investment in First Mortgage Bonds 332,000,000
Total assets $332,001,000
Senior Secured Bonds payable $332,000,000
Stockholders' equity 1,000
Total liabilities and stockholders' equity $332,001,000
5. FIRST MORTGAGE BONDS PAYABLE
First Mortgage Bonds Payable consists of the following at December 31,
1996 and 1995:
7.19% First Mortgage Bonds
due June 30, 2010 ("2010 Bonds") $ 56,273,000
8.08% First Mortgage Bonds
due December 30, 2016 ("2016 Bonds") $120,727,000
$177,000,000
F-26
<PAGE>
LSP-WHITEWATER LIMITED PARTNERSHIP
(a Delaware Limited Partnership in the Development Stage)
NOTES TO FINANCIAL STATEMENTS - (Continued)
On June 30, 1995, the Partnership issued and sold $177,000,000 of First
Mortgage Bonds to Funding. The bonds are secured by substantially all assets
of the Partnership. Interest is payable semi-annually on June 30 and
December 30 of each year, commencing December 30, 1995. Principal on the
bonds is also payable semi-annually in varying amounts beginning on June 30,
2000 for the 2010 Bonds, and beginning on December 30, 2010 for the 2016
Bonds. The First Mortgage Bonds collectively have an initial weighted average
maturity of approximately 17 years.
The trust indenture and other financing documents for the First Mortgage
Bonds include a number of covenants with which the Partnership must comply.
These covenants include, among others, compliance with certain reporting
requirements and limitations of activities relating to the bond proceeds,
additional debt, new and existing agreements, partnership distributions and
other activities. The trust indenture also describes events of default of the
First Mortgage Bonds which include, among others, certain events involving
bankruptcy of the Partnership and failure to maintain and comply with
agreements made by the Partnership.
The effective interest rate on the First Mortgage Bonds approximates the
Partnership's current comparable long-term borrowing rate. Accordingly, the
fair value of the First Mortgage Bonds approximates the carrying value at
December 31, 1996 and 1995.
6. CREDIT AGREEMENT
The Partnership has entered into a Credit Agreement which provides for
working capital loans of up to $3,000,000 and letter of credit commitments of
up to $5,000,000. The interest rate for loans made under the Credit Agreement
is based upon various short-term indices at the Partnership's option and is
determined separately for each draw. These commitments will expire on
June 30, 2002, with earlier expiration possible should completion of the
project not be achieved as scheduled. The Credit Agreement includes
commitment fees, payable quarterly in arrears, ranging from .25 percent to
.375 percent on the daily average unused amount of the commitment until the
Credit Agreement is terminated. A letter of credit with a face amount of
$1,455,000 had been issued under the Credit Agreement and was outstanding at
December 31, 1995. This letter of credit expired during 1996, and no letters
of credit were outstanding under the Credit Agreement at December 31, 1996.
For all periods through December 31, 1996, no working capital loans had been
made to the Partnership under the Credit Agreement.
7. STATUS OF CONTRACTS
The Partnership has entered into a 25 year power sales contract with
Wisconsin Electric Power Company ("WEPCO"). The power sales contract is
subject to termination if specified construction, energy delivery and other
milestone deadlines are not met. The power sales contract requires delivery
of energy by June 1997. The milestone for the delivery of energy may be
extended on a month-to-month basis for up to 24 months, less extensions of
other milestones, for a fee of $50,000 per month. Other milestones may be
extended up to an aggregate of 12 months for a fee of $20,000 per month.
F-27
<PAGE>
LSP-WHITEWATER LIMITED PARTNERSHIP
(a Delaware Limited Partnership in the Development Stage)
NOTES TO FINANCIAL STATEMENTS - (Continued)
The Partnership has entered into a thermal energy sales agreement with the
Department of Administration of the State of Wisconsin ("DOA"). The thermal
energy sales agreement provides for the Partnership to supply steam to the
University of Wisconsin-Whitewater. The initial term of the agreement runs
from July 25, 1994 through June 30, 2005. The DOA has the option to extend
the agreement for up to four extension periods of four years each.
The Partnership has entered into a construction contract with
Dominion Growers/Whitewater L.C. ("Dominion") under which Dominion is required
to design, engineer, procure, interconnect, construct and start-up a
greenhouse located adjacent to the Whitewater Project, as well as perform
certain other obligations. The contract price to be paid by the Partnership
will be equal to Dominion's cost of labor, insurance, materials and equipment
plus Dominion's mark-up thereon.
The Partnership has entered into a $118 million turnkey construction
contract (inclusive of executed change orders) with Westinghouse Electric
Corporation ("Westinghouse Electric"). Westinghouse Electric has committed
to complete the construction and start-up of the Whitewater Project to
specified performance levels by May 31, 1997 and is required under the
contract to pay certain liquidated damages in the event of a delay. As of
December 31, 1996, engineering, procurement and construction was estimated to
be 91% complete and total costs incurred under the construction contract were
approximately $107,433,000. As with any major construction effort,
construction of the Whitewater Project involves many risks, including
shortages of materials and labor, work stoppages, labor disputes, weather
interferences, engineering, environmental permitting or geological problems
and unanticipated cost increases for reasons beyond the control of the
Westinghouse Electric, the occurrence of which could give rise to delays,
cost overruns or performance deficiencies, or otherwise adversely affect the
design or operation of the Whitewater Project.
The Whitewater Project will be operated and maintained under an operations
and maintenance agreement with Westinghouse Operating Services Company, Inc.
("Westinghouse Services"). The term of the operations and maintenance
agreement extends for an initial period of seven years. The Partnership has
the option to extend the term of the agreement for two additional seven-year
terms, provided that the Partnership and Westinghouse Services mutually agree
in writing as to the terms of such extension.
The Partnership has entered into 20 year gas supply agreements with both
Natural Gas Clearing House and Aquila Gas Pipeline Corporation to provide 100%
of the Whitewater Project's natural gas requirements. The Partnership has also
entered into 20 year gas transportation agreements with Northern Natural Gas
Company and Wisconsin Natural Gas Company.
These and other contracts and activities incident to the ultimate operation
of the Whitewater Project would require various other commitments and
obligations by the Partnership. Additionally, the contracts contain various
restrictive covenants which allow the contracted party to terminate the
contract upon the occurrence of specified events or, in certain cases, default
under other contractual commitments.
F-28
<PAGE>
LSP-WHITEWATER LIMITED PARTNERSHIP
(a Delaware Limited Partnership in the Development Stage)
NOTES TO FINANCIAL STATEMENTS - (Continued)
8. DEPENDENCE ON THIRD PARTIES
The Partnership is highly dependent on a single utility for purchases of
electric generating capacity and energy from its power plant, and a single
operator to perform the operation and maintenance of its power plant. In
addition, the Partnership has contracted with two gas companies to supply the
gas requirements of the Power Plant, and has contracted with a single
interstate gas transporter to transport gas. Any material breach by any one of
these parties of their respective obligations to the Partnership could affect
the ability of the Partnership to make payments under its First Mortgage
Bonds. In addition, bankruptcy or insolvency of certain other parties or
defaults by such parties relative to their contractual or regulatory
obligations could adversely affect the ability of the Partnership to make
payments under its First Mortgage Bonds. If an agreement were to be
terminated due to a breach of such agreement, the Partnership's ability to
enter into a substitute agreement having substantially equivalent terms and
conditions, or with an equally creditworthy third party, is uncertain.
9. RELATED PARTY TRANSACTIONS
The initial costs incurred to develop the Whitewater Project, consisting
principally of site acquisition and development costs, engineering fees,
legal fees, permitting costs, interest and LS Power employee and office costs,
were incurred by Granite. At June 30, 1995, the Partnership reimbursed
$140,000 to Granite for purchase of the project site. Also, at June 30, 1995,
the Partnership paid development fees and reimbursed certain costs totaling
approximately $12,020,000 to Granite. These payments have been capitalized
and are included in land and improvements and construction in progress,
respectively.
LS Power provides certain management services to the Partnership pursuant
to a management services agreement. Under this agreement, LS Power manages
the business affairs of the Partnership during construction and operation of
the Whitewater Project. As compensation for its services, LS Power receives
a monthly management fee of $60,000 during construction, and $50,000 during
operation (both in 1995 dollars). These fees are escalated annually beginning
on January 1, 1996 pursuant to the rate of change in a consumer-price related
index. LS Power is also reimbursed for its reasonable and necessary expenses
incurred in performing its services, including salaries of its personnel to
the extent related to services provided under the agreement. The Partnership
paid $1,391,512 and $544,144 to LS Power during the years ended December 31,
1996 and 1995, respectively.
10. PARTNERS' CAPITAL
TPC Whitewater, Inc. ("TPC"), a Delaware corporation, has agreed to
contribute $20,556,000 of equity for the financing of the development,
construction and completion of the Whitewater Project. TPC will contribute
the required amount pursuant to an Equity Contribution Agreement. TPC's
equity contribution is supported by an irrevocable direct pay letter of
credit. In return for TPC's commitment, TPC received a limited partner
interest in the Partnership of approximately 26% and equity commitment fees of
$350,000. The exact amount of TPC's interest is subject to adjustment
upon completion of construction of the project.
Profits, losses and distributions will be allocated based on the
respective partnership interests. Distributions will be made in accordance
with the trust indenture and other financing documents. Such distributions
are subject to the prior satisfaction of a number of conditions including,
among others, maintenance of required funding levels in various trustee
accounts and compliance with minimum levels of current and projected debt
service coverage.
F-29
<PAGE>
LSP-WHITEWATER LIMITED PARTNERSHIP
(a Delaware Limited Partnership in the Development Stage)
NOTES TO FINANCIAL STATEMENTS - (Concluded)
11. LEGAL PROCEEDINGS
A series of decisions of the Wisconsin Public Service Commission ("WPSC")
selecting the Whitewater Project and approving the power sales contract were
challenged (the "Selection Order Litigation"). The WPSC's order granting the
Whitewater Project a Certificate of Public Convenience and Necessity ("CPCN")
was also challenged (the "CPCN Litigation").
In the Selection Order Litigation, the decisions of the WPSC were affirmed
by the Circuit Court, Dane County and by the Wisconsin Court of Appeals,
District 4 in all respects relevant to the WPSC's selection of the Whitewater
Project. A subsequent petition to the Wisconsin Supreme Court requesting
further review of the case was denied by the Wisconsin Supreme Court on July
29, 1996, thus terminating the Selection Order Litigation.
Following the termination of the Selection Order Litigation, the parties to
the CPCN Litigation agreed to dismiss that case with prejudice and an Order
for Dismissal was issued on November 4, 1996, thus terminating the CPCN
Litigation.
F-30
<PAGE>
LS Power Funding Corporation
LSP-Cottage Grove, L.P.
LSP-Whitewater Limited Partnership
Exhibits Index
Exhibit No. Description
*3.1. -- Certificate of Incorporation of LS Power Funding Corporation.
*3.2. -- Bylaws of LS Power Funding Corporation.
*3.3. -- Certificated of Limited Partnership of LSP-Cottage Grove, L.P.
*3.4. -- Amended and Restated Partnership Agreement dated as of
June 30, 1995 among LSP-Cottage Grove, Inc., Granite Power
Partners, L.P. and TPC Cottage Grove, Inc.
*3.5. -- Certificate of Limited Partnership of LSP-Whitewater Limited
Partnership.
*3.6. -- Amended and Restated Partnership Agreement dated as of
June 30, 1995 among LSP-Whitewater I, Inc., Granite Power
Partners, L.P. and TPC Whitewater, Inc.
*4.1. -- Trust Indenture dated as of May 1, 1995 by and among LS Power
Funding Corporation and IBJ Schroder Bank & Trust Company, as
Trustee, with respect to the Senior Secured Bonds (as
supplemented by the First Supplemental Indenture dated as of
May 1, 1995 by and among LS Power Funding Corporation and
IBJ Schroder Bank & Trust Company, as Trustee).
*4.2. -- Trust Indenture dated as of May 1, 1995 by and among
LSP-Cottage Grove, L.P. and IBJ Schroder Bank & Trust
Company, as Trustee, with respect to the Cottage Grove First
Mortgage Bonds (as supplemented by the First Supplemental
Indenture dated as of May 1, 1995 by and among LSP-Cottage
Grove, L.P. and IBJ Schroder Bank & Trust Company, as
Trustee).
*4.3. -- Trust Indenture dated as of May 1, 1995 by and among
LSP-Whitewater Limited Partnership and IBJ Schroder Bank &
Trust Company, as Trustee, with respect to the Whitewater
First Mortgage Bonds (as supplemented by the First
Supplemental Indenture dated as of May 1, 1995 by and among
LSP-Whitewater Limited Partnership and IBJ Schroder Bank &
Trust Company, as Trustee).
*4.4. -- Registration Rights Agreement dated as of June 30, 1995 by
and among Chase Securities, Inc., Morgan Stanley & Co.
Incorporated, LS Power Funding Corporation, LSP-Cottage
Grove, L.P. and LSP-Whitewater Limited Partnership.
*4.5. -- Form of Senior Secured Bond (included in Exhibit 4.1).
*4.6. -- Form of Cottage Grove First Mortgage Bond (included in
Exhibit 4.2).
*4.7. -- Form of Whitewater First Mortgage Bond (included in
Exhibit 4.3).
EI-1
<PAGE>
Exhibit No. Description
LS Power Funding Corporation Agreements
*10.20. -- Agency Agreement dated May 1, 1995 between LS Power Funding
Corporation and LSP-Cottage Grove, L.P.
*10.21. -- Agency Agreement dated May 1, 1995 between LS Power Funding
Corporation and LSP-Whitewater Limited Partnership.
*10.22. -- Security Agreement (related to Cottage Grove) dated as of
May 1, 1995 between LS Power Funding Corporation and IBJ
Schroder Bank & Trust Company, as Trustee.
*10.23. -- Security Agreement (related to Whitewater) dated as of
May 1, 1995 between LS Power Funding Corporation and IBJ
Schroder Bank & Trust Company, as Trustee.
LSP-Cottage Grove, L.P. Agreements
*10.24. -- Equity Contribution Agreement dated June 30, 1995 among
LSP-Cottage Grove, L.P., TPC Cottage Grove, Inc. and The
Chase Manhattan Bank (National Association), as depositary
agent.
*10.25. -- Collateral Agency and Intercreditor Agreement dated as of
May 1, 1995 among LSP-Cottage Grove, L.P., the L/C Facility
Agent (as defined therein), the Working Capital Agent (as
defined therein), each Permitted Counterparty under any
Interest Rate Protection Agreement (as defined therein), each
Additional Permitted Debt Agent (as defined therein), IBJ
Schroder Bank & Trust Company, as trustee, the Other
Representatives (as defined therein) and The Chase Manhattan
Bank (National Association), as depositary agent, and as
collateral agent.
*10.26. -- Deposit and Disbursement Agreement dated as of May 1, 1995
among LSP-Cottage Grove, L.P. and The Chase Manhattan Bank
(National Association), as collateral agent, and as
depositary agent.
*10.27. -- Credit Agreement dated as of May 1, 1995 among LSP-Cottage
Grove, L.P., the lenders party thereto and The Chase
Manhattan Bank (National Association), as agent.
*10.27.1 -- Instrument of Assignment, Resignation, Appointment,
Acceptance and Designation dated as of December 31, 1995
among The Chase Manhattan Bank (National Association),
Dresdner Bank AG, New York and Grand Cayman Branches, and
LSP-Cottage Grove, L.P.
*10.27.2 -- Amendment No. 1 to Credit Agreement dated as of December 31,
1995 among LSP-Cottage Grove, L.P. and Dresdner Bank AG,
New York Branch, as agent.
*10.28. -- Assignment and Security Agreement dated as of May 1, 1995
between LSP-Cottage Grove, L.P. and The Chase Manhattan Bank
(National Association), as collateral agent.
*10.29. -- Pledge Agreement dated as of May 1, 1995 between LSP-Cottage
Grove, L.P. and IBJ Schroder Bank & Trust Company, as trustee.
*10.30. -- Mortgage, Assignment of Rents, Security Agreement and Fixture
Filing dated as of May 1, 1995 between LSP-Cottage Grove, L.P.
and The Chase Manhattan Bank (National Association), as
collateral agent, for the benefit of IBJ Schroder Bank &
Trust Company, as trustee.
EI-2
<PAGE>
Exhibit No. Description
*10.31. -- Mortgage, Assignment of Rents, Security Agreement and
Fixture Filing dated as of May 1, 1995 between LSP-Cottage
Grove, L.P. and The Chase Manhattan Bank (National
Association), as collateral agent, for the benefit of The
Chase Manhattan Bank (National Association), as agent under
the Credit Agreement.
*10.32. -- Subordinated Mortgage, Assignment of Rents, Security
Assignment and Fixture Filing dated as of May 1, 1995 by
LSP-Cottage Grove, L.P., as mortgagor, and Northern States
Power Company, as mortgagee.
*10.33. -- Subordinated Assignment and Security Agreement dated as of
May 1, 1995 between LSP-Cottage Grove, L.P. and Northern
States Power Company.
*10.34. -- Power Purchase Agreement dated as of May 9, 1994 between
Northern States Power Company and LSP-Cottage Grove, L.P.
*10.35. -- Letter Agreement dated December 16, 1994 between Northern
States Power Company and LSP-Cottage Grove, L.P.
*10.36. -- Letter Agreement dated June 1, 1995 between Northern States
Power Company and LSP-Cottage Grove, L.P.
*10.37. -- Letter Agreement dated June 8, 1995 between Northern States
Power Company and LSP-Cottage Grove, L.P.
*10.38. -- Letter Agreement dated June 12, 1995 between Northern States
Power Company and LSP-Cottage Grove, L.P.
*10.39. -- Assignment dated as of November 23, 1994 between Granite
Power Partners, L.P. and LSP-Cottage Grove, L.P.
**10.40. -- Second Amended and Restated Turnkey Construction Agreement
dated as of April 11, 1995 between Westinghouse Electric
Corporation and LSP-Cottage Grove, L.P.
**10.41. -- Amended and Restated Operation and Maintenance Agreement
dated as of April 11, 1995 between Westinghouse Operating
Services Company, Inc. and LSP-Cottage Grove, L.P.
**10.42. -- Parts Agreement dated as of April 11, 1995 between
Westinghouse Electric Corporation and LSP-Cottage Grove, L.P.
*10.43. -- Management Services Agreement dated as of May 1, 1995
between LS Power Corporation and LSP-Cottage Grove, L.P.
*10.44. -- Second Amended and Restated Steam Supply Agreement dated as
of June 19, 1995 between the Minnesota Mining and
Manufacturing Company and LSP-Cottage Grove, L.P.
*10.45. -- Purchase and Sale Agreement dated September 30, 1994 between
the Minnesota Mining and Manufacturing Company and
LSP-Cottage Grove, L.P.
*10.46. -- Letter Agreement (land and easement) dated September 30,
1994 between the Minnesota Mining and Manufacturing Company
and LSP-Cottage Grove, L.P.
EI-3
<PAGE>
Exhibit No. Description
*10.47. -- Letter Agreement (side letter to steam agreement) dated
September 30, 1994 between the Minnesota Mining and
Manufacturing Company and LSP-Cottage Grove, L.P.
*10.48. -- Gas Sales Contract dated as of December 22, 1994 between
Natural Gas Clearinghouse and LSP-Cottage Grove, L.P.
*10.49. -- First Amendment to Gas Sales Contract dated as of April 18,
1995 between Natural Gas Clearinghouse and LSP-Cottage
Grove, L.P.
*10.50. -- Gas Sales Contract dated as of February 16, 1995 among
Aquila Energy Marketing Corporation, UtiliCorp United, Inc.
and LSP-Cottage Grove, L.P.
*10.51. -- First Amendment to Gas Sales Contract dated as of April 26,
1995 among Aquila Energy Marketing Corporation, UtiliCorp
United, Inc. and LSP-Cottage Grove, L.P.
*10.52. -- Amended and Restated Gas Supply Transportation Agreement
dated as of May 8, 1995 between Peoples Natural Gas Company
and LSP-Cottage Grove, L.P.
*10.53. -- Amended and Restated Cottage Grove Letter Agreement dated as
of April 10, 1995 between Northern Natural Gas Company,
Peoples Natural Gas Company and LSP-Cottage Grove, L.P.
*10.54. -- Firm Throughput Service Agreement (Northern Contract #24042)
dated April 25, 1995 between Northern Natural Gas Company and
LSP-Cottage Grove, L.P.
*10.55. -- Interruptible Throughput Service Agreement (Northern Contract
# 24198) dated April 25, 1995 between Northern Natural Gas
Company and LSP-Cottage Grove, L.P.
*10.56. -- Interruptible Throughput Service Agreement (Northern Contract
#24199) dated April 25, 1995 between Northern Natural Gas
Company and LSP-Cottage Grove, L.P.
*10.57. -- Firm Deferred Delivery Service Agreement (Northern Contract
#23281) dated as of April 25, 1995 between Northern Natural
Gas Company and LSP-Cottage Grove, L.P.
*10.58. -- Interruptible Deferred Delivery Service Agreement (Northern
Contract #24203) dated as of April 25, 1995 between Northern
Natural Gas Company and LSP-Cottage Grove, L.P.
*10.59. -- Letter Agreement dated as of April 21, 1995 between Northern
Natural Gas Company and LSP-Cottage Grove, L.P.
*10.60. -- Limited Warranty Deed granted by Minnesota Mining and
Manufacturing Company to LSP-Cottage Grove, L.P. dated June
1, 1995.
*10.61. -- Consent and Agreement dated as of May 1, 1995 among Northern
States Power Company, LSP-Cottage Grove, L.P. and The Chase
Manhattan Bank (National Association), as collateral agent.
*10.62. -- Consent and Agreement dated as of May 1, 1995 among
Westinghouse Electric Corporation, LSP-Cottage Grove, L.P.
and The Chase Manhattan Bank (National Association), as
collateral agent.
EI-4
<PAGE>
Exhibit No. Description
*10.63. -- Consent and Agreement dated as of May 1, 1995 among
Westinghouse Operating Services Company, Inc., LSP-Cottage
Grove, L.P. and The Chase Manhattan Bank (National
Association), as collateral agent.
*10.64. -- Consent and Agreement dated as of May 1, 1995 among Minnesota
Mining and Manufacturing Company, LSP-Cottage Grove, L.P. and
The Chase Manhattan Bank (National Association), as collateral
agent.
*10.65. -- Consent and Agreement dated as of May 1, 1995 among Natural
Gas Clearinghouse, LSP-Cottage Grove, L.P. and The Chase
Manhattan Bank (National Association), as collateral agent.
*10.66. -- Consent and Agreement dated as of May 1, 1995 among Aquila
Energy Marketing Corporation, UtiliCorp United, Inc.,
LSP-Cottage Grove, L.P. and The Chase Manhattan Bank
(National Association), as collateral agent.
*10.67. -- Consent and Agreement dated as of May 1, 1995 among Northern
Natural Gas Company, Peoples Natural Gas Company, LSP-Cottage
Grove, L.P. and The Chase Manhattan Bank (National
Association), ascollateral agent.
*10.68. -- Consent and Agreement dated as of May 1, 1995 among Northern
Natural Gas Company, LSP-Cottage Grove, L.P. and The Chase
Manhattan Bank (National Association), as collateral agent.
*10.69. -- Consent and Agreement dated as of May 1, 1995 among Peoples
Natural Gas Company, LSP-Cottage Grove, L.P. and The Chase
Manhattan Bank (National Association), as collateral agent.
*10.70. -- Subordinated Creditor Consent and Agreement dated as of May
1, 1995 among LSP-Cottage Grove, L.P., Northern States Power
Company and Westinghouse Electric Corporation.
*10.71. -- Subordinated Creditor Consent and Agreement dated as of May
1, 1995 among LSP-Cottage Grove, L.P., Northern States Power
Company and Westinghouse Operating Services Company, Inc.
*10.72. -- Subordinated Creditor Consent and Agreement dated as of May
1, 1995 among LSP-Cottage Grove, L.P., Northern States
Power Company and Aquila Energy Marketing Corporation.
*10.73. -- Subordinated Creditor Consent and Agreement dated as of May
1, 1995 among LSP-Cottage Grove, L.P., Northern States Power
Company and Natural Gas Clearinghouse.
*10.74. -- Subordinated Creditor Consent and Agreement dated as of May
1, 1995 among LSP-Cottage Grove, L.P., Northern States Power
Company and Northern Natural Gas Company.
*10.75. -- Subordinated Creditor Consent and Agreement dated as of May
1, 1995 among LSP-Cottage Grove, L.P., Northern States Power
Company, Northern Natural Gas Company and Peoples Natural Gas
Company.
*10.76. -- Subordinated Creditor Consent and Agreement dated as of May
1, 1995 among LSP-Cottage Grove, L.P., Northern States Power
Company and Peoples Natural Gas Company.
EI-5
<PAGE>
Exhibit No. Description
*10.77. -- Subordinated Creditor Consent and Agreement dated as of May 1,
1995 among LSP-Cottage Grove, L.P., Northern States Power
Company and Minnesota Mining and Manufacturing Company.
*10.78. -- Grants of Easement by Minnesota Mining and Manufacturing
Company to LSP-Cottage Grove, L.P., each dated May 30, 1994,
for the following: (i) Easterly Utilities, (ii) Westerly
Utilities, (iii) New Well, and (iv) Well Lines.
*10.79. -- Temporary Construction Easement granted by Minnesota Mining
and Manufacturing Company to LSP-Cottage Grove, L.P.
*10.80. -- Easements from Soo Line Railroad Company to LSP-Cottage Grove,
L.P., for Easterly and Westerly Railroad Crossroads, each
dated June 27, 1995.
*10.81. -- Assignments of Rights and Privileges dated June 12, 1995 by
and between Minnesota Mining and Manufacturing Company and
LSP-Cottage Grove, L.P.
LSP-Whitewater Limited Partnership Agreements
*10.82. -- Equity Contribution Agreement dated as of May 1, 1995 among
LSP-Whitewater Limited Partnership, TPC Whitewater, Inc. and
The Chase Manhattan Bank (National Association), as
depositary agent.
*10.83. -- Collateral Agency and Intercreditor Agreement dated as of May
1, 1995 among LSP-Whitewater Limited Partnership, the L/C
Facility Agent (as defined therein), the Working Capital
Agent (as defined therein), each Permitted Counterparty under
any Interest Rate Protection Agreement (as defined therein),
each Additional Permitted Debt Agent (as defined therein),
IBJ Schroder Bank & Trust Company, as trustee, the Other
Representatives (as defined therein) and The Chase Manhattan
Bank (National Association), as depositary agent, and as
collateral agent.
*10.84. -- Deposit and Disbursement Agreement dated as of May 1, 1995
among LSP-Whitewater Limited Partnership and The Chase
Manhattan Bank (National Association), as collateral agent,
and as depositary agent.
*10.85. -- Credit Agreement dated as of May 1, 1995 among LSP-Whitewater
Limited Partnership, the lenders party thereto and The Chase
Manhattan Bank (National Association), as agent.
*10.85.1 -- Instrument of Assignment, Resignation, Appointment,
Acceptance and Designation dated as of December 31, 1995
among The Chase Manhattan Bank (National Association),
Dresdner Bank AG, New York and Grand Cayman Branches, and
LSP-Whitewater Limited Partnership.
*10.85.2 -- Amendment No. 1 to Credit Agreement dated as of December 31,
1995 among LSP-Whitewater Limited Partnership and Dresdner
Bank AG, New York Branch, as agent.
*10.86. -- Assignment and Security Agreement dated as of May 1, 1995
between LSP-Whitewater Limited Partnership and The Chase
Manhattan Bank (National Association), as collateral agent.
*10.87. -- Pledge Agreement dated as of May 1, 1995 between
LSP-Whitewater Limited Partnership and IBJ Schroder Bank &
Trust Company, as trustee.
EI-6
<PAGE>
Exhibit No. Description
*10.88. -- Mortgage, Assignment of Rents, Security Agreement and Fixture
Filing dated as of May 1, 1995 between LSP-Whitewater Limited
Partnership and The Chase Manhattan Bank (National
Association), as collateral agent, for the benefit of IBJ
Schroder Bank & Trust Company, as trustee.
*10.89. -- Mortgage, Assignment of Rents, Security Agreement and Fixture
Filing dated as of May 1, 1995 between LSP-Whitewater Limited
Partnership and The Chase Manhattan Bank (National
Association), as collateral agent, for the benefit of the
Chase Manhattan Bank (National Association), as agent under
the Credit Agreement.
*10.90. -- Subordinated Mortgage, Assignment of Rents, Security
Assignment and Fixture Filing dated as of May 1, 1995 by
LSP-Whitewater Limited Partnership, as mortgagor, and
Wisconsin Electric Power Company, as mortgagee.
*10.91. -- Subordinated Assignment and Security Agreement dated as of
May 1, 1995 between LSP-Whitewater Limited Partnership and
Wisconsin Electric Power Company.
*10.92. -- Development Agreement dated as of November 23, 1994 between
City of Whitewater and LSP-Whitewater Limited Partnership.
*10.93. -- Power Purchase Agreement dated as of December 21, 1993
between Wisconsin Electric Power Company and LSP-Whitewater
Limited Partnership.
*10.94. -- Amendment to Power Purchase Agreement dated as of February
10, 1994 between Wisconsin Electric Power Company and
LSP-Whitewater Limited Partnership.
*10.95. -- Second Amendment to Power Purchase Agreement dated as of
October 5, 1994 between Wisconsin Electric Power Company and
LSP-Whitewater Limited Partnership.
*10.96. -- Third Amendment to Power Purchase Agreement dated as of May
5, 1995 between Wisconsin Electric Power Company and
LSP-Whitewater Limited Partnership.
*10.97. -- Interconnection Agreement dated as of May 12, 1995 between
Wisconsin Electric Power Company and LSP-Whitewater Limited
Partnership.
10.98. -- Intentionally Omitted.
*10.99. -- Assignment dated as of November 23, 1994 between Granite
Power Partners, L.P. and LSP-Whitewater Limited Partnership.
**10.100 -- Second Amended and Restated Turnkey Construction Agreement
dated as of April 11, 1995 between Westinghouse Electric
Corporation and LSP-Whitewater Limited Partnership.
**10.101. -- Amended and Restated Operation and Maintenance Agreement
dated as of April 11, 1995 between Westinghouse Operating
Services Company, Inc. and LSP-Whitewater Limited
Partnership.
**10.102. -- Parts Agreement dated as of April 10, 1995 between
Westinghouse Electric Corporation and LSP-Whitewater Limited
Partnership.
*10.103. -- Management Services Agreement dated as of May 1, 1995 between
LS Power Corporation and LSP-Whitewater Limited Partnership.
EI-7
<PAGE>
Exhibit No. Description
*10.104. -- Steam Supply Agreement dated as of July 25, 1994 between the
Department of Administration of the State of Wisconsin and
LSP-Whitewater Limited Partnership.
*10.105. -- Greenhouse Hot Water Supply Agreement dated as of May 1, 1995
between Dominion Growers/Whitewater, L.C. and LSP-Whitewater
Limited Partnership.
*10.106. -- Construction Contract dated as of May 1, 1995 between
Dominion Growers/Whitewater, L.C. and LSP-Whitewater Limited
Partnership.
*10.107. -- Deed of Lease dated as of May 1, 1995 between Dominion
Growers/Whitewater, L.C. and LSP-Whitewater Limited
Partnership.
*10.108. -- Letter Agreement dated May 12, 1995 between Dominion
Growers, Inc. and LSP-Whitewater Limited Partnership.
*10.109. -- Gas Sales Contract dated as of December 22, 1994 between
Natural Gas Clearinghouse and LSP-Whitewater Limited
Partnership.
*10.110. -- First Amendment to Gas Sales Contract dated as of April 18,
1995 between Natural Gas Clearinghouse and LSP-Whitewater
Limited Partnership.
*10.111. -- Gas Sales Contract dated as of February 16, 1995 among Aquila
Energy Marketing Corporation, UtiliCorp United, Inc. and
LSP-Whitewater Limited Partnership.
*10.112. -- First Amendment to Gas Sales Contract dated as of April 26,
1995 among Aquila Energy Marketing Corporation, UtiliCorp
United, Inc. and LSP-Whitewater Limited Partnership.
*10.113. -- Letter Agreement dated April 21, 1995 between Northern
Natural Gas Company and LSP-Whitewater Limited Partnership.
*10.114. -- Amended and Restated Letter Agreement dated as of April 10,
1995 between Northern Natural Gas Company and LSP-Whitewater
Limited Partnership.
*10.115. -- Gas Transportation Agreement dated March 9, 1995 between
Wisconsin Natural Gas Company and LSP-Whitewater Limited
Partnership.
*10.116. -- Capacity Release and Gas Sales Agreement dated as of April
27, 1995 between Wisconsin Power and Light Company and
LSP-Whitewater Limited Partnership.
*10.117. -- First Amendment to Capacity Release and Gas Sales Agreement
dated as of June 2, 1995 between Wisconsin Power and Light
Company and LSP-Whitewater Limited Partnership.
*10.118. -- Firm Throughput Service Agreement (Northern Contract #23479)
dated April 25, 1995 between Northern Natural Gas Company and
LSP-Whitewater Limited Partnership.
*10.119. -- Interruptible Throughput Service Agreement (Northern Contract
#24200) dated April 25, 1995 between Northern Natural Gas
Company and LSP-Whitewater Limited Partnership.
*10.120. -- Interruptible Throughput Service Agreement (Northern Contract
#24201) dated April 25, 1995 between Northern Natural Gas
Company and LSP-Whitewater Limited Partnership.
EI-8
<PAGE>
Exhibit No. Description
*10.121. -- Firm Deferred Delivery Service Agreement (Northern Contract
#23282) dated as of April 25, 1995 between Northern Natural
Gas Company and LSP-Whitewater Limited Partnership.
*10.122. -- Interruptible Deferred Delivery Service Agreement (Northern
Contract #24202) dated as of April 25, 1995 between Northern
Natural Gas Company and LSP-Whitewater Limited Partnership.
*10.123. -- Consent and Agreement dated as of May 1, 1995 between City of
Whitewater, LSP-Whitewater Limited Partnership and The Chase
Manhattan Bank (National Association), as collateral agent.
*10.124. -- Consent and Agreement dated as of May 1, 1995 among Wisconsin
Electric Power Company, LSP-Whitewater Limited Partnership and
The Chase Manhattan Bank (National Association), as
collateral agent.
*10.125. -- Consent and Agreement dated as of May 1, 1995 among
Westinghouse Electric Corporation, LSP-Whitewater Limited
Partnership and The Chase Manhattan Bank (National
Association), as collateral agent.
*10.126. -- Consent and Agreement dated as of May 1, 1995 among
Westinghouse Operating Services Company, Inc., LSP-Whitewater
Limited Partnership and The Chase Manhattan Bank (National
Association), as collateral agent.
*10.127. -- Consent and Agreement dated as of May 1, 1995 among State of
Wisconsin, acting through the Department of Administration,
LSP-Whitewater Limited Partnership and The Chase Manhattan
Bank (National Association), as collateral agent.
*10.128. -- Consent and Agreement dated as of May 1, 1995 between
Dominion Growers/Whitewater, L.C., LSP-Whitewater Limited
Partnership and The Chase Manhattan Bank (National
Association), as collateral agent.
*10.129. -- Consent and Agreement dated as of May 1, 1995 among Natural
Gas Clearinghouse, LSP-Whitewater Limited Partnership and The
Chase Manhattan Bank (National Association), as collateral
agent.
*10.130. -- Consent and Agreement dated as of May 1, 1995 among Aquila
Energy Marketing Corporation, UtiliCorp United, Inc.,
LSP-Whitewater Limited Partnership and The Chase Manhattan
Bank (National Association), as collateral agent.
*10.131. -- Consent and Agreement dated as of May 1, 1995 among Wisconsin
Natural Gas Company, LSP-Whitewater Limited Partnership and
The Chase Manhattan Bank (National Association), as
collateral agent.
*10.132. -- Consent and Agreement dated as of May 1, 1995 among Northern
Natural Gas Company, LSP-Whitewater Limited Partnership and
The Chase Manhattan Bank (National Association), as
collateral agent.
*10.133. -- Subordinated Creditor Consent and Agreement dated as of May
1, 1995 among LSP-Whitewater Limited Partnership, Wisconsin
Electric Power Company and Westinghouse Electric Corporation.
EI-9
<PAGE>
Exhibit No. Description
*10.134. -- Subordinated Creditor Consent and Agreement dated as of May
1, 1995 among LSP-Whitewater Limited Partnership, Wisconsin
Electric Power Company and Westinghouse Operating Services
Company, Inc.
*10.135. -- Subordinated Creditor Consent and Agreement dated as of May
1, 1995 among LSP-Whitewater Limited Partnership, Wisconsin
Electric Power Company and Aquila Energy Marketing
Corporation.
*10.136. -- Subordinated Creditor Consent and Agreement dated as of May
1, 1995 among LSP-Whitewater Limited Partnership, Wisconsin
Electric Power Company and Natural Gas Clearinghouse.
*10.137. -- Subordinated Creditor Consent and Agreement dated as of May
1, 1995 among LSP-Whitewater Limited Partnership, Wisconsin
Electric Power Company and Northern Natural Gas Company.
*10.138. -- Easement dated May 11, 1995 granted by the University of
Wisconsin-Whitewater to LSP-Whitewater Limited Partnership.
*10.139. -- Easement dated March 22, 1995 granted by the City of
Whitewater to LSP-Whitewater Limited Partnership.
*10.140. -- Easement dated March 22, 1995 granted by the City of
Whitewater to LSP-Whitewater Limited Partnership.
*10.141. -- Easement dated March 22, 1995 granted by the City of
Whitewater to LSP-Whitewater Limited Partnership.
*10.142. -- Easement dated March 22, 1995 granted by the City of
Whitewater to LSP-Whitewater Limited Partnership.
*10.143. -- Easement dated June 2, 1995 granted by Joe C. Pattermann and
June M. Pattermann to LSP-Whitewater Limited Partnership.
*10.144. -- Easement dated September 10, 1994 granted by Joe C.
Pattermann and June M. Pattermann to LSP-Whitewater Limited
Partnership.
*10.145. -- Easement dated May 25, 1995 granted by John P. Hill and
Rosalee K. Hill to LSP-Whitewater Limited Partnership.
*10.146. -- Easement dated June 1, 1994 granted by Mark D. Hoffmann to
LSP-Whitewater Limited Partnership.
*10.147. -- Easement dated May 31, 1995 granted by Daniel L. Schwertfeger
and Jeanne M. Schwertfeger to LSP-Whitewater Limited
Partnership.
*10.148. -- Easement dated June 2, 1995 granted by Jerry C. Kollwelter
and Donna L. Kollwelter to LSP-Whitewater Limited Partnership.
*10.149. -- Easement dated June 1, 1995 granted by Lowell C. Hagen and
Thu T. Hagen to LSP-Whitewater Limited Partnership.
*10.150. -- Easement dated June 1, 1995 granted by Dean A. Cox and
Maybell Cox to LSP-Whitewater Limited Partnership.
EI-10
<PAGE>
Exhibit No. Description
*10.151. -- Easement dated June 5, 1995 granted by John's Disposal
Service, Inc. to LSP-Whitewater Limited Partnership.
*10.152. -- Easement dated June 12, 1995 granted by Greg Lurvey and Mark
Lurvey to LSP-Whitewater Limited Partnership.
*10.153. -- Easement dated October 24, 1994 granted by Perry Moyer and
Dorothy Moyer to LSP-Whitewater Limited Partnership.
*10.154. -- Easement dated October 24, 1994 granted by Perry Moyer and
Dorothy Moyer to LSP-Whitewater Limited Partnership.
*10.155. -- Easement dated May 30, 1995 granted by Perry Moyer and
Dorothy Moyer to LSP-Whitewater Limited Partnership.
*10.156. -- Easement dated May 30, 1995 granted by Perry Moyer and
Dorothy Moyer to LSP-Whitewater Limited Partnership.
*10.157. -- Easement dated June 5, 1995 granted by Robert J. Wagner to
LSP-Whitewater Limited Partnership.
*10.158. -- Easement dated June 5, 1995 granted by Robert J. Wagner to
LSP-Whitewater Limited Partnership.
Granite Power Partners, L.P. Agreements
*10.159. -- Pledge Agreement dated as of May 1, 1995 between Granite
Power Partners, L.P. and The Chase Manhattan Bank (National
Association), as collateral agent.
*10.160. -- Pledge Agreement dated as of May 1, 1995 between Granite
Power Partners, L.P. and The Chase Manhattan Bank (National
Association), as collateral agent.
*10.161. -- Assignment dated as of November 23, 1994 between Granite
Power Partners, L.P. and LSP-Cottage Grove, L.P.
*10.162. -- Assignment dated as of November 23, 1994 between Granite
Power Partners L.P. and LSP-Whitewater Limited Partnership.
*10.163. -- Acknowledgment and Consent dated June 30, 1995 among
Wisconsin Electric Power Company, LSP-Whitewater I, Inc.,
Granite Power Partners, L.P. and TPC Whitewater, Inc.
*10.164. -- Amendment to Participation Agreement dated as of June 29,
1995 between Tomen Power Corporation and Granite Power
Partners, L.P.
LSP-Cottage Grove, Inc. Agreements
*10.165. -- Security Agreement dated as of May 1, 1995 between
LSP-Cottage Grove, Inc. and The Chase Manhattan Bank
(National Association), as collateral agent.
*10.166. -- Management Services Agreement dated as of May 1, 1995 between
LS Power Corporation and LSP-Cottage Grove, Inc.
EI-11
<PAGE>
Exhibit No. Description
LSP-Whitewater I, Inc. Agreements
*10.167. -- Security Agreement dated as of May 1, 1995 between
LSP-Whitewater I, Inc. and The Chase Manhattan Bank
(National Association), as collateral agent.
*10.168. -- Management Services Agreement dated as of May 1, 1995 between
LS Power Corporation and LSP-Whitewater I, Inc.
*10.169. -- Acknowledgment and Consent dated June 30, 1995 among
Wisconsin Electric Power Company, LSP-Whitewater I, Inc.,
Granite Power Partners, L.P. and TPC Whitewater, Inc.
LS Power Corporation Agreements
*10.170. -- Amended and Restated Limited Partnership Agreement of Granite
Power Partners, L.P. dated January 16, 1992 among LS Power
Corporation, Chase Manhattan Capital Corporation and Joseph
Cogen.
*10.171. -- First Amendment to Amended and Restated Limited Partnership
Agreement of Granite Power Partners, L.P. dated December 30,
1993 among LS Power Corporation, Chase Manhattan Capital
Corporation and Joseph Cogen.
_____________________
* Incorporated herein by reference from the Registration Statement on
Form S-4, File No. 33-95928 filed with the Securities and Exchange
Commission by LS Power Funding Corporation, LSP-Cottage Grove, L.P. and
LSP-Whitewater Limited Partnership on August 16, 1995, as amended, or from
the Annual Report on Form 10-K for the fiscal year ended December 31, 1995,
filed with the Securities and Exchange Commission by LS Power Funding
Corporation, LSP-Cottage Grove, L.P. and LSP-Whitewater Limited Partnership.
** In addition to the note for "*" above, confidential treatment has been
granted for certain portions of the noted document.
EI-12
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF LS POWER FUNDING CORPORATION AS OF AND FOR THE YEAR
ENDED DECEMBER 31, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,000
<SECURITIES> 0
<RECEIVABLES> 332,000,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,000
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 332,001,000
<CURRENT-LIABILITIES> 0
<BONDS> 332,000,000
0
0
<COMMON> 1
<OTHER-SE> 999
<TOTAL-LIABILITY-AND-EQUITY> 332,001,000
<SALES> 0
<TOTAL-REVENUES> 25,886,196
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25,886,196
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF LSP-COTTAGE GROVE, L.P. AS OF AND FOR THE YEAR ENDED
DECEMBER 31, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 103,224
<SECURITIES> 28,108,244
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 103,224
<PP&E> 125,596,814
<DEPRECIATION> 0
<TOTAL-ASSETS> 160,582,535
<CURRENT-LIABILITIES> 5,581,535
<BONDS> 155,000,000
0
0
<COMMON> 0
<OTHER-SE> 1,000
<TOTAL-LIABILITY-AND-EQUITY> 160,582,535
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF LSP-WHITEWATER LIMITED PARTNERSHIP AS OF AND FOR THE
YEAR ENDED DECEMBER 31, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 101,114
<SECURITIES> 34,414,528
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 101,689
<PP&E> 149,232,431
<DEPRECIATION> 0
<TOTAL-ASSETS> 190,617,709
<CURRENT-LIABILITIES> 13,616,709
<BONDS> 177,000,000
0
0
<COMMON> 0
<OTHER-SE> 1,000
<TOTAL-LIABILITY-AND-EQUITY> 190,617,709
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
