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FORM 10-K-ANNUAL REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITES EXCHANGE ACT OF 1934
(Mark One)
[ x ] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the Fiscal year ended December 31, 1999
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _______________________to_______________________
Commission File Number 333-83815
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Caithness Coso Funding Corp.
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(Exact name of registrant as specified in its charter)
Delaware 94-3328762
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1114 Avenue of the Americas, 41st Floor, New York, New York 10036-7790
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 921-9099
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Securities registered pursuant to Section 12(g) of the Act:
6.80% Series B Senior Secured Notes Due 2001
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(Title of class)
9.05% Series B Senior Secured Notes Due 2009
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(Title of class)
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. [ x ] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K (229.405 of this chapter) 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. [ ]
The Registrant's Common Stock is not traded in a public market.
Aggregate market value of the voting stock held by non-affiliates
of the registrant:
Not applicable.
Documents Incorporated by Reference: None
CAITHNESS COSO FUNDING CORP.
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1999
Part 1 Page
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Item 1. Business 1
Item 2. Properties 8
Item 3. Legal Proceedings 9
Item 4. Submission of Matters to a Vote of Security Holders 9
Part II
Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters (Not applicable) 9
Item 6. Selected Financial Data 10
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk 25
Item 8. Financial Statements and Supplementary Data 26
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 27
Part III
Item 10. Directors and Executive Officers of the Registrants 27
Item 11. Executive Compensation 29
Item 12. Security Ownership of Certain Beneficial Owners and
Management (Not applicable) 29
Item 13. Certain Relationships and Related Transactions 31
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K 34
Part I
Item 1. Business.
The Coso Projects
The Coso projects consist of three 80 MW geothermal power plants, called
Navy I, BLM and Navy II, their transmission lines, wells, gathering system and
other related facilities. The Coso projects are located near one another in the
Mojave Desert approximately 150 miles northeast of Los Angeles, California, and
have been generating electricity since the late 1980s. Unlike fossil fuel-fired
power plants, the Coso projects' power plants use geothermal energy derived
from the natural heat of the earth's interior to generate electricity.
The Navy I partnership owns Navy I and its related facilities, the BLM
partnership owns BLM and its related facilities and the Navy II partnership
owns Navy II and its related facilities (collectively the Coso partnership).
The Coso partnerships and their affiliates own the exclusive right to explore,
developand use, currently without any known interference from any other
power developers, a portion of the Coso Known Geothermal Resource Area.
The geothermal power plants, each of which has three separate turbine
generator units, have consistently operated above their nominal capacities, and
the combined average capacity factor for the plants has exceeded 100%, for each
of the last six years.
The Coso partnerships sell 100% of the electrical energy generated at the
plants to Southern California Edison (Edison) under three long-term Standard
Offer No. 4 power purchase agreements. Each power purchase agreement expires
after the last maturity date of the senior secured notes. Edison is one of the
largest investor-owned electric utilities in the United States. Under the power
purchase agreements, the Coso partnerships receive the following payments:
* Capacity payments for being able to produce electricity at certain
levels. Capacity payments are fixed throughout the lives of the power
purchase agreements;
* Capacity bonus payments if they are able to produce electricity above
a specified higher level. The maximum capacity bonus payment available
is also fixed throughout the lives of the power purchase agreements;
and
* Energy payments based on the amount of electricity their respective
plants actually produce.
Energy payments are fixed for the first ten years of firm operation under
the power purchase agreements. Firm operation was achieved for each Coso
partnership when Edison and that Coso partnership under its power purchase
agreement agreed that each generating unit at a plant was a reliable source of
generation and could reasonably be expected to operate continuously at its
effective rating. After the first ten years of firm operation and until its
power purchase agreement expires, Edison makes energy payments to the Coso
partnership based on its avoided cost of energy. Edison's avoided cost of
energy is Edison's cost to generate electricity if Edison were to produce it
itself or buy it from another power producer rather than buy it from the
relevant Cosopartnership. Future energy payments paid by Edison to the Coso
partnerships will most likely be less than historical energy payments because
they will be paid based on Edison's avoided cost of energy. The fixed energy
price period expired in August 1997 for the Navy I partnership and in
March 1999 for the BLM partnership, and will expire in January 2000 for the
Navy II partnership. The Edison power purchase agreements will expire:
1
* In August 2011 for the Navy I partnership;
* In March 2019 for the BLM partnership; and
* In January 2010 for the Navy II partnership.
AB1890 Energy Subsidy Payments
In addition to receiving payments under the power purchase agreements, the
Navy I partnership and the BLM partnership currently qualify for subsidy
payments from a special purpose state fund established under AB1890. The
California Energy Commission administers the fund. AB1890 provides in part for
subsidy payments from 1998 through 2001 to power generators using renewable
sources of energy, including geothermal energy, and who are being paid based on
an avoided cost of energy basis. The funds are distributed in the form of a
production incentive payment that subsidizes renewable energy producers when
prices paid for their electricity are below certain pre-determined target
prices. Under AB1890, the Navy I partnership and the BLM partnership are
expected to receive in the future subsidy payments for energy delivered to
Edison by the Navy I partnership or the BLM partnership, as the case may be, if
Edison's avoided cost of energy falls below 3.0(cent) per kWh. This subsidy is
capped at 1.0(cent) per kWh. The Navy II partnership should also qualify for
these subsidy payments through 2001 once the fixed energy price period under
its power purchase agreement expires.
Purchase of CalEnergy Interests
On February 25, 1999, Caithness Acquisition purchased all of CalEnergy's
interests in the Coso projects. The purchase price consisted of $205.0 million
in cash, plus $5.0 million in contingent payments, plus the assumption of
CalEnergy's and its affiliates' share of debt outstanding at the Coso projects
which then totaled approximately $67.0 million. In order to complete the
purchase, Caithness Acquisition arranged for short-term debt financing in the
principal amount of approximately $211.5 million. Caithness Acquisition used a
portion of the proceeds from the Series A note offering that it received from
the Coso partnerships, together with funds from other sources, to repay all
amounts owed under their short-term debt facility.
Operating Strategy
The Coso partnerships seek to maximize cash flow at the Coso projects
through active management of the Coso projects' cost structure and the Coso
geothermal resource. As a result of Caithness Acquisition's purchase of all of
CalEnergy's interests in the Coso projects, the Coso partnerships have retained
Coso Operating Company, which is one of our affiliates, to maintain all three
plants, the transmission lines and the geothermal resource, including well
drilling. As a result of the change in operators and the restructuring of
operator fees, the aggregate annual fees to be paid by the Coso partnerships to
Coso Operating Company have been reduced significantly. Payments of operator
fees have been subordinated to all payments to be made under the senior secured
notes. Caithness Acquisition, which purchased the managing partners interest in
the Coso partnerships, has caused any management committee fees payable by each
Coso partnership to its partners to be subordinated to all payments to be made
under the senior secured notes.
2
The Coso projects qualify as Small Power QFs under PURPA and the rules and
regulations promulgated under PURPA by FERC. PURPA exempts the Coso projects
from certain federal and state regulations. The Coso projects must continue to
satisfy certain ownership and fuel-use standards to maintain their QF status.
Since their inception, the Coso projects have satisfied these standards and we
expect that they will continue to do so.
The Sponsor
Caithness Energy, the principal operating subsidiary of Caithness
Corporation, is a developer and owner of independent power projects and is the
sponsor of the Coso projects. Since 1966, the current owners of Caithness
Corporation have been involved in the development of long-term investment
opportunities involving natural resources. Caithness Corporation is one of the
two original sponsors of the Coso projects and formed Caithness Energy in 1995
to consolidate its ownership of independent power projects.
Caithness Energy believes that it is currently the second largest owner of
geothermal power projects in the United States, based on the total electrical
generating capacity of its power projects. Through its controlled affiliates,
Caithness Energy owns interests in six geothermal plants, including the Coso
projects, totaling 340 MW. Caithness Energy is also seeking to develop two
additional geothermal power projects with a total potential electrical
generating capacity of over 400 MW, and has interests in other operating power
generating facilities, including solar, wind and natural gas, totaling an
additional 480 MW.
Caithness Energy is headquartered in New York City and has additional
offices in California and Florida.
The Issuer
Caithness Coso Funding Corp. (Coso Funding Corp.) is a special purpose
corporation and a wholly owned subsidiary of the Coso partnerships. It was
formed for the purpose of issuing the senior secured notes on behalf of
the Coso partnerships. The Coso partnerships have jointly, severally, and
unconditionally guaranteed repayment of the senior secured notes.
Coso Funding Corp. has no other material assets, other than the loans made
to the Coso partnerships, and does not conduct any business, other than issuing
the senior secured notes and making the loans to the Coso partnerships.
The Coso Known Geothermal Resource Area
The Coso projects are located in an area that has been designated as a
Known Geothermal Resources Area by the Bureau of Land Management pursuant to the
Geothermal Steam Act of 1970. The Bureau of Land Management designates an area
as a Known Geothermal Resource Area when it determines that a commercially
viable geothermal resource is likely to exist there. There are over 100 Known
Geothermal Resource Areas in the United States, most of which are located in the
western United States in tectonically active regions.
The Coso Known Geothermal Resource Area is located in Inyo County,
California, approximately 150 miles northeast of Los Angeles. The Coso
geothermal resource is a "liquid-dominated" hot water source contained within
the heterogeneous fractured granite rocks of the Coso Mountains. It is believed
the heat source for the Coso geothermal resource is a hot molten rock or "magma"
body located at a depth of six-to-seven miles beneath the surface of the field.
Geochemical studies indicate that the water in the Coso geothermal resource is
ancient water that has been there since the ice age or longer.
3
Steam Sharing Program
The Coso partnerships previously implemented a steam-sharing program,
which they established among the Coso projects under a Coso Geothermal Exchange
Agreement they entered into in 1994. The purpose of the steam-sharing program is
to enhance the management, and to optimize the overall use, of the Coso
geothermal resource. Pursuant to the steam sharing program, the Coso
partnerships constructed an inter-project steam supply and water injection
system which links the three Coso projects and BLM North together via metered
transfer lines through which the Coso partnerships exchange steam and other
geothermal resources with one another.
As part of the steam sharing program, the Coso partnerships plan to
conserve the geothermal resource whenever possible by, among other things,
transferring steam between and among the Coso projects and BLM North, rather
than drilling new wells at the Coso projects' sites prematurely, and expanding a
flexible field-wide water reinjection program. While each of the Navy and the
Bureau of Land Management has consented to the steam sharing program, each has
reserved the right, in its sole discretion, to withdraw its consent to such
transfers under certain circumstances.
In 1999, the Navy I partnership and the Navy II partnership paid aggregate
royalties to the Navy of approximately $6.3 million for steam transferred by
Navy I to Navy II and by Navy II to BLM under the steam sharing program from
geothermal resources located on the property on which Navy I or Navy II, as the
case may be are situated. Of this amount, the Navy I partnership paid
approximately $2.8 million and the Navy II partnership paid approximately $3.5
million. The BLM partnership reimbursed the Navy II partnership approximately
$0.8 million of the royalties paid by Navy II partnership. The BLM partnership
did not pay a royalty for electricity generated by BLM for steam transferred
from Navy property and sold to Edison.
Royalty and Revenue-Sharing Arrangements
The Coso partnerships are required to make royalty payments to, and are
subject to other revenue-sharing arrangements with, the Navy, the Bureau of Land
Management and certain other persons.
Navy I
Under the Navy Contract, as a royalty for Unit 1 at Navy I, the Navy I
partnership is obligated to reimburse partially the Navy for electricity
supplied to it by Edison from electricity generated at Navy I. The reimbursement
payment is based upon a pricing formula included in the Navy Contract. The
percentage rate of reimbursement changes semiannually, but cannot exceed 95% of
the price paid by the Navy to Edison, in accordance with a weighted index based
on the Consumer Price Index and price indices for the oil industry, the electric
power plant industry and the construction industry.
In addition, with respect to Unit 1 at Navy I, the Navy I partnership is
obligated to pay the Navy the sum of $25.0 million on or before December 31,
2009, the expiration date of the term of the Navy Contract. Payment of this
obligation will be made from an established sinking fund to which the Navy I
partnership has been making payments since 1987.
4
For Units 2 and 3 at Navy I, the Navy I partnership's royalty expense is a
fixed percentage of its electricity sales to Edison. The royalty expense is
15.0% of revenues received by the Navy I partnership through 2003 and will
increase to 20.0% from 2004 through 2009, the expiration date of the Navy
Contract.
BLM
The BLM partnership pays royalties to the Bureau of Land Management under
the BLM lease. The royalty rate is 10% of the value of the steam produced by the
BLM partnership. This royalty rate is fixed for the life of the BLM Lease. In
addition to this royalty, the BLM partnership is obligated to pay a royalty to
Coso Land Company, a general partnership of which Caithness Acquisition and
another affiliate of Caithness Energy are the general partners, in connection
with the assignment of the BLM lease to the BLM partnership. The royalty is
subordinated to the payment of all the BLM partnership's other royalties, all
debt service and all operating costs of BLM. No portion of the royalty that has
been accrued to Coso Land Company to date has been paid.
BLM North
Coso Land Company applied, as a tenant-in-common, to the Bureau of Land
Management for assignment of an undivided one-third interest in the LADWP
leases. Once this assignment becomes effective, the Coso partnerships will be
required to pay $8.00 per acre in rent and additional rent to the Bureau of Land
Management. When a leased property commences to produce geothermal steam, the
Coso partnerships will pay monthly royalties under the LADWP leases of 10% of
the amount or value of the steam produced 5% of any by-products and 5% of
commercially demineralized water. The Bureau of Land Management may establish
minimum production levels and reduce the foregoing royalties if necessary to
encourage the greater recovery of leased resources, or as otherwise justified.
Navy II
The Navy II partnership pays royalties to the Navy under the Navy
Contract. The Navy II partnership's royalty expense is a fixed percentage of its
electricity sales to Edison. The royalty rate was 10.0% of electricity sales to
Edison through 1999, and will increase to 18.0% from 2000 through 2004 and to
20.0% from 2005 through the end of the initial term.
Operations and Maintenance
The operations and maintenance services for the Coso projects, including
Navy I, BLM and Navy II, the Navy I Transmission Line, the BLM/Navy II
Transmission Line, the wells, the gathering system and the other related
facilities, are performed by Coso Operating Company on behalf of the Coso
partnerships pursuant to O&M agreements. Coso Operating Company is a wholly
owned subsidiary of Caithness Acquisition. It was initially formed by CalEnergy
to facilitate the transfer of operational control of the Coso projects to
Caithness Energy's affiliates.
5
On February 26, 1999 CalEnergy ceased to be the operator of the Coso
projects, and FPL Energy Operating Services, Inc. (FPLEOSI), an indirect wholly
owned subsidiary of FPL Energy, Inc., assumed that role. The amended and
restated operation and maintenance agreement between FPLEOSI and the managing
general partners was implemented. Under the agreement, FPLEOSI became the plant
operator and Coso Operating Company was responsible for maintenance of the
geothermal resource.
On October 17, 1999 the operating agreement between FPLEOSI and the
managing general partners was terminated and Coso Operating Company became the
sole operator of the plant and the geothermal field.
Insurance
The Coso partnerships currently maintain property, business interruption,
catastrophe and general liability for the Coso projects. The plants are insured
for $600.0 million per occurrence for general property damage (limited to
replacement costs) and $240.0 million per occurrence for business interruption,
subject to a $25,000 deductible for property damage (and a $250,000 deductible
for the turbine generator sets), with a 15-day deductible for business
interruption and a 25-day deductible for machinery breakdown and earthquake.
Catastrophic insurance (including earthquake and flood) is capped at $200.0
million for property damage, subject to a deductible of $2.5 million or 5.0% of
the loss, whichever is greater. Liability insurance coverage is $51.0 million
(occurrence based). Operators' extra expense (control of well) insurance is
$10.0 million per occurrence with a $25,000 deductible.
Employees
Employees necessary for the operation of the Coso partnerships are
provided by Coso Operating Company, under their respective operation and
maintenance agreements. As of December 31, 1999, Coso Operating Company employed
116 people to operate and maintain the Coso projects.
Coso Operating Company maintains a qualified technical staff covering a
broad range of disciplines including geology, geophysics, geochemistry, drilling
technology, reservoir engineering, plant engineering, construction management,
maintenance services, production management, electric power operation and
certain accounting, purchasing and payroll services.
Competition
The Coso partnerships sell all the electrical energy generated at the
plants to Edison under three long-term Standard Offer No. 4 power purchase
agreements. The payments under these agreements have constituted 100% of the
operating revenues of each power plant since its inception.
Environmental and Regulatory Matters
The Coso partnerships are subject to environmental laws and regulations at
the federal, state and local levels in connection with their development,
ownership and operation of the Coso projects. These environmental laws and
regulations generally require that a wide variety of permits and governmental
approvals be obtained to construct and operate an energy-producing facility. The
facility must then operate in compliance with the terms of these permits and
approvals. If the Coso partnerships fail to operate the facility in compliance
with applicable laws, permits and approvals, governmental agencies could levy
fines or curtail operations.
6
The Coso partnerships believe they are in compliance in all material
respects with all applicable environmental regulatory requirements applicable to
the Coso project, and that maintaining compliance with current governmental
requirements will not require a material increase in capital expenditures or
materially adversely affect that Coso partnership's financial condition or
results of operations. It is possible, however, that future developments, such
as more stringent requirements of environmental laws and enforcement policies
thereunder, could affect capital and other costs at the Coso projects and the
manner in which the Coso partnerships conduct their business.
Financial Information
(in thousands)
Navy I Partnership Years Ended December 31,
1997 1998 1999(c)
---- ---- -------
Total Operating Revenue 100,431 53,153 55,666
Operating Income 66,439 21,259 23,995
Total Assets 209,390 202,266 217,712
BLM Partnership Years Ended December 31,
1997 1998 1999(c)
---- ---- -------
Total Operating Revenue 102,868 107,199 49,877
Operating Income 59,675 62,512 11,343
Total Assets 225,172 228,381 216,391
Navy II Partnership Years Ended December 31,
1997 1998 1999(c)
---- ---- -------
Total Operating Revenue 112,796 119,564 113,746
Operating Income 75,047 78,444 70,169
Total Assets 228,653 220,867 273,269
See Footnotes to Summary Selected Historical Financial and Operating Data
7
Item 2. Properties.
Plants
Navy I
Navy I and its steam resource are located on the United States Naval
Weapons Center at China Lake. It commenced operations in 1987. Geothermal steam
for Navy I was produced using over 40 production and injection wells located
within a radius of approximately 3,000 feet of Navy I. Navy I consists of three
separate turbine generators, known as Units 1, 2 and 3, each with approximately
30 MW of electrical generating capacity. Navy I's steam gathering and piping
systems are cross-connected to Navy II via metered transfers to allow steam to
be transferred from wells located on the real property covered by the LADWP
leases to Navy I and between Navy I and Navy II pursuant to the steam sharing
program. Unit 1 at Navy I commenced firm operation in 1987, and Units 2 and 3 at
Navy I commenced firm operation during 1988. Navy I has an aggregate gross
electrical generating capacity of approximately 90 MW, and operated at an
average operating capacity factor of 95.4% in 1999, 94.6% in 1998, and 103.2% in
1997, based on a nameplate capacity of 80 MW.
BLM
BLM and its steam resource are located on Bureau of Land Management
property (other than the Bureau of Land Management property that is subject to
the LADWP leases), within the boundaries of the United States Naval Weapons
Center at China Lake. It commenced operations in 1989. BLM is comprised of
turbine generators located at two different power blocks: the BLM East site and
the BLM West site. The BLM East site is located approximately 1.3 miles east of
the BLM West site. Geothermal steam for BLM was produced using over 35
production and injection wells located within a radius of approximately 4,000
feet from either the BLM East or the BLM West site. BLM consists of three
separate turbine generators, known as Units 7, 8 and 9. Units 7 and 8 are
located at the BLM East site, each with a generating capacity of approximately
30 MW, while Unit 9 is located at the BLM West site, with a generating capacity
of approximately 30 MW. BLM's steam gathering and piping systems are cross
connected to Navy II via metered transfers to allow steam to be transferred
between Navy II and BLM pursuant to the steam sharing program. All three units
commenced firm operation during 1989. BLM has an aggregate gross electrical
generating capacity of approximately 90 MW, and operated at an average operating
capacity factor of 105.0% in 1999, 104.4% in 1998, and 99.6% in 1997, based on a
nameplate capacity of 80 MW.
Navy II
Navy II and its steam resource are located on the United States Naval
Weapons Center at China Lake. It commenced operations in 1989. Geothermal steam
for Navy II was produced using over 35 production and injection wells located
within a radius of approximately 6,000 feet of Navy II. Navy II consists of
three separate turbine generators, known as Units 4, 5 and 6, each with
approximately 30 MW of electrical generating capacity. Navy II's steam supply
systems are cross-connected to Navy I's and BLM's steam supply systems via
metered transfers to allow steam to be transferred between or among the plants
pursuant to the steam sharing program. All three Navy II units commenced firm
operation in 1990. Navy II has an aggregate gross electrical capacity of
approximately 90 MW, and operated at an average operating capacity factor of
112.0% in 1999, 108.6% in 1998, and 108.9% in 1997, based on a nameplate
capacity of 80 MW.
8
Transmission Lines
The electricity generated by Navy I is conveyed over an approximately
28.8-mile 115 kilovolt ("kV") transmission line on Navy and Bureau of Land
Management land that is connected to the Edison substation at Inyokern,
California. The Navy I partnership owns and uses this transmission line and its
related facilities. The electricity generated by BLM and Navy II is conveyed
over an approximately 28.8-mile 230 kV transmission line on Navy and Bureau of
Land Management land that is also connected to the Edison substation at
Inyokern, California. Coso Transmission Line Partners owns the BLM/Navy II
Transmission Line and related facilities.
Item 3. Legal Proceedings.
Settlement of Litigation
In February 2000, Navy I, Navy II, BLM and Edison reached a settlement,
subject to the approval of the California Public Utilities Commission of all
matters of litigation between the Coso Partnerships and Edison. The cost of the
settlement was allocated among the Coso Partnerships.
In June 1999, Navy I, Navy II, BLM, and Fuji Electric Co., and Fuji
Electric Corporation of America reached a settlement agreement. Fuji, in
consideration of the settlement agreement, must provide various equipment and
spare parts to the Coso Partnerships.
In December 1999, the BLM partnership and Dow Chemical Company entered
into a confidential settlement agreement, which was effective January 1, 2000,
to resolve BLM's claim to recover damages incurred related to an installation in
1992 by Dow of a hydrogen sulfide abatement system.
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.
Not applicable.
9
Item 6. Selected Financial Data.
The selected fiscal year end historical financial data has been derived
from the audited financial statements of the Coso partnerships. The information
contained in the following tables should be read in conjunction with the audited
financial statements and notes thereto included elsewhere in this report.
Navy I Partnership
(Stand-alone)(a)
(In thousands, except ratio data)
Year Ended December 31
----------------------
1995 1996 1997 1998 1999 (c)
------ ------ ------ ----- -------
Statement of Operations Data:
Operating Revenues............................. $ 107,063 $ 118,206 $ 100,431(b) $ 53,153(b) $ 55,666
Operating expenses............................. (37,145) (36,147) (33,992) (31,894) (31,671)
---------- ---------- ---------- ---------- ---------
Operating income............................... 69,918 82,059 66,439 21,259 23,995
Non-Operating income and (expense):
Interest expense................................ (11,356) (8,868) (6,260) (4,333) (11,591)
Other expenses................................. -- -- -- (923) (4,359)
Interest and other income, net............... 2,893 3,286 1,980 585 1,776
--------- --------- --------- ---------- ---------
Net income..................................... $ 61,455 $ 76,477 $ 62,159 $ 16,588 $ 9,821
========= ======== ========= ========== =========
Operating Data:
Operating capacity factor (d)(e)............... 112.1% 112.1% 103.2% 94.6% 95.4%
kWh produced................................... 785,400 787,688 723,116 662,560 668,388
See Footnotes to Summary Selected Historical Financial and Operating Data
10
BLM Partnership
(Stand-alone)
(In thousands, except ratio data)
Year Ended December 31,
-----------------------
1995 1996 1997 1998 1999 (c)
------ ------- ------ ------ ---------
Statement of Operations Data:
Operating Revenues................................. $ 100,534 $ 101,923 $ 102,868 $ 107,199 $ 49,877(b)
Operating expenses................................. (40,418) (40,017) (43,193) (44,687) (38,534)
--------- --------- --------- --------- --------
Operating income................................... 60,116 61,906 59,675 62,512 11,343
Non-Operating income and (expense):
Interest expense.............................. (15,063) (13,162) (9,105) (6,267) (8,739)
Other expenses.............................. -- -- -- (953) (3,318)
Interest and other income, net............ 2,644 2,520 1,712 1,181 1,066
-------- -------- -------- -------- -------
Net income............................... $ 47,697 $ 51,264 $ 52,282 $ 56,473 $ 352
======== ======== ======== ======== =======
Operating Data:
Operating capacity factor (d)(e)................... 107.5% 107.9% 99.6% 104.4% 105.0%
kWh produced....................................... 753,200 758,115 697,794 731,767 735,840
See Footnotes to Summary Selected Historical Financial and Operating Data
11
Navy II Partnership
(Stand-alone)
(In thousands, except ratio data)
Year Ended December 31,
-----------------------
1995 1996 1997 1998 1999 (c)
------ ------ ------ ------ ---------
Statement of Operations Data:
Operating Revenues...................................... $ 108,390 $ 115,126 $ 112,796 $ 119,564 $ 113,746
Operating expenses...................................... (39,168) (37,911) (37,749) (41,120) (43,577)
--------- --------- --------- --------- ----------
Operating income........................................ 69,222 77,215 75,047 78,444 70,169
Non-Operating income and (expense):
Interest expense.......................................... (13,868) (12,149) (10,532) (8,122) (11,967)
Other expenses.......................................... -- -- -- (1,664) (4,171)
Interest and other income, net......................... 3,040 3,174 2,187 1,799 2,174
-------- -------- -------- --------- ---------
Net income............................................... $ 58,394 $ 68,240 $ 66,702 $ 70,457 $ 56,205
======== ======== ======== ======== ========
Operating Data:
Operating capacity factor (d)(e)........................ 111.3% 110.6% 108.9% 108.6% 112.0%
kWh produced............................................ 779,800 777,243 762,821 760,659 785,772
See Footnotes to Summary Selected Historical Financial and Operating Data
12
As of December 31,
-------------------
Balance Sheet Data (in thousands): 1995 1996 1997 1998 1999
- ---------------------------------- ------ ------ ------ ------ ------
Navy I Partnership (stand-alone)(a)
Cash.................................................. $ 45,093 $ 15,724 $ 2,888 $ -- $ 7,821
Restricted cash and investments....................... 28,161 29,016 6,479 7,524 25,001
Property, plant and equipment, net.................... 205,451 195,146 186,399 180,189 153,879
Power purchase agreement, net...................... -- -- -- -- 13,388
Total assets............................................... 301,474 264,250 209,390 202,266 217,712
Project loans:
Existing project debt, payable to 127,340 76,056 45,666 40,566 __
Coso Funding Corp...............................
Project notes (f)........................................... -- -- -- -- 151,550
Partners' capital....................................... $164,581 $ 167,834 $ 155,568 $ 149,933 $ 49,362
BLM Partnership (stand-alone)
Cash................................................... $ 40,219 $ 13,166 $ 873 -- $ 6,423
Restricted cash and investments...................... 23,533 23,298 290 290 9,806
Property, plant and equipment, net............ 216,278 208,867 198,296 202,270 165,650
Power purchase agreement, net....................... -- -- -- -- 20,549
Total assets................................................305,327 269,637 225,172 228,381 216,391
Project loans:
Existing project debt, payable to 137,748 105,990 76,654 37,958 __
Coso Funding Corp..............................
Project notes (f)........................................... -- -- -- -- 107,900
Partners' capital......................................... $119,560 $ 112,666 $ 124,113 $ 163,191 $ 79,350
Navy II Partnership (stand-alone)
Cash.......................................................$ 44,721 $ 18,133 $ 1,148 $ 818 $ 6,020
Restricted cash and investments....................... 22,841 22,391 -- -- 54,338
Property, plant and equipment, net................... 212,848 203,454 199,134 188,840 147,522
Power purchase agreement, net...................... -- -- -- -- 28,409
Total assets............................................... 309,009 272,549 228,653 220,867 273,269
Project loans:
Existing project debt, payable to 156,043 124,361 97,267 61,323 __
Coso Funding Corp...............................
Project notes (f).......................................... -- -- -- -- 153,550
Partners' capital.........................................$ 140,082 $ 126,092 $ 125,413 $ 153,661 $ 104,331
See Footnotes to Summary Selected Historical Financial and Operating Data
13
Footnotes to Summary Selected Historical Financial and Operating Data
(a) Reflects the combined financial results of the Navy I partnership and Coso
Finance Partners II, a California general partnership ("CFP II"). The Navy
I partnership and CFP II were first formed as separate entities to
facilitate the initial bank financing for the construction and development
of Navy I. Initially, the Navy I partnership acquired all of the assets
relating to the first turbine generator unit at Navy I and CFP II acquired
all of the assets of Navy I relating to the second and third generator
units at Navy I. In 1988, CFP II assigned all of its rights and interests
in the second and third generator units at Navy I to the Navy I partnership
in return for a 5.0% royalty to be paid based on the Navy I partnership's
steam production. Since the Navy I partnership and CFP II operate under
common ownership and management control, the historical financial
statements of the entities have been combined after elimination of
intercompany amounts related to the royalty arrangement. At the closing of
the Series A notes offering, CFP II merged with and into the Navy I
partnership and the accrued royalty was extinguished. In addition, the
royalty will no longer be accrued from and after the Series A note
offering.
(b) The decrease in energy revenues is due to the fact that the fixed energy
price period expired for the Navy I partnership in August 1997. The fixed
energy price period for the BLM partnership expired in March 1999 and will
expire for the Navy II partnership in January 2000.
(c) After Caithness Acquisition's purchase of all of CalEnergy's interests in
the Coso projects, on February 25, 1999, the Coso partnerships adopted a
new basis of accounting and therefore, the financial information for the
period after the acquisition is presented on a different cost basis than
that for the period before the acquisition and therefore is not comparable.
The purchase price was allocated to the portion of the assets and
liabilities purchased from CalEnergy based on their fair values, with the
amount of fair value of net assets in excess of the purchase price being
allocated to long-lived assets on a pro-rata basis.
(d) Based on a nameplate capacity of 80 MW.
(e) The reduction in the operating capacity factor for the Navy I partnership
and the increase in the operating capacity factor for the BLM partnership
and the Navy II partnership is due to the transfer of steam from the Navy I
partnership to the BLM partnership and the Navy II partnership under the
steam sharing program.
(f) Reflects indebtedness owed to Caithness Coso Funding Corp., who loaned all
the proceeds from the offering to the Coso partnerships at interest rates
and maturities identical to the interest rates and maturities of the senior
secured notes.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Except for historical financial information contained herein, the matters
discussed in this annual report may be considered forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, and subject to
the safe harbor created by the Securities Litigation Reform Act of 1995. Such
statements include declarations regarding the intent, belief or current
expectations of Caithness Coso Funding Corp. ("Funding Corp."), Coso Finance
Partners ("the Navy I Partnership"), Coso Energy Developers ("the BLM
Partnership"), and Coso Power Developers ("the Navy II Partnership", and
together with the Navy I Partnership and the BLM Partnership (the "Coso
Partnerships") and their respective management. Any such forward-looking
statements are not guarantees of future performance and involve a number of
risks and uncertainties; actual results could differ materially from those
indicated by such forward-looking statements. Among the important factors that
could cause actual results to differ materially from those indicated by such
forward-looking statements are: (i) that the information is of a preliminary
nature and may be subject to further adjustment, (ii) risks related to the
operation of power plants, (iii) the impact of avoided cost pricing, (iv)
general operating risks, (v) the dependence on third parties, (vi) changes in
government regulation, (vii) the effects of competition, (viii) the dependence
on senior management, (ix) fluctuations in quarterly results and (x)
seasonality.
14
General
The Coso projects consist of three 80MW geothermal power plants, which
are referred to as Navy I, BLM and Navy II, and their transmission lines, wells,
gathering system and other related facilities. The Coso projects are located
near one another at the United States Naval Air Weapons Center at China Lake,
California. The Navy I partnership owns Navy I and its related facilities. The
BLM partnership owns BLM and its related facilities. The Navy II partnership
owns Navy II and its related facilities. Affiliates of Caithness Corporation and
CalEnergy Company, Inc. ("CalEnergy"), which is now known as MidAmerican Energy
Holdings Company, formed the Coso partnerships in the 1980s to develop,
construct, own and operate the Coso projects. On February 25, 1999 Caithness
Acquisition Company, LLC, purchased all of CalEnergy's interests in the Coso
projects for $205.0 million in cash, plus $5.0 million in contingent payments,
plus the assumption of CalEnergy's and its affiliates' share of debt outstanding
at the Coso projects which then totaled approximately $67.0 million.
Each Coso partnership sells 100% of the electrical energy generated at
its plant to Southern California Edison ("Edison") under a long-term Standard
Offer No.4 power purchase agreement. Each Company's power purchase agreement
expires after the final maturity date of the 6.8% Series B Senior Secured Notes
due 2001 and the 9.05% Series B Senior Secured Notes due 2009 issued by Funding
Corp.
Each Coso partnership receives the following payments under its power
purchase agreement:
* Capacity payments for being able to produce electricity at
certain levels. Capacity payments are fixed throughout the life
of each power purchase agreement;
* Capacity bonus payments if the Coso partnership is able to produce
electricity above a specified higher level. The maximum annual
capacity bonus payment available is also fixed throughout the life
of each power purchase agreement; and
* Energy payments which are based on the amount of electricity
the Coso partnership's plant actually produces.
Energy payments are fixed for the first ten years of firm operation under
each power purchase agreement. Firm operation was achieved for each Coso
partnership when Edison and that Coso partnership agreed that each generating
unit at such Coso partnership's plant was a reliable source of generation and
could reasonably be expected to operate continuously at its effective rating.
After the first ten years of firm operation and until a Coso partnership's power
purchase agreement expires, Edison makes energy payments to the Coso partnership
based on Edison's "avoided cost of energy". Edison's avoided cost of energy is
Edison's cost to generate electricity if Edison were to produce it itself or buy
it from another power producer rather than buy it from the relevant Coso
partnership. The power purchase agreement for the Navy I partnership will expire
in August 2011, the power purchase agreement for the BLM partnership will expire
March 2019, and the power purchase agreement for the Navy II partnership will
expire in January 2010.
15
The fixed energy price period expired in August 1997 for the Navy I
partnership and in March 1999 for the BLM partnership, and will expire in
January 2000 for the Navy II partnership.
The Coso Partnerships have implemented and intend to expand a
steam-sharing program, which they established under a Coso Geothermal Exchange
Agreement they entered into in 1994. The purpose of the steam sharing program is
to enhance the management of the Coso geothermal resource and to optimize the
resource's overall benefits to the Coso Partnerships by transferring steam among
the Coso projects. Under the steam sharing program, the partnership receiving
the steam transfer splits revenue earned from electricity generated with the
partnership that transferred the steam.
For the year ended December 31, 1999, Edison's annual average avoided
cost of energy paid to the Navy I and the BLM Partnership was 3.1(cent) per kWh,
which is substantially below the fixed energy prices earned by the partnerships
prior to the expiration of the fixed energy price periods of their respective
power purchase agreements. Estimates of Edison's future avoided cost of energy
vary significantly, and no one can predict the likely level of avoided cost of
energy prices following the end of the fixed energy price period under the Navy
II Partnership's power purchase agreement in January 2000.
Coso Funding Corp is a special purpose corporation and a wholly owned
subsidiary of the Coso partnerships. It was formed for the purpose of issuing
the senior secured notes on behalf of the Coso partnerships. The Coso
partnerships have jointly, severally, and unconditionally guaranteed repayment
of the senior secured notes.
On May 28, 1999, Coso Funding Corp. was issued $110.0 million of 6.80%
senior secured notes due in 2001 and $303.0 million of 9.05% senior secured
notes due in 2009. The proceeds from the notes were loaned to the Coso
partnerships and are payable to Coso Funding Corp from payments of principal and
interest on the notes. Coso Funding Corp. does not conduct any other operations
apart from issuing the notes.
Under the note agreement, the Coso partnerships established accounts with
a depositary and pledged those accounts as security for the benefit of the
holders of the senior secured notes. All amounts deposited with the depositary
are, at the direction of the Coso partnerships, invested by the depositary in
permitted investments. All revenues or other proceeds actually received by the
Coso partnerships are deposited in a revenue account and withdrawn upon receipt
by the depositary of a certificate from the relevant Coso partnerships detailing
the amounts to be paid from funds in its respective revenue account.
Capacity Utilization
For purposes of consistency in financial presentation, the plant capacity
factor for each of the Coso partnerships is based on a nominal capacity amount
of 80MW (240MW in the aggregate). The Coso partnerships have a gross operating
capacity that allows for the production of electricity in excess of their
nominal capacity amounts. Utilization of this operating margin is based upon a
number of factors and can be expected to vary throughout the year under normal
operating conditions.
16
The following data includes the operating capacity factor, capacity and
electricity production (in kWh) for each Coso partnership on a stand-alone
basis:
Year Ended December 31,
-----------------------
Navy I Partnership (stand alone) 1999 1998 1997
---- ---- ----
Operating capacity factor 95.4% 94.6% 103.2%
Capacity (MW) (average) 76.34 75.63 82.55
kWh produced (000s) 668,388 662,560 723,116
BLM Partnership (stand alone)
Operating capacity factor 105.0% 104.4% 99.6%
Capacity (MW) (average) 84.00 83.54 79.66
kWh produced (000s) 735,840 731,767 697,794
Navy II Partnership (stand alone)
Operating capacity factor 112.1% 108.6% 108.9%
Capacity (MW) (average) 89.70 86.83 87.08
kWh produced (000s) 785,772 760,659 762,821
Total energy production for the Navy I partnership was 668.4 million kWh
for 1999 as compared to 662.6 million kWh for 1998 an increase of 0.9%. Total
energy production for the BLM partnership was 735.8 million kWh for 1999 as
compared to 731.8 million kWh in 1998, an increase of 0.6%. Total energy
production for the Navy II partnership was 785.8 million kWh for 1999 as
compared to 760.7 million kWh in 1998, an increase of 3.3%, due to increased
steam transfers from the Navy I partnership.
Total energy production for the Navy I partnership was 662.6 million kWh
for 1998 as compared to 723.1 million kWh for 1997, a decrease of 8.4%. Total
energy production for the BLM partnership was 731.8 million kWh for 1998 as
compared to 697.8 million kWh in 1997, and an increase of 4.9%. Total energy
production for the Navy II partnership was 760.7 million kWh for 1998 as
compared to 762.8 million kWh in 1997, a decrease of 0.3%. The Navy I
partnership's decrease in energy production in 1998 was due to the transfer of
steam from Navy I to Navy II and to BLM under the steam sharing program.
17
Results of Operations for the years ended December 31, 1999, 1998 and 1997.
- ---------------------------------------------------------------------------
The following discusses the results of operations of the Coso
partnerships for the years ended December 31, 1999, 1998 and 1997 (dollar
amounts in tables in thousands, except per kWh data):
Revenue
1999 1998 1997
---- ---- ----
$ cents/kWh $ cents/kWh $ cents/kWh
- --------- - --------- - ---------
Total Operating Revenues
Navy I partnership 55,666 8.3 53,153 8.0 100,431 13.9
BLM partnership 49,877 6.8 107,199 14.6 102,868 14.7
Navy II partnership 113,746 14.5 119,564 15.7 112,796 14.8
Capacity & Bonus Revenues
Navy I partnership 13,372 2.0 13,573 2.0 13,845 1.9
BLM partnership 13,938 1.9 13,847 1.9 13,939 2.0
Navy II partnership 14,018 1.8 14,018 1.8 14,018 1.8
Energy Revenues
Navy I partnership 42,294 6.3 39,580 6.0 86,586 12.0
BLM partnership 35,939 4.9 93,352 12.8 88,929 12.7
Navy II partnership 99,728 12.7 105,546 13.9 98,778 12.9
Total operating revenues for the Navy I partnership which consist of
capacity payments, capacity bonus payments, and energy payments were $55.7
million for 1999, as compared to $53.2 million in 1998 an increase of 4.7%. The
increase in total operating revenues and energy revenues for 1999 was primarily
due to the Navy I partnership's ability to transfer geothermal steam to the BLM
partnership and the Navy II partnership, both of which were receiving higher
fixed energy prices under their respective power purchase agreements (the BLM
partnership stopped receiving higher fixed energy prices during the first
quarter of 1999) and slightly higher energy prices received from Edison.
Total operating revenues for the BLM partnership were $49.9million
for 1999 as compared to $107.2 million in 1998, a decrease of 53.5%. The BLM
partnership's energy revenues decreased by 57.3 million in 1999 due to the
expiration of the fixed energy price period under the BLM partnership's power
purchase agreement in March 1999 and the receipt of energy payments based on
Edison's avoided cost of energy since that time. Until March 1999 and during
1998 the BLM partnership received approximately 14.6 cents per kWh for energy
delivered. Under the avoided cost of energy formula, the BLM partnership
received an average of approximately 3.21 cents per kWh for energy delivered for
the period April 1999 to December 1999.
Total operating revenues for the Navy II partnership were $113.7 million
for 1999, as compared to $119.6 million in 1998, a decrease of 4.9%. The
decrease in revenue was due to increased steam transfers from the Navy I
partnership.
Total operating revenues for the Navy I partnership, which consist of
capacity payments, capacity bonus payments and energy payments were $53.2
million for 1998 as compared to $100.4 million in 1997, a decrease of 47.1%. The
Navy I partnership's energy revenues were $39.6 million in 1998, as compared to
$86.6 million in 1997, a decrease of 54.3%. These decreases were attributable to
the expiration of the fixed energy price period under the Navy I partnership's
power purchase agreement and are the result of a full year of energy payments
based upon Edison's avoided cost of energy after the fixed energy price period
expired in August 1997. During the final year of its fixed energy price period,
the Navy I partnership received approximately 14.6(cent) per kWh for energy
delivered. Under the avoided cost of energy formula, since August 1997, the Navy
I partnership has been receiving an average of approximately 3.0(cent) per kWh
for energy delivered. This significant decrease in energy payments was partially
offset by the Navy I partnership's ability to transfer geothermal steam to the
BLM partnership and the Navy II partnership, both of which were still receiving
fixed energy payments under their respective power purchase agreements through
December 31, 1998. For 1998, as a result of its transfers of steam under the
steam sharing program, the Navy I partnership received steam transfer payments
of approximately $13.5 million from the BLM partnership and $5.5 million from
the Navy II partnership.
18
The BLM partnership's total operating revenues were $107.2 million in
1998, as compared to $102.9 million in 1997, an increase of 4.2%. The BLM
partnership's energy revenues were $93.4 million in 1998, as compared to $88.9
million in 1997, an increase of 5.0%. These increases were due to a 1.0(cent)
per kWh increase in the rate paid by Edison under the BLM partnership's power
purchase agreement. In addition, kWh produced increased primarily due to
increased steam transfers from the Navy I partnership. However, the impact from
such increased production was offset by steam sharing payments paid by the BLM
partnership to the Navy I partnership.
The Navy II partnership's total operating revenues were $119.6 million in
1998, as compared to $112.8 million in 1997, an increase of 6.0%. The Navy II
partnership's energy revenues were $105.5 million in 1998, as compared to $98.8
million in 1997, an increase of 6.9%. These increases were due primarily to an
increase in the rate paid by Edison under the Navy II partnership's power
purchase agreement. The Navy II partnership was paid 14.6(cent) per kWh in 1998
for the energy component of the electricity it sold to Edison compared to
13.6(cent) per kWh in 1997.
Interest and Other Income
1999 1998 1997
---- ---- ----
$ cents/kWh $ cents/kWh $ cents/kWh
- --------- - --------- - ---------
Navy I partnership 1,776 0.3 585 0.1 1,980 0.3
BLM partnership 1,066 0.1 1,181 0.2 1,712 0.2
Navy II partnership 2,174 0.3 1,799 0.2 2,187 0.3
The Navy I partnership's interest and other income increased by $1.2
million in 1999. During the first quarter of 1999, the Navy I partnership
accrued a $1.6 million business loss insurance recovery in connection with the
shutdown of one of the Navy I partnership's turbine generator units. The shut
down unit was returned to service in May of 1999. The partnership has recovered
$500,000 with respect to the insurance and has reserved the remaining $1.1
million pending resolution of the insurance claim. The remainder of the increase
in interest and other income for the Navy I partnership resulted from interest
income on cash reserves required by the senior notes issued on May 29, 1999. The
BLM partnership's interest and other income was $1.1 million for 1999, as
compared to $1.2 million for 1998, a decrease of 9.7%. The decrease was due to
the reduction in energy revenues subsequent to the expiration of the fixed
energy price period under the BLM partnership power purchase agreements in March
1999. The decreases were partially mitigated by interest income resulting from
cash reserves required by the senior secured notes issued on May 29, 1999. The
Navy II partnership's interest and other income was $2.2 million for 1999, as
compared to $1.8 million for 1998, an increase of 20.8%. Interest on increased
cash reserves required by the senior secured notes issued on May 29, 1999
contributed to the increases in interest income.
19
The Navy I partnership's interest income was $0.6 million for 1998, as
compared to $2.0 million in 1997, a decrease of 70.5%. The BLM partnership's
interest income was $1.2 million for 1998, as compared to $1.7 million in 1997,
a decrease of 31.0%. The Navy II partnership's interest income was $1.8 million
for 1998, as compared to $2.2 million in 1997, a decrease of 17.7%. These
decreases were due to the replacement of a cash funded debt service reserve fund
with a letter of credit in 1997 and to a generally lower interest rate
environment during 1998 versus 1997.
Legal Expenses and Settlement Costs
1999 1998 1997
---- ---- ----
$ cents/kWh $ cents/kWh $ cents/kWh
- --------- - --------- - ---------
Navy I partnership 2,373 0.4 2,969 0.4 0 0.0
BLM partnership 4,169 0.6 2,968 0.4 675 0.1
Navy II partnership 5,819 0.7 2,956 0.4 0 0.0
Legal expenses including monies allocated for litigation settlements
increased in 1999 for the BLM and Navy II partnerships by $1.2 million and $2.9
million, respectively, as a result of, among other expenses, an accrued
settlement obligation that will be paid to Edison upon approval of the settle
ment by the California Public Utility Commission. The legal expenses and
settement costs were inconsequential in 1997 as compared to 1998.
Plant Operations
1999 1998 1997
---- ---- ----
$ cents/kWh $ cents/kWh $ cents/kWh
- --------- - --------- - ---------
Navy I partnership 10,017 1.5 10,020 1.5 10,983 1.5
BLM partnership 15,568 2.1 16,418 2.2 17,806 2.6
Navy II partnership 10,873 1.4 12,271 1.6 12,768 1.7
The decrease in operating expenses for the BLM and Navy II partnerships
for 1999 as compared to 1998 was due primarily to reductions in operator and
management committee fees, insurance and other operating costs somewhat offset
by the increase in property taxes.
The decrease in operating expenses for the Navy I, BLM and Navy II
partnerships for 1998 as compared to 1997 were primarily due to a favorable
property tax appeal and settlement with Inyo County and decreases in operating
expenses.
Royalty Expenses
1999 1998 1997
---- ---- ----
$ cents/kWh $ cents/kWh $ cents/kWh
- --------- - --------- - ---------
Navy I partnership 9,699 1.5 6,824 1.0 9,849 1.4
BLM partnership 3,148 0.4 10,492 1.4 10,106 1.4
Navy II partnership 12,077 1.5 11,868 1.6 11,249 1.5
The Navy I partnership's royalty expenses were $9.7 million for 1999, as
compared to $6.8 million in 1998, an increase of 42.1%. The increase was due to
a scheduled increase in the royalty rate paid to the Navy beginning in November
1998 from 10% to 15%. The BLM partnership's royalty expenses were $3.1 million
for 1999 as compared to $10.5 million in 1998, a decreases of 70.0%. This
decrease was due to a reduction in BLM partnership revenues caused by the
expiration of the fixed energy price period under the BLM partnership's power
purchase agreement in March 1999 and the receipt of energy payments under
Edison's avoided cost of energy since that time. The Navy II partnership's
royalty expenses were $12.1 million for 1999 as compared to $11.9 million in
1998, an increase of 1.8%. The increase was due to an increase in production.
20
The Navy I partnership's royalty expenses were $6.8 million for 1998 as
compared to $9.8 million in 1997, a decrease of 30.7%. This decrease was due to
a decrease in revenues over the same period in 1998 caused by the expiration of
the fixed energy price period under the Navy I partnership's power purchase
agreement. The BLM partnership's royalty expenses were $10.5 million for 1998,
as compared to $10.1 million for 1997, an increase of 3.8%. This was due to the
increased revenues generated by the BLM partnership over the period. The BLM
partnership's royalty expenses for 1998 and 1997 include $3.1 million and 3.2
million, respectively of royalties payable to Coso Land Company. The Navy II
partnership's royalty expenses were $11.9 million for 1998, as compared to $11.2
million in 1997, an increase of 5.5%. This increase was due to an increase in
revenues generated by the Navy II partnership.
Depreciation and Amortization
1999 1998 1997
---- ---- ----
$ cents/kWh $ cents/kWh $ cents/kWh
- --------- - --------- - ---------
Navy I partnership 9,582 1.4 12,081 1.8 13,160 1.8
BLM partnership 15,649 2.1 14,809 2.0 14,606 2.1
Navy II partnership 14,808 1.9 14,025 1.8 13,732 1.8
The Navy I partnership's depreciation and amortization expense was $9.6
million for 1999, as compared to $12.1 million in 1998, a decrease of 20.7%. The
decrease was primarily due to purchase accounting adjustments. The overall
effect was a reduction in depreciation expense that was partially offset by
depreciation on current year additions. The BLM partnership's depreciation and
amortization expense was $15.6 million for 1999 and $14.8 million for 1998, an
increase of 5.7%. The increase was due to substantial increases in current year
asset additions partially offset by the effect of purchase accounting
adjustments. The Navy II partnership's depreciation and amortization expense was
$14.8 million for 1999 and $14.0 million in 1998. The increase was due to
purchase accounting adjustments and depreciation expense on current year asset
additions.
The Navy I partnership's depreciation and amortization expense was $12.1
million for 1998, as compared to $13.2 million for 1997, a decrease of 8.2%. The
decrease was primarily due to the cessation of depreciation expense for certain
wells, which became fully depreciated during these periods. The BLM
partnership's depreciation and amortization expense was $14.8 million for 1998,
as compared to $14.6 million for 1997, an increase of 1.4%. The Navy II
partnership's depreciation and amortization expense was $14.0 million for 1998,
as compared to $13.7 million in 1997, an increase of 2.1%.
21
Interest Expense
1999 1998 1997
---- ---- ----
$ cents/kWh $ cents/kWh $ cents/kWh
- --------- - --------- - ---------
Navy I partnership 9,629 1.4 4,333 0.7 6,260 0.9
BLM partnership 7,324 1.0 6,267 0.9 9,105 1.3
Navy II partnership 9,957 1.3 8,122 1.1 10,532 1.4
The Navy I partnership's interest expense was $9.6 million in 1999 and
$4.3 million in 1998, an increase of 122.2%. The BLM partnership's interest
expense was $7.3 million in 1999 and $6.3 million in 1998, an increase of 16.9%.
The Navy II partnership's interest expense was $10.0 million in 1999 and $8.1
million in 1998, an increase of 22.6%. These increases were due to higher
outstanding debt balances resulting from the $413 million senior secured
financing which closed on May 28, 1999.
The Navy I partnership's interest expense was $4.3 million for 1998, as
compared to $6.3 million in 1997, a decrease of 30.8%. The BLM partnership's
interest expense was $6.3 million for 1998, as compared to $9.1 million in 1997,
a decrease of 31.2%. The Navy II partnership's interest expenses was $8.1
million for 1998, as compared to $10.5 million in 1997, a decrease of 22.9%.
These decreases were due to a decrease in the amounts owed under the then
existing project debt that was repaid at the closing of the Series A notes
offering.
Interest Expense - Acquisition Debt
The Navy I, BLM and Navy II partnerships incurred interest expense -
acquisition debt of $2.0 million, $1.4 million, and $2.0 million, respectively
in 1999. This interest expense related to acquisition debt in the amount of
$211.5 million and was incurred on February 25, 1999 to acquire the interests of
CalEnergy in the Coso partnerships. This acquisition debt was repaid with the
proceeds of the $413.0 million senior secured notes issued on May 28, 1999.
Costs Related to Acquisition Debt
The Navy I, BLM and Navy II partnerships incurred other expenses of
$2.0 million, $1.5 million and $2.0 million, respectively for the twelve months
ended December 31, 1999. These other expenses, which consist primarily of
lending, legal and other fees, related to the acquisition debt in the amount of
$211.5 million were incurred on February 25, 1999 to acquire the interests of
CalEnergy in the Coso partnerships. This acquisition debt was repaid with the
proceeds of the $413.0 million senior secured notes issued on May 28, 1999.
Loss on early extinquishment of debt
The Navy I, BLM and Navy II partnerships recorded a loss on the early
extinguishment of its previous debt in the amounts of $2.4 million, $1.8 million
and $2.1 million, respectively for the twelve months ended December 31, 1999.
This loss was due to premium and other costs incurred to repay the existing
project debt of the Coso Partnerships before its scheduled maturity date. These
costs included tender premiums paid to the holders of the previous debt and the
write off of the remaining balance of deferred financing costs related to the
issuance of the previous debt. The previous debt was repaid with the proceeds of
the $413.0 million senior secured notes issued on May 28, 1999.
22
Liquidity and Capital Resources
Each of the Navy I partnership, the BLM partnership and the Navy II
partnership derive substantially all of their cash flow from Edison under the
power purchase agreements and from interest income earned on funds on deposit.
The Coso partnerships have used their cash primarily for capital expenditures
for power plant improvements, resource and operating costs, distributions to
partners and payments with respect to the project debt.
The following table sets forth a summary of each Coso partnership's cash
flows for the years ended December 31, 1999, December 31, 1998, and December 31,
1997.
1999 1998 1997
---- ---- ----
Navy I partnership (stand alone)
Net cash provided by operating activities $ 24,388 $ 31,928 $ 88,089
Net cash used in investing activities (24,094) (7,493) 18,399
Net cash provided (used) by financing activities 7,527 (27,323) (119,324)
--------- --------- ----------
Net change in cash and cash equivalents $ 7,821 $ (2,888) $ (12,836)
========= ========= ==========
BLM partnership (stand alone)
Net cash provided by operating activities $ 29,806 $ 75,855 $ 60,793
Net cash used in investing activities (16,699) (20,637) 19,435
Net cash provided (used) by financing activities (6,684) (56,091) (92,521)
--------- --------- ----------
Net change in cash and cash equivalents $ 6,423 $ (873) $ (12,293)
========== ========= ==========
Navy II partnership (stand alone)
Net cash provided by operating activities $ 74,802 $ 84,833 $ 80,529
Net cash used in investing activities (58,752) (7,010) (14,530)
Net cash provided (used) by financing activities (10,848) (78,153) (112,044)
---------- --------- ----------
Net change in cash and cash equivalents $ 5,202 $ (330) $ (16,985)
========== ========= ==========
The Navy I partnership's cash flows from operating activities decreased
by $7.5 million in 1999 as compared to 1998, primarily due to financing costs
associated with the short term debt obtained to complete the purchase of
CalEnergy's interest in the Navy I partnership and also due to the interest cost
relating to the $413.0 million senior secured notes issued on May 28, 1999.
Cash used in investing activities at the Navy I partnership increased by
$16.6 million in 1999 as compared to 1998, primarily as a result of an increase
in restricted cash requirements associated with the project loan from Coso
Funding Corp.
The Navy I partnership's cash flows from financing activities increased
by $34.9 million in 1999 as compared to 1998 as a result of the project loan
from Coso Funding Corp. offset by increased distributions to partners.
The BLM partnership's cash flows from operating activities decreased by
$46.0 million in 1999 as compared 1998, primarily due to a decrease in energy
revenues as a result of the switch to avoided cost and increased financing costs
associated with the short term debt obtained to complete the purchase of
CalEnergy's interest in the BLM partnership.
23
Cash used in investing activities at the BLM partnership decreased by
$3.9 million in 1999 as compared to 1998, primarily due to a decrease in capital
expenditures offset by an increase in restricted cash requirements associated
with the project loan from Coso Funding Corp.
The BLM partnership's cash flows from financing activities increased by
$49.4 million in 1999 as compared to 1998 as a result of the project loan from
Coso Funding Corp. offset by increased distributions to partners.
The Navy II partnership's cash flows from operating activities decreased
by $10.0 million in 1999 as compared 1998, primarily due to financing costs
associated with the short term debt obtained to complete the purchase of
CalEnergy's interest in the Navy II partnership as well as increased steam
transfers.
Cash flows from investing activities at the Navy II partnership increased
by $51.7 million in 1999 as compared to 1998 primarily due to the increase in
restricted cash requirements associated with the project loan from Coso Funding
Corp.
The Navy II partnership's cash flows from financing activities increased
by $67.3 million in 1999 as compared to 1998 as a result of the project loan
from Coso Funding Corp. offset by increased distributions to partners.
The Navy I partnership's cash flows from operating activities decreased
by $56.1 million in 1998 as compared to 1997 primarily due to a decrease in
revenues for the Navy I partnership in 1998 when they received a full year of
energy payments based on Edison's avoided cost of energy.
Cash flows from investing activities at the Navy I partnership decreased
by $25.9 million in 1998 as compared to 1997 primarily due to the release in
1997 of a debt service reserve fund, and further decreased by an increase in
capital expenditures in 1998.
The Navy I partnership's cash used by financing activities decreased by
$92.0 million in 1998 as compared to 1997, primarily as a result of decreased
distributions to partners.
The BLM partnership's cash flows from operating activities increased by
$15 million in 1998 as compared 1997, primarily due to increased related party
transactions.
Cash flows from investing activities at the BLM partnership decreased by
40.1 million in 1998 as compared to 1997, primarily due to the release in 1997
of a debt service reserve fund, and further decreased by an increase in capital
expenditures in 1998.
The BLM partnership's cash flows from financing activities increased by
$36.4 million in 1998 as compared to 1997 as a result of decreased distributions
to partners and the repayment of CalEnergy's promissory note in 1997.
The Navy II partnership's cash flows from operating activities increased
by $4.3 million in 1998 as compared 1997, primarily due to an increase in
revenue in 1998.
Cash flows from investing activities at the Navy II partnership decreased
by $21.5 million in 1998 as compared to 1997 primarily due to the release in
1997 of a debt service reserve fund and further decreased by capital
expenditures in 1998.
The Navy II partnership's cash flows from financing activities increased
by $33.9 million in 1998 as compared to 1997 primarily as a result of decreased
distributions to partners in 1998.
24
Year 2000
In 1999, the Coso partnership's developed a plan to identify, assess and
remediate "Year 2000" issues within each of their significant computer programs
and certain machinery and equipment. The Coso partnerships have not experienced
disruptions to their financial or operating activities caused by failure of
computerized systems from Year 2000 issues. In addition, the Coso partnerships
have not experienced disruptions to operations caused by failure of computerized
systems of suppliers or customers from Year 2000 issues. Management of the Coso
partnerships do not expect Year 2000 issues to have a material adverse effect on
their power plant's operations or financial results in 2000.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
Risk Factors
Operating the Coso projects involves, among other things, general
economic, financial, competitive, legislative, regulatory and other factors that
are beyond our control. Changes in these factors could make it more expensive
for the Coso partnerships to operate the Coso projects, could require additional
capital expenditures or could reduce certain benefits currently available to the
Coso partnerships. A variety of other risks affect the Coso projects, some of
which are beyond our control, including:
* One or more of the Coso projects could perform below expected levels
of output or efficiency;
* The Coso geothermal resource could be interrupted or unavailable;
* Operating costs could increase;
* Energy prices paid by Edison could decrease;
* Delivery of electrical energy to Edison could be disrupted;
* Environmental problems could arise which could lead to fines or a
shutdown of one or more plants;
* Plant units and equipment have broken down or failed in the past and
could break down or fail in the future;
* The operators of the Coso projects could suffer labor disputes;
* The government could change permit or governmental approval
requirements;
* Third parties could fail to perform their contractual obligations to
the Coso partnerships; and
* Catastrophic events, such as fires, earthquakes, explosions, floods,
severe storms or other occurrences, could affect one or more of the
Coso projects or Edison.
25
In addition, the Coso partnerships must meet specified performance
requirements under their power purchase agreements during the months of June
through September to continue to qualify for the maximum capacity and capacity
bonus payments. If one or more of the events listed above occur and
substantially affect the performance of one or more of the plants during these
months, operating revenues would significantly decrease.
Item 8. Financial Statements and Supplementary Data.
Index to Financial Statements
26
CAITHNESS COSO FUNDING CORP. AND
COSO OPERATING PARTNERSHIPS
Financial Statements
December 31, 1999
(With Independent Auditors' Report Thereon)
CAITHNESS COSO FUNDING CORP. AND
COSO OPERATING PARTNERSHIPS
Index
Section I Page
Caithness Coso Funding Corp:
KPMG LLP Independent Auditors' Report F-1
Balance Sheet as of December 31, 1999 F-2
Statement of Income for the year ended F-3
December 31, 1999
Statement of Cash Flows for the year
ended December 31, 1999 F-4
Notes to Financial Statements F-5
Section II
Coso Finance Partners:
KPMG LLP Independent Auditors' Report F-6
PricewaterhouseCoopers LLP Report of Independent Accountants F-7
Balance Sheets as of December 31, 1999 and 1998 F-8
Statements of Operations for each of the years in the
three-year period ended December 31, 1999 F-9
Statements of Partners' Capital for each of the years
in the three-year period ended December 31, 1999 F-10
Statements of Cash Flows for each of the years in
the three-year period ended December 31, 1999 F-11
Notes to Financial Statements F-12
Section III
Coso Energy Developers:
KPMG LLP Independent Auditors' Report F-13
PricewaterhouseCoopers LLP Report of Independent Accountants F-14
Balance Sheets as of December 31, 1999 and 1998 F-15
Statements of Operations for each of the years in the
three-year period ended December 31, 1999 F-16
Statements of Partners' Capital for each of the years
in the three-year period ended December 31, 1999 F-17
Statements of Cash Flows for each of the years in
the three-year period ended December 31, 1999 F-18
Notes to Financial Statements F-19
Section IV
Coso Power Developers:
KPMG LLP Independent Auditors' Report F-20
PricewaterhouseCoopers LLP Report of Independent Accountants F-21
Balance Sheets as of December 31, 1999 and 1998 F-22
Statements of Operations for each of the years in
the three-year period ended December 31, 1999 F-23
Statements of Partners' Capital for each of the years
in the three-year period ended December 31, 1999 F-24
Statements of Cash Flows for each of the years in
the three-year period ended December 31, 1999 F-25
Notes to Financial Statements F-26
Independent Auditors' Report
The Partners
Caithness Coso Funding Corp.:
We have audited the accompanying balance sheet of Caithness Coso Funding Corp.
as of December 31, 1999, and the related statements of income and cash flows for
the year 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 audit.
We conducted our audit 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 audit provides 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 Caithness Coso Funding Corp. as
of December 31, 1999, and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting principles.
February 7, 2000
/s/ KPMG LLP
- ---------------------
KPMG LLP
F-1
CAITHNESS COSO FUNDING CORP.
Balance Sheet
December 31, 1999
(Dollars in thousands)
Assets
Accrued interest receivable $ 1,392
Project loan to Coso Finance Partners 151,550
Project loan to Coso Energy Developers 107,900
Project loan to Coso Power Developers 153,550
----------------
Total assets $ 414,392
================
Liabilities and Stockholders' Equity
Senior secured notes:
Accrued interest payable $ 1,392
6.80% notes due December 15, 2001 110,000
9.05% notes due December 15, 2009 303,000
----------------
Total liabilities 414,392
Stockholders equity (note 4)
----------------
$ 414,392
================
See accompanying notes to financial statements.
F-2
CAITHNESS COSO FUNDING CORP.
Statement of Income
Year ended December 31, 1999
(Dollars in thousands)
Revenue:
Interest income $ 20,491
Expense:
Interest expense (20,491)
---------------
Net income $ ---
===============
See accompanying notes to financial statements.
F-3
CAITHNESS COSO FUNDING CORP.
Statement of Cash Flows
Year ended December 31, 1999
(Dollars in thousands)
Cash flows from investing activities $ ---
--------------
Cash flows from financing activities ---
--------------
Net change in cash ---
Cash at beginning of year
--------------
Cash at end of year $
==============
Supplemental cash flow disclosures:
Interest paid $ 20,491
==============
See accompanying notes to financial statements.
F-4
CAITHNESS COSO FUNDING CORP.
Notes to Financial Statements
December 31, 1999
(Dollars in thousands)
(1) Organization of the Corporation
Caithness Coso Funding Corp. (Funding Corp.), which was incorporated on
April 22, 1999, is a single-purpose Delaware corporation formed to issue
senior secured notes (Notes) for its own account and as an agent acting
on behalf of Coso Finance Partners (CFP), Coso Energy Developers (CED)
and Coso Power Developers (CPD), collectively, the "Partnerships." The
Partnerships are California general partnerships.
On May 28, 1999, Funding Corp. sold $413,000 of senior secured notes (see
note 4). Pursuant to separate credit agreements between Funding Corp. and
each partnership (Credit Agreements), the net proceeds from the offering
of the Notes were loaned to the Partnerships. Payment of the Notes is
provided for by payments made by the Partnerships under their respective
project loans (see note 3). Funding Corp. has no material assets, other
than the project loans, and does not conduct any operations apart from
issuing the Notes and making the project loans to the Partnerships.
(2) Summary of Significant Accounting Policies
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, liabilities,
stockholders' equity 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.
Fair Value of Financial Instruments
Based on quoted market rates of the senior secured notes, the fair value
of the project loans and underlying Notes as of December 31, 1999 is
$108,900 for the Notes maturing in 2001 and $301,485 for the Notes
maturing in 2009.
(3) Project Loans to the Partnerships
Pursuant to each Credit Agreement, each partnership shall make project
loan payments in scheduled installment amounts which, in the aggregate,
are sufficient to enable Funding Corp. to pay scheduled principal and
interest on the Notes (see note 4).
The Notes are general obligations of Funding Corp., and are secured and
perfected by: (1) first priority pledge of the promissory notes
evidencing each partnership's obligation to repay the loan, (2) first
priority lien on the funds in the debt service cash accounts of the
Partnerships and (3) first priority pledge of all of the outstanding
capital stock of Funding Corp. These obligations are unconditionally
guaranteed by the Partnerships and are secured and perfected by
substantially all assets of the Partnerships and the equity interests in
the Partnerships. Funding Corp., CPD, CED and CFP are jointly and
severally liable for the repayment of the Notes.
(4) Senior Secured Notes
On May 28, 1999, Funding Corp. completed a $413,000 underwritten public
debt offering consisting of $110,000 6.80% senior secured notes due 2001
and $303,000 9.05% senior secured notes due 2009. The Notes were issued
under an indenture dated as of May 28, 1999 between Funding Corp. and the
trustee, U.S. Bank Trust NA. Payment of the Notes is provided for by
payments to be made by the Partnerships on their respective project loans
(see note 3). Interest is payable each June 15 and December 15. As of
December 15, 1999, the principal payment of $52,665 was available for
payment by the trustee. The trustee paid this amount to the noteholders
on January 19, 2000. The failure to make the principal payment on
December 15, 1999 did not result from the lack of performance on the part
of Funding Corp. or the Partnerships and Funding Corps.' management
believes this is not an event of default.
The annual maturity of the senior secured notes for each year ending
December 31 is as follows:
Year ending December 31 Amount
------------------------ -------
2000 $ 82,933
2001 27,067
2002 21,771
2003 27,618
2004 31,332
Thereafter 222,279
-------
$ 413,000
=======
The Note indentures contain certain restrictive covenants that among
other things, limit the ability to incur additional indebtedness, release
funds from reserve accounts, make distributions, create loans and enter
into any transaction, merger or consolidation.
(5) Stockholders' Equity
Funding Corp. is authorized to issue 1,000 shares of common stock,
$.01 par value per share. Upon incorporating in 1999, Funding Corp.
issued 100 common shares each to CFP, CED and CPD.
F-5
Independent Auditors' Report
The Partners and Management Committee
Coso Finance Partners:
We have audited the accompanying balance sheet of Coso Finance Partners as of
December 31, 1999, and the related statements of operations, partners' capital
and cash flows for the year then ended. These financial statements are the
responsibility of the Partnerships' management. Our responsibility is to express
an opinion on these financial statements based on our audit. The combined
financial statements of Coso Finance Partners and Coso Finance Partners II as of
December 31, 1998 and for the years ended December 31, 1998 and 1997, were
audited by other auditors whose report, dated February 12, 1999, expressed an
unqualified opinion.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the 1999 financial statements referred to above present fairly,
in all material respects, the financial position of Coso Finance Partners as of
December 31, 1999, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
As discussed in note 4 to the financial statements, effective February 25, 1999,
Caithness Acquisition Company, LLC acquired all of the partnership interest not
already owned by its affiliates, ESCA LLC and ESCA II Limited Partnership, in a
business combination accounted for as a purchase. As a result of the
acquisition, the financial information for the period after the acquisition is
presented on a different cost basis than that for the period before the
acquisition and, therefore, is not comparable.
February 7, 2000
/s/ KPMG LLP
- ---------------------
KPMG LLP
F-6
Report of Independent Accountants
To the Partners of Coso Finance Partners
and Coso Finance Partners II
In our opinion, the combined financial statements listed in the accompanying
index present fairly, in all material respects, the combined financial position,
results of operations and cash flows of Coso Finance Partners and Coso Finance
Partners II at December 31, 1998 and for each of the two years in the period
ended December 31, 1998, in conformity with accounting principles generally
accepted in the United States of America. 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 of these statements in accordance with auditing standards generally
accepted in the United States of America, which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above. We have not audited the combined financial statements of Coso Finance
Partners and Coso Finance Partners II for any period subsequent to December 31,
1998.
As discussed in Note 2 to the combined financial statements, the Partnerships
adopted in 1998 Statement of Position No. 98-5, "Reporting on the Costs of
Start-Up Activities."
/s/ PricewaterhouseCoopers LLP
- --------------------------------
PricewaterhouseCoopers LLP
San Francisco, California
February 12, 1999
F-7
COSO FINANCE PARTNERS
Balance Sheets
December 31, 1999 and 1998 (note 4)
(Dollars in thousands)
Combined CFP and
CFP II (note 4)
1999 1998
---------------- -------------------
Assets
Cash and cash equivalents $ 7,821 ---
Restricted cash and investments (note 2) 25,001 7,524
Accounts receivable 5,154 5,404
Prepaid expenses and other assets --- 617
Amounts due from related parties (note 9) 4,508 4,160
Property, plant and equipment, net (notes 4 and 6) 153,879 180,189
Investment in China Lake Plant Services, Inc. (note 5) 4,212 4,139
Power purchase contract, net (note 4) 13,388 ---
Deferred financing costs, net (note 2) 3,749 233
---------------- -------------------
Total assets $ 217,712 202,266
================ ===================
Liabilities and Partners' Capital
Accounts payable and accrued liabilities (note 7) $ 16,236 11,389
Amounts due to related parties (note 9) 564 378
Project loans (note 8) 151,550 40,566
---------------- -----------------
Total liabilities 168,350 52,333
Commitments and contingencies (notes 7, 8 and 10)
Partners capital 49,362 149,933
---------------- ----------------
Total liabilities and partners capital $ 217,712 202,266
================ ================
See accompanying notes to financial statements.
F-8
COSO FINANCE PARTNERS
Statements of Operations
Years ended December 31, 1999, 1998 and 1997 (note 4)
(Dollars in thousands)
Combined CFP and
CFP II (note 4)
------------------------------
Twelve Twelve Twelve
Two months Ten months months months months
ended ended ended ended ended
February 28, December 31, December 31, December 31, December 31,
1999 1999 1999 1998 1997
-------------- -------------- --------------- ------------- ---------------
(old basis) (new basis) (old basis) (old basis)
Revenue:
Energy revenues $ 8,098 34,196 42,294 39,580 86,586
Capacity payments 474 12,898 13,372 13,573 13,845
Interest and other income 824 952 1,776 585 1,980
-------------- -------------- --------------- ------------- -------------
Total revenue 9,396 48,046 57,442 53,738 102,411
-------------- -------------- --------------- ------------- -------------
Operating expenses:
Plant operating expense 2,556 7,461 10,017 10,020 10,983
Royalty expense 987 8,712 9,699 6,824 9,849
Depreciated and amortization 1,604 7,978 9,582 12,081 13,160
Edison legal expenses
and settlement costs (note 10) 569 1,804 2,373 2,969 ---