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UNITED STATES 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, 1998
Commission File Number 33-95928
LS POWER FUNDING CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 81-0502366
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1105 North Market Street, Suite 1108, Wilmington, DE 19801,
(302)427-8494 (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)
9405 Arrowpoint Boulevard, Charlotte, North Carolina 28273, (704)525-3800
9405 Arrowpoint Boulevard, Charlotte, North Carolina 28273, (704)525-3800
(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
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LS POWER FUNDING CORPORATION
LSP-COTTAGE GROVE, L.P.
LSP-WHITEWATER LIMITED PARTNERSHIP
FORM 10-K INDEX
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Page
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PART I
<S> <C> <C>
Item 1. Business 3
Item 2. Properties 17
Item 3. Legal Proceedings 17
Item 4 Submission of Matters to a Vote of Security Holders 17
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 17
Item 6. Selected Financial Data 17
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations 19
Item 8. Financial Statements and Supplementary Data 23
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 23
PART III
Item 10. Directors and Executive Officers of the Registrant 24
Item 11. Executive Compensation 25
Item 12. Security Ownership of Certain Beneficial Owners and Management 25
Item 13. Certain Relationships and Related Transactions 26
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 28
Signatures 29
Financial Statement Index F-1
Exhibits Index E-1
</TABLE>
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PART I/ITEM 1. BUSINESS
ORGANIZATION
Cottage Grove
LSP-Cottage Grove, L.P. ("Cottage Grove") is a single purpose Delaware
limited partnership formed in December 1993 to develop, finance, construct and
own a gas-fired cogeneration facility located in Cottage Grove, Minnesota (the
"Cottage Grove Facility"). The 1% general partner of Cottage Grove is
LSP-Cottage Grove, Inc., a Delaware corporation which is an indirect,
wholly-owned subsidiary of Cogentrix Energy, Inc. ("Cogentrix Energy"). Another
indirect subsidiary of Cogentrix Energy identified in the discussion under the
heading "Change in Control" below, 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 formed in December 1993 to develop, finance, construct and own a
gas-fired cogeneration facility located in Whitewater, Wisconsin (the
"Whitewater Facility", and collectively with the Cottage Grove Facility, the
"Facilities" or "Projects"). The 1% 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 also an indirect, wholly-owned subsidiary of Cogentrix Energy. Another
indirect subsidiary of Cogentrix Energy, identified in the discussion under the
heading "Change in Control" below, 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.
Cogentrix Energy
Cogentrix Energy is a closely held corporation which is principally engaged
in the business of acquiring, developing, owning and operating electric power
generation facilities principally in the United States. Cogentrix Energy sells
electricity and steam, principally under long-term power purchase and steam
sales agreements. Cogentrix Energy currently owns - entirely or in part - a
total of 25 electric generating plants in the United States. Cogentrix Energy's
25 plants are designed to operate at a total production capability of
approximately 4,000 megawatts. After taking into account Cogentrix Energy's part
interests in the 16 plants that it does not wholly-own, which range from 3.3% to
approximately 74%, its net equity interest in the total production capability of
its 25 electric generating plants is approximately 1,690 megawatts. Cogentrix
Energy developed, constructed and currently operates 10 of its plants, which,
with one exception, are located in either North Carolina or Virginia.
When its plant currently under construction in Batesville, Mississippi begins
operation, Cogentrix Energy will have ownership interests in a total of 26
domestic electric generating plants that are designed with a total production
capability of 4,800 megawatts. Cogentrix Energy's net equity interest in the
total production capability of those 26 facilities will be approximately 2,110
megawatts.
Since its inception in 1983, Cogentrix Energy has developed substantial
expertise in the development, construction and operation of power generating
facilities and is one of the largest independent power producers in the United
States based on net ownership of total project megawatts in operation.
Additional information concerning Cogentrix Energy can be found in Cogentrix
Energy's reports filed with the Securities and Exchange Commission.
Funding
LS Power Funding Corporation ("Funding") was organized in June 1995 as a
special purpose Delaware corporation to issue debt securities in connection with
financing the construction of the Facilities. 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.
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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. Due 2010
8.08% First Mortgage Bonds of LSP-Cottage Grove, L.P. Due 2016
7.19% First Mortgage Bonds of LSP-Whitewater Limited Partnership Due
2010
8.08% First Mortgage Bonds of LSP-Whitewater Limited Partnership Due
2016
Cottage Grove and Whitewater each own 50% of the outstanding stock of
Funding.
Change In Control
In March 1998, Cogentrix Energy, through several of its indirect
subsidiaries, acquired all of the capital stock of FloriCulture, Inc., a
Delaware corporation ("FloriCulture"), LSP-Cottage Grove, Inc., and
LSP-Whitewater I, Inc. from their former owners, and the majority of the limited
partnership interests in Cottage Grove and Whitewater. As a result, Cogentrix
Energy now owns indirectly all of the capital stock of FloriCulture, all of the
capital stock of LSP-Cottage Grove, Inc., the general partner of Cottage Grove,
as well as a 72.22% limited partnership interest in Cottage Grove for a combined
total ownership interest of 73.22% in Cottage Grove. As a further result,
Cogentrix Energy now owns all of the capital stock of LSP-Whitewater I, Inc.,
the general partner of Whitewater, as well as a 73.17% limited partnership
interest in Whitewater for a combined total ownership interest of 74.17% in
Whitewater.
On the same date that Cogentrix Energy acquired its indirect ownership
interests in Cottage Grove and Whitewater, Cogentrix Energy and the developer of
the Facilities, LS Power Corporation ("LS Power"), entered into an Assignment
and Assumption Agreement, pursuant to which LS Power assigned, and Cogentrix
Energy assumed, all of the rights and obligations of LS Power under certain
management services agreements between LS Power and each of LSP-Cottage Grove,
Inc., Cottage Grove, LSP-Whitewater, Inc. and Whitewater. A description of these
agreements is included in Part III/Item 13 - "Certain Relationships and Related
Transactions" of this annual report on Form 10-K.
THE POWER PLANTS
The Cottage Grove Facility
The Cottage Grove Facility is 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 Facility is 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 Facility
commenced commercial operation on October 1, 1997 (the "Cottage Grove Commercial
Operations Date"). The Facility consists 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 are 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 Facility is off-line.
All of the electric capacity and energy generated by the Cottage Grove
Facility is sold to Northern States Power Company ("NSP" or, as the context
requires, the "Power Purchaser") under a 30-year power purchase agreement (the
"Cottage Grove Power Purchase Agreement"). The thermal energy generated by the
Cottage Grove Facility is sold in the form of steam to 3M under a 30-year steam
supply agreement. Natural gas for the Cottage Grove Facility is purchased
pursuant to 20-year contracts with Dynegy Marketing and Trade (formerly Natural
Gas Clearinghouse) ("Dynegy") and Aquila Energy Marketing Corporation
("Aquila"), a subsidiary of UtiliCorp United Inc. ("UtiliCorp"). Interstate gas
transportation is provided by Northern Natural Gas Company ("Northern Natural"),
and local gas transportation is 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. Additionally, Northern Natural provides gas
storage services pursuant to a 20-year contract subject to a 10-year renewal
option. The Cottage Grove Facility is designed to operate as a Qualifying
Facility ("QF") under the Public Utility Regulatory Policies Act of 1978
("PURPA") and the regulations promulgated thereunder.
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The Whitewater Facility
The Whitewater Facility is 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 Facility is a "topping-cycle
cogeneration facility". The Whitewater Facility commenced commercial operation
on September 18, 1997 (the "Whitewater Commercial Operations Date"). The
Facility consists 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 are used to
provide thermal energy to Whitewater's thermal energy purchasers when the
Whitewater Facility is off-line.
Whitewater sells up to 236.5 megawatts of electric capacity and associated
energy generated by the Whitewater Facility to Wisconsin Electric Power Company
("WEPCO" or, as the context requires, the "Power Purchaser") pursuant to a
25-year power purchase agreement, as amended (the "Whitewater Power Purchase
Agreement" and, collectively with the Cottage Grove Power Purchase Agreement,
the "Power Purchase Agreements"). Whitewater may also sell to third parties up
to 12 megawatts of electric capacity and any energy that is not dispatched by
WEPCO. The thermal energy generated by the Whitewater Facility is 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 Facility
(the "Greenhouse"). Natural gas for the Whitewater Facility is purchased
pursuant to 20-year contracts with Dynegy and Aquila. Interstate gas
transportation is provided by Northern Natural pursuant to a 20-year contract
subject to a 10-year renewal option, and local gas transportation is provided by
Wisconsin Natural Gas Company ("WNG") pursuant to a 25-year contract with two
five-year renewal options. Additionally, Northern Natural provides gas storage
services pursuant to a 20-year contract subject to a 10-year renewal option. The
Whitewater Facility is designed to operate as a QF under PURPA and the
regulations promulgated thereunder.
CONSTRUCTION
The Cottage Grove Facility
Effective September 30, 1997, Cottage Grove and Westinghouse Electric
Corporation (the "Contractor"), with the concurrence of R.W. Beck, the
independent engineer, agreed to a construction contract change order. Under the
change order, certain non-material modifications were made to the Cottage Grove
construction contract and certain guarantees were deferred until final
completion, which allowed the Contractor to achieve substantial completion and
Cottage Grove to commence commercial operation. In addition, the Contractor
committed to certain future modifications in the Facility's construction,
extension of certain warranty periods and certain financial concessions. As of
December 31, 1998, Cottage Grove had retained construction contract payments (in
the form of cash and an irrevocable letter of credit issued on behalf of the
Contractor) totalling approximately $10,886,000.
The Whitewater Facility
Effective September 18, 1997, Whitewater and the Contractor, with the
concurrence of R.W. Beck, the independent engineer, agreed to a construction
contract change order. Under the change order, certain nonmaterial modifications
were made to the Whitewater construction contract and certain guarantees were
deferred until final completion, which allowed the Contractor to achieve
substantial completion and Whitewater to commence commercial operation. In
addition, the Contractor committed to certain future modifications in the
Facility's construction, extension of certain warranty periods and certain
financial concessions. As of December 31, 1998, Whitewater had retained
construction contract payments (in the form of cash and an irrevocable letter of
credit issued on behalf of the Contractor) totalling approximately $11,174,000.
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PROJECT MANAGEMENT
Since March 20, 1998, the date it acquired control of the Facilities,
Cogentrix Energy has provided certain management and administration services to
the Partnerships, including supervision of the Contractor and Westinghouse
Operating Services Company, Inc., as operator of the Facilities, pursuant to
management services agreements (collectively, the "MSAs") with the Partnerships
and the General Partners. See Part I, Item 1 "Change in Control" and Part III,
Item 13 - "Certain Relationships and Related Transactions".
OPERATIONS AND MAINTENANCE
Operations And Maintenance Agreements
Each of the Cottage Grove and Whitewater Facilities is 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 was required to provide certain services during the pre-operational
phase of the related Facility as well as services following commercial
operation. As compensation for its services, Westinghouse Services is reimbursed
under each O&M Agreement on a monthly basis for certain approved costs incurred
in connection with operating the related Facility. In addition, Westinghouse
Services (i) received a fixed monthly fee during the pre-operational phase of
such Facility and (ii) will receive an annual management fee of $350,000
(subject to adjustment each year based on specified indices published by the
United States Bureau of Labor Statistics) during the operational years of such
Facility. The Partnerships 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
Facilities. Westinghouse Services is also subject to an annual performance bonus
or penalty payment depending on each Facility's availability relative to certain
performance criteria reflecting aspects of similar criteria contained in such
Facility's Power Purchase Agreement. Furthermore, Westinghouse Services is
subject to a penalty payment depending upon each Facility's ability to produce
an uninterrupted supply of thermal energy.
On March 16, 1999, each Partnership exercised an option under its O&M
Agreement to terminate the O&M Agreement with Westinghouse Services effective
April 15, 1999. In connection with the exercise of such option, Cottage Grove
and Whitewater each will make a payment to Westinghouse Services pursuant to its
O&M Agreement in an amount approximately equal to $320,000. Each O&M Agreement
will be replaced with a similar agreement, in all material respects identical to
the applicable O&M Agreement, executed with LSP-Whitewater I, Inc. and
LSP-Cottage Grove, Inc. respectively, each of which is an indirect subsidiary of
Cogentrix Energy.
Parts Agreements
Cottage Grove and Whitewater each have a parts agreement (a "Parts
Agreement" and collectively, the "Parts Agreements") with Westinghouse Electric.
Under each Parts Agreement, Westinghouse Electric provides a spare set of
certain major combustion turbine parts (including combustors, fuel nozzles,
transitions, turbine blades and vanes and various other items), and repairs or
replaces specified parts during certain scheduled and unscheduled outages of the
related Facility. Pursuant to each Parts Agreement, which expires at the earlier
of (i) completion of the first scheduled major inspection of the applicable
Facility and (ii) 15 years after provisional acceptance of the related Facility,
Westinghouse Electric is paid an annual fee of $976,833 (subject to adjustment
each year based on specified indices published by the United States Bureau of
Labor Statistics) for 12 years. In addition, Westinghouse Electric provides
certain Westinghouse Electric parts at a discount from the list price for the
life of the related Facility and repairs certain parts at cost plus a certain
percentage markup for the duration of the financing of such Facility.
GREENHOUSE
Whitewater has entered into an operational services agreement (the
"Greenhouse Operational Services Agreement") with FloriCulture, an affiliate of
Whitewater, which operates the Greenhouse for the benefit of Whitewater.
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Under the terms of the Greenhouse Operational Services Agreement,
FloriCulture is 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 is reimbursed on a
monthly basis for its approved costs in connection with conducting the
Greenhouse business and operating the Greenhouse, 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 the
Cottage Grove Power Purchase Agreement. Under and subject to the terms of the
Cottage Grove Power Purchase Agreement, NSP is obligated to purchase all
electric capacity made available to it and all associated energy which NSP
chooses to dispatch from the Cottage Grove Facility beginning on the Cottage
Grove Commercial Operations Date and extending for 30 years thereafter.
Payments by NSP to Cottage Grove under the Cottage Grove Power Purchase
Agreement consist of (i) capacity payments and (ii) energy payments. The
capacity payments made by NSP are based on the Facility'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 Cottage Grove Facility's
semi-annually tested capacity and its rolling 12-month average for availability
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 delivered by the Cottage Grove Facility subject to
certain agreed dispatch parameters. This offers NSP the flexibility to call upon
the Cottage Grove Facility 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 Facility 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 Facility's actual
fuel costs. The prices that Cottage Grove pays 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.
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% 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% of the capacity payment otherwise due for the period.
Whitewater
Whitewater, as seller, and WEPCO, as Power Purchaser, have entered into 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 from the Whitewater Facility beginning on the
Whitewater Commercial Operations Date and extending for 25 years thereafter.
Payments by WEPCO to Whitewater under the Whitewater Power Purchase
Agreement consist of (i) capacity payments and (ii) energy payments. The
capacity payments made by WEPCO are based on the Whitewater Facility's tested
capacity and availability and
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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 Facility's semi-annually tested capacity,
and average and peak availability factors for the preceding contract year.
Under the Whitewater Power Purchase Agreement, WEPCO has full dispatch
discretion over energy to be delivered by the Whitewater Facility subject to
certain agreed dispatch parameters. This offers WEPCO the flexibility to call
upon the Whitewater Facility 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 Facility vary in
accordance with a published monthly spot natural gas index or with the
Whitewater Facility's actual fuel costs. The prices that Whitewater pays 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 Partnership and WEPCO disagreed on the interpretation of certain
provisions in the Whitewater Power Purchase Agreement with respect to the
methodology to be used to determine Committed Capacity of the Whitewater
Facility, as defined. Effective on February 26, 1998, the Partnership and WEPCO
entered into a settlement letter and the Fifth Amendment to the Power Purchase
Agreement to resolve various differences in interpretation of the Whitewater
Power Purchase Agreement to their mutual satisfaction. Whitewater does not
believe that the settlement will have a material impact on the Partnership's
results of operations or financial position.
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% of Whitewater's
revenues minus expenses. The amount of the reductions precluded by application
of the above limitations will be monitored in a tracking account and the unpaid
balance in the tracking account shall accrue interest at the base or prime
lending rate set from time to time by The Chase Manhattan Bank, N.A. or its
successor. Accrued tracking account obligations are to be repaid when possible,
subject to the limitations described above, or may be applied to WEPCO's
purchase of the Whitewater Facility 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% of Whitewater's revenues minus expenses. The
amount of the reductions precluded by these restrictions is monitored in a
tracking account with repayment subject to the same provisions as for bond
downgrading adjustments discussed above.
QUALIFYING FACILITY STATUS
The Cottage Grove Facility and the Whitewater Facility are each certified as
a QF under PURPA and the regulations of the Federal Energy Regulatory Commission
("FERC") promulgated thereunder. While loss of QF status does not result in a
default under either Power Purchase Agreement, 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
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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"), to become subject to the jurisdiction
of the applicable state public utility commission.
THERMAL ENERGY SALES
Cottage Grove
Cottage Grove has 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 Facility is 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 are used when NSP has not dispatched the
Facility or when the cogeneration process is otherwise unavailable. 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 were 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
Facility'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 Facility'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, at its own expense, take prompt action to correct such
non-conformance. The 3M Thermal Energy Agreement also provides that 3M is
obligated to return the condensate to the Cottage Grove Facility, supply a
quantity of cooling and potable water sufficient to satisfy the requirements of
the Cottage Grove Facility and, to the extent consistent with certain
governmental permits and regulations, accept the Cottage Grove Facility's
wastewater and sanitary wastewater into 3M's existing discharge systems. 3M has
the right to reduce the water supply to the Facility in the event that it cannot
satisfy both its own and Cottage Grove's requirements; however, Cottage Grove
has drilled a back-up well as a reserve in the event of any 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 Facility and periods when 3M is unable to accept steam due to
repair or maintenance of its manufacturing plant. In the event of any failure to
supply steam to 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.
Whitewater
University of Wisconsin-Whitewater -- Whitewater has 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 expires 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").
The DOA may also request, and Whitewater must use reasonable efforts to supply,
steam in excess of the Maximum UWW Purchase Amount. The 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 the DOA) and, at its own cost, take prompt action to
correct such non-conformance.
Whitewater has agreed to reimburse the 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. As of December 31, 1998, Whitewater has reimbursed the DOA
approximately $280,000 for the repair of UWW's steam boiler. Whitewater has also
agreed to pay the annual costs to maintain the back up boiler in a standby mode.
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Whitewater is obligated to supply steam to UWW on a non-interruptible basis,
except during periods of force majeure, emergency conditions affecting the
Whitewater Facility 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 -- Under the terms of the Greenhouse Operational Services
Agreement with FloriCulture, Whitewater will supply the hot water requirements
of the Greenhouse. See "Operations and Maintenance; Greenhouse".
GAS SUPPLY
Each of Cottage Grove and Whitewater has entered into gas supply contracts
with substantially identical terms, with the exception of the volume of gas
required to be delivered under the contracts. This difference is primarily a
result of varying contractual requirements in the Power Purchase Agreements.
Specifically, each Partnership has entered into (i) a gas sales contract with
Dynegy, as amended (the "Dynegy Gas Supply Contracts"), and (ii) a gas sales
contract with Aquila, as amended (the "Aquila Gas Supply Contracts," and
together with the Dynegy Gas Supply Contracts, the "Gas Supply Contracts") to
collectively service 100% of the expected gas requirements of its Facility.
The Aquila Gas Supply Contracts and the Dynegy 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, Dynegy 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 a Gas Supplier fails to deliver properly nominated gas to the
Demarcation Point for any reason other than force majeure or a 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 Facilities. 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
Dynegy and Aquila) to fulfill daily swings in Facility 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% of the annualized maximum
quantity. Under the Dynegy Gas Supply Contracts, one-half of Tier II Gas
quantities delivered may be applied to reduce the minimum take requirement. The
Partnerships may satisfy the minimum take requirements by delivering gas to the
Facilities, 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 Facility. Following the end of the
primary term, the Dynegy Gas Supply Contracts may be extended at the applicable
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
upon the occurrence of certain events 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.
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GAS TRANSPORTATION
Cottage Grove
Cottage Grove has 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 is 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 Cottage Grove Facility for approximately
29 days.
Cottage Grove also has an agreement with Peoples that provides for the
transportation from the Cottage Grove TBS to the Cottage Grove Facility of
29,120 MMBtu per day on a firm basis and excess gas required by the Cottage
Grove Facility 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 has agreed 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, if the rating on the Senior Secured Bonds falls below investment
grade, Cottage Grove will be required to obtain a guarantee or a letter of
credit from an investment grade entity.
The Peoples Agreement provided for the construction of an approximately one
mile long pipeline at Peoples' expense from the Cottage Grove TBS to the Cottage
Grove Facility. The agreement designates Peoples as Cottage Grove's agent with
respect to nominations on Northern Natural's system and requires Peoples to
deliver gas, if available, to Cottage Grove in case of a failure of any of
Cottage Grove's supplies under the Cottage Grove Gas Supply Contracts. 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 Facility for its own use, subject to proper notice and the reimbursement
of Cottage Grove for replacement fuel costs. In consideration for such option,
Cottage Grove receives a monthly payment of $116,480 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.
Whitewater
Whitewater has 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 Whitewater Facility 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.
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Under the Whitewater Northern Agreements, Northern Natural agrees to provide
30,400 MMBtu/day 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 toward 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, if the rating on the Senior Secured Bonds falls below
investment grade, Whitewater will be required to obtain a guarantee or a letter
of credit from an investment grade entity.
Whitewater also has an agreement with WNG which provides for the
transportation of all gas required by the Whitewater Facility from the
Whitewater TBS to the Whitewater Facility (the "WNG Agreement", and together
with the Whitewater Northern Agreements, the "Whitewater Transportation
Agreements"). The WNG Agreement provided for the construction of an
approximately five mile long pipeline from the Whitewater TBS to the Whitewater
site. Whitewater paid approximately $1,328,000 for the construction of the
pipeline. 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 Facility.
Whitewater has 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 consideration
therefor, WP&L pays Whitewater a monthly fee of $58,500 and the incremental
costs incurred for replacement gas or fuel oil, including transportation. The
term of the WP&L Agreement commenced 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 Facility, a single
operator to perform the operation and maintenance of its respective Facility
and, in the case of the Cottage Grove Facility, a single steam purchaser for
purchases of thermal energy. In addition, each Partnership has contracted with
only two gas companies, Aquila and Dynegy, to supply the gas requirements of the
Facilities, 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 and consequently
Funding's ability to make payments on the Senior Secured 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. 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 (the "Policy Act") 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 QFs under PURPA. In addition, over the last several years, various
state utility commissions have opened the electrical generation and sales market
to competition not only from QFs but to non-QF independent power producers and
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 Facility and Whitewater Facility.
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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 Facilities. The permits and regulatory
approvals that have been issued to the Partnerships contain certain conditions.
There can be no assurance that either Facility 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 operation of the Facilities. Laws and regulations affecting
Funding, the Partnerships and the Facilities 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 Facilities, 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 the 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 the
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, other
types of exempt facilities and power marketers) 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 the
financial and organizational regulation of electric utilities.
The Partnerships expect the Facilities to continue to meet all of the
criteria required for designation as QFs under PURPA. If either Facility were to
fail to meet such criteria, the related Partnership may become subject to
regulation under PUHCA, the FPA and state utility laws. Furthermore, as a result
of the loss of QF status on one Facility, and the possible creation of a holding
company, the other Facility 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 with power to vote 10
percent or more of the outstanding voting securities, or controlling influence
over the management, 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 unless 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 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 Facility 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.
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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 Facility 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
interlocking directorates. Upon a loss of QF status, the affected Partnership
would become subject to such requirements and although it could make application
for specific waivers, there is no assurance such application would be approved.
State Regulation
If the Whitewater Facility 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 Public Service Commission (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, and Funding's ability to repay the
Senior Secured Bonds, could be materially delayed or impaired.
Gas Supply And Transportation
The gas transportation agreements serving each Facility 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.
There can be no assurance 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
The construction and operation of power projects are subject to extensive
environmental protection and land use regulation in the United States. Those
regulations applicable to the Partnerships primarily involve the discharge of
emissions into the water and air and the use of water, but can also include
wetlands preservation, endangered species, waste disposal and noise regulation.
These laws and regulations often require a lengthy and complex process of
obtaining and renewing licenses, permits and approvals from federal, state and
local agencies. If such laws and regulations are changed and the Facilities are
not grandfathered, extensive modifications to power project technologies and the
Facilities could be required.
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Although a number of major environmental statutes are scheduled for
reauthorization, the Partnerships expect that environmental regulations will
continue to become more stringent as environmental regulations previously passed
become implemented. Accordingly, the Partnerships plan to continue a strong
emphasis on implementation of environmental standards and procedures at the
Facilities to minimize the environmental impact of energy generation.
CLEAN AIR ACT. In late 1990, Congress passed the Clean Air Act Amendments of
1990 (the "1990 Amendments") which affect existing facilities as well as new
project development. The original Clean Air Act of 1970 set guidelines for
emissions standards for major pollutants from newly-built sources. The
Facilities perform at levels better than federal performance standards mandated
for such facilities under the Clean Air Act. The 1990 Amendments attempt to
reduce emissions from existing sources -- particularly large older facilities
that were exempted from certain regulations under the original Clean Air Act.
The 1990 Amendments create a marketable commodity called a sulfur dioxide
("SO(2)") "allowance." All non-exempt facilities over 25 megawatts that emit
SO(2), including independent power plants, must obtain allowances in order to
operate after 1999. Each allowance gives the owner the right to emit one ton of
SO(2). The Facilities have determined their need for allowances and have
accounted for these requirements in their operating budgets and financial
forecasts.
The 1990 Amendments also require states to impose annual operating permit
fees. Such fees are not expected to significantly increase the costs at the
Facilities.
The 1990 Amendments also contain other provisions that could affect the
Facilities. Provisions dealing with geographical areas the EPA has designated as
in "nonattainment" with national ambient air quality standards require that
existing sources of air pollutants in a nonattainment area be retrofit with
reasonably available control technology ("RACT") for all pollutants for which an
area is designated nonattainment. The technology currently installed at the
Facilities should uniformly meet or exceed RACT for those pollutants.
The 1990 Amendments also provide an extensive new operating permit program
for existing sources called the Title V permitting program. Because the
Facilities were permitted under the Prevention of Significant Deterioration New
Source Review Process, the permitting impact to the Partnerships under the 1990
Amendments at the Facilities is expected to be minimal. The costs of applying
for and obtaining operating air permits are not anticipated to be significant.
The hazardous air pollutant provisions of the 1990 Amendments presently
exclude electric steam generating facilities, such as the Facilities. Three
studies of the emissions from such facilities are, however, in progress. Until
all of these studies are completed and Congress either amends the Clean Air Act
further or the EPA promulgates regulations, the federal hazardous air pollutants
emissions restrictions, which will be applied to the Facilities and other
electric steam generating facilities, will remain uncertain.
In July 1997, the EPA promulgated more restrictive ambient air quality
standards for ozone and particulate matter: less than 25 microns in diameter --
PM-2.5. These new standards will likely increase the number of nonattainment
areas for both ozone and PM-2.5. If the Facilities are in these new
nonattainment areas, further emission reduction requirements could result in the
installation of additional control technology.
In addition, the Ozone Transport Assessment Group ("OTAG"), composed of
state and local air regulatory officials from the 37 eastern states, has
recommended additional NO(x) emission reductions that go beyond current federal
standards. These recommendations include reductions from utility and industrial
boilers. In the fall of 1998, the EPA adopted regulations requiring revisions to
state implementation plans ("SIPs"). These regulations implement some of the
OTAG's recommendations and go beyond some of the OTAG's recommendations for
reductions in NO(x) emissions. The Facilities are not expected to be subject to
these regulations.
The 1990 Amendments expand the enforcement authority of the federal
government by increasing the range of civil and criminal penalties for
violations of the Clean Air Act, enhancing administrative civil penalties, and
adding a citizen suit provision. These enforcement provisions also include
enhanced monitoring, recordkeeping and reporting requirements for existing and
new facilities. On February 13, 1997, the EPA issued a regulation providing for
the use of "any credible evidence or information" in lieu of, or in addition to,
the test methods prescribed by regulation to determine the compliance status of
permitted sources of air pollution. This
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rule may effectively make emission limits previously established for many air
pollution sources, including the Facilities, more stringent.
The Kyoto Protocol regarding greenhouse gas emissions and global warming was
signed by the U.S., committing to significant reductions in greenhouse gas
emissions. The U.S. Senate must ratify the agreement for the protocol to take
effect. The Clinton Administration has proposed a package of legislative and
administrative policies to curb greenhouse gases, none of which are affected by
the need for Senate ratification. Management believes that none of these
policies will have a material effect on the results of operations or financial
position of the Partnerships. Future initiatives on this issue and the effects
on the Partnerships are unknown at this time.
CLEAN WATER ACT. The Facilities are subject to a variety of state and
federal regulations governing existing and potential water/wastewater and
stormwater discharges from the Facilities. Generally, federal regulations
promulgated through the Clean Water Act govern overall water/wastewater and
stormwater discharges through National Pollutant Discharge Elimination System
permits. Under current provisions of the Clean Water Act, existing permits must
be renewed every five years, at which time permit limits are under extensive
review and can be modified to account for more stringent regulations. In
addition, the permits have re-opener clauses which can be used to modify a
permit at anytime. The Facilities have either recently gone through permit
renewal or will be renewed within the next few years. Based upon recent
renewals, the Partnerships do not anticipate more stringent monitoring
requirements for the Facilities.
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 Facility site, there is a possibility that Whitewater would be
responsible for the costs of remediating such contamination from off-site
sources that is subsequently identified at the site.
EMERGENCY PLANNING AND COMMUNITY RIGHT-TO-KNOW ACT. In April of 1997, the
EPA expanded the list of industry groups required to report the Toxic Release
Inventory under Section 313 of the Emergency Planning and Community
Right-to-Know Act to include electric utilities. If oil is burned at all, the
Facilities will be required to complete a toxic chemical inventory release form
for each listed toxic chemical manufactured, processed or otherwise used in
excess of threshold levels for the 1998 reporting year. The purpose of this
requirement is to inform the EPA, states, localities and the public about
releases of toxic chemicals to the air, water and land that can pose a threat to
the community.
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 power market. Because the Partnerships have
long-term contracts to sell electric generating capacity and energy from the
Facilities, it is not expected that competitive forces will have a significant
effect on the businesses of the Partnerships. Nevertheless, each of the Power
Purchase Agreements permits the purchasing utility to schedule the respective
Facility for dispatch on an economic basis, which takes into account the
variable cost of electricity to be delivered by the Facility compared to the
variable cost of electricity available to the purchasing utility from other
sources. Accordingly, competitive forces may have some effect on the dispatch
levels of the Facilities.
The FERC and numerous state utility regulatory commissions 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 Partnerships
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 and each General Partner has a
management services agreement which provides for Cogentrix Energy to perform
management services for each Partnership and each General Partner. See Part III,
Item 13 - "Certain Relationships and Related Transactions". In addition, each of
the Cottage Grove and Whitewater Facilities has been operated to date by
Westinghouse Services pursuant to the O&M Agreements. Cogentrix Energy has
recently caused each Partnership to exercise its option under its O&M Agreement
to terminate the O&M Agreement with Westinghouse Services effective April 15,
1999. The O&M Agreements will be replaced with similar agreements executed with
indirect subsidiaries of Cogentrix Energy. See Part I, Item 1 - "Operations and
Maintenance".
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<PAGE> 17
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 Facility was
constructed.
WHITEWATER
Whitewater owns a 35 acre tract of land located in the City of Whitewater,
Wisconsin on which the Whitewater Facility and the substation for the Facility
were 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 was constructed.
PART I/ITEM 3. LEGAL PROCEEDINGS
Funding, Whitewater and Cottage Grove experience routine litigation in the
normal course of business. Management is of the opinion that none of this
routine litigation will have a material adverse impact on the financial position
or results of operations of Funding, Whitewater or Cottage Grove.
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. Funding
has 100 issued and outstanding shares of common stock, $0.01 par value per
share, 50 of which shares are owned by each Partnership. All of the equity
interests in the Partnerships are held by the partners of the Partnerships and,
therefore, there is no established public market for the equity interests in 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's Discussion and
Analysis of Financial Condition and Results of Operations" under Part II, Item 7
and the financial statements and related notes included under Part II, Item 8.
Funding was organized on June 23, 1995, and the Partnerships were formed on
December 14, 1993. Since their formation in 1993 through September 18, 1997 and
October 1, 1997 for Whitewater and Cottage Grove, respectively, the Partnerships
were developing and constructing their respective Facilities and had recognized
no operating revenues or expenses.
STATEMENT OF INCOME DATA (dollars in thousands):
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
-------------------------------------------- -------------------
FOR THE PERIOD FROM
JUNE 23, 1995
DECEMBER 31, DECEMBER 31, DECEMBER 31, (INCEPTION) TO
1998 1997 1996 DECEMBER 31, 1995
------------ ------------ ------------ -------------------
<S> <C> <C> <C> <C>
FUNDING:
Interest income $25,886 $25,886 $25,886 $12,943
Interest expense 25,886 25,886 25,886 12,943
------- ------- ------- -------
Net income $ -- $ -- $ -- $ --
======= ======= ======= =======
</TABLE>
17
<PAGE> 18
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
-------------- --------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
COTTAGE GROVE:
Operating revenues $44,800 $10,738 N/A N/A N/A
Operating expenses 25,063 5,851 N/A N/A N/A
Operating income 19,737 4,887 N/A N/A N/A
Gain on sales-type capital lease - 87,056 N/A N/A N/A
Interest expense, net 11,246 2,725 N/A N/A N/A
Net income 8,491 89,218 N/A N/A N/A
WHITEWATER:
Operating revenues $51,326 $13,348 N/A N/A N/A
Operating expenses 29,320 7,747 N/A N/A N/A
Operating income 22,006 5,601 N/A N/A N/A
Gain on sales-type capital lease - 97,042 N/A N/A N/A
Interest expense, net 13,096 3,641 N/A N/A N/A
Net income 8,910 99,002 N/A N/A N/A
</TABLE>
BALANCE SHEET DATA (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- -----
<S> <C> <C> <C> <C> <C>
FUNDING:
Current assets $ 1 $ 1 $ 1 $ 1 N/A
Total assets 332,001 332,001 332,001 332,001 N/A
Current liabilities -- -- -- -- N/A
Total long-term debt 332,000 332,000 332,000 332,000 N/A
Stockholders' equity 1 1 1 1 N/A
COTTAGE GROVE:
Current assets $ 918 $ 18,791 $ 103 $ 68 $1
Restricted cash 7,827 11,475 28,108 111,304 --
Net investment in lease 235,566 234,034 -- -- --
Construction in process -- -- 125,597 42,720 --
Total assets 265,012 270,818 160,583 160,951 1
Current liabilities 7,808 8,432 5,582 5,950 --
Total long-term debt 155,000 155,000 155,000 155,000 --
Partners' capital 102,204 107,386 1 1 1
WHITEWATER:
Current assets $ 9,514 $ 17,402 $ 102 $ 72 $1
Restricted cash 6,289 13,752 34,415 126,688 --
Net investment in lease 263,048 262,072 -- -- --
Construction in process -- -- 149,232 49,531 --
Total assets 300,265 308,115 190,618 183,251 1
Current liabilities 9,150 11,556 13,617 6,250 --
Total long-term debt 177,000 177,000 177,000 177,000 --
Partners' capital 114,115 119,559 1 1 1
</TABLE>
18
<PAGE> 19
PART II/ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The Whitewater Facility commenced commercial operations on September 18,
1997, and the Cottage Grove Facility commenced commercial operations on October
1, 1997. The Whitewater and Cottage Grove Power Purchase Agreements described in
Part I/Item 1 - "Sale of Capacity and Electricity" meet the criteria of a
"sales-type" capital lease as described in Statement of Financial Accounting
Standards (SFAS) No. 13, "Accounting for Leases". Cottage Grove and Whitewater
each recognized a gain on sales-type capital lease for the difference between
the estimated fair market value and the historical cost of the Facilities as of
the commencement of the respective Power Purchase Agreement terms (commencement
of commercial operations). The Partnerships each recorded a net investment in
lease that reflects the present value of future minimum lease payments. Future
minimum lease payments represent the amount of capacity payments due from the
utilities under the Power Purchase Agreements in excess of fixed operating costs
(i.e. executory costs). The difference between the undiscounted future minimum
lease payments due from the utilities and the net investment in lease represents
unearned income. This unearned income will be recognized as lease revenue over
the term of the Power Purchase Agreements using the effective interest rate
method. The Partnerships will also recognize service revenue related to the
reimbursement of costs incurred in operating the Facilities and providing
electricity and thermal energy. The amount of service revenue recognized by each
Partnership will be directly related to the level of dispatch of the Facilities
by the utility and to a lesser extent the level of thermal energy required by
the steam hosts.
RESULTS OF OPERATIONS - 1998
Whitewater
The Whitewater Power Purchase Agreement term commenced September 18, 1997.
Prior to September 18, 1997, Whitewater recognized no revenues or expenses.
Revenues for the year ended December 31, 1998 were approximately $51.3
million as compared to $13.3 million for the year ended December 31, 1997. The
increase is attributable to the Whitewater Facility being in operation for a
full 12 months for the year ended December 31, 1998, as compared to only
approximately 3 months in the year ended December 31, 1997. Revenues at December
31, 1998 and 1997 consisted primarily of lease revenue of approximately $23.4
million and $6.6 million respectively, and service revenue of approximately
$25.0 million and $5.9 million, respectively.
Operating expenses were approximately $29.3 million for the year ended
December 31, 1998 as compared to approximately $7.7 million for the year ended
December 31, 1997 . The increase is attributable to the Whitewater Facility
being in operation for a full 12 months for the year ended December 31, 1998, as
compared to only approximately 3 months in the year ended December 31, 1997.
Operating expenses at December 31, 1998 and 1997 consisted primarily of cost of
services related to operating the Facility of approximately $27.5 million and
$6.9 million, respectively. Operating expenses also included approximately $1.8
million and $0.8 million of expenses related to operating the Greenhouse for the
years ended December 31, 1998 and 1997, respectively.
Whitewater recognized a gain on sales-type capital lease described above of
approximately $97.0 million during the year ended December 31, 1997. This gain
represented the difference between the estimated fair market value of the
Facility of approximately $261.7 million and the historical cost of the Facility
of approximately $164.7 million.
Interest expense of approximately $14.1 million for the year ended December
31, 1998 and $4.0 million for the year ended December 31, 1997, consisted
primarily of interest expense on the First Mortgage Bonds. The increase in
interest expense between years is attributable to the Partnership recognizing a
full year of interest expense on the bonds for the year ended December 31, 1998
as compared to only approximately 3 months in the year ended December 31, 1997.
Interest incurred prior to the commercial operations date, which included the
construction phase of the Whitewater Facility, and amortization of deferred
financing costs were capitalized as part of construction in process.
Interest income increased to approximately $1.0 million for the year ended
December 31, 1998 as compared to $0.4 million for the year ended December 31,
1997. The increase is attributable to the Partnership recognizing a full year of
interest income on short-term investments for the year ended December 31, 1998
as compared to only approximately 3 months in the year ended December 31, 1997.
Interest income earned during the construction phase of the Whitewater Facility
and prior to the commercial operations date
19
<PAGE> 20
was netted against construction in process. The trust indenture restricts the
investment of available funds to high quality, short-term financial investments.
Cottage Grove
The Cottage Grove Power Purchase Agreement term commenced October 1, 1997.
Prior to October 1, 1997, Cottage Grove recognized no revenues or expenses.
Revenues for the year ended December 31, 1998 were approximately $44.8
million as compared to $10.7 million for the year ended December 31, 1997. The
increase is attributable to the Cottage Grove Facility being in operation for a
full 12 months for the year ended December 31, 1998, as compared to only 3
months in the year ended December 31, 1997. Revenues in 1998 and 1997 consisted
primarily of lease revenue of approximately $21.1 million and $5.3 million
respectively, and service revenue of approximately $19.7 million and $4.9
million, respectively.
Operating expenses of approximately $25.1 million for the year ended
December 31, 1998 and $5.9 million for the year ended December 31, 1997
consisted of cost of services related to operating the Facility. The increase in
operating expenses is attributable to the Cottage Grove Facility being in
operation for a full 12 months for the year ended December 31, 1998, as compared
to only 3 months in the year ended December 31, 1997.
Cottage Grove recognized a gain on sales-type capital lease described above
of approximately $87.1 million during the year ended December 31, 1997. This
gain represented the difference between the estimated fair market value of the
Facility of approximately $233.6 million and the historical cost of the Facility
of approximately $146.5 million.
Interest expense of approximately $12.3 million for the year ended December
31, 1998 and $3.1 million for the year ended December 31, 1997, consisted
primarily of interest expense on the First Mortgage Bonds. The increase in
interest expense between years is attributable to the Partnership recognizing a
full year of interest expense on the bonds for the year ended December 31, 1998
as compared to only 3 months in the year ended December 31, 1997. Interest
incurred prior to the commercial operations date, which included the
construction phase of the Cottage Grove Facility, and amortization of deferred
financing costs were capitalized as part of construction in process.
Interest income increased to approximately $1.1 million for the year ended
December 31, 1998 as compared to $0.4 million for the year ended December 31,
1997. The increase is attributable to the Partnership recognizing a full year of
interest income on short-term investments for the year ended December 31, 1998
as compared to only approximately 3 months in the year ended December 31, 1997.
Interest income earned during the construction phase of the Cottage Grove
Facility and prior to the commercial operations date was netted against
construction in process. The trust indenture restricts the investment of
available funds to high quality, short-term financial investments.
FACILITY CONSTRUCTION
Cottage Grove
The Partnership has a $107 million turnkey construction contract (inclusive
of executed change orders) with Westinghouse Electric. Westinghouse Electric had
committed to complete the construction and start-up of the Cottage Grove
Facility to specified performance levels by May 31, 1997 and was required under
the contract to reimburse the Partnership for extension fees paid under the
Cottage Grove Power Purchase Agreement, and to pay certain liquidated damages in
the event of a delay. During 1997, Westinghouse Electric was required to pay
$1,333,000 and $5,073,000 of reimbursable extension fees and delay liquidated
damages, respectively, to Cottage Grove. The Partnership recorded a receivable
from Westinghouse Electric of $3,012,000 at December 31, 1997, which was
comprised of reimbursable extension fees of $267,000 and delay liquidated
damages of $2,745,000. This receivable was collected during the year ended
December 31, 1998. The construction and start-up of the Cottage Grove Facility
were substantially complete and commercial operations commenced on October 1,
1997.
Effective September 30, 1997, the Partnership and the Contractor, with the
concurrence of R.W. Beck, the independent engineer, agreed to a Construction
Contract change order. Under the change order, certain nonmaterial modifications
were made to the Cottage Grove Construction Contract and certain guarantees were
deferred until final completion, which allowed the Contractor to achieve
substantial completion and the Partnership to commence commercial operations. In
addition, the Contractor committed to certain future modifications in the
Facility's construction, extension of certain warranty periods and certain
financial concessions. As of
20
<PAGE> 21
December 31, 1998, the Partnership had retained construction contract payments
(in the form of cash and an irrevocable letter of credit) totaling approximately
$10,886,000.
Whitewater
The Partnership has a $115 million turnkey construction contract (inclusive
of executed change orders) with Westinghouse Electric. Westinghouse Electric had
committed to complete the construction and start-up of the Whitewater Facility
to specified performance levels by May 31, 1997 and was required under the
contract to reimburse the Partnership for extension fees paid under the
Whitewater Power Purchase Agreement, and to pay certain liquidated damages in
the event of a delay. During 1997, Westinghouse Electric was required to pay
$110,000 and $4,539,000 of reimbursable extension fees and delay liquidated
damages, respectively, to Whitewater. The Partnership recorded a receivable
from Westinghouse Electric of $2,195,000 at December 31, 1997, which was
comprised of reimbursable extension fees of $35,000 and delay liquidated damages
of $2,160,000. This receivable was collected during the year ended December 31,
1998. The construction and start-up of the Whitewater Facility were
substantially complete and commercial operations commenced on September 18,
1997.
Effective September 18, 1997, the Partnership and the Contractor, with the
concurrence of R.W. Beck, the independent engineer, agreed to a Construction
Contract change order. Under the change order, certain nonmaterial modifications
were made to the Whitewater Construction Contract and certain guarantees were
deferred until final completion, which allowed the Contractor to achieve
substantial completion and the Partnership to commence commercial operations. In
addition, the Contractor committed to certain future modifications in the
Facility's construction, extension of certain warranty periods and certain
financial concessions. As of December 31, 1998, the Partnership had retained
construction contract payments (in the form of cash and an irrevocable letter of
credit) totaling approximately $11,174,000.
LIQUIDITY AND CAPITAL RESOURCES
Whitewater
The principal components of operating cash flow for the year ended December
31, 1998 were net income of $8.9 million and a $0.7 million adjustment for
depreciation and amortization of debt issuance and financing costs, which were
partially offset by amortization of unearned lease income, net of minimum lease
payments received of $1.0 million and a net $1.1 million use of cash reflecting
changes in other working capital assets and liabilities. Cash flow provided by
operating activities of $7.5 million and $7.5 million of escrow funds released,
as well as a portion of the cash on hand at the beginning of the period of $6.6
million, was primarily used to make partner distributions of $14.4 million,
purchase property, plant and equipment of $0.3 million and lend $6.9 million to
an affiliate.
The principal components of operating cash flow for the period ended
December 31, 1997 were net income of $99.0 million and a $0.2 million adjustment
for depreciation and amortization of debt issuance and financing costs, which
were partially offset by amortization of unearned lease income, net of minimum
lease payments received of $0.3 million, a gain of $97.0 million on sales-type
capital lease, and a net of $3.9 million use of cash reflecting changes in other
working capital assets and liabilities. Cash flow in operating activities of
$2.0 million was funded with net proceeds of $0.9 million from the sale of land
and a net $42.6 million of investments drawn by the Partnership. Payments of
$33.8 million on construction in process were funded with the excess cash
provided from the investment draws.
Cottage Grove
The principal components of operating cash flow for the year ended December
31, 1998 were net income of $8.5 million, a $0.3 million adjustment for
amortization of debt issuance and financing costs and a net $0.9 million of cash
provided by changes in other working capital assets and liabilities, which were
partially offset by amortization of unearned lease income, net of minimum lease
payments received of $1.5 million. Cash flow provided by operating activities of
$8.2 million and a release of escrow funds of $3.6 million, as well as a
portion of the cash on hand at the beginning of the period of $7.9 million, was
primarily used to make partner distributions of $13.7 million and lend $6.0
million to an affiliate.
The principal components of operating cash flow for the period ended
December 31, 1997 were net income of $89.2 million and a $0.1 million adjustment
for amortization of debt issuance and financing costs, partially offset by
amortization of unearned lease income, net of minimum lease payments received of
$0.4 million, a gain of $87.1 million on sales-type capital lease, and a net
$4.3 million use of cash reflecting changes in other working capital assets and
liabilities. Cash flow used in operating activities of $2.5 million was funded
with net proceeds of $36.0 million of investments drawn by the Partnership.
Payments of $24.7 million on construction in process were funded with the excess
cash provided from the investment draws.
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
received equity contributions from each of TPC Cottage Grove and TPC Whitewater
in 1997, in the respective amounts of $18,167,000 for Cottage Grove and
$20,556,000 for Whitewater (the "Equity Contribution Amounts"). The net proceeds
from the sale of each Partnership's First Mortgage Bonds and the Equity
Contribution Amounts together with other sources of funds available to such
Partnership were used to: (i) finance the development, design, engineering,
construction, testing, inspection and start-up of its Facility (ii) pay interest
on each Partnership's First Mortgage Bonds during construction and (iii)
maintain a debt service reserve fund as required by certain financing documents.
During the year ended December 31, 1998, the Partnerships transferred the cash
held in the debt service reserve fund to an affiliate of one of the limited
partners, Cogentrix Energy, Inc. The required funds, currently equal to
$6,043,000 and $6,900,000 for Cottage Grove and Whitewater, respectively, are
included on the respective balance sheets as a Note Receivable from Affiliate.
The receivables are backed by an irrevocable letter of credit issued on behalf
of Cogentrix Energy, Inc.
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 and through final completion of the Facilities (the
"Contingency Fund"). At December 31, 1998 and 1997, the balances of the
Contingency Fund accounts were $1,433,000 and $1,426,000, respectively for
Cottage Grove and $345,000 and $339,000, respectively 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 that 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. Effective October 31, 1997, a
$500,000 letter of credit was issued under the Cottage Grove letter of credit
facility to secure certain obligations of Cottage Grove under the Cottage Grove
Power Purchase Agreement.
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. At December 31,
1998, no loans were outstanding under the working capital facilities.
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<PAGE> 22
The Partnerships expect that payments from the utilities under the Power
Purchase Agreements will provide the substantial majority of the revenues of
each of the Partnerships. Under and subject to the terms of the Power Purchase
Agreements, each utility is obligated to purchase electric capacity made
available to it and energy that it requests from the related Partnership. 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").
The Power Purchase Agreements are dispatchable contracts that provide the
utilities with the ability to suspend or reduce purchases of electricity from
the Facilities. The Power Purchase Agreements are structured such that the
Partnership will continue to receive capacity payments during any period of
dispatch. Each Partnership is dependent on capacity 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). Capacity payments by each of NSP and WEPCO are based on the tested
capacity and availability of the Facilities and are unaffected by levels of
dispatch. Each Facility's capacity is subject to semi-annual verification
through testing. Capacity payments are subject to reduction if a Facility is
operating at reduced or degraded capacity at the time of such test, although
each Facility is permitted a retest subject to certain retest limitations. Also,
capacity payments for each Facility are subject to rebate or reduction if the
respective Facility does not maintain certain minimum levels of availability.
Under the Cottage Grove Power Purchase Agreement, capacity payments are further
adjusted by, among other things, the capacity loss factor, which is determined
in accordance with procedures jointly agreed to by Cottage Grove and NSP. 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.
Each Partnership presently believes that funds available from cash and
investments on hand, restricted funds, operations and letter of credit and
working capital facilities will be more than sufficient to liquidate each
partnership's obligations as they come due, pay 1999 project debt service and
make required contributions to project reserve accounts.
As with any power generation facility, operation of the Facilities will
involve certain risks, including the performance of a Facility 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 Facility 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 Facility or significantly increase the
expenses of that Facility, 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 Facility'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 respective Power Purchaser to
terminate its Power Purchase Agreement.
IMPACT OF ENERGY PRICE CHANGES, INTEREST RATES AND INFLATION
The Partnerships have attempted to mitigate the risk of increases in fuel
and transportation costs by providing contractually for matching increases in
the energy payments the Partnerships receive from the utilities purchasing
electricity generated by the Facilities. In addition, the Partnerships have
hedged against the risk of fluctuations in interest rates by arranging fixed
rate financing.
YEAR 2000 COMPLIANCE
The Year 2000 issue exists because many computer systems and applications,
including those embedded in equipment and facilities, use two digit rather than
four digit date fields to designate an applicable year. As a result, the systems
and applications may not properly recognize the year 2000 or process data that
includes such date, potentially causing data miscalculations or inaccuracies or
operational malfunctions or failures. The Partnerships initiated assessments in
1998 to identify the issues required to be resolved to assure business critical
systems successfully operate upon and beyond the turn of the century. The
assessments include reviewing information technology and systems utilizing
embedded technology. Plans for achieving Year 2000 compliance were finalized
during 1998 and remediation work is underway. The Partnerships have identified
the following systems and applications on which to focus its efforts to ensure
Year 2000 compliance:
22
<PAGE> 23
-- corporate applications, which include core business systems;
-- embedded technology systems, which include the plants operating and
control systems and
-- business partner and vendor systems.
Non-compliance in the embedded technology systems or business partner and vendor
systems could result in temporary shutdown of the facilities, and potential
equipment damage.
Replacement of the core financial systems, which include corporate
applications such as purchasing, accounts payable and general ledger, with Year
2000 compliant client-server software is virtually complete. The Partnerships
expect to complete the updating of their human resources and internal payroll
systems by June 30, 1999. The Partnerships do not expect any disruptions in
corporate applications as a result of the Year 2000 issue.
Investigation, analysis, remediation and contingency planning for embedded
technology such as plant operating control systems, telecommunications and
facilities-based equipment at the facilities has been completed. The
investigation and analysis have identified no significant Year 2000 issues. For
those insignificant issues that have been identified as non-compliant, the
Partnerships have established a remediation plan to address the areas of
non-compliance. The remediation of these systems is expected to be completed by
June 30, 1999.
The Partnerships are communicating with critical suppliers, vendors, joint
venture partners and major customers verbally, in writing and through other
representations made by the organizations to assess their compliance efforts and
the Partnerships' exposure resulting from Year 2000 issues. Of major concern are
the fuel suppliers and transporters, and the electric and steam customers. The
Partnerships produce revenue by selling the power produced to major utilities.
The Partnerships depend on fuel suppliers and transporters to deliver fuel to
power the generating facilities. The Partnerships also rely on transmission and
distribution facilities to deliver power to the electric and steam customers. At
this time, based on the Partnerships' review of responses they have received,
the Partnerships do not expect a major impact from non-compliant Year 2000
suppliers, vendors, joint venture partners or major customers. However, an
incomplete or incorrect assessment of the Year 2000 issues by the suppliers and
transporters, transmission and distribution facilities, as well as the utility
customers, could adversely effect the Partnerships' financial results and
operations.
The Partnerships have developed contingency plans for the critical systems.
The Partnerships developed these plans to address the most likely worst case
scenario, the inability of the plants to produce and distribute power. The
contingency plans include turning back the date on all date critical systems at
the plant to ensure the continuous operation of the generating facilities. These
plans have been tested and appear to be adequate.
The Partnerships expect that the business critical systems will be Year 2000
compliant by June 30, 1999, and do not anticipate costs associated with the Year
2000 issue to have a material impact on the results of operations or financial
position. Currently, the Partnerships have not entered into any material
contracts with external contractors to complete the Year 2000 compliance
projects. Cogentrix Energy has dedicated two headquarters level employees to
oversee, develop and test systems to ensure Year 2000 readiness, including Year
2000 readiness at the Cottage Grove and Whitewater Facilities. Managers at each
plant location are also responsible for various components of the Year 2000
testing. Despite management's current expectations, there can be no assurances
that there will not be interruptions or other limitations of financial and
operating systems functionality or that the Partnerships will not ultimately
incur significant unplanned costs to avoid such interruptions or limitations.
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
The registrant has previously reported the information required by this
item in a report on Form 8-K filed on March 31, 1998.
23
<PAGE> 24
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 an indirect wholly-owned subsidiary of Cogentrix Energy. Certain
officers of Cogentrix Energy concurrently serve as officers of the General
Partner.
The following table sets forth the names and positions of the directors and
executive officers of each General Partner. With the exception of Mr. Taiano,
each of these individuals was elected or appointed to his position on March 20,
1998 when the change in control event described in Part I, Item 1 -
"ORGANIZATION - Change in Control" occurred. 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.
<TABLE>
<CAPTION>
NAME AGE OFFICER POSITION
---------------------------- --- -------------------------------
<S> <C> <C>
Mark F. Miller (Director) 44 Managing Director
James R. Pagano (Director) 39 Managing Director and Treasurer
James E. Lewis 35 Vice President
Dennis W. Alexander 52 Vice President and Secretary
Richard L. Taiano (Director) 32 --
</TABLE>
Mark F. Miller is the President, Chief Operating Officer and a Director of
Cogentrix Energy. Prior to joining Cogentrix Energy in May 1997, Mr. Miller was
Vice President for Northrop Grumman in Bethpage, New York. He joined Northrop
Grumman in 1982 and held successive positions in the material, law and contracts
departments before being named Vice President, Contracts and Pricing at
Northrop's B-2 Division in 1991. In 1993, he became Vice President Business
Management at the B-2 Division. In 1994, Northrop acquired the Grumman
Corporation and Mr. Miller was named Vice President Business Management for the
newly formed Electronics and Systems Integration Division, a position he held
until his move to Cogentrix Energy. From 1980 to 1982, he was an associate with
the law firm of Dolack, Hansler.
James R. Pagano has been Group Senior Vice President - Development, Mergers
& Acquisitions since February 1999. From May 1997 until then he was Group Senior
Vice President - Chief Financial Officer of Cogentrix Energy, prior to which he
was Senior Vice President - Project Finance since February 1995 and Vice
President - Project Finance since Cogentrix Energy's formation. Previously, Mr.
Pagano was Vice President - Project Finance of Cogentrix, Inc. since July 1993,
Vice President - Legal and Finance from July 1992 to July 1993, and from January
1992 to July 1992, Mr. Pagano was Vice President and Assistant General Counsel
of Cogentrix, Inc. Prior to joining Cogentrix, Inc. he was Vice President of The
Deerpath Group, Inc., a financial advisory firm. From 1987 to 1990, Mr. Pagano
was an associate with the law firm of Simpson Thacher & Bartlett.
James E. Lewis has been a Director of Cogentrix Energy since 1998, and was
appointed Vice Chairman in March 1999. Prior to 1999, Mr. Lewis was Executive
Vice President of Cogentrix Energy since November 1992. From 1991 to 1992, he
was Senior Vice President of Operations responsible for the daily operations of
Cogentrix Energy's facilities. From 1989 to 1991, Mr. Lewis was Vice President -
Utility Operations. Mr. Lewis joined Cogentrix Energy in 1986. Mr. Lewis
beneficially owns 45,120, or 16%, of the issued and outstanding shares of
Cogentrix Energy.
Dennis W. Alexander has been Group Senior Vice President, General Counsel,
Secretary and a Director of Cogentrix Energy since February 1994. Immediately
prior to joining Cogentrix Energy, Mr. Alexander was Vice President/General
Counsel of Wheelabrator Environmental Systems Inc., the waste-to-energy and
cogeneration subsidiary of Wheelabrator Technologies Inc., an independent power
and environmental services and products company, as well as Director,
Environmental, Health and Safety Audit Program for Wheelabrator Technologies
Inc. From 1988 to 1990, Mr. Alexander was Vice President/General Counsel -
Operations of Wheelabrator Environmental Systems Inc. and from 1986 to 1988 was
Vice President/General Counsel of Wheelabrator Energy Systems, a cogeneration
project development subsidiary. From 1984 to 1986, he served as Group General
Counsel for The Signal Company and from 1980 to 1984 as Division General Counsel
of Wheelabrator-Frye Inc., each a diversified public company.
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
24
<PAGE> 25
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 are the directors and executive officers of Funding.
Directors are elected annually and each elected director holds office until
a successor is elected. Officers will be chosen from time to time by vote of the
board of directors.
<TABLE>
<CAPTION>
NAME AGE OFFICER POSITION
---------------------------- --- -------------------------------
<S> <C> <C>
Mark F. Miller (Director) 44 Managing Director
James R. Pagano (Director) 39 Managing Director and Treasurer
Dennis W. Alexander 52 Vice President and Secretary
Peter H. Sorensen (Director) 38 --
</TABLE>
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 has
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 Cogentrix Energy are compensated by Cogentrix Energy and
are not entitled to any direct compensation from the Partnerships. However,
Cogentrix Energy 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".
PART III/ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS & MANAGEMENT
The following information is given with respect to the partnership interests
in LSP-Cottage Grove, L.P. held by persons who are beneficial owners of more
than 5% of such interests.
<TABLE>
<CAPTION>
TITLE OF CLASS NAME AND ADDRESS OF BENEFICIAL OWNER NATURE OF OWNERSHIP PERCENTAGE INTEREST
- ---------------------------- ------------------------------------ ------------------- -------------------
<S> <C> <C> <C>
General Partnership Interest LSP-Cottage Grove, Inc. General Partner 1.00%
Limited Partnership Interest Cogentrix Cottage Grove, LLC Limited Partner 72.22
Limited Partnership Interest TPC Cottage Grove, Inc. Limited Partner 26.78
-----
100.00%
======
</TABLE>
The following information is given with respect to the partnership interests
in LSP-Whitewater Limited Partnership held by persons who are beneficial owners
of more than 5% of such interests.
<TABLE>
<CAPTION>
TITLE OF CLASS NAME AND ADDRESS OF BENEFICIAL OWNER NATURE OF OWNERSHIP PERCENTAGE INTEREST
- ---------------------------- ------------------------------------ ------------------- -------------------
<S> <C> <C> <C>
General Partnership Interest LSP-Whitewater I, Inc. General Partner 1.00%
Limited Partnership Interest Cogentrix Whitewater, LLC Limited Partner 73.17
Limited Partnership Interest TPC Whitewater, Inc. Limited Partner 25.83
-----
100.00%
======
</TABLE>
25
<PAGE> 26
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 an indirect subsidiary of Cogentrix Energy. See Part I/Item
1 - "ORGANIZATION - Change in Control" and 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.
<TABLE>
<CAPTION>
TITLE OF CLASS NAME AND ADDRESS OF BENEFICIAL OWNER NATURE OF OWNERSHIP PERCENTAGE INTEREST
- -------------- ------------------------------------ ------------------- -------------------
<S> <C> <C> <C>
Common Stock LSP-Cottage Grove, L.P. 50 shares 50.00%
Common Stock LSP-Whitewater Limited Partnership 50 shares 50.00%
-----
100.00%
======
</TABLE>
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 were
at least as favorable to it as those which could have been obtained from
unrelated parties in arms-length transactions.
COGENTRIX ENERGY. LS Power was the developer of the Facilities and until
March 1998 (See Part I/Item 1. Business, Organization - Change in Control)
provided certain management services to each Partnership and each General
Partner pursuant to the MSA's. Since March 20, 1998, Cogentrix Energy has
provided certain management services to each Partnership pursuant to the MSAs.
Under the MSAs, Cogentrix Energy manages the business affairs of each
Partnership 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 currently pays
Cogentrix Energy as compensation for its services a monthly management fee of
approximately $54,000 which fees escalate annually pursuant to a rate of change
in a consumer-price related index. Cogentrix Energy is also reimbursed for its
reasonable and necessary expenses 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 Cogentrix Energy under the
MSAs are designated as operating expenses under the depository agreements and
therefore are paid prior to interest and principal on such Partnership's First
Mortgage Bonds. For the year ended December 31, 1998 Cogentrix Energy received
payments pursuant to the MSAs of approximately $970,000 in the aggregate.
The Partnerships each maintain a debt service reserve fund as required by
certain financing documents. During the year ended December 31, 1998, the
Partnerships transferred the cash held in the debt service reserve funds to
Cogentrix Energy. The required funds, currently equal to $6,043,000 and
$6,900,000 for Cottage Grove and Whitewater, respectively, are included on the
respective balance sheets as a Note Receivable from Affiliate. The receivables
are backed by irrevocable letters of credit.
FLORICULTURE. FloriCulture is a single purpose corporation formed to operate
the Greenhouse for the benefit of Whitewater and is an indirect, wholly-owned
subsidiary of Cogentrix Energy (See Part I/Item 1. Business, Organization -
Change in Control). Whitewater and FloriCulture entered into the Greenhouse
Operational Services Agreement in 1997, whereby FloriCulture is 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 is reimbursed on a monthly basis for its approved costs
in connection with conducting the Greenhouse business and operating the
Greenhouse, and receives 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. For the year ended
December 31, 1998, FloriCulture earned a management fee pursuant to the
Greenhouse Operational Services Agreement of approximately $26,000.
LSP-COTTAGE GROVE, INC. LSP-Cottage Grove, Inc. is the general partner of
Cottage Grove and since March 20, 1998 has been a wholly-owned subsidiary of
Cogentrix Energy (See Part I/Item 1., Business, Organizations - Change in
Control). 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 Cogentrix Energy but do not receive
compensation in the former capacity. LSP-Cottage Grove, Inc. is a party to the
MSA with Cogentrix Energy.
LSP-WHITEWATER I, INC. LSP-Whitewater I, Inc. is the general partner of
Whitewater and since March 20, 1998 has been a wholly-owned subsidiary of
Cogentrix Energy (See Part I/Item 1., Business, Organizations - Change in
Control). 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 Cogentrix Energy but do not receive
compensation in the former capacity. LSP-Whitewater I, Inc. is a party to the
MSA with Cogentrix Energy.
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. During 1997,
TPC
26
<PAGE> 27
Cottage Grove and TPC Whitewater made capital contributions of $18,167,000 and
$20,556,000 to Cottage Grove and Whitewater, respectively.
RELATIONSHIP OF FUNDING AND THE PARTNERSHIPS
Each Partnership owns 50% 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.
27
<PAGE> 28
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.
28
<PAGE> 29
SIGNATURES: Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
LS POWER FUNDING CORPORATION
By:/s/ Mark F. Miller
---------------------------
Name: Mark F. Miller
Title: Managing Director
Date: March 31, 1999
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/ Mark F. Miller Managing Director and Director
- ------------------------------
Mark F. Miller
/s/ James R. Pagano Managing Director, Treasurer
- ------------------------------ and Director (Principal Financial Officer)
James R. Pagano
/s/ Dennis W. Alexander Vice President and Secretary
- ------------------------------
Dennis W. Alexander
/s/ Thomas F. Schwartz Assistant Treasurer
- ------------------------------ (Principal Accounting Officer)
Thomas F. Schwartz
29
<PAGE> 30
SIGNATURES: Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
LSP-COTTAGE GROVE, L.P.
By: LSP-Cottage Grove, Inc.
Its: General Partner
By:/s/ Mark F. Miller
---------------------------
Name: Mark F. Miller
Title: Managing Director
Date: March 31, 1999
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/ Mark F. Miller Managing Director and Director
- ------------------------------
Mark F. Miller
/s/ James R. Pagano Managing Director, Treasurer
- ------------------------------ and Director (Principal Financial Officer)
James R. Pagano
/s/ Dennis W. Alexander Vice President and Secretary
- ------------------------------
Dennis W. Alexander
/s/ Thomas F. Schwartz Assistant Treasurer
- ------------------------------ (Principal Accounting Officer)
Thomas F. Schwartz
30
<PAGE> 31
SIGNATURES: Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
LSP-Whitewater Limited Partnership
By: LSP-Whitewater I, Inc.
Its: General Partner
By:/s/ Mark F. Miller
---------------------------
Name: Mark F. Miller
Title: Managing Director
Date: March 31, 1999
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/ Mark F. Miller Managing Director and Director
- ------------------------------
Mark F. Miller
/s/ James R. Pagano Managing Director, Treasurer
- ------------------------------ and Director (Principal Financial Officer)
James R. Pagano
/s/ Dennis W. Alexander Vice President and Secretary
- ------------------------------
Dennis W. Alexander
/s/ Thomas F. Schwartz Assistant Treasurer
- ------------------------------ (Principal Accounting Officer)
Thomas F. Schwartz
31
<PAGE> 32
LS POWER FUNDING CORPORATION
LSP-COTTAGE GROVE, L.P.
LSP-WHITEWATER LIMITED PARTNERSHIP
FINANCIAL STATEMENT INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
LS POWER FUNDING CORPORATION
Reports of Independent Public Accountants F-2
Balance Sheets as of December 31, 1998 and 1997 F-4
Statements of Income for the Years Ended December 31, 1998, 1997 and 1996 F-5
Statements of Changes in Stockholders' Equity for the Years Ended December 31, 1998, 1997 and 1996 F-6
Statements of Cash Flows for the Years Ended December 31, 1998, 1997 and 1996 F-7
Notes to Financial Statements F-8
LSP-COTTAGE GROVE, L.P.
Reports of Independent Public Accountants F-11
Balance Sheets as of December 31, 1998 and 1997 F-13
Statements of Income for the Years Ended December 31, 1998, 1997 and 1996 F-14
Statements of Changes in Partners' Capital for the Years Ended December 31, 1998, 1997 and 1996 F-15
Statements of Cash Flows for the Years Ended December 31, 1998, 1997 and 1996 F-16
Notes to Financial Statements F-17
LSP-WHITEWATER LIMITED PARTNERSHIP
Reports of Independent Public Accountants F-25
Balance Sheets as of December 31, 1998 and 1997 F-27
Statements of Income for the Years Ended December 31, 1998, 1997 and 1996 F-28
Statements of Changes in Partners' Capital for the Years Ended December 31, 1998, 1997 and 1996 F-29
Statements of Cash Flows for the Years Ended December 31, 1998, 1997 and 1996 F-30
Notes to Financial Statements F-31
</TABLE>
F-1
<PAGE> 33
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
LS Power Funding Corporation:
We have audited the accompanying balance sheets of LS Power Funding
Corporation (a Delaware corporation) as of December 31, 1998 and 1997, and the
related statements of income, changes in stockholders' equity and cash flows for
the years then ended. 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, 1998 and 1997, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Charlotte, North Carolina,
February 26, 1999.
F-2
<PAGE> 34
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
LS Power Funding Corporation:
We have audited the balance sheet of LS Power Funding Corporation as of
December 31, 1996 (not presented separately herein) and the related statements
of income, 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 (not presented separately herein). 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 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.
KPMG PEAT MARWICK LLP
Billings, Montana,
February 13, 1997.
F-3
<PAGE> 35
LS POWER FUNDING CORPORATION
BALANCE SHEETS
December 31, 1998 and 1997
(dollars in thousands)
<TABLE>
<CAPTION>
ASSETS 1998 1997
-------- --------
<S> <C> <C>
CURRENT ASSET:
Cash and cash equivalents $ 1 $ 1
INVESTMENT IN FIRST MORTGAGE BONDS 332,000 332,000
-------- --------
Total assets $332,001 $332,001
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITY:
Senior secured bonds payable $332,000 $332,000
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, 1,000 shares authorized,
100 shares issued and outstanding -- --
Additional paid-in capital 1 1
-------- --------
Total stockholders' equity 1 1
-------- --------
Total liabilities and stockholders' equity $332,001 $332,001
======== ========
</TABLE>
The accompanying notes to the financial statements are an
integral part of these balance sheets.
F-4
<PAGE> 36
LS POWER FUNDING CORPORATION
STATEMENTS OF INCOME
For the Years Ended December 31, 1998, 1997 and 1996
(dollars in thousands)
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Interest income $25,886 $25,886 $25,886
Interest expense 25,886 25,886 25,886
------- ------- -------
Net income $ -- $ -- $ --
======= ======= =======
</TABLE>
The accompanying notes to the financial statements are
an integral part of these statements.
F-5
<PAGE> 37
LS POWER FUNDING CORPORATION
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1998, 1997 and 1996
(dollars in thousands)
<TABLE>
<CAPTION>
Total
Common Additional Stockholders'
Stock Paid-in Capital Equity
--------- --------------- -------------
<S> <C> <C> <C>
Balance, December 31, 1998,
1997 and 1996 $ -- $ 1 $ 1
--------- --------- ---------
</TABLE>
The accompanying notes to the financial statements are
an integral part of these statements.
F-6
<PAGE> 38
LS POWER FUNDING CORPORATION
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1998, 1997 and 1996
(dollars in thousands)
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
CASH PROVIDED BY OPERATING ACTIVITIES $ -- $ -- $ --
------- ------- -------
CASH PROVIDED BY INVESTING ACTIVITIES -- -- --
------- ------- -------
CASH PROVIDED BY FINANCING ACTIVITIES -- -- --
------- ------- -------
NET INCREASE(DECREASE) IN CASH -- -- --
CASH, beginning of year 1 1 1
------- ------- -------
CASH, end of year
$ 1 $ 1 $ 1
======= ======= =======
</TABLE>
The accompanying notes to the financial statements are
an integral part of these statements.
F-7
<PAGE> 39
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 and own 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 includes short-term investments
with original maturities of three months or less.
INCOME TAXES
Funding does not record a tax provision as it has no reportable book or
taxable income, and there is no difference between Funding's book bases and tax
bases of its existing assets and liabilities. Due to the nature of Funding's
structure as a single purpose funding corporation, Funding is not expected to
produce book or taxable income in future periods.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
period. Actual results could differ from those estimates.
3. INVESTMENT IN FIRST MORTGAGE BONDS
Investment in First Mortgage Bonds consists of the following at December 31,
1998 and 1997 (dollars in thousands):
7.19% Cottage Grove First Mortgage Bonds
Due June 30, 2010 $49,278
8.08% Cottage Grove First Mortgage Bonds
Due December 30, 2016 105,722
7.19% Whitewater First Mortgage Bonds
Due June 30, 2010 56,273
8.08% Whitewater First Mortgage Bonds
Due December 30, 2016 120,727
--------
$332,000
========
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 fair value of Funding's investment in the First
Mortgage Bonds at December 31, 1998 and 1997 was approximately $31,281,000 and
$30,375,000 higher than the historical carrying value of $332,000,000,
respectively.
F-8
<PAGE> 40
The following are summarized balance sheets and statements of income of
Cottage Grove and Whitewater as of and for the years ended December 31, 1998 and
1997 (dollars in thousands):
<TABLE>
<CAPTION>
COTTAGE GROVE WHITEWATER
------------------------ ------------------------
1998 1997 1998 1997
--------- ---------- --------- ---------
<S> <C> <C> <C> <C>
BALANCE SHEETS:
Current assets $ 17,147 $ 30,266 $ 15,803 $ 31,154
Net investment in lease 235,566 234,034 263,048 262,072
Greenhouse facility, net -- -- 8,172 8,281
Other non-current assets 12,299 6,518 13,242 6,608
--------- --------- --------- ---------
Total Assets $ 265,012 $ 270,818 $ 300,265 $ 308,115
========= ========= ========= =========
Current liabilities $ 7,808 $ 8,432 $ 9,150 $ 11,556
First Mortgage Bonds payable 155,000 155,000 177,000 177,000
Partners' capital 102,204 107,386 114,115 119,559
--------- --------- --------- ---------
Total Liabilities and Partners' Capital $ 265,012 $ 270,818 $ 300,265 $ 308,115
========= ========= ========= =========
STATEMENTS OF INCOME:
Operating revenues $ 44,800 $ 10,738 $ 51,326 $ 13,348
Operating expenses 25,063 5,851 29,320 7,747
--------- --------- --------- ---------
Operating income 19,737 4,887 22,006 5,601
--------- --------- --------- ---------
Gain on sales-type capital lease -- 87,056 -- 97,042
Interest expense, net (11,246) (2,725) (13,096) (3,641)
--------- --------- --------- ---------
Net Income $ 8,491 $ 89,218 $ 8,910 $ 99,002
========= ========= ========= =========
</TABLE>
4. SENIOR SECURED BONDS PAYABLE
Senior Secured Bonds Payable consists of the following at December 31, 1998
and 1997 (dollars in thousands):
7.19% Senior Secured Bonds due
June 30, 2010 ("2010 Bonds") $105,551
8.08% Senior Secured Bonds due
December 30, 2016 ("2016 Bonds") 226,449
--------
$332,000
========
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.
Collective future maturities of the Senior Secured Bonds as of December 31,
1998 are as follows (dollars in thousands):
1999 $ -
2000 2,323
2001 3,314
2002 4,559
2003 5,869
Thereafter 315,935
--------
$332,000
========
The Senior Secured 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
F-9
<PAGE> 41
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.
The fair value of Funding's Senior Secured Bonds at December 31, 1998 and
1997 was approximately $31,281,000 and $30,375,000 higher than the historical
carrying value of $332,000,000, respectively.
F-10
<PAGE> 42
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
LSP-Cottage Grove, L.P.:
We have audited the accompanying balance sheets of LSP-Cottage Grove, L.P.
(a Delaware limited partnership) as of December 31, 1998 and 1997, and the
related statements of income, changes in partners' capital and cash flows for
the years then ended. 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-Cottage Grove, L.P. as
of December 31, 1998 and 1997, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Charlotte, North Carolina,
February 26, 1999.
F-11
<PAGE> 43
INDEPENDENT AUDITORS' REPORT
The Partners
LSP-Cottage Grove, L.P.:
We have audited the balance sheet of LSP-Cottage Grove, L.P. as of December
31, 1996 (not presented separately herein), and the related statements of
income, changes in partners' capital and cash flows for the year ended December
31, 1996 and the year ended December 31, 1995 (not presented separately herein).
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-Cottage Grove, L.P. as
of December 31, 1996, and the results of its operations and its cash flows for
each of the years in the two-year period ended December 31, 1996, in conformity
with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Billings, Montana,
February 13, 1997.
F-12
<PAGE> 44
LSP-COTTAGE GROVE, L.P.
BALANCE SHEETS
December 31, 1998 and 1997
(dollars in thousands)
<TABLE>
<CAPTION>
ASSETS 1998 1997
-------- ---------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 918 $ 8,816
Restricted cash 7,827 11,475
Accounts receivable - trade 4,560 4,598
Accounts receivable - other 1,227 3,012
Fuel inventories 1,448 1,869
Fuel held for resale 401 --
Spare parts inventories 486 443
Other current assets 280 53
-------- --------
Total current assets 17,147 30,266
NET INVESTMENT IN LEASE (Notes 3 and 6) 235,566 234,034
DEBT ISSUANCE AND FINANCING COSTS, net of
accumulated amortization of $867 in 1998 and
$605 in 1997 6,255 6,517
NOTE RECEIVABLE FROM AFFILIATE (Note 3) 6,043 --
INVESTMENT IN UNCONSOLIDATED AFFILIATE 1 1
-------- --------
Total assets $265,012 $270,818
======== ========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Accounts payable $ 7,565 $ 8,360
Accrued expenses 243 72
-------- --------
Total current liabilities 7,808 8,432
FIRST MORTGAGE BONDS PAYABLE 155,000 155,000
-------- --------
Total liabilities 162,808 163,432
COMMITMENTS AND CONTINGENCIES (Note 11)
PARTNERS' CAPITAL: 102,204 107,386
-------- --------
Total liabilities and partners' capital $265,012 $270,818
======== ========
</TABLE>
The accompanying notes to the financial statements are
an integral part of these balance sheets.
F-13
<PAGE> 45
LSP-COTTAGE GROVE, L.P.
STATEMENTS OF INCOME
For the Years Ended December 31, 1998, 1997 and 1996
(dollars in thousands)
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- ----
<S> <C> <C> <C>
OPERATING REVENUES:
Lease revenue $ 21,140 $ 5,265 $--
Service revenue 19,653 4,879 --
Other 4,007 594 --
-------- -------- ---
44,800 10,738 --
OPERATING EXPENSES:
Cost of services 25,063 5,851 --
-------- -------- ---
OPERATING INCOME 19,737 4,887 --
NON-OPERATING INCOME (EXPENSE):
Gain on sales-type capital lease -- 87,056 --
Interest expense (12,348) (3,087) --
Interest income 1,102 362 --
-------- -------- ---
Net income $ 8,491 $ 89,218 $--
======== ======== ===
</TABLE>
The accompanying notes to the financial statements are
an integral part of these statements.
F-14
<PAGE> 46
LSP-COTTAGE GROVE, L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
For the Years Ended December 31, 1998, 1997 and 1996
(dollars in thousands)
<TABLE>
<CAPTION>
LIMITED PARTNERS GENERAL PARTNER TOTAL
------------------------------------------------ --------------- ---------
TPC Cottage Granite Power Cogentrix Cottage LSP-Cottage
Grove, Inc. Partners, L.P. Grove, LLC Grove, Inc.
----------- -------------- ----------------- -----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 $ -- $ 1 $ -- $-- $ 1
Capital contributions 18,167 -- -- -- 18,167
Net income 23,893 64,433 -- 892 89,218
-------- -------- -------- ----- ---------
Balance, December 31, 1997 42,060 64,434 -- 892 107,386
Net income through
March 20, 1998 505 1,363 -- 19 1,887
Sale of 100% ownership
interest, March 20, 1998 -- (65,797) 65,797 -- --
Partner distributions (1,541) -- (12,078) (54) (13,673)
Net income from March 20, 1998
through December 31, 1998 1,769 -- 4,769 66 6,604
-------- -------- -------- ----- ---------
Balance, December 31, 1998 $ 42,793 $ -- $ 58,488 $ 923 $ 102,204
======== ======== ======== ===== =========
</TABLE>
The accompanying notes to the financial statements are
an integral part of these statements.
F-15
<PAGE> 47
LSP-COTTAGE GROVE, L.P.
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1998, 1997 and 1996
(dollars in thousands)
<TABLE>
<CAPTION>
1998 1997 1996
-------- --------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 8,491 $ 89,218 $ --
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Gain on sales-type capital lease -- (87,056) --
Amortization of unearned lease income (21,140) (5,265) --
Minimum lease payments received 19,608 4,866 --
Amortization of debt issuance and financing costs 262 66 --
(Increase) decrease in accounts receivable - trade 38 (4,598) --
Decrease in accounts receivable - other 1,785 -- --
(Increase) decrease in fuel inventories 20 (1,648) --
Increase in spare parts inventories (43) (134) --
Increase in other current assets (227) (53) --
Increase (decrease) in accounts payable (795) 2,032 --
Increase in accrued expenses 171 72 --
-------- --------- --------
Net cash flows provided by (used in) operating activities 8,170 (2,500) --
-------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments on construction in process -- (24,771) (87,157)
Investments held by Trustee -- (18,167) --
Investments drawn -- 35,984 87,358
Decrease in restricted cash 3,648 -- --
-------- --------- --------
Net cash flows provided by (used in) investing activities 3,648 (6,954) 201
-------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Partner distributions (13,673) -- --
Debt issuance and financing costs -- -- (153)
Increase in note receivable from affiliate (6,043) -- --
Capital contributions -- 18,167 --
-------- --------- --------
Net cash flows provided by (used in) financing activities (19,716) 18,167 (153)
-------- --------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (7,898) 8,713 48
CASH AND CASH EQUIVALENTS, beginning of period 8,816 103 55
-------- --------- --------
CASH AND CASH EQUIVALENTS, end of period $ 918 $ 8,816 $ 103
======== ========= ========
RECONCILIATION OF CHANGES IN
CONSTRUCTION IN PROCESS
Decrease (increase) in total construction in process $ -- $ 125,499 $(82,877)
Construction in process sold in lease transaction -- (146,481) --
Amortization of debt issuance and financing costs -- 191 239
Interest income on investments held by Trustee -- (1,184) (4,163)
Increase in accounts receivable - other -- (3,012) --
Decrease (increase) in other current assets -- -- 13
Increase in fuel inventories -- (221) --
Increase in spare parts inventories -- (309) --
Increase (decrease) in accounts payable -- 746 (369)
-------- --------- --------
Payments on construction in process $ -- $ (24,771) $(87,157)
======== ========= ========
Supplemental disclosure of cash flow information:
Cash paid for interest during the year $ 12,085 $ 12,085 $ 12,085
======== ========= ========
</TABLE>
The accompanying notes to the financial statements are
an integral part of these statements.
F-16
<PAGE> 48
LSP-COTTAGE GROVE, L.P.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND NATURE OF BUSINESS
LSP-Cottage Grove, L.P. (the "Partnership") is a Delaware limited
partnership that was formed on December 14, 1993 to develop, finance, construct
and own a gas-fired cogeneration facility with a design capacity of
approximately 245 megawatts located in Cottage Grove, Minnesota (the
"Facility"). Construction and start-up of the Facility was substantially
completed and commercial operation commenced October 1, 1997 (the "Commercial
Operations Date"). The 1% general partner of the Partnership is LSP-Cottage
Grove, Inc., a wholly-owned subsidiary of Cogentrix Cottage Grove, LLC, a
limited liability company, ("Cogentrix"). Cogentrix and TPC Cottage Grove, Inc.,
a Delaware corporation ("TPC"), are the sole limited partners of the
Partnership, owning approximately 72% and 27% limited partnership interests,
respectively. The ultimate parent of Cogentrix is Cogentrix Energy, Inc.
("Cogentrix Energy"), a Delaware corporation. See Note 2 for discussion of a
change in ownership that occurred on March 20, 1998.
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 Facility and a similar
gas-fired cogeneration facility located in Whitewater, Wisconsin (the
"Whitewater Facility"). 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.
All of the electric capacity and energy generated by the Facility is sold to
Northern States Power Company ("NSP" or, as the context requires, the "Utility")
under a 30-year power purchase agreement (the "Power Purchase Agreement"). The
thermal energy generated by the Facility is sold in the form of steam to
Minnesota Mining and Manufacturing Company ("3M" or, as the context requires,
the "Steam Purchaser") under a 30-year thermal energy sales agreement (the
"Steam Supply Agreement").
2. CHANGE IN CONTROL
On March 6, 1998, the previous owners of the Partnership, LS Power
Corporation and its wholly-owned subsidiary, Granite Power Partners, L.P.
(collectively, the "Sellers") entered into a Securities Purchase Agreement (the
"Securities Purchase Agreement") with Cogentrix Mid America, Inc. (CMA) and
Cogentrix (collectively, the "Purchasers") and Cogentrix Energy, which controls
each of the Purchasers as wholly-owned indirect subsidiaries.
On March 20, 1998, pursuant to the Securities Purchase Agreement, the
Sellers sold all of the Sellers' capital stock of LSP Cottage Grove, Inc., and
all of the Sellers' limited partnership interest in the Partnership to the
Purchasers. As a result, Cogentrix , a wholly-owned subsidiary of CMA, acquired
all of the capital stock of LSP-Cottage Grove, Inc., the 1% general partner of
the Partnership, as well as a 72.22% limited partnership interest in the
Partnership for a combined total ownership interest of 73.22% in the
Partnership.
On the same date that the wholly-owned indirect subsidiaries of Cogentrix
Energy identified above acquired their ownership interests in the Partnership,
Cogentrix Energy and LS Power Corporation entered into an Assignment and
Assumption Agreement, by the terms of which LS Power Corporation assigned, and
Cogentrix Energy assumed, all of the rights and obligations of LS Power
Corporation under certain management services agreements between LS Power
Corporation and each of LSP-Cottage Grove, Inc. and the Partnership.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash equivalents include unrestricted
short-term investments with original maturities of three months or less.
F-17
<PAGE> 49
RESTRICTED CASH
The majority of the revenue received by the Partnership is required to be
deposited into accounts administered by the trustee under the trust indenture
for the First Mortgage Bonds (the "Trustee"). The Trustee invests funds held in
these accounts at the direction of the Partnership. The funds are invested in
commercial paper, high grade government money market funds and overnight
repurchase obligations secured by U.S. Treasury Notes. The investments are
carried at cost, which approximates market at December 31, 1998 and 1997. In
addition, special accounts are established to provide for debt service reserves
and payments, and major maintenance reserves. Amounts held by the Trustee in
accounts designated for debt service, major maintenance and construction, which
might otherwise be considered cash equivalents, are treated as restricted cash.
COMMENCEMENT OF POWER PURCHASE AGREEMENT
The Power Purchase Agreement described in Note 11 has characteristics
similar to a lease in that the agreement confers to the purchasing utility the
right to use specific property, plant and equipment. At the Commercial
Operations Date, the Partnership accounted for the Power Purchase Agreement as a
"sales-type" capital lease in accordance with Statement of Financial Accounting
Standards (SFAS) No. 13, "Accounting for Leases" (see Note 6).
CONSTRUCTION IN PROCESS
Prior to commercial operations, all costs incurred to develop and construct
the Facility, including net costs associated with performance testing prior to
the Commercial Operations Date, as well as interest costs (including
amortization of debt issuance and financing costs), net of interest income on
excess proceeds, were capitalized and classified as construction in process.
In recording the Partnership's gain on sales-type capital lease, all
construction in process costs were included in the historical cost basis of the
Facility. All interest costs subsequent to the Commercial Operations Date have
been charged to expense. As of December 31, 1998 and 1997, capitalized interest
net of accumulated amortization and including amortization of debt issuance and
financing costs was approximately $17,329,000 and $17,970,000, respectively.
NOTE RECEIVABLE FROM AFFILIATE
At December 31, 1998, the Partnership had a note receivable from Cogentrix
Energy. The amount of the note receivable is equal to the amount of funds
required to be on deposit in the debt service reserve account. The note
receivable is backed by a letter of credit issued to the Partnership. The note
receivable bears interest at the three-month LIBOR rate plus 0.25%, and is due
December 15, 2016.
DEBT ISSUANCE AND FINANCING COSTS
Debt issuance and other financing costs are deferred and amortized over the
term of the related debt. Amortization of deferred financing costs was
capitalized as part of construction in process prior to commercial operations,
and is included in interest expense subsequent to commercial operations in the
accompanying financial statements.
CURRENT LIABILITIES
As of December 31, 1998 and 1997, $5,443,000 and $6,328,000 of current
liabilities were considered project costs and were eligible for payment from
funds held by the Trustee, which are included in restricted cash in the
accompanying balance sheets.
LEASE REVENUE
Lease revenue represents the amortization of unearned income on the lease
using the effective interest rate method as well as contingent rentals that
result from changes in payment escalators occurring subsequent to the Commercial
Operations Date. These contingent rentals are not expected to materially change
the lease revenue recognized over the life of the Power Purchase Agreement.
SERVICE REVENUE
Service revenue represents reimbursement to the Partnership of costs
incurred to operate the Facility and to provide variable electric energy to the
Utility and thermal energy to the Steam Purchaser.
F-18
<PAGE> 50
OTHER REVENUES
Other revenues consist primarily of commodity sales of excess natural gas
fuel inventory, including amounts remarketed directly to third parties.
COST OF SERVICES
Cost of services represent expenses related to operating the Facility and
providing variable electric energy to the Utility as well as thermal energy to
the Steam Purchaser.
INCOME TAXES
Under current tax laws, income or loss of partnerships is included in the
income tax returns of the partners. Accordingly, the Partnership makes no
provision for federal and state income taxes. The tax returns of the Partnership
are subject to examination by federal and state taxing authorities. If such
examinations occur and result in changes with respect to the Partnership
qualification, or in changes in distributable partnership income or loss, the
tax liability of the partners would be changed accordingly.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
establishes accounting and reporting standards requiring that every derivative
instrument (including certain derivative instruments embedded in other
contracts) be recorded in the balance sheets as either an asset or liability
measured at its fair value. SFAS No. 133 requires that changes in the
derivative's fair value be recognized in current earnings unless specified hedge
accounting criteria are met. Special accounting for qualifying hedges allows a
derivative's gains and losses to offset related results on the hedged item in
the income statement, and requires that a company must formally document,
designate, and assess the effectiveness of transactions that receive hedge
accounting.
SFAS No. 133 is effective for fiscal years beginning after June 15, 1999.
Early adoption is allowed. SFAS No. 133 must be applied to derivative
instruments and certain derivative instruments embedded in hybrid contracts that
were issued, acquired, or substantially modified after December 31, 1997.
The Partnership has not yet quantified the impacts of adopting SFAS No. 133
on the financial statements, and has not determined the timing or method of
adoption of SFAS No. 133.
In April 1998, the American Institute of Certified Public Accounts ("AICPA")
issued Statement of Position ("SOP") No. 98-5, "Reporting on the Costs of
Start-Up Activities," which is effective for financial statements for fiscal
years beginning after December 15, 1998. SOP No. 98-5 requires costs incurred
for start-up activities to be expensed as incurred. For purposes of this SOP,
start-up activities are defined broadly as those one-time activities related to
opening a new facility, conducting business in a new territory, conducting
business with a new class of customer or beneficiary, initiating a new process
in an existing facility, or commencing a new operation. Start-up activities
include activities related to organizing a new entity (commonly referred to as
organization costs). The Partnership will adopt SOP No. 98-5 as of January 1,
1999. The Partnership has determined that SOP No. 98-5 will not have a material
impact on its financial statements.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1997 financial statements
in order to conform to the 1998 presentation.
F-19
<PAGE> 51
4. ACCOUNTS RECEIVABLE - OTHER
Accounts receivable-other at December 31, 1998 represents amounts due from
Westinghouse Electric Corporation ("Westinghouse Electric"), the Partnership's
construction contractor, for warranty expense reimbursements.
Accounts receivable-other at December 31, 1997 represented amounts due from
Westinghouse Electric for delay liquidated damages and extension fees due as a
result of Westinghouse Electric's failure to complete the construction and
start-up of the Facility by May 31, 1997. Such liquidated damages and extension
fees were capitalized as a reduction of construction in process. The damages and
fees were collected during January, 1998.
5. FUEL INVENTORIES
As of December 31, 1998 and 1997 fuel inventories consisted of the following
(dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1998 1997
-------------- ---------------
<S> <C> <C>
Natural Gas $ 1,147 $ 1,490
Fuel Oil 301 379
--------- ---------
$ 1,448 $ 1,869
========= =========
</TABLE>
Natural Gas is stated at weighted average cost and fuel oil is stated at
cost based on the first-in first-out method.
6. SALES-TYPE CAPITAL LEASE
Upon the Commercial Operations Date of the Facility, the Partnership
recognized a gain on sales-type capital lease of $87.1 million reflecting the
difference between the estimated fair market value ($233.6 million) and the
historical cost ($146.5 million) of the Facility. The interest rate implicit in
the lease is 9.01%. The estimated residual value of the Facility at the end of
the lease term is $0. The components of the net investment in lease at December
31, 1998 and 1997, are as follows (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1998 1997
-------------- ---------------
<S> <C> <C>
Gross Investment in Lease $547,807 $567,415
Unearned Income on Lease (312,241) (333,381)
-------- ---------
Net Investment in Lease $235,566 $234,034
======== ========
</TABLE>
Gross investment in lease represents total capacity payments receivable over
the life of the Power Purchase Agreement, net of executory costs, which are
considered minimum lease payments in accordance with SFAS No. 13.
Estimated minimum lease payments over the remaining term of the Power
Purchase Agreement as of December 31, 1998, are as follows (dollars in
thousands):
1999 $ 20,172
2000 21,144
2001 21,060
2002 22,104
2003 23,028
Thereafter 440,304
--------
Total $547,812
========
F-20
<PAGE> 52
7. INVESTMENT IN UNCONSOLIDATED AFFILIATE
Investment in unconsolidated affiliate represents the Partnership's 50%
ownership interest in Funding. The Partnership's investment in Funding is
accounted for using the equity method. The following is summarized financial
information for Funding (dollars in thousands):
STATEMENT OF INCOME DATA:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
------------------------------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1996
---------------- ------------------- -------------------
<S> <C> <C> <C>
Interest income $25,886 $25,886 $25,886
Interest expense 25,886 25,886 25,886
------- ------- -------
Net income $ - $ - $ -
======= ======= =======
</TABLE>
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
1998 AND 1997
-----------------
<S> <C>
Current assets $ 1
Investment in First Mortgage Bonds 332,000
--------
Total assets $332,001
========
Senior Secured Bonds payable $332,000
Stockholders' equity 1
--------
Total liabilities and stockholders' equity $332,001
========
</TABLE>
8. FIRST MORTGAGE BONDS PAYABLE
First Mortgage Bonds payable consists of the following at December 31, 1998
and 1997 (dollars in thousands):
7.19% First Mortgage Bonds
due June 30, 2010 ("2010 Bonds") $ 49,278
8.08% First Mortgage Bonds
due December 30, 2016 ("2016 Bonds") 105,722
--------
$155,000
========
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 First Mortgage 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.
Collective future maturities of the First Mortgage Bonds as of December 31, 1998
are as follows (dollars in thousands):
1999 $ -
2000 1,084
2001 1,547
2002 2,129
2003 2,740
Thereafter 147,500
--------
$155,000
========
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
F-21
<PAGE> 53
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.
9. CREDIT AGREEMENT
The Partnership has 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 expire on June 30, 2000. The Credit
Agreement includes commitment fees, payable quarterly in arrears, ranging from
.25% to .375% on the daily average unused amount of the commitment until the
Credit Agreement is terminated. For all periods through December 31, 1998, no
working capital loans had been issued under the Credit Agreement. In October
1997, a $500,000 letter of credit, in favor of NSP pursuant to the Power
Purchase Agreement, was issued under the Credit Agreement and is still
outstanding as of December 31, 1998.
10. FAIR VALUE OF FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISKS
The majority of the Partnership's accounts receivables are from a major
regulated utility (NSP) and the associated credit risk is considered limited.
The carrying amounts of the Partnership's cash and cash equivalents, accounts
receivables, restricted investments held by Trustee, accounts payable and
accrued expenses approximate fair value. The fair value of the Partnership's
First Mortgage Bonds at December 31, 1998 and 1997, is approximately $14,634,000
and $14,181,000 higher than the historical carrying value of $155,000,000,
respectively.
11. COMMITMENTS AND CONTINGENCIES
CONSTRUCTION
The Partnership has a $107 million turnkey construction contract (inclusive
of executed change orders) with Westinghouse Electric. Westinghouse Electric had
committed to complete the construction and start-up of the Facility to specified
performance levels by May 31, 1997, and is required under the contract to
reimburse the Partnership for extension fees paid under the Power Purchase
Agreement with NSP, and to pay certain liquidated damages in the event of a
delay. During 1997, Westinghouse Electric was required to pay $1,333,000 and
$5,073,000 of reimbursable extension fees and delay liquidated damages,
respectively. The Partnership had recorded a receivable from Westinghouse
Electric of $3,012,000 at December 31, 1997, which was comprised of reimbursable
extension fees of $267,000 and delay liquidated damages of $2,745,000. These
amounts were collected during the year ended December 31, 1998 (see Note 4).
POWER PURCHASE AGREEMENT
Under and subject to the terms of the Power Purchase Agreement, the Utility
is obligated to purchase all of the electric capacity made available to it and
all associated energy that the Utility chooses to dispatch from the Facility
beginning on the Commercial Operations Date. Payments by the Utility to the
Partnership under the Power Purchase Agreement consist of capacity payments and
energy payments that fluctuate based upon published indices and/or a fixed
schedule.
THERMAL ENERGY SALES
The Steam Supply Agreement obligates the Partnership to supply all of the
Steam Purchaser'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
Facility's cogeneration process is operating and 160,000 pounds per hour when
the steam is generated by the Facility's auxiliary boilers.
GAS SUPPLY
The Partnership has 20-year gas supply contracts with two fuel suppliers to
provide 100% of the Facility's natural gas requirements. The gas supply
contracts each provide for the sale of up to 17,060 MMBtu per day of gas to the
Partnership. The price paid by the Partnership under the gas supply contracts
fluctuates based upon published indices.
Under the gas supply contracts, the Partnership is subject to annual minimum
take requirements that may be satisfied by delivering gas to the Facility,
taking gas into storage or remarketing gas to third parties.
F-22
<PAGE> 54
GAS TRANSPORTATION
The Partnership has various gas transportation agreements with fuel
transportation companies that provide for delivery of gas to the Facility. The
price paid by the Partnership under the gas transportation contracts fluctuates
based on published indices.
OPERATIONS AND MAINTENANCE
The Facility is operated and maintained under an operations and maintenance
agreement with Westinghouse Operating Services Company, Inc. ("Westinghouse
Services"). Under the terms of the operations and maintenance agreement, the
Partnership is required to pay Westinghouse Services an annual management fee
($376,000 in 1998) as well as reimbursement of payroll, fringe benefits,
insurance and certain subcontractor costs and a bonus based on a targeted plant
performance. If targeted plant performance is not attained, Westinghouse
Services is required to pay a performance penalty to the Partnership. The
management fee is adjusted annually based on certain published indices. The term
of the operations and maintenance agreement extends for an initial period of
seven years (through October, 2004). 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.
PARTS AGREEMENT
The Partnership has a spare parts agreement (the "Parts Agreement") with
Westinghouse Electric. Under the terms of the Parts Agreement, Westinghouse
Electric provides (i) certain combustion turbine parts and refurbishment
services, (ii) other spare parts at discounted prices and (iii) other repair
services at direct cost plus a percent mark-up to the Partnership. The
compensation payable to Westinghouse Electric is an annual fee of $977,000
(escalated annually based on published indices) payable for 12 years.
LITIGATION
The Partnership experiences routine litigation in the normal course of
business. Management is of the opinion that none of this routine litigation will
have a material adverse effect on the financial position or results of
operations of the Partnership.
12. DEPENDENCE ON THIRD PARTIES
The Partnership is highly dependent on a single utility for purchases of
electric generating capacity and energy from its Facility, a single operator to
perform the operation and maintenance of its Facility, 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
Facility, 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.
13. RELATED PARTY TRANSACTIONS
Certain management services are provided to the Partnership pursuant to
management services agreements. Under these agreements, certain companies manage
the business affairs of the Partnership. During the construction and prior to
the change in control of the Partnership (Note 2), LS Power Corporation managed
the Partnership. As compensation for its services, LS Power Corporation received
a monthly management fee of $60,000 during construction, and $50,000 during
operation (both in 1995 dollars). These fees were escalated annually beginning
on January 1, 1996 pursuant to the rate of change in a consumer-price related
index. LS Power Corporation was 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 agreements. Under
these agreements, the Partnership incurred expenses of approximately $442,000,
$1,406,000 and $1,391,000 during the years ended December 31, 1998, 1997 and
1996, respectively. On March 20, 1998, LS Power Corporation assigned all rights
and obligations under the management services agreements to Cogentrix Energy
(see Note 2). The Partnership incurred expenses of approximately $716,000 to
Cogentrix Energy during the year ended December 31, 1998. At December 31, 1998,
the Partnership recorded accounts payable to Cogentrix Energy of approximately
$40,000. At December 31, 1997, the Partnership recorded accounts payable to LS
Power Corporation of approximately $231,000.
F-23
<PAGE> 55
Additionally, at December 31, 1998, the Partnership had a receivable of
approximately $110,000 from LSP-Whitewater Limited Partnership.
14. PARTNERS' CAPITAL
In 1997, TPC contributed $18,167,000 of equity for financing the
construction of the Facility. TPC received a limited partner interest in the
Partnership of approximately 27% and equity commitment fees of $350,000.
Profits, losses and distributions are allocated based on the respective
partnership interests. Distributions are 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-24
<PAGE> 56
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
LSP-Whitewater Limited Partnership:
We have audited the accompanying balance sheets of LSP-Whitewater Limited
Partnership (a Delaware limited partnership) as of December 31, 1998 and 1997,
and the related statements of income, changes in partners' capital and cash
flows for the years then ended. 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 as of December 31, 1998 and 1997, and the results of its operations
and its cash flows for the years then ended in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Charlotte, North Carolina,
February 26, 1999.
F-25
<PAGE> 57
INDEPENDENT AUDITORS' REPORT
The Partners
LSP-Whitewater Limited Partnership:
We have audited the balance sheet of LSP-Whitewater Limited Partnership as
of December 31, 1996 (not presented separately herein) and the related
statements of income, changes in partners' capital and cash flows for the year
ended December 31, 1996 and the year ended December 31, 1995 (not presented
separately herein). 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 as of December 31, 1996 and the results of its operations and its
cash flows for each of the years in the two-year period ended December 31, 1996,
in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Billings, Montana,
February 13, 1997.
F-26
<PAGE> 58
LSP-WHITEWATER LIMITED PARTNERSHIP
BALANCE SHEETS
December 31, 1998 and 1997
(dollars in thousands)
<TABLE>
<CAPTION>
ASSETS 1998 1997
-------- --------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,181 $ 7,749
Restricted cash 6,289 13,752
Accounts receivable - trade 4,512 4,983
Accounts receivable - other 1,885 2,195
Fuel inventories 743 1,361
Spare parts inventories 641 432
Other current assets 552 682
-------- --------
Total current assets 15,803 31,154
NET INVESTMENT IN LEASE (Notes 3 and 6) 263,048 262,072
GREENHOUSE FACILITY, net of accumulated
depreciation of $523 in 1998 and $112 in 1997 8,172 8,281
DEBT ISSUANCE AND FINANCING COSTS, net of
accumulated amortization of $882 in 1998 and
$616 in 1997 6,341 6,607
NOTE RECEIVABLE FROM AFFILIATE 6,900 --
INVESTMENT IN UNCONSOLIDATED AFFILIATE 1 1
-------- --------
Total assets $300,265 $308,115
======== ========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Accounts payable $ 7,764 $ 11,492
Accrued expenses 1,386 64
-------- --------
Total current liabilities 9,150 11,556
FIRST MORTGAGE BONDS PAYABLE 177,000 177,000
-------- --------
Total liabilities 186,150 188,556
COMMITMENTS AND CONTINGENCIES (Note 12)
PARTNERS' CAPITAL: 114,115 119,559
-------- --------
Total liabilities and partners' capital $300,265 $308,115
======== ========
</TABLE>
The accompanying notes to the financial statements are
an integral part of these balance sheets.
F-27
<PAGE> 59
LSP-WHITEWATER LIMITED PARTNERSHIP
STATEMENTS OF INCOME
For the Years Ended December 31, 1998, 1997 and 1996
(dollars in thousands)
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- ----
<S> <C> <C> <C>
OPERATING REVENUES:
Lease revenue $ 23,368 $ 6,579 $--
Service revenue 24,952 5,944 --
Greenhouse revenue 1,782 -- --
Other 1,224 825 --
-------- -------- ---
51,326 13,348 --
OPERATING EXPENSES:
Cost of services 27,492 6,948 --
Greenhouse operating expenses 1,828 799 --
-------- -------- ---
29,320 7,747 --
OPERATING INCOME 22,006 5,601 --
NON-OPERATING INCOME (EXPENSE):
Gain on sales-type capital lease -- 97,042 --
Interest expense (14,068) (4,024) --
Interest income 972 383 --
-------- -------- ---
Net income $ 8,910 $ 99,002 $--
======== ======== ===
</TABLE>
The accompanying notes to the financial statements are
an integral part of these statements.
F-28
<PAGE> 60
LSP-WHITEWATER LIMITED PARTNERSHIP
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
For the Years Ended December 31, 1998, 1997 and 1996
(dollars in thousands)
<TABLE>
<CAPTION>
LIMITED PARTNERS GENERAL PARTNER TOTAL
---------------------------------------------- --------------- ---------
TPC White- Granite Power Cogentrix LSP-White-
water, Inc. Partners, L.P. Whitewater, LLC water I, Inc.
----------- -------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 $ -- $ 1 $ -- $ -- $ 1
Capital contributions 20,556 -- -- -- 20,556
Net income 25,572 72,440 -- 990 99,002
-------- -------- -------- ------- ---------
Balance, December 31, 1997 46,128 72,441 -- 990 119,559
Net income through
March 20, 1998 385 1,089 -- 15 1,489
Sale of 100% ownership
interest, March 20, 1998 -- (73,530) 73,530 -- --
Partners distribution (1,822) -- (12,461) (71) (14,354)
Net income from March 20, 1998
through December 31, 1998 1,917 -- 5,430 74 7,421
-------- -------- -------- ------- ---------
Balance, December 31, 1998 $ 46,608 $ -- $ 66,499 $ 1,008 $ 114,115
======== ======== ======== ======= =========
</TABLE>
The accompanying notes to the financial statements are
an integral part of these statements.
F-29
<PAGE> 61
LSP-WHITEWATER LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1998, 1997 and 1996
(dollars in thousands)
<TABLE>
<CAPTION>
1998 1997 1996
-------- --------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 8,910 $ 99,002 $ --
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Gain on sales-type capital lease -- (97,042) --
Amortization of unearned lease income (23,368) (6,579) --
Minimum lease payments received 22,392 6,247 --
Amortization of debt issuance and financing costs 266 76 --
Depreciation 411 112
(Increase) decrease in accounts receivable - trade 471 (4,983) --
Decrease in accounts receivable - other 310 -- --
(Increase) decrease in fuel inventories 618 (984) --
Increase in spare parts inventories (209) (136) --
(Increase) decrease in other current assets 130 (682) --
Increase (decrease) in accounts payable (3,728) 2,865 --
Increase in accrued expenses 1,322 64 --
-------- --------- --------
Net cash flows provided by (used in) operating activities 7,525 (2,040) --
-------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales (acquisition) of land and improvements -- 939 (146)
Payments on construction in process -- (33,847) (96,746)
Investments held by Trustee -- (20,556) --
Investments drawn -- 42,596 97,075
Decrease in restricted cash 7,463 -- --
Purchase of greenhouse equipment (302) -- --
-------- --------- --------
Net cash flows provided by (used in) investing activities 7,161 (10,868) 183
-------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in note receivable from affiliate (6,900) -- --
Debt issuance and financing costs -- -- (153)
Partner distributions (14,354) -- --
Capital contributions -- 20,556 --
-------- --------- --------
Net cash flows provided by (used in) financing activities (21,254) 20,556 (153)
-------- --------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (6,568) 7,648 30
CASH AND CASH EQUIVALENTS, beginning of period 7,749 101 71
-------- --------- --------
CASH AND CASH EQUIVALENTS, end of period $ 1,181 $ 7,749 $ 101
======== ========= ========
RECONCILIATION OF CHANGES IN
CONSTRUCTION IN PROCESS
Decrease (increase) in total construction in process $ -- $ 145,694 $(99,555)
Construction in process sold in lease transaction -- (170,493) --
Amortization of debt issuance and financing costs -- 185 244
Interest income on investments held by Trustee -- (1,375) (4,802)
Increase in accounts receivable - other -- (2,195) --
Decrease in other current assets -- 1 --
Increase in fuel inventories -- (378) --
Increase in spare parts inventories -- (296) --
Increase (decrease) in accounts payable -- (4,990) 7,367
-------- --------- --------
Payments on construction in process $ -- $ (33,847) $(96,746)
======== ========= ========
Supplemental disclosure of cash flow information:
Cash paid for interest during the year $ 13,801 $ 13,801 $ 13,801
======== ========= ========
</TABLE>
The accompanying notes to the financial statements are
an integral part of these statements.
F-30
<PAGE> 62
LSP-WHITEWATER LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND NATURE OF BUSINESS
LSP-Whitewater Limited Partnership (the "Partnership") is a Delaware limited
partnership that was formed on December 14, 1993 to develop, finance, construct
and own a gas-fired cogeneration facility with a design capacity of
approximately 245 megawatts located in Whitewater, Wisconsin (the "Facility").
Construction and start-up of the Facility was substantially completed and
commercial operation commenced September 18, 1997 (the "Commercial Operations
Date"). The 1% general partner of the Partnership is LSP-Whitewater I, Inc., a
wholly-owned subsidiary of Cogentrix Whitewater, LLC, a limited liability
company ("Cogentrix"). Cogentrix and TPC Whitewater, Inc., a Delaware
corporation ("TPC"), are the sole limited partners of the Partnership, owning
approximately 73% and 26% limited partnership interests, respectively. The
ultimate parent of Cogentrix is Cogentrix Energy, Inc. ("Cogentrix Energy"), a
Delaware corporation. See Note 2 for discussion of a change in ownership that
occurred on March 20, 1998.
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 Facility and a similar
gas-fired cogeneration facility located in Cottage Grove, Minnesota (the
"Cottage Grove Facility"). 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 Partnership sells up to 236.5 megawatts of electric capacity and
associated energy generated by the Facility to Wisconsin Electric Power Company
("WEPCO" or, as the context requires, the "Utility") pursuant to a 25-year power
purchase agreement (the "Power Purchase Agreement"). The Partnership may also
sell to third parties up to 12 megawatts of electric capacity and any energy
that is not dispatched by WEPCO. The thermal energy generated by the Facility is
provided in the form of steam to the University of Wisconsin - Whitewater under
a steam supply agreement expiring on June 30, 2005 and in the form of hot water
to a greenhouse (the "Greenhouse Facility") owned by the Partnership
(collectively, the "Steam Purchasers").
2. CHANGE IN CONTROL
On March 6, 1998, the previous owners of the Partnership, LS Power
Corporation and its wholly-owned subsidiary Granite Power Partners, L.P.
(collectively, the "Sellers") entered into a Securities Purchase Agreement (the
"Securities Purchase Agreement") with Cogentrix Mid-America, Inc. (CMA) and
Cogentrix (collectively, the "Purchasers") and Cogentrix Energy, Inc.
("Cogentrix Energy") which controls each of the Purchasers as wholly-owned
indirect subsidiaries.
On March 20, 1998, pursuant to the Securities Purchase Agreement, the
Sellers sold all of the Sellers' capital stock of Floriculture, Inc.
("Floriculture") and LSP-Whitewater I, Inc., as well as all of the Sellers'
limited partnership interest in the Partnership to the Purchasers. As a result,
CMA acquired all of the capital stock of Floriculture, and Cogentrix, a
wholly-owned subsidiary of CMA, acquired all of the capital stock of
LSP-Whitewater I, Inc., the 1% general partner of the Partnership, as well as a
73.17% limited partnership interest in the Partnership for a combined total
ownership interest of 74.17% in the Partnership.
On the same date that the indirect subsidiaries of Cogentrix Energy
identified above acquired their ownership interests in the Partnership,
Cogentrix Energy and LS Power Corporation entered into an Assignment and
Assumption Agreement, by the terms of which LS Power Corporation assigned, and
Cogentrix Energy assumed, all of the rights and obligations of LS Power
Corporation under certain management service agreements between LS Power
Corporation and LSP-Whitewater I, Inc. and the Partnership.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash equivalents include unrestricted
short-term investments with original maturities of three months or less.
F-31
<PAGE> 63
RESTRICTED CASH
The majority of the revenue received by the Partnership is required to be
deposited into accounts administered by the trustee under the trust indenture
for the First Mortgage Bonds (the "Trustee"). The Trustee invests funds held in
these accounts at the direction of the Partnership. The funds are invested in
commercial paper, high grade government money market funds and overnight
repurchase obligations secured by U.S. Treasury Notes. The investments are
carried at cost, which approximates market at December 31, 1998 and 1997. In
addition, special accounts are established to provide for debt service reserves
and payments, and major maintenance reserves. Amounts held by the Trustee in
accounts designated for debt service, major maintenance and construction; which
might otherwise be considered cash equivalents, are treated as restricted cash.
COMMENCEMENT OF POWER PURCHASE AGREEMENT
The Power Purchase Agreement described in Note 12 has characteristics
similar to a lease in that the agreement confers to the purchasing utility the
right to use specific property, plant and equipment. At the Commercial
Operations Date, the Partnership accounted for the Power Purchase Agreement as a
sales-type capital lease in accordance with Statement of Financial Accounting
Standards (SFAS) No. 13, "Accounting for Leases" (see Note 6).
CONSTRUCTION IN PROCESS
Prior to commercial operations, all costs incurred to develop and construct
the Facility, including net costs associated with performance testing prior to
the Commercial Operations Date, as well as interest costs (including
amortization of debt issuance and financing costs), net of interest income on
excess proceeds, were capitalized and classified as construction in process.
In recording the Partnership's gain on sales-type capital lease, all
construction in process costs related to the Facility were included in the
historical cost basis of the Facility. All interest costs subsequent to the
Commercial Operations Date have been charged to expense. As of December 31, 1998
and 1997, capitalized interest net of accumulated amortization and including
amortization of debt issuance and financing costs was approximately $19,266,000
and $20,120,000, respectively.
NOTE RECEIVABLE FROM AFFILIATE
At December 31, 1998, the Partnership had a note receivable from Cogentrix
Energy. The amount of the note receivable is equal to the amount of funds
required to be on deposit in the debt service reserve account. The note
receivable is backed by a letter of credit issued to the Partnership. The note
receivable bears interest at the three-month LIBOR rate plus 0.25%, and is due
December 15, 2016.
GREENHOUSE FACILITY
Depreciation on the Greenhouse Facility and related equipment is computed
using the straight-line method over 25 years and 10 years, respectively (see
Note 7).
DEBT ISSUANCE AND FINANCING COSTS
Debt issuance and financing costs are deferred and amortized over the term
of the related debt. Amortization of deferred financing costs was capitalized as
part of construction in process prior to commercial operations, and is included
in interest expense subsequent to commercial operations in the accompanying
financial statements.
CURRENT LIABILITIES
As of December 31, 1998 and 1997, $5,587,000 and $8,632,000 of current
liabilities were considered project costs and were eligible for payment from
funds held by the Trustee, which are included in restricted cash in the
accompanying balance sheets.
LEASE REVENUE
Lease revenue represents the amortization of unearned income on the lease
using the effective interest rate method as well as contingent rentals that
result from changes in payment escalators occurring subsequent to the Commercial
Operations Date. These contingent rentals are not expected to materially change
the lease revenue recognized over the life of the Power Purchase Agreement.
F-32
<PAGE> 64
SERVICE REVENUE
Service revenue represents reimbursement to the Partnership of costs
incurred to operate the Facility and to provide variable electric energy to the
Utility and thermal energy to the Steam Purchasers.
OTHER REVENUES
Other revenues consist primarily of commodity sales of excess natural gas
fuel inventory, including amounts remarketed directly to third parties, as well
as sales of horticultural products produced by the Greenhouse Facility.
COST OF SERVICES
Cost of services represent expenses related to operating the Facility and
providing variable electric energy to the Utility as well as thermal energy to
the Steam Purchasers.
GREENHOUSE OPERATING EXPENSES
Greenhouse operating expenses include all operating costs specifically
related to greenhouse activities, including depreciation on the Greenhouse
Facility.
INCOME TAXES
Under current tax laws, income or loss of partnerships is included in the
income tax returns of the partners. Accordingly, the Partnership makes no
provision for federal and state income taxes. The tax returns of the Partnership
are subject to examination by federal and state taxing authorities. If such
examinations occur and result in changes with respect to the Partnership
qualification, or in changes in distributable partnership income or loss, the
tax liability of the partners would be changed accordingly.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
establishes accounting and reporting standards requiring that every derivative
instrument (including certain derivative instruments embedded in other
contracts) be recorded in the balance sheets as either an asset or liability
measured at its fair value. SFAS No. 133 requires that changes in the
derivative's fair value be recognized in current earnings unless specified hedge
accounting criteria are met. Special accounting for qualifying hedges allows a
derivative's gains and losses to offset related results on the hedged item in
the income statement, and requires that a company must formally document,
designate, and assess the effectiveness of transactions that receive hedge
accounting.
SFAS No. 133 is effective for fiscal years beginning after June 15, 1999.
Early adoption is allowed. SFAS No. 133 must be applied to derivative
instruments and certain derivative instruments embedded in hybrid contracts that
were issued, acquired, or substantially modified after December 31, 1997.
The Partnership has not yet quantified the impacts of adopting SFAS No. 133
on the financial statements, and has not determined the timing or method of
adoption of SFAS No. 133.
In April 1998, the American Institute of Certified Public Accounts ("AICPA")
issued Statement of Position ("SOP") No. 98-5, "Reporting on the Costs of
Start-Up Activities," which is effective for financial statements for fiscal
years beginning after December 15, 1998. SOP No. 98-5 requires costs incurred
for start-up activities to be expensed as incurred. For purposes of this SOP,
start-up activities are defined broadly as those one-time activities related to
opening a new facility, conducting business in a new territory, conducting
business with a new class of customer or beneficiary, initiating a new process
in an existing facility, or commencing a new
F-33
<PAGE> 65
operation. Start-up activities include activities related to organizing a new
entity (commonly referred to as organization costs). The Partnership will adopt
SOP No. 98-5 as of January 1, 1999. The Partnership has determined that SOP No.
98-5 will not have a material impact on its financial statements.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1997 financial statements in
order to conform to the 1998 presentation.
4. ACCOUNTS RECEIVABLE - OTHER
Accounts receivable-other at December 31, 1998 primarily consisted of
amounts due from Westinghouse Electric Corporation ("Westinghouse Electric"),
the Partnership's construction contractor, for warranty expense reimbursements.
Accounts receivable-other at December 31, 1997 represented amounts due from
Westinghouse Electric Corporation ("Westinghouse Electric"), the Partnership's
construction contractor, for delay liquidated damages and extension fees due as
a result of Westinghouse Electric's failure to complete the construction and
start-up of the Facility by May 31, 1997. Such liquidated damages and extension
fees were capitalized as a reduction of construction in process. The damages and
fees were collected during January, 1998.
5. FUEL INVENTORIES
As of December 31, 1998 and 1997 fuel inventories consisted of the following
(dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1998 1997
------------ -------------
<S> <C> <C>
Natural Gas $ 525 $ 983
Fuel Oil 218 378
-------- --------
$ 743 $ 1,361
======== ========
</TABLE>
Natural gas inventory is stated at weighted average cost and fuel oil
inventory is stated at cost based on the first-in first-out method.
6. SALES-TYPE CAPITAL LEASE
Upon the Commercial Operations Date of the Facility, the Partnership
recognized a gain on sale-type capital lease of $97.0 million reflecting the
difference between the estimated fair market value ($261.7 million) and the
historical cost ($164.7 million) of the Facility. The interest rate implicit in
the lease is 9.79%. The estimated residual value of the Facility at the end of
the lease term is $0. The components of the net investment in lease at December
31, 1998 and 1997, are as follows (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Gross Investment in Lease $ 593,097 $ 615,489
Unearned Income on Lease (330,049) (353,417)
--------- ---------
Net Investment in Lease $ 263,048 $ 262,072
========= =========
</TABLE>
Gross investment in lease represents total capacity payments receivable over
the life of the Power Purchase Agreement, net of executory costs, which are
considered minimum lease payments in accordance with SFAS No. 13.
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<PAGE> 66
Estimated minimum lease payments over the remaining term of the Power
Purchase Agreement as of December 31, 1998, are as follows (dollars in
thousands):
1999 $ 22,944
2000 24,036
2001 24,132
2002 25,140
2003 26,028
Thereafter 470,817
---------
Total $ 593,097
==========
7. GREENHOUSE FACILITY
As of December 31, 1998 and 1997, the Greenhouse Facility consisted of (dollars
in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1998 1997
-------------- ------------
<S> <C> <C>
Building $ 7,622 $ 7,488
Equipment 1,073 905
-------- --------
8,695 8,393
Less: Accumulated Depreciation (523) (112)
--------- ---------
$ 8,172 $ 8,281
======= =======
</TABLE>
Building and equipment comprise the cost of the Greenhouse Facility under a
turnkey construction contract inclusive of change orders and interest
capitalized during the construction period.
8. INVESTMENT IN UNCONSOLIDATED AFFILIATE
Investment in unconsolidated affiliate represents the Partnership's 50%
ownership interest in Funding. The Partnership's investment in Funding is
accounted for using the equity method. The following is summarized financial
information for Funding (dollars in thousands):
STATEMENT OF INCOME DATA:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------------
1998 1997 1996
--------------- ---------------- -------------
<S> <C> <C> <C>
Interest income $25,886 $25,886 $25,886
Interest expense 25,886 25,886 25,886
------- ------- -------
Net income $ - $ - $ -
======= ======= =======
</TABLE>
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
1998 AND 1997
-------------
<S> <C>
Current assets $ 1
Investment in First Mortgage Bonds 332,000
--------
Total assets $332,001
========
Senior Secured Bonds payable $332,000
Stockholders' equity 1
--------
Total liabilities and stockholders' equity $332,001
========
</TABLE>
F-35
<PAGE> 67
9. FIRST MORTGAGE BONDS PAYABLE
First Mortgage Bonds payable consists of the following at December 31, 1998 and
1997 (dollars in thousands):
7.19% First Mortgage Bonds
due June 30, 2010 ("2010 Bonds") $ 56,273
8.08% First Mortgage Bonds
due December 30, 2016 ("2016 Bonds") 120,727
--------
$177,000
========
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 First Mortgage 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.
Collective future maturities of the First Mortgage Bonds as of December 31, 1998
are as follows (dollars in thousands):
1999 $ -
2000 1,239
2001 1,767
2002 2,431
2003 3,129
Thereafter 168,434
--------
$177,000
========
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.
10. 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 expire on June 30, 2000.
The Credit Agreement includes commitment fees, payable quarterly in arrears,
ranging from .25% to .375% on the daily average unused amount of the commitment
until the Credit Agreement is terminated. There were no letters of credit
outstanding under the Credit Agreement at December 31, 1998 and 1997. For all
periods through December 31, 1998, no working capital loans had been made to the
Partnership under the Credit Agreement.
11. FAIR VALUE OF FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISKS
The majority of the Partnership's accounts receivables are from a major
regulated utility (WEPCO) and the associated credit risk is considered limited.
The carrying amounts of the Partnership's cash and cash equivalents, accounts
receivables, restricted investments, accounts payable and accrued expenses
approximate fair value. The fair value of the Partnership's First Mortgage Bonds
at December 31, 1998 and 1997, was approximately $16,647,000 and $16,194,000
higher than the historical carrying value of $177,000,000, respectively.
12. COMMITMENTS AND CONTINGENCIES
CONSTRUCTION
The Partnership has a $115 million turnkey construction contract
(inclusive of executed change orders) with Westinghouse Electric. Westinghouse
Electric had committed to complete the construction and start-up of the Facility
to specified performance levels by May 31, 1997, and is required under the
contract to reimburse the Partnership for extension fees paid under its Power
Purchase Agreement with WEPCO, and to pay certain liquidated damages in the
event of a delay. During 1997, Westinghouse Electric
F-36
<PAGE> 68
was required to pay $110,000 and $4,539,000 of reimbursable extension fees and
delay liquidated damages, respectively. The Partnership recorded a receivable
from Westinghouse Electric of $2,195,000 at December 31, 1997, which was
comprised of reimbursable extension fees of $35,000 and delay liquidated damages
of $2,160,000. These amounts were collected during the year ended December 31,
1998 (see Note 4).
POWER PURCHASE AGREEMENT
Under and subject to the terms of the Power Purchase Agreement, the
Utility is obligated to purchase the electric capacity made available to it up
to 236.5 megawatts and associated energy that the Utility chooses to dispatch
from the Facility beginning on the Commercial Operations Date. Payments by the
Utility to the Partnership under the Power Purchase Agreement consist of
capacity payments and energy payments that fluctuate based upon published
indices and/or a fixed schedule.
In accordance with the Power Purchase Agreement, the Partnership was
responsible for reimbursing the Utility for the actual increased costs of
capacity and energy acquired to replace the capacity and energy, which were to
be provided by the Facility. The Partnership's obligation to reimburse the
Utility for these "Replacement Power" costs began on June 23, 1997 and continued
through September 17, 1997. The Partnership had an obligation for Replacement
Power costs if the Utility's actual costs of capacity and energy exceeded the
amounts, which would have been paid to the Partnership under the Power Purchase
Agreement. For the period from June 23, 1997 through September 17, 1997, the
Partnership was required to pay the Utility approximately $3,300,000 for
Replacement Power costs. The Partnership recorded remaining accounts payable to
the Utility of $2,060,000 at December 31, 1997 for Replacement Power in the
accompanying balance sheet.
THERMAL ENERGY SALES
The Partnership has a thermal energy sales agreement with the Department
of Administration of the State of Wisconsin ("DOA"), which provides for the
Partnership to supply the steam requirements of UWW (the "Thermal Energy
Agreement"). The initial term of the agreement runs through June 30, 2005. The
DOA has the option to extend the agreement for up to four extension periods of
four years each. The Thermal Energy Agreement obligates the Partnership 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.
GAS SUPPLY
The Partnership has 20-year gas supply agreements with two fuel suppliers
to provide 100% of the Facility's natural gas requirements. The gas supply
contracts provide for the sale of up to 11,855 MMBtu per day of gas to the
Partnership. The price paid by the Partnership to the fuel suppliers under the
gas supply contracts fluctuates based on published indices.
Under the gas supply contracts, the Partnership is subject to annual minimum
take requirements that may be satisfied by delivering gas to the Facility,
taking gas into storage or remarketing gas to third parties.
GAS TRANSPORTATION
The Partnership has entered into various gas transportation agreements
with fuel transportation companies that provide for delivery of gas to the
Facility. The price paid by the Partnership under the gas transportation
contracts fluctuates based upon published indices.
OPERATIONS AND MAINTENANCE
The Facility is operated and maintained under an operations and maintenance
agreement with Westinghouse Operating Services Company, Inc. ("Westinghouse
Services"). Under the terms of the operations and maintenance agreement, the
Partnership is required to pay Westinghouse Services an annual management fee
($376,000 in 1998), reimbursement of payroll, fringe benefits, insurance, and
certain subcontractor costs and a bonus based on target plant performance. If
targeted plant performance is not attained, Westinghouse Services is required to
pay a performance penalty to the Partnership. The management fee is adjusted
annually based on certain published indices. The term of the operations and
maintenance agreement extends for an initial period of seven years (through
September, 2004). 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.
F-37
<PAGE> 69
PARTS AGREEMENT
The Partnership has a spare parts agreement (the "Parts Agreement") with
Westinghouse Electric. Under the terms of the Parts Agreement, Westinghouse
Electric provides (i) certain combustion turbine parts and refurbishment
services, (ii) other spare parts at discounted prices and (iii) other repair
services at direct cost plus a percent mark-up to the Partnership. The
compensation payable to Westinghouse Electric is an annual fee of $977,000
(escalated annually based upon published indices) payable for 12 years.
GREENHOUSE
The Partnership has an operational services agreement with Floriculture,
Inc. ("Floriculture"), an affiliate of the Partnership, which operates the
Greenhouse for the benefit of the Partnership. Under the terms of the
operational services agreement, Floriculture is required to provide all the
services to produce, market, and sell horticulture products and maintain the
Greenhouse. As compensation for its services, Floriculture is reimbursed on a
monthly basis for its approved costs in connection with conducting the
Greenhouse business and operating the Greenhouse, and will receive an annual
management fee equal to 12% of the Partnership's net profit from the operation
of the Greenhouse. The term of the operational services agreement will expire on
May 31, 2002. For the year ended December 31, 1998, Floriculture earned a
management fee pursuant to the operations services agreement of approximately
$26,000.
LITIGATION
The Partnership experiences routine litigation in the normal course of
business. Management is of the opinion that none of this routine litigation will
have a material adverse effect on the financial position or results of
operations of the Partnership.
13. DEPENDENCE ON THIRD PARTIES
The Partnership is highly dependent on a single utility for purchases of
electric generating capacity and energy from its Facility, and a single operator
to perform the operation and maintenance of its Facility. In addition, the
Partnership has contracted with two gas companies to supply the gas requirements
of the Facility, 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.
14. RELATED PARTY TRANSACTIONS
The initial costs incurred to develop the Facility, consisting principally
of site acquisition and development costs, engineering fees, legal fees,
permitting costs, interest and LS Power Corporation employee and office costs,
were incurred by Granite Power Partners, L.P. ("Granite"). At June 30, 1995, the
Partnership paid development fees and reimbursed certain costs totaling
approximately $12,160,000 to Granite. These payments were capitalized and
included in construction in process.
LS Power Corporation provided certain management services to the Partnership
pursuant to management services agreements. Under these agreements, LS Power
Corporation managed the business affairs of the Partnership during construction
and operation of the Whitewater Project. As compensation for its services, LS
Power Corporation received a monthly management fee of $60,000 during
construction, and $50,000 during operation (both in 1995 dollars). These fees
were escalated annually beginning on January 1, 1996 pursuant to the rate of
change in a consumer-price related index. LS Power Corporation was 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 agreements. Under these agreements, the Partnership incurred
expenses of approximately $437,000, $1,534,000 and $1,392,000 during the years
ended December 31, 1998, 1997 and 1996, respectively. On March 20, 1998, LS
Power Corporation assigned all rights and obligations under the management
services agreements to Cogentrix Energy (see Note 2). The Partnership incurred
expenses of approximately $794,000 to Cogentrix Energy during the year ended
December 31, 1998. At December 31, 1998, the Partnership had recorded accounts
payable to Cogentrix Energy of approximately $26,000. At December 31, 1997, the
Partnership had recorded accounts payable to LS Power Corporation of
approximately $235,000.
F-38
<PAGE> 70
15. PARTNERS' CAPITAL
In 1997, TPC, contributed $20,556,000 of equity for financing the
construction of the Facility. TPC received a limited partner interest in the
Partnership of approximately 26% and equity commitment fees of $350,000.
Profits, losses and distributions are allocated based on the respective
partnership interests. Distributions are 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-39
<PAGE> 71
LS POWER FUNDING CORPORATION
LSP-COTTAGE GROVE, L.P.
LSP-WHITEWATER LIMITED PARTNERSHIP
EXHIBITS INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
2.1 -----Securities Purchase Agreement, dated March 6, 1998 by and among
LS Power Corporation, Granite Power Partners, L.P., Cogentrix
Mid-America, Inc., Cogentrix Cottage Grove, LLC, Cogentrix
Whitewater, LLC and Cogentrix Energy, Inc. (7)
3.1. -----Certificate of Incorporation of LS Power Funding Corporation. (1)
3.2. -----Bylaws of LS Power Funding Corporation. (1)
3.3. -----Certificate of Limited Partnership of LSP-Cottage Grove, L.P. (1)
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. (1)
3.4.1 -----Amendment #1 to the Cottage Grove Partnership Agreement (2)
3.4.2. -----Consent, Waiver and Amendment No. 2 dated March 20, 1998 to the
Amended and Restated Limited Partnership Agreement of
LSP-Cottage Grove, L.P. (5)
3.4.3. -----Third Amendment, dated December 11, 1998, to the Amended and
Restated Limited Partnership Agreement of LSP-Cottage Grove,
L.P.
3.5. -----Certificate of Limited Partnership of LSP-Whitewater Limited
Partnership. (1)
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. (1)
3.6.1. -----Consent, Waiver and Amendment No. 1 dated March 20, 1998 to the
Amended and Restated Limited Partnership Agreement of
LSP-Whitewater Limited Partnership. (5)
3.6.2. -----Second Amendment, dated December 11, 1998, to the Amended and Restated
Limited Partnership Agreement of LSP-Whitewater Limited Partnership.
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). (1)
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.
</TABLE>
E-1
<PAGE> 72
<TABLE>
<S> <C>
And IBJ Schroder Bank & Trust Company, as Trustee). (1)
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). (1)
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. (1)
4.5. -----Form of Senior Secured Bond (included in Exhibit 4.1). (1)
4.6. -----Form of Cottage Grove First Mortgage Bond (included in Exhibit
4.2). (1)
4.7. -----Form of Whitewater First Mortgage Bond (included in Exhibit 4.3). (1)
LS POWER FUNDING CORPORATION AGREEMENTS
10.20. -----Agency Agreement dated May 1, 1995 between LS Power Funding
Corporation and LSP-Cottage Grove, L.P. (1)
10.21. -----Agency Agreement dated May 1, 1995 between LS Power Funding
Corporation and LSP-Whitewater Limited Partnership. (1)
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. (1)
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. (1)
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. (1)
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. (1)
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. (1)
</TABLE>
E-2
<PAGE> 73
<TABLE>
<S> <C>
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. (1)
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. (1)
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. (1)
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. (1)
10.29. -----Pledge Agreement dated as of May 1, 1995 between LSP-Cottage
Grove, L.P. and IBJ Schroder Bank & Trust Company, as trustee. (1)
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. (1)
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. (1)
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. (1)
10.33. -----Subordinated Assignment and Security Agreement dated as of May 1,
1995 between LSP-Cottage Grove, L.P. and Northern States
Power Company. (1)
10.34. -----Power Purchase Agreement dated as of May 9, 1994 between Northern States
Power Company and LSP-Cottage Grove, L.P. (1)
10.35. -----Letter Agreement dated December 16, 1994 between Northern States
Power Company and LSP-Cottage Grove, L.P. (1)
10.36. -----Letter Agreement dated June 1, 1995 between Northern States Power
Company and LSP-Cottage Grove, L.P. (1)
10.37. -----Letter Agreement dated June 8, 1995 between Northern States Power
Company and LSP-Cottage Grove, L.P. (1)
10.38. -----Letter Agreement dated June 12, 1995 between Northern States
Power Company and LSP-Cottage Grove, L.P. (1)
10.39. -----Assignment dated as of November 23, 1994 between Granite Power
Partners, L.P. and LSP-Cottage Grove, L.P. (1)
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. (1)(*)
</TABLE>
E-3
<PAGE> 74
<TABLE>
<S> <C>
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. (1)(*)
10.42. -----Parts Agreement dated as of April 11, 1995 between Westinghouse
Electric Corporation and LSP-Cottage Grove, L.P. (1)(*)
10.43. -----Management Services Agreement dated as of May 1, 1995 between LS
Power Corporation and LSP-Cottage Grove, L.P. (1)
10.43.1 -----Amendment to Management Services Agreement, dated as of December
11, 1998, between LSP-Cottage Grove, L.P. and Cogentrix Energy, Inc.
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. (1)
10.45. -----Purchase and Sale Agreement dated September 30, 1994 between the
Minnesota Mining and Manufacturing Company and LSP-Cottage Grove, L.P. (1)
10.46. -----Letter Agreement (land and easement) dated September 30, 1994
between the Minnesota Mining and Manufacturing Company and
LSP-Cottage Grove, L.P. (1)
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. (1)
10.48. -----Gas Sales Contract dated as of December 22, 1994 between Natural
Gas Clearinghouse and LSP-Cottage Grove, L.P. (1)
10.49. -----First Amendment to Gas Sales Contract dated as of April 18, 1995
Between Natural Gas Clearinghouse and LSP-Cottage Grove, L.P. (1)
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. (1)
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. (1)
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. (1)
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. (1)
10.54. -----Firm Throughput Service Agreement (Northern Contract #24042)
Dated April 25, 1995 between Northern Natural Gas Company and
LSP-Cottage Grove, L.P. (1)
10.55. -----Interruptible Throughput Service Agreement (Northern Contract
#24198) dated April 25, 1995 between Northern Natural Gas
Company and LSP-Cottage Grove, L.P. (1)
</TABLE>
E-4
<PAGE> 75
<TABLE>
<S> <C>
10.56. -----Interruptible Throughput Service Agreement (Northern Contract
#24199) dated April 25, 1995 between Northern Natural Gas
Company and LSP-Cottage Grove, L.P. (1)
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. (1)
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. (1)
10.59. -----Letter Agreement dated as of April 21, 1995 between Northern
Natural Gas Company and LSP-Cottage Grove, L.P. (1)
10.60. -----Limited Warranty Deed granted by Minnesota Mining and
Manufacturing Company to LSP-Cottage Grove, L.P. dated June 1,
1995. (1)
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. (1)
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. (1)
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. (1)
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. (1)
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. (1)
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. (1)
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), as collateral agent. (1)
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. (1)
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. (1)
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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. (1)
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. (1)
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. (1)
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. (1)
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. (1)
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. (1)
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. (1)
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. (1)
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. (1)
10.79. -----Temporary Construction Easement granted by Minnesota Mining and
Manufacturing Company to LSP-Cottage Grove, L.P. (1)
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. (1)
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. (1)
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. (1)
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
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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. (1)
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. (1)
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. (1)
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. (1)
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. (1)
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. (1)
10.87. -----Pledge Agreement dated as of May 1, 1995 between LSP-Whitewater
Limited Partnership and IBJ Schroder Bank & Trust Company, as
trustee. (1)
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. (1)
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. (1)
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. (1)
10.91. -----Subordinated Assignment and Security Agreement dated as of May 1,
1995 between LSP-Whitewater Limited Partnership and Wisconsin
Electric Power Company. (1)
10.92. -----Development Agreement dated as of November 23, 1994 between City
of Whitewater and LSP-Whitewater Limited Partnership. (1)
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10.93. -----Power Purchase Agreement dated as of December 21, 1993 between
Wisconsin Electric Power Company and LSP-Whitewater Limited
Partnership. (1)
10.94. -----Amendment to Power Purchase Agreement dated as of February 10,
1994 between Wisconsin Electric Power Company and
LSP-Whitewater Limited Partnership. (1)
10.95. -----Second Amendment to Power Purchase Agreement dated as of October
5, 1994 between Wisconsin Electric Power Company and
LSP-Whitewater Limited Partnership. (1)
10.96. -----Third Amendment to Power Purchase Agreement dated as of May 5,
1995 between Wisconsin Electric Power Company and
LSP-Whitewater Limited Partnership. (1)
10.96.1 -----Fourth Amendment to Power Purchase Agreement dated March 18,
1997 between Wisconsin Electric Power Company and LSP-Whitewater
Limited Partnership. (3)
10.96.2 -----Fifth Amendment to Power Purchase Agreement dated February 26,
1998 between Wisconsin Electric Power Company and
LSP-Whitewater Limited Partnership. (5)
10.97. -----Interconnection Agreement dated as of May 12, 1995 between
Wisconsin Electric Power Company and LSP-Whitewater Limited
Partnership. (1)
10.98. -----Intentionally Omitted.
10.99. -----Assignment dated as of November 23, 1994 between Granite Power
Partners, L.P. and LSP-Whitewater Limited Partnership. (1)
10.100 -----Second Amended and Restated Turnkey Construction Agreement
dated as of April 11, 1995 between Westinghouse Electric
Corporation and LSP-Whitewater Limited Partnership. (1)(*)
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. (1)(*)
10.102. -----Parts Agreement dated as of April 10, 1995 between Westinghouse
Electric Corporation and LSP-Whitewater Limited Partnership. (1)(*)
10.103. -----Management Services Agreement dated as of May 1, 1995 between LS
Power Corporation and LSP-Whitewater Limited Partnership. (1)
10.103.1. -----Amendment to Management Services Agreement, dated as of December
11, 1998, between LSP-Whitewater Limited Partnership and
Cogentrix Energy, Inc.
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. (1)
10.105. -----Greenhouse Hot Water Supply Agreement dated as of May 1, 1995
Between Dominion Growers/Whitewater, L.C. and LSP-Whitewater
Limited Partnership. (1)
10.106. -----Construction Contract dated as of May 1, 1995 between Dominion
Growers/Whitewater, L.C. and LSP-Whitewater Limited
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Partnership. (1)
10.106.1 -----Addendum to Construction Contract dated as of June 6, 1997
Between Dominion Growers/Whitewater, L.C. and LSP-Whitewater
Limited Partnership. (4)
10.107. -----Deed of Lease dated as of May 1, 1995 between Dominion
Growers/Whitewater, L.C. and LSP-Whitewater Limited
Partnership. (1)
10.107.1 -----Settlement Agreement dated as of May 27, 1997 between Dominion
Growers/Whitewater, L.C. and LSP- Whitewater Limited
Partnership. (4)
10.107.2 -----Greenhouse Operational Services Agreement dated as of May 27,
1997 between FloriCulture, Inc. and LSP-Whitewater Limited
Partnership. (4)
10.108. -----Letter Agreement dated May 12, 1995 between Dominion Growers,
Inc. and LSP-Whitewater Limited Partnership. (1)
10.109. -----Gas Sales Contract dated as of December 22, 1994 between Natural
Gas Clearinghouse and LSP-Whitewater Limited Partnership. (1)
10.110. -----First Amendment to Gas Sales Contract dated as of April 18, 1995
Between Natural Gas Clearinghouse and LSP-Whitewater Limited
Partnership. (1)
10.111. -----Gas Sales Contract dated as of February 16, 1995 among Aquila
Energy Marketing Corporation, UtiliCorp United, Inc. and
LSP-Whitewater Limited Partnership. (1)
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. (1)
10.113. -----Letter Agreement dated April 21, 1995 between Northern Natural
Gas Company and LSP-Whitewater Limited Partnership. (1)
10.114. -----Amended and Restated Letter Agreement dated as of April 10, 1995
Between Northern Natural Gas Company and LSP-Whitewater
Limited Partnership. (1)
10.115. -----Gas Transportation Agreement dated March 9, 1995 between
Wisconsin Natural Gas Company and LSP-Whitewater Limited
Partnership. (1)
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. (1)
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. (1)
10.118. -----Firm Throughput Service Agreement (Northern Contract #23479)
dated April 25, 1995 between Northern Natural Gas Company and
LSP-Whitewater Limited Partnership. (1)
10.119. -----Interruptible Throughput Service Agreement (Northern Contract
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#24200) dated April 25, 1995 between Northern Natural Gas
Company and LSP-Whitewater Limited Partnership. (1)
10.120. -----Interruptible Throughput Service Agreement (Northern Contract
#24201) dated April 25, 1995 between Northern Natural Gas
Company and LSP-Whitewater Limited Partnership. (1)
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. (1)
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. (1)
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. (1)
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. (1)
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. (1)
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. (1)
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. (1)
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. (1)
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. (1)
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. (1)
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. (1)
10.132. -----Consent and Agreement dated as of May 1, 1995 among Northern
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Natural Gas Company, LSP-Whitewater Limited Partnership and
The Chase Manhattan Bank (National Association), as collateral
agent. (1)
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. (1)
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. (1)
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. (1)
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. (1)
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. (1)
10.138. -----Easement dated May 11, 1995 granted by the University of
Wisconsin-Whitewater to LSP-Whitewater Limited Partnership. (1)
10.139. -----Easement dated March 22, 1995 granted by the City of Whitewater
To LSP-Whitewater Limited Partnership. (1)
10.140. -----Easement dated March 22, 1995 granted by the City of Whitewater
to LSP-Whitewater Limited Partnership. (1)
10.141. -----Easement dated March 22, 1995 granted by the City of Whitewater
to LSP-Whitewater Limited Partnership. (1)
10.142. -----Easement dated March 22, 1995 granted by the City of Whitewater
to LSP-Whitewater Limited Partnership. (1)
10.143. -----Easement dated June 2, 1995 granted by Joe C. Pattermann and
June M. Pattermann to LSP-Whitewater Limited Partnership. (1)
10.144. -----Easement dated September 10, 1994 granted by Joe C. Pattermann
and June M. Pattermann to LSP-Whitewater Limited Partnership. (1)
10.145. -----Easement dated May 25, 1995 granted by John P. Hill and Rosalee
K. Hill to LSP-Whitewater Limited Partnership. (1)
10.146. -----Easement dated June 1, 1994 granted by Mark D. Hoffmann to
LSP-Whitewater Limited Partnership. (1)
10.147. -----Easement dated May 31, 1995 granted by Daniel L. Schwertfeger and
Jeanne M. Schwertfeger to LSP-Whitewater Limited Partnership. (1)
10.148. -----Easement dated June 2, 1995 granted by Jerry C. Kollwelter and
Donna L. Kollwelter to LSP-Whitewater Limited Partnership. (1)
10.149. -----Easement dated June 1, 1995 granted by Lowell C. Hagen and Thu T.
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Hagen to LSP-Whitewater Limited Partnership. (1)
10.150. -----Easement dated June 1, 1995 granted by Dean A. Cox and Maybell
Cox to LSP-Whitewater Limited Partnership. (1)
10.151. -----Easement dated June 5, 1995 granted by John's Disposal Service,
Inc. to LSP-Whitewater Limited Partnership. (1)
10.152. -----Easement dated June 12, 1995 granted by Greg Lurvey and Mark
Lurvey to LSP-Whitewater Limited Partnership. (1)
10.153. -----Easement dated October 24, 1994 granted by Perry Moyer and
Dorothy Moyer to LSP-Whitewater Limited Partnership. (1)
10.154. -----Easement dated October 24, 1994 granted by Perry Moyer and
Dorothy Moyer to LSP-Whitewater Limited Partnership. (1)
10.155. -----Easement dated May 30, 1995 granted by Perry Moyer and Dorothy
Moyer to LSP-Whitewater Limited Partnership. (1)
10.156. -----Easement dated May 30, 1995 granted by Perry Moyer and Dorothy
Moyer to LSP-Whitewater Limited Partnership. (1)
10.157. -----Easement dated June 5, 1995 granted by Robert J. Wagner to
LSP-Whitewater Limited Partnership. (1)
10.158. -----Easement dated June 5, 1995 granted by Robert J. Wagner to
LSP-Whitewater Limited Partnership. (1)
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. (1)
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. (1)
10.161. -----Assignment dated as of November 23, 1994 between Granite Power
Partners, L.P. and LSP-Cottage Grove, L.P. (1)
10.162. -----Assignment dated as of November 23, 1994 between Granite Power
Partners L.P. and LSP-Whitewater Limited Partnership. (1)
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. (1)
10.164. -----Amendment to Participation Agreement dated as of June 29, 1995
between Tomen Power Corporation and Granite Power Partners,
L.P. (1)
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. (1)
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10.166. -----Management Services Agreement dated as of May 1, 1995 between LS
Power Corporation and LSP-Cottage Grove, Inc. (1)
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. (1)
10.168. -----Management Services Agreement dated as of May 1, 1995 between LS
Power Corporation and LSP-Whitewater I, Inc. (1)
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. (1)
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. (1)
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. (1)
CHANGE IN CONTROL EVENT AGREEMENTS
10.172 -----Assignment and Assumption Agreement dated as of March 20, 1998
between Cogentrix Energy, Inc. and LS Power Corporation. (5)
10.173 -----Pledge Agreement dated March 20, 1998 between Cogentrix Cottage
Grove LLC and The Chase Manhattan Bank as Collateral Agent. (5)
10.174 -----Pledge Agreement dated March 20, 1998 between Cogentrix
Whitewater LLC and The Chase Manhattan Bank as Collateral
Agent. (5)
16.1 -----Letter Re: Change in Certifying Accountant. (6)
27.1 -----Financial Data Schedule - LS Power Funding Corporation.
27.2 -----Financial Data Schedule - LSP-Cottage Grove, L.P.
27.3 -----Financial Data Schedule - LSP-Whitewater Limited Partnership.
</TABLE>
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(1) Incorporated herein by reference to the Registration Statement on Form S-4
(File No. 33-95928) filed by LS Power Funding Corporation, LSP-Cottage
Grove, L.P. and LSP-Whitewater Limited Partnership on August 16, 1995, as
amended, or to the Form 10-K (File No. 33-95928) filed for the fiscal year
ended December 31, 1995 by LS Power Funding Corporation, LSP-Cottage
Grove, L.P. and LSP-Whitewater Limited Partnership.
(2) Incorporated herein by reference to the Form 10-Q (File No. 33-95928)
filed August 14, 1996.
(3) Incorporated herein by reference to the Form 10-Q (File No. 33-95928)
filed May 14, 1997.
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(4) Incorporated herein by reference to the Form 10-Q (File No. 33-95928)
filed August 14, 1997.
(5) Incorporated herein by reference to the Form 10-K (File No. 33-95928)
filed April 15, 1998.
(6) Incorporated herein by reference to the Form 8-K (File No. 33-95928) filed
March 31, 1998.
(7) Incorporated herein by reference to the Form 8-K (File No. 33-95928) filed
April 6, 1998.
* Certain portions of these exhibits have been omitted pursuant to
previously approved requests for confidential treatment.
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<PAGE> 1
THIRD AMENDMENT TO THE
AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT OF
LSP-COTTAGE GROVE, L.P.
THIS THIRD AMENDMENT TO THE AMENDED AND RESTATED LIMITED PARTNERSHIP
AGREEMENT OF LSP-COTTAGE GROVE, L.P. (this "THIRD AMENDMENT") is made as of the
11th day of December, 1998, by and among LSP-COTTAGE GROVE, INC., a Delaware
corporation (the "COMPANY"), TPC COTTAGE GROVE, INC., a Delaware corporation
("TPC") and COGENTRIX COTTAGE GROVE, LLC, a Delaware limited liability company
("COGENTRIX").
STATEMENT OF PURPOSE
WHEREAS, the Company, Cogentrix and TPC are parties to that certain
Amended and Restated Limited Partnership Agreement of LSP-Cottage Grove, L.P.
(the "LIMITED Partnership") dated June 30, 1995 (as amended by the First
Amendment thereto, dated as of June 18, 1996, and the Second Amendment thereto
dated March 20, 1998, the "AGREEMENT").
WHEREAS, the Parties wish to provide for the posting from time to time
of Debt Service Letters of Credit (defined below) by the Partners pursuant to
Section 3.10(d) of the Deposit and Disbursement Agreement, and the related
distribution of funds from the Debt Service Reserve Fund (defined below) to the
Partner or Partners posting any such Debt Service Letters of Credit.
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. CERTAIN TERMS. All capitalized terms used herein without definition
shall have the meanings assigned thereto in the Agreement.
2. AMENDMENTS TO AGREEMENT.
(a) The following definitions in Section 1.2 of the Agreement are
hereby amended and restated as follows:
"Available Funds" means an amount of cash, other than cash in
an amount required to be distributed to the Partners pursuant
to the second full paragraph of Section 6.22 of the
Partnership Trust Indenture and Section 3.15 of the Deposit &
Disbursement Agreement to cover the Partner's Income Tax
Deficiency, on hand at the end of each fiscal quarter equal to
the excess of: (x) the amount of cash (including proceeds of
borrowings) available at such time; over (y) the sum of (i)
the amount of cash which the General Partner reasonably
believes will be required during the upcoming fiscal quarter
(after taking into account reasonably expected revenues during
such period) to meet all reasonably expected
<PAGE> 2
costs and expenses of the Partnership (including capital
expenditures, payments under the Management Services Agreement
and payments of principal and interest on any debts and other
obligations of the Partnership), plus (ii) the amount of any
reasonable reserve the General Partner may establish from time
to time. Available Funds shall not include any funds held by
the Depositary Agent and available to be distributed to any
Partner in connection with the posting by such Partner of a
Debt Service Letter of Credit pursuant to Section 3.10(d) of
the Deposit and Disbursement Agreement.
"Book Value" means, with respect to any asset of the
Partnership, the adjusted basis of such asset as of the
relevant date for federal income tax purposes, except as
follows:
(i) the initial Book Value of any asset contributed
by a Partner to the Partnership shall be the fair market value
of such asset;
(ii) the Book Values of all Partnership assets
(including intangible assets such as goodwill) shall be
adjusted to equal their respective fair market values as of
the following times:
(A) the acquisition of an additional
interest in the Partnership by any new or existing Partner in
exchange for more than a de minimis Capital Contribution;
(B) the distribution by the Partnership to a
Partner of more than a de minimis amount of money or
Partnership property as consideration for an interest in the
Partnership; and
(C) the liquidation of the Partnership
within the meaning of Regulations section
1.704-1(b)(2)(iv)(f)(5)(ii); and
(iii) if the Book Value of an asset has been
determined or adjusted pursuant to subsection (i) or (ii)
above, such Book Value shall thereafter be adjusted by the
Depreciation taken into account with respect to such asset for
purposes of computing Profits and Losses and other items
allocated pursuant to Section 3.2.
The foregoing definition of Book Value is intended to
comply with the provisions of Regulations section
1.704(b)(2)(iv) and shall be interpreted and applied
consistently therewith. Notwithstanding the foregoing, no
Contribution to Capital pursuant to Section 2.2 will require
an adjustment of the Book Value of the Partnership assets, and
no distribution pursuant to Section 6.2 will require an
adjustment to the Book Value of the Partnership's assets.
- 2 -
<PAGE> 3
"Partner Loans" has the meaning specified in Section 2.3(a).
(b) The following definitions shall be added to Section 1.2 of the
Agreement:
"Debt Service Reserve Fund" shall have the meaning ascribed
thereto in the Partnership Trust Indenture.
"Debt Service Letter of Credit" shall have the meaning
ascribed thereto in the Partnership Trust Indenture.
"Depositary Agent" shall have the meaning ascribed thereto in
the Partnership Trust Indenture.
(c) Section 2.1(c)(iv) shall be added to Section 2.1:
2.1(c)(iv) Effect of Section 2.2 and 6.2 on Rate of Return
Computation. Contributions to Capital pursuant to Section 2.2
and distributions pursuant to Section 6.2 shall not be
considered in making rate of return computations for purposes
of this Section 2.1(c).
(d) Section 2.2 of the Agreement shall be redesignated 2.3, and Section
2.2 shall be replaced and amended as follows:
Section 2.2 Capital Contributions to Reflect Debt Service
Letters of Credit. If any Partner shall provide a Debt Service
Letter of Credit pursuant to Section 3.10(d) of the Deposit
and Disbursement Agreement, such Partner shall, at such time,
contribute to the Partnership a promissory note in an amount
equal to the stated amount of such Debt Service Letter of
Credit, substantially in the form of Exhibit A attached
hereto. The aggregate principal amount of each such note shall
be treated as a Capital Contribution by the Partner
contributing such note.
(e) The following Section 4.9 shall be added to the Agreement:
Section 4.9 Debt Service Letters of Credit. Any Partner may,
from time to time, deliver to the Depositary Agent a Debt
Service Letter of Credit in a stated amount equal to all or
any portion of the amount of cash then on deposit in the Debt
Service Reserve Fund pursuant to Section 3.10(d) of the
Deposit and Disbursement Agreement. Amounts released from the
Debt Service Reserve Fund by the Depositary Agent to any
Partner shall be characterized as contemplated in Section 6.2
below.
(f) Section 6.2 shall be redesignated 6.3, and 6.2 shall be replaced
and amended as follows:
Section 6.2 Funds Remitted from the Debt Service Reserve Fund.
Funds remitted from the Depositary Agent to any Partner
pursuant to Section 3.10(d) of the Deposit and Disbursement
Agreement shall be treated as reductions in the
- 3 -
<PAGE> 4
Capital Account of the recipient Partner pursuant to Section
5.1 of this Agreement.
3. NO OTHER AMENDMENTS. Except as specifically amended pursuant to this
Third Amendment, the Agreement, the First Amendment and the Second Amendment
thereto remain in full force and effect in accordance with their terms.
4. GOVERNING LAW. All questions concerning the construction, validity
and interpretation of this Second Amendment will be governed by and construed in
accordance with the internal law (and not the law of conflicts) of Delaware.
5. COUNTERPARTS. This Third Amendment may be executed in any number of
counterparts, each of which shall constitute an original but all of which when
taken together shall constitute but one agreement.
6. AMENDMENT OR WAIVER. The parties agree that this Third Amendment is
entered into in accordance with Sections 10.4 and 10.5 of the Agreement.
[Remainder of page intentionally left blank.]
- 4 -
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have caused this Third Amendment
to be duly executed by their duly authorized officers, all as of the date first
above written.
COMPANY:
LSP-COTTAGE GROVE, INC.
By: /s/ Thomas F. Schwartz
------------------------------
Name: Thomas F. Schwartz
Title: Assistant Treasurer
TPC:
TPC COTTAGE GROVE, INC.
By: /s/ Keiichi Matsuzuka
------------------------------
Name: Keiichi Matsuzuka
Title: C.F.O.
COGENTRIX:
COGENTRIX COTTAGE GROVE, LLC
By: /s/ Thomas F. Schwartz
------------------------------
Name: Thomas F. Schwartz
Title: Senior Vice President-
Finance and Treasurer
- 5 -
<PAGE> 6
EXHIBIT A
FORM OF NOTE
- 6 -
<PAGE> 7
PROMISSORY NOTE
December 11, 1998
Charlotte, North Carolina
Initial Principal Amount: $6,043,000.00
Interest Rate: (5.47%) per annum (as adjusted pursuant to Paragraph 2 below)
- -------------
FOR VALUE RECEIVED, COGENTRIX ENERGY, INC., located at 9405 Arrowpoint
Boulevard, Charlotte, NC 28273 (hereinafter called "Payor"), promises to pay to
the order of LSP-COTTAGE GROVE, L.P. or its assigns (hereinafter called
"Payee"), the principal amount of SIX MILLION, FORTY-THREE THOUSAND DOLLARS
($6,043,000.00) (as such amount may be decreased from time to time in accordance
herewith, the "Principal Amount") on December 15, 2016 (the "Maturity Date").
Payor promises to pay interest on the Principal Amount at the Interest Rate
stated above from the date this Note is issued until the Maturity Date, payable
monthly in arrears, with the first of such payments being prorated according to
the date hereof. Interest on this Note will accrue from the most recent date to
which interest has been paid or, if no interest has been paid, from the date
hereof.
AND IT IS EXPRESSLY AGREED AS FOLLOWS:
1. The Principal Amount of this Note equals the stated amount ("Stated
Amount") of a letter of credit (the "Debt Service Letter of Credit") issued on
the date hereof and provided as security for debt service obligations of the
Payee under a trust indenture, dated as of May 1, 1995, between the Payee and
IBJ Schroder Bank & Trust Company, as trustee (the "Indenture"). The Principal
Amount of this Note shall decrease, from time to time and on a dollar for dollar
basis, with any decrease in the Stated Amount of the Debt Service Letter of
Credit resulting from any draw thereunder or any replacement thereof with cash
deposits by the Payor into the relevant debt service fund under the Indenture.
Any such reduction in the Principal Amount shall be deemed a prepayment of such
Principal Amount for all purposes hereunder. All such prepayments shall be noted
on Schedule I hereto by an authorized officer of the Payee.
2. The Interest Rate set forth above shall be adjusted every ninety
(90) days from the date of issuance hereof (each, an "Adjustment Date") to equal
the sum of the 3-month LIBOR Rate in effect on each such Adjustment Date, as
such rate appears on Page 3750 of the Dow Jones Market Service (commonly known
as the Telerate Screen) as of 11:00 a.m. on the relevant Adjustment Date plus
0.25%.
3. This Note is subject to the express condition that at no time shall
Payor be obligated or required to pay interest on the principal balance at a
rate which could subject Payee to either civil or criminal liability as a result
of being in excess of the maximum rate which Payor is permitted by law to
contract or agree to pay. If by the terms of this Note Payor is at any time
required or obligated to pay interest on the principal balance at a rate in
excess of such maximum rate, the rate of interest under this Note shall be
deemed to be immediately reduced
<PAGE> 8
to such maximum rate and interest payable hereunder shall be computed at such
maximum rate and the portion of all prior interest payments in excess of such
maximum rate shall be applied and shall be deemed to have been payments in
reduction of the principal balance.
4. Payor hereby waives presentment and demand for payment, notice of
dishonor, protest and notice of protest of this Note and agrees to pay all costs
of collection when incurred, including reasonable attorneys' fees (which costs
may be added to the amount due under this Note and be receivable therewith) and
to perform and comply with each of the terms, covenants and provisions contained
in this Note on the part of Payor to be observed or performed. No release of any
security for the principal sum due under this Note or extension of time for
payment of this Note, or any installment hereof, and no alteration, amendment or
waiver of any provision of this Note made by agreement between Payee and any
other person or party shall release, discharge, modify, change or affect the
liability of Payor under this Note.
5. This Note may not be changed orally, but only by an agreement in
writing, signed by the party against whom enforcement of any waiver, change,
modification or discharge is sought.
6. The provisions of this Note are severable, and if any one or more of
the provisions contained in this Note shall for any reason be held invalid,
illegal or unenforceable in whole or in part in any jurisdiction, then such
invalidity, illegality or unenforceability shall not in any manner affect such
provision or provisions in any other jurisdiction or any other provisions of
this Note in any jurisdiction.
7. This Note is and shall be deemed to have been made and delivered in
the State of North Carolina and shall be construed and enforced in accordance
with the laws of the State of North Carolina.
8. Payor represents that it has full power, authority and legal right
to execute and deliver this Note and that the debt hereunder constitutes a valid
and binding obligation of Payor.
9. Payor may, upon not less than ten (10) days' prior written notice,
at any time and from time to time prepay this Note in whole or in part. If
notice of prepayment is given, the principal amount of the Note specified in
such notice shall become due and payable on the prepayment date set forth in
such notice. All prepayments shall include payment of accrued interest on the
principal amount so prepaid and shall be applied to payment of interest before
application to principal.
10. Any capitalized terms used herein that are not otherwise defined,
shall have the same meanings ascribed to them in the Amended and Restated
Agreement of Limited Partnership of LSP-Cottage Grove, L.P., as amended (the
"Partnership Agreement").
11. If any one or more of the following events ("Events of Default")
shall occur and be continuing the entire unpaid balance of the principal of and
accrued but unpaid interest outstanding on this Note and all other obligations
and indebtedness of Payor to Payee arising hereunder shall immediately become
due and payable upon written notice to that effect given to Payor by Payee
(except that in the case of the occurrence of any Event of Default described in
- 2 -
<PAGE> 9
subparagraph (b) of this paragraph 10, no such notice shall be required and such
termination and acceleration shall be automatic), without presentment or demand
for payment, notice of nonpayment, protest or further notice or demand of any
kind, all of which are expressly waived by Payor:
(a) Failure to make any payment of principal when due or
failure to pay any interest upon any Note within five days after the date due;
or
(b) Any action by Payor to file a petition in bankruptcy, make
an assignment for the benefit of creditors, be adjudicated insolvent, petition
or apply to any tribunal for the appointment of a receiver, custodian, or any
trustee for it or a substantial part of it, or any action to commence any
proceeding or case under any bankruptcy, reorganization, arrangement,
readjustment of debt, dissolution or liquidation law or statute of any
jurisdiction, whether now or hereafter in effect, or to take any action to
authorize any of the foregoing actions; or to permit any such petition or
application to be filed, or any such proceeding or case to be commenced against
Payor, which remains undismissed for a period of thirty (30) days or more; or
permit any order or relief to be entered in any proceeding; or any act or
omission that indicates Payor's consent to, approval of or acquiescence in any
such petition, application or proceeding or the appointment of a custodian,
receiver or any trustee for it or any substantial part of any of its assets, or
to suffer or permit any custodianship, receivership or trusteeship to continue
undischarged for a period of thirty (30) days or more.
12. Whenever used, the singular number shall include the plural, the
plural the singular, and the words "Payee" and "Payor" shall include their
respective heirs, legal representatives, successors and assigns.
- 3 -
<PAGE> 10
IN WITNESS WHEREOF, Payor has duly executed this Note the day and year first
above written.
COGENTRIX ENERGY, INC.
By:_________________________
Name:
Title:
- 4 -
<PAGE> 11
Schedule I to the
Promissory Note
PAYMENTS OF PRINCIPAL
Amount of
Principal Unpaid
Paid or Principal Notation
Date Prepaid Balance Made By
- 5 -
<PAGE> 1
SECOND AMENDMENT TO THE
AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT OF
LSP-WHITEWATER LIMITED PARTNERSHIP
THIS SECOND AMENDMENT TO THE AMENDED AND RESTATED LIMITED PARTNERSHIP
AGREEMENT OF LSP-WHITEWATER LIMITED PARTNERSHIP (this "SECOND AMENDMENT") is
made as of the 11th day of December, 1998, by and among LSP-WHITEWATER I, INC.,
a Delaware corporation (the "COMPANY"), TPC WHITEWATER, INC., a Delaware
corporation ("TPC") and COGENTRIX WHITEWATER, LLC, a Delaware limited liability
company ("COGENTRIX").
STATEMENT OF PURPOSE
WHEREAS, the Company, Cogentrix and TPC are parties to that certain
Amended and Restated Limited Partnership Agreement, of LSP-Whitewater Limited
Partnership (the "LIMITED PARTNERSHIP") dated June 30, 1995 (as amended by the
First Amendment thereto, dated March 20, 1998, the "AGREEMENT").
WHEREAS, the Parties wish to provide for the posting from time to time
of Debt Service Letters of Credit (defined below) by the Partners pursuant to
Section 3.10(d) of the Deposit and Disbursement Agreement, and the related
distribution of funds from the Debt Service Reserve Fund (defined below) to the
Partner or Partners posting any such Debt Service Letters of Credit.
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. CERTAIN TERMS. All capitalized terms used herein without definition
shall have the meanings assigned thereto in the Agreement.
2. AMENDMENTS TO AGREEMENT.
(a) The following definitions in Section 1.2 of the Agreement are
hereby amended and restated as follows:
"Available Funds" means an amount of cash, other than cash in
an amount required to be distributed to the Partners pursuant
to the second full paragraph of Section 6.22 of the
Partnership Trust Indenture and Section 3.15 of the Deposit &
Disbursement Agreement to cover the Partner's Income Tax
Deficiency, on hand at the end of each fiscal quarter equal to
the excess of: (x) the amount of cash (including proceeds of
borrowings) available at such time; over (y) the sum of (i)
the amount of cash which the General Partner reasonably
believes will be required during the upcoming fiscal quarter
(after taking into account reasonably expected
<PAGE> 2
revenues during such period) to meet all reasonably expected
costs and expenses of the Partnership (including capital
expenditures, payments under the Management Services Agreement
and payments of principal and interest on any debts and other
obligations of the Partnership), plus (ii) the amount of any
reasonable reserve the General Partner may establish from time
to time. Available Funds shall not include any funds held by
the Depositary Agent and available to be distributed to any
Partner in connection with the posting by such Partner of a
Debt Service Letter of Credit pursuant to Section 3.10(d) of
the Deposit and Disbursement Agreement.
"Book Value" means, with respect to any asset of the
Partnership, the adjusted basis of such asset as of the
relevant date for federal income tax purposes, except as
follows:
(i) the initial Book Value of any asset contributed
by a Partner to the Partnership shall be the fair market value
of such asset;
(ii) the Book Values of all Partnership assets
(including intangible assets such as goodwill) shall be
adjusted to equal their respective fair market values as of
the following times:
(A) the acquisition of an additional
interest in the Partnership by any new or existing Partner in
exchange for more than a de minimis Capital Contribution;
(B) the distribution by the Partnership to a
Partner of more than a de minimis amount of money or
Partnership property as consideration for an interest in the
Partnership; and
(C) the liquidation of the Partnership
within the meaning of Regulations section
1.704-1(b)(2)(iv)(f)(5)(ii); and
(iii) if the Book Value of an asset has been
determined or adjusted pursuant to subsection (i) or (ii)
above, such Book Value shall thereafter be adjusted by the
Depreciation taken into account with respect to such asset for
purposes of computing Profits and Losses and other items
allocated pursuant to Section 3.2.
The foregoing definition of Book Value is intended to
comply with the provisions of Regulations section
1.704(b)(2)(iv) and shall be interpreted and applied
consistently therewith. Notwithstanding the foregoing, no
Contribution to Capital pursuant to Section 2.2 will require
an adjustment of the Book Value of the Partnership assets, and
no distribution pursuant to Section 6.2 will require an
adjustment to the Book Value of the Partnership's assets.
- 2 -
<PAGE> 3
"Partner Loans" has the meaning specified in Section 2.3(a).
(b) The following definitions shall be added to Section 1.2 of the
Agreement:
"Debt Service Reserve Fund" shall have the meaning ascribed
thereto in the Partnership Trust Indenture.
"Debt Service Letter of Credit" shall have the meaning
ascribed thereto in the Partnership Trust Indenture.
"Depositary Agent" shall have the meaning ascribed thereto in
the Partnership Trust Indenture.
(c) Section 2.1(c)(iv) shall be added to Section 2.1:
2.1(c)(iv) Effect of Section 2.2 and 6.2 on Rate of Return
Computation. Contributions to Capital pursuant to Section 2.2
and distributions pursuant to Section 6.2 shall not be
considered in making rate of return computations for purposes
of this Section 2.1(c).
(d) Section 2.2 of the Agreement shall be redesignated 2.3, and Section
2.2 shall be replaced and amended as follows:
Section 2.2 Capital Contributions to Reflect Debt Service
Letters of Credit. If any Partner shall provide a Debt Service
Letter of Credit pursuant to Section 3.10(d) of the Deposit
and Disbursement Agreement, such Partner shall, at such time,
contribute to the Partnership a promissory note in an amount
equal to the stated amount of such Debt Service Letter of
Credit, substantially in the form of Exhibit A attached
hereto. The aggregate principal amount of each such note shall
be treated as a Capital Contribution by the Partner
contributing such note.
(e) The following Section 4.9 shall be added to the Agreement:
Section 4.9 Debt Service Letters of Credit. Any Partner may,
from time to time, deliver to the Depositary Agent a Debt
Service Letter of Credit in a stated amount equal to all or
any portion of the amount of cash then on deposit in the Debt
Service Reserve Fund pursuant to Section 3.10(d) of the
Deposit and Disbursement Agreement. Amounts released from the
Debt Service Reserve Fund by the Depositary Agent to any
Partner shall be characterized as contemplated in Section 6.2
below.
(f) Section 6.2 shall be redesignated 6.3, and 6.2 shall be replaced
and amended as follows:
Section 6.2 Funds Remitted from the Debt Service Reserve Fund.
Funds remitted from the Depositary Agent to any Partner
pursuant to Section 3.10(d) of the Deposit and Disbursement
Agreement shall be treated as reductions in the
- 3 -
<PAGE> 4
Capital Account of the recipient Partner pursuant to Section
5.1 of this Agreement.
3. NO OTHER AMENDMENTS. Except as specifically amended pursuant to this
Second Amendment, the Agreement and the First Amendment thereto remain in full
force and effect in accordance with their terms.
4. GOVERNING LAW. All questions concerning the construction, validity
and interpretation of this Second Amendment will be governed by and construed in
accordance with the internal law (and not the law of conflicts) of Delaware.
5. COUNTERPARTS. This Second Amendment may be executed in any number of
counterparts, each of which shall constitute an original but all of which when
taken together shall constitute but one agreement.
6. AMENDMENT OR WAIVER. The parties agree that this Second Amendment is
entered into in accordance with Sections 10.4 and 10.5 of the Agreement.
[Remainder of page intentionally left blank.]
- 4 -
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have caused this Second
Amendment to be duly executed by their duly authorized officers, all as of the
date first above written.
COMPANY:
LSP-WHITEWATER I, INC.
By: /s/ Thomas F. Schwartz
------------------------------
Name: Thomas F. Schwartz
Title: Assistant Treasurer
TPC:
TPC WHITEWATER, INC.
By: /s/ Keiichi Matsuzuka
------------------------------
Name: Keiichi Matsuzuka
Title: C.F.O.
COGENTRIX:
COGENTRIX WHITEWATER, LLC
By: /s/ Thomas F. Schwartz
------------------------------
Name: Thomas F. Schwartz
Title: Senior Vice President-
Finance and Treasurer
- 5 -
<PAGE> 6
EXHIBIT A
FORM OF NOTE
- 6 -
<PAGE> 7
PROMISSORY NOTE
December 11, 1998
Charlotte, North Carolina
Initial Principal Amount: $6,900,000.00
Interest Rate: (5.47%) per annum (as adjusted pursuant to Paragraph 2 below)
- -------------
FOR VALUE RECEIVED, COGENTRIX ENERGY, INC., located at 9405 Arrowpoint
Boulevard, Charlotte, NC 28273 (hereinafter called "Payor"), promises to pay to
the order of LSP-WHITEWATER LIMITED PARTNERSHIP or its assigns (hereinafter
called "Payee"), the principal amount of SIX MILLION, NINE HUNDRED THOUSAND
DOLLARS ($6,900,000.00) (as such amount may be decreased from time to time in
accordance herewith, the "Principal Amount") on December 15, 2016 (the "Maturity
Date"). Payor promises to pay interest on the Principal Amount at the Interest
Rate stated above from the date this Note is issued until the Maturity Date,
payable monthly in arrears, with the first of such payments being prorated
according to the date hereof. Interest on this Note will accrue from the most
recent date to which interest has been paid or, if no interest has been paid,
from the date hereof.
AND IT IS EXPRESSLY AGREED AS FOLLOWS:
1. The Principal Amount of this Note equals the stated amount ("Stated
Amount") of a letter of credit (the "Debt Service Letter of Credit") issued on
the date hereof and provided as security for debt service obligations of the
Payee under a trust indenture, dated as of May 1, 1995, between the Payee and
IBJ Schroder Bank & Trust Company, as trustee (the "Indenture"). The Principal
Amount of this Note shall decrease, from time to time and on a dollar for dollar
basis, with any decrease in the Stated Amount of the Debt Service Letter of
Credit resulting from any draw thereunder or any replacement thereof with cash
deposits by the Payor into the relevant debt service fund under the Indenture.
Any such reduction in the Principal Amount shall be deemed a prepayment of such
Principal Amount for all purposes hereunder. All such prepayments shall be noted
on Schedule I hereto by an authorized officer of the Payee.
2. The Interest Rate set forth above shall be adjusted every ninety
(90) days from the date of issuance hereof (each, an "Adjustment Date") to equal
the sum of the 3-month LIBOR Rate in effect on each such Adjustment Date, as
such rate appears on Page 3750 of the Dow Jones Market Service (commonly known
as the Telerate Screen) as of 11:00 a.m. on the relevant Adjustment Date plus
0.25%.
3. This Note is subject to the express condition that at no time shall
Payor be obligated or required to pay interest on the principal balance at a
rate which could subject Payee to either civil or criminal liability as a result
of being in excess of the maximum rate which Payor is permitted by law to
contract or agree to pay. If by the terms of this Note Payor is at any time
required or obligated to pay interest on the principal balance at a rate in
excess of such maximum rate, the rate of interest under this Note shall be
deemed to be immediately reduced
<PAGE> 8
to such maximum rate and interest payable hereunder shall be computed at such
maximum rate and the portion of all prior interest payments in excess of such
maximum rate shall be applied and shall be deemed to have been payments in
reduction of the principal balance.
4. Payor hereby waives presentment and demand for payment, notice of
dishonor, protest and notice of protest of this Note and agrees to pay all costs
of collection when incurred, including reasonable attorneys' fees (which costs
may be added to the amount due under this Note and be receivable therewith) and
to perform and comply with each of the terms, covenants and provisions contained
in this Note on the part of Payor to be observed or performed. No release of any
security for the principal sum due under this Note or extension of time for
payment of this Note, or any installment hereof, and no alteration, amendment or
waiver of any provision of this Note made by agreement between Payee and any
other person or party shall release, discharge, modify, change or affect the
liability of Payor under this Note.
5. This Note may not be changed orally, but only by an agreement in
writing, signed by the party against whom enforcement of any waiver, change,
modification or discharge is sought.
6. The provisions of this Note are severable, and if any one or more of
the provisions contained in this Note shall for any reason be held invalid,
illegal or unenforceable in whole or in part in any jurisdiction, then such
invalidity, illegality or unenforceability shall not in any manner affect such
provision or provisions in any other jurisdiction or any other provisions of
this Note in any jurisdiction.
7. This Note is and shall be deemed to have been made and delivered in
the State of North Carolina and shall be construed and enforced in accordance
with the laws of the State of North Carolina.
8. Payor represents that it has full power, authority and legal right
to execute and deliver this Note and that the debt hereunder constitutes a valid
and binding obligation of Payor.
9. Payor may, upon not less than ten (10) days' prior written notice,
at any time and from time to time prepay this Note in whole or in part. If
notice of prepayment is given, the principal amount of the Note specified in
such notice shall become due and payable on the prepayment date set forth in
such notice. All prepayments shall include payment of accrued interest on the
principal amount so prepaid and shall be applied to payment of interest before
application to principal.
10. Any capitalized terms used herein that are not otherwise defined,
shall have the same meanings ascribed to them in the Amended and Restated
Agreement of Limited Partnership of LSP-Whitewater Limited Partnership, as
amended (the "Partnership Agreement").
11. If any one or more of the following events ("Events of Default")
shall occur and be continuing the entire unpaid balance of the principal of and
accrued but unpaid interest outstanding on this Note and all other obligations
and indebtedness of Payor to Payee arising hereunder shall immediately become
due and payable upon written notice to that effect given to Payor by Payee
(except that in the case of the occurrence of any Event of Default described in
- 2 -
<PAGE> 9
subparagraph (b) of this paragraph 10, no such notice shall be required and such
termination and acceleration shall be automatic), without presentment or demand
for payment, notice of nonpayment, protest or further notice or demand of any
kind, all of which are expressly waived by Payor:
(a) Failure to make any payment of principal when due or
failure to pay any interest upon any Note within five days after the date due;
or
(b) Any action by Payor to file a petition in bankruptcy, make
an assignment for the benefit of creditors, be adjudicated insolvent, petition
or apply to any tribunal for the appointment of a receiver, custodian, or any
trustee for it or a substantial part of it, or any action to commence any
proceeding or case under any bankruptcy, reorganization, arrangement,
readjustment of debt, dissolution or liquidation law or statute of any
jurisdiction, whether now or hereafter in effect, or to take any action to
authorize any of the foregoing actions; or to permit any such petition or
application to be filed, or any such proceeding or case to be commenced against
Payor, which remains undismissed for a period of thirty (30) days or more; or
permit any order or relief to be entered in any proceeding; or any act or
omission that indicates Payor's consent to, approval of or acquiescence in any
such petition, application or proceeding or the appointment of a custodian,
receiver or any trustee for it or any substantial part of any of its assets, or
to suffer or permit any custodianship, receivership or trusteeship to continue
undischarged for a period of thirty (30) days or more.
12. Whenever used, the singular number shall include the plural, the
plural the singular, and the words "Payee" and "Payor" shall include their
respective heirs, legal representatives, successors and assigns.
- 3 -
<PAGE> 10
IN WITNESS WHEREOF, Payor has duly executed this Note the day and year first
above written.
COGENTRIX ENERGY, INC.
By:_________________________
Name:
Title:
- 4 -
<PAGE> 11
Schedule I to the
Promissory Note
PAYMENTS OF PRINCIPAL
Amount of
Principal Unpaid
Paid or Principal Notation
Date Prepaid Balance Made By
- 5 -
<PAGE> 1
EXECUTION COPY
AMENDMENT TO
MANAGEMENT SERVICES AGREEMENT
THIS AMENDMENT TO MANAGEMENT SERVICES AGREEMENT (this "AMENDMENT") is
made as of the 11th day of December, 1998, by and between LSP-COTTAGE GROVE,
L.P., a Delaware limited partnership (the "OWNER") and COGENTRIX ENERGY, INC., a
Delaware corporation ("MANAGER").
STATEMENT OF PURPOSE
WHEREAS, the Owner and LS Power Corporation ("LS Power") entered into
that certain Management Services Agreement, dated as of May 1, 1995 (the
"Agreement");
WHEREAS, LS Power assigned all of its right, title and interest in, to
and under the Agreement to Manager and Manager assumed all of the obligations of
LS Power in, to and under the Agreement pursuant to that certain Assignment and
Assumption Agreement, dated as of March 20, 1998; and
WHEREAS, Manager and Owner wish to amend the Management Services
Agreement to the extent set forth below.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. CERTAIN TERMS. All capitalized terms used herein without definition
shall have the meanings assigned thereto in the Agreement.
2. AMENDMENTS TO AGREEMENT.
(a) The following definition shall be amended and restated in its
entirety:
"1.9. Partnership Agreement: Amended and Restated Limited
Partnership Agreement of LSP-Cottage Grove, L.P.,
dated June 30, 1995, as amended by the First
Amendment thereto, dated June 18, 1996 and the Second
Amendment thereto, dated as of March 20, 1998 and the
Third Amendment thereto, dated as of November 15,
1998."
(b) The following definitions shall be added to Article 1 of the
Agreement in the respective alphabetical position:
"Debt Service Letter of Credit: shall have the meaning
ascribed thereto in the Partnership Agreement."
<PAGE> 2
"Management Fee Payment Date: shall mean each monthly date on
which Owner is obligated to pay the Management Fee to Manager
in accordance with Section 9.1."
"Promissory Note: any promissory note delivered from time to
time by Manager in respect of a Debt Service Letter of
Credit."
(c) The following Section 9.2 shall be added to the Agreement:
"9.2 In the event that interest shall be due and payable
in respect of a Promissory Note on any Management Fee
Payment Date, the Owner shall pay to Manager on such
Management Fee Payment Date an amount equal to the
Management Fee minus the interest which is due and
payable as of such Management Fee Payment Date."
3. NO OTHER AMENDMENTS. Except as specifically amended pursuant to this
Amendment, the Agreement shall remain in full force and effect in accordance
with its terms.
4. GOVERNING LAW. All questions concerning the construction, validity
and interpretation of this Amendment will be governed by and construed in
accordance with the internal law (and not the law of conflicts) of New York.
5. COUNTERPARTS. This Amendment may be executed in any number of
counterparts, each of which shall constitute an original but all of which when
taken together shall constitute but one agreement.
6. AMENDMENT OR WAIVER. The parties agree that this Amendment is
entered into in accordance with Section 18.9 of the Agreement.
[Remainder of page intentionally left blank.]
- 2 -
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed by their duly authorized officers, all as of the date first above
written.
OWNER:
LSP-COTTAGE GROVE, L.P.
By: LSP-Cottage Grove, Inc., its general partner
By: /s/ Thomas F. Schwartz
---------------------------------------------
Name: Thomas F. Schwartz
Title: Assistant Treasurer
MANAGER:
COGENTRIX ENERGY, INC.
By: /s/ Thomas F. Schwartz
---------------------------------------------
Name: Thomas F. Schwartz
Title: Senior Vice President-
Finance and Treasurer
- 3 -
<PAGE> 1
EXECUTION COPY
AMENDMENT TO
MANAGEMENT SERVICES AGREEMENT
THIS AMENDMENT TO MANAGEMENT SERVICES AGREEMENT (this "AMENDMENT") is
made as of the 11th day of December, 1998, by and between LSP-WHITEWATER LIMITED
PARTNERSHIP, a Delaware limited partnership (the "OWNER") and COGENTRIX ENERGY,
INC., a Delaware corporation ("MANAGER").
STATEMENT OF PURPOSE
WHEREAS, the Owner and LS Power Corporation ("LS Power") entered into
that certain Management Services Agreement, dated as of May 1, 1995 (the
"Agreement");
WHEREAS, LS Power assigned all of its right, title and interest in, to
and under the Agreement to Manager and Manager assumed all of the obligations of
LS Power in, to and under the Agreement pursuant to that certain Assignment and
Assumption Agreement, dated as of March 20, 1998; and
WHEREAS, Manager and Owner wish to amend the Management Services
Agreement to the extent set forth below.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. CERTAIN TERMS. All capitalized terms used herein without definition
shall have the meanings assigned thereto in the Agreement.
2. AMENDMENTS TO AGREEMENT.
(a) The following definition shall be amended and restated in its
entirety:
"1.9. Partnership Agreement: Amended and Restated Limited
Partnership Agreement of LSP-Whitewater Limited
Partnership, dated June 30, 1995, as amended by the
First Amendment thereto, dated March 20, 1998 and the
Second Amendment thereto, dated as of November 15,
1998."
(b) The following definitions shall be added to Article 1 of the
Agreement in the respective alphabetical position:
"Debt Service Letter of Credit: shall have the meaning
ascribed thereto in the Partnership Agreement."
<PAGE> 2
"Management Fee Payment Date: shall mean each monthly date on
which Owner is obligated to pay the Management Fee to Manager
in accordance with Section 9.1."
"Promissory Note: any promissory note delivered from time to
time by Manager in respect of a Debt Service Letter of
Credit."
(c) The following Section 9.2 shall be added to the Agreement:
"9.2 In the event that interest shall be due and payable
in respect of a Promissory Note on any Management Fee
Payment Date, the Owner shall pay to Manager on such
Management Fee Payment Date an amount equal to the
Management Fee minus the interest which is due and
payable as of such Management Fee Payment Date."
3. NO OTHER AMENDMENTS. Except as specifically amended pursuant to this
Amendment, the Agreement shall remain in full force and effect in accordance
with its terms.
4. GOVERNING LAW. All questions concerning the construction, validity
and interpretation of this Amendment will be governed by and construed in
accordance with the internal law (and not the law of conflicts) of New York.
5. COUNTERPARTS. This Amendment may be executed in any number of
counterparts, each of which shall constitute an original but all of which when
taken together shall constitute but one agreement.
6. AMENDMENT OR WAIVER. The parties agree that this Amendment is
entered into in accordance with Section 18.9 of the Agreement.
[Remainder of page intentionally left blank.]
- 2 -
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed by their duly authorized officers, all as of the date first above
written.
OWNER:
LSP-WHITEWATER LIMITED PARTNERSHIP
By: LSP-Whitewater I, Inc., its general partner
By: /s/ Thomas F. Schwartz
---------------------------------------------
Name: Thomas F. Schwartz
Title: Assistant Treasurer
MANAGER:
COGENTRIX ENERGY, INC.
By: /s/ Thomas F. Schwartz
---------------------------------------------
Name: Thomas F. Schwartz
Title: Senior Vice President-
Finance and Treasurer
- 3 -
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, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 1
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 332,001
<CURRENT-LIABILITIES> 0
<BONDS> 332,000
0
0
<COMMON> 0
<OTHER-SE> 1
<TOTAL-LIABILITY-AND-EQUITY> 332,001
<SALES> 0
<TOTAL-REVENUES> 25,886
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25,886
<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 LIMITED PARTNERSHIP AS OF AND FOR THE
YEAR ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 8,745
<SECURITIES> 0
<RECEIVABLES> 5,787
<ALLOWANCES> 0
<INVENTORY> 2,335
<CURRENT-ASSETS> 17,147
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 265,012
<CURRENT-LIABILITIES> 7,808
<BONDS> 155,000
0
0
<COMMON> 0
<OTHER-SE> 102,204
<TOTAL-LIABILITY-AND-EQUITY> 265,012
<SALES> 4,007
<TOTAL-REVENUES> 45,902
<CGS> 0
<TOTAL-COSTS> 25,063
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,348
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,491
<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, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 7,470
<SECURITIES> 0
<RECEIVABLES> 6,397
<ALLOWANCES> 0
<INVENTORY> 1,384
<CURRENT-ASSETS> 15,803
<PP&E> 8,172
<DEPRECIATION> 523
<TOTAL-ASSETS> 300,265
<CURRENT-LIABILITIES> 9,150
<BONDS> 177,000
0
0
<COMMON> 0
<OTHER-SE> 114,115
<TOTAL-LIABILITY-AND-EQUITY> 300,265
<SALES> 1,224
<TOTAL-REVENUES> 52,298
<CGS> 0
<TOTAL-COSTS> 29,320
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,068
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,910
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
