Item 1. Business
Salton Sea Funding Corporation ("Funding Corporation") is a special purpose Delaware corporation, an indirect wholly-owned subsidiary of CE Generation, LLC ("CE Generation"), formed for the sole purpose of issuing securities in its individual capacity as principal and as agent acting on behalf of the Guarantors (as defined below). The principal executive office of the Funding Corporation is located at 302 South 36th Street, Suite 400-A, Omaha, Nebraska 68131 and its telephone number is (402) 341-4500.
CE Generation owns all of the capital stock of Magma Power Company ("Magma") which in turn owns all of the outstanding capital stock of Funding Corporation. Through its subsidiaries, CE Generation is primarily engaged in the development, ownership and operation of environmentally responsible independent power production facilities in the United States utilizing geothermal and natural gas resources. CE Generation has an aggregate net ownership interest of 756 MW of electrical generating capacity in power plants in operation in the United States, which have an aggregate net capacity of 816 MW (including its interests in the Salton Sea Projects and the Partnership Projects as defined below).
All of the outstanding stock of Magma was contributed by MidAmerican Energy Holdings Company ("MidAmerican") to CE Generation in February 1999. In March 1999, MidAmerican sold a 50% interest in CE Generation to El Paso CE Generation Holding Company, which was merged into El Paso Merchant Energy Holding Company on December 31, 2000, an affiliate of El Paso Corporation ("El Paso").
Magma directly or indirectly owns all of the capital stock of or partnership interests in the Funding Corporation and the Guarantors, except for CalEnergy Minerals LLC ("Minerals LLC") and Salton Sea Minerals Corp., which are owned by MidAmerican. The Guarantors are comprised of the Salton Sea Guarantors, the Partnership Guarantors and the Royalty Guarantor.
The Salton Sea Guarantors include Salton Sea Brine Processing L.P. ("SSBP"), Salton Sea Power Generation L.P. ("SSPG") Salton Sea Power L.L.C. ("Power LLC") and Fish Lake Power LLC ("Fish Lake") (collectively, the "Salton Sea Guarantors"), which own five operating geothermal power plants located in Imperial Valley, California known as Salton Sea I, Salton Sea II, Salton Sea III, Salton Sea IV and Salton Sea V (such projects known as the "Salton Sea Projects").
The Partnership Guarantors include the Vulcan/BN Geothermal Power Company ("Vulcan"), Elmore, L.P. ("Elmore"), Leathers, L.P. ("Leathers"), Del Ranch, L.P. ("Del Ranch") and CE Turbo LLC ("Turbo LLC"), each of which owns an operating geothermal power plant located in Imperial Valley, California known as the Vulcan Project, the Elmore Project, the Leathers Project, the Del Ranch Project and CE Turbo Project, respectively (together with the Zinc Recovery Project, the "Partnership Projects"). The Partnership Guarantors also include CalEnergy Minerals LLC ("Minerals LLC"), which is constructing a zinc recovery project in the Imperial Valley, California. Finally, the Partnership Guarantors include CalEnergy Operating Corporation ("CEOC"), Vulcan Power Company ("VPC"), San Felipe Energy Company ("San Felipe"), Conejo Energy Company ("Conejo"), Niguel Energy Company ("Niguel"), VPC Geothermal LLC ("VPCG"), Salton Sea Minerals Corp. and CE Salton Sea Inc. VPC and VPCG, collectively own 100% of the partnership interests in Vulcan. CEOC and Niguel, San Felipe and Conejo, collectively own 90% partnership interests in each of Elmore, Leathers and Del Ranch, respectively. Salton Sea Minerals Corporation owns 100% of CalEnergy Minerals LLC. CE Salton Sea Inc. owns Power LLC and Turbo LLC.
Magma owns all of the remaining 10% interests in each of Elmore, Leathers and Del Ranch. CEOC is entitled to receive from Magma, as payment for certain data and services provided by CEOC, all of the partnership distributions Magma receives with respect to its 10% ownership interests in each of the Elmore, Leathers and Del Ranch Projects and Magma's special distributions equal to 4.5% of total energy revenues from the Leathers Project.
Salton Sea Royalty LLC ("SSRC" or the "Royalty Guarantor") is the Royalty Guarantor. SSRC received an assignment of certain fees and royalties ("Royalties") paid by three Partnership Projects, Elmore, Leathers and Del Ranch.
CEOC currently operates each of the Salton Sea Projects and the Partnership Projects. Affiliates of Magma control, through a variety of fee, leasehold, and royalty interests, rights to geothermal resources for power production in the Salton Sea Known Geothermal Resource Area ("SSKGRA"). The Funding Corporation believes that such resources will be sufficient to operate the Salton Sea Projects and the Partnership Projects at contract capacity under their respective power purchase agreements through the final maturity date of the Securities.
The principal executive offices of the Salton Sea Guarantors are located at 302 South 36th Street, Suites 400-B, 400-D, 400-E, 400-K and 400-N, Omaha, Nebraska 68131. The principal executive offices of the Partnership Guarantors is 302 South 36th Street, Suite 400-F, 400-G, 400-I, 400-J, 400-L, 400-M, 400-N, 400-O, 400-P, 400-Q, 400-R, 400-S, 400-T, and 400-U, Omaha, Nebraska 68131. The principal executive office of the Royalty Guarantor is 302 South 36th Street, Suite 400-H, Omaha, Nebraska 68131. The Salton Sea Guarantors, Partnership Guarantors and the Royalty Guarantor are sometimes referred to collectively herein as the "Guarantors".
The Projects
Set forth below is a table describing certain characteristics of the Salton Sea Projects and the Partnership Projects, and the Guarantors' collective interests therein. All the projects are located in the Imperial Valley, California. The Salton Sea I-IV, Elmore, Leathers, Del Ranch and Vulcan projects each contract to sell power to Southern California Edison Company ("Edison").
(1) Power capacity varies with operating and reservoir conditions. (2) Facility Capacities are measured in MW; zinc recovery project capacity is measured in estimated tons per year production.
Salton Sea Projects
The Salton Sea Guarantors collectively own the five operating Salton Sea Projects with an aggregate net generating capacity of approximately 168.4 MW. Four of the operating Salton Sea Projects have executed long term power purchase agreements, providing for the sale of capacity and energy to Edison.
The Salton Sea II and Salton Sea III power contracts provide for fixed price capacity payments for the life of the contract, and fixed price energy payments for the first 10 years. The fixed price energy periods expired on February 13, 1999 for Salton Sea III and on April 4, 2000 for Salton Sea II. Thereafter, the energy payments paid by Edison are based on Edison's then-current, published short-run avoided cost of energy.
Salton Sea I and Salton Sea IV have negotiated contracts with Edison. The Salton Sea I contract provides for a capacity payment and energy payment for the life of the contract. Both payments are based upon an initial value that is subject to quarterly adjustment by reference to various inflation-related indices. The Salton Sea IV contract also provides for fixed price capacity payments for the life of the contract. Approximately 56% of the kWhs are sold under the Salton Sea IV PPA at a fixed energy price, which is subject to quarterly adjustment by reference to various inflation-related indices, through June 20, 2017 (and at Edison's avoided cost of energy thereafter), while the remaining 44% of the Salton Sea IV kWhs are sold according to a 10-year fixed price schedule followed by payments based on a modified avoided cost of energy for the succeeding 5 years and at Edison's avoided cost of energy thereafter.
Salton Sea Unit V Project, which commenced operations in the third quarter of 2000, will sell approximately one-third of its net output to the Zinc Recovery Project (defined below) which is is expected to commence operations in mid-2001. The remainder of the Salton Sea Unit V output in 2000 was sold through other market transactions.
Salton Sea I through V Projects operated at a combined facility capacity factor of 94.2% in 1998, 91.9% in 1999 and 76.1% in 2000. The decrease in 2000 is due to the extended overhauls that took place in 2000.
Partnership Projects
All of the Partnership Projects, except the CE Turbo Project and the Zinc Recovery Project, have executed Standard Agreements (called "SO4 Agreements") for the sale of capacity and energy to Edison which contracts provide for fixed price capacity payments for the life of the contract and fixed price energy payments for the first 10 years. The fixed price energy periods for the Vulcan Project, the Del Ranch Project, the Elmore Project and the Leathers Project expired on February 9, 1996, December 31, 1998, December 31, 1998 and December 31, 1999, respectively. Thereafter, the energy payments paid by Edison are based on Edison's avoided cost of energy.
The Turbo Project, which commenced commercial operation in the third quarter of 2000, sold its output through other market transactions. The Turbo Project may sell its output to the Zinc Recovery Project (defined below), which is expected to commence operations in mid-2001.
On January 17, 2001, Salton Sea Power and CE Turbo entered into an agreement to sell available power from Salton Sea Unit V and CE Turbo to El Paso Merchant Energy, L.P. ("EPME"). Under the terms of the agreement, at the option of Salton Sea Power and CE Turbo, EPME will purchase all available power from Salton Sea Unit V and CE Turbo based on day ahead price quotes received from EPME.
The Partnership Projects operated at a combined facility capacity factor of 101.3% in 1998, 103.4% in 1999, and 98.8% in 2000.
Zinc Recovery Project
Minerals LLC, one of the Partnership Guarantors, is constructing the Zinc Recovery Project which will recover zinc from the geothermal brine (the "Zinc Recovery Project"). Facilities are being installed near the Salton Sea & Partnership Project sites to extract a zinc chloride solution from the geothermal brine through an ion exchange process. This solution will be
transported to a central processing plant where zinc ingots will be produced through solvent extraction, electrowinning and casting processes. The Zinc Recovery Project is designed to have a capacity of approximately 30,000 tons per year and is scheduled to commence commercial operations in mid-2001. In September 1999, Minerals LLC entered into a sales agreement whereby all high grade zinc produced by the Zinc Recovery Project will be sold to Cominco, Ltd. The initial term of the agreement expires in December 2005.
The Zinc Recovery Project is being constructed by Kvaerner U.S. Inc. ("Kvaerner") pursuant to a date certain, fixed-price, turnkey engineering, procurement and construction contract (the "Zinc Recovery Project EPC Contract"). Kvaerner is a wholly-owned indirect subsidiary of Kvaerner ASA, an internationally recognized engineering and construction firm experienced in the metals, mining and processing industries. The payment obligations of Kvaerner, including payment of liquidated damages of up to 20% of the contract price for certain delays or failures to meet performance guarantees, are secured by a letter of credit issued by Union Europeenne de CIC (or another financial institution rated "A" or better by S&P or "A2" or better by Moody's and otherwise acceptable to Minerals LLC) in an initial aggregate amount equal to $29.6 million.
Royalty Projects
The Royalty Guarantor has received an assignment from Magma of certain payments ("Royalties") received from the Leathers, Del Ranch and Elmore Projects in exchange for the provision to those projects of the rights to use certain geothermal resources. Substantially all of the assigned Royalties are based on a percentage of energy and capacity revenues of the respective projects. Pursuant to the assignment, the Royalty Guarantor is entitled to receive the aggregate percentages of such project's energy and capacity revenues as illustrated in the chart below. The Partnership Guarantors are also entitled to receive Royalties from the Partnership Projects as illustrated in the chart below. Royalties are subject to netting and reduction from time to time to reflect various operating costs, as reflected in the financial statements herein. All such Royalties (other than the various operating costs, as reflected in the financial statements) are payable from revenues which will constitute Partnership Guarantors collateral.
Terms of the Securities
The Securities
The Funding Corporation is a special purpose Delaware corporation formed for the sole purpose of issuing securities in our individual capacity as principal and as agent acting on behalf of our affiliates which guarantee the Securities.
The Funding Corporation has completed the following issuances and exchanges of securities (together, the "Securities"):
* On July 21, 1995, the Funding Corporation issued (1) $232,750,000 of 6.69% Senior Secured Series A Notes Due 2000 (the "Series A Securities"), (2) $133,000,000 of 7.37% Senior Secured Series B Bonds Due 2005 (the "Series B Securities") and (3) $109,250,000 of 7.84% Senior Secured Series C Bonds Due 2010 (the "Series C Securities"). The Series A Securities were repaid in full on May 30, 2000.
* On June 20, 1996, the Funding Corporation issued (1) $70,000,000 of our 7.02% Senior Secured Series D Bonds Due 2000 (the "Series D Securities") and (2) $65,000,000 of our 8.30% Senior Secured Series E Bonds Due 2011 (the "Series E Securities"). The Series D Securities were repaid in full on May 30, 2000.
* On October 13, 1998, the Funding Corporation issued $285,000,000 of our 7.475% Senior Secured Series F Bonds Due 2018 (the "Series F Securities").
The Securities have received ratings of "Caa2" by Moody's Investors Service, Inc. ("Moody's") and "BBB-" by Standard & Poor's Ratings Group ("S&P"). The Securities will be equivalent in right of payment and in the right to share in the collateral. On December 31, 2000, the aggregate principal amount of all Securities outstanding was $544 million.
The net proceeds received by the Funding Corporation from the issuance of the Securities in the three separate offerings (after deduction of certain transaction costs) were approximately $884 million and were loaned to the Guarantors in return for the issuance of certain notes (the "Project Notes"), and were used for the following purposes: (a) approximately $253 million to repay certain non-recourse indebtedness of MidAmerican incurred in connection with the Magma Acquisition; (b) approximately $102 million to refinance existing indebtedness of the Salton Sea Projects; (c) approximately $115 million to finance the Salton Sea IV Expansion, (d) approximately $96 million to refinance all of the existing project-level indebtedness under credit agreements of the Partnership Project Companies; (e) approximately $15 million to fund the Capital Expenditure Fund to be used for certain capital improvements to the Partnership Projects and the Salton Sea Projects, (f) approximately $23 million to fund a portion of the purchase price payable by the Initial Partnership Guarantors for the Acquired Partnership Companies, and (g) approximately $280 million to fund in part construction of the Zinc Recovery Project, CE Turbo Project and Salton Sea V Project, as well as associated capital improvements and finance costs.
There is no existing trading market for the Securities and there can be no assurance regarding the future development of such a market for the Securities or the ability of holders of the Securities to sell their Securities or the price at which such holders may be able to sell their Securities. If such a market were to develop, future trading prices will depend on many factors, including, among other things, prevailing interest rates, the operating results of the Funding Corporation and the Guarantors, and the market for similar securities. The Funding Corporation does not intend to apply for listing or quotation of the Securities on any securities exchange or stock market.
Structure of and Collateral for the Securities
The Funding Corporation will make payments on the Securities with the principal of and interest paid on promissory notes issued by the Guarantors to the Funding Corporation (the "Project Notes"). The Securities are secured by a pledge of our capital stock and are guaranteed by the Guarantors. These guarantees are secured by:
* in the case of the guarantee issued by the Salton Sea Guarantors, by a lien on substantially all of the assets of the Salton Sea Guarantors and a pledge of the equity interests in the Salton Sea Guarantors;
* in the case of the guarantee issued by the Partnership Guarantors, by a lien on substantially all of the assets of the Partnership Project Companies, a lien on the equity cash flows and royalties of the Initial Partnership Guarantors and a pledge of the stock of and other equity interests in the Partnership Guarantors; and
* in the case of the guarantee issued by the Royalty Guarantor, by a lien on all royalties paid to the Royalty Guarantor and a pledge of the capital stock of the Royalty Guarantor.
The guarantees issued by the Salton Sea Guarantors are unlimited. However, the guarantees issued by the Partnership Guarantors and the Royalty Guarantor are limited to the following amounts:
* for any Initial Partnership Guarantor or the Royalty Guarantor, the total equity cash flows and royalties received by the Guarantor, minus, without duplication, (1) any royalties paid, (2) all operating and maintenance costs, (3) all capital expenditures and (4) debt service;
* for any Additional Partnership Guarantor, the total revenues received by the Guarantor, minus, without duplication (1) any royalties paid, (2) all operating and maintenance costs, (3) all capital expenditures and (4) debt service.
The structure has been designed to cross-collateralize cash flows from each Guarantor without cross-collateralizing all of the Guarantors' assets. Therefore, if a Guarantor defaults under its guarantee or its promissory note issued to the Funding Corporation, without causing a payment default on the Securities, then the trustee may direct the collateral agent to exercise remedies only with respect to the collateral securing that Guarantor's obligations. If, however, the default causes a payment default on the Securities, then the trustee may accelerate the Securities and direct the collateral agent to exercise remedies against all of the collateral and, if different, the collateral pledged by the Salton Sea Guarantors.
The Funding Corporation is a special purpose finance subsidiary of Magma. Its ability to make payments on the Securities will be entirely dependent on the Guarantors' performance of their obligations under the Project Notes and the Guarantees. As is common in non-recourse, project finance structures, the assets and cash flows of the Guarantors are the sole source of repayment of the Project Notes and the Guarantees. The Salton Sea Guarantors conduct no other business and own no other significant assets except those related to the ownership or operation of the Salton Sea Projects. The Partnership Guarantors conduct no business other than owning their respective ownership interests in the Partnership Projects and providing operation, maintenance, administrative and technical services for Magma, the Salton Sea Projects and the Partnership Projects. The Royalty Guarantor has been organized solely to receive royalty payments owed by the Partnership Projects and conducts no other business and owns no other assets. In the event of a default by any Guarantor under a Project Note, Credit Agreement or Guarantee, there is no assurance that the exercise of remedies under such Project Note, Credit Agreement or Guarantee, including foreclosure on the assets of such Guarantor, would provide sufficient funds to pay such Guarantor's obligation under the Project Notes and the Guarantees. Moreover, unless such default causes a payment default under the Indenture (in which case remedies may be exercised against the defaulting Guarantor's and the Salton Sea Guarantors' assets), remedies may be exercised only against the assets of the defaulting Guarantors. No shareholders, partners or affiliates of the Funding Corporation (other than the Guarantors) and no directors, officers or employees of the Funding Corporation or the Guarantors will guarantee or be in any way liable for the payment of the Securities, the Project Notes or the Guarantees except the guarantee by MidAmerican for the direct and indirect owners of the Zinc Recovery Project of a specified portion of the scheduled debt service on the Series F Securities including the current principal amount of approximately $140.5 million and associated interest. In addition, the obligations of the Partnership Guarantors and the Royalty Guarantor under the Guarantees are limited to the available cash flows of such Guarantors. As a result, payment of amounts owed pursuant to the Project Notes, the Guarantees and the Securities is dependent upon the availability of sufficient revenues and royalty payments from the Guarantors' businesses or holdings, after the payment of operating expenses and the satisfaction of certain other obligations.
Payment of Interest and Principal
The interest payment dates for the Securities are May 30 and November 30.
The remaining balance of the $133,000,000 initial principal amount of the 7.37% Series B Securities due May 30, 2005 is payable in semiannual installments as follows:
PAYMENT DATE PERCENTAGE OF INITIAL PRINCIPAL AMOUNT PAYABLE
May 30, 2001 8.0360902256% November 30, 2001 8.0360902256% May 30, 2002 8.5330827068% November 30, 2002 8.5330827068% May 30, 2003 5.6390977444% November 30, 2003 5.6390977444% May 30, 2004 7.5781954887% November 30, 2004 7.5781954887% May 30, 2005 16.1684210526%
The $109,250,000 initial principal amount of the 7.84% Series C Securities due May 30, 2010 is payable in semiannual installments, commencing May 30, 2003, as follows:
PAYMENT DATE PERCENTAGE OF PRINCIPAL AMOUNT PAYABLE
May 30, 2003 3.3116704805% November 30, 2003 3.3116704805% May 30, 2004 1.6558352403% November 30, 2004 1.6558352403% May 30, 2005 0.8283752860% November 30, 2005 0.8283752860% May 30, 2006 9.8572082380% November 30, 2006 9.8572082380% May 30, 2007 9.8425629291% November 30, 2007 9.8425629291% May 30, 2008 10.0851258581% November 30, 2008 10.0851258581% May 30, 2009 10.0118993135% November 30, 2009 10.0118993135% May 30, 2010 8.8146453090%
The remaining balance of the $65,000,000 initial principal amount of the 8.30% Series E Securities due May 30, 2011 is payable in semiannual installments as follows:
PAYMENT DATE PERCENTAGE OF INITIAL PRINCIPAL AMOUNT PAYABLE
May 30, 2001 0.7692307692% November 30, 2001 0.7692307692% May 30, 2002 1.2307692308% November 30, 2002 1.2307692308% May 30, 2003 2.3076923077% November 30, 2003 2.3076923077% May 30, 2004 2.5000000000% November 30, 2004 2.5000000000% May 30, 2005 2.6923076923% November 30, 2005 2.6923076923% May 30, 2006 1.9230769231% November 30, 2006 1.9230769231% May 30, 2007 1.9230769231% November 30, 2007 1.9230769231% May 30, 2008 2.6923076923% November 30, 2008 2.6923076923% May 30, 2009 2.5000000000% November 30, 2009 2.5000000000% May 30, 2010 10.3846153846% November 30, 2010 10.3846153846% May 30, 2011 17.4184615384%
The $285,000,000 initial principal amount of the 7.475% Series F Securities due November 30, 2018 is payable in semiannual installments, commencing May 30, 2001 as follows:
PAYMENT DATE PERCENTAGE OF PRINCIPAL AMOUNT PAYABLE
May 30, 2001 0.225% November 30, 2001 0.225% May 30, 2002 0.750% November 30, 2002 0.750% May 30, 2003 0.500% November 30, 2003 0.500% May 30, 2004 0.625% November 30, 2004 0.625% May 30, 2005 0.625% November 30, 2005 0.625% May 30, 2006 0.650% November 30, 2006 0.650% May 30, 2007 0.375% November 30, 2007 0.375% May 30, 2008 0.875% November 30, 2008 0.875% May 30, 2009 0.375% November 30, 2009 0.375% May 30, 2010 1.250% November 30, 2010 1.250% May 30, 2011 3.000% November 30, 2011 3.000% May 30, 2012 5.750% November 30, 2012 5.750% May 30, 2013 5.075% November 30, 2013 5.075% May 30, 2014 6.000% November 30, 2014 6.000% May 30, 2015 6.550% November 30, 2015 6.550% May 30, 2016 7.050% November 30, 2016 7.050% May 30, 2017 6.875% November 30, 2017 6.875% May 30, 2018 3.450% November 30, 2018 3.450%
Priority of Payments
All revenues received by the Salton Sea Guarantors from the Salton Sea Projects, all revenues received by the Partnership Guarantors and all Royalties received by the Royalty Guarantor shall be paid into a Revenue Fund maintained by the depository agent. Amounts paid into the Revenue Fund shall be distributed in the following order of priority: (a) to pay operating and maintenance costs of the Guarantors; (b) to pay certain administrative costs of the agents for the secured parties under the Financing Documents; (c) to pay principal of, premium (if any) and interest on the Securities and the debt service reserve bonds, if any, and interest and certain fees payable to the debt service reserve letter of credit provider; (d) to pay principal of debt service reserve letter of credit loans and certain related fees and charges; (e) to replenish any shortfall in the Debt Service Reserve Fund; (f) to pay certain breakage costs in respect of debt service reserve letter of credit loans, and indemnification and other expenses to the secured parties, and (g) to the Distribution Fund or Distribution Suspense Fund, as applicable.
Debt Service Reserve Fund
The Funding Corporation is obligated at all times to maintain a Debt Service Reserve Fund and/or an acceptable letter of credit, the Debt Service Reserve Fund is funded from available funds in accordance with the priority of payments until the aggregate amount of the fund and letter of credit are equal to:
* through December 31, 1999, the maximum semiannual principal and interest payments on the Securities for the remaining term of the Securities;
* after December 31, 1999 through payment in full of the Initial Securities and the Supplemental Securities, the maximum annual principal and interest payments on the Securities for the remaining term of the Securities; and
* after payment in full of the Initial Securities and the Supplemental Securities, (a) the maximum annual principal and interest payments on the Series F Securities for the remaining term or (b) if we obtain a confirmation of the current ratings of the Securities, the maximum semiannual principal and interest payments on the Series F Securities.
The Debt Service Reserve Letter of Credit, which is being provided by Credit Suisse First Boston, must be issued by a financial institution rated at least "A" by S&P and "A2" by Moody's. Drawings on the Debt Service Reserve Letter of Credit will be available to pay principal of and interest on the Securities and interest on loans resulting from drawings on such Debt Service Reserve Letter of Credit.
Optional Redemption
The Series B Securities, Series C Securities, Series E Securities and Series F Securities are subject to optional redemption, in whole or in part, pro rata at par plus accrued interest to the redemption date plus a premium calculated to "make whole" to comparable U.S. Treasury securities plus 50 basis points.
Mandatory Redemption
The Securities are subject to mandatory redemption, pro rata within each maturity, at par plus accrued interest to the redemption date, (a) if a permitted power contract buy-out occurs unless the rating agencies confirm the then current rating of the Securities; (b) upon the acceleration of a Project Note in an amount equal to the principal amount of such note plus accrued interest; (c) upon the occurrence of certain events of loss, condemnation, title defects or similar events related to the Salton Sea Projects or the Partnership Projects; or (d) in certain circumstances if any New Project fails to achieve substantial completion by the applicable guaranteed substantial completion date or receives certain net performance liquidated damages under the construction contract for such Project or (e) upon the foreclosure by the Collateral Agent of collateral securing the Guarantor's obligations under the Salton Sea Guarantee, the Partnership Guarantee or Royalty Guarantee.
Distributions
Distributions may be made only from and to the extent of monies on deposit in the Distribution Fund. Such distributions are subject to the prior satisfaction of the following conditions:
(a) the amounts contained in the Principal Fund and the Interest Fund shall be equal to or greater than the aggregate scheduled principal and interest payments next due on the Securities;
(b) no default or event of default under the Indenture shall have occurred and be continuing;
(c) the debt service coverage ratio for the preceding four fiscal quarters, measured as one annual period, is equal to or greater than 1.4 to 1, if such distribution date occurs prior to the year 2000, and, if in or subsequent to the year 2000, is equal to or greater than 1.5 to 1, as certified by an officer of the Funding Corporation;
(d) the projected debt service coverage ratio of the Securities for the succeeding four fiscal quarters measured as one annual period is equal to or greater than 1.4 to 1, if such distribution date occurs prior to the year 2000, and, if such distribution date occurs in or subsequent to the year 2000, is equal to or greater than 1.5 to 1, as certified by an officer of the Funding Corporation;
(e) the debt service reserve fund shall have a balance equal to or greater than the debt service reserve fund required balance or one or more Debt Service Reserve Letter (or Letters) of Credit at least equal to (collectively with the balance, if any, in the Debt Service Reserve Fund) the debt service reserve fund required balance;
(f) an officer of the Funding Corporation provides a certificate (based on customary assumptions) that there are sufficient geothermal resources to operate the Salton Sea Projects and the Partnership Projects at contract capacity through the final maturity date of the Securities; and
(g) substantial completion of each New Project shall have occurred on or prior to such New Project's guaranteed substantial completion date unless the required amount of Securities shall have been redeemed as described above under "Mandatory Redemption" or (ii) the rating agencies shall have confirmed that no rating downgrade would result from such delay; provided that such condition will apply to a New Project only (x) after such New Project's guaranteed substantial completion date or (y) if such New Project has been abandoned.
Incurrence of Additional Debt
The Funding Corporation shall not incur any debt other than "Permitted Debt". "Permitted Debt" means:
(a) The Securities;
(b) Debt incurred to acquire the East Mesa Project in whole or in part; provided that no such Debt may be incurred unless at the time of such incurrence (i) no default or event of default has occurred and is continuing and (ii) the rating agencies confirm that the incurrence of such debt will not result in a rating downgrade;
(c) Debt incurred to develop, construct, own, operate or acquire additional permitted facilities in the Imperial Valley ("Additional Projects"); provided that no such debt may be incurred unless at the time of such incurrence (i) no default or event of default has occurred and is continuing and (ii) the rating agencies confirm that the Securities will maintain an investment grade rating after giving effect to such debt;
(d) Debt incurred to finance the making of capital improvements to the Salton Sea Projects, the Partnership Projects or Additional Projects required to maintain compliance with applicable law or anticipated changes therein; provided that no such debt may be incurred unless at the time of such incurrence the independent engineer confirms as reasonable (i) a certification by the Funding Corporation (containing customary qualifications) that the proposed capital improvements are reasonably expected to enable such Project to comply with applicable or anticipated legal requirements and (ii) the calculations of the Funding Corporation that demonstrate, after giving effect to the incurrence of such debt, the minimum projected debt service coverage ratio (x) for the next four consecutive fiscal quarters, commencing with the quarter in which such debt is incurred, taken as one annual period, and (y) for each subsequent fiscal year through the final maturity date, will not be less than 1.2 to 1;
(e) Debt incurred to finance the making of capital improvements to the Salton Sea Projects, the Partnership Projects or Additional Projects not required by applicable law so long as after giving effect to the incurrence of such debt (i) no default or event of default has occurred and is continuing, and (ii) (A) the independent engineer confirms as reasonable (x) the calculations of the Funding Corporation that demonstrate that the minimum projected debt service coverage ratio for the next four consecutive quarters, taken as one annual period, and each subsequent fiscal year, will not be less than 1.4 to 1, and (y) the calculations of the Funding Corporation that demonstrate the average projected debt service coverage ratio for all succeeding fiscal years until the final maturity date will not be less than 1.7 to 1 or (B) the Rating Agencies confirm that the incurrence of such debt will not result in a rating downgrade;
(f) Working capital debt in an aggregate amount not to exceed $15,000,000;
(g) Debt incurred under the Debt Service Reserve LOC Reimbursement Agreement;
(h) Debt incurred in connection with certain permitted interest rate swap arrangements;
(i) Debt incurred by the Funding Corporation in an aggregate amount not to exceed $30,000,000, in connection with the development, construction, ownership, operation, maintenance or acquisition of Permitted Facilities; and
(j) Subordinated debt from affiliates in an aggregate amount not to exceed $200,000,000 which shall be used to finance capital, operating or other costs with respect to the Projects or Additional Projects.
All Permitted Debt incurred by the Funding Corporation shall be loaned to the Guarantors and guaranteed by the Guarantors.
Principal Indenture Covenants
Principal covenants under the Indenture require the Funding Corporation to agree, except as permitted under the Indenture, (a) not to exercise any remedies or waive any defaults under the Credit Agreements and the Project Notes, except as otherwise permitted under the Indenture; (b) not to incur (i) any Debt except Permitted Debt or (ii) any Lien upon any of its properties except Permitted Liens and (c) not to enter into any transaction of merger or consolidation or change its form of organization or its business.
Equity Commitment
Pursuant to the Equity Commitment Agreement executed by CE Generation in favor of the Guarantors and the Collateral Agent, CE Generation agreed to contribute cash equity to the Guarantors in an amount of up to $122,513,000 to fund a portion of the budgeted costs for construction of the New Projects and Additional Capital Improvements.
The Project Notes
The Salton Sea Guarantors jointly and severally issued a Project Note in an initial principal amount of $325,000,000 and an additional Project Note in the amount of $83,272,000; the Partnership Guarantors jointly and severally issued a Project Note in an initial principal amount of $75,000,000, and additional Project Notes in amounts of $135,000,000 and $201,728,000, respectively, and the Royalty Guarantor issued a Project Note in an initial principal amount of $75,000,000.
Principal Credit Agreement Covenants
Principal covenants under the Credit Agreements require each Guarantor to agree, subject to certain exceptions and qualifications, (a) not to enter into any transaction of merger or consolidation, change its form of organization, liquidate, wind-up or dissolve itself; (b) not to enter into non-arm's length transactions or agreements with Affiliates; (c) not to incur (i) any debt except Permitted Guarantor Debt and (ii) any liens except for permitted liens; (d) not to engage in any business other than as contemplated by the respective Credit Agreement; and (e) not to amend, terminate or otherwise modify the Project Documents to which they are a party except as permitted under the respective Credit Agreements. In addition to these principal covenants, in the Salton Sea Credit Agreement and the Partnership Credit Agreement, the Salton Sea Guarantors and the Partnership Guarantors have agreed (a) not to sell, lease or transfer any property or assets material to the Salton Sea Projects or the Partnership Projects, as applicable, except in the ordinary course of business; and (b) to maintain insurance as is generally carried by companies engaged in similar businesses and owning similar properties.
Considerations Regarding Limitation on Remedies
A significant portion of the proceeds of the Initial Offering were distributed to MidAmerican to repay certain non-recourse indebtedness incurred by MidAmerican in connection with the acquisition of Magma (including the Guarantors). The Royalty Guarantor has purchased an assignment of the royalties from Magma pursuant to the Magma Assignment Agreement. Magma has also agreed to make certain payments to CEOC pursuant to the Magma Services Agreement and to secure such payment obligation with a collateral assignment of certain cash flows. The Guarantors have executed Guarantees with respect to the entire amount of Securities. Under certain circumstances (including a proceeding under Title 11 of the United States Code or any similar proceeding), it is possible that a
creditor of a Guarantor or Magma could make a claim, under federal or state fraudulent conveyance laws, that the Funding Corporation's claims under the Credit Agreements, the Security Holders' claims under the Guarantees, the Royalty Guarantor's interest pursuant to the Magma Assignment Agreement or CEOC's rights under the Magma Services Agreement should be subordinated or not enforced in accordance with such instruments' terms or that payments thereunder (including payments to the Holders of the Securities) should be recovered. In order to prevail on such a claim, a claimant would have to demonstrate that the obligations incurred under any Guarantor's Credit Agreement or Guarantee or the transfers made under the Magma Assignment Agreement or the Magma Services Agreement were not incurred in good faith or that any Guarantor or Magma did not receive fair consideration in connection with such obligations and transfers, and that any Guarantor or Magma is and was insolvent at the time of entering into the Credit Agreement, Guarantee, the Magma Assignment Agreement and/or the Magma Services Agreement or that it did not have and will not have sufficient capital for carrying on its business or was not and will not be able to pay its debts as they mature.
Power Price and Sales Uncertainty
The Power Purchase Agreements pursuant to which each of the Vulcan, Del Ranch, Elmore, Leathers, Salton Sea II and Salton Sea III Projects sell electricity to Edison are SO4 Agreements. These agreements provide for both capacity payments and energy payments for a term of 30 years. While the basis for the capacity payment is fixed for the entire 30-year term, the price of energy payments is fixed only for the first ten years of the term. The fixed price periods expired in February 1996 for Vulcan, in December 1998 for Del Ranch and Elmore, in February 1999 for Salton Sea III, in December 1999 for Leathers and in April 2000 for Salton Sea II. Thereafter, the required energy payment converted to Edison's avoided cost of energy, as determined by a methodology approved by, and subject to change by, the California Public Utility Commission.
For the year ended December 2000 and 1999, Edison's average avoided cost of energy was 5.8 cents and 3.1 cents per kWh, respectively. Estimates of Edison's future avoided cost of energy vary substantially from year to year. The Funding Corporation and the Guarantors cannot predict the likely level of avoided cost of energy prices under these agreements.
Although approximately one-third of the net electrical output of Salton Sea V is expected to be sold for use by the Zinc Recovery Project, neither Salton Sea V nor the CE Turbo Project currently has any power sales agreements for any significant portion of the capacity of such Projects. The strategy for Salton Sea V and the CE Turbo Project is to sell output not needed by the Zinc Recovery Project in short term transactions through established energy markets or in such other transactions from time to time as may be found to be more advantageous than those conducted through established energy markets. Energy prices are expected to have the characteristics of short term spot prices and to fluctuate from time to time in a manner that cannot be predicted with accuracy and is not within the control of the Funding Corporation, the Guarantors or any other person.
Reliance on Single Utility Customer
Each of the Vulcan, Del Ranch, Elmore, Leathers and Salton Sea I-IV Projects relies on an agreement with Edison to generate 100% of its operating revenues. The payments under these agreements have constituted 100% of the operating revenues of each Project since its inception, and may do so for the life of the Securities. Any material failure of Edison to fulfill its contractual obligations under the Power Purchase Agreements could have a material adverse effect on the ability of the Funding Corporation to pay principal of and interest on the Securities.
Edison, a wholly-owned subsidiary of Edison International, is a public utility primarily engaged in the business of supplying electric energy to retail customers in Central and Southern California, excluding Los Angeles. The Funding Corporation is aware that there have been public announcements that Edison's financial condition has deteriorated as a result of reduced liquidity. Based on public announcements, the Funding Corporation understands that Edison has not made payments to other qualifying facilities ("QFs") from which Edison purchases power and has not made scheduled payments of debt service. Edison's senior unsecured debt obligations are currently rated Caa2 (on watch for possible downgrade) by Moody's and D by S&P.
The Funding Corporation is aware that there have been public announcements that Edison, other industry participants and governmental entities have taken actions in response to Edison's financial condition. These actions include the following:
o The Federal Energy Regulatory Commission ("FERC") has issued an order eliminating requirements that Edison and other California utilities purchase power from the structured power market in California known as the California Power Exchange in order to provide them with an opportunity to obtain power from alternative sources at a lower cost.
o The State of California has enacted legislation to provide for the California Department of Water Resources to purchase wholesale power and sell it to retail customers, which will be funded by a surcharge on retail rates. The California legislature is also considering other legislation to improve the financial condition of the California electric utilities.
o The California Public Utilities Commission ("CPUC") approved a decision on March 27, 2001 to increase retail electricity rates by approximately 40%. In another decision that day, the CPUC ordered Edison to pay the QFs on a go forward basis within 15 days of the invoice and purportedly modified the calculation of Short Run Avoided Cost.
o The State of California and Edison have announced a preliminary agreement for the State to purchase Edison's transmission assets for $2.7 billion and to allow Edison to issue bonds for a substantial portion of its undercollection of revenues.
The Funding Corporation can give no assurance as to the likely result of any of the actions described above or as to whether such actions will have a positive effect on the financial condition of Edison or its willingness to make payments under the Power Purchase Agreements.
Edison has failed to pay approximately $76 million due under the Power Purchase Agreements for power delivered in November and December 2000 and January 2001, although the Power Purchase Agreements provide for billing and payment on a schedule where payments would have normally been received in early January, February and March 2001. Edison has not notified the Imperial Valley Projects as to when they can expect to receive these payments. This continued non-payment by Edison could result in an untenable situation for the continued operation of the Imperial Valley Projects unless additional funds are obtained in the near future.
On February 21, 2001, certain Guarantors filed a lawsuit against Edison in California's Imperial County Superior Court seeking a court order requiring Edison to make the required payments under the Power Purchase Agreements. The lawsuit also requested, among other things, that the court order permit the Guarantors to suspend deliveries of power to Edison and to permit the Guarantors to sell such power to other purchasers in California.
On March 22, 2001, the Superior Court granted Guarantors' Motion for Summary Adjudication and a Declaratory Judgment ordering that: 1) under the Power Purchase Agreements, Guarantors have the right to temporarily suspend deliveries of capacity and energy to Edison, 2) Guarantors are entitled to resell the energy and capacity to other purchasers and 3) the interim suspension of deliveries to Edison shall not in any respect result in the modifications or termination of the Power Purchase Agreements and the Power Purchase Agreements shall in all respects continue in full force and effect other than the temporary suspension of deliveries to Edison. The Guarantors intend to vigorously pursue their other remedies in this action in light of Edison's continuing non-payment.
The Funding Corporation is hopeful that the current Edison situation is temporary and the proceedings in the legal, regulatory, financial and political arenas will lead to the improvement of Edison's financial condition in the near future and the payment by Edison of amounts due under the Power Purchase Agreements. However, no assurance can be given that this will be the case.
As a result of Edison's failure to make the payments due under the Power Purchase Agreements and the recent downgrades of Edison's credit ratings, Moody's has downgraded the ratings for the Securities to Caa2 (negative outlook) and S&P has downgraded the ratings for the Securities to BBB- and has placed the Securities on "credit watch negative". Accordingly, the Funding Corporation does not believe it is currently able to obtain funds in the banking or capital markets.
Zinc Price and Sales Uncertainty
In September 1999, Minerals LLC entered into a sales agreement whereby all high grade zinc produced by the Zinc Recovery Project will be sold to Cominco, Ltd. The initial term of the agreement expires in December 2005.
Because most of the Zinc Recovery Project's revenues will be derived from the sale of zinc, earnings will be directly related to the price of zinc in the domestic and world markets. However, zinc prices fluctuate and are affected by numerous factors, including expectations of inflation, speculative activities, currency exchange rates, interest rates, global and regional demand and production, political and economic conditions, discovery of new deposits, and production costs in major producing regions. The aggregate effect of these factors, all of which are beyond the control of the Funding Corporation or the Guarantors, is impossible for the Funding Corporation to predict.
Construction Uncertainty
Although several of the power projects have been operating for a number of years, the Zinc Recovery Project is currently in construction pursuant to fixed price, date certain turnkey engineering, procurement and construction contract and is subject to customary risks associated with the construction of metals processing plants including risks of delays in completion, cost overruns and failures to perform in accordance with contract terms. In addition, while each of the individual process steps to be utilized in the Zinc Recovery Project (including ion exchange, solvent extraction and electrowinning) has been in operation for more than twenty years and the demonstration plant at the SSKGRA has successfully recovered zinc through this integrated process, the integrated process for the production of zinc from geothermal brine has not been attempted in a large scale commercial facility. Any material unremedied delay in or unsatisfactory completion of the Zinc Recovery Project could have an adverse effect on the applicable Guarantors' results of operations.
Uncertainties Relating to Exploration and Development of Geothermal Energy Resources
Geothermal exploration, development and operations are subject to uncertainties which vary among different geothermal reservoirs and are similar to those typically associated with oil and gas exploration and development, including dry holes and uncontrolled releases. Because of the geological complexities of geothermal reservoirs, the geographic area and sustainable output of geothermal reservoirs can only be estimated and cannot be definitively established. There is, accordingly, a risk of an unexpected decline in the capacity of geothermal wells and a risk of geothermal reservoirs not being sufficient for sustained generation of the electrical power capacity desired.
In addition, both the cost of operations and the operating performance of geothermal power plants may be adversely affected by a variety of operating factors. Production and injection wells can require frequent maintenance or replacement. Corrosion caused by high-temperature and high-salinity geothermal fluids may require the replacement or repair of certain equipment, vessels or pipelines. New production and injection wells may be required for the maintenance of current operating levels, thereby requiring substantial capital expenditures.
Insurance
The Salton Sea Projects and the Partnership Projects currently possess property, business interruption, catastrophic and general liability insurance. Proceeds of insurance received in connection with the Salton Sea Projects will be payable to the Depositary for the account of the Salton Sea Guarantors and will be applied as required under the financing documents. There can be no assurance that such comprehensive insurance coverage will be available in the future at commercially reasonable costs or terms or that the amounts for which the Salton Sea Guarantors and the Partnership Guarantors are or will be insured will cover all potential losses.
Because geothermally active areas such as the area in which the Projects are located are subject to frequent low-level seismic disturbances, and serious seismic disturbances are possible, the power generating plants and other facilities at the Projects are designed and built to withstand relatively significant levels of seismic disturbance. However, there is no assurance that seismic disturbances of a nature and magnitude so as to cause material damage to the Projects or gathering systems or a material change in the nature of the geothermal resource will not occur, that insurance with respect to seismic disturbances will be maintained by or on behalf of all of the Projects, that insurance proceeds will be adequate to cover all potential losses sustained, or that insurance will continue to be available in the future in amounts adequate to insure against such seismic disturbances.
Regulatory and Environmental Matters
The Guarantors are subject to a number of environmental laws and regulations affecting many aspects of their present and future operations, including the disposal of various forms of materials resulting from geothermal reservoir production and the drilling and operation of new wells. Such laws and regulations generally require the Guarantors to obtain and comply with a wide variety of licenses, permits and other approvals. In addition, regulatory compliance for the construction of new facilities is a costly and time-consuming process, and intricate and rapidly changing environmental regulations may require major expenditures for permitting and create the risk of expensive delays or material impairment of project value if projects cannot function as planned due to changing regulatory requirements or local opposition. The Guarantors and the Projects also remain subject to a varied and complex body of environmental and energy regulations that both public officials and private individuals may seek to enforce. There can be no assurance that existing regulations will not be revised or that new regulations will not be adopted or become applicable to the Guarantors and the Projects which could have an adverse impact on their operations. In particular, the independent power market in the United States is dependent on the existing energy regulatory structure, including the Public Utility Regulatory Policies Act and its implementation by utility commissions in the various states. The structure of such federal and state energy regulations has in the past, and may in the future, be the subject of various challenges and restructuring proposals by utilities and other industry participants. The implementation of regulatory changes in response to such challenges or restructuring proposals, or otherwise imposing more comprehensive or stringent requirements on the Guarantors and Projects, which would result in increased compliance costs could have a material adverse effect on the Guarantors' and the Projects' results of operations.
Employees
Employees necessary for the operation of the Salton Sea Projects and the Partnership Projects are provided by CEOC, under the operation and maintenance agreements described below. As of December 31, 2000, CEOC employed 201 people at the Salton Sea Projects and the Partnership Projects, collectively. CEOC employees are not covered by any collective bargaining agreement. The Funding Corporation believes that CEOC's employee relations are good.
CEOC maintains a qualified technical staff covering a broad range of disciplines including geology, geophysics, geochemistry, hydrology, volcanology, drilling technology, reservoir engineering, plant engineering, construction management, maintenance services, production management and electric power operation.
Administrative services for the Guarantors are provided pursuant to the administrative services agreements described below. MidAmerican employees provide corporate level managerial, financial, accounting, technical and other administrative services and CEOC employees provide certain accounting, purchasing and payroll services.
Item 2.
Item 2. Properties
The Funding Corporation does not separately own or lease office space but has arranged for a separate suite at MidAmerican's offices in Omaha, Nebraska. (See page 4 for a schedule of the Guarantors facilities.)
Item 3.
Item 3. Legal Proceedings
The Funding Corporation is not a party to any material legal proceedings. However, the Guarantors have filed a lawsuit seeking a court order requiring Edison to make the required payments under the Power Purchase Agreements. See page 16.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
Part II
Item 5.
Item 5. Market for Registrant's Common Equity and Related Stockholder's Matters
Not applicable.
Item 6.
Item 6. Selected Financial Data
Salton Sea Funding Corporation
The following tables set forth selected historical financial and operating data of the Funding Corporation. The data should be read in conjunction with the financial statements and related notes and other financial information appearing elsewhere in this Form 10-K (in thousands).
(1) On October 13, 1998 Funding Corporation issued additional securities of $285 million of Salton Sea Notes and Bonds Series F. (2) On June 20, 1996 Funding Corporation issued additional securities of $135 million of Salton Sea Notes and Bonds Series D and E.
Salton Sea Guarantors
The following tables set forth selected historical combined financial and operating data of the Salton Sea Guarantors. The data should be read in conjunction with the financial statements and related notes and other financial information appearing elsewhere in this Form 10-K (in thousands).
(1) Salton Sea V commenced operations in the third quarter of 2000. (2) In June 1996, Salton Sea IV commenced operations.
Partnership Guarantors
The following tables set forth selected historical combined financial and operating data of the Partnership Guarantors. The data should be read in conjunction with the financial statements and related notes, and other financial information appearing elsewhere in this Form 10-K (in thousands).
(1) Turbo commenced operations in the third quarter of 2000. (2) On April 17, 1996 the remaining 50% interest of the Partnership Projects was acquired from Edison Mission Energy.
Royalty Guarantor
The following tables set forth selected historical financial and operating data of the Royalty Guarantor. The data should be read in conjunction with the financial statements and related notes and other financial information appearing elsewhere in this Form 10-K (in thousands).
(1) In 1998, the Royalty Guarantor received $25 million in a settlement related to the Geo East Mesa payments.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Factors Affecting Results of Operations
Funding Corporation was organized for the sole purpose of acting as issuer of senior secured notes and bonds. On October 13, 1998, June 20, 1996 and July 21, 1995, the Funding Corporation issued $285 million, $135 million and $475 million, respectively, of senior secured notes and bonds (the "Securities"). The Securities are payable from payments made of principal and interest on the Project Notes by the Guarantors, to the Funding Corporation. The Securities are guaranteed on a joint and several basis by the Guarantors. The guarantees of the Partnership Guarantors and Royalty Guarantor are limited to available cash flow. The Funding Corporation does not conduct any operations apart from issuing the Securities.
The periodic results of operations for the Guarantors are influenced to varying degrees by a number of factors, principally the level of revenues received under the power purchase agreements, project capacity utilization, the level of operating expenses and capital expenditures.
Power Purchase Agreements
The Imperial Valley Projects consists of the Partnership Projects and the Salton Sea Projects located in the Imperial Valley in California. The Partnership Projects consists of the Vulcan, Del Ranch, Turbo, Elmore, and Leathers Projects. The Salton Sea Projects consists of Salton Sea I, Salton Sea II, Salton Sea III, Salton Sea IV and Salton Sea V.
Each of the Projects, except for Turbo and Salton Sea V, sells electricity to Edison pursuant to a separate SO4 Agreement or a negotiated power purchase agreement. Each power purchase agreement is independent of the others, and performance requirements specified within one such agreement apply only to the Project which is subject to that agreement. The power purchase agreements provide for energy payments, capacity payments and capacity bonus payments. Edison makes fixed annual capacity payments and capacity bonus payments to the projects to the extent that capacity factors exceed certain benchmarks. The price for capacity is fixed for the life of the SO4 Agreements and are significantly higher in the months of June through September. Energy payments are at increasing fixed rates for the first ten years after firm operation and thereafter at a rate which is based on the cost that Edison avoids by purchasing energy from the project instead of obtaining the energy from other sources ("Avoided Cost of Energy").
The fixed energy price periods of the Partnership Projects' SO4 Agreements extended until February 1996 for the Vulcan Partnership, December 1998 for the Del Ranch and Elmore Partnerships and December 1999 for the Leathers Partnership.
For 2000, the Partnership Projects are receiving Edison's Avoided Cost of Energy pursuant to their respective SO4 Agreement.
Salton Sea I sells electricity to Edison pursuant to a 30-year negotiated power purchase agreement, as amended (the "Salton Sea I PPA"), which provides for capacity and energy payments. The energy payment is calculated using a Base Price which is subject to quarterly adjustments based on a basket of indices. The time period weighted average energy payment for Salton Sea I was 5.7 cents per kWh during 2000. As the Salton Sea I PPA is not an SO4 Agreement, the energy payments do not revert to Edison's Avoided Cost of Energy. The capacity payment is approximately $1.1 million per annum.
Salton Sea II and Salton Sea III sell electricity to Edison pursuant to 30-year modified SO4 Agreements that provide for capacity payments, capacity bonus payments and energy payments. The price for contract capacity and contract capacity bonus payments is fixed for the life of the modified SO4 Agreements. The energy payments for the first ten year period, which period expired in April 2000 for Salton Sea II and expired in February 1999 for Salton Sea III are levelized at a time period weighted average of 10.6 cents per kWh and 9.8 cents per kWh for Salton Sea II and Salton Sea III, respectively. Thereafter, the monthly energy payments are at Edison's Avoided Cost of Energy. For Salton Sea II only, Edison is entitled to receive, at no cost, 5% of all energy delivered in excess of 80% of contract capacity through March 31, 2004. The annual capacity and bonus payments for Salton Sea II and Salton Sea III are approximately $3.3 million and $9.7 million, respectively.
Salton Sea IV sells electricity to Edison pursuant to a modified SO4 agreement which provides for contract capacity payments on 34 MW of capacity at two different rates based on the respective contract capacities deemed attributable to the original Salton Sea PPA option (20 MW) and to the original Fish Lake PPA (14 MW). The capacity payment price for the 20 MW portion adjusts quarterly based upon specified indices and the capacity payment price for the 14 MW portion is a fixed levelized rate. The energy payment (for deliveries up to a rate of 39.6 MW) is at a fixed price for 55.6% of the total energy delivered by Salton Sea IV and is based on an energy payment schedule for 44.4% of the total energy delivered by Salton Sea IV. The contract has a 30 year term but Edison is not required to purchase the 20 MW of capacity and energy originally attributable to the Salton Sea I PPA option after September 30, 2017, the original termination date of the Salton Sea I PPA.
Salton Sea Unit V Project, which commenced operations in the third quarter of 2000, will sell approximately one-third of its net output to a zinc facility, which is owned by a subsidiary of MidAmerican and is expected to commence operations in mid-2001. The remainder of the Salton Sea Unit V output in 2000 was sold through other market transactions.
The Turbo Project, which commenced commercial operation in the third quarter of 2000, sold its output through other market transactions. The Turbo Project may sell its output to a zinc facility, which is owned by a subsidiary of MidAmerican and is expected to commence operations in mid-2001.
On January 17, 2001, Salton Sea Power and CE Turbo entered into an agreement to sell available power from Salton Sea Unit V and CE Turbo to El Paso Merchant Energy, L.P. ("EPME"). Under the terms of the agreement, at the option of Salton Sea Power and CE Turbo, EPME will purchase all available power from Salton Sea Unit V and CE Turbo based on day ahead price quotes received from EPME.
For the year ended December 31, 2000 and 1999, Edison's average Avoided Cost of Energy was 5.8 cents and 3.1 cents per kWh, respectively. Estimates of Edison's future Avoided Cost of Energy vary substantially from year to year. The Company cannot predict the likely level of Avoided Cost of Energy prices under the SO4 Agreements and the modified SO4 Agreements.
Capacity Utilizations
For purposes of consistency in financial presentation, plant capacity factors for Vulcan, Del Ranch, Turbo, Elmore and Leathers plants are based on capacity amounts of 34, 38, 10, 38, and 38 net MW respectively, and for Salton Sea I, Salton Sea II, Salton Sea III, Salton Sea IV, and Salton Sea V plants, are based on nominal capacity amounts of 10, 20, 49.8, 39.6 and 49 net MW, respectively. Each plant possesses an operating margin which allows for production in excess of the amounts listed above. Utilization of this operating margin is based upon a variety of factors and can be expected to vary throughout the year under normal operating conditions.
The following operating data represents the aggregate capacity and electricity production of Salton Sea I and II, Salton Sea III, Salton Sea IV and Salton Sea V:
Years Ended December 31, - ------------------------------------------------------------------------------- 2000 1999 1998 - ------------------------------------------------------------------------------- Overall capacity factor 76.1% 91.9% 94.2% Capacity NMW (weighted average) 146.1 119.4 119.4 Kwh produced (in thousands) 976,500 960,800 985,500 - -------------------------------------------------------------------------------
The following operating data represents the aggregate capacity and electricity production of Vulcan, Del Ranch, Elmore, Leathers and Turbo:
Years Ended December 31, - ------------------------------------------------------------------------------- 2000 1999 1998 - ------------------------------------------------------------------------------- Overall capacity factor 98.8% 103.4% 101.3% Capacity NMW (weighted average) 152.1 148.0 148.0 Kwh produced (in thousands) 1,320,300 1,339,900 1,313,900 - -------------------------------------------------------------------------------
Results of Operations for the Years Ended December 31, 2000, 1999 and 1998
Revenues
The Salton Sea Guarantors' sales of electricity increased to $98.1 million for the year ended December 31, 2000 from $81.9 million for the same period in 1999. The increase is due to the addition of Salton Sea V and higher avoided cost rates. The Salton Sea Guarantors' sales of electricity was $81.9 million for the year ended December 31, 1999 compared to $106.3 million for the same period in 1998. The decrease was due to Salton Sea III reaching the end of its fixed price period.
The Partnership Guarantors' sales of electricity decreased to $103.3 million for the year ended December 31, 2000 from $105.9 million for the same period in 1999, a 2.5% decrease. The decrease is due to the end of the fixed price period at Leathers offset by the addition of Turbo and higher avoided cost rates. The Partnership Guarantors' sales of electricity decreased to $105.9 million for the year ended December 31, 1999 from $165.8 million for the same period in 1998, a 36.1% decrease. This decrease was due to the end of the fixed price period at Del Ranch and Elmore.
Interest and other income for the Partnership Guarantors decreased to $4.9 million for the year ended December 31, 2000 from $9.1 million for the same period in 1999. Interest and other income for the Partnership Guarantors increased to $9.1 million for the year ended December 31, 1999 from $6.8 million for the same period in 1998. The decrease from 1999 to 2000 and the increase from 1998 to 1999 was due to interest income on the restricted cash balances. These balances were drawn down during 1999 and 2000 to pay construction invoices.
The Royalty Guarantor revenue decreased to $14.1 million for the year ended December 31, 2000 from $26.3 million for the same period in 1999 and $51.7 million for the same period in 1998. The decreases in royalty revenue from 1998 to 1999 were primarily due to a decrease in East Mesa payments related to a settlement agreement in prior years. The decrease from 1999 to 2000 was the result of the lower energy sales at the Partnership Projects resulting in lower royalties and deferred revenue of $9.3 million was realized related to the East Mesa settlement in 1999.
Operating Expenses
The Salton Sea Guarantors' operating expenses, which include royalty, operating, and general and administrative expenses, increased to $40.8 million for the year ended December 31, 2000, from $28.8 million for the same period in 1999 and $30.3 million for the same period in 1998. The increase in expenses from 1999 to 2000 was due to higher operating costs resulting from Salton Sea Unit V start up activities and higher brine disposal costs.
The Partnership Guarantors' operating expenses, which include royalty, operating, and general and administrative expenses, increased to $53.0 million for the year ended December 31, 2000, from $48.0 million for the same period in 1999 and $63.7 million for the same period in 1998. The increase in costs from 1999 to 2000 was associated with zinc plant commissioning costs. The decrease in costs from 1998 to 1999 was due primarily to the decreases in royalty expense due to lower revenue.
The Royalty Guarantor's operating expenses decreased to $3.9 million for the year ended December 31, 2000 from $4.6 million for the same period of 1999 and $8.1 million for the same period of 1998. The decrease was due to scheduled decreases in third party lessor royalties related to the decreases in the Partnership Projects' sales of electricity.
Depreciation and Amortization
The Salton Sea Guarantors' depreciation and amortization decreased to $16.0 million for the year ended December 31, 2000 from $16.9 million for the year ended December 31, 1999 and $14.9 million for the year ended December 31, 1998. The decrease in 2000 was due to an adjustment in the step-up depreciation charges offset by the addition of Salton Sea Unit V and the increase in 1999 was due to an adjustment in the step up depreciation charges.
The Partnership Guarantors' depreciation and amortization decreased to $19.7 million for the year ended December 31, 2000 from $22.6 million for the same period in 1999 and $48.6 million for the same period in 1998. The decrease from 1999 to 2000 was primarily due to reduced step up depreciation after the end of the fixed price periods for the Leathers project as a result of greater value being assigned to the scheduled price periods for the contracts relating to these projects at the time of acquisition. The decrease from 1998 to 1999 was due primarily to reduce the step-up depreciation after the end of the fixed price periods for the Del Ranch and Elmore projects as a result of greater values being assigned to the fixed price periods for the contracts related to these projects at the time of the acquisitions.
The Royalty Guarantor's amortization decreased to $2.0 million for the year ended December 31, 2000 from $7.1 million for the same period in 1999 and $9.8 million for the same period in 1998. The decreases are consistent with the Company's scheduled amortization of the royalty stream and the excess of cost over fair value related to the Magma acquisition.
Interest Expense
The Salton Sea Guarantors' interest expense, net of capitalized amounts, decreased to $13.3 million for the year ended December 31, 2000 from $15.0 million for the same period in 1999. The Salton Sea Guarantors' interest expense, net of capitalized amounts, decreased to $15.0 million for the year ended December 31, 1999 from $16.0 million for the same period in 1998. The decrease for both periods was due primarily to higher capitalized interest charges on the Salton Sea V construction costs and repayment of debt.
The Partnership Guarantors' interest expense, net of capitalized amounts, decreased to $0.6 million for the year ended December 31, 2000 from $6.4 million for the same period in 1999 and $3.6 million for the same period in 1998. The decrease from 1999 to 2000 is the result of the repayment of debt and capitalization of interest on the mineral extraction project. The increase from 1998 to 1999 is a result of the issuance of a $201.8 million of senior secured notes in October 1998.
The Royalty Guarantors' interest expense decreased to $1.0 million for the year ended December 31, 2000 from $1.7 million for the same period in 1999 and $2.8 million for the same period in 1998. These decreases are due to the repayment of debt.
Income Tax Provision
The Salton Sea Guarantors are substantially comprised of partnerships. Income taxes are the responsibility of the partners and Salton Sea Guarantors have no obligation to provide funds to the partners for payment of any tax liabilities. Accordingly, the Salton Sea Guarantors have no tax obligations.
The Partnership Guarantors' income tax provision decreased to $7.7 million for the year ended December 31, 2000 from $12.5 million for the same period in 1999 and $19.5 million for the same period in 1998. The effective tax rate was 22%, 33%, and 34% in 2000, 1999, and 1998, respectively. The changes from year to year in the effective rate are due primarily to the generation and utilization of energy tax credits and depletion deductions. Income taxes will be paid by the parent of the Guarantors from distributions to the parent company by the Guarantors which occur after payment of operating expenses and debt service.
The Royalty Guarantor's had no income tax provision in 2000, the income tax provision decreased to a benefit of $6.3 million for the year ended December 31, 1999 from an expense of $11.5 million for the same period in 1998. The decrease in the provision is due to the change in the Royalty Guarantor from a corporation to a limited liability company which is not taxed. Income taxes are the responsibility of the partners and Royalty Guarantor has no obligation to provide funds to the partners for payment or any tax liabilities. Accordingly, the Royalty Guarantor has no tax obligations.
Net Income
The Funding Corporation's net income was $0.2 million for the year ended December 31, 2000 compared to $1.1 million for the year ended December 31, 1999 and $1.8 million for the period ended December 31, 1998, which represented interest income and expense, net of applicable tax, and the Funding Corporation's 1% equity in earnings of the Guarantors.
The Salton Sea Guarantors' net income increased to $28.3 million for the year ended December 31, 2000, compared to $23.0 million for the year ended December 31, 1999 and $45.9 million for the year ended December 31, 1998.
The Partnership Guarantors' net income decreased to $27.2 million for the year ended December 31, 2000, compared to $25.5 million for the year ended December 31, 1999 and $37.1 million for the year ended December 31, 1998.
The Royalty Guarantor's net income decreased to $7.4 million for the year ended December 31, 2000, compared to $19.2 million for the year ended December 31, 1999 and $19.5 million for the year ended December 31, 1998.
Capital Resources and Liquidity
The operating Salton Sea Guarantors' only source of revenue is payments received pursuant to long term power sales agreements with Edison, other than Salton Sea V revenue and interest earned on funds on deposit. The operating Partnership Guarantors' primary source of revenue is payments received pursuant to long term power sales agreements with Edison, other than CE Turbo and Zinc revenue and interest earned on funds on deposit. The Royalty Guarantor's only source of revenue is Royalties received pursuant to resource lease agreements with the Partnership Projects. If Edison pays the projects, these payments, for each of the Guarantors, are expected to be sufficient to fund operating and maintenance expenses, payments of interest and principal on the Securities, projected capital expenditures and debt service reserve fund requirements.
CalEnergy Minerals LLC, a Partnership Guarantor ("Minerals LLC"), developed and owns the rights to proprietary processes for the extraction of zinc from elements in solution in the geothermal brine and fluids utilized at the company's Imperial Valley plants. A pilot plant has successfully produced commercial quality zinc at the Company's Imperial Valley Project. The Company's affiliates intend to sequentially develop facilities for the extraction of manganese, silver, gold, lead, boron, lithium and other products as it further develops the extraction technology. The Company's affiliates are also investigating producing silica as an extraction project. Silica is used as a filler for such products as paint, plastics and high temperature cement.
Minerals LLC is constructing the Zinc Recovery Project which will recover zinc from the geothermal brine (the "Zinc Recovery Project"). Facilities will be installed near the Imperial Valley Project sites to extract a zinc chloride solution from the geothermal brine through an ion exchange process. This solution will be transported to a central processing plant where zinc ingots will be produced through solvent extraction, electrowinning and casting processes. The Zinc Recovery Project is designed to have a capacity of approximately 30,000 metric tonnes per year and is scheduled to commence commercial operations in mid-2001. In September 1999, Minerals LLC entered into a sales agreement whereby all high grade zinc produced by the Zinc Recovery Project will be sold to Cominco, Ltd. The initial term of the agreement expires in December 2005.
The Zinc Recovery Project is being constructed by Kvaerner U.S. Inc. ("Kvaerner") pursuant to a date certain, fixed-price, turnkey engineering, procurement and construction contract (the "Zinc Recovery Project EPC Contract"). Kvaerner is a wholly-owned indirect subsidiary of Kvaerner ASA, an internationally recognized engineering and construction firm experienced in the metals, mining and processing industries. Total project costs of the Zinc Recovery Project are expected to be approximately $200.9 million. The Company has incurred $152.9 million of such costs through December 31, 2000.
Edison, a wholly-owned subsidiary of Edison International, is a public utility primarily engaged in the business of supplying electric energy to retail customers in Central and Southern California, excluding Los Angeles. The Funding Corporation is aware that there have been public announcements that Edison's
financial condition has deteriorated as a result of reduced liquidity. Based on public announcements, the Funding Corporation understands that Edison has not made payments to other qualifying facilities ("QFs") from which Edison purchases power and has not made scheduled payments of debt service. Edison's senior unsecured debt obligations are currently rated Caa2 (on watch for possible downgrade) by Moody's and D by S&P.
The Funding Corporation is aware that there have been public announcements that Edison, other industry participants and governmental entities have taken actions in response to Edison's financial condition. These actions include the following:
o The Federal Energy Regulatory Commission ("FERC") has issued an order eliminating requirements that Edison and other California utilities purchase power from the structured power market in California known as the California Power Exchange in order to provide them with an opportunity to obtain power from alternative sources at a lower cost.
o The State of California has enacted legislation to provide for the California Department of Water Resources to purchase wholesale power and sell it to retail customers, which will be funded by a surcharge on retail rates. The California legislature is also considering other legislation to improve the financial condition of the California electric utilities.
o The California Public Utilities Commission ("CPUC") approved a decision on March 27, 2001 to increase retail electricity rates by approximately 40%. In another decision that day, the CPUC ordered Edison to pay the QFs on a go forward basis within 15 days of the invoice and purportedly modified the calculation of Short Run Avoided Cost.
o The State of California and Edison have announced a preliminary agreement for the State to purchase Edison's transmission assets for $2.7 billion and to allow Edison to issue bonds for a substantial portion of its undercollection of revenues.
The Funding Corporation can give no assurance as to the likely result of any of the actions described above or as to whether such actions will have a positive effect on the financial condition of Edison or its willingness to make payments under the Power Purchase Agreements.
Edison has failed to pay approximately $76 million due under the Power Purchase Agreements for power delivered in November and December 2000 and January 2001, although the Power Purchase Agreements provide for billing and payment on a schedule where payments would have normally been received in early January, February and March 2001. Edison has not notified the Imperial Valley Projects as to when they can expect to receive these payments. This continued non-payment by Edison could result in an untenable situation for the continued operation of the Imperial Valley Projects unless additional funds are obtained in the near future.
On February 21, 2001, certain Guarantors filed a lawsuit against Edison in California's Imperial County Superior Court seeking a court order requiring Edison to make the required payments under the Power Purchase Agreements. The lawsuit also requested, among other things, that the court order permit the Guarantors to suspend deliveries of power to Edison and to permit the Guarantors to sell such power to other purchasers in California.
On March 22, 2001, the Superior Court granted Guarantors' Motion for Summary Adjudication and a Declaratory Judgment ordering that: 1) under the Power Purchase Agreements, Guarantors have the right to temporarily suspend deliveries of capacity and energy to Edison, 2) Guarantors are entitled to resell the energy and capacity to other purchasers and 3) the interim suspension of deliveries to Edison shall not in any respect result in the modifications or termination of the Power Purchase Agreements and the Power Purchase Agreements shall in all respects continue in full force and effect other than the temporary suspension of deliveries to Edison. The Guarantors intend to vigorously pursue their other remedies in this action in light of Edison's continuing non-payment.
The Funding Corporation is hopeful that the current Edison situation is temporary and the proceedings in the legal, regulatory, financial and political arenas will lead to the improvement of Edison's financial condition in the near future and the payment by Edison of amounts due under the Power Purchase Agreements. However, no assurance can be given that this will be the case.
As a result of Edison's failure to make the payments due under the Power Purchase Agreements and the recent downgrades of Edison's credit ratings, Moody's has downgraded the ratings for the Securities to Caa2 (negative outlook) and S&P has downgraded the ratings for the Securities to BBB- and has placed the Securities on "credit watch negative". Accordingly, the Funding Corporation does not believe it is currently able to obtain funds in the banking or capital markets.
On July 21, 1995, Salton Sea Funding Corporation obtained a $15 million seven year revolving credit agreement between Credit Suisse as bank and agent and other lenders. The interest rate is at the Adjusted Base Rate plus .375% or at the LIBOR rate plus 100 basis points. On May 26, 2000, Salton Sea Funding Corporation borrowed $15 million under its revolving credit agreement. The loan was repaid in two installments, $5 million on July 26, 2000 and $10 million on August 28, 2000.
Inflation has not had a significant impact on the Guarantors' operating revenue and costs; energy payments for the Guarantors (excluding those projects receiving avoided cost rates) will continue to be based on fixed rates and are not adjusted for inflation through the initial ten-year period of each power purchase agreement.
Environmental Liabilities
The Company may be exposed to environmental costs in the ordinary course of business. Expenditures for ongoing compliance with environmental regulations that relate to current operations are expensed or capitalized as appropriate. Expenditures that relate to an existing condition caused by past operations, and which do not contribute to current or future revenue generation, are expensed. Liabilities are recorded when environmental assessments indicate that remediation efforts are probable and the costs can be reasonably estimated. Estimates of the liability are based upon currently available facts, existing technology and presently enacted laws and regulations taking into consideration the likely effects of inflation and other social and economic factors, and include estimates of associated legal costs. These amounts also consider prior experience in remediating sites, other companies' clean-up experience and data released by the Environmental Protection Agency or other organizations. These estimated liabilities are subject to revision in future periods based on actual costs or new circumstances, and are included in the accompanying balance sheets at their undiscounted amounts. As of December 31, 2000 and 1999, the environmental liabilities recorded on the balance sheet were not material.
Accounting Policy Change
The Company is considering adopting a new policy of accounting for major maintenance, overhaul and well workover costs. These costs which have historically been accounted for using deferral methods, would be expensed as incurred. As of January 1, 2001, the cumulative effect of this change would be a decrease to net income of approximately $12.2 million, net of tax.
Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS 133, "Accounting for Derivative Instruments and Hedging Activities", which was delayed by SFAS 137 and amended by SFAS 138. SFAS 133/138 requires an entity to recognize all of its derivatives as either assets or liabilities in its statement of financial position and measure those instruments at fair value. Salton Sea Funding Corporation implemented the new standards on January 1, 2001. The initial adoption of SFAS133/138 did not have a material impact on Salton Sea Funding Corporation's financial position, results of operations or any impact on its cash flows.
The FASB's Derivatives Implementation Group continues to identify and provide guidance on various implementation issues related to SFAS 133/138 that are in varying stages of review and clearance by the Derivative Implementation Group and FASB. Salton Sea Funding Corporation has not determined if the ultimate resolution of those issues would have a material impact on its financial statements.
Forward-Looking Statements
Certain information included in this report contains forward-looking statements made pursuant to the Private Securities Litigation Reform Act of 1995 ("Reform Act"). Such statements are based on current expectations and involve a number of known and unknown risks and uncertainties that could cause the actual results and performance of the Company to differ materially from any expected future results or performance, expressed or implied, by the forward-looking statements. In connection with the safe harbor provisions of the Reform Act, the Company has identified important factors that could cause actual results to differ materially from such expectations, including development uncertainty, operating uncertainty, acquisition uncertainty, uncertainties relating to geothermal resources, uncertainties relating to economic and political conditions and uncertainties regarding the impact of regulations, changes in government policy, industry deregulation and competition. Reference is made to all of the Company's SEC filings incorporated herein by reference. The Company assumes no responsibility to update forward-looking information contained herein.
Item 7A.
Item 7A. Qualitative and Quantitative Disclosures About Market Risk
The following discussion of the Company's exposure to various market risks contains "forward-looking statements" that involve risks and uncertainties. These projected results have been prepared utilizing certain assumptions considered reasonable in the circumstances and in light of information currently available to the Company. Actual results could differ materially from those projected in the forward-looking information.
Interest Rate Risk
At December 31, 2000, the Funding Corporation had fixed-rate long-term debt of $543.9 million in principal amount and having a fair value of $468.8 million. These instruments are fixed-rate and therefore do not expose the Company to the risk of earnings loss due to changes in market interest rates. However, the fair value of these instruments would decrease by approximately $14.6 million if interest rates were to increase by 10% from their levels at December 31, 2000. In general, such a decrease in fair value would impact earnings and cash flows only if the Company were to reacquire all or a portion of these instruments prior to their maturity.
Item 8.
Item 8. Financial Statements and Supplementary Data.
SALTON SEA FUNDING CORPORATION
SALTON SEA FUNDING CORPORATION
Independent auditors' report--Deloitte & Touche LLP...........................29
Balance sheets as of December 31, 2000 and 1999 ..............................30
Statements of operations for the three years ended December 31, 2000 .........31
Statements of stockholder's equity for the three years ended December
31, 2000 .............................................................32
Statements of cash flows for the three years ended December 31, 2000 .........33
Notes to financial statements.................................................34
SALTON SEA GUARANTORS
Independent auditors' report--Deloitte & Touche LLP...........................38
Combined balance sheets as of December 31, 2000 and 1999.....................39
Combined statements of operations for the three years ended December
31, 2000..............................................................40
Combined statements of Guarantors' equity for the three years ended
December 31, 2000.....................................................41
Combined statements of cash flows for the three years ended December 31,
2000..................................................................42
Notes to combined financial statements........................................43
PARTNERSHIP GUARANTORS
Independent auditors' report--Deloitte & Touche LLP...........................50
Combined balance sheets as of December 31, 2000 and 1999......................51
Combined statements of operations for the three years ended December 31,
2000..................................................................52
Combined statements of Guarantors' equity for the three years ended December
31, 2000..............................................................53
Combined statements of cash flows for the three years ended December 31, 2000.54
Notes to combined financial statements........................................55
SALTON SEA ROYALTY LLC
Independent auditors' report--Deloitte & Touche LLP...........................66
Balance sheets as of December 31, 2000 and 1999...............................67
Statements of operations for the three years ended December 31, 2000..........68
Statements of equity for the three years ended December 31, 2000 .............69
Statements of cash flows for the three years ended December 31, 2000 .........70
Notes to financial statements.................................................71
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholder Salton Sea Funding Corporation Omaha, Nebraska
We have audited the accompanying balance sheets of Salton Sea Funding Corporation as of December 31, 2000 and 1999 and the related statements of operations, stockholder's equity and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material respects, the financial position of Salton Sea Funding Corporation as of December 31, 2000 and 1999 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP Omaha, Nebraska January 18, 2001
(March 27, 2001 as to Note 4)
SALTON SEA FUNDING CORPORATION BALANCE SHEETS
(Dollars in Thousands, Except Per Share Amounts)
December 31, - -------------------------------------------------------------------------------- 2000 1999 - --------------------------------------------------------------------------------
ASSETS
Cash $ 8,467 $ 2,086 Prepaid expenses and other assets 3,563 3,617 Due from affiliates --- 2,118 Current portion secured project notes from Guarantors 23,658 25,072 -------- ---------- Total current assets 35,688 32,893
Secured project notes from Guarantors 520,250 543,908 Investment in 1% of net assets of Guarantors 9,437 8,847 - ----------- -------- ---------- $565,375 $ 585,648 ======== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY Liabilities: Accrued liabilities $ 3,479 $ 3,607 Due to affiliates 4,753 --- Current portion long term debt 23,658 25,072 -------- --------- Total current liabilities 31,890 28,679
Senior secured notes and bonds 520,250 543,908 -------- --------- Total liabilities 552,140 572,587
Commitments and contingencies (Note 3 and 4)
Stockholder's equity: Common stock--authorized 1,000 shares, par value $.01 per share; issued and outstanding 100 shares - - Additional paid-in capital 5,366 5,366 Retained earnings 7,869 7,695 -------- --------- Total stockholder's equity 13,235 13,061 -------- --------- $565,375 $ 585,648 ======== =========
The accompanying notes are an integral part of the financial statements.
SALTON SEA FUNDING CORPORATION STATEMENTS OF OPERATIONS
(Dollars in Thousands)
The accompanying notes are an integral part of the financial statements.
SALTON SEA FUNDING CORPORATION STATEMENTS OF STOCKHOLDER'S EQUITY FOR THE THREE YEARS ENDED DECEMBER 31, 2000 (Dollars in Thousands)
The accompanying notes are an integral part of the financial statements.
SALTON SEA FUNDING CORPORATION STATEMENTS OF CASH FLOWS (Dollars in Thousands)
The accompanying notes are an integral part of the financial statements.
SALTON SEA FUNDING CORPORATION NOTES TO FINANCIAL STATEMENTS
1. THE PURPOSE AND BUSINESS OF SALTON SEA FUNDING CORPORATION
Salton Sea Funding Corporation (the "Funding Corporation"), which was formed on June 20, 1995, is a special purpose Delaware corporation and was organized for the sole purpose of acting as issuer of senior secured notes and bonds. On July 21, 1995, June 20, 1996 and October 31, 1998, the Funding Corporation issued $475 million, $135 million and $285 million, respectively, of Senior Secured Notes and Bonds (collectively, the "Securities").
The Funding Corporation is a wholly-owned subsidiary of Magma Power Company, which in turn was wholly-owned by MidAmerican Energy Holdings Company ("MidAmerican"). On February 8, 1999, MidAmerican created a new subsidiary, CE Generation and subsequently transferred its interest in the Company and its power generation assets in the Imperial Valley to CE Generation, with certain assets being retained by MidAmerican. On March 3, 1999, MidAmerican closed the sale of 50% of its ownership interests in CE Generation to El Paso CE Generation Holding Company, which was merged into El Paso Merchant Energy Holding Company on December 31, 2000, an affiliate of El Paso Corporation.
The Securities are payable from the proceeds of payments made of principal and interest on the Secured Project Notes from the Guarantors to the Funding Corporation. The Securities are also guaranteed on a joint and several basis by the Salton Sea Guarantors, the Partnership Guarantors and Salton Sea Royalty, LLC (collectively the "Guarantors"). The Guarantors are affiliates of Magma Power Company and the Salton Sea Funding Corporation who collectively own ten operating geothermal power plants and a related zinc recovery plant located in Imperial Valley, California. The guarantees of the Partnership Guarantors and the Royalty Guarantor are limited to available cash flow. The Funding Corporation does not conduct any operations apart from issuing the Securities.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Investment in Guarantors
Since the Funding Corporation has the ability to assert significant influence over the operations of the Guarantors, it accounts for its one percent investment in the Guarantors using the equity method of accounting.
Income Taxes
The Funding Corporation is included in the consolidated income tax returns with its parent and affiliates. Income taxes are provided on a separate return basis; however, tax obligations of the Funding Corporation will be remitted to the parent only to the extent of cash flows available after operating expenses and debt service.
Fair Values of Financial Instruments
Fair values have been estimated based on quoted market prices for debt issues listed on exchanges. Fair values of financial instruments that are not actively traded are based on market prices of similar instruments and/or valuation techniques using market assumptions. Unless otherwise noted, the estimated fair value amounts do not differ significantly from recorded values.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS 133, "Accounting for Derivative Instruments and Hedging Activities", which was delayed by SFAS 137 and amended by SFAS 138. SFAS 133/138 requires an entity to recognize all of its derivatives as either assets or liabilities in its statement of financial position and measure those instruments at fair value. Salton Sea Funding Corporation implemented the new standards on January 1, 2001. The initial adoption of SFAS133/138 did not have a material impact on Salton Sea Funding Corporation's financial position, results of operations or any impact on its cash flows.
The FASB's Derivatives Implementation Group continues to identify and provide guidance on various implementation issues related to SFAS 133/138 that are in varying stages of review and clearance by the Derivative Implementation Group and FASB. Salton Sea Funding Corporation has not determined if the ultimate resolution of those issues would have a material impact on its financial statements.
3. SENIOR SECURED NOTES AND BONDS
The Funding Corporation's debt securities (the "Notes and Bonds") are as follows (in thousands):
Senior Final Maturity December 31, December 31, Secured Series Date Rate 2000 1999 July 21, 1995 A Notes May 30, 2000 6.69% $ --- $ 18,532 July 21, 1995 B Bonds May 30, 2005 7.37% 100,736 101,776 July 21, 1995 C Bonds May 30, 2010 7.84% 109,250 109,250 June 20, 1996 D Notes May 30, 2000 7.02% --- 1,500 June 20, 1996 E Bonds May 30, 2011 8.30% 48,922 52,922 October 13, 1998 F Bonds November 30, 2018 7.475% 285,000 285,000 ------- -------- $543,908 $568,980
Principal and interest payments are made in semi-annual installments. Principal maturities of the Senior Secured Notes and Bonds are as follows (in thousands):
2001 $ 23,658 2002 28,572 2003 28,086 2004 30,588 2005 30,374 Thereafter 402,630 -------- $ 543,908
Pursuant to a depository agreement, Funding Corporation established a debt service reserve fund in the form of a letter of credit in the amount of $67.6 million from which scheduled interest and principal payments can be made.
The estimated fair values of the Senior Secured Notes and Bonds at December 31, 2000 and 1999 were $468.8 million and $540.7 million, respectively.
4. CONTINGENCY
Edison, a wholly-owned subsidiary of Edison International, is a public utility primarily engaged in the business of supplying electric energy to retail customers in Central and Southern California, excluding Los Angeles. The Funding Corporation is aware that there have been public announcements that Edison's financial condition has deteriorated as a result of reduced liquidity. Based on public announcements, the Funding Corporation understands that Edison has not made payments to other qualifying facilities ("QFs") from which Edison purchases power and has not made scheduled payments of debt service. Edison's senior unsecured debt obligations are currently rated Caa2 (on watch for possible downgrade) by Moody's and D by S&P.
The Funding Corporation is aware that there have been public announcements that Edison, other industry participants and governmental entities have taken actions in response to Edison's financial condition. These actions include the following:
o The Federal Energy Regulatory Commission ("FERC") has issued an order eliminating requirements that Edison and other California utilities purchase power from the structured power market in California known as the California Power Exchange in order to provide them with an opportunity to obtain power from alternative sources at a lower cost.
o The State of California has enacted legislation to provide for the California Department of Water Resources to purchase wholesale power and sell it to retail customers, which will be funded by a surcharge on retail rates. The California legislature is also considering other legislation to improve the financial condition of the California electric utilities.
o The California Public Utilities Commission ("CPUC") approved a decision on March 27, 2001 to increase retail electricity rates by approximately 40%. In another decision that day, the CPUC ordered Edison to pay the QFs on a go forward basis within 15 days of the invoice and purportedly modified the calculation of Short Run Avoided Cost.
o The State of California and Edison have announced a preliminary agreement for the State to purchase Edison's transmission assets for $2.7 billion and to allow Edison to issue bonds for a substantial portion of its undercollection of revenues.
The Funding Corporation can give no assurance as to the likely result of any of the actions described above or as to whether such actions will have a positive effect on the financial condition of Edison or its willingness to make payments under the Power Purchase Agreements.
Edison has failed to pay approximately $76 million due under the Power Purchase Agreements for power delivered in November and December 2000 and January 2001, although the Power Purchase Agreements provide for billing and payment on a schedule where payments would have normally been received in early January, February and March 2001. Edison has not notified the Imperial Valley Projects as to when they can expect to receive these payments. This continued non-payment by Edison could result in an untenable situation for the continued operation of the Imperial Valley Projects unless additional funds are obtained in the near future.
On February 21, 2001, certain Guarantors filed a lawsuit against Edison in California's Imperial County Superior Court seeking a court order requiring Edison to make the required payments under the Power Purchase Agreements. The lawsuit also requested, among other things, that the court order permit the Guarantors to suspend deliveries of power to Edison and to permit the Guarantors to sell such power to other purchasers in California.
On March 22, 2001, the Superior Court granted Guarantors' Motion for Summary Adjudication and a Declaratory Judgment ordering that: 1) under the Power Purchase Agreements, Guarantors have the right to temporarily suspend deliveries of capacity and energy to Edison, 2) Guarantors are entitled to resell the energy and capacity to other purchasers and 3) the interim suspension of deliveries to Edison shall not in any respect result in the modifications or termination of the Power Purchase Agreements and the Power Purchase Agreements shall in all respects continue in full force and effect other than the temporary suspension of deliveries to Edison. The Guarantors intend to vigorously pursue their other remedies in this action in light of Edison's continuing non-payment.
The Funding Corporation is hopeful that the current Edison situation is temporary and the proceedings in the legal, regulatory, financial and political arenas will lead to the improvement of Edison's financial condition in the near future and the payment by Edison of amounts due under the Power Purchase Agreements. However, no assurance can be given that this will be the case.
As a result of SoCal Edison's failure to make the payments due under the Power Purchase Agreements and the recent downgrades of SoCal Edison's credit ratings, Moody's has downgraded the ratings for the Securities to Caa2 (negative outlook) and S&P has downgraded the ratings for the Securities to BBB- and has placed the Securities on "credit watch negative". Accordingly, the Funding Corporation does not believe it is currently able to obtain funds in the banking or capital markets.
5. REVOLVING CREDIT AGREEMENT
On July 21, 1995, Salton Sea Funding Corporation obtained a $15 million seven year revolving credit agreement between Credit Suisse as bank and agent and other lenders. The interest rate is at the Adjusted Base Rate plus .375% or at the LIBOR rate plus 100 basis points. On May 26, 2000, Salton Sea Funding Corporation borrowed $15 million under its revolving credit agreement. The loan was repaid in two installments, $5 million on July 26, 2000 and $10 million on August 28, 2000.
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholder Magma Power Company Omaha, Nebraska
We have audited the accompanying combined balance sheets of the Salton Sea Guarantors as of December 31, 2000 and 1999, and the related combined statements of operations, Guarantors' equity and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Salton Sea Guarantors' management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such combined financial statements present fairly, in all material respects, the financial position of the Salton Sea Guarantors as of December 31, 2000 and 1999 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP Omaha, Nebraska January 18, 2001
(March 27, 2001 as to Note 6)
SALTON SEA GUARANTORS COMBINED BALANCE SHEETS (Dollars in Thousands)
The accompanying notes are an integral part of the combined financial statements
SALTON SEA GUARANTORS COMBINED STATEMENTS OF OPERATIONS (Dollars in Thousands)
The accompanying notes are an integral part of the combined financial statements
SALTON SEA GUARANTORS COMBINED STATEMENTS OF GUARANTORS' EQUITY FOR THE THREE YEARS ENDED DECEMBER 31, 2000 (Dollars in Thousands)
Balance, January 1, 1998 $ 234,188
Net income 45,939 ------------ Balance, December 31, 1998 280,127
Net income 23,045 ------------ Balance, December 31, 1999 303,172
Net income 28,323 ------------ Balance, December 31, 2000 $ 331,495 ============
The accompanying notes are an integral part of the combined financial statements
SALTON SEA GUARANTORS COMBINED STATEMENTS OF CASH FLOWS (Dollars in Thousands)
The accompanying notes are an integral part of the combined financial statements
SALTON SEA GUARANTORS NOTES TO COMBINED FINANCIAL STATEMENTS
1. ORGANIZATION AND OPERATIONS
Salton Sea Guarantors (the "Guarantors") (not a legal entity) own 100% interests in five operating geothermal electric power generating plants (Salton Sea I, II, III, IV and V) (collectively, the "Salton Sea Projects"). All five plants are located in the Imperial Valley of California. The Salton Sea Guarantors guarantee loans from Salton Sea Funding Corporation ("Funding Corporation"), an indirect wholly-owned subsidiary of Magma Power Company ("Magma") which in turn was wholly-owned by MidAmerican Energy Holdings Company ("MidAmerican").
On February 8, 1999, MidAmerican created a new subsidiary, CE Generation LLC ("CE Generation") and subsequently transferred its interest in the Company and its power generation assets in the Imperial Valley to CE Generation, with certain assets being retained by MidAmerican. On March 3, 1999, MidAmerican closed the sale of 50% of its ownership interests in CE Generation to El Paso CE Generation Holding Company, which was merged into El Paso Merchant Energy Holding Company on December 31, 2000, an affiliate of El Paso Energy Corporation.
The financial statements consist of the combination of (1) Salton Sea Brine Processing, L.P., a California limited partnership between Magma as a 99% limited partner and Salton Sea Power Company ("SSPC"), a wholly-owned subsidiary of Magma, as a 1% general partner, (2) Salton Sea Power Generation, L.P., a California limited partnership between Salton Sea Brine Processing, L.P., as a 99% limited partner, and Salton Sea Power Company, as a 1% general partner, (3) assets and liabilities attributable to Salton Sea IV which are held 99% by Salton Sea Power Generation, L.P. and 1% by Fish Lake Power LLC ("FLPC") and (4) Salton Sea Power L.L.C., a Delaware limited liability company. Effective in June of 1995, 1% interests in SSPC and FLPC were transferred to Funding Corporation. All of the entities in the combination are affiliates of Magma and indirect subsidiaries of CE Generation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements present the combined accounts of the Salton Sea Projects described above. All significant intercompany transactions and accounts have been eliminated.
The financial statements reflect the acquisition of Magma and the resulting push down to the Guarantors of the accounting as a purchase business combination.
Revenue Recognition
The Guarantors recognize revenues and related accounts receivable from sales of electricity on an accrual basis. All of the Guarantors' sales of electricity, except for Salton Sea V, are to Southern California Edison Company ("Edison") under long term power purchase contracts. During the first 10 years for Salton Sea II and III, the Guarantors earn payments for energy as scheduled in their SO4 Agreements. After the 10-year fixed payment period has expired (in 1999 for Salton Sea III and 2000 for Salton Sea II), the energy payment per kWh throughout the remainder of the contract period will be at a rate which is based on the cost that Edison avoids by purchasing energy from the project instead of obtaining the energy from other sources ("Avoided Cost of Energy").
Salton Sea I sells electricity to Edison pursuant to a 30-year negotiated power purchase agreement, as amended (the "Salton Sea I PPA"), which provides for capacity and energy payments. The energy payment is calculated using a Base Price which is subject to quarterly adjustments based on a basket of indices. The time period weighted average energy payment for Salton Sea I was 5.7 and 5.3 cents per kWh during 2000 and 1999, respectively. As the Salton Sea I PPA is not an SO4 Agreement, the energy payments do not revert to Edison's Avoided Cost of Energy. The capacity payment is approximately $1.1 million per annum.
Salton Sea II and Salton Sea III sell electricity to Edison pursuant to 30-year modified SO4 Agreements that provide for capacity payments, capacity bonus payments and energy payments. The price for contract capacity and contract capacity bonus payments is fixed for the life of the modified SO4 Agreements. The energy payments for the first ten year period, which period expired in April 2000 for Salton Sea II and in February 1999 for Salton Sea III are levelized at a time period weighted average of 10.6 cents per kWh and 9.8 cents per kWh for Salton Sea II and Salton Sea III, respectively. Thereafter, the monthly energy payments are Edison's Avoided Cost of Energy. For Salton Sea II only, Edison is entitled to receive, at no cost, 5% of all energy delivered in excess of 80% of contract capacity through September 30, 2004. The annual capacity and bonus payments for Salton Sea II and Salton Sea III are approximately $3.3 million and $9.7 million, respectively.
Salton Sea IV sells electricity to Edison pursuant to a modified SO4 agreement which provides for contract capacity payments on 34 MW of capacity at two different rates based on the respective contract capacities deemed attributable to the original Salton Sea PPA option (20 MW) and to the original Fish Lake PPA (14 MW). The capacity payment price for the 20 MW portion adjusts quarterly based upon specified indices and the capacity payment price for the 14 MW portion is a fixed levelized rate. The energy payment (for deliveries up to a rate of 39.6 MW) is at a fixed price for 55.6% of the total energy delivered by Salton Sea IV and is based on an energy payment schedule for 44.4% of the total energy delivered by Salton Sea IV. The contract has a 30-year term but Edison is not required to purchase the 20 MW of capacity and energy originally attributable to the Salton Sea I PPA option after September 30, 2017, the original termination date of the Salton Sea I PPA.
For the year ended December 31, 2000 and 1999, Edison's average Avoided Cost of Energy was 5.8 cents and 3.1 cents per kWh, respectively. Estimates of Edison's future Avoided Cost of Energy vary substantially from year to year. The Guarantors cannot predict the likely level of Avoided Cost of Energy prices.
If Edison was unable to perform, the Guarantors could incur an accounting loss equal to the entire accounts receivable balance from Edison of $16.1 million, at December 31, 2000.
Salton Sea Unit V Project, which commenced operations in the third quarter of 2000, will sell approximately one-third of its net output to a zinc facility, which is owned by a subsidiary of MidAmerican and is expected to commence operations in mid-2001. The remainder of the Salton Sea Unit V output in 2000 was sold through other market transactions.
On January 17, 2001, Salton Sea Power entered into an agreement to sell available power from Salton Sea Unit V to El Paso Merchant Energy, L.P. ("EPME"). Under the terms of the agreement, at the option of Salton Sea Power, EPME will purchase all available power from Salton Sea Unit V based on day ahead price quotes received from EPME.
Restricted Cash
The restricted cash balance primarily included commercial paper, money market securities and mortgage backed securities and was composed of amounts deposited in restricted accounts which the Guarantors will use to fund capital expenditures.
Property, Plant, Contracts and Equipment
Property, plant, contracts and equipment are carried at cost less accumulated depreciation. The Guarantors provide depreciation and amortization of property, plants, contracts and equipment upon the commencement of revenue production over the estimated useful life of the assets.
Depreciation of the operating power plant costs, net of salvage value, is computed on the straight line method over the estimated useful lives, between 10 and 30 years. Depreciation of furniture, fixtures and equipment is computed on the straight line method over the estimated useful lives of the related assets, which range from three to ten years.
Power sale agreements have been assigned values separately for each of (1) the remaining portion of the fixed price periods of the power sales agreements and (2) the 20 year avoided cost periods of the power sales agreements and are being amortized separately over such periods using the straight line method.
The Salton Sea reservoir contains commercial quantities of extractable minerals. The carrying value of the mineral reserves will be amortized upon commencement of commercial production.
Excess of Cost over Fair Value
Total acquisition costs in excess of the fair values assigned to the net assets acquired are amortized over a 40 year period using the straight line method. At December 31, 2000 and 1999, accumulated amortization of the excess of cost over fair value was $7.7 million and $6.4 million, respectively.
Capitalization of Interest and Deferred Financing Costs
Prior to the commencement of operations, interest is capitalized on the costs of the plants and geothermal resource development to the extent incurred. Capitalized interest and other deferred charges are amortized over the lives of the related assets.
Deferred financing costs are amortized over the term of the related financing using the effective interest method.
Income Taxes
The Guarantors are comprised substantially of partnership interests. The income or loss of each partnership for income tax purposes, along with any associated tax credits, is the responsibility of the individual partners. Accordingly, no recognition has been given to federal or state income taxes in the accompanying combined financial statements.
Statements of Cash Flows
For purposes of the statements of cash flows, the Guarantors consider only demand deposits at banks to be cash.
Fair Values of Financial Instruments
Fair values of financial instruments that are not actively traded are based on market prices of similar instruments and/or valuation techniques using market assumptions. Unless otherwise noted, the estimated fair value amounts do not differ significantly from recorded values.
Impairment of Long-Lived Assets
The Guarantors review long-lived assets and certain identifiable intangibles for impairments whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss would be recognized, based on discounted cash flows or various models, whenever evidence exists that the carrying value is not recoverable.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS 133, "Accounting for Derivative Instruments and Hedging Activities", which was delayed by SFAS 137 and amended by SFAS 138. SFAS 133/138 requires an entity to recognize all of its derivatives as either assets or liabilities in its statement of financial position and measure those instruments at fair value. Salton Sea Funding Corporation implemented the new standards on January 1, 2001. The initial adoption of SFAS133/138 did not have a material impact on Salton Sea Funding Corporation's financial position, results of operations or any impact on its cash flows.
The FASB's Derivatives Implementation Group continues to identify and provide guidance on various implementation issues related to SFAS 133/138 that are in varying stages of review and clearance by the Derivative Implementation Group and FASB. Salton Sea Funding Corporation has not determined if the ultimate resolution of those issues would have a material impact on its financial statements.
The Company is considering adopting a new policy of accounting for major maintenance, overhaul and well workover costs. These costs which have historically been accounted for using the deferral method, would be expensed as incurred. As of January 1, 2001 the cumulative effect of this change would be a decrease to net income of approximately $5.0 million.
3. PROPERTY, PLANT, CONTRACTS AND EQUIPMENT
Property, plant, contracts and equipment consisted of the following: December 31, 2000 1999 ----------- ----------- Plant and equipment $443,762 $333,109 Power sale agreements 64,609 64,609 Mineral reserves 90,119 86,762 Wells and resource development 43,585 43,584 ----------- ------------ 642,075 528,064 Less accumulated depreciation and amortization (75,498) (60,786) ----------- ------------ 566,577 467,278 Construction in progress: Salton Sea V --- 85,625 ----------- ------------ $566,577 $552,903 =========== ============
4. SENIOR SECURED PROJECT NOTE
The Guarantors have a project note payable to Salton Sea Funding Corporation with interest rates ranging from 7.37% to 7.84%. They have also guaranteed, along with other guarantors, the debt of Salton Sea Funding Corporation, which amounted to $543.9 million at December 31, 2000. The guarantee issued is collateralized by a lien on substantially all the assets of and a pledge of the equity interests in the Guarantors. The structure has been designed to cross collateralize cash flows from each guarantor without cross collateralizing all of the guarantors' assets.
Principal maturities of the senior secured project note are as follows (in thousands):
2001 $ 17,319 2002 20,487 2003 22,765 2004 24,409 2005 23,917 Thereafter 175,320 --------- $284,217 =========
The estimated fair values of the senior secured projects notes at December 31, 2000 and 1999 were $249.8 million and $282.4 million, respectively.
5. RELATED PARTY TRANSACTIONS
The Guarantors have entered into the following agreements:
o Amended and Restated Easement Grant Deed and Agreement Regarding Rights for Geothermal Development dated February 23, 1994, as amended, whereby the Guarantors acquired from Magma Land I, a wholly-owned subsidiary of Magma, rights to extract geothermal brine from the geothermal lease rights property which is necessary to operate the Salton Sea Power Generation, L.P. facilities in return for 5% of all electricity revenues received by the Guarantors. The amount expensed for the years ended December 31, 2000, 1999 and 1998 was $4.1 million, $3.7 million and $4.9 million, respectively.
o Administrative Services Agreement dated April 1, 1993 with Magma, whereby Magma will provide administrative and management services to the Guarantors, excluding Salton Sea IV and V. Fees payable to Magma amount to 3% of total electricity revenues. The amount expensed for the years ended December 31, 2000, 1999 and 1998 was $1.4 million, $1.5 million and $2.3 million, respectively.
o Operating and Maintenance Agreement dated April 1, 1993 with CalEnergy Operating Corporation ("CEOC"), whereby the Guarantors retain CEOC to operate the Salton Sea facilities for a period of 32 years. Payment is made to CEOC in the form of reimbursements of expenses incurred. During 2000, 1999 and 1998, the Guarantors reimbursed CEOC for expenses of $7.4 million, $6.7 million and $6.3 million, respectively.
Salton Sea Power LLC ("Salton Sea Power"), a Salton Sea Guarantor, and El Paso Merchant Energy L.P. ("EPME") entered into a power marketing agreement commencing June 13, 2000 and ending on June 30, 2000. Under the terms of the agreement, EPME purchased and Salton Sea Power sold all available power from the Salton Sea Unit V project. EPME sold the available power into the bulk power market. The purchase price of the available power is the value of the cash actually received by EPME for the sale of such power, plus any realized renewable premiums.
On June 9, 2000, Salton Sea Power, entered into an agreement to sell all available power from the Salton Sea Unit V project to EPME. Under the terms of the agreement commencing on July 1, 2000 and ending on September 30, 2000, EPME purchased up to 25 MW of available power for $53 per MWh, together with any premiums related to such power. EPME also marketed any available power which exceeded 25 MW on behalf of Salton Sea Power.
On September 29, 2000, Salton Sea Power entered into an agreement to sell all available power from the Salton Sea Unit V project to EPME. Under the terms of the agreement, commencing October 1, 2000 and ending September 30, 2001, EPME will purchase all available power and sell available power on behalf of Salton Sea Power, into the California ISO markets. The purchase price for the available power shall be equivalent to the value actually received by EPME for the sale of such power, including renewable premiums.
6. CONTINGENCY
Edison, a wholly-owned subsidiary of Edison International, is a public utility primarily engaged in the business of supplying electric energy to retail customers in Central and Southern California, excluding Los Angeles. The Funding Corporation is aware that there have been public announcements that Edison's financial condition has deteriorated as a result of reduced liquidity. Based on public announcements, the Funding Corporation understands that Edison has not made payments to other qualifying facilities ("QFs") from which Edison purchases power and has not made scheduled payments of debt service. Edison's
senior unsecured debt obligations are currently rated Caa2 (on watch for possible downgrade) by Moody's and D by S&P.
The Funding Corporation is aware that there have been public announcements that Edison, other industry participants and governmental entities have taken actions in response to Edison's financial condition. These actions include the following:
o The Federal Energy Regulatory Commission ("FERC") has issued an order eliminating requirements that Edison and other California utilities purchase power from the structured power market in California known as the California Power Exchange in order to provide them with an opportunity to obtain power from alternative sources at a lower cost.
o The State of California has enacted legislation to provide for the California Department of Water Resources to purchase wholesale power and sell it to retail customers, which will be funded by a surcharge on retail rates. The California legislature is also considering other legislation to improve the financial condition of the California electric utilities.
o The California Public Utilities Commission ("CPUC") approved a decision on March 27, 2001 to increase retail electricity rates by approximately 40%. In another decision that day, the CPUC ordered Edison to pay the QFs on a go forward basis within 15 days of the invoice and purportedly modified the calculation of Short Run Avoided Cost.
o The State of California and Edison have announced a preliminary agreement for the State to purchase Edison's transmission assets for $2.7 billion and to allow Edison to issue bonds for a substantial portion of its undercollection of revenues.
The Funding Corporation can give no assurance as to the likely result of any of the actions described above or as to whether such actions will have a positive effect on the financial condition of Edison or its willingness to make payments under the Power Purchase Agreements.
Edison has failed to pay approximately $76 million due under the Power Purchase Agreements for power delivered in November and December 2000 and January 2001, although the Power Purchase Agreements provide for billing and payment on a schedule where payments would have normally been received in early January, February and March 2001. Edison has not notified the Imperial Valley Projects as to when they can expect to receive these payments. This continued non-payment by Edison could result in an untenable situation for the continued operation of the Imperial Valley Projects unless additional funds are obtained in the near future.
On February 21, 2001, certain Guarantors filed a lawsuit against Edison in California's Imperial County Superior Court seeking a court order requiring Edison to make the required payments under the Power Purchase Agreements. The lawsuit also requested, among other things, that the court order permit the Guarantors to suspend deliveries of power to Edison and to permit the Guarantors to sell such power to other purchasers in California.
On March 22, 2001, the Superior Court granted Guarantors' Motion for Summary Adjudication and a Declaratory Judgment ordering that: 1) under the Power Purchase Agreements, Guarantors have the right to temporarily suspend deliveries of capacity and energy to Edison, 2) Guarantors are entitled to resell the energy and capacity to other purchasers and 3) the interim suspension of deliveries to Edison shall not in any respect result in the modifications or termination of the Power Purchase Agreements and the Power Purchase Agreements shall in all respects continue in full force and effect other than the temporary suspension of deliveries to Edison. The Guarantors intend to vigorously pursue their other remedies in this action in light of Edison's continuing non-payment.
The Funding Corporation is hopeful that the current Edison situation is temporary and the proceedings in the legal, regulatory, financial and political arenas will lead to the improvement of Edison's financial condition in the near future and the payment by Edison of amounts due under the Power Purchase Agreements. However, no assurance can be given that this will be the case.
As a result of Edison's failure to make the payments due under the Power Purchase Agreements and the recent downgrades of Edison's credit ratings, Moody's has downgraded the ratings for the Securities to Caa2 (negative outlook) and S&P has downgraded the ratings for the Securities to BBB- and has placed the Securities on "credit watch negative". Accordingly, the Funding Corporation does not believe it is currently able to obtain funds in the banking or capital markets.
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholder Magma Power Company Omaha, Nebraska
We have audited the accompanying combined balance sheets of the Partnership Guarantors as of December 31, 2000 and 1999, and the related combined statements of operations, Guarantors' equity and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Partnership Guarantors' management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such combined financial statements present fairly, in all material respects, the financial position of the Partnership Guarantors as of December 31, 2000 and 1999 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP Omaha, Nebraska January 18, 2001
(March 27, 2001 as to Note 8A)
PARTNERSHIP GUARANTORS COMBINED BALANCE SHEETS (Dollars in Thousands) December 31, - -------------------------------------------------------------------------------- 2000 1999 - -------------------------------------------------------------------------------- ASSETS Accounts receivable $ 28,319 $ 16,295 Prepaid expenses and other assets 26,661 22,200 --------- -------- Total current assets 54,980 38,495
Restricted cash 106 60,454 Property, plant, contracts and equipment, net 636,264 531,427 Management fee 70,855 71,489 Due from affiliates 35,066 72,033 Excess of fair value over net assets acquired, net 124,430 127,994 --------- -------- $ 921,701 $901,892 ========= ======== LIABILITIES AND GUARANTORS' EQUITY Liabilities: Accounts payable $ 101 $ 3,925 Accrued liabilities 17,722 13,534 Current portion of long term debt 1,907 10,562 --------- -------- Total current liabilities 19,730 28,021
Senior secured project note 248,743 250,650 Deferred income taxes 101,734 98,907 --------- -------- Total liabilities 370,207 377,578
Commitments and contingencies (Notes 4, 5 and 8)
Guarantors' equity: Common stock 3 3 Additional paid-in capital 387,663 387,663 Retained earnings 163,828 136,648 --------- -------- Total Guarantors' equity 551,494 524,314 --------- -------- $ 921,701 $901,892 ========= ========
The accompanying notes are an integral part of the combined financial statements
PARTNERSHIP GUARANTORS COMBINED STATEMENTS OF OPERATIONS (Dollars in Thousands)
The accompanying notes are an integral part of the combined financial statements
PARTNERSHIP GUARANTORS COMBINED STATEMENTS OF GUARANTORS' EQUITY FOR THE THREE YEARS ENDED DECEMBER 31, 2000 (Dollars in Thousands)
The accompanying notes are an integral part of the combined financial statements
PARTNERSHIP GUARANTORS COMBINED STATEMENTS OF CASH FLOWS (Dollars in Thousands)
The accompanying notes are an integral part of these combined financial statements
PARTNERSHIP GUARANTORS NOTES TO COMBINED FINANCIAL STATEMENTS
1. ORGANIZATION AND OPERATIONS
Partnership Guarantors (the "Guarantors") (not a legal entity) consists of the combination of Vulcan Power Company ("VPC"), CalEnergy Operating Corporation ("CEOC"), both 99% owned by Magma Power Company ("Magma") and 1% owned by Salton Sea Funding Corporation (the "Funding Corporation"); CE Turbo LLC ("CE Turbo"), indirectly wholly-owned by Magma; and CalEnergy Minerals LLC, a Delaware limited liability company ("Minerals LLC"). Minerals LLC is an indirect wholly-owned subsidiary of MidAmerican Energy Holdings Company ("MidAmerican"). VPC's and CEOC's principal assets are interests in certain partnerships which are engaged in the operation of geothermal power plants in the Imperial Valley of California. The Guarantors have guaranteed the loans to such partnerships from Funding Corporation, an indirect wholly-owned subsidiary of Magma. Magma is a wholly-owned subsidiary of CE Generation LLC ("CE Generation"), which is owned equally by MidAmerican and El Paso CE Generation Holding Company, which was merged into El Paso Merchant Energy Holding Company on December 31, 2000, an affiliate of El Paso Energy Corporation.
VPC and its subsidiary hold a 100% interest in Vulcan/BN Geothermal Power Company, a Nevada general partnership, and CEOC and its subsidiaries hold a 90% general partner interest in Leathers, L.P., a California limited partnership, Del Ranch, L.P., a California limited partnership and Elmore, L.P. a California limited partnership (collectively, the "Partnerships"). Magma owns a 10% limited partnership interest in each of Leathers L.P., Elmore L.P. and Del Ranch L.P. and has entered into an agreement to pay to the Guarantors the distributions it receives related to such 10% interests, in addition to a special distribution equal to 4.5% of total energy sales from the Leathers Project.
Minerals LLC is constructing the Zinc Recovery Project which will recover zinc from the geothermal brine (the "Zinc Recovery Project"). Facilities are being installed near Imperial Valley Project sites to extract a zinc chloride solution from the geothermal brine through an ion exchange process. This solution will be transported to a central processing plant where zinc ingots will be produced through solvent extraction, electrowinning and casting processes. The Zinc Recovery Project is designed to have a capacity of approximately 30,000 metric tonnes per year and is scheduled to commence commercial operation in mid-2001. In September 1999, Minerals LLC entered into a sales agreement whereby all zinc produced by the Zinc Recovery Project will be sold to Cominco, Ltd. The initial term of the agreement expires in December 2005.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements of the Guarantors present the accounts of CEOC, VPC, CE Turbo LLC and Minerals LLC and their proportionate share of the Partnerships in which they have an undivided interest in the assets and are proportionately liable for their share of the liabilities. All significant intercompany balances and transactions have been eliminated.
The financial statements reflect the acquisition of Magma and the resulting push down to the Guarantors of the accounting as a purchase business combination.
Revenue Recognition
The Guarantors recognize revenues and related accounts receivable from sales of electricity on an accrual basis. All of the Guarantors' sales of electricity, except for Turbo, are to Southern California Edison Company ("Edison") under long-term power purchase contracts.
The Partnership Projects, except for Turbo, sell electricity generated by the respective plants pursuant to four long-term power purchase agreements ("SO4 Agreements") between the projects and Edison. These SO4 Agreements provide for capacity payments, capacity bonus payments and energy payments. Edison makes fixed annual capacity payments to the projects, and to the extent that capacity factors exceed certain benchmarks is required to make capacity bonus payments. The price for capacity and capacity bonus payments is fixed for the life of the SO4 Agreements. Energy is sold at increasing fixed rates for the first ten years of each contract and thereafter at a rate which is based on the cost that Edison avoids by purchasing energy from the project instead of obtaining the energy from other sources ("Avoided Cost of Energy").
The fixed energy price periods of the Partnership Project SO4 Agreements extended until February 1996 for Vulcan, December 1998 for Hoch (Del Ranch) and Elmore, and December 1999 for the Leathers Partnership.
For the year ended December 31, 2000 and 1999, Edison's average Avoided Cost of Energy was 5.8 cents and 3.1 cents per kWh, respectively. Estimates of Edison's future Avoided Cost of Energy vary substantially from year to year. The Guarantors cannot predict the likely level of Avoided Cost of Energy prices.
If Edison was unable to perform the Guarantors could incur an accounting loss equal to the entire accounts receivable balance from Edison of $28.4 million, at December 31, 2000.
The Turbo Project, which commenced commercial operation in the third quarter of 2000, sold its output through other market transactions. The Turbo Project may sell its output to a zinc facility, which is owned by a subsidiary of MidAmerican and is expected to commence operations in mid-2001.
On January 17, 2001, CE Turbo entered into an agreement to sell available power from CE Turbo to El Paso Merchant Energy, L.P. ("EPME"). Under the terms of the agreement, at the option of CE Turbo, EPME will purchase all available power from CE Turbo based on day ahead price quotes received from EPME.
Restricted Cash
The restricted cash balance primarily included commercial paper, money market securities and mortgage backed securities and was composed of amounts deposited in restricted accounts which the Guarantors will use to fund capital expenditures.
Property, Plant, Contracts and Equipment
Property, plant, contracts and equipment are carried at cost less accumulated depreciation. The Guarantors provide depreciation and amortization of property, plants, contracts and equipment upon the commencement of revenue production over the estimated useful life of the assets.
Depreciation of the operating power plant costs, net of salvage value, is computed on the straight line method over the estimated useful lives, between 10 and 30 years. Depreciation of furniture, fixtures and equipment is computed on the straight line method over the estimated useful lives of the related assets, which range from three to ten years.
Power sale agreements have been assigned values separately for each of (1) the remaining portion of the fixed price periods of the power sales agreements and (2) the 20 year avoided cost periods of the power sales agreements and are amortized separately over such periods using the straight line method.
The Salton Sea reservoir contains commercial quantities of extractable minerals. The carrying value of the mineral reserves will be amortized upon commencement of commercial production.
The process license represents the economic benefits expected to be realized from the installation of the license and related technology at the Imperial Valley. The carrying value of the process license is amortized using the straight line method over the remaining estimated useful life of the license.
Excess of Cost over Fair Value
Total acquisition costs in excess of the fair values assigned to the net assets acquired are amortized over a 40 year period using the straight line method. At December 31, 2000 and 1999 accumulated amortization of the excess of cost over fair value of net assets acquired was $21.1 million and $17.5 million, respectively.
Capitalization of Interest and Deferred Financing Costs
Prior to the commencement of operations, interest is capitalized on the costs of the plants and geothermal resource development to the extent incurred. Capitalized interest and other deferred charges are amortized over the lives of the related assets.
Deferred financing costs are amortized over the term of the related financing using the effective interest method.
Income Taxes
The entities comprising the Guarantors are included in consolidated income tax returns with their parent and affiliates; however, income taxes are provided on a separate return basis. Tax obligations of the Guarantors will be remitted to the parent only to the extent of cash flows available after operating expenses and debt service.
Management Fee
Pursuant to the Magma Services Agreement, Magma has agreed to pay CEOC all equity cash flows and certain royalties payable by the Guarantors in exchange for providing data and services to Magma. As security for the obligations of Magma under the Magma Services Agreement, Magma has collaterally assigned to CEOC its rights to such equity cash flows and certain royalties.
Statements of Cash Flows
For purposes of the statement of cash flows, the Guarantors consider only demand deposits at banks to be cash.
Fair Values of Financial Instruments
Fair values of financial instruments that are not actively traded are based on market prices of similar instruments and/or valuation techniques using market assumptions. Unless otherwise noted, the estimated fair value amounts do not differ significantly from recorded values.
Impairment of Long-Lived Assets
The Guarantors review long-lived assets and certain identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss would be recognized, based on discounted cash flows or various models, whenever evidence exists that the carrying value is not recoverable.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS 133, "Accounting for Derivative Instruments and Hedging Activities", which was delayed by SFAS 137 and amended by SFAS 138. SFAS 133/138 requires an entity to recognize all of its derivatives as either assets or liabilities in its statement of financial position and measure those instruments at fair value. Salton Sea Funding Corporation implemented the new standards on January 1, 2001. The initial adoption of SFAS133/138 did not have a material impact on Salton Sea Funding Corporation's financial position, results of operations or any impact on its cash flows.
The FASB's Derivatives Implementation Group continues to identify and provide guidance on various implementation issues related to SFAS 133/138 that are in varying stages of review and clearance by the Derivative Implementation Group and FASB. Salton Sea Funding Corporation has not determined if the ultimate resolution of those issues would have a material impact on its financial statements.
The Company is considering adopting a new policy of accounting for major maintenance, overhaul and well workover costs. These costs which have historically been accounted for using the deferral method, would be expensed as incurred. As of January 1, 2001, the cumulative effect of this change would be a decrease to net income of approximately $7.2 million, net of tax.
3. PROPERTY, PLANT, CONTRACTS AND EQUIPMENT
Property, plant, contracts and equipment consisted of the following (in thousands): December 31, - ------------------------------------------------------------------------------ 2000 1999 - ------------------------------------------------------------------------------ Plant and equipment $196,113 $ 116,316 Power sale agreements 123,588 123,588 Process license 46,290 46,290 Mineral reserves 175,362 156,563 Wells and resource development 95,570 95,329 ---------- ---------- 636,923 538,086 Less accumulated depreciation and amortization (153,592) (140,224) ---------- ---------- 483,331 397,862 Construction in progress: Zinc recovery project 152,933 92,794 Turbo and Region 2 brine facilities upgrade --- 40,771 ---------- ---------- $ 636,264 $ 531,427 ========== ========= 4. SENIOR SECURED PROJECT NOTE
The Guarantors have a project note payable to Salton Sea Funding Corporation with interest rates ranging from 7.37% to 8.30%. They have also guaranteed, along with other guarantors, the debt of Salton Sea Funding Corporation, which amounted to $543.9 million at December 31, 2000. The guarantee is collateralized by a lien on the available cash flow of and a pledge of stock in the Guarantors. The structure has been designed to cross collateralize cash flows from each guarantor without cross collateralizing all of the guarantors' assets.
Principal maturities of the senior secured project note are as follows (in thousands):
2001 $ 1,907 2002 4,625 2003 5,017 2004 5,771 2005 6,022 Thereafter 227,308 ----------- $ 250,650 =======
The estimated fair values of the senior secured project note at December 31, 2000 and 1999 were $210.6 million and $244.7 million, respectively.
5. RELATED PARTY TRANSACTIONS
The Guarantors are party to a 30-year brine supply agreement through the Vulcan/BN Geothermal Power Company partnership and a technology license agreement for the rights to use the technology necessary for the construction and operation of the Vulcan Plant. Under the brine supply agreement, the Guarantors will pay VPC 4.167% of the contract energy component of the price of electricity provided by the Vulcan Plant. In addition, VPC has been designated as operator of the Vulcan Plant and receives agreed-upon compensation for such services.
Charges to the Guarantors related to the brine supply agreement and operator's fees on a pro rata basis amounted to $709,000 and $676,000, respectively, for the year ended December 31, 2000, $423,000 and $472,000, respectively, for the year ended December 31, 1999, $363,000 and $416,000, respectively, for the year ended December 31, 1998, respectively.
In addition, the Guarantors entered into the following agreements:
o Easement Grant Deed and Agreement Regarding Rights for Geothermal Development, whereby the Guarantors acquired from Magma rights to extract geothermal brine from the geothermal lease rights property which is necessary to operate the Leathers, Del Ranch and Elmore Plants in return for 17.333%, on a pro rata basis, of all energy revenues received by each plant. The Guarantors' share of amounts expensed under this agreement for 2000, 1999 and 1998 were $9.6 million, $11.9 million and $22.6 million, respectively.
o Ground Leases dated March 15 and August 15, 1988 with Magma whereby the Guarantors lease from Magma for 32 years the surface of the land as described in the Imperial County Assessor's official records. Amounts expensed under the ground leases for 2000, 1999 and 1998 were $70,000 per year.
o Administrative Services Agreements whereby CEOC will provide to the Partnerships administrative and management services for a period of 32 years through 2020. Fees payable to CEOC amount to the greater of 3% of total electricity revenues or $60,000 per month. The minimum monthly payments for years subsequent to 1989 are increased based on the consumer price index of the Bureau of Labor and Statistics. Amounts expensed related to these agreements for 2000, 1999 and 1998 amounted to $2.3 million, $2.7 million and $4.5 million, respectively.
o Operating and Maintenance Agreements whereby the Guarantors retain CEOC to operate the plants for a period of 32 years through 2020. Payment is made to CEOC in the form of reimbursements of expenses incurred and a guaranteed capacity payment ranging from 10% to 25% of energy revenues over stated amounts. The Guarantors in 2000, 1999 and 1998 reimbursed CEOC for expenses of $10.6 million, $7.5 million and $8.9 million, respectively, and accrued a guaranteed capacity payment of $1.9 million, $3.3 million and $4.7 million at December 31, 2000, 1999 and 1998, respectively.
On September 29, 2000, CE Turbo LLC entered into an agreement to sell all available power from the CE Turbo project to El Paso Merchant Energy. Under the terms of the agreement, commencing October 1, 2000 and ending September 30, 2001, El Paso Merchant Energy will purchase all available power and sell available power on behalf of CE Turbo, into the California ISO markets. The purchase price for the available power shall be equivalent to the value actually received by El Paso Merchant Energy for the sale of such power, including renewable premiums.
6. CONDENSED FINANCIAL INFORMATION
Condensed balance sheet information of the Guarantors' pro rata interest in the respective entities as of December 31, 2000 and 1999 is as follows (in thousands):
6. CONDENSED FINANCIAL INFORMATION (Continued)
Condensed balance sheet information of the Guarantors' pro rata interest in the respective entities as of December 31, 2000 and 1999 is as follows (in thousands):
6. CONDENSED FINANCIAL INFORMATION (Continued)
6. CONDENSED FINANCIAL INFORMATION (Continued)
6. CONDENSED FINANCIAL INFORMATION (Continued)
Condensed combining statements of operations including information of the Guarantors' pro rata interest in the respective entities for the years ended December 31, 2000, 1999 and 1998 is as follows:
6. CONDENSED FINANCIAL INFORMATION (Continued)
Condensed combining statements of operations including information of the Guarantors' pro rata interest in the respective entities for the years ended December 31, 2000, 1999 and 1998 is as follows:
7. INCOME TAXES
The provision for income taxes for the years ended December 31, 2000, 1999 and 1998 consisted of the following (in thousands):
Current Deferred Total 2000 -------- ---------- ---------- - -------------------- Federal $ 3,956 $ 946 $ 4,902 State 911 1,881 2,792 --------- --------- ---------- Total $ 4,867 $ 2,827 $ 7,694 ===== ===== ======
-------------------- Federal $ 8,527 $ 991 $ 9,518 State 2,754 275 3,029 --------- --------- ---------- Total $11,281 $1,266 $12,547 ===== ===== ======
- -------------------- Federal $22,021 $(7,212) $14,809 State 6,718 (1,998) 4,720 --------- --------- ---------- Total $28,739 $(9,210) $19,529 ===== ===== ======
Deferred tax liabilities at December 31, 2000 and 1999 consisted of differences between book and tax methods relating to depreciation and amortization.
The effective tax rate differs from the federal statutory tax rate due primarily to percentage depletion in excess of cost depletion and goodwill amortization.
8. COMMITMENTS AND CONTINGENCIES
A. Financial Condition of Edison
Edison, a wholly-owned subsidiary of Edison International, is a public utility primarily engaged in the business of supplying electric energy to retail customers in Central and Southern California, excluding Los Angeles. The Funding Corporation is aware that there have been public announcements that Edison's financial condition has deteriorated as a result of reduced liquidity. Based on public announcements, the Funding Corporation understands that Edison has not made payments to other qualifying facilities ("QFs") from which Edison purchases power and has not made scheduled payments of debt service. Edison's senior unsecured debt obligations are currently rated Caa2 (on watch for possible downgrade) by Moody's and D by S&P.
The Funding Corporation is aware that there have been public announcements that Edison, other industry participants and governmental entities have taken actions in response to Edison's financial condition. These actions include the following:
o The Federal Energy Regulatory Commission ("FERC") has issued an order eliminating requirements that Edison and other California utilities purchase power from the structured power market in California known as the California Power Exchange in order to provide them with an opportunity to obtain power from alternative sources at a lower cost.
o The State of California has enacted legislation to provide for the California Department of Water Resources to purchase wholesale power and sell it to retail customers, which will be funded by a surcharge on retail rates. The California legislature is also considering other legislation to improve the financial condition of the California electric utilities.
o The California Public Utilities Commission ("CPUC") approved a decision on March 27, 2001 to increase retail electricity rates by approximately 40%. In another decision that day, the CPUC ordered Edison to pay the QFs on a go forward basis within 15 days of the invoice and purportedly modified the calculation of Short Run Avoided Cost.
o The State of California and Edison have announced a preliminary agreement for the State to purchase Edison's transmission assets for $2.7 billion and to allow Edison to issue bonds for a substantial portion of its undercollection of revenues.
The Funding Corporation can give no assurance as to the likely result of any of the actions described above or as to whether such actions will have a positive effect on the financial condition of Edison or its willingness to make payments under the Power Purchase Agreements.
Edison has failed to pay approximately $76 million due under the Power Purchase Agreements for power delivered in November and December 2000 and January 2001, although the Power Purchase Agreements provide for billing and payment on a schedule where payments would have normally been received in early January, February and March 2001. Edison has not notified the Imperial Valley Projects as to when they can expect to receive these payments. This continued non-payment by Edison could result in an untenable situation for the continued operation of the Imperial Valley Projects unless additional funds are obtained in the near future.
On February 21, 2001, certain Guarantors filed a lawsuit against Edison in California's Imperial County Superior Court seeking a court order requiring Edison to make the required payments under the Power Purchase Agreements. The lawsuit also requested, among other things, that the court order permit the Guarantors to suspend deliveries of power to Edison and to permit the Guarantors to sell such power to other purchasers in California.
On March 22, 2001, the Superior Court granted Guarantors' Motion for Summary Adjudication and a Declaratory Judgment ordering that: 1) under the Power Purchase Agreements, Guarantors have the right to temporarily suspend deliveries of capacity and energy to Edison, 2) Guarantors are entitled to resell the energy and capacity to other purchasers and 3) the interim suspension of deliveries to Edison shall not in any respect result in the modifications or termination of the Power Purchase Agreements and the Power Purchase Agreements shall in all respects continue in full force and effect other than the temporary suspension of deliveries to Edison. The Guarantors intend to vigorously pursue their other remedies in this action in light of Edison's continuing non-payment.
The Funding Corporation is hopeful that the current Edison situation is temporary and the proceedings in the legal, regulatory, financial and political arenas will lead to the improvement of Edison's financial condition in the near future and the payment by Edison of amounts due under the Power Purchase Agreements. However, no assurance can be given that this will be the case.
As a result of Edison's failure to make the payments due under the Power Purchase Agreements and the recent downgrades of Edison's credit ratings, Moody's has downgraded the ratings for the Securities to Caa2 (negative outlook) and S&P has downgraded the ratings for the Securities to BBB- and has placed the Securities on "credit watch negative". Accordingly, the Funding Corporation does not believe it is currently able to obtain funds in the banking or capital markets.
B. Minerals
CalEnergy Minerals LLC, a Partnership Guarantor ("Minerals LLC"), developed and owns the rights to proprietary processes for the extraction of zinc from elements in solution in the geothermal brine and fluids utilized at the Company's Imperial Valley plants. A pilot plant has successfully produced commercial quality zinc at the Company's Imperial Valley Project. The Company's
affiliates intend to sequentially develop facilities for the extraction of manganese, silver, gold, lead, boron, lithium and other products as it further develops the extraction technology. The Company's affiliates are also investigating producing silica as an extraction project. Silica is used as a filler for such products as paint, plastics and high temperature cement.
Minerals LLC is constructing the Zinc Recovery Project which will recover zinc from the geothermal brine (the "Zinc Recovery Project"). Facilities will be installed near the Imperial Valley Project sites to extract a zinc chloride solution from the geothermal brine through an ion exchange process. This solution will be transported to a central processing plant where zinc ingots will be produced through solvent extraction, electrowinning and casting processes. The Zinc Recovery Project is designed to have a capacity of approximately 30,000 metric tonnes per year and is scheduled to commence commercial operation in mid-2001. In September 1999, Minerals LLC entered into a sales agreement whereby all zinc produced by the Zinc Recovery Project will be sold to Cominco, Ltd. The initial term of the agreement expires in December 2005.
The Zinc Recovery Project is being constructed by Kvaerner U.S. Inc. ("Kvaerner") pursuant to a date certain, fixed-price, turnkey engineering, procurement and construction contract (the "Zinc Recovery Project EPC Contract"). Kvaerner is a wholly-owned indirect subsidiary of Kvaerner ASA, an internationally recognized engineering and construction firm experienced in the metals, mining and processing industries.
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholder Magma Power Company Omaha, Nebraska
We have audited the accompanying balance sheets of the Salton Sea Royalty LLC as of December 31, 2000 and 1999 and the related statements of operations, equity and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material respects, the financial position of the Salton Sea Royalty LLC as of December 31, 2000 and 1999 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States of America.
As discussed in Note 2 to the financial statements, Salton Sea Royalty LLC was converted to a limited liability company during 1999 and as such the statements of operations and cash flows for the year ended December 31, 2000 and 1999 are not comparable due to the change in reporting entity which results in no tax expense in fiscal 2000.
DELOITTE & TOUCHE LLP Omaha, Nebraska January 18, 2001
(March 27, 2001 as to Note 5)
SALTON SEA ROYALTY LLC BALANCE SHEETS (Dollars in Thousands, Except Per Share Amounts)
The accompanying notes are an integral part of the financial statements.
SALTON SEA ROYALTY LLC STATEMENTS OF OPERATIONS (Dollars in Thousands)
The accompanying notes are an integral part of the financial statements.
SALTON SEA ROYALTY LLC STATEMENTS OF EQUITY FOR THE THREE YEARS ENDED DECEMBER 31, 2000 (Dollars in Thousands)
The accompanying notes are an integral part of the financial statements.
SALTON SEA ROYALTY LLC STATEMENTS OF CASH FLOWS (Dollars in Thousands)
The accompanying notes are an integral part of the financial statements.
SALTON SEA ROYALTY LLC NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
Salton Sea Royalty LLC (the "Royalty Company") is a special-purpose entity, 99% owned by Magma Power Company ("Magma") and 1% owned by Salton Sea Funding Corporation (the "Funding Corporation"). Magma is a wholly-owned subsidiary of CE Generation LLC ("CE Generation") which is owned equally by MidAmerican Energy Holdings Company ("MidAmerican") and El Paso CE Generation Holding Company, which was merged into El Paso Merchant Energy Holding Company on December 31, 2000, an affiliate of El Paso Energy Corporation.
The Royalty Company receives an assignment of royalties and certain fees paid by three partnership projects, Del Ranch, Elmore and Leathers (collectively, the "Partnership Projects"). In addition, the Royalty Company has received an assignment of certain resource-related and contract assignment payments payable by the geothermal power plant located in Imperial Valley, California which is owned by an unaffiliated third party (East Mesa, together with the Partnership Projects, the "Projects"). All of the Projects are engaged in the operation of geothermal power plants in the Imperial Valley in Southern California. Substantially all of the assigned royalties are based on a percentage of energy and capacity revenues of the Partnership Projects. Included in royalty income are payments from East Mesa related to a settlement agreement in 1998 for prior years.
All of the Projects have executed long-term power purchase agreements ("SO4 Agreements") providing for capacity and energy sales to Southern California Edison Company ("Edison"). Each of these agreements provides for fixed price capacity payments for the life of the contract. In 1998, the East Mesa Project entered into a Termination Agreement, to which Magma consented, which terminated its SO4 Agreement upon CPUC approval becoming final in 1999.
The Partnership Projects earn energy payments based on kilowatt hours (kWhs) of energy provided to Edison. During the first 10 years of the agreement, the Projects earned payments for energy as scheduled in the SO4 Agreements. After the 10-year scheduled payment period expired (1998 for Del Ranch and Elmore; 1999 for Leathers), the energy payment per kWh throughout the remainder of the contract period are at Edison's Avoided Cost of Energy.
For the year ended December 31, 2000 and 1999, Edison's average Avoided Cost of Energy was 5.8 cents and 3.1 cents per kWh, respectively. Estimates of Edison's future Avoided Cost of Energy vary substantially from year to year. The Royalty Company cannot predict the likely level of Avoided Cost of Energy prices.
As discussed above, all revenues except those derived from East Mesa are from, and all operating expenses are paid by, related parties.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying statement of operations presents revenues and expenses which have been assigned to the Royalty Company under the arrangements described above on the accrual method of accounting. This presentation is a "carve out" of information from Magma and certain of its affiliates. Such revenues, net of related expenses, guarantee loans from the Funding Corporation, a wholly-owned subsidiary of Magma.
The financial statements reflect the acquisition of Magma and the resulting push down to the Royalty Company of the accounting as a purchase business combination.
The Company was converted to a limited liability company during 1999 and as such the statements of operations and cash flows for the year ended December 31,
2000 and 1999 are not comparable due to the change in reporting entity which results in no tax expense in fiscal 2000. Income taxes are now the responsibility of the partners and the Company has no obligation to provide funds to the partners for payment of any tax liabilities. Accordingly, the Company has no tax obligations.
Royalty Stream
The Royalty Company's policy is to provide amortization expense beginning upon the commencement of revenue production over the estimated remaining useful life of the identifiable assets.
The royalty streams have been assigned values separately for each of (1) the remaining portion of the fixed price periods of the Projects' power sales agreements and (2) the 20 year avoided cost periods of the Projects' power sales agreements and are amortized separately over such periods using the straight line method. At December 31, 2000 and 1999, accumulated amortization was $44.8 million and $43.7 million, respectively.
Excess of Cost over Fair Value
Total acquisition costs in excess of the fair values assigned to the net assets acquired are amortized over a 40 year period using the straight line method. At December 31, 2000 and 1999, accumulated amortization of the excess of cost over fair value was $5.4 million and $4.5 million, respectively.
Income Taxes
The Royalty Company is included in consolidated income tax returns with its parent and affiliates. Income taxes are provided on a separate return basis, however, tax obligations of the Royalty Company will be remitted to the parent only to the extent of cash flows available after operating expenses and debt service. On February 19, 1999, the Royalty Company was converted to a limited liability company which is not taxed. Therefore, since that date, no recognition has been given to federal or state income taxes as that is the responsibility of the individual members of the LLC.
Fair Values of Financial Instruments
Fair values of financial instruments that are not actively traded are based on market prices of similar instruments and/or valuation techniques using market assumptions. Unless otherwise noted, the estimated fair value amounts do not differ significantly from recorded values.
Impairment of Long-Lived Assets
The Royalty Company reviews long-lived assets and certain identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss would be recognized, based on discounted cash flows or various models, whenever evidence exists that the carrying value is not recoverable.
Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS 133, "Accounting for Derivative Instruments and Hedging Activities", which was delayed by SFAS 137 and amended by SFAS 138. SFAS 133/138 requires an entity to recognize all of its derivatives as either assets or liabilities in its statement of financial position and measure those instruments at fair value. Salton Sea Funding Corporation implemented the new standards on January 1, 2001. The initial adoption of SFAS133/138 did not have a material impact on Salton Sea Funding Corporation's financial position, results of operations or any impact on its cash flows.
The FASB's Derivatives Implementation Group continues to identify and provide guidance on various implementation issues related to SFAS 133/138 that are in varying stages of review and clearance by the Derivative Implementation Group and FASB. Salton Sea Funding Corporation has not determined if the ultimate resolution of those issues would have a material impact on its financial statements.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
3. SENIOR SECURED PROJECT NOTE
The Royalty Company has a project note payable to Salton Sea Funding Corporation at an interest rate of 7.37%. They have also guaranteed, along with other guarantors, the debt of Salton Sea Funding Corporation, which amounted to $543.9 million at December 31, 2000. The guarantee issued is collateralized by a lien on substantially all the assets of and a pledge of stock in the Guarantor. The structure has been designed to cross collateralize cash flows from each guarantor without cross collateralizing all of the guarantors' assets.
Principal maturities of the senior secured project note are as follows (in thousands):
2001 $ 4,434 2002 3,460 2003 304 2004 408 2005 435 ---------- $ 9,041 ========== The estimated fair values of the senior secured project note at December 31, 2000 and 1999 were $8.3 million and $13.5 million, respectively.
4. INCOME TAXES
The provision for income taxes for the years ended December 31, 1999 and 1998, consisted of the following:
Current Deferred Total --------- ----------- --------
Federal $ 363 $(5,921) $(5,558) State 102 (848) (746) --------- ----------- -------- Total $ 465 $(6,769) $(6,304) ========= =========== ========
Federal $ 9,267 $ (294) $ 8,973 State 2,740 (205) 2,535 --------- ----------- -------- Total $12,007 $ (499) $11,508 ========= =========== ========
The Royalty Company's effective tax rate differs from the statutory federal income tax rate due primarily to percentage depletion in excess of cost depletion and goodwill amortization.
5. CONTINGENCY
Edison, a wholly-owned subsidiary of Edison International, is a public utility primarily engaged in the business of supplying electric energy to retail
customers in Central and Southern California, excluding Los Angeles. The Funding Corporation is aware that there have been public announcements that Edison's financial condition has deteriorated as a result of reduced liquidity. Based on public announcements, the Funding Corporation understands that Edison has not made payments to other qualifying facilities ("QFs") from which Edison purchases power and has not made scheduled payments of debt service. Edison's senior unsecured debt obligations are currently rated Caa2 (on watch for possible downgrade) by Moody's and D by S&P.
The Funding Corporation is aware that there have been public announcements that Edison, other industry participants and governmental entities have taken actions in response to Edison's financial condition. These actions include the following:
o The Federal Energy Regulatory Commission ("FERC") has issued an order eliminating requirements that Edison and other California utilities purchase power from the structured power market in California known as the California Power Exchange in order to provide them with an opportunity to obtain power from alternative sources at a lower cost.
o The State of California has enacted legislation to provide for the California Department of Water Resources to purchase wholesale power and sell it to retail customers, which will be funded by a surcharge on retail rates. The California legislature is also considering other legislation to improve the financial condition of the California electric utilities.
o The California Public Utilities Commission ("CPUC") approved a decision on March 27, 2001 to increase retail electricity rates by approximately 40%. In another decision that day, the CPUC ordered Edison to pay the QFs on a go forward basis within 15 days of the invoice and purportedly modified the calculation of Short Run Avoided Cost.
o The State of California and Edison have announced a preliminary agreement for the State to purchase Edison's transmission assets for $2.7 billion and to allow Edison to issue bonds for a substantial portion of its undercollection of revenues.
The Funding Corporation can give no assurance as to the likely result of any of the actions described above or as to whether such actions will have a positive effect on the financial condition of Edison or its willingness to make payments under the Power Purchase Agreements.
Edison has failed to pay approximately $76 million due under the Power Purchase Agreements for power delivered in November and December 2000 and January 2001, although the Power Purchase Agreements provide for billing and payment on a schedule where payments would have normally been received in early January, February and March 2001. Edison has not notified the Imperial Valley Projects as to when they can expect to receive these payments. This continued non-payment by Edison could result in an untenable situation for the continued operation of the Imperial Valley Projects unless additional funds are obtained in the near future.
On February 21, 2001, certain Guarantors filed a lawsuit against Edison in California's Imperial County Superior Court seeking a court order requiring Edison to make the required payments under the Power Purchase Agreements. The lawsuit also requested, among other things, that the court order permit the Guarantors to suspend deliveries of power to Edison and to permit the Guarantors to sell such power to other purchasers in California.
On March 22, 2001, the Superior Court granted Guarantors' Motion for Summary Adjudication and a Declaratory Judgment ordering that: 1) under the Power Purchase Agreements, Guarantors have the right to temporarily suspend deliveries of capacity and energy to Edison, 2) Guarantors are entitled to resell the energy and capacity to other purchasers and 3) the interim suspension of deliveries to Edison shall not in any respect result in the modifications or termination of the Power Purchase Agreements and the Power Purchase Agreements shall in all respects continue in full force and effect other than the temporary suspension of deliveries to Edison. The Guarantors intend to vigorously pursue their other remedies in this action in light of Edison's continuing non-payment.
The Funding Corporation is hopeful that the current Edison situation is temporary and the proceedings in the legal, regulatory, financial and political arenas will lead to the improvement of Edison's financial condition in the near future and the payment by Edison of amounts due under the Power Purchase Agreements. However, no assurance can be given that this will be the case.
As a result of Edison's failure to make the payments due under the Power Purchase Agreements and the recent downgrades of Edison's credit ratings, Moody's has downgraded the ratings for the Securities to Caa2 (negative outlook) and S&P has downgraded the ratings for the Securities to BBB- and has placed the Securities on "credit watch negative". Accordingly, the Funding Corporation does not believe it is currently able to obtain funds in the banking or capital markets.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrant
Set forth below are the current executive officers of the Funding Corporation and the Guarantors and their positions with the Funding Corporation and each of the Guarantors (or general partner thereof):
EXECUTIVE OFFICER POSITION
Gregory E. Abel* Director Brian K. Hankel Vice President and Treasurer Joseph M. Lillo Vice President and Controller Douglas L. Anderson Director, Vice President, and General Counsel Patrick J. Goodman Director Larry Kellerman* Director John L. Harrison* Director
* Gregory E. Abel is Director of CalEnergy Minerals LLC and Salton Sea Minerals Corp. only. * Larry Kellerman is Director for all entities except CalEnergy Minerals LLC and Salton Sea Minerals Corp. * John L. Harrison is Director for all entities except CalEnergy Minerals LLC and Salton Sea Minerals Corp.
GREGORY E. ABEL, 38, Director for CalEnergy Minerals LLC and Salton Sea Minerals Corp. only. Mr. Abel joined MidAmerican in 1992. Mr. Abel is a Chartered Accountant and from 1984 to 1992 he was employed by Price Waterhouse. As a Manager in the San Francisco office of Price Waterhouse, he was responsible for clients in the energy industry.
BRIAN K. HANKEL, 38, Vice President and Treasurer of each Guarantor subsidiary. Mr. Hankel joined MidAmerican in February 1992 as Treasury Analyst and served in that position to December 1995. Mr. Hankel was appointed Assistant Treasurer in January 1996 and was appointed Treasurer in January 1997. Prior to that, Mr. Hankel was a Money Position Analyst at FirsTier Bank of Lincoln from 1988 to 1992 and Senior Credit Analyst at FirsTier from 1987 to 1988.
JOSEPH M. LILLO, 31, Vice President and Controller. Mr. Lillo joined MidAmerican in November 1996, and served as Manager of Financial Reporting and was promoted to Controller/IPP in March 1998. Mr Lillo was promoted to Controller in July 1999. Prior to joining the Company, Mr. Lillo was a senior associate with Coopers & Lybrand LLP.
DOUGLAS L. ANDERSON, 43, Director, Vice President and General Counsel of each Guarantor subsidiary. Mr. Anderson joined MidAmerican in February 1993. From 1990 to 1993, Mr. Anderson was a business attorney with Fraser, Stryker, Meusey, Olson, Boyer & Bloch, P.C. in Omaha. Prior to that Mr. Anderson was a principal in the firm Anderson & Anderson.
PATRICK J. GOODMAN, 34, Director. Mr. Goodman joined MidAmerican in June 1995, and served as Manager of Consolidation Accounting until September 1996 when he was promoted to Controller. Mr. Goodman was promoted to Chief Financial Officer in April 1999. Prior to joining MidAmerican, Mr. Goodman was a financial manager for National Indemnity Company and a senior associate at Coopers & Lybrand.
LARRY KELLERMAN, 45, President of El Paso Power Services Company and a Director of each Guarantor subsidiary except CalEnergy Minerals LLC and Salton Sea Minerals Corp. Mr. Kellerman joined El Paso Energy in February 1998. Prior to joining El Paso Energy, he was President of Citizens Power, where he initiated Citizens' activities in the power marketing field in 1988, when Citizens was the initial power marketer granted FERC authorization. From 1982 through 1988, Mr. Kellerman was General Manager of Power Marketing and Power Supply for Portland General Electric. From 1979 through 1982, Mr. Kellerman was Financial Analyst and Power Contract Negotiator with Southern California Edison, where he negotiated some of the first Public Utility Regulatory Policies Act qualifying facility contracts in the nation.
JOHN L. HARRISON, 42, Senior Managing Director and Chief Financial Officer of El Paso Merchant Energy and a Director of each Guarantor subsidiary except CalEnergy Minerals LLC and Salton Sea Minerals Corp. Mr. Harrison joined El Paso Energy in June 1996. Prior to joining El Paso Energy, Mr. Harrison was a partner with Coopers & Lybrand LLP for five years.
Item 11.
Item 11. Executive Compensation
The Funding Corporation's and the Guarantors' directors and executive officers receive no remuneration for serving in such capacities.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Description of Capital Stock
As of December 31, 2000, the authorized capital stock of the Funding Corporation consisted of 1,000 shares of common stock, par value $.01 per share (the "Common Stock"), of which 100 shares were outstanding. There is no public trading market for the Common Stock. As of December 31, 1999, there was one holder of record of the Common Stock. Holders of Common Stock are entitled to one vote per share on any matter coming before the stockholders for a vote.
The Funding Corporation does not expect in the foreseeable future to pay any dividends on the Common Stock. The Indenture contains certain restrictions on the payment of dividends with respect to the Common Stock.
Principal Holders
Since the formation of the Funding Corporation in June 1995, all of the outstanding shares of Common Stock have been owned by Magma. Magma directly or indirectly owns all of the capital stock of or partnership interests in the Funding Corporation and the Guarantors.
Item 13.
Item 13. Certain Relationships and Related Transactions
Other Relationships and Related Transactions
The Salton Sea Projects' and the Partnership Projects' geothermal power plants are owned, administered and operated by Magma or subsidiaries of Magma. Geothermal fluid supplying these facilities is provided from Magma's (or a subsidiary's) geothermal resource holdings in the SSKGRA.
In providing rights to geothermal resources and/or geothermal fluids, administering and operating the geothermal power plants, and disposing of solids from these facilities, Magma (directly and through subsidiaries) receives certain royalties, cost reimbursements and fees for its services and the rights it provides. See the financial statements attached hereto.
The Funding Corporation believes that the transactions with related parties described above, taking into consideration all of the respective terms and conditions of each of the relevant contracts and agreements, are at least as favorable to the Guarantors as those which could have been obtained from unrelated parties in arms' length negotiations.
Relationship of the Funding Corporation and the Guarantors to Magma and MidAmerican
The Funding Corporation is a wholly owned direct subsidiary of Magma organized for the sole purpose of acting as issuer of the Securities. The Funding Corporation is restricted, pursuant to the terms of the Indenture, to acting as issuer of the Securities and other indebtedness as permitted under the Indenture, making loans to the Guarantors pursuant to the Credit Agreements, and transactions related thereto. The Funding Corporation and each of the Guarantors (and, in the case of SSBP, SSPG, Elmore, Leathers, Del Ranch and Vulcan, the general partners thereof) have been organized and are operated as legal entities separate and apart from MidAmerican, El Paso, CE Generation, Magma and any other Affiliates of MidAmerican, El Paso, CE Generation or Magma, and, accordingly, the assets of the Funding Corporation and the Guarantors (and, in the case of SSBP, SSPG, Elmore, Leathers, Del Ranch and Vulcan, the general partners thereof) will not be generally available to satisfy the obligations of MidAmerican, El Paso, CE Generation, Magma or any other Affiliates of
MidAmerican, El Paso, CE Generation or Magma; provided, however, that unrestricted cash of the Funding Corporation and the Guarantors or other assets which are available for distribution may, subject to applicable law and the terms of financing arrangements of such parties, be advanced, loaned, paid as dividends or otherwise distributed or contributed to MidAmerican, El Paso, CE Generation, Magma or Affiliates thereof.
PART IV
Item 14.
Item 14. Exhibits, Financial Statements Schedule and Reports on Form 8-K
(a) Financial Statements and Schedules
(i) Financial Statements
Financial Statements are included in Part II of this Form 10-K
(ii) Financial Statement Schedules
Financial Statement Schedules are not included because they are not required or the information required is included in Part II of this Form 10-K.
(b) Reports on Form 8-K
Not applicable.
(c) Exhibits
The exhibits listed on the accompanying Exhibit Index are filed as part of this Annual Report.
For the purposes of complying with the amendments to the rules governing Form S-4 effective July 13, 1990 under the Securities Act of 1933, the undersigned hereby undertakes as follows, which undertaking shall be incorporated by reference into the Funding Corporation's currently effective Registration Statements on Form S-4.
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant, the registrant has been advised that in the opinion the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
(d) Financial statements required by Regulations S-X, which are excluded from the Annual Report by Rule 14a-3(b).
Not Applicable
Signatures
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Omaha, State of Nebraska, on March 29, 2001.
SALTON SEA FUNDING CORPORATION
By:/s/ Douglas L. Anderson Douglas L. Anderson Director, Vice President and General Counsel
Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this report to be signed on its behalf by the undersigned, each thereunto duly authorized in the City of Omaha, State of Nebraska, on the dates indicated.
Signature Date - --------------------------------------------------------------------------------
/s/ Douglas L. Anderson March 29, 2001 - ------------------------ Douglas L. Anderson
Director, Vice President and General Counsel (Principal Executive Officer)
/s/ Joseph M. Lillo March 29, 2001 - -------------------- Joseph M. Lillo Vice President and Controller (Principal Accounting Officer)
/s/ Patrick J. Goodman* March 29, 2001 - ------------------------ Patrick J. Goodman Director
/s/ Larry Kellerman * March 29, 2001 - -------------------- Larry Kellerman Director
/s/ John L. Harrison * March 29, 2001 - --------------------- John L. Harrison Director
* By: /s/ Douglas L. Anderson
Douglas L. Anderson Attorney-in-fact
Signatures
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Omaha, State of Nebraska, on March 29, 2001.
SALTON SEA BRINE PROCESSING, L.P. a California limited partnership
By: Salton Sea Power Company, a California corporation, its general partner
By:/s/ Douglas L. Anderson Douglas L. Anderson Director, Vice President and General Counsel
Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this report to be signed on its behalf by the undersigned, each thereunto duly authorized in the City of Omaha, State of Nebraska, on the dates indicated.
Signature Date - -----------------------------------------------------------------------
/s/ Douglas L. Anderson March 29, 2001 - ------------------------ Douglas L. Anderson
Director, Vice President and General Counsel (Principal Executive Officer)
/s/ Joseph M. Lillo March 29, 2001 - -------------------- Joseph M. Lillo Vice President and Controller (Principal Accounting Officer)
/s/ Patrick J. Goodman* March 29, 2001 - ------------------------ Patrick J. Goodman Director
/s/ Larry Kellerman * March 29, 2001 - -------------------- Larry Kellerman Director
/s/ John L. Harrison * March 29, 2001 - --------------------- John L. Harrison Director
* By: /s/ Douglas L. Anderson
Douglas L. Anderson Attorney-in-fact
Signatures
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Omaha, State of Nebraska, on March 29, 2001.
SALTON SEA POWER GENERATION, L.P., a California limited partnership
By: Salton Sea Power Company, a California corporation, its general partner
By:/s/ Douglas L. Anderson Douglas L. Anderson Director, Vice President and General Counsel
Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this report to be signed on its behalf by the undersigned, each thereunto duly authorized in the City of Omaha, State of Nebraska, on the dates indicated.
Signature Date - ------------------------------------------------------------------------------
/s/ Douglas L. Anderson March 29, 2001 - ------------------------ Douglas L. Anderson
Director, Vice President and General Counsel (Principal Executive Officer)
/s/ Joseph M. Lillo March 29, 2001 - -------------------- Joseph M. Lillo Vice President and Controller (Principal Accounting Officer)
/s/ Patrick J. Goodman* March 29, 2001 - ------------------------ Patrick J. Goodman Director
/s/ Larry Kellerman * March 29, 2001 - -------------------- Larry Kellerman Director
/s/ John L. Harrison * March 29, 2001 - --------------------- John L. Harrison Director
* By: /s/ Douglas L. Anderson
Douglas L. Anderson Attorney-in-fact
Signatures
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Omaha, State of Nebraska, on March 29, 2001.
FISH LAKE POWER LLC
By:/s/ Douglas L. Anderson Douglas L. Anderson Director, Vice President and General Counsel
Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this report to be signed on its behalf by the undersigned, each thereunto duly authorized in the City of Omaha, State of Nebraska, on the dates indicated.
Signature Date - ------------------------------------------------------------------------------
/s/ Douglas L. Anderson March 29, 2001 - ------------------------ Douglas L. Anderson
Director, Vice President and General Counsel (Principal Executive Officer)
/s/ Joseph M. Lillo March 29, 2001 - -------------------- Joseph M. Lillo Vice President and Controller (Principal Accounting Officer)
/s/ Patrick J. Goodman* March 29, 2001 - ------------------------ Patrick J. Goodman Director
/s/ Larry Kellerman * March 29, 2001 - -------------------- Larry Kellerman Director
/s/ John L. Harrison * March 29, 2001 - --------------------- John L. Harrison Director
* By: /s/ Douglas L. Anderson
Douglas L. Anderson Attorney-in-fact
Signatures
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Omaha, State of Nebraska, on March 29, 2001.
VULCAN POWER COMPANY
By:/s/ Douglas L. Anderson Douglas L. Anderson Director, Vice President and General Counsel
Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this report to be signed on its behalf by the undersigned, each thereunto duly authorized in the City of Omaha, State of Nebraska, on the dates indicated.
Signature Date - ------------------------------------------------------------------------------
/s/ Douglas L. Anderson March 29, 2001 - ------------------------ Douglas L. Anderson
Director, Vice President and General Counsel (Principal Executive Officer)
/s/ Joseph M. Lillo March 29, 2001 - -------------------- Joseph M. Lillo Vice President and Controller (Principal Accounting Officer)
/s/ Patrick J. Goodman* March 29, 2001 - ------------------------ Patrick J. Goodman Director
/s/ Larry Kellerman * March 29, 2001 - -------------------- Larry Kellerman Director
/s/ John L. Harrison * March 29, 2001 - --------------------- John L. Harrison Director
* By: /s/ Douglas L. Anderson
Douglas L. Anderson Attorney-in-fact
Signatures
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Omaha, State of Nebraska, on March 29, 2001.
CALENERGY OPERATING CORPORATION
By:/s/ Douglas L. Anderson Douglas L. Anderson Director, Vice President and General Counsel
Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this report to be signed on its behalf by the undersigned, each thereunto duly authorized in the City of Omaha, State of Nebraska, on the dates indicated.
Signature Date - -----------------------------------------------------------------------------
/s/ Douglas L. Anderson March 29, 2001 - ------------------------ Douglas L. Anderson
Director, Vice President and General Counsel (Principal Executive Officer)
/s/ Joseph M. Lillo March 29, 2001 - -------------------- Joseph M. Lillo Vice President and Controller (Principal Accounting Officer)
/s/ Patrick J. Goodman* March 29, 2001 - ------------------------ Patrick J. Goodman Director
/s/ Larry Kellerman * March 29, 2001 - -------------------- Larry Kellerman Director
/s/ John L. Harrison * March 29, 2001 - --------------------- John L. Harrison Director
* By: /s/ Douglas L. Anderson
Douglas L. Anderson Attorney-in-fact
Signatures
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Omaha, State of Nebraska, on March 29, 2001.
SALTON SEA ROYALTY LLC
By:/s/ Douglas L. Anderson Douglas L. Anderson Director, Vice President and General Counsel
Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this report to be signed on its behalf by the undersigned, each thereunto duly authorized in the City of Omaha, State of Nebraska, on the dates indicated.
Signature Date - -------------------------------------------------------------------------
/s/ Douglas L. Anderson March 29, 2001 - ------------------------ Douglas L. Anderson
Director, Vice President and General Counsel (Principal Executive Officer)
/s/ Joseph M. Lillo March 29, 2001 - -------------------- Joseph M. Lillo Vice President and Controller (Principal Accounting Officer)
/s/ Patrick J. Goodman* March 29, 2001 - ------------------------ Patrick J. Goodman Director
/s/ Larry Kellerman * March 29, 2001 - -------------------- Larry Kellerman Director
/s/ John L. Harrison * March 29, 2001 - --------------------- John L. Harrison Director
* By: /s/ Douglas L. Anderson
Douglas L. Anderson Attorney-in-fact
Signatures
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Omaha, State of Nebraska, on March 29, 2001.
LEATHERS, L.P., a California limited partnership
By: CalEnergy Operating Corporation, a Delaware corporation, its general partner
By:/s/ Douglas L. Anderson Douglas L. Anderson Director, Vice President and General Counsel
Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this report to be signed on its behalf by the undersigned, each thereunto duly authorized in the City of Omaha, State of Nebraska, on the dates indicated.
Signature Date - ---------------------------------------------------------------------
/s/ Douglas L. Anderson March 29, 2001 - ------------------------ Douglas L. Anderson
Director, Vice President and General Counsel (Principal Executive Officer)
/s/ Joseph M. Lillo March 29, 2001 - -------------------- Joseph M. Lillo Vice President and Controller (Principal Accounting Officer)
/s/ Patrick J. Goodman* March 29, 2001 - ------------------------ Patrick J. Goodman Director
/s/ Larry Kellerman * March 29, 2001 - -------------------- Larry Kellerman Director
/s/ John L. Harrison * March 29, 2001 - --------------------- John L. Harrison Director
* By: /s/ Douglas L. Anderson
Douglas L. Anderson Attorney-in-fact
Signatures
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Omaha, State of Nebraska, on March 29, 2001.
ELMORE L.P., a California limited partnership By: CalEnergy Operating Corporation, a Delaware corporation, its general partner
By:/s/ Douglas L. Anderson Douglas L. Anderson Director, Vice President and General Counsel
Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this report to be signed on its behalf by the undersigned, each thereunto duly authorized in the City of Omaha, State of Nebraska, on the dates indicated.
Signature Date - ---------------------------------------------------------------------
/s/ Douglas L. Anderson March 29, 2001 - ------------------------ Douglas L. Anderson
Director, Vice President and General Counsel (Principal Executive Officer)
/s/ Joseph M. Lillo March 29, 2001 - -------------------- Joseph M. Lillo Vice President and Controller (Principal Accounting Officer)
/s/ Patrick J. Goodman* March 29, 2001 - ------------------------ Patrick J. Goodman Director
/s/ Larry Kellerman * March 29, 2001 - -------------------- Larry Kellerman Director
/s/ John L. Harrison * March 29, 2001 - --------------------- John L. Harrison Director
* By: /s/ Douglas L. Anderson
Douglas L. Anderson Attorney-in-fact
Signatures
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Omaha, State of Nebraska, on March 29, 2001.
DEL RANCH L.P., a California limited partnership
By: CalEnergy Operating Corporation, a Delaware corporation, its general partner
By:/s/ Douglas L. Anderson Douglas L. Anderson Director, Vice President and General Counsel
Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this report to be signed on its behalf by the undersigned, each thereunto duly authorized in the City of Omaha, State of Nebraska, on the dates indicated.
Signature Date - -----------------------------------------------------------------------
/s/ Douglas L. Anderson March 29, 2001 - ------------------------ Douglas L. Anderson
Director, Vice President and General Counsel (Principal Executive Officer)
/s/ Joseph M. Lillo March 29, 2001 - -------------------- Joseph M. Lillo Vice President and Controller (Principal Accounting Officer)
/s/ Patrick J. Goodman* March 29, 2001 - ------------------------ Patrick J. Goodman Director
/s/ Larry Kellerman * March 29, 2001 - -------------------- Larry Kellerman Director
/s/ John L. Harrison * March 29, 2001 - --------------------- John L. Harrison Director
* By: /s/ Douglas L. Anderson
Douglas L. Anderson Attorney-in-fact
Signatures
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Omaha, State of Nebraska, on March 29, 2001.
VPC GEOTHERMAL LLC., a Delaware corporation
By:/s/ Douglas L. Anderson Douglas L. Anderson Director, Vice President and General Counsel
Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this report to be signed on its behalf by the undersigned, each thereunto duly authorized in the City of Omaha, State of Nebraska, on the dates indicated.
Signature Date - ----------------------------------------------------------------------
/s/ Douglas L. Anderson March 29, 2001 - ------------------------ Douglas L. Anderson
Director, Vice President and General Counsel (Principal Executive Officer)
/s/ Joseph M. Lillo March 29, 2001 - -------------------- Joseph M. Lillo Vice President and Controller (Principal Accounting Officer)
/s/ Patrick J. Goodman* March 29, 2001 - ------------------------ Patrick J. Goodman Director
/s/ Larry Kellerman * March 29, 2001 - -------------------- Larry Kellerman Director
/s/ John L. Harrison * March 29, 2001 - --------------------- John L. Harrison Director
* By: /s/ Douglas L. Anderson
Douglas L. Anderson Attorney-in-fact
Signatures
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Omaha, State of Nebraska, on March 29, 2001.
NIGUEL ENERGY COMPANY, a California corporation
By:/s/ Douglas L. Anderson Douglas L. Anderson Director, Vice President and General Counsel
Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this report to be signed on its behalf by the undersigned, each thereunto duly authorized in the City of Omaha, State of Nebraska, on the dates indicated.
Signature Date - --------------------------------------------------------------------
/s/ Douglas L. Anderson March 29, 2001 - ------------------------ Douglas L. Anderson
Director, Vice President and General Counsel (Principal Executive Officer)
/s/ Joseph M. Lillo March 29, 2001 - -------------------- Joseph M. Lillo Vice President and Controller (Principal Accounting Officer)
/s/ Patrick J. Goodman* March 29, 2001 - ------------------------ Patrick J. Goodman Director
/s/ Larry Kellerman * March 29, 2001 - -------------------- Larry Kellerman Director
/s/ John L. Harrison * March 29, 2001 - --------------------- John L. Harrison Director
* By: /s/ Douglas L. Anderson
Douglas L. Anderson Attorney-in-fact
Signatures
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Omaha, State of Nebraska, on March 29, 2001.
CONEJO ENERGY COMPANY, a California corporation
By:/s/ Douglas L. Anderson Douglas L. Anderson Director, Vice President and General Counsel
Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this report to be signed on its behalf by the undersigned, each thereunto duly authorized in the City of Omaha, State of Nebraska, on the dates indicated.
Date - -----------------------------------------------------------------------------
/s/ Douglas L. Anderson March 29, 2001 - ------------------------ Douglas L. Anderson
Director, Vice President and General Counsel (Principal Executive Officer)
/s/ Joseph M. Lillo March 29, 2001 - -------------------- Joseph M. Lillo Vice President and Controller (Principal Accounting Officer)
/s/ Patrick J. Goodman* March 29, 2001 - ------------------------ Patrick J. Goodman Director
/s/ Larry Kellerman * March 29, 2001 - -------------------- Larry Kellerman Director
/s/ John L. Harrison * March 29, 2001 - --------------------- John L. Harrison Director
* By: /s/ Douglas L. Anderson
Douglas L. Anderson Attorney-in-fact
Signatures
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Omaha, State of Nebraska, on March 29, 2001.
SAN FELIPE ENERGY COMPANY, a California corporation
By:/s/ Douglas L. Anderson Douglas L. Anderson Director, Vice President and General Counsel
Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this report to be signed on its behalf by the undersigned, each thereunto duly authorized in the City of Omaha, State of Nebraska, on the dates indicated.
Signature Date - ---------------------------------------------------------------------
/s/ Douglas L. Anderson March 29, 2001 - ------------------------ Douglas L. Anderson
Director, Vice President and General Counsel (Principal Executive Officer)
/s/ Joseph M. Lillo March 29, 2001 - -------------------- Joseph M. Lillo Vice President and Controller (Principal Accounting Officer)
/s/ Patrick J. Goodman* March 29, 2001 - ------------------------ Patrick J. Goodman Director
/s/ Larry Kellerman * March 29, 2001 - -------------------- Larry Kellerman Director
/s/ John L. Harrison * March 29, 2001 - --------------------- John L. Harrison Director
* By: /s/ Douglas L. Anderson
Douglas L. Anderson Attorney-in-fact
Signatures
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Omaha, State of Nebraska, on March 29, 2001.
VULCAN/BN GEOTHERMAL POWER COMPANY, a Nevada general partnership
By: VULCAN POWER COMPANY, a Nevada corporation, Partner
By:/s/ Douglas L. Anderson Douglas L. Anderson Director, Vice President and General Counsel
Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this report to be signed on its behalf by the undersigned, each thereunto duly authorized in the City of Omaha, State of Nebraska, on the dates indicated.
Signature Date - ---------------------------------------------------------------------
/s/ Douglas L. Anderson March 29, 2001 - ------------------------ Douglas L. Anderson
Director, Vice President and General Counsel (Principal Executive Officer)
/s/ Joseph M. Lillo March 29, 2001 - -------------------- Joseph M. Lillo Vice President and Controller (Principal Accounting Officer)
/s/ Patrick J. Goodman* March 29, 2001 - ------------------------ Patrick J. Goodman Director
/s/ Larry Kellerman * March 29, 2001 - -------------------- Larry Kellerman Director
/s/ John L. Harrison * March 29, 2001 - --------------------- John L. Harrison Director
* By: /s/ Douglas L. Anderson
Douglas L. Anderson Attorney-in-fact
Signatures
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Omaha, State of Nebraska, on March 29, 2001.
SALTON SEA POWER L.L.C., a Delaware Limited Liability Company
By:/s/ Douglas L. Anderson Douglas L. Anderson Director, Vice President and General Counsel
Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this report to be signed on its behalf by the undersigned, each thereunto duly authorized in the City of Omaha, State of Nebraska, on the dates indicated.
Signature Date - --------------------------------------------------------------------
/s/ Douglas L. Anderson March 29, 2001 - ------------------------ Douglas L. Anderson
Director, Vice President and General Counsel (Principal Executive Officer)
/s/ Joseph M. Lillo March 29, 2001 - -------------------- Joseph M. Lillo Vice President and Controller (Principal Accounting Officer)
/s/ Patrick J. Goodman* March 29, 2001 - ------------------------ Patrick J. Goodman Director
/s/ Larry Kellerman * March 29, 2001 - -------------------- Larry Kellerman Director
/s/ John L. Harrison * March 29, 2001 - --------------------- John L. Harrison Director
* By: /s/ Douglas L. Anderson
Douglas L. Anderson Attorney-in-fact
Signatures
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Omaha, State of Nebraska, on March 29, 2001.
CE TURBO LLC, a Delaware Limited Liability Company
By:/s/ Douglas L. Anderson Douglas L. Anderson Director, Vice President and General Counsel
Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this report to be signed on its behalf by the undersigned, each thereunto duly authorized in the City of Omaha, State of Nebraska, on the dates indicated.
Signature Date - -----------------------------------------------------------------
/s/ Douglas L. Anderson March 29, 2001 - ------------------------ Douglas L. Anderson
Director, Vice President and General Counsel (Principal Executive Officer)
/s/ Joseph M. Lillo March 29, 2001 - -------------------- Joseph M. Lillo Vice President and Controller (Principal Accounting Officer)
/s/ Patrick J. Goodman* March 29, 2001 - ------------------------ Patrick J. Goodman Director
/s/ Larry Kellerman * March 29, 2001 - -------------------- Larry Kellerman Director
/s/ John L. Harrison * March 29, 2001 - --------------------- John L. Harrison Director
* By: /s/ Douglas L. Anderson
Douglas L. Anderson Attorney-in-fact
Signatures
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Omaha, State of Nebraska, on March 29, 2001.
CE SALTON SEA INC., a Delaware Corporation
By:/s/ Douglas L. Anderson Douglas L. Anderson Director, Vice President and General Counsel
Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this report to be signed on its behalf by the undersigned, each thereunto duly authorized in the City of Omaha, State of Nebraska, on the dates indicated.
Signature Date - ---------------------------------------------------------------------
/s/ Douglas L. Anderson March 29, 2001 - ------------------------ Douglas L. Anderson
Director, Vice President and General Counsel (Principal Executive Officer)
/s/ Joseph M. Lillo March 29, 2001 - -------------------- Joseph M. Lillo Vice President and Controller (Principal Accounting Officer)
/s/ Patrick J. Goodman* March 29, 2001 - ------------------------ Patrick J. Goodman Director
/s/ Larry Kellerman * March 29, 2001 - -------------------- Larry Kellerman Director
/s/ John L. Harrison * March 29, 2001 - --------------------- John L. Harrison Director
* By: /s/ Douglas L. Anderson
Douglas L. Anderson Attorney-in-fact
Signatures
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Omaha, State of Nebraska, on March 29, 2001.
CALENERGY MINERALS LLC, a Delaware Limited Liability Company
By:/s/ Douglas L. Anderson Douglas L. Anderson Director, Vice President and General Counsel
Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this report to be signed on its behalf by the undersigned, each thereunto duly authorized in the City of Omaha, State of Nebraska, on the dates indicated.
Signature Date - --------------------------------------------------------------------
/s/ Douglas L. Anderson March 29, 2001 - ------------------------ Douglas L. Anderson
Director, Vice President and General Counsel (Principal Executive Officer)
/s/ Joseph M. Lillo March 29, 2001 - -------------------- Joseph M. Lillo Vice President and Controller (Principal Accounting Officer)
/s/ Patrick J. Goodman* March 29, 2001 - ------------------------ Patrick J. Goodman Director
/s/ Greg E. Abel * March 29, 2001 - ----------------- Greg E. Abel Director
* By: /s/ Douglas L. Anderson
Douglas L. Anderson Attorney-in-fact
Signatures
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Omaha, State of Nebraska, on March 29, 2001.
SALTON SEA MINERALS CORP., a Delaware Corporation
By:/s/ Douglas L. Anderson Douglas L. Anderson Director, Vice President and General Counsel
Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this report to be signed on its behalf by the undersigned, each thereunto duly authorized in the City of Omaha, State of Nebraska, on the dates indicated.
Signature Date - --------------------------------------------------------------------
/s/ Douglas L. Anderson March 29, 2001 - ------------------------ Douglas L. Anderson
Director, Vice President and General Counsel (Principal Executive Officer)
/s/ Joseph M. Lillo March 29, 2001 - -------------------- Joseph M. Lillo Vice President and Controller (Principal Accounting Officer)
/s/ Patrick J. Goodman* March 29, 2001 - ------------------------ Patrick J. Goodman Director
/s/ Greg E. Abel * March 29, 2001 - ----------------- Greg E. Abel Director
* By: /s/ Douglas L. Anderson
Douglas L. Anderson Attorney-in-fact
INDEX TO EXHIBITS
Exhibit No. Description of Exhibit
3.1 Articles of Incorporation of the Funding Corporation (incorporated by reference to Exhibit 3.1 to the Funding Corporation Registration Statement on Form S-4 dated August 9, 1995, 33-95538 ("Form S-4")).
3.2 By-laws of the Funding Corporation (incorporated by reference to Exhibit 3.2 to the Funding Corporation Form S-4).
3.3 Limited Partnership Agreement of SSBP (incorporated by reference to Exhibit 3.3 to the Funding Corporation Form S-4).
3.4 Limited Partnership Agreement of SSPG (incorporated by reference to Exhibit 3.4 to the Funding Corporation Form S-4).
3.5 Certificate of Formation of Fish Lake, LLC (incorporated by reference to Exhibit 3.5 to the Amendment No. 1 dated June 29, 1999 of the Funding Corporation Form S-4 ("99 Form S 4)).
3.6 Limited Liability Company Agreement of Fish Lake (incorporated by reference to Exhibit 3.6 to the Funding Corporation Form 99 Form S-4).
3.7 Articles of Incorporation of VPC (incorporated by reference to Exhibit 3.7 to the Funding Corporation Form S-4).
3.8 By-laws of VPC (incorporated by reference to Exhibit 3.8 to the Funding Corporation Form S-4).
3.9 Articles of Incorporation of CEOC (incorporated by reference to Exhibit 3.9 to the Funding Corporation Form S-4).
3.10 By-laws of CEOC (incorporated by reference to Exhibit 3.10 to the Funding Corporation Form S-4).
3.11 Certificate of Formation of the Royalty Guarantor (incorporated by reference to Exhibit 3.11 to the Funding Corporation 99 Form S-4).
3.12 Limited Liability Company Agreement of the Royalty Guarantor (incorporated by reference to Exhibit 3.12 to the Funding Corporation 99 Form S-4).
3.13 Certificate of Formation of VPC Geothermal (incorporated by reference to Exhibit 3.13 to the Funding Corporation 99 Form S 4).
3.14 Limited Liability Company Agreement of VPG Geothermal (incorporated by reference to Exhibit 3.14 to the Funding Corporation 99 Form S-4).
3.15 Articles of Incorporation of San Felipe (incorporated by reference to Exhibit 3.15 to the Funding Corporation Registration Statement of Form S-4 dated July 2, 1996, 333-07527 ("Funding Corporation II Form S-4")).
3.16 By-laws of San Felipe (incorporated by reference to Exhibit 3.16 to the Funding Corporation II Form S-4).
3.17 Articles of Incorporation of Conejo (incorporated by reference to Exhibit 3.17 to the Funding Corporation II Form S-4).
3-18 By-laws of Conejo (incorporated by reference to Exhibit 3.18 to the Funding Corporation II Form S-4).
3.19 Articles of Incorporation of Niguel (incorporated by reference to Exhibit 3.19 to the Funding Corporation II Form S-4).
3.20 By-laws of Niguel (incorporated by reference to Exhibit 3.20 to the Funding Corporation II Form S-4).
3.21 General Partnership Agreement of Vulcan (incorporated by reference to Exhibit 3.21 to the Funding Corporation II Form S-4).
3.22 Limited Partnership Agreement of Leathers (incorporated by reference to Exhibit 3.22 to the Funding Corporation II Form S-4).
3.23 Amended and Restated Limited Partnership Agreement of Del Ranch (incorporated by reference to Exhibit 3.23 to the Funding Corporation II Form S-4).
3.24 Amended and Restated Limited Partnership Agreement of Elmore (incorporated by reference to Exhibit 3.24 to the Funding Corporation II Form S-4).
3.25 Certificate of Formation of Minerals LLC (incorporated by reference to Exhibit 3.25 to the Funding Corporation 99 Form S-4)
3.26 Limited Liability Company Agreement of Minerals LLC (incorporated by reference to Exhibit 3.26 to the Funding Corporation 99 Form S-4).
3.27 Certificate of Formation of Turbo LLC (incorporated by reference to Exhibit 3.27 to the Funding Corporation 99 Form S-4).
3.28 Limited Liability Company Agreement of turbo LLC (incorporated by reference to Exhibit 3.28 to the Funding Corporation 99 Form S-4).
3.29.Articles of Incororation of CESS (incorporated by reference to Exhibit 3.29 to the Funding Corporation 99 Form S-4).
3.30 By-laws of CESS (incorporated by reference to Exhibit 3.30 to the Funding Corporation 99 Form S-4).
3.31 Articles of Incorporation of SSMC (incorporated by reference to Exhibit 3.31 to the Funding Corporation 99 Form S-4).
3.32 By-laws of SSMC (incorporated by reference to Exhibit 3.32 to the Funding Corporation 99 Form S-4).
3.33 Certificate of Formation of Power LLC (incorporated by reference to Exhibit 3.33 to the Funding Corporation 99 Form S-4).
3.34 Limited Liability Company Agreement of Power LLC (incorporated by reference to Exhibit 3.34 to the Funding Corporation 99 Form S-4).
4.1(a) Indenture, dated as of July 21, 1995, between Chemical Trust Company of California and the Funding Corporation (incorporated by reference to Exhibit 4.1(a) to the Funding Corporation Form S-4).
4.1(b) First Supplemental Indenture, dated as of October 18, 1995, between Chemical Trust Company of California and the Funding Corporation (incorporated by reference to Exhibit 4.1(b) to the Funding Corporation Form S-4).
4.1(c) Second Supplemental Indenture, dated as of June 20, 1996, between Chemical Trust Company of California and the Funding Corporation (incorporated by reference to Exhibit 4.1(c) to the Funding Corporation II Form S-4).
4.1(d) Third Supplemental Indenture between Chemical Trust Company of California and the Funding Corporation (incorporated by reference to Exhibit 4.1(d) to the Funding Corporation II Form S-4).
4.1(e) Fourth Supplemental Indenture between Chemical Trust Company of California and the Funding Corporation (incorporated by reference to Exhibit 4.1(e) to the Funding Corporation Form 10-K/A for the year ending December 31, 1998).
4.2 Amended and Restated Salton Sea Secured Guarantee, dated as of July 21, 1995, by SSBP, SSPG and Fish Lake in favor of Chemical Trust Company of California (incorporated by reference to Exhibit 4.2 to the Funding Corporation Form S-4).
4.3 Second Amended and Restated Partnership Secured Limited Guarantee, dated as of October 13, 1998 by by CEOC, and VPC, Conejo, Niguel, Sal Felipe, BNG, Del Ranch, Elmore, Leathers and Vulcan in favor of Chemical Trust Company of California (incorporated by reference to Exhibit 4.3(c) to the Funding Corporation Form 10-K/A for the year ending December 31, 1998).
4.4 Royalty Guarantor Secured Limited Guarantee, dated as of July 21, 1995, by the Royalty Guarantor in favor of Chemical Trust Company of California (incorporated by reference to Exhibit 4.4 to the Funding Corporation Form S-4).
4.5(a) Exchange and Registration Rights Agreement, dated July 21, 1995, by and among CS First Boston Corporation, Lehman Brothers Inc. and the Funding Corporation (incorporated by reference to Exhibit 4.5 to the Funding Corporation Form S-4).
4.5(b) Exchange and Registration Rights Agreement, dated June 20, 1996, by and between CS First Boston Corporation and the Funding Corporation (incorporated by reference to Exhibit 4.5 to the Funding Corporation II Form S-4).
4.5(c) Exchange and Registration Rights Agreement, dated October 13, 1998 by and among CS First Boston Corporation, Goldman Sachs & Co., and the Funding Corporation (incorporated by reference to Exhibit 4.5(c) of the 99 Form S-4).
4.6(a) Collateral Agency and Intercreditor Agreement, dated as of July 21, 1995, by and among Credit Suisse, Chemical Trust Company of California, the Funding Corporation and the Guarantors (incorporated by reference to Exhibit 4.6 to the Funding Corporation Form S-4).
4.6(b) First Amendment to the Collateral Agency and Intercreditor Agreement, dated asm of June 20, 1996, by and among Credit Suisse, Chemical Trust Company of California, the Funding Corporation and the Guarantors (incorporated by reference to Exhibit 4.6(b) to the Funding Corporation II Form S-4).
4.6(c) Second Amendment to the Collateral Agency and Intercreditor Agreement, dated as of October 13, 1998, by and among Credit Suisse, Chemical Trust Company of California, the Funding Corporation and the Guarantors (incorporated by reference to Exhibit 4.6(c) to the Funding Corporation Form 10-K/A for the year ending December 31, 1998).
4.7 Stock Pledge Agreement, dated as of July 21, 1995, by Magma Power Company in favor of Chemical Trust Company of California (incorporated by reference to Exhibit 4.7 to the Funding Corporation Form S-4).
4.8(a) Purchase Agreement, dated July 18, 1995, by and among CS First Boston Corporation, Lehman Brothers Inc., the Guarantors and the Funding Corporation (incorporated by reference to Exhibit 4.8 to the Funding Corporation Form S-4).
4.8(b) Purchase Agreement, dated June 17, 1996, by and among CS First Boston Corporation, the Guarantors and the Funding Corporation (incorporated by reference to Exhibit 4.8 to the Funding Corporation II Form S-4).
4.8(c) Purchase Agreement, dated October 13, 1998 by and among CS First Boston Corporation, the Guarantors and the Funding Corporation (incorporated by reference to Exhibit 4.8(c) to the Funding Corporation Form 10-K/A for the year ending December 31, 1998).
4.9 Support Letter, dated as of July 21, 1995, by and among Magma Power Company, the Funding Corporation and the Guarantors (incorporated by reference to Exhibit 4.9 to the Funding Corporation Form S-4).
4.10 Debt Service Reserve Letter of Credit and Reimbursement Agreement, dated as of July 21, 1995, by and among the Funding Corporation, certain banks and Credit Suisse, as agent (incorporated by reference to Exhibit 4.10 to the Funding Corporation Form S-4).
4.10(a) Amendment to Notes and to Amended Debt Service Reserve Letter of Credit and Reimbursement Agreement, dated October 13, 1998, by and among the Funding Corporation, certain banks and Credit Suisse, as agent (incorporated by reference to Exhibit 4.10(a) to the Funding Corporation Form 10-K/A for the year ending December 31, 1998).
4.11 Revolving Credit Agreement, dated as of July 21, 1995, by and among Credit Suisse and the Funding Corporation (incorporated by reference to Exhibit 4.11 to the Funding Corporation Form S-4).
4.12 Amended and Restated Salton Sea Credit Agreement, dated October 13, 1998, by and among SSBP, SSPG, Power LLC and Fish Lake (incorporated by reference to Exhibit 4.12 to the Funding Corporation 99 Form S-4).
4.13 Salton Sea Project Note (SSI), dated October 13, 1998, by SSBP, SSPG, Power LLC and Fish Lake in favor of the Funding Corporation (incorporated by reference to Exhibit 4.13 to the Funding Corporation 99 Form S-4).
4.13aSalton Sea Project Note (SSIII), dated October 13, 1998, by SSBP, SSPG, Power LLC and Fish Lake in favor of the Funding Corporation (incorporated by reference to Exhibit 4.13(a) to the Funding Corporation 99 Form S-4).
4.14 Amended and Restated Deposit and Disbursement Agreement, dated as of October 13, 1998, by and among the Funding Corporation, Chemical Trust Company of California and the Guarantors. (incorporated by reference to Exhibit 4.14 to the Funding Corporation 99 Form S-4).
4.15 Partnership Interest Pledge Agreement, dated as of July 21, 1995, by Magma Power Company and Salton Sea Power Company in favor of Chemical Trust Company of California (incorporated by reference to Exhibit 4.15 to the Funding Corporation Form S-4).
4.16 Partnership Interest Pledge Agreement, dated as of July 21, 1995, by SSBP and Salton Sea Power Company in favor of Chemical Trust Company of California (incorporated by reference to Exhibit 4.16 to the Funding Corporation Form S-4).
4.17 Stock Pledge Agreement (Pledge of Stock of Fish Lake by Magma Power Company and the Funding Corporation), dated as of July 21, 1995, by Magma Power Company and the Funding Corporation in favor of Chemical Trust Company of California (incorporated by reference to Exhibit 4.17 to the Funding Corporation Form S-4).
4.18 Cost Overrun Commitment, dated as of July 21, 1995, between MidAmerican, SSPG, SSBP and Fish Lake (incorporated by reference to Exhibit 4.18 to the Funding Corporation Form S-4).
4.19 Second Amended and Restated Partnership Guarantors Credit Agreement, dated October 13, 1998, by and among the Partnership Guarantors and the Funding Corporation (incorporated by reference to Exhibit 4.19(c) to the Funding Corporation Form 10-K/A).
4.20 Partnership Guarantors Security Agreement and Assignment of Rights, dated as of July 21, 1995, by CEOC and VPC in favor of Chemical Trust Company of California (incorporated by reference to Exhibit 4.20 to the Funding Corporation Form S-4).
4.21 Stock Pledge Agreement (Pledge of Stock of CEOC by Magma Power Company and the Funding Corporation), dated as of July 21, 1995, by Magma Power Company and Funding Corporation in favor of Chemical Trust Company of California (incorporated by reference to Exhibit 4.21 to the Funding Corporation Form S-4).
4.22 Stock Pledge Agreement (Pledge of Stock of VPC by Magma Power Company and the Funding Corporation), dated as of July 21, 1995, by Magma Power Company and the Funding Corporation in favor of Chemical Trust Company of California (incorporated by reference to Exhibit 4.22 to the Funding Corporation Form S-4).
4.23 Royalty Guarantor Credit Agreement, among the Royalty Guarantor and the Funding Corporation, dated as of July 21, 1995 (incorporated by reference to Exhibit 4.23 to the Funding Corporation Form S-4).
4.24 Royalty Project Note, dated as of July 21, 1995, by the Royalty Guarantor in favor of the Funding Corporation (incorporated by reference to Exhibit 4.24 to the Funding Corporation Form S-4).
4.25 Royalty Security Agreement and Assignment of Revenues, dated as of July 21, 1995, by the Royalty Guarantor in favor of Chemical Trust Company of California (incorporated by reference to Exhibit 4.25 to the Funding Corporation Form S-4).
4.26 Royalty Deed of Trust, dated as of July 21, 1995, by the Royalty Guarantor to Chicago Title Company for the use and benefit of Chemical Trust Company of California (incorporated by reference to Exhibit 4.26 to the Funding Corporation Form S-4).
4.27 Stock Pledge Agreement (Pledge of Stock of Royalty Guarantor by Magma Power Company and the Funding Corporation), dated as of July 21, 1995, by Magma Power Company and the Funding Corporation in favor of Chemical Trust Company of California (incorporated by reference to Exhibit 4.27 to the Funding Corporation Form S-4).
4.28 Collateral Assignment of the Imperial Irrigation District Agreements, dated as of July 21, 1995, by SSBP, SSPG and Fish Lake in favor of Chemical Trust Company of California (incorporated by reference to Exhibit 4.28 to the Funding Corporation Form S-4).
4.29 Collateral Assignments of Certain Salton Sea Agreements, dated as of July 21, 1995, by SSBP, SSPG and Fish Lake in favor of Chemical Trust Company of California (incorporated by reference to Exhibit 4.29 to the Funding Corporation Form S-4).
4.30 Debt Service Reserve Letter of Credit by Credit Suisse in favor of Chemical Trust Company of California (incorporated by reference to Exhibit 4.30 to the Funding Corporation Form S-4).
4.31 Partnership Project Note (SSI), dated October 13, 1998, by VPC and CEOC, Conejo, San Felipe, Niguel, VPC Geothermal, Del Ranch, Elmore, Leathers, Vulcan, Turbo LLC and Minerals LLC in favor of the Funding Corporation (incorporated by reference to Exhibit 4.31(a) to the Funding Corporation Form 10-K/A).
4.31(a) Partnership Project Note (SSII), dated October 13, 1998, by VPC and CEOC, Conejo, San Felipe, Niguel, VPC Geothermal, Del Ranch, Elmore, Leathers, Vulcan, Turbo LLC and Minerals LLC in favor of the Funding Corporation (incorporated by reference to Exhibit 4.31(b) to the Funding Corporation Form 10-K/A).
4.31(b) Partnership Project Note (SSIII), dated October 13, 1998, by VPC and CEOC, Conejo, San Felipe, Niguel, VPC Geothermal, Del Ranch, Elmore, Leathers, Vulcan, Turbo LLC and Minerals LLC in favor of the Funding Corporation (incorporated by reference to Exhibit 4.31(c) to the Funding Corporation Form 10-K/A).
4.32 Collateral Assignment of the Imperial Irrigation District Agreements, dated as of June 20, 1996, by Vulcan, Elmore, Leathers, VPC and Del Ranch in favor of Chemical Trust Company of California (incorporated by reference to Exhibit 4.29 to the Funding Corporation II Form S-4).
4.33 Collateral Assignments of Certain Partnership Agreements, dated as of June 20, 1996, by Vulcan Elmore, Leathers and Del Ranch in favor of Chemical Trust Company of California (incorporated by reference to Exhibit 4.31 to the Funding Corporation II Form S-4).
4.34 Debt Service Reserve Letter of Credit by Credit Suisse in favor of Chemical Trust Company of California (incorporated by reference to Exhibit 4.32 to the Funding Corporation II Form S-4).
4.35 Intentionally Omitted
4.36 Intentionally Omitted
4.37 Deed of Trust, dated as of June 20, 1996, by Vulcan to Chicago Title Company for the use and benefit of Chemical Trust Company of California (incorporated by reference to Exhibit 4.35 to the Funding Corporation II Form S-4).
4.37(a) First Amendment to Deed of Trust, dated October 13, 1998 by Vulcan to Chicago Title Company for the use and benefit of Chemical Trust Company of California (incorporated by reference to Exhibit 4.37(a) to the Form 10-K/A).
4.38 Deed of Trust, dated as of June 20, 1996, by Elmore to Chicago Title Company for the use and benefit of Chemical Trust Company of California (incorporated by reference to Exhibit 4.36 to the Funding Corporation II Form S-4).
4.38(a) First Amendment to Deed of Trust, dated October 13, 1998, by Elmore to Chicago Title Company for the use and benefit of Chemical Trust Company of California (incorporated by reference to Exhibit 4.38(a) to the Form 10-K/A).
4.39 Deed of Trust, dated as of June 20, 1996, by Leathers to Chicago Title Company for the use and benefit of Chemical Trust Company of California (incorporated by reference to Exhibit 4.37 to the Funding Corporation II Form S-4).
4.39(a) First Amendment to Deed of Trust, dated October 13, 1998, by Leathers to Chicago Title Company for the use and benefit of Chemical Trust Company of California (incorporated by reference to Exhibit 4.39(a) to the Form 10-K/A).
4.40 Deed of Trust, dated as of June 20, 1996, by Del Ranch to Chicago Title Company for the use and benefit of Chemical Trust Company of California (incorporated by reference to Exhibit 4.38 to the Funding Corporation II Form S-4).
4.40(a) First Amendment to Deed of Trust, dated October 13, 1998, by Del Ranch to Chicago Title Company for the use and benefit of Chemical Trust Company of California (incorporated by reference to Exhibit 4.40(a) to the Form 10-K/A).
4.41 Stock Pledge Agreement, Dated as of June 20, 1996, by CEOC, pledging the stock of Conejo, Niguel and San Felipe in favor of Chemical Trust Company of California for the benefit of the Secured Parties and the Funding Corporation (incorporated by reference to Exhibit 4.39 to the Funding Corporation II Form S-4).
4.42 Stock Pledge Agreement, dated as of June 20, 1996, by VPC, pledging the stock of BNG in favor of Chemical Trust Company of California for the benefit of the Secured Parties and the Funding Corporation (incorporated by reference to Exhibit 4.40 to the Funding Corporation II Form S-4).
4.43 Partnership Interest Pledge Agreement, dated as of June 20, 1996, by VPC and BNG, pledging the partnership interests in Vulcan in favor of Chemical Trust Company of California for the benefit of the Secured Parties and the Funding Corporation (incorporated by reference to Exhibit 4.41 to the Funding Corporation II Form S-4).
4.44 Partnership Interest Pledge Agreement, dated as of June 20, 1996, by Magma, CEOC and each of Conejo, Niguel, San Felipe, respectively, pledging the partnership interests in Del Ranch, Elmore and Leathers, respectively, in favor of Chemical Trust Company of California for the benefit of the Secured Parties and the Funding Corporation (incorporated by reference to Exhibit 4.42 to the Funding Corporation II Form S-4).
4.45 Agreement regarding Security Documents, dated as of June 20, 1996, by and among the Initial Guarantors, Magma, SSPC, the Funding Corporation and Chemical Trust Company of California (incorporated by reference to Exhibit 4.45 to the Funding Corporation II Form S-4).
5.1 Opinion of Willkie Farr & Gallagher (incorporated by reference to Exhibit 5.1 of the 99 Form S-4).
5.2 Opinion of Latham & Watkins (incorporated by reference to Exhibit 5.2 of the 99 Form S-4).
5.3 Opinion of Lionel Sawyer & Collines (incorporated by reference to Exhibit 5.3 of the 99 Form S-4).
10.1(a) Salton Sea Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing, dated as of July 21, 1995, by SSBP, SSPG and Fish Lake to Chicago Title Company for the use and benefit of Chemical Trust Company of California (incorporated by reference to Exhibit 10.1 to the Funding Corporation Form S-4) .
10.1(b) First Amendment to Salton Sea Deed of Trust, Assignment of Rents, Security Agreement and Fixed Filing, dated as of June 20, 1996, by SSBP, SSPG and Fish Lake to Chicago Title Company for the use and benefit of Chemical Trust Company of California (incorporated by reference to Exhibit 10.2 to the Funding Corporation II Form S-4).
10.1(c) Second Amendment to Salton Sea Deed of Trust, Assignment of Rents, Security Agreement and Fixed Filing, dated as of October 13, 1998, by SSBP, SSPG and Fish Lake to Chicago Title Company for the use and benefit of Chemical Trust Company of California (incorporated by reference to Exhibit 10.1(c) to the Form 10-K/A).
10.2 Collateral Assignment of Southern California Edison Company Agreements, dated as of July 21, 1995, by SSPG and Fish Lake in favor of Chemical Trust Company of California (incorporated by reference to Exhibit 10.3 to the Funding Corporation Form S-4).
10.3 Contract for the Purchase and Sale of Electric Power from the Salton Sea Geothermal Facility, dated May 9, 1987 (the "Unit 1 Power Purchase Agreement"), between Southern California Edison Company and Earth Energy, Inc. (incorporated by reference to Exhibit 10.4 to the Funding Corporation Form S-4).
10.4 Amendment No. 1 to the Unit 1 Power Purchase Agreement, dated as of March 30, 1993, between Southern California Edison Company and Earth Energy, Inc. (incorporated by reference to Exhibit 10.5 to the Funding Corporation Form S-4).
10.5 Amendment No. 2 to Unit 1 Power Purchase Agreement, dated November 29, 1994, between Southern California Edison Company and SSPG (incorporated by reference to Exhibit 10.6 to the Funding Corporation Form S-4).
10.6 Contract for the Purchase and Sale of Electric Power, dated April 16, 1985 (the "Unit 2 Power Purchase Agreement"), between Southern California Edison Company and Westmoreland Geothermal Associates (incorporated by reference to Exhibit 10.7 to the Funding Corporation Form S-4).
10.7 Amendment No. 1 to Unit 2 Power Purchase Agreement, dated as of December 18, 1987, between Southern California Edison Company and Earth Energy, Inc. (incorporated by reference to Exhibit 10.8 to the Funding Corporation Form S-4).
10.8 Power Purchase Contract, dated April 16, 1985 (the "Unit 3 Power Purchase Agreement"), between Southern California Edison Company and Union Oil Company of California (incorporated by reference to Exhibit 10.9 to the Funding Corporation Form S-4).
10.9 Power Purchase Contract (the "Unit 4 Power Purchase Agreement"), dated November 29, 1994, between Southern California Edison Company, SSPG and Fish Lake (incorporated by reference to Exhibit 10.10 to the Funding Corporation Form S-4).
10.10Plant Connection Agreement (Unit 2), dated October 3, 1989, between the Imperial Irrigation District and Earth Energy, Inc. (incorporated by reference to Exhibit 10.11 to the Funding Corporation Form S-4).
10.11Plant Connection Agreement, dated August 2, 1988 (Unit 3), between the Imperial Irrigation District and Desert Power Company (incorporated by reference to Exhibit 10.12 to the Funding Corporation Form S-4).
10.12Imperial Irrigation District Funding and Construction Agreements as amended (Units 2 and 3), dated as of June 29, 1987, among the Imperial Irrigation District, Earth Energy, Inc., Chevron Geothermal Company of California, Geo East Mesa No. 3, Inc., Magma Power Company, Desert Power Company, Geo East Mesa No. 2, Inc., Heber Geothermal Company, Ormesa Geothermal, Ormesa Geothermal II, Vulcan/BN Geothermal Power Company, Union Oil Company of California, Del Ranch L.P., Elmore L.P., Leathers L.P., Geo East Mesa Limited Partnership and Imperial Resource Recovery Associates, L.P. (incorporated by reference to Exhibit 10.13 to the Funding Corporation Form S-4).
10.13Transmission Service Agreement, dated as of October 3, 1989 (Unit 2), between the Imperial Irrigation District and Earth Energy, Inc. (incorporated by reference to Exhibit 10.14 to the Funding Corporation Form S-4).
10.14Transmission Service Agreement, dated as of August 2, 1988 (Unit 3), between the Imperial Irrigation District and Desert Power Company (incorporated by reference to Exhibit 10.15 to the Funding Corporation Form S-4).
10.15Plant Connection Agreement (Unit 4), dated as of July 14, 1995, by and between the Imperial Irrigation District, SSPG and Fish Lake (incorporated by reference to Exhibit 10.16 to the Funding Corporation Form S-4).
10.16Letter Agreement, dated February 2, 1995, between Magma Power Company and the Imperial Irrigation District (incorporated by reference to Exhibit 10.17 to the Funding Corporation Form S-4).
10.17Transmission Service Agreement (Unit 4), dated as of July 14, 1995, by and between the Imperial Irrigation District, SSPG and Fish Lake (incorporated by reference to Exhibit 10.18 to the Funding Corporation Form S-4).
10.18Transmission Line Construction Agreement (Unit 4), dated July 14, 1995, between the Imperial Irrigation District, SSPG and Fish Lake (incorporated by reference to Exhibit 10.19 to the Funding Corporation Form S-4).
10.19Funding Agreement, dated June 15, 1988 (Unit 2), between Southern California Edison Company and Earth Energy, Inc. (incorporated by reference to Exhibit 10.20 to the Funding Corporation Form S-4).
10.20Second Amended and Restated Administrative Services Agreement, by and among CEOC, SSBP, SSPG and Fish Lake, dated as of July 15, 1995 (incorporated by reference to Exhibit 10.21 to the Funding Corporation Form S-4).
10.21Second Amended and Restated Operating and Maintenance Agreement, dated as of July 15, 1995, by and among Magma Power Company, SSBP, SSPG and Fish Lake (incorporated by reference to Exhibit 10.22 to the Funding Corporation Form S-4).
10.22 Intentionally Omitted.
10.23Collateral Assignment of Southern California Edison Company Agreements, dated as of June 20, 1996, by Vulcan, Elmore, Leathers and Del Ranch in favor of Chemical Trust Company of California (incorporated by reference to Exhibit 10.23 to the Funding Corporation II Form S-4).
10.24Administrative Services Agreement, dated as of June 17, 1996, between CEOC and Vulcan (incorporated by reference to Exhibit 10.24 to the Funding Corporation II Form S-4).
10.25Amended and Restated Construction, Operating and Accounting Agreement, dated as of June 17, 1996, between VPC and Vulcan (incorporated by reference to Exhibit 10.25 to the Funding Corporation II Form S-4).
10.26Long Term Power Purchase Contract, dated March 1, 1984, as amended, between SCE and Vulcan, as successor to Magma Electric Company (incorporated by reference to Exhibit 10.26 to the Funding Corporation II Form S-4).
10.27Transmission Service Agreement, dated December 1, 1988, between VPC and IID (incorporated by reference to Exhibit 10.27 to the Funding Corporation II Form S-4).
10.28Plant Connection Agreement, dated as of December 1, 1988, between VPC and IID (incorporated by reference to Exhibit 10.28 to the Funding Corporation II Form S-4).
10.29Amended and Restated Administrative Services Agreement, dated as of June 17, 1996 between CEOC and Elmore (incorporated by reference to Exhibit 10.29 to the Funding Corporation II Form S-4).
10.30Amended and Restated Operating and Maintenance Agreement, dated as of June 17, 1996, between CEOC and Elmore (incorporated by reference to Exhibit 10.30 to the Funding Corporation II Form S-4).
10.31Long Term Power Purchase Contract, dated June 15, 1984, as amended, between SCE and Elmore, as successor to Magma Electric Company (incorporated by reference to Exhibit 10.31 to the Funding Corporation II Form S-4).
10.32Transmission Service Agreement, dated as of August 2, 1988, as amended, between Elmore and IID (incorporated by reference to Exhibit 10.32 to the Funding Corporation II Form S-4).
10.33Plant Connection Agreement, dated as of August 2, 1988, between Elmore and IID (incorporated by reference to Exhibit 10.33 to the Funding Corporation II Form S-4).
10.34Amended and Restated Administrative Services Agreement, dated as of June 17, 1996, between CEOC and Leathers (incorporated by reference to Exhibit 10.34 to the Funding Corporation II Form S-4).
10.35Amended and Restated Operating and Maintenance Agreement, dated as of June 17, 1996, between CEOC and Leathers (incorporated by reference to Exhibit 10.35 to the Funding Corporation II Form S-4).
10.36Long Term Power Purchase Contract, dated August 16, 1985, as amended, between SCE and Leathers, as successor to Imperial Energy Corporation (incorporated by reference to Exhibit 10.36 to the Funding Corporation II Form S-4).
10.37Transmission Service Agreement, dated as of October 3, 1989, as amended, between Leathers and IID (incorporated by reference to Exhibit 10.37 to the Funding Corporation II Form S-4).
10.38Plant Connection Agreement, dated as of October 3, 1989, between Leathers and IID (incorporated by reference to Exhibit 10.38 to the Funding Corporation II Form S-4).
10.39Amended and Restated Administrative Services Agreement, dated as of June 17, 1996, between CEOC and Del Ranch (incorporated by reference to Exhibit 10.39 to the Funding Corporation II Form S-4).
10.40Amended and Restated Operating and Maintenance Agreement, dated as of June 17, 1996, between CEOC and Del Ranch (incorporated by reference to Exhibit 10.40 to the Funding Corporation II Form S-4).
10.41Long Term Power Purchase Contract, dated February 22, 1984, as amended, between SCE and Del Ranch, as successor to Magma (incorporated by reference to Exhibit 10.41 to the Funding Corporation II Form S-4).
10.42Transmission Service Agreement, dated as of August 2, 1988, as amended, between Del Ranch and IID (incorporated by reference to Exhibit 10.42 to the Funding Corporation II Form S-4).
10.43Plant Connection Agreement, dated as of August 2, 1988, between Del Ranch and IID (incorporated by reference to Exhibit 10.43 to the Funding Corporation II Form S-4).
10.44Funding Agreement, dated May 18, 1990, between SCE and Del Ranch (incorporated by reference to Exhibit 10.44 to the Funding Corporation II Form S-4).
10.45Funding Agreement, dated May 18, 1990, between SCE and Elmore (incorporated by reference to Exhibit 10.45 to the Funding Corporation II Form S-4).
10.46Funding Agreement, dated June 15, 1990, between SCE and Leathers (incorporated by reference to Exhibit 10.46 to the Funding Corporation II Form S-4).
10.47Funding Agreement, dated May 18, 1990, between SCE and Leathers (incorporated by reference to Exhibit 10.47 to the Funding Corporation II Form S-4).
10.48Funding Agreement, dated May 18, 1990, between SCE and Vulcan (incorporated by reference to Exhibit 10.48 to the Funding Corporation II Form S-4).
24. Power of Attorney