Back to GetFilings.com




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 calendar year ended December 31, 2004
Commission File No. 001-12995

CE CASECNAN WATER AND ENERGY COMPANY, INC.
(Exact name of registrant as specified in its charter)

Philippines
  
Not Applicable
(State or other jurisdiction of
incorporation or organization)
  
(I.R.S. Employer
Identification No.)
     
24th Floor, 6750 Building, Ayala Avenue
Makati, Metro Manila, Philippines
  
Not Applicable
(Address of principal executive offices)
  
(Zip Code)
     

011 63 2 892-0276
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: N/A
Securities registered pursuant to Section 12(g) of the Act: N/A

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]

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 be the best of each of the registrants’ 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]

Indicate by check mark whether the registrant is an accelerated filer (as defined by Rule 12b-2 of the Act).
Yes [ ] No [X]

All of the shares of CE Casecnan Water and Energy Company, Inc. are held by a limited group of private investors. As of January 28, 2005, the number of outstanding shares of common stock was 767,162, $0.038 par value.


TABLE OF CONTENTS



 
PART I
  
     
4
11
11
11
     
 
PART II
  
     
12
12
12
18
20
36
36
36
     
 
PART III
  
     
37
38
39
39
40
     
 
PART IV
  
     
41
 
42
 
43

2
 
Disclosure Regarding Forward-Looking Statements

This report contains statements that do not directly or exclusively relate to historical facts. These statements are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. You can typically identify forward-looking statements by the use of forward-looking words, such as "may," "will," "could," "project," "believe," "anticipate," "expect," "estimate," "continue," "potential," "plan," "forecast" and similar terms. These statements represent the Company’s intentions, plans, expectations and beliefs and are subject to risks, uncertainties and other factors. Many of these factors are outside the Company’s control and could cause actual results to differ materially from such forward-looking statements. These factors include, among others:

 
·
general economic, political and business conditions in the Philippines;

 
·
governmental, statutory, regulatory or administrative initiatives affecting the Company or the power generation industry;

 
·
weather effects on sales and revenues;

 
·
general industry trends;

 
·
increased competition in the power generation industry;

 
·
availability of qualified personnel;

 
·
financial or regulatory accounting principles or policies imposed by the Public Company Accounting Oversight Board, the Financial Accounting Standards Board, the United States Securities and Exchange Commission (“SEC”) and similar entities with regulatory oversight; and

 
·
other business or investment considerations that may be disclosed from time to time in the Company’s SEC filings or in other publicly disseminated written documents.

The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The foregoing review of factors should not be construed as exclusive.
 
3

Item 1.    Business
 
General

CE Casecnan Water and Energy Company, Inc. (the “Company” or “CE Casecnan”) is a privately held Philippine corporation formed indirectly by MidAmerican Energy Holdings Company (“MidAmerican”) in September of 1994 solely to develop, construct, own and operate the Casecnan Project (the “Casecnan Project”), a multi-purpose irrigation and hydroelectric power facility with a rated capacity of approximately 150 megawatts located on the island of Luzon in the Republic of the Philippines (the “ROP”). The Casecnan Project commenced commercial operations on December 11, 2001.

The Securities (described herein) are recourse only to the Company. MidAmerican has not guaranteed directly or indirectly the payment or performance of any Company obligations.

The Company’s principal executive office is located at 24th Floor, 6750 Building, Ayala Avenue, Makati City, Philippines, and its telephone number is (632) 892-0276. The Company’s principal office is located at Pantabangan in the Province of Nueva Ecija, Philippines.

In this Annual Report, references to "U.S. dollars," "dollars," or "$" are to the currency of the United States and references to "pesos" are to the currency of the Philippines. References to kW means kilowatts, MW means megawatts, GW means gigawatts, kWh means kilowatt hours, MWh means megawatt hours, and GWh means gigawatt hours.

The Casecnan Project

The Casecnan Project is located in the central part of the island of Luzon. It consists generally of diversion structures in the Casecnan and Taan rivers that capture and divert excess water in the Casecnan watershed by means of concrete, in-stream diversion weirs, and transfer that water through a transbasin tunnel of approximately 23 kilometers. During the water transfer, the elevation differences between the two watersheds allows electrical energy to be generated by an approximately 150 MW rated capacity power plant, which is located in an underground powerhouse cavern at the end of the water tunnel. A tailrace discharge tunnel then delivers water to the existing underutilized water storage reservoir at Pantabangan, providing additional water for irrigation and increasing the potential electrical generation at two downstream existing hydroelectric facilities of the Philippine National Power Corporation, the government-owned and controlled corporation that is the primary supplier of electricity in the Philippines. Once in the reservoir at Pantabangan, the water is under the control of the Philippine National Irrigation Administration (“NIA”).

The Casecnan Project was developed on a build-own-operate-transfer basis, that is, an arrangement under which the Company agreed to build and thereafter own and operate the Casecnan Project for a twenty-year cooperation period (the “Cooperation Period”), after which ownership and operation of the Casecnan Project will be transferred to NIA at no cost on an “as-is” basis. After conclusion of a public solicitation for competing proposals, NIA and the Company entered into a project agreement in June 1995 (the “Project Agreement”) which set forth the terms of the arrangement. The Casecnan Project was subsequently designated a high priority project under Republic Act No. 529 by the National Economic and Development Authority of the Philippines. The twenty-year Cooperation Period under the Project Agreement commenced on December 11, 2001, the start of the Casecnan Project’s commercial operations.

Upon the occurrence and during the continuance of certain force majeure events, including those associated with Philippine political action, NIA may be obligated to buy the Casecnan Project from CE Casecnan at a buyout price expected to be in excess of the aggregate principal amount of the outstanding CE Casecnan debt securities, together with accrued but unpaid interest.

The ROP has provided a Performance Undertaking under which NIA’s obligations under the Project Agreement are guaranteed by the full faith and credit of the ROP. The Project Agreement and the Performance Undertaking provide for the resolution of disputes by binding arbitration in Singapore under international arbitration rules.
 
4
 
NIA’s payment obligations under the Project Agreement are the Company’s sole source of operating revenues. Because of the Company’s dependence on NIA, any material failure of NIA to fulfill its obligations under the Project Agreement and any material failure of the ROP to fulfill its obligations under the Performance Undertaking would significantly impair the ability of the Company to meet its obligations under the debt securities.

CE Casecnan financed a portion of the costs of the Casecnan Project through the issuance of $125.0 million of its 11.45% Senior Secured Series A Notes due 2005 (the “Series A Notes”), $171.5 million of its 11.95% Senior Secured Series B Bonds due 2010 (the “Series B Bonds”) and $75.0 million of its Senior Secured Floating Rate Notes due 2002 (“FRNs”), pursuant to an indenture dated November 27, 1995 (as amended to date, the “Trust Indenture”). During 2002, the Company repaid all amounts due under the FRNs.

The Casecnan Project Supplemental Agreement

On October 15, 2003, the Company closed a transaction settling an arbitral proceeding which the Company had initiated against NIA in August 2002. In connection with the settlement (the “NIA Arbitration Settlement”), the Company entered into an agreement (the “Supplemental Agreement”) with NIA which, in addition to providing for the dismissal with prejudice of all claims by CE Casecnan and counterclaims by NIA in the arbitral proceeding, supplements and amends the Project Agreement.

Payment in Cash and Delivery of Note

As part of the settlement, on October 15, 2003, NIA paid to CE Casecnan the sum of approximately $18.4 million and delivered to CE Casecnan a ROP $97.0 million 8.375% Note due 2013 (the "ROP Note"). The Company had the option, between January 14, 2004 and February 14, 2004 to put the ROP Note to the ROP, for a price of par plus accrued interest. The ROP Note was recorded as a note receivable in the accompanying balance sheet as of December 31, 2003. Also at closing, the Company paid to the Philippine Bureau of Internal Revenue (“BIR”) approximately $24.4 million in respect of Philippine income taxes on the foregoing consideration and paid to NIA $1.6 million in respect of alleged late completion of the Casecnan Project.

On January 14, 2004, CE Casecnan exercised its right to put the ROP Note to the ROP and, in accordance with the terms of the put, CE Casecnan received $99.2 million (representing $97.0 million par value plus accrued interest) from the ROP on January 21, 2004.

Modifications to Water Delivery Fee

Under the Project Agreement, the Water Delivery Rate increased by $0.00043 per cubic meter for each $1.0 million of certain taxes paid by CE Casecnan. The Supplemental Agreement amends the per cubic meter Water Delivery Fee calculation by eliminating the increase for taxes paid. Instead, the Water Delivery Rate remains at $0.029 per cubic meter, escalated at 7.5% annually from January 1, 1994 through the first five years of the Cooperation Period, extending through December 25, 2006. The Company will be reimbursed for certain taxes it pays during the remainder of the Cooperation Period.

Under the Project Agreement, the Water Delivery Fee payable monthly was a fixed monthly payment based on an average water delivery of 801.9 million cubic meters per year, pro-rated to approximately 66.8 million cubic meters per month, multiplied by the per cubic meter rate as described above. Under the Supplemental Agreement the Water Delivery Fee is equal to the Guaranteed Water Delivery Fee plus the Variable Delivered Water Delivery Fee minus the Water Delivery Fee Credit.

Guaranteed Water Delivery Fee. For the sixty-month period from December 25, 2003 through December 25, 2008, the Guaranteed Water Delivery Fee shall equal the Water Delivery Rate, as described above, multiplied by approximately 66.8 million cubic meters (corresponding to the 801.9 million cubic meters per year). For each month beginning after December 25, 2008 through the remainder of the Cooperation Period, the Guaranteed Water Delivery Fee shall equal the Water Delivery Rate multiplied by approximately 58.3 million cubic meters (corresponding to 700.0 million cubic meters per year).
 
5

Variable Delivered Water Delivery Fee. Variable Delivered Water Delivery Fees will be earned for months beginning after December 25, 2008. For each month beginning after December 25, 2008 through the end of the Cooperation Period, the Variable Delivered Water Delivery Fee shall be payable only from the date when the cumulative Total Available Water (total delivered water plus the water volume not delivered to NIA as a result of NIA’s failure to accept energy deliveries at a capacity up to 150 MW) for each contract year exceeds 700.0 million cubic meters. Variable Delivered Water Delivery Fees will be earned up to an aggregate maximum of 1,324.7 million cubic meters for the period from December 25, 2008 through the end of the Cooperation Period. No additional Variable Delivered Water Delivery Fees will be earned over the 1,324.7 million cubic meter threshold.

Water Delivery Fee Credit. The Water Delivery Fee Credit shall be applicable only for each of the sixty-months from December 25, 2008 through December 25, 2013 and shall equal the Water Delivery Rate as of December 25, 2008 multiplied by the sum of each Annual Water Credit divided by sixty. The Annual Water Credit for each contract year starting from December 25, 2003 and ending on December 25, 2008 shall equal 801.9 million cubic meters minus the Total Available Water for each contract year. The Total Available Water in any such year will equal actual deliveries with a minimum threshold of 700.0 million cubic meters.

Modifications to Excess Energy Delivery Fee

Under the Project Agreement, the Excess Energy Delivery Fee was a variable amount based on actual electrical energy delivered in each month in excess of 19.0 GWh, payable at a rate of $0.1509 per kWh. Under the Supplemental Agreement, the per kWh rate for energy deliveries in excess of 19.0 GWh per month has been reduced, commencing in 2009, to $0.1132 (escalating at 1% per annum thereafter), provided that any deliveries of energy in excess of 490.0 GWh but less than 550.0 GWh per year are paid for at a rate of 1.3 pesos per kWh and deliveries in excess of 550.0 GWh per year are at no cost to NIA.

For periods after September 28, 2003, the Supplemental Agreement provides that if the Casecnan Project is not dispatched up to 150 MW whenever water is available, NIA will pay for excess energy that could have been generated but was not as a result of such dispatch constraint.

Other Provisions of the Supplemental Agreement

The Company received an opinion from the Philippine Office of Government Corporate Counsel that the Supplemental Agreement has due authorization and is enforceable. The Company also received written confirmation from the Private Sector Assets and Liabilities Management Corporation that the issues with respect to the Casecnan Project that had been raised by the interagency review of independent power producers in the Philippines or that may have existed with respect to the Casecnan Project under certain provisions of the Electric Power Industry Reform Act of 2001 (“EPIRA”) calling for renegotiation of contracts such as the Project Agreement have been satisfactorily addressed by the Supplemental Agreement.

The Guaranteed Energy Delivery Fee, Force Majeure, Buyout and Dispute Resolution provisions of the Project Agreement, as well as the Performance Undertaking provided by the ROP, remain unaffected by the Supplemental Agreement and in full force and effect.

Concentration of Risk

NIA’s payments of obligations under the Project Agreement are substantially denominated in U.S. Dollars and are the Company’s sole source of operating revenues. Because of the Company’s dependence on NIA, any material failure of NIA to fulfill its obligations under the Project Agreement and any material failure of the ROP to fulfill its obligations under the Performance Undertaking would significantly impair the ability of the Company to meet its existing and future obligations. No stockholders, partners or affiliates of the Company, including MidAmerican, and no directors, officers or employees of the Company will guarantee or be in any way liable for payment of the Company’s obligations. As a result, payment of the Company’s obligations depends upon the availability of sufficient revenues from the Company’s business after the payment of operating expenses.

6

Terms of the Securities

General

In November 1995, the Company issued and sold (i) the Series A Notes, (ii) the Series B Bonds, and (iii) the FRNs (collectively, the “Securities”). During 2002, the Company repaid all amounts due under the FRNs.

Interest on the Series A Notes and the Series B Bonds is payable semiannually every May 15 and November 15 (the “Securities Interest Payment Date”), which commenced on May 15, 1996, to the registered Holders thereof at the close of business on May 1 and November 1, as the case may be, preceding each Securities Interest Payment Date. The initial average life of the Series A Notes was 8.84 years, and the initial average life of the Series B Bonds was 11.57 years.

Priority of Payments

Except as otherwise provided for with respect to mandatory redemptions and loss proceeds, all revenues received by the Company from the Casecnan Project have been and will continue to be paid to the Revenue Fund maintained by the Depositary (other than payments required to be used for VAT payments to the ROP). Amounts paid to the Revenue Fund have been and will continue to be distributed in the following order of priority: (a) to pay operating and maintenance costs; (b) to pay certain administrative costs of the agents for the Secured Parties under the Financing Documents; (c) to pay principal of, premium (if any) and interest on the Securities (including any increased costs necessary to gross up such payments for certain withholding taxes and other assessments and charges), and principal and interest on other senior debt, if any; (d) to cause the Debt Service Reserve Fund to equal the Debt Service Reserve Fund Required Balance, as defined below; (e) to pay indemnification expenses and other expenses to the Secured Parties and certain other costs, and (f) to the Distribution Fund or Distribution Suspense Fund, as applicable.

Debt Service Reserve Fund

The Company established a Debt Service Reserve Fund for the benefit of the Holders of the Securities, which will be funded in cash from operating revenues, subject to cash being available, as described under “Priority of Payments” above. Such amounts will be deposited to the Debt Service Reserve Fund from time to time to the extent required to cause it to equal the Debt Service Reserve Fund Required Balance which is intended to approximate the highest amount of the payments of principal and interest to be made on the Securities during any semiannual period over the next three years from the last debt service payment.

Optional Redemption

The Series A Notes are subject to optional redemption by the Company, in whole and not in part, at par plus accrued interest to the Redemption Date.

The Series B Bonds are subject to optional redemption by the Company, at any time, in whole or in part, pro rata, at par plus accrued interest to the redemption date plus a premium, calculated to “make whole” to comparable U.S. treasury securities plus 150 basis points.

The Company also has the option to redeem the Securities, in whole or in part, at par plus accrued interest at any time if, as a result of any change in Philippine tax law or in the application or interpretation of Philippine tax law occurring after the date of issuance of the Securities, the Company is required to pay certain additional amounts described in the Trust Indenture.

Mandatory Redemption

The Securities are subject to mandatory redemption, pro rata, at par plus accrued interest to the redemption date; (a) upon the receipt by the Company of loss proceeds that exceed $15.0 million in respect of certain events of property or casualty loss or similar events, unless the funds are to be utilized by the Company for an Approved Restoration Plan; or (b) upon the receipt by the Company of proceeds realized in connection with a Project Agreement Buyout.

7

Change in Control Put

When a Change in Control occurs, each Holder will have the right to require the Company to repurchase all or any part of such Holder’s Securities at a cash purchase price equal to 101% of the principal amount thereof, plus accrued interest to the date of repurchase in accordance with the procedures set forth in the Trust Indenture. There is no assurance that upon a Change in Control the Company will have sufficient funds to repurchase the Securities.

Profit Distributions

Profit distributions may be made only from and to the extent of amounts on deposit in the Distribution Fund or Distribution Suspense Fund. Distributions are subject to the prior satisfaction of the following conditions:

(a)    
The amounts contained in the Principal Fund and the Interest Fund will be equal to or greater than the aggregate scheduled principal and interest payments next due on the Securities;

(b)     No Default or Event of Default under the Trust Indenture shall have occurred and be continuing;

(c)      The Debt Service Coverage Ratio for the preceding 12-month period is equal to or greater than 1.35 to 1 as certified by an officer of the Company;

(d)    
The projected Debt Service Coverage Ratio of the Securities for the succeeding 12-month period is equal to or greater than 1.35 to 1, as certified by an officer of the Company; and

(e)     The Debt Service Reserve Fund has a balance equal to or greater than the Debt Service Reserve Fund Required Balance.

During 2004, the Company made profit distributions totaling $106.0 million. Due to the dispute between an initial shareholder as described in Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - Stockholder Litigation, 15% or $15.9 million of the distribution and the corresponding interest earned is being held in an account of the Company over which the holders of the Securities do not have a security interest.

Ranking and Security for the Securities

The Securities are senior debt of the Company and are secured by (a) an assignment of all revenues received by the Company from the Casecnan Project; (b) a collateral assignment of all material contracts; (c) a lien on any accounts and funds on deposit under the Depositary Agreement; (d) a pledge of approximately 100% of the capital stock of the Company, subject to release in certain circumstances relating to accessing political risk insurance for the benefit of the stockholders; and (e) a lien on all other material assets and property interests of the Company. The Securities will rank pari passu with and will share the Collateral on a pro rata basis with certain other senior secured debt, if any (provided that the Debt Service Reserve Fund shall be held as collateral solely for the obligations under the Securities). The proceeds of any political risk insurance covering the capital investment will not be part of the collateral for the Securities. While under the Trust Indenture the Company may incur certain permitted debt senior to the Securities, it has no present intention to do so.

Ratings

At December 31, 2004, CE Casecnan senior secured notes rating by Standard and Poors and Moody’s are B+ with positive outlook and B2 with positive outlook, respectively.

Nature of Recourse on the Securities

The Company’s obligations to make payments of principal, premium, if any, and interest on the Securities are obligations solely of the Company secured solely by the collateral. Neither the stockholders of the Company nor any affiliates (including MidAmerican), incorporators, officers, directors or employees thereof or of the Company, guaranteed the payment of, or have any obligation with respect to payment of, the Securities, except to the extent that stockholders of the Company have pledged their stockholdings in the Company as security for the notes and bonds issued by the Company. As a result, payment of the Company’s obligations depends upon the availability of sufficient revenues from the Company’s business after the payment of operating expenses.
 
8

Incurrence of Additional Debt

The Company shall not incur any debt other than “Permitted Debt.” “Permitted Debt” means:
 
(a)     The Securities; 
 
(b)    
Debt incurred to finance the construction of capital improvements to the Casecnan Project, which are required to ensure compliance with applicable law or anticipated changes therein; provided that no such debt may be incurred unless at the time of incurrence of such debt, an independent engineer confirms the reasonableness of (i) a certification by the Company (containing customary assumptions and qualifications) that the proposed capital improvements are reasonably expected to enable the Casecnan Project to comply with applicable or anticipated legal requirements and (ii) the calculations of the Company that demonstrate, after giving effect to the incurrence of such debt, that the minimum project Debt Service Coverage Ratio (x) for the next four consecutive fiscal quarters, commencing with the quarter in which such debt is incurred, taken as one annual period, and (y) for each subsequent fiscal year through the final maturity date, will not be less than 1.3 to 1;

(c)    
Debt incurred to finance the construction of capital improvements to the Casecnan Project not required by applicable law, so long as after giving effect to the incurrence of such debt (i) no default or event of default has occurred and is continuing, and (ii)(A) the independent engineer confirms the reasonableness of (I) a certification by the Company (containing customary assumptions and qualifications) that the proposed capital improvements are technically feasible and prudent and (II) the calculations of the Company that demonstrate, after giving effect to the incurrence of such debt, (x) the minimum project Debt Service Coverage Ratio for the next four consecutive fiscal quarters, commencing with the quarter in which such debt is incurred, taken as one annual period, and in every fiscal year thereafter, will not be less than 1.4 to 1 and (y) the average projected Debt Service Coverage Ratio for all succeeding fiscal years until the final maturity date will not be less than 1.7 to 1, or (B) the rating agencies confirm that the incurrence of such debt will not result in a rating downgrade;

(d)     Working capital debt in an aggregate amount outstanding at any time not to exceed $5.0 million;

(e)     Debt incurred in connection with certain permitted interest rate and currency hedging arrangements;

(f)     Subordinated debt from affiliates in an aggregate amount not to exceed $100.0 million which shall be used to finance capital, operating or other costs with respect to the Casecnan Project;

(g)     Debt incurred for purposes for which permitted liens may be incurred;

(h)     Debt contemplated to be incurred pursuant to the Casecnan Project documents, including obligations in connection with any letter of credit in an aggregate amount outstanding at any time not to exceed $15.0 million;

(i)     Purchase money debt and other debts in the ordinary course of business to support the operation and maintenance of the Casecnan Project, in an aggregate amount not to exceed $35.0 million at any time; and

(j)    
Permitted refinancing debt, if, as certified by an authorized officer of the Company at the time of incurrence, (A)(i) after giving effect to the incurrence of such debt, (x) the minimum projected Debt Service Coverage Ratio for the next four consecutive fiscal quarters in which such debt is incurred, taken as one annual period, and in every fiscal year thereafter, will not be less than 1.5 to 1, and (y) for each subsequent fiscal year through the final maturity date, the average project Debt Service Coverage Ratio will not be less than 2.0 to 1, and (ii) the final maturity and average life of the debt incurred each exceed those of the debt remaining, (B) each principal payment equals that of each corresponding principal payment of the debt being replaced or (C) the rating agencies confirm that the incurrence of such debt will not result in a rating downgrade.
 
9
 
Principal Covenants

Principal covenants under the Trust Indenture require the Company, subject to certain exceptions and qualifications, (a) not to incur (i) any debt except Permitted Debt or (ii) any lien upon any of its assets except permitted liens; (b) not to enter into any transaction of merger or consolidation, change its form of organization, liquidate, wind-up or dissolve itself; (c) not to enter into non-arm’s length transactions or agreements with affiliates; (d) not to engage in any business other than as contemplated by the Trust Indenture; (e) not to amend, terminate or otherwise modify any material Project Document to which it is a party, except as permitted under the Trust Indenture; (f) not to sell, lease or transfer any property or assets material to the Casecnan Project except in the ordinary course of business; (g) to operate and maintain the Casecnan Project in accordance with the Approved Operation and Maintenance Budget; (h) to maintain insurance as required under the Trust Indenture; and (i) to enter into an interest rate agreement for the Floating Rate Notes, within 30 days of Closing, at a LIBOR cap of up to 7.5%.

Insurance

The Company maintains insurance with respect to the Casecnan Project of a type and in such amounts as are generally carried by companies engaged in similar businesses and owning similar projects that are financed in a similar manner. This coverage includes casualty insurance, including flood and earthquake coverage, business interruption insurance, primary and excess liability insurance, automobile insurance and workers compensation insurance. However, the proceeds of such insurance may not be adequate to cover reduced revenues, increased expenses or other liabilities arising from the occurrence of catastrophic events. Moreover, there can be no assurance that such insurance coverage will be available in the future at commercially reasonable rates or that the amounts for which the Company is insured will cover all losses. Nevertheless, the Company will not reduce or cancel the coverage if the Insurance Consultant determines it is not reasonable to do so and insurance is available on commercially reasonable terms.

Regulatory Matters

The Philippine Congress has passed EPIRA, which is aimed at restructuring the Philippine power industry, privatizing the Philippine National Power Corporation and introducing a competitive electricity market, among other initiatives. The implementation of EPIRA may have an impact on the Company’s future operations in the Philippines and the Philippine power industry as a whole, the effect of which is not yet determinable or estimable.

In June 2004, Philippine President Gloria Macapagal-Arroyo was re-elected for a six-year term, through June 2010. President Macapagal-Arroyo has announced a plan to pursue policies targeting balanced economic growth, strong market-based industry, and poverty alleviation. In connection with these policies, the Philippine Department of Energy has announced an energy plan focused on attaining full electrification throughout the Philippines, further developing and utilizing renewable energy sources for power and electrification, and enhancing private sector participation in all energy activities. The implementation of this energy plan may have an impact on the Company’s future operations in the Philippines and the Philippine power industry as a whole, the effect of which is not yet determinable or estimable.

On December 6, 2004, the Municipality of Alfonso Castaneda, Province of Nueva Vizcaya (the "Municipality") purportedly passed an ordinance which required the submission of a tax clearance from each of the provincial treasurer and municipal treasurer as a condition to issuing to CE Casecnan the annual renewal of its license to operate and business permit. On January 17, 2005, the Office of the Treasurer of the Municipality provided CE Casecnan a copy of such ordinance and threatened to close the Casecnan Project pending submittal by CE Casecnan of the tax clearance certificate. On January 19, 2005, the Municipality accepted CE Casecnan's payment for the local business taxes, but the Municipality refused to renew CE Casecnan's license to operate and business permit, citing the lack of a tax clearance certificate. CE Casecnan cannot obtain a tax clearance certificate from the Province of Nueva Vizcaya until real property taxes due to the Province are paid.  Pursuant to the Supplemental Agreement, CE Casecnan has withheld payment of real property taxes pending receipt of authorization from NIA and the Philippine Department of Finance.  Such withheld amounts have been fully accrued as of December 31, 2004 as part of accounts payable and trade receivable- water delivery fee.  CE Casecnan continues to seek such authorization but as of February 11, 2005, it has not been received.  NIA has filed a protest seeking to nullify the unwarranted alleged real property tax assessments by the Municipality with the Local Board of Assessment Appeals and the case has been elevated to the Central Board of Assessment Appeals on January 12, 2005.  CE Casecnan filed an action in the Regional Trial Court on January 21, 2005 against the Municipality and was granted a temporary restraining order barring the Municipality from closing the Casecnan Project.  On February 7, 2005, the temporary restraining order was extended pending resolution by the Court which will not occur until after all pleadings are filed on March 11, 2005.  CE Casecnan also has filed an appeal with the Department of Justice challenging the validity of the municipal ordinance.  CE Casecnan has discussed and intends to continue discussing this matter with appropriate Philippine government officials in an effort to resolve the situation, and believes the risk of the Casecnan Project being closed is remote.
 
10

Employees

At December 31, 2004, the Company had 44 full-time employees consisting of operations, maintenance, logistics, compliance, and engineering personnel. At the powerhouse control room, personnel monitor, direct and control the operations and maintenance of the whole Casecnan Project. The control room is staffed 24 hours per day and is the contact point for the Casecnan Project’s customers and others. At the diversion structures, personnel are responsible to ensure that the trash racks at the tunnel intakes are kept clean and maintained and that excessive sediment build-up behind the structure is prevented.

Item 2.    Properties
 
CE Casecnan’s principal property is the approximately 150 MW hydroelectric power facility that was completed in December 2001.

Item 3.    Legal Proceedings
 
None
 
Item 4.    Submission of Matters to a Vote of Security Holders.
 
Not Applicable.
 
11
 
PART II
 
Item 5.    Market for Registrant's Common Equity and Related Stockholder Matters.
 
Not Applicable.
 
Item 6.    Selected Financial Data.
 
The following table sets forth selected historical financial data, which should be read in conjunction with the Company’s financial statements and the related notes to those statements included in this Annual Report and with "Management's Discussion and Analysis of Financial Condition and Results of Operations" appearing elsewhere in this Annual Report. The selected data as of and for the five years ended December 31, 2004, 2003, 2002, 2001 and 2000 have been derived from the Company’s audited historical financial statements.

 
Selected Financial Data
(In thousands, except per share amounts)
 
   
Year ended December 31,
  
   
2004(2)
  
2003
  
2002
  
2001(1)
  
2000
  
                                 
Total revenue
  
$
106,847
  
$
129,921
  
$