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EX-32.2 - EX-32.2 - ATLANTIC POWER CORPa13-4533_1ex32d2.htm
EX-31.1 - EX-31.1 - ATLANTIC POWER CORPa13-4533_1ex31d1.htm
EX-23.1 - EX-23.1 - ATLANTIC POWER CORPa13-4533_1ex23d1.htm
EX-32.1 - EX-32.1 - ATLANTIC POWER CORPa13-4533_1ex32d1.htm
EX-31.2 - EX-31.2 - ATLANTIC POWER CORPa13-4533_1ex31d2.htm
EX-23.3 - EX-23.3 - ATLANTIC POWER CORPa13-4533_1ex23d3.htm

Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-K/A

(Amendment No. 2)

 

x

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended December 31, 2011

 

OR

 

o

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 001-34691

 

ATLANTIC POWER CORPORATION

(Exact Name of Registrant as Specified in its Charter)

 

British Colombia, Canada

 

55-0886410

(State of Incorporation)

 

(I.R.S. Employer Identification No.)

 

One Federal Street, Floor 30
Boston, MA

 

02110

(Address of Principal Executive Offices)

 

(Zip Code)

 

(617) 977-2400

(Registrant’s Telephone Number, Including Area Code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of Each Class

 

Name of Each Exchange on Which Registered

Common Shares, no par value per share

 

The New York Stock Exchange
Toronto Stock Exchange

 

Securities registered pursuant to Section 12(g) of the Act: None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes o No x

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes o No x

 

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 o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  x Yes o No

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the 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. o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large Accelerated Filer x

 

Accelerated Filer o

 

 

 

Non-Accelerated Filer o
(Do not check if a smaller reporting company)

 

Smaller reporting company o

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o No x

 

As of June 30, 2011, the aggregate market value of the voting and nonvoting common equity held by non-affiliates of the registrant was $1.0 billion based upon the last reported sale price on the New York Stock Exchange. For purposes of the foregoing calculation only, all directors and executive officers of the registrant have been deemed affiliates.

 

As of February 24, 2012, 113,526,182 of the registrant’s Common Shares were outstanding.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

Portions of the registrant’s definitive Proxy Statement for its 2012 Annual Meeting of Shareholders, to be filed not later than 120 days after the end of the registrant’s fiscal year, are incorporated by reference into Items 10 through 14 of Part III of this Annual Report on Form 10-K.

 

 

 



Table of Contents

 

Explanatory Note

 

This Amendment No. 2 to the Annual Report on Form 10-K of Atlantic Power Corporation (the “Company”) for the year ended December 31, 2011 as filed with the Securities and Exchange Commission (the “SEC”) on February 29, 2012 (the “Original Form 10-K”), as amended by Amendment No. 1 to the Original Form 10-K as filed with the SEC on April 2, 2012 (“Amendment No. 1” and, together with the Original Form 10-K, the “Amended Form 10-K”), is being filed for the purpose of including consents of our independent auditors in regards to the Company’s Registration Statement on Form S-8, which were inadvertently omitted from the Amended Form 10-K.

 

As required by the rules of the SEC, this Amendment No. 2 sets forth an amended “Item 15. Exhibits and Financial Statement Schedules” in its entirety and includes the new certifications from the Company’s chief executive officer and chief financial officer.

 

Except as otherwise expressly noted herein, this Amendment No. 2 does not modify or update in any way the financial position, results of operations, cash flows, or other disclosures in, or exhibits to, the Amended Form 10-K, nor does it reflect events occurring after the filing of the Amended Form 10-K.  Accordingly, this Amendment No. 2 should be read in conjunction with the Amended Form 10-K.

 

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PART IV

 

ITEM 15.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

 

(a)(1) Financial Statements:

 

The Company’s financial statements and supplementary information are listed in the “Index to Consolidated Financial Statements” appearing on page F-1 of the Original Form 10-K.

 

(a)(2) Financial Statement Schedules:

 

See “Index to Consolidated Financial Statements” appearing on page F-1 of the Original Form 10-K.

 

See “Index to Financial Statements” on page F-1 of this Amendment No. 2.

 

Schedules other than that listed have been omitted because of the absence of the conditions under which they are required or because the information required is shown in the consolidated financial statements or the notes thereto.

 

(a)(3)     Exhibits:

 

Exhibit
No.

 

Description

2.1

 

Plan of Arrangement of Atlantic Power Corporation, dated as of November 24, 2005 (incorporated by reference to our registration statement on Form 10-12B filed on April 13, 2010)

2.2

 

Arrangement Agreement, dated as of June 20, 2011, among Capital Power Income L.P., CPI Income Services Ltd., CPI Investments Inc. and Atlantic Power Corporation (incorporated by reference to our Current Report on Form 8-K filed on June 24, 2011)

3.1

 

Articles of Continuance of Atlantic Power Corporation, dated as of June 29, 2010 (incorporated by reference to our registration statement on Form 10-12B filed on July 9, 2010)

4.1

 

Form of common share certificate (incorporated by reference to our registration statement on Form 10-12B filed on April 13, 2010)

4.2

 

Trust Indenture, dated as of October 11, 2006 between Atlantic Power Corporation and Computershare Trust Company of Canada (incorporated by reference to our registration statement on Form 10-12B filed on April 13, 2010)

4.3

 

First Supplemental Indenture to the Trust Indenture Providing for the Issue of Convertible Secured Debentures, dated November 27, 2009, between Atlantic Power Corporation and Computershare Trust Company of Canada (incorporated by reference to our registration statement on Form 10-12B filed on April 13, 2010)

4.4

 

Trust Indenture Providing for the Issue of Convertible Unsecured Subordinated Debentures, dated as of December 17, 2009, between Atlantic Power Corporation and Computershare Trust Company of Canada (incorporated by reference to our registration statement on Form 10-12B filed on April 13, 2010)

4.5

 

Form of First Supplemental Indenture to the Trust Indenture Providing for the Issue of Convertible Unsecured Subordinated Debentures, between Atlantic Power Corporation and Computershare Trust Company of Canada (incorporated by reference to our registration statement on Form S-1/A (File No. 33-138856) filed on September 27, 2010)

4.6

 

Indenture, dated as of November 4, 2011, by and among Atlantic Power Corporation, the Guarantors named therein and Wilmington Trust, National Association (incorporated by reference to our Current Report on Form 8-K filed on November 7, 2011)

4.7

 

First Supplemental Indenture, dated as of November 5, 2011 (incorporated by reference to our Current Report on Form 8-K filed on November 7, 2011)

4.8

 

Second Supplemental Indenture, dated as of November 5, 2011 (incorporated by reference to our Current Report on Form 8-K filed on November 7, 2011)

 

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Table of Contents

 

4.9

 

Registration Rights Agreement, dated as of November 4, 2011, by and among, Atlantic Power Corporation, the Guarantors listed on Schedule A thereto and Morgan Stanley & Co. LLC and TD Securities (USA) LLC, as representatives of the several Initial Purchasers (incorporated by reference to our Current Report on Form 8-K filed on November 7, 2011)

10.1

 

Amended and Restated Senior Secured Credit Agreement dated November 4, 2011 among Atlantic Power Corporation and Bank of Montreal, Union Bank, Toronto Dominion and Morgan Stanley (incorporated by reference to our Annual Report on Form 10-K for the year ended December 31, 2011, as filed on February 29, 2012)

10.2

 

Employment Agreement, dated as of December 31, 2009 between Atlantic Power Corporation and Barry Welch (incorporated by reference to our registration statement on Form 10-12B filed on April 13, 2010)

10.3

 

Employment Agreement, dated as of December 31, 2009 between Atlantic Power Corporation and Paul Rapisarda (incorporated by reference to our registration statement on Form 10-12B filed on April 13, 2010)

10.4

 

Deferred Share Unit Plan, dated as of April 24, 2007 of Atlantic Power Corporation (incorporated by reference to our registration statement on Form 10-12B filed on April 13, 2010)

10.5

 

Third Amended and Restated Long-Term Incentive Plan (incorporated by reference to our registration statement on Form 10-12B filed on July 9, 2010)

10.6

 

Fourth Amended and Restated Long-Term Incentive Plan (incorporated by reference to our Annual Report on Form 10-K for the year ended December 31, 2011, as filed on February 29, 2012)

16.1

 

Letter from KPMG LLP, Chartered Accountants, to the Securities and Exchange Commission, dated August 10, 2010 (incorporated by reference to our Current Report on Form 8-K filed on August 10, 2010)

21.1

 

Subsidiaries of Atlantic Power Corporation (incorporated by reference to our Annual Report on Form 10-K for the year ended December 31, 2011, as filed on February 29, 2012)

23.1*

 

Consent of KPMG LLP

23.2*

 

Consent of KPMG LLP

23.3*

 

Consent of PricewaterhouseCoopers LLP

23.4*

 

Consent of KPMG LLP

31.1*

 

Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934

31.2*

 

Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934

32.1**

 

Certification of the Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2**

 

Certification of the Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101

 

The following materials from our Annual Report on Form 10-K for the year ended December 31, 2011 formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Shareholders’ Equity, (iv) the Consolidated Statements of Cash Flows, and (v) related notes to these financial statements (incorporated by reference to our Annual Report on Form 10-K for the year ended December 31, 2011, as filed on February 29, 2012)

 


*                                         Filed herewith.

**                                  Furnished herewith.

 

(b) Exhibits:

 

See Item 15(a)(3) above.

 

(c) Financial Statement Schedules:

 

See Item 15(a)(2) above.

 

3



Table of Contents

 

SIGNATURE

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Date: February 6, 2013

Atlantic Power Corporation

 

By:

/s/ TERRENCE RONAN

 

 

Name:

Terrence Ronan

 

 

Title:

Chief Financial Officer

 

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Table of Contents

 

The consolidated financial statements of Chambers Cogeneration Limited Partnership and Subsidiary for the years ended December 31, 2011 and 2009, are presented herein without the related report of independent accountants.

 

F-2



Table of Contents

 

CHAMBERS COGENERATION LIMITED PARTNERSHIP

 

Consolidated Financial Statements

 

December 31, 2011 and 2010

 

F-3



Table of Contents

 

CHAMBERS COGENERATION LIMITED PARTNERSHIP

Consolidated Balance Sheets

December 31, 2011 and 2010

(Dollars in thousands)

 

 

 

2011

 

As
Restated
2010

 

Assets

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents   

 

$

50

 

 53

 

Restricted cash   

 

6,108

 

8,292

 

Accounts receivable   

 

9,601

 

15,195

 

Inventory   

 

8,725

 

8,201

 

Emission allowances

 

 

 

 

Other assets

 

360

 

469

 

Total current assets

 

24,844

 

32,210

 

Construction in progress    

 

683

 

9

 

Property and equipment, net of accumulated depreciation of $306,824 and $288,412, respectively   

 

238,395

 

255,428

 

Deferred financing costs net of accumulated amortization of $5,386 and $5,182, respectively   

 

1,444

 

1,648

 

Other asset    

 

13

 

 

Total assets

 

$

265,379

 

289,295

 

Liabilities and Partners’ Capital

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Current portion of long-term debt

 

$

30,666

 

28,235

 

Accounts payable   

 

4,230

 

4,670

 

Due to affiliates   

 

2,004

 

1,887

 

Accrued liabilities   

 

2,631

 

1,822

 

Interest rate swap   

 

2,169

 

4,470

 

Total current liabilities

 

41,700

 

41,084

 

Long-term debt    

 

129,818

 

159,376

 

Interest rate swap    

 

1,560

 

3,243

 

Asset retirement obligation    

 

10,943

 

10,357

 

Total liabilities

 

184,021

 

214,060

 

Commitments and contingencies

 

 

 

 

 

Partners’ capital:

 

 

 

 

 

General partners   

 

81,183

 

75,964

 

Limited partner   

 

820

 

767

 

Accumulated other comprehensive loss  

 

(645

)

(1,496

)

Total partners’ capital

 

81,358

 

75,235

 

Total liabilities and partners’ capital

 

$

265,379

 

 289,295

 

 

See accompanying notes to consolidated financial statements.

 

F-4



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CHAMBERS COGENERATION LIMITED PARTNERSHIP

Consolidated Statements of Operations

Years ended December 31, 2011 and 2010

(Dollars in thousands)

 

 

 

2011

 

As Restated 2010

 

Operating revenues:

 

 

 

 

 

Energy

 

$

46,741

 

62,440

 

Capacity

 

59,760

 

59,996

 

Steam

 

15,420

 

16,443

 

Total operating revenues

 

121,921

 

138,879

 

Operating expenses:

 

 

 

 

 

Fuel

 

48,903

 

59,129

 

Operations and maintenance

 

27,170

 

25,910

 

General end administrative

 

6,087

 

6,270

 

Depreciation

 

18,412

 

18,385

 

Total operating expenses

 

100,572

 

109,694

 

 

 

 

 

 

 

Operating income

 

21,349

 

29,185

 

Other income (expense):

 

 

 

 

 

Interest income

 

1

 

1

 

Miscellaneous income

 

4

 

133

 

Unrealized gain on interest rate swaps

 

3,984

 

2,980

 

Interest expense

 

(10,566

)

(11,747

)

Net income

 

$

14,772

 

20,552

 

 

See accompanying notes to consolidated financial statements.

 

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CHAMBERS COGENERATION LIMITED PARTNERSHIP

Consolidated Statements of Changes in Partners’ Capital and Comprehensive Income

Years ended December 31, 2011 and 2010

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

other

 

 

 

 

 

General

 

Limited

 

Comprehensive

 

comprehensive

 

 

 

 

 

partners

 

partner

 

income

 

loss

 

Total

 

Partners’ capital at December 31, 2009, as restated

 

$

37,909

 

25,270

 

 

 

$

(2,784

)

60,395

 

Conversion of partnership interest

 

26,809

 

(26,809

)

 

 

 

 

 

 

Net income, as restated

 

18,176

 

2,376

 

$

20,552

 

 

 

20,552

 

Amortization of previously deferred loss on interest rate swap agreement

 

 

 

1,288

 

1,288

 

1,288

 

Total comprehensive income, as restated

 

 

 

 

 

$

21,840

 

 

 

 

 

Capital distributions

 

(6,930

)

(70

)

 

 

 

 

(7,000

)

Partners’ capital at December 31, 2010, Conversion of partnership interest as restated

 

75,964

 

767

 

 

 

(1,496

)

75,235

 

Net income

 

14,624

 

148

 

$

14,772

 

 

 

14,772

 

Amortization of previously deferred loss on interest rate swap agreement

 

 

 

 

 

851

 

851

 

851

 

Total comprehensive income

 

 

 

 

 

$

15,623

 

 

 

 

 

Capital distributions

 

(9,405

)

(95

)

 

 

 

 

(9,500

)

Partners’ capital at December 31, 2011

 

$

81,183

 

820

 

 

 

$

(645

)

81,358

 

 

See accompanying notes to consolidated financial statements.

 

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CHAMBERS COGENERATION LIMITED PARTNERSHIP

Consolidated Statements of Cash Flows

Years ended December 31, 2011 and 2010

(Dollars in thousands)

 

 

 

2011

 

As
Restated
2010

 

Cash flows from operating activities:

 

 

 

 

 

Net income

 

$

14,772

 

20,552

 

Noncash items included in net income:

 

 

 

 

 

Amortization of deferred interest rate swap losses

 

851

 

1,288

 

Unrealized gain on interest rate swaps

 

(3,984

)

(2,980

)

Depreciation

 

18,412

 

18,385

 

Amortization of deferred financing costs

 

204

 

225

 

Accretion of asset retirement obligation

 

586

 

555

 

Loss on disposal of assets

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

Accounts receivable

 

5,594

 

(3,230

)

Inventory

 

(524

)

(966

)

Emission allowances

 

 

2,540

 

Other assets

 

96

 

773

 

Accounts payable

 

(440

)

(736

)

Due to affiliates

 

117

 

103

 

Accrued liabilities

 

752

 

160

 

Net cash provided by operating activities

 

36,436

 

36,669

 

Cash flows from investing activities:

 

 

 

 

 

(Decrease) increase in restricted cash

 

2,184

 

(1,987

)

Proceeds from the sale of assets

 

 

 

Capital expenditures

 

(1,996

)

(100

)

Net cash (used in) provided by investing activities

 

188

 

(2,087

)

Cash flows from financing activities:

 

 

 

 

 

Repayments of long-term debt

 

(27,127

)

(27,628

)

Capital distributions

 

(9,500

)

(7,000

)

Cash used in financing activities

 

(36,627

)

(34,628

)

Net decrease in cash and cash equivalents

 

(3

)

(46

)

Cash and cash equivalents:

 

 

 

 

 

Beginning of period

 

53

 

99

 

End of period

 

$

50

 

53

 

Supplemental disclosure of cash flow information

 

 

 

 

 

Cash paid for interest

 

$

7,396

 

10,312

 

Noncash investing and financing activities:

 

 

 

 

 

Capital lease

 

$

151

 

 

 

See accompanying notes to consolidated financial statements.

 

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Table of Contents

 

CHAMBERS COGENERATION LIMITED PARTNERSHIP

 

Notes to Consolidated Financial Statements

 

December 31, 2011 and 2010

 

(1)                     Organization and Business

 

Chambers Cogeneration Limited Partnership (the Partnership) is a Delaware limited partnership formed on August 17, 1988. The general partners are Peregrine Power, LLC (Peregrine), a California limited liability company, and EIF/Carneys Point, LLC (EIF/Carneys), a Delaware limited liability company, who own 60% of the partnership collectively. As of December 31, 2011, EIF/Carneys and Peregrine were each wholly owned indirect subsidiaries of Calypso Energy Holdings, LLC (Calypso). The following entities, managed by EIF Management, LLC, collectively hold 100% of the partnership interests of Calypso:

 

EIF Calypso, LLC

 

80

%

EIF Calypso II, LLC

 

20

%

 

Prior to May 2011, the 20% interest in Calypso was owned by Cogentrix Energy, LLC (CELLC). Epsilon Power (Epsilon), a wholly owned indirect subsidiary of Atlantic Power Corporation holds a 40% interest in the Partnership. In May 2010, Epsilon converted 39% of their 40% limited partnership interest to a general partnership interest.

 

The Partnership was formed to construct, own and operate a 262-megawatt (MW) coal-fired cogeneration station (the Facility) at DuPont’s Chambers Works chemical complex in Carneys Point, New Jersey. The Facility produces energy for sale to Atlantic City Electric Company (AE), and energy and process steam to E.I. DuPont de Nemours & Company (DuPont) for use in its industrial operations. The Facility achieved final completion and commercial operations in 1994.

 

The net income and losses of the Partnership are allocated to Peregrine, EIF/Carneys and Epsilon (collectively, the Partners) based on the following ownership percentages:

 

Peregrine

 

50

%

EIF/Carneys

 

10

%

Epsilon (39% general Partnership, 1% limited partnership)

 

40

%

 

All distributions other than liquidating distributions are made based on the Partners’ percentage interests, as shown above, in accordance with the Partnership documents and at such times and in such amounts as the Board of Control of the Partnership determines.

 

Carneys Point Generating Company, L.P.

 

The Partnership has a lease agreement with Carneys Point Generating Company, L.P. (CPGC), which is equally owned by Topaz Power, LLC (Topaz) and by Garnet Power, LLC (Garnet), both of which are wholly owned direct subsidiaries of Calypso. CPGC leases the facility and subleases the site from the Partnership. In addition, certain contracts and agreements related to the Partnership have been assigned to CPGC by the Partnership. The lease commenced on September 20, 1994 and has a 24-year term. CPGC’s operations have been established to effectively break-even under the lease agreement.

 

(Continued)

 

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Table of Contents

 

CHAMBERS COGENERATION LIMITED PARTNERSHIP

 

Notes to Consolidated Financial Statements

 

December 31, 2011 and 2010

 

(2)                     Summary of Significant Accounting Policies

 

(a)                      Basis of Presentation

 

On January 1, 2010, the Partnership adopted an accounting standards update that changes when and how to determine, or re-determine, whether an entity is a variable interest entity (VIE), which could require consolidation. In addition, the accounting standards update replaces the quantitative approach for determining who has a controlling financial interest in a VIE with a qualitative approach and requires ongoing assessments of whether an entity is the primary beneficiary of a VIE.

 

The Partnership is required to consolidate any entities that they control. In most cases, control can be determined based on majority ownership or voting interests. However, for certain entities, control is difficult to discern based on ownership or voting interests alone. These entities are referred to as VIE’s. A VIE is an entity that does not have sufficient equity at risk to finance its activities without additional subordinated financial support from other parties, or whose equity investors lack any characteristics of a controlling financial interest. An enterprise has a controlling financial interest if it has the obligation to absorb expected losses or receive expected gains that could potentially be significant to a VIE and the power to direct activities that are most significant to a VIE’s economic performance. An enterprise that has a controlling financial interest is known as the VIE’s primary beneficiary and is required to consolidate the VIE. The Partnership reassesses its determination of whether the Partnership is the primary beneficiary of a VIE at each reporting date or if there are changes in facts and circumstances that could potentially alter the Partnership’s assessment.

 

The Partnership has determined that CPGC is a VIE of the Partnership primarily due to its lease arrangements with CPGC. The Partnership has determined that it is the primary beneficiary of the VIE and therefore the Partnership consolidates CPGC in its financial statements. All material intercompany transactions have been eliminated.

 

(b)                      Use of Estimates

 

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

(c)                       Cash and Cash Equivalents

 

Cash and cash equivalents consist of short-term, highly liquid investments with original maturities of three months or less.

 

(d)                      Restricted Cash

 

Restricted cash includes both cash and cash equivalents that are held in accounts restricted for debt service, major maintenance and other specifically designated accounts under a disbursement agreement. Restricted cash associated with transactions expected to occur beyond one-year are classified as long-term. All restricted accounts are classified as current assets.

(Continued)

 

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CHAMBERS COGENERATION LIMITED PARTNERSHIP

 

Notes to Consolidated Financial Statements

 

December 31, 2011 and 2010

 

(e)                       Inventory

 

Fuel is valued using the average cost method and includes the fuel contract purchase price as well as the transportation and related costs incurred to deliver the fuel to the Facility (note 3).

 

Spare parts are recorded at the lower of average cost or market and consist of Facility equipment components and supplies required to facilitate maintenance activities. Spare parts are classified as current in the accompanying consolidated balance sheets (note 3).

 

The Partnership performs periodic assessments to determine the existence of obsolete, slow-moving and unusable inventory and records necessary provisions to reduce such inventories to market.

 

(f)                         Emission Allowances

 

Emission allowances are valued under the weighted average costing method subject to the lower of cost or market principle. In applying the lower of cost or market principle, a reduction in the carrying value is not recognized so long as the Partnership will recover/pass-through the cost in its operating margin.

 

The historical cost of emission allowances is calculated as follows:

 

·                              Granted from regulatory body-emission allowances obtained via grants are not assigned any value by the Partnership as their cost is zero.

 

·                              Acquired as part of an acquisition-emission allowances are recorded at fair value as of the acquisition date, subject to pro rata reduction if overall purchase price is less than the entity’s fair value.

 

·                              Purchased from third parties-emission allowances that are transferable and can be purchased or sold in the normal course of business are recorded at cost.

 

As of December 31, 2011 the partnership has accrued approximately $91,000 in emission allowances which are classified as current and included in accrued liabilities in the accompanying consolidated balance sheets.

 

(g)                      Derivative Contracts

 

In accordance with guidance on accounting for derivative instruments and hedging activities all derivatives should be recognized at fair value. Derivatives or any portion thereof, that are not designated as, and effective as, hedges must be adjusted to fair value through earnings. Derivative contracts are classified as either assets or liabilities on the consolidated balance sheets. Certain contracts that require physical delivery may qualify for and be designated as normal purchases/normal sales. Such contracts are accounted for on an accrual basis. The Partnership’s interest rate swap agreement (note 8), power purchase agreement (PPA) (note 10) and power sales agreement (PSA) (note 10) meet the definition of a derivative. The Partnership’s PPA qualifies for, and the Partnership has elected, the normal purchases and normal sales exception and accordingly accounts for the PPA on an accrual basis. The Partnership’s PSA is marked to market through earnings.

(Continued)

 

F-10



Table of Contents

 

CHAMBERS COGENERATION LIMITED PARTNERSHIP

 

Notes to Consolidated Financial Statements

 

December 31, 2011 and 2010

 

The Partnership engages in activities to manage risks associated with changes in interest rates. The Partnership has entered into swap agreements to reduce exposure to interest rate fluctuations on certain debt commitments (note 5). These agreements were designated and qualified as cash flow hedging instruments through December 31, 2004. The Partnership discontinued applying cash flow hedge accounting on January 1, 2005. The balance of accumulated other comprehensive loss, as of December 31, 2004, is amortized as interest expense in the accompanying consolidated statements of operations in accordance with the originally forecasted interest payments schedule through the expiration of the interest rate swaps on March 31, 2014.

 

(h)                      Fair Value Measurements

 

The Partnership uses a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of the fair value hierarchy are described below:

 

·                              Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.

 

·                              Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

 

·                              Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions.

 

A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement (note 8). As of December 31, 2011 and 2010, the Partnership does not have any nonfinancial assets or liabilities remeasured at fair value on a recurring basis.

 

(i)                         Property and Equipment

 

Property and equipment are recorded at cost, net of accumulated depreciation. Expenditures for major additions and improvements are capitalized and minor replacements, maintenance, and repairs are charged to expense as incurred. When property and equipment are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the results of operations for the respective period. Depreciation is provided over the lease term of the land using the straight-line method (note 4).

 

The Partnership’s depreciation is based on the Facility being considered a single property unit. Certain components within the Facility will require replacement or overhaul several times over its estimated life. Costs associated with overhauls are recorded as an expense in the period incurred. However, in instances where a replacement of a Facility component is significant and the Partnership can reasonably estimate the original cost of the component being replaced, the Partnership will write-off the replaced component and capitalize the cost of the replacement. The component will be

 

(Continued)

 

F-11



Table of Contents

 

CHAMBERS COGENERATION LIMITED PARTNERSHIP

 

Notes to Consolidated Financial Statements

 

December 31, 2011 and 2010

 

depreciated over the lesser of the EUL of the component or the remaining useful life of the Facility and also the lease term, when the component is a capitalized modification to leased property.

 

The Partnership reviews the carrying value of property and equipment for impairment whenever events and circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. In cases where undiscounted expected future cash flows are less than the carrying value, an impairment loss is recognized equal to an amount by which the carrying value exceeds the fair value of assets. The factors considered by management in performing this assessment include current operating results, trends and prospects, the manner in which the property is used, and the effects of obsolescence, demand, competition, and other economic factors.

 

(j)                         Deferred Financing Costs

 

Deferred financing costs, which consist of the costs incurred to obtain financing, are deferred and amortized into interest expense in the accompanying consolidated statements of operations using the effective interest method over the term of the related financing (note 5).

 

(k)                      Asset Retirement Obligations

 

Asset retirement obligations, including those conditioned on future events, are recorded at fair value in the period in which they are incurred, if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the related long-lived asset in the same period. In each subsequent period, the liability is accreted to its present value and the capitalized cost is depreciated over the EUL of the long-lived asset. If the asset retirement obligation is settled for other than the carrying amount of the liability, the Partnership recognizes a gain or loss on settlement. The Partnership recognized an asset retirement obligation at December 31, 2011 and 2010 of approximately $10,943,000 and $10,357,000, respectively. This obligation represents the weighted average probability of costs the Partnership would incur to perform environmental clean-up and remove or sell the facility.

 

(l)                         Income Taxes

 

As partnerships, the income tax effects attributable to Chambers Cogeneration Partnership Limited accrue directly to the partners. Each partner is individually responsible for its share of the respective Partnerships’ and CPCG taxable income or loss.

 

In addition, during 2010 and 2011, there were no unrecognized tax benefits, current income taxes or penalties and interest related to income taxes recognized in the consolidated statements of operations or the consolidated statements of financial position.  If interest or penalties were incurred, they would be recognized in income tax expense in the accompanying consolidated statements of operations.

 

The tax years that remain subject to examination are December 31, 2008 through December 31, 2011.

 

(Continued)

 

F-12



Table of Contents

 

CHAMBERS COGENERATION LIMITED PARTNERSHIP

 

Notes to Consolidated Financial Statements

 

December 31, 2011 and 2010

 

(m)                   Revenue Recognition

 

Revenues from the sale of energy and steam are recorded based on monthly output delivered as specified under contractual terms or current market conditions and are recorded on a gross basis on the accompanying consolidated statements of operations as energy and steam revenues, respectively, with the associated costs recorded in operating expenses.

 

(n)                      Reclassifications

 

Certain reclassifications have been made to the prior year’s consolidated financial statements to conform to the current year presentation. These reclassifications had no effect on the previously reported results of operations or partners’ capital.

 

(o)                      Subsequent Events

 

The Partnership evaluated subsequent events through March 30, 2012.

 

(3)                     Inventory

 

Inventory consisted of the following as of December 31:

 

 

 

 

2011

 

2010

 

 

 

(In thousands of dollars)

 

 

 

 

 

 

 

 

Coal

 

$

3,958

 

3,727

 

Fuel oil

 

444

 

335

 

Lime

 

103

 

120

 

Spare parts

 

4,220

 

4,019

 

 

 

$

8,725

 

8,201

 

 

(4)                     Property and Equipment

 

Property and equipment consisted of the following components as of December 31:

 

 

 

 

 

2010

 

 

 

2011

 

Restated

 

 

 

(In thousands of dollars)

 

Facility

 

$

538,652

 

537,273

 

Other equipment

 

6,567

 

6,567

 

Construction in progress

 

683

 

9

 

 

 

545,902

 

543,849

 

Less accumulated depreciation

 

(306,824

)

(288,412

)

 

 

$

239,078

 

255,437

 

 

(Continued)

 

F-13



Table of Contents

 

CHAMBERS COGENERATION LIMITED PARTNERSHIP

 

Notes to Consolidated Financial Statements

 

December 31, 2011 and 2010

 

The EUL for significant property and equipment categories are as follows:

 

Facility

 

30 years

Other equipment

 

5 to 30 years

 

(5)                     Long-Term Debt

 

Long-term debt consisted of the following as of December 31(In thousands of dollars):

 

 

 

 

 

 

 

 

 

Year ended

 

 

 

As of December 31, 2011

 

December 31, 2011

 

 

 

Commitment

 

Due

 

Balance

 

Interest

 

Letter of

 

Description

 

amount

 

date

 

outstanding

 

expense

 

credit fees

 

Bonds payable (1) (6)

 

$

100,000

 

7/1/21

 

$

100,000

 

1,573

 

N/A

 

Credit agreement:

 

 

 

 

 

 

 

 

 

 

 

Term loans (3) (6)

 

59,376

 

3/31/14

 

59,376

 

1,216

 

N/A

 

Bond letter of credit (4) (6) (7)

 

102,466

 

12/31/12

 

 

N/A

 

1,527

 

Debt service reserve

 

 

 

 

 

 

 

 

 

 

 

letter of credit (5) (6) (7) (8) (9)

 

22,750

 

12/15/12

 

 

N/A

 

394

 

Loan Payable (2)

 

1,108

 

06/30/16

 

1,108

 

42

 

N/A

 

 

 

 

 

 

 

160,484

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less current portion

 

 

 

 

 

30,666

 

 

 

 

 

 

 

 

 

 

 

$

129,818

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year ended

 

 

 

As of December 31, 2010

 

December 31, 2010

 

 

 

Commitment

 

Due

 

Balance

 

Interest

 

Letter of

 

Description

 

amount

 

date

 

outstanding

 

expense

 

credit fees

 

Bonds payable (1) (6)

 

$

100,000

 

7/1/21

 

$

100,000

 

352

 

N/A

 

Credit agreement:

 

 

 

 

 

 

 

 

 

 

 

Term loans (3) (6)

 

87,611

 

3/31/14

 

87,611

 

1,695

 

N/A

 

Bond letter of credit (4) (6) (7)

 

102,466

 

12/31/12

 

 

N/A

 

1,480

 

Debt service reserve letter of credit (5) (6) (7) 

 

22,750

 

12/31/12

 

 

N/A

 

386

 

 

 

 

 

 

 

187,611

 

 

 

 

 

Less current portion

 

 

 

 

 

28,235

 

 

 

 

 

 

 

 

 

 

 

$

159,376

 

 

 

 

 

 

(Continued)

 

F-14



Table of Contents

 

CHAMBERS COGENERATION LIMITED PARTNERSHIP

 

Notes to Consolidated Financial Statements

 

December 31, 2011 and 2010

 


(1)                      The bonds are collateralized by an irrevocable letter of credit and provide for interest at variable rates. The weighted average interest rates on the bonds were 1.58% and 0.36% for the years ended December 31, 2011 and 2010, respectively. Remarketing fees paid to the remarketing agent were approximately $100,000 in both 2011 and 2010. These fees are included in interest expense in the accompanying consolidated statements of operations.

 

(2)                      Loan payable is collateralized by equipment. The term is 60-months commencing July 2011 with interest fixed at 5.69%.

 

(3)                      The term loans accrue interest at the applicable London Interbank Offered Rate (L1BOR), plus an applicable margin (1.25% at December 31, 2011 and December 31, 2010). The weighted average interest rates on the term loan were 1.58% and 1.62% for 2011 and 2010, respectively.

 

(4)                      The letter of credit fee for 2011 and 2010 was 1.25%. In addition, the facility provides for a fronting fee of 0.30% effective August 12, 2011 (previously 0.175%) on the stated amount which is included in interest expense in the accompanying consolidated statements of operations.

 

(5)                      The letter of credit fee for 2011 through December 19 and 2010 was 1.50%. In addition, the facility provided for a fronting fee of 0.175% on the stated amount which is included in interest expense in the accompanying consolidated statements of operations.

 

(6)                      All bonds, loans and credit facilities are collateralized by the assets of the Facility and the real estate covered by the ground lease (note 1) and are nonrecourse to the Partners.

 

(7)                      As of December 31, 2011 and 2010, there were no amounts drawn under the letter of credit commitments.

 

(8)                     On December 15, 2011, EIF Calypso, LLC, EIF United States Power Fund IV, LP, and Atlantic Power Corporation posted acceptable replacement security letters of credit totaling $22,750,000 replacing the previous debt service reserve letter of credit. The replacement letters of credit each expire on December 15, 2012 with an automatic one (1) year extension unless the issuing bank(s) give 90 days written notification.

 

(9)                      As of December 31, 2011, there were no amounts drawn on the DSR letter of credit.

 

Accrued interest payable of $17,000 and $3,000 is included in accrued liabilities in the consolidated balance sheets as of December 31, 2011 and 2010, respectively.

 

(Continued)

 

F-15



Table of Contents

 

CHAMBERS COGENERATION LIMITED PARTNERSHIP

 

Notes to Consolidated Financial Statements

 

December 31, 2011 and 2010

 

Future minimum principal payments as of December 31, 2011 are as follows (dollars in thousands):

 

2012

 

$

30,666

 

2013

 

27,197

 

2014

 

2,235

 

2015

 

269

 

2016

 

117

 

Thereafter

 

100,000

 

 

 

$

160,484

 

 

In connection with the various agreements discussed above, certain financial covenants must be met and reported on an annual basis.  The Partnership was in compliance with all debt covenants at December 31, 2011 with the exception of two, for which the Partnership has obtained a waiver for one violation and is expected to cure the second violation within the designated cure period.

 

Interest Rate Swap Agreements

 

The Partnership is a party to one amortizing interest rate swap agreement with an outstanding notional amount of $59,376,000 at December 31, 2011 and expiring on various dates through March 31, 2014. Swap payments related to the agreements covering the variable rate bank debt are made based on the spread between 6.18% (weighted average of the outstanding agreement as of December 31, 2011) and LIBOR multiplied by the notional amounts outstanding. Net amounts paid to the counterparties were approximately $4,569,000 and $6,170,000 in 2011 and 2010, respectively. These amounts were recorded as interest expense in the accompanying consolidated statements of operations.

 

(6)                     Operating Leases

 

The Partnership leases certain equipment, land and buildings under noncancelable operating leases expiring at various dates through 2024. For the years ended December 31, 2011 and 2010, the Partnership incurred lease expense of approximately $205,000 and $208,000, respectively, which is included in operations and maintenance expense and general and administrative expense in the accompanying consolidated statements of operations.

 

Future minimum lease payments, as of December 31, 2011, are as follows (dollars in thousands):

 

2012

 

$

204

 

2013

 

204

 

2014

 

204

 

2015

 

200

 

2016

 

192

 

Thereafter

 

974

 

 

 

$

1,978

 

 

(Continued)

 

F-16



Table of Contents

 

CHAMBERS COGENERATION LIMITED PARTNERSHIP

 

Notes to Consolidated Financial Statements

 

December 31, 2011 and 2010

 

(7)                     Payment in Lieu of Taxes

 

In January 1991, the Partnership entered into a Payment in Lieu of Taxes (PILOT) agreement with the Township of Carneys Point, a municipal corporation of the state of New Jersey, which exempts the Partnership from certain property taxes. The agreement commenced on January 1, 1994, and will terminate on December 31, 2033. PILOT payments are paid annually and are expensed on a straight-line basis as incurred over the term of the agreement. Property taxes are due and paid quarterly and are deducted from the annual PILOT payments made. The Partnership expensed approximately $2,800,000 and $2,700,000 related to the PILOT which is included in general and administrative in the accompanying consolidated statements of operations for the years ended December 31, 2011 and 2010, respectively.

 

As of December 31, 2011, future payments remaining under the PILOT are as follows (dollars in thousands):

 

2012

 

$

3,000

 

2013

 

3,400

 

2014

 

3,700

 

2015

 

3,900

 

2016

 

4,100

 

Thereafter

 

110,600

 

 

 

$

128,700

 

 

(8)                     Fair Value of Financial Instruments

 

The Partnership’s swap agreements and PSA are accounted for as derivative contracts (note 2). The Partnership uses a valuation model to derive the fair value of its derivative contracts based upon the present value of known or estimated cash flows taking into consideration multiple inputs including contractual terms of the swap agreements and PSA, observable market based inputs when available, interest rate curves, and counterparty credit risk. The models used reflect the contractual terms of, and specific risks inherent in, the contracts as well as the availability of pricing information in the market. Where possible, the Partnership verifies the values produced by its pricing model to market transactions. Due to the fact that the Partnership’s PSA contract trades in less liquid markets, model selection requires significant judgment because such contracts tend to be more complex and pricing information is less available in these markets. Price transparency is inherently more limited for more complex structures because of the nature, location and tenor of the arrangement, which requires additional inputs such as correlations and volatilities. In addition to model selection, management makes significant judgments based upon the Partnership’s proprietary views of market factors and conditions regarding price and correlation inputs in unobservable periods and adjustments to reflect various factors such as liquidity, bid/offer spreads and credit considerations. If available, these adjustments are based on market evidence.

 

The Partnership adjusts the inputs to its valuation models only to the extent that changes in these inputs can be verified by similar market transactions, third-party pricing services and/or broker quotes, or can be derived from other substantive evidence such as empirical market data. In circumstances where the Partnership cannot verify the models to market transactions, it is possible that a different valuation model could produce a materially different estimate of fair value.

 

(Continued)

 

F-17



Table of Contents

 

CHAMBERS COGENERATION LIMITED PARTNERSHIP

 

Notes to Consolidated Financial Statements

 

December 31, 2011 and 2010

 

The following table sets forth the Partnership’s financial assets and liabilities and other fair value measurements made on a recurring basis by fair value hierarchy level at December 31, 2011:

 

 

 

Quoted

 

 

 

 

 

 

 

 

 

prices in

 

 

 

 

 

 

 

 

 

active

 

 

 

 

 

 

 

 

 

markets for

 

Significant

 

Significant

 

 

 

 

 

identical

 

other

 

other

 

 

 

 

 

assets or

 

observable

 

unobservable

 

 

 

 

 

liabilities

 

inputs

 

inputs

 

 

 

 

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

Interest Rate Swaps

 

$

 

 

 

 

PSA

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

Interest Rate Swaps

 

 

 

(3,729

)

(3,729

)

PSA

 

 

 

(1,420

)

(1,420

)

 

 

$

 

 

(5,149

)

(5,149

)

 

The following table sets forth a reconciliation of changes in the fair value of derivatives that are based on significant unobservable inputs for the year ended December 31, 2011 (dollars in thousands).

 

Fair value of derivatives based on significant unobservable inputs at January 1, 2011

 

$

(7,713

)

Unrealized gains, net (1)

 

2,564

 

 

 

 

 

Fair value of derivatives based on significant unobservable inputs at December 31, 2011

 

$

(5,149

)

 

(Continued)

 

F-18



Table of Contents

 

CHAMBERS COGENERATION LIMITED PARTNERSHIP

 

Notes to Consolidated Financial Statements

 

December 31, 2011 and 2010

 

The following table sets forth the Partnership’s financial assets and liabilities and other fair value measurements made on a recurring basis by fair value hierarchy level at December 31, 2010:

 

 

 

Quoted

 

 

 

 

 

 

 

 

 

prices in

 

 

 

 

 

 

 

 

 

active

 

 

 

 

 

 

 

 

 

markets for

 

Significant

 

Significant

 

 

 

 

 

identical

 

other

 

other

 

 

 

 

 

assets or

 

observable

 

unobservable

 

 

 

 

 

liabilities

 

inputs

 

inputs

 

 

 

 

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

Interest Rate Swap

 

$

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

Interest Rate Swap

 

 

 

(7,713

)

(7,713

)

 

 

$

 

 

(7,713

)

(7,713

)

 

The following table sets forth a reconciliation of changes in the fair value of derivatives that are based on significant unobservable inputs for the year ended December 31, 2010 (dollars in thousands).

 

Fair value of derivatives based on significant unobservable inputs at January 1, 2010

 

$

(10,693

)

Unrealized losses (1)

 

2,980

 

 

 

 

 

Fair value of derivatives based on significant unobservable inputs at December 31, 2010

 

$

(7,713

)

 


(1)                     Unrealized gain on the interest swap is recognized in operating expenses in the consolidated statements of operations for the years ended December 31, 2010 and 2011. Unrealized loss on the PSA is recognized in revenue in the consolidated statement of operations for the year ended December 31, 2011. Each of the contracts contributing to the unrealized gain, net was still held by the Partnership at December 31, 2011.

 

The Partnership’s additional financial instruments consist of cash and cash equivalents, restricted cash, accounts receivable, other assets, accounts payable, due to affiliates, and accrued liabilities. These instruments approximate their fair values as of December 31, 2011 and 2010 due to their short-term nature.

 

The fair value of the Partnership’s bonds and long term loans payable approximates their carrying value due to the variable nature of the interest obligations thereon.

 

(Continued)

 

F-19



Table of Contents

 

CHAMBERS COGENERATION LIMITED PARTNERSHIP

 

Notes to Consolidated Financial Statements

 

December 31, 2011 and 2010

 

(9)                     Concentrations of Credit Risk

 

Credit risk is the risk of loss the Partnership would incur if counterparties fail to perform their contractual obligations. The Partnership primarily conducts business with counterparties in the energy industry. This concentration of counterparties may impact the Partnership’s overall exposure to credit risk in that its counterparties may be similarly affected by changes in economic, regulatory or other conditions. The Partnership mitigates potential credit losses by dealing, where practical, with counterparties that are rated investment grade by a major credit rating agency or have a history of reliable performance within the energy industry.

 

The Partnership’s credit risk is primarily concentrated with AE and DuPont. AE and DuPont provided 76% and 24%, respectively, of the Partnership’s revenues for the year ended December 31, 2011 and accounted for approximately 72% and 28%, respectively, of the Partnership’s trade accounts receivable balance at December 31, 2011. The Partnership has a coal supply contract with Consolidated Coal Company, Consolidated Pennsylvania Coal Company, Consolidated Coal Sales Company and Nineveh Coal Company (together Consol) who are responsible for providing 100% of the Partnership’s coal requirements through 2014. The Partnership’s credit risk is also impacted by the credit risk associated with its issuing bank of the bond letter of credit, BNP Paribas (previously Dexia Credit Locale).

 

The Partnership is exposed to credit-related losses in the event of nonperformance by counterparties to the Partnership’s interest rate swap agreements (notes 2 and 5). The Partnership does not obtain collateral or other security to support such agreements, but continually monitors its positions with, and the credit quality of, the counterparties to such agreements.

 

(10)              Commitments and Contingencies

 

(a)                      Power Purchase Agreement

 

The Partnership has a power purchase agreement (PPA) with AE for sales of the Facility’s power output during a 30-year period commencing in 1994. The PPA provides AE with dispatch rights over the Facility, with a contractual minimum of the equivalent of 3,500 hours of full load operation. The pricing structure provides for both capacity and energy payments. Capacity payments are fixed over the life of the contract. Energy payments are based on a contractual formula which is adjusted annually, as defined in the PPA, based on a utility coal index.

 

(b)                      Power Sales Agreement

 

The Partnership has entered into a supplemental power sales agreement (PSA) with AE which provides the Partnership self-dispatch rights for both undispatched PPA and excess energy as well as the right to market excess capacity. The pricing structure provides for both capacity and energy payments. The Partnership shares margins on the self-dispatched energy with AE based on hourly wholesale prices. Excess capacity is sold in PJM’s periodic auctions and the resulting revenue is shared between the Partnership and AE. The PSA expired on December 31, 2011. The Partnership has entered into a new PSA with AE in December 2011 that commences January 1, 2012 and expires on December 31, 2012.

 

(Continued)

 

F-20



Table of Contents

 

CHAMBERS COGENERATION LIMITED PARTNERSHIP

 

Notes to Consolidated Financial Statements

 

December 31, 2011 and 2010

 

(c)                       Steam and Electricity Sales Agreement

 

The Partnership has a steam and electricity sales agreement with DuPont (the DuPont Agreement) for a 30-year period commencing in 1994. Thereafter, the agreement will remain in effect unless terminated by either party upon at least 36-months’ notice. DuPont is required to purchase a minimum of 525,600,000 pounds of process steam per year and no minimum amount of electricity. The steam price is adjusted quarterly based on coal price index formulas defined in the agreement. The electricity price is also adjusted quarterly based on coal price index formulas and the AE average retail rate, as defined in the agreement. The Partnership has ongoing litigation with DuPont over the electric energy payment calculation. Amounts under dispute have not been reflected in revenues in the accompanying consolidated statements of operations.

 

(d)                      Fly Ash Disposal Agreement

 

As of November 1, 2011, the Partnership entered into an Ash Management Services Agreement (Ash Agreement) with HEI of PA, Inc. (HEI) for disposal of a minimum of 50,000 tons per calendar year (prorated for any partial year) of bottom ash and fly ash, including pugged ash and dry ash generated or produced at the facility. The contract has an initial term of ten (10) years commencing November 1, 2011 with three (3) additional five (5) year period automatic extensions unless either party gives written notice of nonextension to the other party twelve (12) months prior to the expiration of the then current term. Disposal pricing is adjusted annually, as defined in the Ash Agreement, beginning on the third anniversary date.

 

(e)                       Reverse Osmosis Boiler Feed Water System

 

In 2011, the Partnership entered into a capital lease agreement with Wells Fargo Equipment Finance, Inc (Wells Fargo) to lease a Reverse Osmosis Boiler Feed Water System (RO) that was designed, fabricated, and installed by Western Reserve Water Systems. The capital lease is for a term of 60 months commencing in July 2011. At the end of the lease term, the Partnership will have the option to purchase the RO for $1.

 

(f)                         Other

 

The Partnership experiences routine litigation in the normal course of business. Management is of the opinion that none of this routine litigation will have a material adverse effect on the Partnership’s consolidated financial position or results of operations.

 

(11)             Related Parties

 

(a)                      Operations and Maintenance Agreement

 

The Partnership is party to an Operations and Maintenance Agreement (O&M Agreement) with US Operating Services Company, LLC (USOSC), a wholly owned subsidiary of Calypso, for the operation and maintenance (O&M) of the Carneys Point Project. During the third quarter 2010, ownership of USOSC was acquired by Calypso from CELLC. The O&M Agreement expires on April 1, 2014. Thereafter, the O&M agreement will be automatically renewed for periods of five-years, until terminated by either party with 12-months prior notice. Compensation to OSC under the agreement includes (i) an annual base fee, of which a portion is subordinate to debt service and certain other costs, (ii) certain earned fees and bonuses based on the Facility’s performance and (iii)

 

(Continued)

 

F-21



Table of Contents

 

CHAMBERS COGENERATION LIMITED PARTNERSHIP

 

Notes to Consolidated Financial Statements

 

December 31, 2011 and 2010

 

reimbursement for certain costs, including payroll, supplies, spare parts, equipment, certain taxes, licensing fees, insurance and indirect costs expressed as a percentage of payroll and personnel costs. The fees are adjusted annually by a measure of inflation as defined in the agreement. If targeted Facility performance is not reached on a monthly basis, OSC may be required to pay liquidated damages to the Partnership. The Partnership incurred related expense of approximately $10,479,000 and $9,771,000 which is recorded in operations and maintenance in the consolidated statements of operations during the years ended December 31, 2011 and 2010, respectively. As of December 31, 2011 and 2010, the Partnership owed OSC $1,712,000 and $1,844,000, respectively, under the O&M Agreement, which is included in due to affiliates in the accompanying consolidated balance sheets. Under the terms of the agreement, approximately $560,000 and $350,000 of the amounts owed at December 31, 2011 and 2010, respectively, is subordinate to the debt service for the Partnership’s bonds payable and term loans.

 

USOSC is party to a Technical Services Agreement (TSA) with Power Services Company, LLC (PSC), a wholly owned subsidiary of Calypso, for services to assist in the day-to-day O&M of the Carneys Point Project. During the third quarter 2010, ownership of PSC was acquired by Calypso from CELLC.

 

PSC and NAES Corporation (NAES), an independent third-party O&M provider, are parties to a subcontract (NAES Agreement) for NAES to perform all tasks commercially and reasonably necessary to operate, maintain and manage the Company, including administering, managing, monitoring, and performing all of USOSC’s obligations and responsibilities of the O&M agreement between USOSC and the Partnership. The NAES agreement expires on August 23, 2015.

 

(b)                      Management Services Agreement

 

The Partnership has a Management Services Agreement (MSA) with PSC to provide day-to-day management and administration services to the Carneys Point Project through September 20, 2018. PSC and Power Plant Management Services, LLC (PPMS), an independent third party management services provider, are parties to a subcontract formalized under a Project Management and Administrative Services Agreement (PMAS) for the Carneys Point Project. The initial term of the PMAS agreement expires on August 23, 2015. The initial term automatically extends for successive two year periods or, if the Facility MSA is scheduled to terminate or expire pursuant to its own terms prior to the expiration of any two year period, a shorter period equal to the time remaining under the Facility MSA unless either party notifies the other party at least three months prior to expiration of the then existing term. Under the PMAS, PPMS provides overall project management, administrative, and related support services as may be necessary to the Partnership and oversees the execution of the NAES agreement on behalf of the Partnership. Compensation to PSC under the agreement includes a monthly fee of $50,000, and PMAS pass-through costs. Payments to PSC of $1,292,000 and $1,731,000 are included in operations and maintenance in the consolidated statements of operations in 2011 and 2010, respectively. As of December 31, 2011 and 2010, the Partnership owed PSC approximately $50,000 for each of 2011 and 2010, which is included in due to affiliates in the accompanying consolidated balance sheets and is subordinate to debt service for the Partnership’s bonds payable and term loans.

 

(Continued)

 

F-22



Table of Contents

 

CHAMBERS COGENERATION LIMITED PARTNERSHIP

 

Notes to Consolidated Financial Statements

 

December 31, 2011 and 2010

 

(12)              Restatement of Previously Issued Financial Statements

 

Following a review of its accounting policies, the Partnership determined that it had incorrectly calculated depreciation expense of the Facility. The Partnership has a ground lease for the Facility with a term of 30 years from the start of the lease with no renewal options. The lease term began with the commencement of commercial operations of the Facility in 1994. The Partnership had been depreciating the Facility over an EUL of 60 years. The Partnership should have been depreciating the Facility over the lesser of its EUL or the term of the ground lease. Therefore, the Partnership understated previously reported depreciation expense and overstated the carrying value of its property and equipment. Additionally, the Partnership determined that it had incorrectly calculated its estimate of the fair value of asset retirement obligations and related accretion and depreciation expense. As a result, the Partnership restated its financial statements for the years ended December 31, 2010 and 2009. These non-cash adjustments had no material impact on the Partnership’s previously reported cash flows, cash position or revenues in any period, or on the Partnership’s compliance with any of its debt covenants.

 

(Continued)

 

F-23



Table of Contents

 

CHAMBERS COGENERATION LIMITED PARTNERSHIP

 

Notes to Consolidated Financial Statements

 

December 31, 2011 and 2010

 

The impact of the corrections to 2010 previously issued financial statements is as follows:

 

 

 

Amount

 

 

 

 

 

 

 

previously

 

 

 

As

 

(in thousands of dollars)

 

reported

 

Adjustments

 

Restated

 

Assets

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

53

 

 

53

 

Restricted cash

 

8,292

 

 

8,292

 

Accounts receivable

 

15,195

 

 

15,195

 

Inventory

 

8,201

 

 

8,201

 

Other assets

 

469

 

 

469

 

 

 

 

 

 

 

 

 

Total current assets

 

32,210

 

 

32,210

 

 

 

 

 

 

 

 

 

Construction in Progress

 

9

 

 

9

 

Property and equipment, net of accumulated depreciation of $288,412 (previously reported as $189,541)

 

350,800

 

(95,372

)

255,428

 

Deferred financing costs, net of accumulated amortization of $5,182

 

1,648

 

 

1,648

 

 

 

 

 

 

 

 

 

Total assets

 

384,667

 

(95,372

)

289,295

 

 

 

 

 

 

 

 

 

Liabilities and Partners’ Capital

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

Current portion on long-term debt

 

$

28,235

 

 

28,235

 

Accounts payable

 

4,670

 

 

4,670

 

Due to affiliates

 

1,887

 

 

1,887

 

Accrued liabilities

 

1,822

 

 

1,822

 

Interest rate swap

 

4,470

 

 

4,470

 

 

 

 

 

 

 

 

 

Total current liabilities

 

41,084

 

 

41,084

 

 

 

 

 

 

 

 

 

Long-term debt

 

159,376

 

 

159,376

 

Interest rate swap

 

3,243

 

 

3,243

 

Asset retirement obligation

 

2,107

 

8,250

 

10,357

 

 

 

 

 

 

 

 

 

Total liabilities

 

205,810

 

8,250

 

214,060

 

 

 

 

 

 

 

 

 

Partners’ capital

 

 

 

 

 

 

 

General partners

 

178,549

 

(102,585

)

75,964

 

Limited partner

 

1,804

 

(1,037

)

767

 

Accumulated other comprehensive loss

 

(1,496

)

 

(1,496

)

 

 

 

 

 

 

 

 

Total partners’ capital

 

178,857

 

(103,622

)

75,235

 

 

 

 

 

 

 

 

 

Total liabilities and partners’ capital

 

384,667

 

(95,372

)

289,295

 

 

(Continued)

 

F-24



Table of Contents

 

CHAMBERS COGENERATION LIMITED PARTNERSHIP

 

Notes to Consolidated Financial Statements

 

December 31, 2011 and 2010

 

 

 

Amount

 

 

 

 

 

 

 

previously

 

 

 

As

 

(in thousands of dollars)

 

reported

 

Adjustments

 

Restated

 

 

 

 

 

 

 

 

 

Operating revenues

 

 

 

 

 

 

 

Energy

 

$

62,440

 

 

62,440

 

Capacity

 

59,996

 

 

59,996

 

Steam

 

16,443

 

 

16,443

 

 

 

 

 

 

 

 

 

Total operating revenues

 

138,879

 

 

138,879

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

Fuel

 

59,129

 

 

59,129

 

Operations and maintenance

 

25,910

 

 

25,910

 

General and administrative

 

5,824

 

446

 

6,270

 

Depreciation

 

8,173

 

10,212

 

18,385

 

 

 

 

 

 

 

 

 

Total operating expenses

 

99,036

 

10,658

 

109,694

 

 

 

 

 

 

 

 

 

Operating income

 

39,843

 

(10,658

)

29,185

 

 

 

 

 

 

 

 

 

Other income (expense)

 

 

 

 

 

 

 

Interest income

 

1

 

 

1

 

Miscellaneous income

 

133

 

 

133

 

Unrealized gain on interest rate swaps

 

2,980

 

 

2,980

 

Interest expense

 

(11,747

)

 

(11,747

)

 

 

 

 

 

 

 

 

 

Net income

 

$

31,210

 

(10,658

)

20,552

 

 

(Continued)

 

F-25



Table of Contents

 

CHAMBERS COGENERATION LIMITED PARTNERSHIP

 

Notes to Consolidated Financial Statements

 

December 31, 2011 and 2010

 

 

 

 

 

 

 

 

 

Restated

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

Restated

 

Restated

 

Restated

 

Other

 

 

 

 

 

General

 

Limited

 

Comprehensive

 

Comprehensive

 

Restated

 

(in thousands of dollars)

 

Partners

 

Partner

 

Income

 

Loss

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Partners’ capital at December 31, 2009 (as restated)

 

$

37,909

 

25,270

 

 

 

(2,784

)

60,395

 

Conversion of partnership interest (as previously reported)

 

64,652

 

(64,652

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restatement adjustment

 

(37,843

)

37,843

 

 

 

 

 

 

 

Net income (as previously reported)

 

27,140

 

4,070

 

31,210

 

 

 

31,210

 

Restatement adjustment

 

(8,964

)

(1,694

)

(10,658

)

 

 

(10,658

)

Amortization of previously deferred loss on interest rate swap agreement

 

 

 

 

 

1,288

 

1,288

 

1,288

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive income

 

 

 

 

 

$

21,840

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital distributions

 

(6,930

)

(70

)

 

 

 

 

(7,000

)

Partners’ capital at December 31, 2010 (as restated)

 

$

75,964

 

767

 

 

 

$

(1,496

)

75,235

 

 

(Continued)

 

F-26



Table of Contents

 

CHAMBERS COGENERATION LIMITED PARTNERSHIP

 

Notes to Consolidated Financial Statements

 

December 31, 2011 and 2010

 

 

 

Amount

 

 

 

 

 

 

 

previously

 

 

 

As

 

(in thousands of dollars)

 

reported

 

Adjustments

 

Restated

 

 

 

 

 

 

 

 

 

Cash flows from operating activities

 

 

 

 

 

 

 

Net income

 

$

31,210

 

(10,658

)

20,552

 

Noncash items included in net income:

 

 

 

 

 

 

 

Amortization of deferred interest rate swap losses

 

1,288

 

 

1,288

 

Unrealized gain on interest rate swaps

 

(2,980

)

 

(2,980

)

Depreciation

 

8,173

 

10,212

 

18,385

 

Amortization of deferred financing costs

 

225

 

 

225

 

Accretion of asset retirement obligation

 

109

 

446

 

555

 

Loss on disposal of assets

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

(3,230

)

 

(3,230

)

Inventory

 

(966

)

 

(966

)

Emission allowances

 

2,540

 

 

2,540

 

Other assets

 

773

 

 

773

 

Accounts payable

 

(736

)

 

(736

)

Due to affiliates

 

103

 

 

103

 

Accrued liabilities

 

160

 

 

160

 

 

 

 

 

 

 

 

 

Net cash provided by operating activities

 

36,669

 

 

36,669

 

 

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

 

(Decrease) increase in restricted cash

 

(1,987

)

 

(1,987

)

Proceeds from the sale of assets

 

 

 

 

Capital expenditures

 

(100

)

 

(100

)

 

 

 

 

 

 

 

 

Net cash (used in) providing by investing activities

 

(2,087

)

 

(2,087

)

 

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

 

 

Repayments of long-term debt

 

(27,628

)

 

(27,628

)

Capital distributions

 

(7,000

)

 

(7,000

)

 

 

 

 

 

 

 

 

Cash used in financing activities

 

(34,628

)

 

(34,628

)

 

 

 

 

 

 

 

 

Net decrease in cash and cash equivalents

 

(46

)

 

(46

)

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

 

 

 

 

 

Beginning of period

 

99

 

 

99

 

 

 

 

 

 

 

 

 

 

End of period

 

$

53

 

 

53

 

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information

 

 

 

 

 

 

 

Cash paid for interest

 

$

10,312

 

 

10,312

 

 

F-27


 


Table of Contents

 

Chambers Cogeneration Limited Partnership

Consolidated Financial Statements

December 31, 2010 and 2009

 

F-28



Table of Contents

 

Chambers Cogeneration Limited Partnership

Index

December 31, 2010 and 2009

 

 

 

Page(s)

 

 

 

Report of Independent Auditors

 

F-30

 

 

 

Consolidated Financial Statements

 

 

 

 

 

Balance Sheets

 

F-31

 

 

 

Statements of Operations

 

F-32

 

 

 

Statements of Changes in Partners’ Capital and Comprehensive Income

 

F-33

 

 

 

Statements of Cash Flows

 

F-34

 

 

 

Notes to Financial Statements

 

F-35–F-56

 

F-29



Table of Contents

 

Report of Independent Auditors

 

To the Board of Control of
Chambers Cogeneration Limited Partnership:

 

In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of operations, of changes in partners’ capital and comprehensive income, and of cash flows present fairly, in all material respects, the financial position of Chambers Cogeneration Limited Partnership and its subsidiaries at December 31, 2010, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.  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 of these statements in accordance with auditing standards generally accepted in the United States of America.  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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation.  We believe that our audit provides a reasonable basis for our opinion.

 

As discussed in Note 2, the Company has restated its financial statements for the years ended December 31, 2010 and 2009 to correct errors.

 

/s/ PricewaterhouseCoopers LLP

 

Philadelphia, Pennsylvania

 

March 16, 2011, except for the Restatement of Previously Issued Financial Statements section of Note 2, which is as of March 30, 2012

 

F-30



Table of Contents

 

Chambers Cogeneration Limited Partnership

Consolidated Balance Sheets

December 31, 2010 and 2009

 

(in thousands of dollars)

 

Restated
2010

 

Restated
2009

 

 

 

 

 

 

 

Assets

 

 

 

 

 

Current assets

 

 

 

 

 

Cash and cash equivalents

 

$

53

 

$

99

 

Restricted cash

 

8,292

 

6,305

 

Accounts receivable

 

15,195

 

11,965

 

Inventory

 

8,201

 

7,235

 

Emission allowances

 

 

2,540

 

Other assets

 

469

 

1,162

 

Total current assets

 

32,210

 

29,306

 

Construction in Progress

 

9

 

 

Property and equipment, net of accumulated depreciation of $288,412 and $270,027, respectively

 

255,428

 

273,715

 

Deferred financing costs, net of accumulated amortization of $5,182 and $4,957 respectively

 

1,648

 

1,873

 

Other assets

 

 

80

 

Total assets

 

$

289,295

 

$

304,974

 

Liabilities and Partners’ Capital

 

 

 

 

 

Current liabilities

 

 

 

 

 

Current portion of long-term debt

 

$

28,235

 

$

27,628

 

Accounts payable

 

4,670

 

5,406

 

Due to affiliates

 

1,887

 

1,784

 

Accrued liabilities

 

1,822

 

1,655

 

Interest rate swap

 

4,470

 

5,851

 

Total current liabilities

 

41,084

 

42,324

 

Long-term debt

 

159,376

 

187,611

 

Interest rate swap

 

3,243

 

4,842

 

Asset retirement obligation

 

10,357

 

9,802

 

Total liabilities

 

214,060

 

244,579

 

Commitments and contingencies

 

 

 

 

 

Partners’ capital

 

 

 

 

 

General partners

 

75,964

 

37,909

 

Limited partner

 

767

 

25,270

 

Accumulated other comprehensive loss

 

(1,496

)

(2,784

)

Total partners’ capital

 

75,235

 

60,395

 

Total liabilities and partners’ capital

 

$

289,295

 

$

304,974

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F-31



Table of Contents

 

Chambers Cogeneration Limited Partnership

Consolidated Statements of Operations

Years Ended December 31, 2010 and 2009

 

 

 

Restated

 

Restated

 

(in thousands of dollars)

 

2010

 

2009

 

 

 

 

 

 

 

Operating revenues

 

 

 

 

 

Energy

 

$

62,440

 

$

52,727

 

Capacity

 

59,996

 

59,665

 

Steam

 

16,443

 

14,266

 

Total operating revenues

 

138,879

 

126,658

 

Operating expenses

 

 

 

 

 

Fuel

 

59,129

 

53,625

 

Operations and maintenance

 

25,910

 

34,322

 

General and administrative

 

6,270

 

5,397

 

Depreciation

 

18,385

 

18,245

 

Loss on disposal of assets

 

 

1,030

 

Total operating expenses

 

109,694

 

112,619

 

Operating income

 

29,185

 

14,039

 

Other income (expense)

 

 

 

 

 

Interest income

 

1

 

3

 

Miscellaneous income

 

133

 

 

Unrealized gain on interest rate swaps