Item 1. Business.
The Coso Projects
The Coso projects consist of three 80 MW geothermal power plants, called Navy I, BLM and Navy II, certain transmission lines, wells, gathering system and other related facilities. The Coso projects are located near one another in the Mojave Desert approximately 150 miles northeast of Los Angeles, California, and have been generating electricity since the late 1980s. Unlike fossil fuel-fired power plants, the Coso projects' power plants use geothermal energy derived from the natural heat of the earth's interior to generate electricity.
Coso Finance Partners (The Navy I partnership) owns Navy I and its related facilities, Coso Energy Developers (the BLM partnership) owns BLM and its related facilities and Coso Power Developers (the Navy II partnership) owns Navy II and its related facilities (collectively, the Coso partnerships). The Coso partnerships and their affiliates own the exclusive right to explore, develop and use, currently without any known interference from any other power developers, a portion of the Coso Known Geothermal Resource Area.
The geothermal power plants, each of which has three separate turbine generator units, have consistently operated above their nominal capacities, and the combined average capacity factor for the plants has exceeded 100% for each of the last seven years.
The Coso partnerships sell 100% of the electrical energy generated at the plants to Southern California Edison (Edison) under three long-term Standard Offer No. 4 power purchase agreements. Each power purchase agreement expires after the last maturity date of the senior secured notes. (Edison is one of the largest investor-owned electric utilities in the United States.) Under the power purchase agreements, the Coso partnerships receive the following payments:
* Capacity payments for being able to produce electricity at certain levels. Capacity payments are fixed throughout the lives of the power purchase agreements;
* Capacity bonus payments if they are able to produce electricity above a specified, higher level. The maximum capacity bonus payment available is also fixed throughout the lives of the power purchase agreements; and
* Energy payments based on the amount of electricity their respective plants actually produce.
Energy payments were fixed for the first ten years of firm operation under the power purchase agreements. Firm operation was achieved for each Coso partnership when Edison and that Coso partnership under its power purchase agreement agreed that each generating unit at a plant was a reliable source of generation and could reasonably be expected to operate continuously at its effective rating. After the first ten years of firm operation and until its power purchase agreement expires, Edison is required to make energy payments to the Coso partnership based on its avoided cost of energy. Edison's avoided cost of energy is Edison's cost to generate electricity if Edison were to produce it itself or buy it from another power producer rather than buy it from the relevant Coso partnership. Future energy payments required to be paid by Edison to the Coso partnerships will most likely be less than historical energy payments because they will be paid based on Edison's avoided cost of energy, instead of the fixed payments paid during the first ten years. The fixed energy price period expired in August 1997 for the Navy I partnership, in March 1999 for the BLM partnership, and in January 2000 for the Navy II partnership. The Edison power purchase agreements will expire in August 2011 for the Navy I partnership; in March 2019 for the BLM partnership; and in January 2010 for the Navy II partnership.
Edison entered into an agreement (the "Agreement") with the Coso partnerships on June 19, 2001 that addressed renewable energy pricing and issues concerning California's energy crisis. The Agreement which was amended on November 30, 2001, established May 1, 2002 as the date when the Coso partnerships will begin receiving a fixed avoided cost of energy rate of 5.37 cents per kWh for five (5) years. Subsequent to the five year period, Edison will be required to make energy payments to the Coso partnerships based on its avoided cost of energy until each partnership's power purchase agreement expires.
AB1890 Energy Subsidy Payments
In addition to receiving payments under the power purchase agreements, the Coso partnerships qualify for subsidy payments from a special purpose state fund established under California Legislature AB1890 (AB1890). The California Energy Commission administers the fund. AB1890, as amended, provides, in part, for subsidy payments from 1998 through 2001 to power generators using renewable sources of energy, including geothermal energy, and who are being paid based on the avoided cost of energy. The funds were distributed in the form of a production incentive payment that subsidizes renewable energy producers when prices paid for their electricity are below certain pre-determined target prices. Under AB1890, the Navy I partnership, the BLM partnership and the Navy II partnership received subsidy payments for energy delivered to Edison by the respective Coso partnership, if Edison's avoided cost of energy falls below 3.0 cents per kWh. This subsidy payment is capped at 1.0 cent per kWh.
Purchase of CalEnergy Interests
On February 25, 1999, Caithness Acquisition Company, LLC (CAC), a wholly owned subsidiary of Caithness Energy, LLC, (Caithness Energy) purchased all of the interests in the Coso projects that were owned by CalEnergy Company Inc. (CalEnergy), which is now known as MidAmerican Energy Holdings Company. The purchase price consisted of $205.0 million in cash, plus $5.0 million in contingent payments, plus the assumption of CalEnergy's and its affiliates' share of debt outstanding on the Coso projects which then totaled approximately $67.0 million. In order to complete the purchase, CAC arranged for short-term debt financing in the principal amount of approximately $211.5 million. CAC used a portion of the proceeds from the Series A note offering that it received from the Coso partnerships, together with funds from other sources, to repay all of this short-term borrowing.
Operating Strategy
The Coso partnerships seek to maximize their cash flow at the Coso projects through active management of their cost structure and the geothermal resource. After CAC'S purchase of all of CalEnergy's interests in the Coso projects, the Coso partnerships retained Coso Operating Company, (COC) which is an affiliate, to maintain all three plants, the transmission lines and the geothermal resource, including well drilling. As a result of the change in operators and restructuring of operator fees, the aggregate annual fees paid by the Coso partnerships to COC for such maintenance has been reduced significantly. Payments of operator fees are subordinated to all payments made under the senior secured notes. CAC, which purchased the managing partners interest in the Coso partnerships, has caused any management fees payable by each Coso partnership to its partners are subordinated to all payments made under the senior secured notes.
The Coso projects qualify as Small Power Qualifying Facilities (QF) under the Public Utility Regulatory Policies Act (PURPA) and the rules and regulations promulgated under PURPA by the Federal Energy Regulatory Commission (FERC). PURPA exempts the Coso projects from certain federal and state regulations. The Coso projects must continue to satisfy certain ownership and fuel-use standards to maintain their QF status. Since their inception, the Coso projects have satisfied these standards and expect that they will continue to do so in the future.
The Sponsor
Caithness Energy, the principal operating subsidiary of Caithness Corporation, is a developer and owner of independent power projects and is the sponsor of the Coso projects. Since 1966, the current owners of Caithness Corporation have been involved in the development of long-term investment opportunities involving natural resources. Caithness Corporation is one of the two original sponsors of the Coso projects and formed Caithness Energy in 1995 to consolidate its ownership of independent power projects.
Caithness Energy believes that it is currently the second largest owner of geothermal power projects in the United States, based on the total electrical generating capacity of its power projects. Through its controlled affiliates, Caithness Energy owns interests in seven geothermal plants, including the Coso projects, totaling 414 MW of generating capacity. Caithness Energy is also seeking to develop additional natural gas power projects, and has interests in other operating power generating facilities, including solar, wind and natural gas, totaling an additional 696 MW of generating capacity.
Caithness Energy is headquartered in New York City and has additional offices in California, Nevada, Colorado and Florida.
The Issuer
Caithness Coso Funding Corp. (Funding Corp.) is a special purpose corporation and a wholly owned subsidiary of the Coso partnerships. It was formed for the purpose of issuing the senior secured notes on behalf of the Coso partnerships who have jointly, severally, and unconditionally guaranteed repayment of the senior secured notes.
Funding Corp. has no material assets, other than the loans made to the Coso partnerships, and does not conduct any business, other than issuing the senior secured notes and making the loans to the Coso partnerships.
The Coso Known Geothermal Resource Area
The Coso projects are located in an area that has been designated as a Known Geothermal Resources Area by the Bureau of Land Management pursuant to the Geothermal Steam Act of 1970. The Bureau of Land Management designates an area as a Known Geothermal Resource Area when it determines that a commercially viable geothermal resource is likely to exist there. There are over 100 Known Geothermal Resource Areas in the United States, most of which are located in the western United States in tectonically active regions.
The Coso Known Geothermal Resource Area is located in Inyo County, California, approximately 150 miles northeast of Los Angeles. The Coso geothermal resource is a "liquid-dominated" hot water source contained within the heterogeneous fractured granite rocks of the Coso Mountains. It is believed the heat source for the Coso geothermal resource is a hot molten rock or "magma" body located at a depth of six-to-seven miles beneath the surface of the field. Geochemical studies indicate that the water in the Coso geothermal resource is ancient water that has been there since the ice age or longer.
Steam Sharing Program
In 1994, the Coso partnerships entered into a Geothermal Exchange Agreement which implemented a steam-sharing program among the Coso projects. The purpose of the steam-sharing program is to enhance the management and optimize the overall use of the Coso geothermal resource. Pursuant to the steam sharing program, the Coso partnerships constructed an inter-project steam supply and water injection system that links the three Coso projects and BLM North together via metered transfer lines through which the Coso partnerships exchange steam and other geothermal resources with one another.
As part of the steam sharing program, the Coso partnerships plan to conserve the geothermal resource whenever possible by, among other things, transferring steam between and among the Coso projects and BLM North, rather than drilling new wells at the Coso projects' sites prematurely, and expanding a flexible field-wide water reinjection program. While the U.S. Navy and the Bureau of Land Management have consented to the steam sharing program, each has reserved the right, in its sole discretion, to withdraw its consent to such transfers under certain circumstances.
In 2001, the Navy I partnership and the Navy II partnership incurred aggregate royalties to the U.S Navy of approximately $2.5 million for steam transferred by Navy I to Navy II and by Navy II to BLM under the steam sharing program from geothermal resources located on the property on which Navy I or Navy II, as the case may be, are situated. Of this amount, the Navy I and Navy II partnerships each incurred approximately $1.3 million. The BLM partnership reimbursed the Navy II partnership approximately $0.2 million of the royalties incurred by the Navy II partnership. The BLM partnership incurs a royalty to the U.S. Navy for electricity generated by BLM for steam transferred from U.S. Navy property and sold to Edison.
Royalty and Revenue-Sharing Arrangements
The Coso partnerships are required to make royalty payments to, and are subject to other revenue-sharing arrangements with, the U.S. Navy, the Bureau of Land Management and certain other persons.
Navy I
Under the U.S. Navy contract, as a royalty for Unit 1 at Navy I, the Navy I partnership is obligated to partially reimburse the U.S. Navy for electricity supplied to it by Edison from electricity generated at the Navy I plant. The reimbursement payment is based on a pricing formula included in the U.S. Navy contract. The percentage rate of reimbursement changes semiannually, but cannot exceed 95% of the price paid by the U.S. Navy to Edison, in accordance with a weighted index based on the Consumer Price Index and price indices for the oil industry, the electric power plant industry and the construction industry. Discussions with the U.S. Navy are continuing to re-adjust the formula to reflect recent activity in the local energy market. In November 2001, a modification to the calculation of the reimbursement pricing formula was made to the U.S. Navy Contract resulting in a reduction of accrued royalties of $6.5 million.
In addition, with respect to Unit 1 at Navy I, the Navy I partnership is obligated to pay the U.S. Navy the sum of $25.0 million on or before December 31, 2009, the expiration date of the term of the U.S. Navy contract. Payment of this obligation will be made from an established sinking fund to which the Navy I partnership has been making payments since 1987.
For Units 2 and 3 at Navy I, the Navy I partnership's royalty expense is a fixed percentage of its electricity sales to Edison. The royalty expense is 15.0% of revenues received by the Navy I partnership through 2003 and will increase to 20.0% of revenues received from 2004 through 2009, the expiration date of the U.S. Navy contract.
BLM
The BLM partnership pays royalties to the Bureau of Land Management under the BLM lease. The royalty rate is 10% of the net value of the steam produced by the BLM partnership. This royalty rate is fixed for the life of the BLM Lease. In addition to this royalty, the BLM partnership is obligated, in connection with the assignment of the BLM lease to the BLM partnership, to pay a royalty of 5% based on the value of the steam produced to Coso Land Company, a general partnership of which CAC and another affiliate of Caithness Energy are the general partners. The royalty is subordinated to the payment of all the BLM partnership's other royalties, all debt service and all operating costs of the BLM partnership. No portion of the royalty accrued to Coso Land Company has been paid to date.
BLM North
In December of 2000, the Bureau of Land Management allowed Coso Land Company to assign each of the Coso partnerships an undivided one-third interest in leases they had previously bought from the Los Angeles Department of Water and Power (LADWP). The assignment required each Coso partnership to pay $8.00 per acre in additional rent to the Bureau of Land Management. When the leased property commences to produce geothermal steam, the Coso partnerships will pay monthly royalties under the LADWP leases of 10% of the value of steam produced, 5% of the value of any by-products, and 5% of the value of commercially demineralized water. The Bureau of Land Management may establish minimum production levels and reduce the foregoing royalties if necessary to encourage greater recovery of leased resources.
Navy II
The Navy II partnership pays royalties to the U.S Navy under the U.S Navy contract. The Navy II partnership's royalty expense is a fixed percentage of its electricity sales to Edison. The royalty rate was 10.0% of electricity sales to Edison through 1999, increased to 18.0% for 2000 through 2004 and will increase to 20.0% from 2005 through the end of the Navy contract.
Operations and Maintenance
The operations and maintenance services for the Coso projects, including the Navy I, BLM, and Navy II transmission lines, wells, gathering system, and other related facilities, are performed by COC on behalf of the Coso partnerships pursuant to the Operation and Maintenance agreements. COC is a wholly owned subsidiary of CAC that was initially formed by CalEnergy to facilitate the transfer of operational control of the Coso projects to a Caithness Energy affiliate.
On February 26, 1999 CalEnergy ceased to be the operator of the Coso projects, and FPL Energy Operating Services, Inc. (FPLEOSI), an indirect wholly owned subsidiary of FPL Energy, Inc., assumed that role. An amended and restated operation and maintenance agreement between FPLEOSI and the managing general partners was implemented. Under that agreement, FPLEOSI became the plant operator and under a separate operations and maintenance agreement COC was responsible for maintenance of the geothermal resource. On October 17, 1999 the operating agreement between FPLEOSI and the managing general partners was terminated and COC became the sole operator of the plant and continued to maintain the geothermal field.
Insurance
The Coso partnerships currently have property, business interruption, catastrophe and general liability insurance for the Coso projects. For the period February 25, 2001 to February 24, 2002 the plants were insured up to their replacement cost for general property damage and over $166.0 million in the aggregate for business interruption, subject to a $50,000 deductible for property damage (and a $250,000 deductible for the turbine generator sets), with a 30-day deductible for business interruption (including machinery breakdown). Catastrophic insurance (including earthquake and flood) was capped at $200.0 million for property damage, subject to a minimum deductible of $2.5 million or 5.0% of the loss. The deductible for flood is $50,000 for any one loss. Liability insurance coverage was $51.0 million (occurrence based). Operators' extra expense (control of well) insurance is $10.0 million per occurrence with a $150,000 deductible.
During the latter half of 2001, conditions in the insurance markets deteriorated due to increased claims and events surrounding the September 11th terrorist attacks. As a result of the difficult market, the Coso partnerships renewed their coverage for the period February 25, 2002 to February 25, 2003. Liability and property coverage remains the same with the exception that catastrophic occurrences are now capped at $160.0 million and the deductibles under the property program have been increased as follows:
Business Interruption 60 Days Property Damage $250,000 Turbine Generator Sets $500,000 Earthquake 5% of Property Value
Employees
Employees necessary for the operation of the Coso partnerships are provided by COC, under their respective operation and maintenance agreements. COC maintains a qualified technical staff covering a broad range of disciplines including geology, geophysics, geochemistry, drilling technology, reservoir engineering, plant engineering, construction management, maintenance services, production management, electric power operation and certain accounting services. As of December 31, 2001, COC employed 92 people to operate and maintain the Coso projects.
Competition
The Coso partnerships sell all electrical energy generated at the plants to Edison under three long-term Standard Offer No. 4 power purchase agreements. The payments under these agreements have constituted 100% of the operating revenues of each power plant since its inception.
Environmental and Regulatory Matters
The Coso partnerships are subject to environmental laws and regulations at the federal, state and local levels in connection with the development, ownership and operation of the Coso projects. These environmental laws and regulations generally require that a wide variety of permits and governmental approvals be obtained to construct and operate an energy-producing facility. The facility must then operate in compliance with the terms of these permits and approvals. If the Coso partnerships fail to operate their facilities in compliance with applicable laws, permits and approvals, governmental agencies could levy fines, curtail operations, or seek orders to cease operations.
The Coso partnerships believe they are in compliance in all material respects with all environmental regulatory requirements applicable to the Coso projects, and that maintaining compliance with current governmental requirements will not require a material increase in capital expenditures or materially adversely affect that Coso partnership's financial condition or results of operations. It is possible, however, that future developments, such as more stringent requirements of environmental laws and enforcement policies thereunder, could affect capital and other costs at the Coso projects and the manner in which the Coso partnerships conduct their business.
Item 2.
Item 2. Properties
Plants
Navy I
Navy I and its steam resource are located on the United States Naval Weapons Center at China Lake. In December of 2000, Navy I acquired an undivided one-third interest in leases previously purchased from LADWP located on Bureau of Land Management property. It commenced operations in 1987. Geothermal steam for Navy I is produced using over 45 production and injection wells located within a radius of approximately 3,000 feet of Navy I. Navy I consists of three separate turbine generators, known as Units 1, 2 and 3, each with approximately 30 MW of electrical generating capacity. Navy I's steam gathering and piping systems are cross-connected to Navy II via metered transfers to allow steam to be transferred from wells located on the real property covered by the LADWP leases to Navy I and between Navy I and Navy II, pursuant to the steam sharing program. Unit 1 commenced firm operation in 1987, and Units 2 and 3 commenced firm operation during 1988. Navy I has an aggregate gross electrical generating capacity of approximately 90 MW, and operated at an average operating capacity factor of 108.3% in 2001, 111.8% in 2000 and 95.4% in 1999, based on a stated capacity of 80 MW.
BLM
BLM and its steam resource are located on Bureau of Land Management property, within the boundaries of the United States Naval Weapons Center at China Lake. In December of 2000, BLM acquired an undivided one-third interest in leases previously purchased from LADWP which are also located on Bureau of Land Management property. It commenced operations in 1989. BLM is comprised of turbine generators located at two different power blocks: the BLM East site and the BLM West site. The BLM East site is located approximately 1.3 miles east of the BLM West site. Geothermal steam for BLM is produced using over 41 production and injection wells located within a radius of approximately 4,000 feet from either the BLM East or the BLM West site. BLM consists of three separate turbine generators, known as Units 7, 8 and 9. Units 7 and 8 are located at the BLM East site, each with a generating capacity of approximately 30 MW, while Unit 9 is located at the BLM West site, with a generating capacity of approximately 30 MW. All three units commenced firm operation during 1989. BLM's steam gathering and piping systems are cross connected to Navy II via metered transfers to allow steam to be transferred between Navy II and BLM pursuant to the steam sharing program. BLM has an aggregate gross electrical generating capacity of approximately 90 MW, and operated at an average operating capacity factor of 102.8% in 2001, 109.4% in 2000 and 105.0% in 1999, based on a stated capacity of 80 MW.
Navy II
Navy II and its steam resource are located on the United States Naval Weapons Center at China Lake. In December of 2000, Navy II acquired an undivided one-third interest in leases previously purchased from LADWP which are located on Bureau of Land Management property. It commenced operations in 1989. Geothermal steam for Navy II is produced using over 36 production and injection wells located within a radius of approximately 6,000 feet of Navy II. Navy II consists of three separate turbine generators, known as Units 4, 5 and 6, each with approximately 30 MW of electrical generating capacity. All three Navy II units commenced firm operation in 1990. Navy II's steam supply systems are cross-connected to Navy I and BLM steam supply systems via metered transfers to allow steam to be transferred between or among the plants pursuant to the steam sharing program. Navy II has an aggregate gross electrical capacity of approximately 90 MW, and operated at an average operating capacity factor of 104.9% in 2001, 111.1% in 2000 and 112.0% in 1999, based on a stated capacity of 80 MW.
Transmission Lines
The electricity generated by Navy I is conveyed over an approximately 28.8-mile 115 kilovolt ("kV") transmission line on the U.S. Navy and Bureau of Land Management land that is connected to the Edison substation at Inyokern, California. The Navy I partnership owns and uses this transmission line and its related facilities. The electricity generated by BLM and Navy II is conveyed over an approximately 28.8-mile 230 kV transmission line on U.S. Navy and Bureau of Land Management land that is also connected to the Edison substation at Inyokern, California. Coso Transmission Line Partners owns the BLM/Navy II transmission line and related facilities.
Item 3.
Item 3. Legal Proceedings.
Settlement of Litigation
The Coso partnerships are currently parties to various items of litigation relating to day-to-day operations, none of which, if determined adversely, would be material to the financial condition and results of operations of the Coso partnerships, either individually or taken as a whole.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders.
None
Part II
Item 5.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
Not applicable.
Item 6.
Item 6. Selected Financial Data.
The selected fiscal year end historical financial data has been derived from the audited financial statements of the Coso partnerships. The information contained in the following tables should be read in conjunction with the audited financial statements and notes thereto included elsewhere in this report.
Footnotes to Summary Selected Historical Financial and Operating Data
(a) Reflects the combined financial results of the Navy I partnership and Coso Finance Partners II, a California general partnership ("CFP II"). The Navy I partnership and CFP II were first formed as separate entities to facilitate the initial bank financing for the construction and development of Navy I. Initially, the Navy I partnership acquired all of the assets relating to the first turbine generator unit at Navy I and CFP II acquired all of the assets of Navy I relating to the second and third generator units at Navy I. In 1988, CFP II assigned all of its rights and interests in the second and third generator units at Navy I to the Navy I partnership in return for a 5.0% royalty to be paid based on the Navy I partnership's steam production. Since the Navy I partnership and CFP II operate under common ownership and management control, the historical financial statements of the entities have been combined after elimination of intercompany amounts related to the royalty arrangement. CFP II merged with and into the Navy I partnership and the accrued royalty was extinguished. In addition, the royalty will no longer be accrued from and after the Series A note offering.
(b) The fixed energy price periods expired for the Navy I partnership in August 1997, for the BLM partnership in March 1999 and for the Navy II partnership in January 2000.
(c) After CAC's purchase of all of CalEnergy's interests in the Coso projects on February 25, 1999, the Coso partnerships adopted a new basis of accounting and, accordingly, the financial information for the period after the acquisition is presented on a different cost basis than that for the period before the acquisition and therefore is not comparable. The purchase price was allocated to the portion of the assets and liabilities purchased from CalEnergy based on their fair values, with the amount of fair value of net assets in excess of the purchase price being allocated to long-lived assets on a pro-rata basis.
(d) Based on a stated capacity of 80 MW.
(e) The variance in the operating capacity factors for the Navy I partnership, the BLM partnership, and the Navy II partnership are due to the transfer of steam from the Navy I partnership to the BLM and Navy II partnership's under the steam sharing program.
(f) Reflects indebtedness owed to Funding Corp., which loaned all the proceeds from the offering to the Coso partnerships at interest rates and maturities identical to the interest rates and maturities of the senior secured notes.
(g) Reflects non-recognition of operating revenues for the period November 1, 2000 through March 26, 2001, based on non-collection of amounts due for power generated and sold to Edison.
(h) Certain reclassifications have been made to the 2000 statement of operations to conform to the 2001 presentation.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Except for historical financial information contained herein, the matters discussed in this annual report may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and subject to the safe harbor created by the Securities Litigation Reform Act of 1995. Such statements include declarations regarding the intent, belief or current expectations of Caithness Coso Funding Corp. ("Funding Corp."), Coso Finance Partners ("the Navy I partnership"), Coso Energy Developers ("the BLM partnership"), and Coso Power Developers ("the Navy II partnerships"), collectively, (the "Coso partnerships") and their respective management. Any such forward-looking statements are not guarantees of future performance and involve a number of risks and uncertainties; actual results could differ materially from those indicated by such forward-looking statements. Among the important factors that could cause actual results to differ materially from those indicated by such forward-looking statements are: (i) risks relating to the uncertainties in the California energy market, (ii) the financial viability of Southern California Edison, ("Edison"), (iii) the information is of a preliminary nature and may be subject to further adjustment, (iv) risks related to the operation of power plants (v) the impact of avoided cost pricing, (vi) general operating risks, (vii) the dependence on third parties, (viii) changes in government regulation, (ix) the effects of competition, (x) the dependence on senior management, (xi) fluctuations in quarterly results and (xii) seasonality.
General
The Coso projects consist of three 80MW geothermal power plants, which are referred to as Navy I, BLM and Navy II, and their transmission lines, wells, gathering systems and other related facilities. The Coso projects are located near one another at the United States Naval Air Weapons Center at China Lake, California. The Navy I partnership owns Navy I and its related facilities. The BLM partnership owns BLM and its related facilities. The Navy II partnership owns Navy II and its related facilities. Affiliates of Caithness Corporation and CalEnergy Company, Inc. ("CalEnergy"), which is now known as MidAmerican Energy Holdings Company, formed the Coso partnerships in the 1980s to develop, construct, own and operate the Coso projects. On February 25, 1999 Caithness Acquisition Company, LLC, (CAC) purchased all of CalEnergy's interests in the Coso projects for $205.0 million in cash, plus $5.0 million in contingent payments, plus the assumption of CalEnergy's and its affiliates' share of debt outstanding at the Coso projects which then totaled approximately $67.0 million.
Each Coso partnership sells 100% of the electrical energy generated at its plant to Edison under a long-term Standard Offer No.4 power purchase agreement. Each power purchase agreement expires after the final maturity date of the 6.8% Series B Senior Secured Notes and the 9.05% Series B Senior Secured Notes issued by Funding Corp.
Each Coso partnership is entitled to the following payments under its power purchase agreement:
* Capacity payments for being able to produce electricity at certain levels. Capacity payments are fixed throughout the life of each power purchase agreement;
* Capacity bonus payments if the Coso partnership is able to produce electricity above a specified higher level. The maximum annual capacity bonus payment available is also fixed throughout the life of each power purchase agreement; and
* Energy payments which are based on the amount of electricity the Coso partnership's plant actually produces.
Energy payments were fixed for the first ten years of firm operation under each power purchase agreement. After the first ten years of firm operation and until a Coso partnership's power purchase agreement expires, Edison makes energy payments to the Coso partnership based on Edison's avoided cost of energy. Edison's avoided cost of energy is Edison's cost to generate electricity if Edison were to produce it itself or buy it from another power producer rather than buy it from the Coso partnerships. The power purchase agreement for the Navy I partnership will expire in August 2011, the power purchase agreement for the BLM partnership will expire in March 2019, and the power purchase agreement for the Navy II partnership will expire in January 2010. The fixed energy price period expired in August 1997 for the Navy I partnership, in March 1999 for the BLM partnership and in January 2000 for the Navy II partnership.
For the year ended December 31, 2001, Edison's annual average avoided cost of energy paid to the Navy I, the BLM and the Navy II Partnerships was 7.5 cents per kWh, which is significantly below the fixed energy prices earned by the partnerships prior to the expiration of the fixed energy price periods of their respective power purchase agreements.
Edison entered into an agreement ("Agreement") with the Coso partnerships on June 19, 2001 that addressed renewable energy pricing and issues concerning California's energy crisis. The Agreement which was amended on November 30, 2001, established May 1, 2002, as the date when the Coso partnerships will begin receiving a fixed avoided cost of energy rate of 5.37 cents per kWh for five (5) years. Subsequent to the five year period, Edison will be required to make energy payments to the Coso partnerships based on it's avoided cost of energy until each partnership's power purchase agreement expires.
In 1994, the Coso partnerships implemented a steam-sharing program, under the Coso Geothermal Exchange Agreement. The purpose of the steam-sharing program is to enhance the management of the Coso geothermal resource and to optimize the resource's overall benefits to the Coso partnerships by transferring steam among the Coso projects. Under the steam sharing program, the partnership receiving the steam transfer splits revenue earned from electricity generated with the partnership that transferred the steam.
The Coso partnerships are required to make royalty payments to the U.S. Navy and the Bureau of Land Management. The Navy I partnership pays a royalty for Unit I through reimbursement of electricity supplied to the U.S. Navy by Edison from electricity generated at the Navy I plant. The reimbursement is based on a pricing formula that is included in the U.S. Navy Contract. This formula is largely based upon the tariff rates charged by Edison, which have recently been increased by the California Public Utilities Commission (CPUC). Discussions with the U.S. Navy are continuing to re-adjust the formula to reflect recent activity in the local energy market. In November 2001, a modification to the calculation of the reimbursement pricing formula was made to the U.S. Navy Contract resulting in a reduction of accrued royalties of $6.5 million. For Units 2 and 3, the Navy I partnership's royalty expense paid to the U.S. Navy is a fixed percentage of electricity sales at 15% of revenue received by the Navy I partnership through 2003 and will increase to 20% from 2004 through 2009. In addition, the Navy I partnership is required to pay the U.S. Navy $25.0 million in December 2009, the date their contract expires. The payment is secured by funds placed on deposit monthly, which funds plus accrued interest will aggregate $25.0 million. Currently, the monthly amount to deposit is approximately $.6 million. The BLM partnership pays a 10% royalty to the Bureau of Land Management based on the net value of steam produced. The Navy II partnership pays a royalty to the U.S. Navy based on a fixed percentage of electricity sales to Edison. The royalty rate was 10% of electricity sales through 1999, and increased to 18% for 2000 through 2004 and will increase to 20% from 2005 through the end of the contract term. The Coso partnerships also pay other royalties, at various rates which in the aggregate are not material.
Funding Corp is a special purpose corporation and a wholly owned subsidiary of the Coso partnerships. It was formed for the purpose of issuing the senior secured notes on behalf of the Coso partnerships who have jointly, severally, and unconditionally guaranteed repayment of the senior secured notes.
On May 28, 1999, Funding Corp. issued $110.0 million of 6.80% senior secured notes due in 2001 and $303.0 million of 9.05% senior secured notes due in 2009. The proceeds from the notes were loaned to the Coso partnerships and are payable to Funding Corp from payments of principal and interest on the notes. Funding Corp. does not conduct any other operations apart from issuing the notes.
Under the depository agreement with the trustee for the notes, the Coso partnerships established accounts with a depository and pledged those accounts as security for the benefit of the holders of the senior secured notes. All amounts deposited with the depository are, at the direction of the Coso partnerships, invested by the depository in permitted investments. All revenues or other proceeds actually received by the Coso partnerships are deposited in a revenue account and withdrawn upon receipt by the depository of a certificate from the relevant Coso partnerships detailing the amounts to be paid from funds in its respective revenue account.
Periodic increases in natural gas prices and imbalances between supply and demand, among other factors, have at times led to significant increases in wholesale electricity prices in California. During those periods, Edison had fixed tariffs with their retail customers that were significantly below the wholesale prices it paid in California. This resulted in significant under-recoveries by Edison of its electricity purchase costs. On January 16, 2001 Edison announced that it was temporarily suspending payments for energy provided, including the energy provided by the Coso partnerships, pending a permanent solution to its liquidity crisis. This cash flow shortfall has adversely affected Edison's liquidity and in turn it did not pay the Coso partnerships for energy delivered from November 2000 through March 26, 2001. As of December 31, 2001, the Coso partnerships were unable to determine the time frame during which any future payments would be received. Due to the uncertainty surrounding Edison's ability to make payment on past due amounts, collection was not reasonably assured and the Navy I, BLM and Navy II partnerships had not recognized revenue of $22.0 million, $21.8 million and $22.7 million, respectively, from Edison for Energy delivered during the period January 1, 2001 through March 26, 2001. The provision for doubtful accounts previously recorded as of December 31, 2000 by the Navy I, BLM and Navy II partnerships of $15.2 million, $15.3 million and $15.3 million, respectively, has been reclassified to conform with the 2001 presentation. In addition, the Coso partnerships will not recognize such revenue until payment from Edison is received.
Pursuant to a CPUC order, Edison resumed making payments to the Coso partnerships beginning with power generated on March 27, 2001. Edison also made a payment equal to 10% of the unpaid balance for power generated from November 1, 2000 to March 26, 2001, and continues to pay interest on the outstanding amount at 7% per annum. That payment was made pursuant to the Agreement between Edison and the Coso partnerships described above. On March 1, 2002, Edison reached certain financing milestones and paid the Coso partnerships for revenue generated but not recognized for the period November 2000 through March 26, 2001. As such, the Coso partnership will recognize this revenue in the first quarter of 2002.
Capacity Utilization
For purposes of consistency in financial presentation, the plant capacity factor for each of the Coso partnerships is based on a nominal capacity amount of 80MW (240MW in the aggregate). The Coso partnerships have a gross operating capacity that allows for the production of electricity in excess of their nominal capacity amounts. Utilization of this operating margin is based upon a number of factors and can be expected to vary throughout the year under normal operating conditions.
The following data includes the operating capacity factor, capacity and electricity production (in kWh) for each Coso partnership on a stand-alone basis:
Year Ended December 31, -----------------------
Navy I Partnership 2001 2000 1999 (stand alone) ---- ---- ---- Operating capacity factor 108.3% 111.8% 95.4% Capacity (MW) (average) 86.63 89.44 76.34 kWh produced (000s) 758,890 785,624 668,388
BLM Partnership (stand alone) Operating capacity factor 102.8% 109.4% 105.0% Capacity (MW) (average) 82.21 87.56 84.00 kWh produced (000s) 720,130 769,098 735,840
Navy II Partnership (stand alone) Operating capacity factor 104.9% 111.1% 112.1% Capacity (MW) (average) 83.93 88.88 89.70 kWh produced (000s) 735,210 780,709 785,772
Total energy production for the Navy I partnership was 758.9 million kWh for 2001, as compared to 785.6 million kWh for 2000, a decrease of 3.4%. Total energy production for the BLM partnership was 720.1 million kWh for 2001, as compared to 769.1 million kWh in 2000, a decrease of 6.4%. Total energy production for the Navy II partnership was 735.2 million kWh for 2001, as compared to 780.7 million kWh in 2000, a decrease of 5.8%. These decreases in energy production were primarily due to the deferment of certain capital and maintenance projects by the Coso partnerships, due to non-payment by Edison during the period November 1, 2000 through March 26, 2001. These projects have been resumed as Edison has resumed payment for production starting in late March 2001.
Total energy production for the Navy I partnership was 785.6 million kWh for 2000, as compared to 668.4 million kWh for 1999, an increase of 17.5%. The increase in Navy I partnership's energy production is attributable to increased production resulting from decreased steam transfers and the outage of one turbine generator unit during a portion of 1999. Total energy production for the BLM partnership was 769.1 million kWh for 2000, as compared to 735.8 million kWh in 1999, an increase of 4.5%. Total energy production for the Navy II partnership was 780.7 million kWh for 2000, as compared to 785.8 million kWh in 1999, a decrease of 0.6%.
Results of Operations for the years ended December 31, 2001, 2000, and 1999. - ----------------------------------------------------------------------------
The following discusses the results of operations of the Coso partnerships for the years ended December 31, 2001, 2000 and 1999 (dollar amounts in tables in thousands, except per kWh data):
Total operating revenues for the Navy II partnership, which consist of capacity payments, capacity bonus payments and energy payments, were $36.4 million for 2001, as compared to $43.1 million in 2000, an decrease of 15.5%. Total energy revenues for the Navy II partnership were $23.4 million for 2001, as compared to $29.9 million in 2000, an decrease of 21.7%. The decreases in total operating revenues and energy revenues for 2001 were primarily due to nonpayment by Edison for three months ended March 31, 2001, as compared to November and December revenues in 2000, resulting from the Edison's liquidity crisis discussed above, partially offset by decreases in steam transfer revenues and the previously discussed decrease in generation.
Total operating revenues for the Navy I partnership, which consist of capacity payments, capacity bonus payments and energy payments, were $52.4 million for 2000, as compared to $55.7 million in 1999, an decrease of 5.9%. Total energy revenues for the Navy I partnership were $39.0 million for 2000, as compared to $42.3 million in 1999, a decrease of 7.8%. The decreases in total operating revenues and energy revenues for 2000 were primarily due to nonpayment by Edison for November and December revenues in 2000, resulting from the Edison's liquidity crisis, discussed above.
Total operating revenues for the BLM partnership, which consist of capacity payments, capacity bonus payments and energy payments, were $42.2 million for 2000, as compared to $49.9 million in 1999, an increase of 15.4%. Total energy revenues for the BLM partnership were $29.1 million for 2000, as compared to $35.9 million in 1999, a decrease of 18.9%. The decreases in total operating revenues and energy revenues for 2000 were primarily due to nonpayment by Edison for November and December revenues in 2000, resulting from the Edison's liquidity crisis, discussed above.
Total operating revenues for the Navy II partnership, which consist of capacity payments, capacity bonus payments and energy payments, were $43.1 million for 2000, as compared to $113.7 million in 1999, a decrease of 62.1%. Total energy revenues for the Navy II partnership were $29.9 million for 2000, as compared to $99.7 million in 1999, a decrease of 70.0%. The Navy II partnerships energy revenues decreased by $69.8 million due to the expiration of the fixed energy price period under the Navy II partnership's power purchase agreement in January 2000 and the receipt of energy payments based on Edison's avoided cost of energy since that time and nonpayment by Edison for November and December revenues in 2000, resulting from Edison's liquidity crisis, discussed above. Until January 2000, and during 1999, the Navy II partnership received approximately 14.5 cents per kWh for energy delivered. Under the avoided cost of energy formula, the Navy II partnership received an average of approximately 6.0 cents per kWh for energy delivered for the period February 2000 to December 2000.
The Navy I partnership's interest and other income was $2.9 million in 2001, as compared to $2.5 million in 2000, an increase of 16.0%. The increase was primarily due to interest on amounts in arrears owed by Edison in 2001. The BLM partnership's interest and other income was $3.8 million in 2001, as compared to $8.1 million in 2000, a decrease of 53.1%. This decrease was primarily due to legal settlements paid during 2000, of $6.1 million from Dow Chemical Company and $600,000 for legal fees related to the Edison litigation, partially offset by an increase in interest income on amounts in arrears owed by Edison in 2001.
The Navy I partnership's interest and other income was $2.5 million in 2000, as compared to $2.2 million in 1999, an increase of 13.6%. The increase was primarily due to a settlement of $600,000 for legal fees related to the Edison litigation and increased interest income from higher cash reserves balances required by the senior secured notes issued on May 28, 1999. The BLM partnership's interest and other income was $8.1 million in 2000, as compared to $1.1 million in 1999, an increase of $7.0 million. This increase was primarily due to a legal settlement of $6.1 million with Dow Chemical Company, settlement of $600,000 for legal fees related to the Edison litigation, and increased interest income from higher cash reserves balances required by the senior secured notes issued on May 28, 1999. The Navy II partnership's interest and other income was $2.9 million in 2000, as compared to $2.2 million in 1999, an increase of 31.8%. The increase was primarily due to a settlement of $600,000 for legal fees related to the Edison litigation and increased in interest income from higher cash reserves balances required by the senior secured notes issued on May 28, 1999.
Edison legal expenses and settlement costs decreased in 2000 for the Navy I, BLM and Navy II partnerships by $2.4 million, $4.2 million and $5.8 million, respectively. The changes for 2000 resulted from, among other expenses, an accrued settlement obligation with Edison.
The BLM partnership's operating expenses, including operating and general and administrative expenses were $10.2 million in 2001, as compared to $12.0 million in 2000, a decrease of 15.0%. The decrease in operating expenses for 2001 as compared to 2000, was primarily due to a reduction in current property taxes by an offset of a partial refund of an appealed amount and lower well maintenance and workover costs during 2001.
The Navy I partnership's operating expenses, including operating and general and administrative expenses were $8.6 million in 2000, as compared to $10.0 million in 1999, a decrease of 14.0%. The BLM partnership's operating expenses, including operating and general and administrative expenses were $12.0 million in 2000, as compared to $15.6 million in 1999, a decrease of 23.1%. The Navy II partnership's operating expenses including operating and general and administrative expenses were $9.4 million in 2000, as compared to $10.9 million in 1999, a decrease of 13.8%. The decreases for each of the Coso partnerships for 2000 as compared to 1999, was primarily due to the continued implementation of management's plan to reduce the work force and other operating costs. The replacement of the Coso project's prior operator and managing partner also contributed to the overall reduction in plant operating costs.
The Navy I partnership's royalty expenses were $10.0 million for 2001, as compared to $10.9 million in 2000, a decrease of 8.3%. The decrease was primarily due to a $6.5 million royalty reimbursement resulting from the modification to the calculation of the Unit 1 royalty reimbursement pricing formula. The decrease was partially offset by higher royalty charges due to increased energy revenues caused by the increase in the average avoided cost of energy from 5.8 cents per kWh in 2000, to 7.5 cents per kWh in 2001. The BLM partnership's royalty expenses were $5.2 million for 2001, as compared to $4.0 million in 2000, an increase of 30.0%. The increase was due to an increase in energy revenues caused by the increase in the average avoided cost of energy from 5.8 cents per kWh in 2000, to 7.5 cents per kWh in 2001. The Navy II partnership's royalty expenses were $9.4 million for 2001, as compared to $10.1 million in 2000, a decrease of 6.9%. The decrease was due to a decrease in internally-produced steam over the same period in 2000.
The Navy I partnership's royalty expenses were $10.9 million for 2000, as compared to $10.2 million in 1999, an increase of 6.9%. The increase was due to an increase in energy revenues caused by the increase in the average avoided cost of energy from 3.1 cents per kWh in 1999 to 5.8 cents per kWh in 2000. The BLM partnership's royalty expenses were $4.0 million for 2000, as compared to $3.1 million in 1999, an increase of 29.0%. This increase was due to an increase in energy revenues caused by the increase in the average avoided cost of energy from 3.1 cents per kWh in 1999 to 5.8 cents per kWh in 2000. The Navy II partnership's royalty expenses were $10.1 million for 2000, as compared to $12.1 million in 1999, a decrease of 16.5%. The decrease was primarily due to a reduction in the Navy II partnerships energy revenues, caused by the expiration of the fixed energy price period under the Navy II partnership's power purchase agreement in January 2000, and the receipt of energy payments based on Edison's average avoided cost of energy since that time. Under the average avoided costs of energy formula, the Navy II partnership received an average of approximately 6.0 cents per kWh for energy delivered for the period February 2000 to December 2000. The decrease in the Navy II partnerships royalty expenses were partially offset by an increase in royalty rate from 10% to 18% as of January 2000.
The Navy I partnership's depreciation and amortization expense was $10.2 million for 2001, as compared to $9.6 million in 2000, an increase of 6.3%. The Navy I Partnership's increase in depreciation and amortization expense for 2001, as compared to the same period in 2000, was primarily due to an increase in capitalized assets in 2001.
The Navy I partnership's interest expense was $11.7 million for 2001, as compared to $12.5 million in 2000, a decrease of 6.4%. The Navy II partnership's interest expense was $8.1 million for 2001, as compared to $9.1 million in 2000, a decrease of 11.0%. These decreases in interest expense for 2001, as compared to the same period in 2000, were due to reductions in the principal amount of the project loan from Funding Corp.
The Navy I partnership's interest expense was $12.5 million in 2000, as compared to $9.6 million in 1999, an increase of 30.2%. The BLM partnership's interest expense was $9.2 million in 2000, as compared to $7.3 million in 1999, an increase of 26.0%. The Navy II partnership's interest expense was $9.1 million in 2000, as compared to $9.9 million in 1999, a decrease of 8.1%. The increases in interest expense for the Navy I partnership and the BLM partnership and the decrease in interest expense for the Navy II partnership for the year 2000, as compared to 1999, were the result of higher outstanding debt balances under the $413 million senior secured notes issued on May 28, 1999.
Interest Expense - Acquisition Debt
The Navy I, BLM and Navy II partnerships incurred interest expense - acquisition debt of $2.0 million, $1.4 million, and $2.0 million, respectively in 1999. This interest expense related to acquisition debt in the amount of $211.5 million and was incurred on February 25, 1999 to acquire the interests of CalEnergy in the Coso partnerships. This acquisition debt was repaid with the proceeds of the $413.0 million senior secured notes issued on May 28, 1999.
Costs Related to Acquisition Debt
The Navy I, BLM and Navy II partnerships incurred other expenses of $1.6 million, $1.3 million and $1.5 million, respectively, for the twelve months ended December 31, 1999. These other expenses, which consist primarily of lending, legal and other fees, related to the acquisition debt in the amount of $211.5 million incurred on February 25, 1999 to acquire Cal Energy's interest in the Coso partnerships. This acquisition debt was repaid with the proceeds of the $413.0 million senior secured notes issued on May 28, 1999.
Loss on early extinguishment of debt
The Navy I, BLM and Navy II partnerships recorded a loss on the early extinguishment of their previous debt in the amounts of $2.4 million, $1.8 million and $2.1 million, respectively, for the twelve months ended December 31, 1999. This loss was due to premium and other costs incurred to repay the existing project debt of the Coso partnerships before its scheduled maturity date. These costs included tender premiums paid to the holders of the previous debt and the write off of the remaining balance of deferred financing costs related to the issuance of the previous debt. The previous debt was repaid with the proceeds of the $413.0 million senior secured notes issued on May 28, 1999.
Liquidity and Capital Resources
Each of the Navy I partnership, the BLM partnership and the Navy II partnership derive substantially all of their cash flow from Edison under their power purchase agreements and from interest income earned on funds on deposit. As of December 2001, the 6.8% notes were repaid, subsequently leaving the Coso partnerships with more cash flow annually. The Coso partnerships have used their cash primarily for capital expenditures for power plant improvements, resource and operating costs, distributions to partners and payments with respect to the project debt.
The Coso partnerships ability to meet their obligations as they come due will depend upon the ability of Edison to meet its obligations under the terms of the standard offer No. 4 power purchase agreements. Edison's shortfall in collections, coupled with its near term capital requirements, materially and adversely affected its liquidity. In resolution of that issue, Edison settled with the CPUC on October 2, 2001, enabling it to recover in retail electric rates its historical shortfall in electric purchase costs. Immediately after this settlement, Edison and each of the Coso partnerships entered into an amendment of their respective Agreement (referenced above) pertaining to partial payment and interest payments relating to Edison's past due obligations for the period from November 2000 through March 26, 2001. The Agreement, as amended, was approved by CPUC in January of 2002, and established the fixed energy rates discussed above and set payment terms for the past due amounts owed to the Coso partnerships by Edison. It is anticipated that these recent arrangements will eliminate some of the uncertainty of collection of amounts owed to the Navy I, BLM and Navy II partnerships of $37.3 million, $37.1 million, and $38.0 million, respectively, for electricity delivered from November 2000 through March 26, 2001 and forward. Edison's failure to pay its future obligations may have a material adverse effect on the Coso partnership's ability to make debt service payments to Funding Corp. as they come due under the Funding Corp. notes. Current year cash flow from operations was sufficient to fully retire the $110 million senior secured note that came due on December 15, 2001.
On March 1, 2002, Edison reached certain financing milestones and paid the Coso partnerships for revenue generated but not recognized for the period November 2000 through March 26, 2001. As such, the Coso partnerships will recognize this revenue in the first quarter of 2002.
The following table sets forth a summary of each Coso partnership's cash flows for the years ended December 31, 2001, December 31, 2000, and December 31, 1999.
The Navy I partnership's cash flows from operating activities decreased by $12.1 million in 2001 as compared to 2000, primarily due to increases in accounts receivable and related parties receivables.
Cash from investing activities at the Navy I partnership increased by $2.9 million in 2001 as compared to 2000, primarily due to a decreases in capital expenditures in 2001.
The Navy I partnership's cash flows used in financing activities decreased by $10.3 million in 2001 as compared to 2000, primarily due to a decrease in the payment amount on the project loan from Funding Corp., and a reduction in the distributions paid in 2001.
The BLM partnership's cash flows from operating activities decreased by $8.1 million in 2001 as compared to 2000, primarily due to an increase in accounts receivable, partially offset by increases in related parties payables.
Cash used in investing activities at the BLM partnership decreased by $4.4 million in 2001 as compared to 2000, primarily due to a decrease in restricted cash requirements associated with the project loan from Funding Corp., partially offset by an increase in capital expenditures in 2001.
The BLM partnership's cash used in financing activities increased by $1.7 million in 2001 as compared to 2000, primarily due to an increase in distributions in 2001, partially offset by lower repayments of the project loan from Funding Corp.
The Navy II partnership's cash flows from operating activities decreased by $18.4 million in 2001 as compared to 2000, primarily due to the increase in account receivable, partially offset by an increase in amounts due to related parties.
Cash flows from investing activities at the Navy II partnership decreased by $38.0 million in 2001 as compared to 2000, primarily due to lower repayments of the project loan from Funding Corp., and decreases in 2001 capital expenditures.
The Navy II partnership's cash used in financing activities decreased by $46.9 million in 2001 as compared to 2000, primarily due to lower repayments of the project loan from Funding Corp.
The Navy I partnership's cash flows from operating activities increased by $4.8 million in 2000 as compared to 1999, primarily due to an increase in net income, decreases in both accounts receivable and amounts due from related parties, partially offset by decreases in trade payables.
Cash used in investing activities at the Navy I partnership decreased by $22.5 million in 2000 as compared to 1999, primarily due to decreases in restricted cash requirements associated with the project loan from Funding Corp.
The Navy I partnership's cash flows from financing activities decreased by $39.4 million in 2000 as compared to 1999, primarily due to the project loan from Funding Corp in 1999, partially offset by both lower repayments of project financing loans and decreased distributions to partners in 2000.
The BLM partnership's cash flows from operating activities increased by $3.1 million in 2000 as compared 1999, primarily due to increases in net income and amounts due to related parties, and a decrease in accounts receivable.
Cash used in investing activities at the BLM partnership decreased by $9.7 million in 2000 as compared to 1999, due to a reduction in 2000 capital expenditures.
The BLM partnership's cash used in financing activities increased by $19.8 million in 2000 as compared to 1999, primarily due to the project loan from Funding Corp in 1999, partially offset by both lower repayments of project financing loans and decreased distributions to partners in 2000.
The Navy II partnership's cash flows from operating activities decreased by $37.8 million in 2000 as compared to 1999, primarily due to a decrease in net income caused by the expiration of the fixed energy price period under the Navy II Partnership's power purchase agreement in January 2000 and the receipt of energy payments based on Edison's avoided cost of energy since that time. Under the avoided costs of energy formula, the Navy II partnership received an average of approximately 6.0 cents per kWh for energy delivered for the period February 2000 to December 2000. The decrease in net income was partially offset by decreases in accounts receivable and amounts due from related parties.
Cash flows from investing activities at the Navy II partnership increased by $100.9 million in 2000 as compared to 1999, primarily due to a decrease in restricted cash requirements associated with the project loan from Funding Corp.
The Navy II partnership's cash used in financing activities increased by $66.9 million in 2000 as compared to 1999, primarily due to the project loan from Funding Corp in 1999, partially offset by both lower repayments of project financing loans and decreased distributions to partners in 2000.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
Risk Factors
Operating the Coso projects involves, among other things, general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. Changes in these factors could make it more expensive to operate the Coso projects, or require additional capital expenditures, or reduce certain benefits currently available to the Coso partnerships. There are a variety of other risks that affect the Coso projects, some of which are beyond our control, including:
* One or more of the Coso projects could perform below expected levels of output or efficiency;
* In light of the uncertainty of the California energy market, Edison's financial viability is uncertain. If Edison were to enter into bankruptcy proceedings, the power purchase contracts could be amended and any accounts receivable from Edison could be reduced or eliminated;
* The Coso geothermal resource could be interrupted or unavailable;
* Operating costs could increase;
* Changes in the regulatory structure which govern the current operations of the Coso partnerships.
* Competition may lead to an accelerated depletion of the resource;
* Energy prices paid by Edison could decrease or terminate;
* Delivery of electrical energy to Edison could be disrupted;
* Environmental problems could arise which could lead to fines or a shutdown of one or more plants;
* Plant units and equipment have broken down or failed in the past and could break down or fail in the future;
* The operators of the Coso projects could suffer labor disputes;
* The government could change permit or governmental approval requirements;
* Third parties could fail to perform their contractual obligations to the Coso partnerships; and
* Catastrophic events, such as fires, earthquakes, explosions, floods, severe storms or other occurrences, could affect one or more of the Coso projects or Edison.
In addition, the Coso partnerships must meet specified performance requirements under their respective power purchase agreements during the months of June through September to continue to qualify for the maximum capacity and capacity bonus payments. If one or more of the events listed above occur and substantially affect the performance of one or more of the plants during these months, operating revenues would be significantly decreased.
Item 8.
Item 8. Financial Statements and Supplementary Data.
CAITHNESS COSO FUNDING CORP. AND COSO OPERATING PARTNERSHIPS
Index
Caithness Coso Funding Corp: - ---------------------------- KPMG LLP Independent Auditors' Report Balance Sheet as of December 31, 2001 and 2000 Statement of Income for the years ended December 31, 2001, 2000 and 1999 Statement of Cash Flows for the years ended December 31, 2001, 2000 and 1999 Notes to Financial Statements
Coso Finance Partners: - ---------------------- KPMG LLP Independent Auditors' Report Balance Sheets as of December 31, 2001 and 2000 Statements of Operations for the twelve-months ended December 31, 2001 and 2000, two-months ended February 28, 1999, ten-months ended December 31, 1999 and twelve-months ended December 31, 1999 Statements of Partners' Capital for the years ended December 31, 2001, 2000 and 1999 Statements of Cash Flows for the twelve-months ended December 31, 2001 and 2000, two-months ended February 28, 1999, ten-months ended December 31, 1999,and twelve-months ended December 31, 1999 Notes to Financial Statements
Coso Energy Developers: - ----------------------- KPMG LLP Independent Auditors' Report Balance Sheets as of December 31, 2001 and 2000 Statements of Operations for the twelve-months ended December 31, 2001 and 2000, two-months ended February 28, 1999, ten-months ended December 31, 1999, twelve-months ended December 31, 1999 Statements of Partners' Capital for the years ended December 31, 2001, 2000 and 1999 Statements of Cash Flows for the twelve-months ended December 31, 2001 and 2000, two-months ended February 28, 1999 ten-months ended December 31, 1999, twelve-months ended December 31, 1999 Notes to Financial Statements
Coso Power Developers: - ---------------------- KPMG LLP Independent Auditors' Report Balance Sheets as of December 31, 2001 and 2000 Statements of cash flows for the twelve-months ended December 31, 2001 and 2000, two-months ended February 28, 1999, ten-months ended December 31, 1999, twelve-months ended December 31, 1999 Statements of Partners' Capital for the years ended December 31, 2001, 2000 and 1999 Statements of Cash Flows for the twelve-months ended December 31, 2001 and 2000, two-months ended February 28, 1999 ten-months ended December 31, 1999, twelve-months ended December 31, 1999 Notes to Financial Statements
Supplemental Unaudited Condensed quarterly Financial information for 2000 and 1999
Coso Partnerships: - ------------------ Supplemental Condensed Combined Financial Information for Coso Partnerships: Unaudited Condensed Combined Balance Sheets as of December 31, 2001 and 2000 Unaudited Condensed Combined Statements of Operations for the twelve-months ended December 31, 2001 and 2000, two-months ended February 28, 1999, ten-months ended December 31, 1999, twelve months ended December 31, 1999 Unaudited Condensed Combined Statements of Cash Flows for the twelve-months ended December 31, 2001 and 2000, two months ended February 28, 1999, ten-months ended December 31, 1999, twelve-months ended December 31, 1999 Notes to the Unaudited Condensed Combined Financial Statements
Independent Auditors' Report
The Partners Caithness Coso Funding Corp.:
We have audited the accompanying balance sheets of Caithness Coso Funding Corp. as of December 31, 2001 and 2000, and the related statements of income and cash flows for each of the years in the three-year period ended December 31, 2001. 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, the financial statements referred to above present fairly, in all material respects, the financial position of Caithness Coso Funding Corp. as of December 31, 2001 and 2000, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States of America.
March 1, 2002
/s/KPMG LLP - ----------- KPMG LLP
CAITHNESS COSO FUNDING CORP.
Balance Sheets
December 31, 2001 and 2000
(Dollars in thousands)
See accompanying notes to financial statements.
CAITHNESS COSO FUNDING CORP.
Statements of Income
Years ended December 31, 2001, 2000 and 1999
(Dollars in thousands)
CAITHNESS COSO FUNDING CORP.
Notes to Financial Statements
December 31, 2001, 2000 and 1999
(Dollars in thousands)
(1) Organization of the Corporation
Caithness Coso Funding Corp. (Funding Corp.), which was incorporated on April 22, 1999, is a single-purpose Delaware corporation formed to issue senior secured notes (Notes) for its own account and as an agent acting on behalf of Coso Finance Partners (CFP), Coso Energy Developers (CED), and Coso Power Developers (CPD), collectively, the "Partnerships." The Partnerships are California general partnerships.
On May 28, 1999, Funding Corp. sold $413,000 of Notes (see note 4). Pursuant to separate credit agreements between Funding Corp. and each partnership (Credit Agreements), the net proceeds from the offering of the Notes were loaned to the Partnerships. Payment of the Notes is provided for by payments made by the Partnerships under their respective project loans (see note 3). Funding Corp. has no material assets, other than the project loans, and does not conduct any operations apart from issuing the Notes and making the project loans to the Partnerships.
(2) Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, stockholders equity, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Fair Value of Financial Instruments
Based on quoted market rates of the Notes, the fair value of the project loans and underlying Notes as of December 31, 2001 and 2000 is $-0- and $26,796, respectively, for the Notes maturing in 2001, and $303,000 and $322,979, respectively, for the Notes maturing in 2009.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities. In June 2000, FASB issued SFAS No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities, which amended SFAS No. 133 and addressed certain implementation issues. SFAS No. 133, as amended, requires that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. The Statement also requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Funding Corp. does not have any derivative instruments and therefore the adoption in 2001 of SFAS No. 133, as amended, will not have any effect on Funding Corp.'s financial statements.
In June 2001, the FASB issued SFAS No. 141, Business Combinations, and SFAS No.142, Goodwill and Other Intangible Assets. SFAS No. 141 requires that the purchase method of accounting be used for all business combinations. SFAS No. 141 specifies criteria that intangible assets acquired in a business combination must meet to be recognized and reported separately from goodwill. SFAS No. 142 will require that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually in accordance with the provisions of SFAS No. 142. SFAS No. 142 also requires that intangible assets with estimable useful lives be amortized over their respective estimated useful lives to their estimated residual values and reviewed for impairment in accordance with SFAS No. 121 and, subsequently, SFAS No. 144 after its adoption.
Funding Corp. adopted the provisions of SFAS No. 141 as of July 1, 2001, and Funding Corp.'s management is in the process of evaluating the impact of SFAS No.142 and believes there is no material impact to Funding Corp.'s financial statements.
In October 2001, FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001, and replaces SFAS No. 121 and provisions of APB Opinion No.30 for the disposal of segments of a business. SFAS No. 144 creates one accounting model, based on the framework established in SFAS No. 121 to be applied to all long-lived assets including discontinued operations. Funding Corp. is required to adopt SFAS No. 144 on January 1, 2002, and believes there will be no material effect on Funding Corp.'s financial statements.
(3) Project Loans to the Partnerships
Pursuant to each Credit Agreement, each partnership shall make project loan payments in scheduled installment amounts which, in the aggregate, are sufficient to enable Funding Corp. to pay scheduled principal and interest on the Notes (see note 4).
The Notes are general obligations of Funding Corp., and are secured and perfected by: (1) first priority pledge of the promissory notes evidencing each partnership's obligation to repay the loan; (2) first priority lien on the funds in the debt service cash accounts of the Partnerships; and (3) first priority pledge of all of the outstanding capital stock of Funding Corp. These obligations are unconditionally guaranteed by the Partnerships and are secured and perfected by substantially all assets of the Partnerships and the equity interests in the Partnerships. Funding Corp., CPD, CED, and CFP are jointly and severally liable for the repayment of the Notes.
(4) Senior Secured Notes
On May 28, 1999, Funding Corp. completed a $413,000 underwritten public debt offering consisting of $110,000 6.8% Notes due 2001 and $303,000 9.05% Notes due 2009. The Notes were issued under an indenture dated as of May 28, 1999 between Funding Corp. and the trustee, U.S. Bank Trust NA. Payment of the Notes is provided for by payments to be made by the Partnerships on their respective project loans (see note 3). Interest is payable each June 15 and December 15.
The annual maturity of the Notes for each year ending December 31 is as follows:
Year ending December 31 Amount ----------------------- ------------------- 2002 $ 21,771 2003 27,618 2004 31,332 2005 35,480 2006 38,286 Thereafter 148,513 -------------------- $ 303,000 ====================
The Note indentures contain certain restrictive covenants that, among other things, limit the ability to incur additional indebtedness, release funds from reverse accounts, make distributions, create loans, and enter into any transaction, merger, or consolidation.
(5) Stockholders' Equity
Funding Corp. is authorized to issue 1,000 shares of common stock, one cent par value per share. Upon incorporating in 1999, Funding Corp. issued 100 common shares to CFP, CED, and CPD.
(6) Risks and Uncertainties
The Partnerships future results of operations involve a number of risks and uncertainties. Periodic increases in natural gas prices and imbalances between supply and demand, among other factors, have led to significant increases in wholesale electricity prices in California. Southern California Edison (Edison) is the only customer of the Partnerships. During those periods, Edison had fixed tariffs with its retail customers that were significantly below the wholesale prices it paid in California. That resulted in significant under-recoveries by Edison of its electricity purchase costs. On January 16, 2001, Edison announced that it was temporarily suspending payment for energy provided, including the energy provided by the Partnerships, pending a permanent solution to its liquidity crisis. Subsequently, pursuant to a California Public Utilities Commission (CPUC) order, Edison resumed making payments to the Partnerships beginning with power generated on March 27, 2001. Edison also made payments equal to 10% of the unpaid balance for power generated from November 1, 2000 to March 26, 2001, and continues to pay interest on the outstanding amount at 7% per annum. That payment was made pursuant to an agreement (the Agreement) with Edison entered into on June 19, 2001 that addressed renewable energy pricing and issues concerning California's energy crisis. The Agreement, which was amended on November 30, 2001 and received CPUC approval in January 2002, established May 1, 2002 as the date when the Partnerships will begin receiving a fixed avoided cost of energy rate of 5.37 cents per kwh for five (5) years. Subsequent to the five-year period, Edison will be required to make energy payments to the Partnerships based on its avoided cost of energy until their respective power purchase agreement expires. Beyond the five-year period, the Partnerships cannot predict the likely level of avoided cost of energy prices under their respective power purchase contract and, accordingly, the revenues generated by the Partnerships could fluctuate significantly.
As of December 31, 2001, the Partnerships were unable to determine the time frame during which any future payments would be recieved. Due to the uncertainty surrounding Edison's ability to make payment on past due amounts, collection was not reasonably assured and the Partnerships have not recognized revenue from Edison for energy delivered during the period January 1, 2001 through March 26, 2001. The partnerships will not recognize this revenue until paymemt from Edison is recieved (see note 7)
(7) Subsequent Event
On March 1, 2002, Edison reached certain financing milestones and paid the Partnerships for revenue generated but not recognized for the November 2000 through March 26, 2001. As such, the Partnerships will recognize this revenue in the first quarter of 2002.
Independent Auditors' Report
The Partners and Management Committee Coso Finance Partners:
We have audited the accompanying balance sheets of Coso Finance Partners as of December 31, 2001 and 2000, and the related statements of operations, partners' capital, and cash flows for each of the years in the three-year period ended December 31, 2001. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with 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, the 2000 and 1999 financial statements referred to above present fairly, in all material respects, the financial position of Coso Finance Partners as of December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States of America.
As discussed in note 3 to the financial statements, effective February 25, 1999, Caithness Acquisition Company, LLC acquired all of the partnership interest not already owned by its affiliates, ESCA LLC and ESCA II Limited Partnership, in a business combination accounted for as a purchase. As a result of the acquisition, the financial information for the period after the acquisition is presented on a different cost basis than that for the period before the acquisition and, therefore, is not comparable.
March 1, 2002
/s/ KPMG LLP - ------------- KPMG LLP
COSO FINANCE PARTNERS
Notes to Financial Statements
December 31, 2001, 2000, and 1999
(Dollars in thousands)
(1) Organization, Operation, and Business of the Partnerships
Coso Finance Partners (CFP or the Partnership) and Coso Finance Partners II (CFP II) were formed on July 7, 1987 in connection with the refinancing of the construction of a 30-net-megawatt (NMW) geothermal power plant and the expansion of that power plant from 30 NMW to approximately 80 NMW, constructed on behalf of China Lake Joint Venture (CLJV) on land at the China Lake Naval Air Weapons Station, Coso Hot Springs, China Lake, California.
CFP acquired the assets and assumed the liabilities of CLJV insofar as they related to the first turbine generator set of the power plant and the related geothermal resources. CFP II acquired the assets and assumed the liabilities of CLJV insofar as they related to the second and third turbine generator sets, together with the related geothermal resources. The three turbine generators that comprise the power plant have the capacity to produce an aggregate of approximately 80 NMWs. CFP and CFP II were formed as separate entities in order to facilitate bank financing of the completed power plant and power plants under construction, respectively. In 1988, CFP II assigned its assets and liabilities to CFP in exchange for a royalty of 5% of the value of the steam produced.
In May of 1999, CFP merged with CFP II, with CFP surviving as a general partnership owned by ESCA LLC (ESCA) and New CLOC Company, LLC (New CLOC), both Delaware limited liability companies. CFP and CFP II were general partnerships between China Lake Operating Company (CLOC), a Delaware corporation wholly owned by CalEnergy Company, Inc. (CalEnergy), now known as MidAmerican Energy Holding Company, and ESCA, and China Lake Geothermal Management Company (CLGMC), a Delaware corporation wholly owned by CalEnergy, and ESCA II Limited Partnership (ESCA II), respectively. ESCA was a California limited liability company owned by Caithness Geothermal 1980, Ltd., Caithness Power, L.L.C., and ESI Geothermal, Inc. (ESI) (a subsidiary of FPL Group, Inc.). ESCA II was a California limited partnership among Caithness Geothermal 1980, Ltd., Mojave Power II, Inc., and ESI Geothermal II, Inc. (a subsidiary of FPL Group, Inc.).
On February 25, 1999, Caithness Acquisition Company, LLC (CAC), a wholly owned subsidiary of Caithness Energy, LLC and an affiliate of ESCA and ESCA II, purchased all of CalEnergy's interest in CLOC and CLGMC (see note 3) and formed two wholly owned subsidiaries, New CLOC, a Delaware limited liability company, and New CLGMC Company (New CLGMC), a Delaware limited liability company. In May of 1999, ESCA II merged into ESCA, and New CLGMC merged into New CLOC. In October 1999, CAC purchased all of ESI's interest in ESCA and ESCA II. The new managing partner of CFP became New CLOC.
The Partnership sells all electricity produced to Southern California Edison (Edison) under a 24-year power purchase contract (PPC) expiring in 2011. Under the terms of the PPC, Edison makes payments to CFP as follows:
* Contractual payments for energy delivered, which payments escalated at an average rate of approximately 7.6% for the first ten years after the date of firm operation (scheduled energy price period). After the scheduled energy price period, the energy payment adjusted to the actual avoided energy cost experienced by Edison. In August 1997, the Partnership completed the first ten-year period. At that time, Edison ceased paying the scheduled energy rates. For the years ended December 31, 2001, 2000, and 1999, Edison's average avoided cost of energy was 7.46, 5.80, and 3.13 cents per kilowatt (kWh), respectively. Edison entered into an agreement (the Agreement) with the Partnership on June 19, 2001 that addressed renewable energy pricing and issues concerning California's energy crisis. The Agreement, which was amended on November 30, 2001, established May 1, 2002 as the date when the Partnership will begin receiving a fixed avoided-cost-of-energy rate of 5.37 cents per kWh for five (5) years. Subsequent to the five-year period, Edison will be required to make energy payments to the Partnership based on its avoided cost of energy until its PPC expires. Beyond the five-year period, the Partnership cannot predict the likely level of avoided cost of energy prices under the PPC and, accordingly, the revenues generated by the Partnership could fluctuate significantly:
* Capacity payments which remain fixed over the life of the PPC to the extent that actual energy delivered exceeds minimum levels of the plant capacity defined in the PPC; and
* Bonus payments to the extent that actual energy delivered exceeds 85% of the plant capacity stated in the PPC. In 2001, 2000, and 1999, the bonus payments aggregated $2,237, $2,250, and $1,345, respectively.
CalEnergy served as the operator for CFP, maintaining the accounting records and operating the plant day to day, until February 1, 1999, at which time Coso Operating Company LLC (COC), a Delaware limited liability company, became operator pursuant to certain operations and maintenance agreements with CLOC, the managing general partner. COC was a wholly owned subsidiary of CalEnergy until February 25, 1999, when CalEnergy assigned all of its interest and rights in COC to CAC, which became manager and sole member.
On February 25, 1999, CFP entered into two operating and maintenance agreements, one with FPL Operating Services, Inc. (FPL) and a second with COC. The initial term of the FPL operating and maintenance agreement was for three years, to provide for the operation and maintenance of the geothermal power facilities and the interconnection to the transmission line. The term of the COC agreement is through December 31, 2009 to provide field services and administrative services for the Partnership. On October 17, 1999, the operating agreement with FPL was terminated and COC became the sole operator of all Partnership operations.
At formation, and as subsequently amended, the terms of the partnership agreements provided that distributable cash flow before "payout" was allocated 10% to CLOC as managing partner and 90% in proportion to the remaining sums necessary to be distributed to each partner to achieve payout. "Payout" occurred in June 1996 and is defined as the point at which each partner had received aggregate cash distributions from the 90% allocation in amounts equal to their accumulated cash contributions plus amounts equal to 10% simple interest on the cash contributions. For purposes of allocating net income to partners' capital accounts, profits and losses are allocated based on the aforementioned percentages. For income tax purposes, certain deductions and credits are subject to special allocations as defined in the partnership agreements. Cash flow after "payout" is allocated 53.6% and 46.4% to ESCA and New CLOC (formerly CLOC/CLGMC), respectively.
(2) Summary of Significant Accounting Policies
Accounts Receivable and Revenue Recognition
Accounts receivable primarily consist of receivables from Edison for electricity delivered and sold under the PPC. In addition, the U.S. Navy (Navy) reimburses CFP for electricity paid on their behalf (see note 6). As of December 31, 2001 and 2000, the balance due from the Navy was $1,218 and $477, respectively.
Operating revenues are recognized as income during the period in which electricity is delivered to Edison. Revenue was recognized based on the payment rates scheduled in CFP's PPC with Edison through August 1997. From August 1997 through May 1, 2002, and subsequent to the five-year period stated in the Agreement, revenue is recognized based on Edison's avoided energy cost until the Partnership's PPC expires.
Periodic increases in natural gas prices and imbalances between supply and demand, among other factors, have at times led to significant increases in wholesale electricity prices in California. During those periods, Edison had fixed tariffs with their retail customers that were significantly below the wholesale prices it paid in California. That resulted in significant under-recoveries by Edison of its electricity purchase costs. On January 16, 2001, Edison announced that it was temporarily suspending payments for energy provided, including the energy provided by the Partnership, pending a permanent solution to its liquidity crisis. Subsequently, pursuant to a California Public Utilities Commission (CPUC) order, Edison resumed making payments to the Partnership beginning with power generated on March 27, 2001. Edison also made a payment equal to 10% of the unpaid balance for power generated from November 1, 2000 to March 26, 2001, and continues to pay interest on the outstanding amount at 7% per annum. That payment was made pursuant to the Agreement between Edison and the Partnership described in note 1. The Agreement as amended, which received CPUC approval in January of 2002, established the fixed energy rates discussed above and set payment terms for past due amounts owed to the Partnership by Edison. As of December 31, 2001, the Partnership was unable to determine the time frame during which any future payments would be received. Due to the uncertainty surrounding Edison's ability to make payment on past due amounts, collection was not reasonably assured and the Partnership had not recognized revenue of $22,019 from Edison for energy delivered during the period January 1, 2001 through March 26, 2001. The provision for doubtful accounts previously recorded as of December 31, 2000 of $15,234 has been reclassified to conform with the 2001 presentation. In addition, the Partnership will not recognize this revenue until payments from Edison are received (see note 10).
Fixed Assets and Depreciation
The costs of major additions and betterments are capitalized, while replacements, maintenance, and repairs which do not improve or extend the lives of the respective assets are expensed currently.
Depreciation of the operating power plant and transmission line is computed on a straight-line basis over their estimated useful lives of 30 years and, for significant additions, the remainder of the 30-year life from the plant's commencement of operations.
Recoverability of Long-Lived Assets
An impairment loss is recognized whenever events or changes in circumstances indicate that the carrying amounts of long-lived tangible and intangible assets is not recoverable. The Partnership considers historical performance and future estimated results in its evaluation of potential impairment and then compares the carrying amount of the asset to the estimated future cash flows expected to result from the use of the asset. If the carrying amount of the asset exceeds estimated expected undiscounted future cash flows before interest charges, the Partnership measures the amount of the impairment by comparing the carrying amount of the asset to its fair value. The estimation of fair value is generally measured by discounting expected future cash flows at the rate the Partnership utilizes to evaluate potential investments. The Partnership estimates fair value based on the best information available using estimates, judgments, and projections as considered necessary.
Wells and Resource Development Costs
The Partnership follows the full-cost method of accounting for costs incurred in connection with the exploration and development of geothermal resources. All such costs, which include dry hole costs, the cost of drilling and equipping production wells, and administrative and interest costs directly attributable to the project, are capitalized and amortized over their estimated useful lives when production commences. The estimated useful lives of production wells are ten years each; exploration costs and development costs, other than production wells, are amortized over 30 years and, for significant additions, the remainder of the 30-year life from the plant's commencement of operations.
Deferred Plant Overhaul Costs and Well Rework Costs
Plant overhaul costs are deferred and amortized over the estimated period between overhauls, as these costs extend the useful life of the respective assets. These deferred costs of $490 and $497 at December 31, 2001 and 2000, respectively, are included in property, plant, and equipment. Currently, plant overhauls are amortized over three to four years from the point of completion.
Production and injection rework costs are expensed as incurred. For the years ended December 31, 2001, 2000, and 1999, such costs were $561, $42, and $47, respectively.
Reclassifications
Certain reclassifications have been made to the 2000 balance sheet and the 2000 and 1999 statements of operations and cash flows to conform to the 2001 presentation.
Deferred Financing Costs
Deferred financing costs as of December 31, 2001 and 2000 consist of loan fees and other costs of financing that are amortized over the term of the related financing. In 1999, fees of $1,984 associated with certain short-term financing were fully expensed and included in costs related to acquisition debt, and a refinancing of this debt resulted in new deferred financing costs of $4,122. The $215 balance of the deferred financing costs at the date of acquisition related to the refinanced project debt was included in the extraordinary loss recorded at the time of the refinancing (see note 7). Accumulated amortization at December 31, 2001 and 2000 was $1,598 and $893, respectively.
Income Taxes
There is no provision for income taxes since such taxes are the responsibility of the partners.
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Partnership considers all money market instruments purchased with initial maturities of three months or less to be cash equivalents.
Restricted Cash and Investments
As of December 31, 2001 and 2000, all of the Partnership's investments were classified as held to maturity and reported at amortized cost. Restricted cash and investments include a capital expenditure reserve and a sinking fund related to a lump-sum royalty payment of $25,000 to be paid to the Navy in 2009 (see note 6) totaling $10,894 and $9,838 at December 31, 2001 and 2000, respectively. This account comprised various mortgage-backed securities with maturities ranging from 2000 through 2005. Restricted cash and investments also include a sinking fund for the project debt service required by the project loans (see note 7). The carrying amount of restricted cash and investments at December 31, 2001 and 2000 approximated fair value, which is based on quoted market prices as provided by the financial institution which holds the investments.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, and partners' capital and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues, expenses, and allocation of profits and losses during the period. Actual results could differ significantly from those estimates.
Fair Value of Financial Instruments
The carrying amount of cash and cash equivalents, accounts receivable, prepaid expenses and other assets, amounts due from related parties, accounts payable and accrued liabilities, and amounts due to related parties approximated fair value as of December 31, 2001 and 2000, because of the relatively short maturities of these instruments. The project loans as of December 31, 2001 and 2000 have an estimated fair value of $122,550 and $132,103, respectively, based on the quoted market price of the senior secured notes and the Caithness Coso Funding Corp. notes, respectively (see note 7).
The investment in New CLPSI Company, LLC (see note 4) approximates the fair value.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities. In June 2000, FASB issued SFA No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities, which amended SFAS No. 133 and addressed certain implementation issues. SFAS No. 133, as amended, requires that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. The Statement also requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. The Partnership does not have any derivative instruments and, therefore, the adoption in 2001 of SFAS No. 133, as amended, did not have any effect on the Partnership's financial statements.
In June 2001, the FASB issued SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 requires that the purchase method of accounting be used for all business combinations. SFAS No. 141 also specifies criteria that intangible assets acquired in a business combination must meet to be recognized and reported separately from goodwill. SFAS No. 142 will require that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead be tested for impairment at least annually in accordance with the provisions of SFAS No. 142. SFAS No. 142 also requires that intangible assets with estimable useful lives be amortized over their respective estimated useful lives to their estimated residual values, and be reviewed for impairment in accordance with SFAS No. 121 and, subsequently, SFAS No. 144 after its adoption.
The Partnership adopted the provisions of SFAS No. 141 as of July 1, 2001. The Partnership's management is in the process of evaluating the impact of implementing SFAS No. 142 and is unable to estimate the effect, if any, on the Partnership's financial statements.
In October 2001, FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001, and replaces SFAS No. 121 and provisions of APB Opinion No. 30 for the disposal of segments of a business. SFAS No. 144 creates one accounting model, based on the framework established in SFAS No. 121, to be applied to all long-lived assets including discontinued operations. The Partnership is required to adopt SFAS No. 144 on January 1, 2002 and believes there will be no material effect on the Partnership's financial statements.
(3) Acquisition Accounting
On February 25, 1999, CAC purchased all of CalEnergy's interest in CFP and CFP II, Coso Energy Developers (CED), and Coso Power Developers (CPD), collectively known as the Coso Partnerships, for approximately $205,500 in cash plus the assumption of debt of approximately $139,800. The purchase price allocated to CFP was approximately $62,000 plus the assumption of debt of approximately $40,600. The acquisition was accounted for under the purchase method, and no goodwill was recorded. After CAC's purchase of CalEnergy's interest in CFP, a new basis of accounting was adopted and, therefore, the financial information for the period after the acquisition is presented on a different cost basis than that for the period before the acquisition and, therefore, is not comparable.
The purchase price was allocated to the portion of the assets and liabilities purchased from CalEnergy based upon their fair value, with the amount of fair value of net assets in excess of the purchase price being allocated to long-lived assets on a pro rata basis. These adjustments resulted in a net decrease of $24,316 in the amounts allocated to property, plant, and equipment, and an increase of $14,344 in the amount allocated to PPC. The PPC is being amortized on a straight-line basis over the remaining term of the PPC of 12.5 years as of the date of acquisition. Accumulated amortization on the PPC at December 31, 2001 and 2000 was $3,251 and $2,104, respectively.
(4) Investment in New CLPSI Company, LLC
New CLPSI Company, LLC (CLPSI) is a wholly owned subsidiary of CAC. CLPSI purchases, stores, and distributes spare parts to the Coso Partnerships. Also, certain other facilities utilized by the Coso Partnerships are held by CLPSI. CFP's investment in CLPSI represents funds advanced for the purchase of spare parts inventory and other assets. Spare parts inventory held by CLPSI on behalf of CFP is valued at the lower of cost or market.
(5) Property, Plant, and Equipment
Property, plant, and equipment at December 31, 2001 and 2000 consist of the following:
2001 2000 ---- ---- Power plant and gathering system $ 154,506 154,506 Transmission line 5,746 5,746 Wells and resource development costs 68,832 68,466 ------- ------- 229,084 228,718 Less accumulated depreciation and amortization (88,647) (79,642) ------- ------- $ 140,437 149,076 ======= =======
The transmission line costs represent the Partnership's share of the costs of construction of transmission lines from Inyokern, California to the Edison substation at Kramer, California and from Kramer to the Edison substation at Victorville, California.
(6) Royalty Expense
Royalty expense is summarized as follows:
2001 2000 1999 ---- ---- ---- Unit 1 $ 4,889 3,824 3,852 Units 2 and 3 5,061 7,097 6,305 ----- ----- ----- Total $ 9,950 10,921 10,157 ===== ====== ======
The Navy I partnership pays a royalty for Unit I through reimbursement of electricity supplied to the Navy by Edison from electricity generated at the Navy I plant. The reimbursement is based on a pricing formula that is included in the Navy contract. This formula is largely based upon the tariff rates charged by Edison, which have recently been increased by the CPUC. Discussions with the Navy are continuing to readjust the formula to reflect recent activity in the local energy market. In November 2001, a modification to the calculation of the reimbursement pricing formula was made to the Navy contract resulting in a reduction of accrued royalties of $6.5 million. For Units 2 and 3, the Navy I partnership's royalty expense paid to the Navy is a fixed percentage of electricity sales at 15% of revenue received by the Navy I partnership through 2003, and will increase to 20% from 2004 through 2009.
In addition, CFP is required to pay the Navy $25,000 in December 2009, the date the contract expires. The payment is secured by funds placed on deposit monthly, which funds plus accrued interest will aggregate $25,000. Currently, the monthly amount to be deposited is approximately $60. The balance included in accounts payable and accrued liabilities at December 31, 2001 and 2000 was $11,098 and $9,862, respectively.
(7) Project Loans
In order to complete the purchase of CalEnergy's interest in CFP and CFP II, CAC arranged for short-term debt financing of $211,500, of which approximately $77,610 was allocated to CFP. As a result of "push-down" accounting, the short-term debt was reflected in the financial statement of CFP and was repaid on May 28, 1999 from a portion of the proceeds from the offering of senior secured notes. Financing costs associated with the short-term financing are included in interest expense - acquisition debt.
On May 28, 1999, Caithness Coso Funding Corp. (Funding Corp.), a wholly owned subsidiary of the Coso Partnerships, raised $413,000 from an offering of senior secured notes. Funding Corp. loaned approximately $151,550 to CFP from the $413,000 debt raised from the offering of senior secured notes on terms consistent with those of the senior secured notes. The loan consisted of one note of $29,000 at 6.80% which was paid off on December 15, 2001, and another of $122,550 at 9.05% which has payments due at various dates through December 15, 2009. Through this financing, the existing project loan and short-term financing of $118,176 were repaid and an extraordinary loss of $2,375 from the early extinguishment of this debt was incurred. The extraordinary loss was due to a premium and other costs incurred to pay the existing project loan before its maturity date.
The annual maturity of the project loans for each year ending December 31 is as follows:
Year ending December 31: Amount ------------------------ --------
2002 $ 11,597 2003 13,408 2004 10,694 2005 15,100 2006 16,160 Thereafter 55,591 ------- $ 122,550 =======
The loans contain certain restrictive covenants that, among other things, limit the Partnership's ability to incur additional indebtedness, release funds from reserve accounts, make distributions, create liens, and enter into any transaction of merger or consolidation.
The Partnership, Funding Corp., CPD, and CED are jointly and severally liable for the repayment of the senior secured notes.
The annual maturity of the senior secured notes for each year ending December 31 is as follows:
Year ending December 31: Amount ------------------------ ------- 2002 $ 21,771 2003 27,618 2004 31,332 2005 35,480 2006 38,286 Thereafter 148,513 ------- $ 303,000 =======
(8) Related Party Transactions
The amounts due from and to related parties at December 31, 2001 and 2000 consist of the following:
2001 2000 ----- ----- Amounts due from related parties: Coso Operating Company $ 231 -- CPD for steam sharing 7,376 1,357 CED for steam sharing 1,755 603 ----- ----- $ 9,362 1,960 ===== =====
Amounts due to related parties: Caithness Coso Funding Corp. $ 494 525 Coso Operating Company -- 60 Caithness Operating Company 67 112 ----- ----- $ 561 697 ===== =====
COC is reimbursed monthly for non-third-party costs incurred on behalf of CFP. These costs are comprised principally of direct operating costs of the CFP geothermal facility, allocable general and administrative costs, and an operator fee. The amount due from COC relates to advances for payments of operating expenses. The amount due to COC relates to reimbursements for payment of operating expenses.
Both CalEnergy and ESCA were reimbursed at amounts approved for their respective costs incurred in relation to the CFP Management Committee. Prior to May 28, 1999, CalEnergy received $25, while ESCA received $129.
As of May 28, 1999, the management committee fee was eliminated and replaced by a non-managing fee payable to ESCA. For the years ended December 31, 2001 and 2000, ESCA received $237 and $234, respectively.
The amount due to Funding Corp. is accrued interest for 15 days in December related to the project loans (see note 7).
CFP is charged by CLPSI for both its inventory usage and its portion of the expenses of operating CLPSI. The charges to CFP from CLPSI in 2001, 2000, and 1999, which are included in plant operating expenses, were approximately $147, $43, and $65, respectively.
During 1994, the Coso Partnerships entered into steam sharing agreements under which the partnerships may transfer steam, with the resulting incremental revenue and royalty expense shared equally by the partnerships. In the second half of 1995, interconnection facilities between the plants were completed and the transfer of steam commenced. CFP steam sharing revenue, net of royalties and other related costs, amounted to $7,938, $5,962, and $17,579 in 2001, 2000, and 1999, respectively.
(9) Settlement of Litigation
In February 2000, the Coso Partnerships reached a settlement with Edison, subject to the approval of the CPUC, which approval was received in December 2000. The case has not been dismissed pending completion of certain obligations under the settlement agreements. The cost of the settlement will be allocated among the Coso Partnerships. A portion of that cost was reflected in the purchase accounting applied to the acquisition of CalEnergy's interest in the Partnership (see note 3). The balance of the settlement was charged to settlement of litigation and related expenses.
(10) Subsequent Event
On March 1, 2002, Edison reached certain financing milestones and paid the Partnership for revenue generated but not recognized for the period November 2000 through March 26, 2001. As such, the Partnership will recognize this revenue in the first quarter of 2002.
Independent Auditors' Report
The Partners and Management Committee Coso Energy Developers:
We have audited the accompanying balance sheets of Coso Energy Developers as of December 31, 2001 and 2000, and the related statements of operations, partners' capital, and cash flows for each of the years in the three-year period ended December 31, 2001. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with 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, the 2001 and 2000 financial statements referred to above present fairly, in all material respects, the financial position of Coso Energy Developers as of December 31, 2001 and 2000, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States of America.
As discussed in note 3 to the financial statements, effective February 25, 1999, Caithness Acquisition Company, LLC acquired all of the partnership interest not already owned by its affiliate, Caithness Coso Holdings LLC, in a business combination accounted for as a purchase. As a result of the acquisition, the financial information for the period after the acquisition is presented on a different cost basis than that for the period before the acquisition and, therefore, is not comparable.
March 1, 2002
/S/ KPMG LLP - -------------- KPMG LLP
COSO ENERGY DEVELOPERS
Balance Sheets
December 31, 2001 and 2000
(Dollars in thousands)
See accompanying notes to financial statements.
COSO ENERGY DEVELOPERS
Notes to Financial Statements
December 31, 2001, 2000, and 1999
(Dollars in thousands)
(1) Organization, Operation, and Business of the Partnership
Coso Energy Developers (CED or the Partnership) was founded on March 31, 1988, in connection with financing the construction of a geothermal power plant on land leased from the U.S. Bureau of Land Management (BLM) at Coso Hot Springs, China Lake, California. CED is a general partnership owned by Caithness Coso Holdings, LLC (CCH), a California limited liability company and, until February 25, 1999, Coso Hotsprings Intermountain Powers, Inc. (CHIP), a Delaware corporation wholly owned by CalEnergy Company, Inc. (CalEnergy), now known as MidAmerican Energy Holding Company. On February 25, 1999, Caithness Acquisition Company, LLC (CAC), a wholly owned subsidiary of Caithness Energy, LLC and an affiliate of CCH, purchased all of CalEnergy's interest in CHIP (see note 3) and formed a wholly owned subsidiary, New CHIP Company, LLC (New CHIP), a Delaware limited liability company, to become the new managing general partner of CED.
The CED power plants are located on land owned by the BLM. There are turbine generators located at both the East and West power locks. CED pays royalties to BLM of 10% of the net value of the steam produced.
The primary BLM geothermal lease had an initial term of ten years (1998) and thereafter is subject to automatic extension until October 31, 2035, so long as geothermal steam is commercially produced. In addition, the lease may be extended to 2075 at the option of the BLM. Coso Land Company (CLC), the original leaseholder, retained a 5% overriding royalty interest based on the value of the steam produced. CLC was a joint venture between CalEnergy and an affiliate of CCH. On February 25, 1999, CalEnergy transferred all its interest and rights in CLC to CAC.
The Partnership sells all electricity produced to Southern California Edison (Edison) under a 30-year power purchase contract (the PPC) expiring in 2019. Under the terms of the PPC, Edison makes payments to CED as follows:
* Contractual payments for energy delivered, which payments escalated at an average rate of approximately 7.6% for the first ten years after the date of firm operation (scheduled energy price period). After the scheduled energy price period, the energy payment adjusted to the actual avoided energy cost experienced by Edison. In March of 1999, the Partnership completed the ten-year fixed price payment period and Edison ceased paying the scheduled energy rates. For the years ended December 31, 2001, 2000, and 1999, Edison's average avoided cost of energy was 7.46, 5.80, and 3.13 cents per kwh, respectively. Edison entered into an agreement (the Agreement) with the Partnership on June 19, 2001 that addressed renewable energy pricing and issues concerning California's energy crisis. The Agreement, which was amended on November 30, 2001, established May 1, 2002 as the date when the Partnership will begin receiving a fixed avoided cost of energy rate of 5.37 cents per kwh for five (5) years. Subsequent to the five-year period, Edison will be required to make energy payments to the Partnership based on its avoided cost of energy until its PPC expires. Beyond the five-year period, the Partnership cannot predict the likely level of avoided cost of energy prices under the PPC and, accordingly, the revenues generated by the Partnership could fluctuate significantly;
* Capacity payments which remain fixed over the life of the PPC to the extent that actual energy delivered exceeds minimum levels of the plant capacity defined in the PPC; and
* Bonus payments to the extent that actual energy delivery exceeds 85% of the plant capacity stated in the PPC. In 2001, 2000, and 1999, the bonus aggregated $2,194, $2,230, and $2,200, respectively.
CalEnergy served as the operator for CED, maintaining the accounting records and operating the plant day-to-day, until February 1, 1999 at which time when Coso Operating Company LLC (COC), a Delaware limited liability company, became operator pursuant to certain operations and maintenance agreements with CHIP, the managing general partner. COC was a wholly owned subsidiary of CalEnergy until February 25, 1999 when CalEnergy assigned all of its interest and right in COC to CAC, which became its manager and sole member.
On February 25, 1999, CED entered into two operating and maintenance agreements, one with FPL Operating Services, Inc. (FPL) and a second with COC. The initial term of the FPL operating and maintenance agreement was for three years, to provide for the operation and maintenance of the geothermal power facilities and the interconnection to the transmission line. The term of the COC agreement is through December 31, 2009 to provide field services and administrative services for the Partnership. On October 17, 1999, the operating agreement with FPL was terminated and COC became the sole operator of all Partnership operations.
At formation, and as subsequently amended, the partnership agreement provided that distributable cash flow before "payout" was allocated 3.81% to CHIP as managing partner and 96.19% allocated in proportion to the remaining sums necessary to be distributed to each partner to achieve payout. "Payout" was defined as the point at which each partner had received aggregate cash distributions from the 96.19% allocation in amounts equal to their accumulated capital contributions. Cash flow after "payout," which occurred in June 1994, is allocated 48% to New CHIP (formerly CHIP) and 52% to CCH. For purposes of allocating net income to partners' capital accounts, profits and losses are allocated based on the aforementioned capital percentages. For income tax purposes, certain deductions and credits are subject to special allocations as defined in the partnership agreement.
(2) Summary of Significant Accounting Policies
Accounts Receivable and Revenue Recognition
Accounts receivable primarily consist of receivables from Edison for electricity delivered and sold under the PPC. Operating revenues are recognized as income during the period in which electricity is delivered to Edison. Revenue was recognized based on the payment rates scheduled in CED's PPC with Edison through March 1999. From March 1999 through May 1, 2002, and subsequent to the five-year period stated in the Agreement, revenue is recognized based on Edison's avoided energy cost, until the Partnership's PPC expires.
Periodic increases in natural gas prices and imbalances between supply and demand, among other factors, have at times led to significant increases in wholesale electricity prices in California. During those periods, Edison had fixed tariffs with their retail customers that were significantly below the wholesale prices it paid in California. That resulted in significant under-recoveries by Edison of its electricity purchase costs. On January 16, 2001, Edison announced that it was temporarily suspending payments for energy provided, including the energy provided by the Partnership, pending a permanent solution to its liquidity crisis. Subsequently, pursuant to a California Public Utilities Commission (CPUC) order, Edison resumed making payments to the Partnership beginning with power generated on March 27, 2001. Edison also made a payment equal to 10% of the unpaid balance from power generated from November 1, 2000 to March 26, 2001 and continues to pay interest on the outstanding amount at 7% per annum. That payment was made pursuant to the Agreement between Edison and the Partnership described in note 1. The Agreement as amended, which received CPUC approval in January 2002, established the fixed energy rates discussed above and set payment terms for past due amounts owed to the Partnership by Edison. As of December 31, 2001, the Partnership was unable to determine the time frame during which any future payments would be received. Due to the uncertainty surrounding Edison' ability to make payment on past due amounts, collection was not reasonably assured and the Partnership had not recognized revenue of $21,789 from Edison for energy delivered during the period January 1, 2001 through March 26, 2001. The provision for doubtful accounts previously recorded as of December 31, 2000 of $15,279 has been reclassified to conform with the 2001 presentation. In addition, the Partnership will not recognize this revenue until payments from Edison are received (see note 10).
Fixed Assets and Depreciation
The costs of major additions and betterments are capitalized, while replacements, maintenance and repairs, which do not improve or extend the life of the respective assets, are expensed currently.
Depreciation of the power plant and transmission line is computed on a straight-line basis over their estimated useful life of 30 years and, for significant additions, the remainder of the 30-year life from the plant's commencement of operations.
Recoverability of Long-Lived Assets
An impairment loss is recognized whenever events or changes in circumstances indicate that the carrying amounts of long-lived tangible and intangible assets are not recoverable. The Partnership considers historical performance and future estimated results in its evaluation of potential impairment and then compares the carrying amount of the asset to the estimated future cash flows expected to result from the use of the asset. If the carrying amount of the asset exceeds estimated expected undiscounted future cash flows before interest charges, the Partnership measures the amount of the impairment by comparing the carrying amount of the asset to its fair value. The estimation of fair value is generally measured by discounting expected future cash flows at the rate the Partnership utilizes to evaluate potential investments. The Partnership estimates fair value based on the best information available using estimates, judgments, and projections as considered necessary.
Wells and Resource Development Costs
CED follows the full-cost method of accounting for costs incurred in connection with the exploration and development of geothermal resources. All such costs, which include dry hole costs, the cost of drilling and equipping production wells, and administrative and interest costs directly attributable to the project are capitalized and amortized over their estimated useful lives when production commences. The estimated useful lives of production wells are 10 years each; exploration costs and development costs, other than production wells, are amortized over 30 years and, for significant additions, the remainder of the 30-year life from the plant's commencement of operations.
Deferred Plant Overhaul Costs and Well Rework Costs
Plant overhaul costs are deferred and amortized over the estimated period between overhauls as these costs extend the life of the respective assets. These deferred costs of $519 and $100 at December 31, 2001 and 2000, respectively, are included in property, plant, and equipment. Currently, plant overhauls are amortized over three years from the point of completion.
Production and injection rework costs are expensed as incurred during the year. For the years ended December 31, 2001, 2000, and 1999, such costs were $160, $653, and $676, respectively.
Reclassifications
Certain reclassifications have been made to the 2000 balance sheet and the 2000 and 1999 statements of operations and cash flows to conform to the 2001 presentation.
Deferred Financing Costs
Deferred financing costs as of December 31, 2001 and 2000 consist of loan fees and other costs of financing that are amortized over the term of the related financing. On February 25, 1999, the fees of $1,408 associated with certain short-term financing were fully expensed and included in costs related to acquisition debt, and a refinancing of this debt resulted in new deferred financing costs of $3,032. The $148 balance of the deferred financing costs at the date of acquisition related to the refinanced project debt was included in the extraordinary loss recorded at the time of the refinancing (see note 7). Accumulated amortization at December 31, 2001 and 2000 was $992 and $552, respectively.
Income Taxes
There is no provision for income taxes since such taxes are the responsibility of the partners.
Cash and Cash Equivalents
For purposes of the statements of cash flows, CED considers all money market instruments purchased with an initial maturity of three months or less to be cash equivalents.
Restricted Cash and Investments
As of December 31, 2001 and 2000, all of the Partnership's investments were classified as held to maturity and reported at amortized cost. Included in restricted cash and investments are capital expenditure reserves and sinking fund requirements for the project debt service required by the project loans (see note 7). The carrying amount of restricted cash and investments at December 31, 2001 and 2000 approximated fair value, which is based on quoted market prices as provided by the financial institution, which holds the investments.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, and partners' capital and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues, expenses, and the allocation of profits and losses during the period. Actual results could differ significantly from those estimates.
Fair Value of Financial Instruments
The carrying amount of cash and cash equivalents, accounts receivable, prepaid expenses and other assets, amounts due from related parties, accounts payable and accrued liabilities, and amounts due to related parties approximated fair value as of December 31, 2001 and 2000, because of the relatively short maturity of these instruments. The project loans as of December 31, 2001 and 2000 have an estimated fair value of $96,250 and $98,694, respectively, based on the quoted market price of the senior secured notes and the COSO Funding Corp. notes, respectively (see note 7).
The investments in Coso Transmission Line Partners (see note 4) and New CLPSI Company, LLC (see note 5) approximate the fair value.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities. In June 2000, FASB issued SFAS No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities, which amended SFAS No. 133 and addressed certain implementation issues. SFAS No. 133, as amended, requires that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. The Statement also requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. The Partnership does not have any derivative instruments and, therefore, the adoption in 2001 of SFAS No. 133, as amended, did not have any effect on the Partnership's financial statements.
In June 2001, the FASB issued SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 requires that the purchase method of accounting be used for all business combinations. SFAS No. 141 specifies criteria that intangible assets acquired in a business combination must meet to be recognized and reported separately from goodwill. SFAS No. 142 will require that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually in accordance with the provisions of SFAS No. 142. SFAS No. 142 also requires that intangible assets with estimable useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with SFAS No. 121 and subsequently, SFAS No. 144 after its adoption.
The Partnership adopted the provisions of SFAS No. 141 as of July 1, 2001 and the Partnership's management is in the process of evaluating the impact of implementing SFAS No. 142 and is unable to estimate the effect, if any, on the Partnership's financial statements.
In October 2001, FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001, and replaces SFAS No. 121 and provisions of APB Opinion No. 30 for the disposal of segments of a business. SFAS No. 144 creates one accounting model, based on the framework established in SFAS No. 121, to be applied to all long-lived assets including discontinued operations. The Partnership is required to adopt SFAS No. 144 on January 1, 2002 and believes there will be no effect on the Partnership's financial statements.
(3) Acquisition Accounting
On February 25, 1999, CAC purchased all of CalEnergy's interest in CED, Coso Power Developers (CPD), Coso Finance Partners (CFP), and Coso Finance Partners II (CFP II), collectively known as the Coso Partnerships, for approximately $205,500 in cash plus the assumption of debt of approximately $139,800. Allocated to CED from the purchase price was approximately $69,000 plus the assumption of debt of approximately $37,900. The acquisition was accounted for under the purchase method, and no goodwill was recorded. After CAC's purchase of CalEnergy's interest in CED, a new basis of accounting was adopted and, therefore, the financial information for the period after the acquisition is presented on a different cost basis than that for the period before the acquisition and, therefore, is not comparable.
The purchase price was allocated to the portion of the assets and liabilities purchased from CalEnergy based upon their fair values, with the amount of fair value of net assets in excess of the purchase price being allocated to long-lived assets on a pro rata basis. These adjustments resulted in a net decrease of $29,304 in the recorded amounts allocated to property, plant, and equipment and an increase of $21,443 in the recorded amounts allocated to the PPC. The PPC is being amortized on a straight-line basis over the remaining term of the PPC of 20 years as of the date of acquisition. Accumulated amortization on the PPC at December 31, 2001 and 2000 was $3,006 and $1,933, respectively.
(4) Investment in Coso Transmission Line Partners
Coso Transmission Line Partners (CTLP) is a partnership, between CED and CPD, which owns the transmission line and facilities connecting the power plants owned by CED and CPD to the transmission line, owned by Edison, at Inyokern, California, located 28 miles south of the plants. CTLP charges CED and CPD for the use of the transmission line at amounts sufficient for CTLP to recover its operating costs. These charges are recorded by CED as operating expenses and reflected as a reduction in CED's investment in CTLP.
(5) Investment in New CLPSI Company, LLC
New CLPSI Company, LLC (CLPSI) is a wholly owned subsidiary of CAC. CLPSI purchases, stores, and distributes spare parts to the Coso Partnerships. Also, certain other facilities utilized by the Coso Partnerships are held by CLPSI. CED's investments in CLPSI represent funds advanced for the purchase of spare parts inventory and other assets. Spare parts inventory held by CLPSI on behalf of CED is valued at the lower of cost or market.
(6) Property, Plant, and Equipment
Property, plant, and equipment at December 31, 2001 and 2000 consist of the following:
2001 2000 ------ ------
Power plant and gathering system $ 146,631 146,500 Transmission line 9,120 9,120 Wells and resources development costs 91,452 82,624 ------- ------- 247,203 238,244
Less accumulated depreciation and amortization (98,786) (84,626) ------- ------- $ 148,417 153,618 ======= =======
The transmission line costs represent the Partnership's share of the costs of construction of transmission lines from Inyokern, California to the Edison substation at Kramer, California and from Kramer to the Edison substation at Victorville, California.
(7) Project Loan
In order to complete the purchase of CalEnergy's interest in CED, CAC arranged for short-term debt financing of $211,500, of which $55,256 was allocated to CED. As a result of "push-down" accounting, the short-term debt was reflected in the financial statements of CED and was repaid on May 28, 1999 from a portion of the proceeds from the offering of senior secured notes. Financing costs associated with the short-term financing are included in interest expense - acquisition debt.
On May 28, 1999, Caithness Coso Funding Corp. (Funding Corp.), a wholly owned subsidiary of the Coso Partnerships raised $413,000 from an offering of senior secured notes. Funding Corp. loaned approximately $107,900 to CED from the $413,000 debt raised from the offering of senior secured notes on terms consistent with those of the senior secured notes. The loan consisted of one note of $11,650 at 6.80% which was paid off on December 15, 2001 and another of $96,250 at 9.05%, which has payments due at various dates through December 15, 2009. Through this financing, the existing project loan and short-term financing loans of $93,214 were repaid and an extraordinary loss of approximately $1,822 from the early extinguishment of this debt was incurred. The extraordinary loss was due to a premium and other costs incurred to pay the existing project loan before its maturity date.
The annual maturity of the project loans for each year ending December 31 is as follows:
Year ending December 31: Amount ------------------------ ------ 2002 $ 6,375 2003 5,055 2004 9,920 2005 8,683 2006 10,388 Thereafter 55,829 ------ $ 96,250 ======
The loans contain certain restrictive covenants that among other things, limit the Partnership's ability to incur additional indebtedness, release funds from reserve accounts, make distributions, create liens, and enter into any transaction of merger or consolidation.
The Partnership, Funding Corp., CPD, and CFP are jointly and severally liable for the repayment of the senior secured notes.
The annual maturity of the senior secured notes for each year ending December 31 is as follows:
Year ending December 31: Amount ----------------------- ------- 2002 $ 21,771 2003 27,618 2004 31,332 2005 35,480 2006 38,286 Thereafter 148,513 ------- $ 303,000 =======
(8) Related Party Transactions
The amounts due from and to related parties at December 31, 2001 and 2000 consist of the following:
2001 2000 ---- ---- Amounts due from related parties: Coso Land Company: Principal $ 141 141 Accrued interest 260 224 ------- ------ $ 401 365 ======= ======
Amounts due to related parties: CPD for steam sharing $ 283 127 CFP for steam sharing 1,755 603 Coso Land Company 24,214 22,532 Caithness Coso Funding Corp. 392 397 Coso Operating Company LLC 555 564 Caithness Operating Company, Inc. 68 98 ------- ------ $ 27,267 24,321 ======= ======
COC is reimbursed monthly for non-third-party costs incurred on behalf of CED. These costs are comprised principally of direct operating costs of CED geothermal facility, allocable general and administrative costs, and an operator fee. The amount due to COC relates to reimbursements for payments of operating expenses.
Both CCH and CalEnergy were reimbursed at amounts approved for their respective costs incurred in relation to the CED Management Committee. Prior to May 28, 1999 CalEnergy received $25, while CCH received $130.
As of May 28, 1999, the management committee fees were eliminated, and replaced by a non-managing fee payable to CCH. For the years ended December 31, 2001 and 2000, CCH received $237 and $234, respectively.
As indicated in note 1, CLC is entitled to a royalty of 5% of the value of steam used by CED to produce the electricity sold to Edison. The royalty due CLC for the years ended December 31, 2001, 2000, and 1999 was $1,684, $1,195, and $771, respectively. Payment of royalties due to CLC is subordinated to payment of the project loans (see note 7).
CED is charged for its use of the transmission line owned by CTLP. The amount of such net charges, which are included in plant operating expenses were $114, $157, and $126 for the years ended December 31, 2001, 2000, and 1999, respectively.
CED is charged by CLPSI for both its inventory usage and its portion of the expenses of operating CLPSI. The 2001, 2000, and 1999 costs charged to CED from CLPSI, which are included in plant operating expenses, were approximately $324, $359, and $143, respectively.
The amount due to Caithness Coso Funding Corp. represents accrued interest for fifteen days in December related to the project loans (see note 7).
On December 16, 1992, CED retired CLC's promissory note due CalEnergy, resulting in the loan from CED to CLC of $141. Interest was accrued on this loan for the years ended December 31, 2001, 2000, and 1999 at 10.0%, 10.0%, and 12.5%, respectively. Interest on the note was $36, $34, and $34 in 2001, 2000, and 1999, respectively.
During 1994, the Coso Partnerships entered into steam sharing agreements under which the partnerships may transfer steam, with the resulting incremental revenue and royalty expense shared equally by the partnerships. In the second half of 1995, interconnection facilities between the plants were completed and the transfer of steam commenced. CED steam sharing resulted in an expense, net of royalties and other related costs for the years ended December 31, 2001, 2000, and 1999 of $1,085, $2,712, and $6,103, respectively.
(9) Settlement of Litigation
In February 2000, the Coso Partnerships reached a settlement with Edison, subject to the approval of the CPUC, which approval was received in December 2000. The case has not yet been dismissed pending completion of certain obligations under the settlement agreements. The cost of the settlement was allocated among the Coso Partnerships. A portion of that cost was reflected in the purchase accounting applied to the acquisition of CalEnergy's interest in the Partnership (see note 3). The balance of the settlement was charged to settlement of litigation and related expenses.
In December 1999, the Partnership and Dow Chemical Company (Dow) entered into a confidential settlement agreement which was effective January 1, 2000 to resolve CED's claim to recover damages incurred related to an installation in 1992 by Dow of a hydrogen sulfide abatement system.
(10) Subsequent Event
On March 1, 2002, Edison reached certain financing milestones and paid the Partnership for revenue generated but not recognized for the period November 2000 through March 26, 2001. As such, the Partnership will recognize this revenue in the first quarter of 2002.
Independent Auditors' Report
The Partners and Management Committee Coso Power Developers:
We have audited the accompanying balance sheets of Coso Power Developers as of December 31, 2001 and 2000, and the related statements of operations, partners' capital, and cash flows for each of the years in the three-year period ended December 31, 2001. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with 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, the 2001 and 2000 financial statements referred to above present fairly, in all material respects, the financial position of Coso Power Developers as of December 31, 2001 and 2000, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States of America.
As discussed in note 3 to the financial statements, effective February 25, 1999, Caithness Acquisition Company, LLC acquired all of the partnership interest not already owned by its affiliates, Navy II Group LLC, in a business combination accounted for as a purchase. As a result of the acquisition, the financial information for the period after the acquisition is presented on a different cost basis than that for the period before the acquisition and, therefore, is not comparable.
March 1, 2002
/s/ KPMG LLP - -------------- KPMG LLP
COSO POWER DEVELOPERS
Balance Sheets
December 31, 2001 and 2000
(Dollars in thousands)
COSO POWER DEVELOPERS
Notes to Financial Statements
December 31, 2001, 2000, and 1999
(Dollars in thousands)
(1) Organization, Operation, and Business of the Partnership
Coso Power Developers (CPD or the Partnership) was formed on July 31, 1989 in connection with financing the construction of a geothermal power plant on land at the China Lake Naval Air Weapons Station at Coso Hot Springs, China Lake, California. CPD is a general partnership between Caithness Navy II Group LLC (Navy II), a Delaware limited liability company, and, until February 25, 1999, Coso Technology Corporation (CTC), a Delaware corporation wholly owned by CalEnergy, Inc. (CalEnergy), now known as MidAmerica Energy Holdings Company. On February 25, 1999, Caithness Acquisition Company, LLC (CAC), a wholly owned subsidiary of Caithness Energy, LLC and an affiliate of Navy II, purchased all of CalEnergy's interest in CTC (see note 3) and formed a wholly owned subsidiary, New CTC Company, LLC (New CTC), a Delaware limited liability company, to become the new managing general partner of CPD.
The power plant is located on land owned by the U.S. Navy. Under the terms of a 30-year contract with the U.S. Navy to develop geothermal energy on its land, CPD pays a royalty to the U.S. Navy which was initially 4% of revenues, increased to 10% of revenues at December 31, 1998, and is currently 18% of revenues (as of December 24, 1999). The royalty will increase to 20% of revenues after December 15, 2004. The U.S. Navy contract will expire in 2010. At December 31, 2001, royalties payable totaled $6,431.
The Partnership sells all electricity produced to Southern California Edison (Edison) under a 20-year power purchase contract (the PPC) expiring in 2010. Under the terms of the PPC, Edison makes payments to CPD as follows:
* Contractual payments for energy delivered, which escalated at an average rate of approximately 7.6% for the first ten years after the date of firm operation (scheduled energy price period). The scheduled energy price period extended until January 2000. After the scheduled energy price period, the energy payment adjusted to the actual avoided energy cost experienced by Edison. For the years ended December 31, 2001, 2000, and 1999, Edison's average avoided cost of energy was 7.46, 5.80, and 3.13 cents per kwh, respectively. Edison entered into an agreement (the Agreement) with the Partnership on June 19, 2001 that addressed renewable energy pricing and issues concerning California's energy crisis. The Agreement, which was amended on November 30, 2001, established May 1, 2002 as the date when the Partnership will begin receiving a fixed avoided cost of energy rate of 5.37 cents per kWh for five (5) years. Subsequent to the five-year period, Edison will be required to make energy payments to the Partnership based on its avoided cost of energy until its PPC expires. Beyond the five-year period, the Partnership cannot predict the likely level of avoided cost of energy prices under the PPC and, accordingly, the revenues generated by the Partnership could fluctuate significantly;
* Capacity payments which remain fixed over the life of the PPC to the extent that actual energy delivered exceeds minimum levels of the plant capacity defined in the PPC; and
* Bonus payments to the extent that actual energy delivered exceeds 85% of the plant capacity stated in the PPC. In 2001, 2000, and 1999, the bonus payments aggregated $2,248, $2,248, and $2,248, respectively.
CalEnergy served as the operator for CPD, maintaining the accounting records and operating the plant day to day, until February 1, 1999, at which time Coso Operating Company LLC (COC), a Delaware limited liability company, became operator pursuant to certain operations and maintenance agreements with CTC, the managing general partner. COC was a wholly owned subsidiary of CalEnergy until February 25, 1999, when CalEnergy assigned all of its interest and rights in COC to CAC, which became manager and sole member.
On February 25, 1999, CPD entered into two operating and maintenance agreements, one with FPL Operating Services, Inc. (FPL) and a second with COC. The initial terms of the FPL operating and maintenance agreement were for three years, to provide for the operation and maintenance of the geothermal power facilities and the interconnection to the transmission line. The term of the COC agreement is through December 31, 2009 to provide field services and administrative services for the Partnership. On October 17, 1999, the operating agreement with FPL was terminated and COC became the sole operator of all Partnership operations.
At formation, and as subsequently amended, the partnership agreement provides that cash flows before and after "payout" are allocated 50% each to New CTC (formerly CTC) and Navy II. "Payout," which has occurred, is defined as the point at which each partner received aggregate cash distributions in an amount equal to its accumulated capital contributions. For purposes of allocating net income to partners' capital accounts and for income tax purposes, profits and losses are allocated based on the aforementioned capital percentages.
(2) Summary of Significant Accounting Policies
Accounts Receivable and Revenue Recognition
Accounts receivable primarily consists of receivables from Edison for electricity delivered and sold under the PPC.
Operating revenues are recognized as income during the period in which electricity is delivered to Edison. Revenue was recognized based on the payment rates scheduled in CPD's PPC with Edison, through January 2000. From January 2000 through May 1, 2002, and subsequent to the five-year period stated in the Agreement, revenue is recognized based on Edison's avoided energy cost, until the Partnership's PPC expires.
Periodic increases in natural gas prices and imbalances between supply and demand, among other factors, have at times led to significant increases in wholesale electricity prices in California. During those periods, Edison had fixed tariffs with its retail customers that were significantly below the wholesale prices it paid in California. That resulted in significant under-recoveries by Edison of its electricity purchase costs. On January 16, 2001, Edison announced that it was temporarily suspending payments for energy provided, including the energy provided by the Partnership, pending a permanent solution to its liquidity crisis. Subsequently, pursuant to a California Public Utilities Commission (CPUC) order, Edison resumed making payments to the Partnership beginning with power generated on March 27, 2001. Edison also made a payment equal to 10% of the unpaid balance for power generated from November 1, 2000 to March 26, 2001 and continues to pay interest on the outstanding amount at 7% per annum. That payment was made pursuant to the Agreement between Edison and the Partnership described in note 1. The Agreement as amended, which received CPUC approval in January of 2002, established the fixed energy rates discussed above and set payment terms for past due amounts owed to the Partnership by Edison. As of December 31, 2001, the Partnership was unable to determine the time frame during which any future payments would be received. Due to the uncertainty surrounding Edison's ability to make payment on past due amounts, collection was not reasonably assured and the Partnership had not recognized revenue of $22,733 from Edison for energy delivered during the period January 1, 2001 through March 26, 2001. The provision for doubtful accounts previously recorded as of December 31, 2000 of $15,312 has been reclassified to conform with the 2001 presentation. In addition, the Partnership will not recognize this revenue until payments from Edison are received (see note 10).
Fixed Assets and Depreciation
The costs of major additions and betterments are capitalized, while replacements, maintenance, and repairs which do not improve or extend the life of the respective assets are expensed currently.
Depreciation of the power plant and transmission line is computed on a straight-line basis over their estimated useful life of 30 years and, for significant additions, the remainder of the 30-year life from the plant's commencement of operations.
Recoverability of Long-Lived Assets
An impairment loss is recognized whenever events or changes in circumstances indicate that the carrying amounts of long-lived tangible and intangible assets is not recoverable. The Partnership considers historical performance and future estimated results in its evaluation of potential impairment, and then compares the carrying amount of the asset to the estimated future cash flows expected to result from the use of the asset. If the carrying amount of the asset exceeds estimated expected undiscounted future cash flows before interest charges, the Partnership measures the amount of the impairment by comparing the carrying amount of the asset to its fair value. The estimation of fair value is generally measured by discounting expected future cash flows at the rate the Partnership utilizes to evaluate potential investments. The Partnership estimates fair value based on the best information available using estimates, judgments, and projections as considered necessary.
Wells and Resource Development Costs
CPD follows the full-cost method of accounting for costs incurred in connection with the exploration and development of geothermal resources. All such costs, which include dry hole costs, the costs of drilling and equipping production wells, and administrative and interest costs directly attributable to the project, are capitalized and amortized over their estimated useful lives when production commences. The estimated useful lives of production wells are ten years each; exploration costs and development costs, other than production wells, are amortized over 30 years and, for significant additions, the remainder of the 30-year life from the plant's commencement of operations.
Deferred Plant Overhaul Costs and Well Rework Costs
Plant overhaul costs are deferred and amortized over the estimated period between overhauls, as these costs extend the useful lives of the respective assets. These deferred costs of $281 and $333 at December 31, 2001 and 2000, respectively, are included in property, plant, and equipment. Currently, plant overhauls are amortized over three years from the point of completion.
Production and injection rework costs are expensed as incurred. For the years ended December 31, 2001, 2000, and 1999, such costs were $533, $32, and $101, respectively.
Reclassifications
Certain reclassifications have been made to the 2000 and 1999 statements of operations and cash flows to conform to the 2001 presentation.
Deferred Financing Costs
Deferred financing costs as of December 31, 2001 and 2000 consist of loan fees and other costs of financing that are amortized over the term of the related financing. In 1999, fees of $1,473 associated with certain short-term financing were fully expensed and included in costs related to acquisition debt, and a refinancing of this debt resulted in new deferred financing costs of $4,175. The $179 balance of the deferred financing costs at the date of acquisition related to the refinanced project debt was included in the extraordinary loss recorded at the time of the refinancing (see note 7). Accumulated amortization at December 31, 2001 and 2000 was $2,439 and $1,320, respectively.
Income Taxes
There is no provision for income taxes since such taxes are the responsibility of the partners.
Cash and Cash Equivalents
For purposes of the statements of cash flows, CPD considers all money market instruments purchased with initial maturities of three months or less to be cash equivalents.
Restricted Cash and Investments
As of December 31, 2001 and 2000, all of the Partnership's investments were classified as held to maturity and reported at amortized cost. Included in restricted cash and investments are capital expenditure reserves and sinking fund requirements for the project debt service required by the project loans (see note 7). The carrying amount of restricted cash and investments at December 31, 2001 and 2000 approximated fair value, which is based on quoted market prices as provided by the financial institution which holds the investments.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, partners' capital, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues, expenses, and the allocation of profits and losses during the reportable period. Actual results could differ significantly from those estimates.
Fair Value of Financial Instruments
The carrying amount of cash and cash equivalents, accounts receivable, prepaid expenses and other assets, amounts due from related parties, accounts payable and accrued liabilities, and amounts due to related parties approximated fair value as of December 31, 2001 and 2000, because of the relatively short maturity of these instruments. The project loans as of December 31, 2001 and 2000 have an estimated fair value of $84,200 and $93,866, respectively, based on the quoted market price of the senior secured notes and the Coso Funding Corp. notes, respectively (see note 7).
The investments in Coso Transmission Line Partners (see note 4) and New CLPSI Company, LLC (see note 5) approximate fair value.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities. In June 2000, FASB issued SFAS No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities, which amended SFAS No. 133 and addressed certain implementation issues. SFAS No. 133, as amended, requires that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. The Statement also requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. The Partnership does not have any derivative instruments and, therefore, the adoption in 2001, of SFAS No. 133, as amended, did not have any effect on the Partnership's financial statements.
In June 2001, FASB issued SFAS No. 141, Business Combinations (SFAS No. 141) and SFAS No. 142, Goodwill and Other Intangible Assets (SFAS No. 142). SFAS No. 141 requires that the purchase method of accounting be used for all business combinations. SFAS No. 141 specifies criteria that intangible assets acquired in a business combination must meet to be recognized and reported separately from goodwill. SFAS No. 142 will require that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually in accordance with the provisions of SFAS No. 142. SFAS No. 142 also requires that intangible assets with estimable useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with SFAS No. 121 and subsequently, SFAS No. 144 after its adoption.
The Partnership adopted the provisions of SFAS No. 141 as of July 1, 2001, and the Partnership's management is in the process of evaluating the impact of implementing SFAS No. 142 and is unable to estimate the effects, if any, on the Partnership's financial statements.
In October 2001, FASB issued Statement of Financial Accounting Standards No. 144 (SFAS No. 144), Accounting for the Impairment or Disposal of Long-Lived Assets. This Statement is effective for fiscal years beginning after December 15, 2001, and replaces SFAS No. 121 and provisions of APB Opinion No. 30 for the disposal of segments of a business. The statement creates one accounting model, based on the framework established in SFAS No. 121 to be applied to all long-lived assets including discontinued operations. The Partnership is required to adopt SFAS No. 144 on January 1, 2002 and believes there will be no effect on the Partnership's financial statements.
(3) Acquisition Accounting
On February 25, 1999, CAC purchased all of CalEnergy's interest in CPD, Coso Energy Developers (CED), Coso Finance Partners (CFP), and Coso Finance Partners II (CFP II), collectively known as the Coso Partnerships, for approximately $205,500 in cash plus the assumption of debt of approximately $139,800. The purchase price allocated to CPD was approximately $74,500 plus the assumption of debt of approximately $61,300. The acquisition was accounted for under the purchase method, and no goodwill was recorded. After CAC's purchase of CalEnergy's interest in CPD, a new basis of accounting was adopted and, therefore, the financial information for the period after the acquisition is presented on a different cost basis than that for the period before the acquisition and, therefore, is not comparable.
The purchase price was allocated to the portion of the assets and liabilities purchased from CalEnergy based upon their fair values, with the amount of fair value of net assets in excess of the purchase price being allocated to long-lived assets on a pro rata basis. These adjustments resulted in a net decrease of $33,536 in the recorded amounts allocated to the value of property, plant, and equipment and an increase of $30,738 in the recorded amounts allocated to the PPC. The PPC is being amortized on a straight-line basis over the remaining term of the PPC of 11 years as of the date of acquisition. Accumulated amortization on the PPC at December 31, 2001 and 2000 was $7,918 and $5,124, respectively.
(4) Investment in Coso Transmission Line Partners
Coso Transmission Line Partners (CTLP) is a partnership between CPD and CED, which owns the transmission line and facilities connecting the power plants owned by CPD and CED to the transmission line, owned by Edison, at Inyokern, California, located 28 miles south of the plants. CTLP charges CPD and CED for the use of the transmission line at amounts sufficient for CTLP to recover its operating costs. These charges are recorded by CPD as operating expenses and reflected as a reduction in CPD's investment in CTLP.
(5) Investment in New CLPSI Company, LLC
New CLPSI Company, LLC (CLPSI) is a wholly owned subsidiary of CAC. CLPSI purchases, stores, and distributes spare parts to the Coso Partnerships. Also, certain other facilities utilized by the Coso Partnerships are held by CLPSI. CPD's investments in CLPSI represent funds advanced for the purchase of spare parts inventory and other assets. Spare parts inventory held by CLPSI on behalf of CPD is valued at the lower of cost or market.
(6) Property, Plant, and Equipment
Property, plant, and equipment at December 31, 2001 and 2000 consist of the following:
2001 2000 --------------- ------------
Power, plant, and gathering system $ 142,712 142,350 Transmission line 7,245 7,245 Wells and resources development costs 59,695 60,010 --------------- ------------- 209,652 209,605
Less accumulated depreciation and amortization (84,987) (72,658) --------------- ----------- $ 124,665 136,947 =============== ===========
The transmission line costs represent the Partnership's share of the costs of construction of transmission lines from Inyokern, California to the Edison substation at Kramer, California, and from Kramer to the Edison substation at Victorville, California.
(7) Project Loans
In order to complete the purchase of CalEnergy's interest in CPD, CAC arranged for short-term debt financing of $211,500, of which approximately $78,634 was allocated to CPD. As a result of "push-down" accounting, the short-term debt was reflected in the financial statements of CPD and was repaid on May 28, 1999 from a portion of the proceeds from the offering of senior secured notes. Financing costs associated with the short-term financing are included in interest expense - acquisition debt.
On May 28, 1999, Caithness Coso Funding Corp. (Funding Corp.) raised $413,000 from an offering of senior secured notes. Funding Corp. loaned approximately $153,550 to CPD from the $413,000 debt raised from the offering of senior secured notes on terms consistent with those of the senior secured notes. The loan consisted of one note of $69,350 at 6.80% which was paid off on December 15, 2001 and another note of $84,200 at 9.05% which has payments due at various dates through December 15, 2009. Through this financing, the existing project loan and short-term financing of approximately $139,957 was repaid and an extraordinary loss of approximately $2,147 from the early extinguishment of this debt was incurred. The extraordinary loss was due to a premium and other costs incurred to pay the existing project loan before its maturity date.
The annual maturity of the project loans for each year ending December 31 is as follows:
Year ending December 31: Amount ------------------------ ------ 2002 $ 3,799 2003 9,155 2004 10,718 2005 11,697 2006 11,738 Thereafter 37,093 ------ $ 84,200 ======
The loans contain certain restrictive covenants that, among other things, limit the Partnership's ability to incur additional indebtedness, release funds from reserve amounts, make distributions, create loans, and enter into any transaction of merger or consolidation.
The Partnership, Funding Corp., CED, and CFP are jointly and severally liable for the repayment of the senior secured notes.
The annual maturity of the senior secured notes for each year ending December 31 is as follows:
Year ending December 31: Amount ------------------------ ------ 2002 $ 21,771 2003 27,618 2004 31,332 2005 35,480 2006 38,286 Thereafter 148,513 ------- $ 303,000 =======
(8) Related Party Transactions
The amounts due from and to related parties at December 31, 2001 and 2000 consist of the following:
2001 2000 ---- ---- Amounts due from related parties: CED for steam sharing $ 283 127 Coso Operating Company 1,409 1,784 China Lake Joint Venture: Principal 1,562 1,562 Accrued interest 2,885 2,480 ----- ----- $ 6,139 5,953 ===== =====
Amounts due to related parties: CFP for steam sharing $ 7,376 1,357 Caithness Coso Funding Corp. 339 365 Caithness Operating Company 63 94 ----- ----- $ 7,778 1,816 ===== =====
COC is reimbursed monthly for non-third-party costs incurred on behalf of CPD. These costs are comprised principally of direct operating costs of the CPD geothermal facility, allocable general and administrative costs, and an operator fee. The amount due from COC relates to advances for payments of operating expenses.
Both CalEnergy and Navy II were reimbursed at amounts approved for their respective costs incurred in relation to the CPD Management Committee. Prior to May 28, 1999, CalEnergy received $25, while Navy II received $130.
As of May 28, 1999, the management committee fees were eliminated and replaced by a nonmanaging fee payable to Navy II. For the years ended December 31, 2001 and 2000, Navy II received $237 and $234, respectively.
CPD is charged for its use of the transmission line owned by CTLP. For the years ended December 31, 2001, 2000, and 1999, the amount of such net charges was $129, $179, and $141, respectively.
CPD is charged by CLPSI for both its inventory usage and its portion of the expenses of operating CLPSI. The charges to CPD from CLPSI in 2001, 2000, and 1999, which are included in plant operating expenses, were approximately $148, $318, and $78, respectively.
On December 16, 1992, CPD retired China Lake Joint Venture's (CLJV) promissory note due CalEnergy, resulting in the loan from CPD to CLJV of $1,562 at December 31, 1992. CLJV is an affiliated venture. Interest has been accrued on this loan for the years ended December 31, 2001, 2000, and 1999 at 10.0%, 10.0%, and 12.5%, respectively. Interest on the loan was $405, $371, and $421 in 2001, 2000, and 1999, respectively. The amount due to Funding Corp. represents accrued interest for 15 days in December, related to the project loans (see note 7).
During 1994, the Coso Partnerships entered into steam sharing agreements under which the partnerships may transfer steam, with the resulting incremental revenue and royalty expense shared equally by the partnerships. In the second half of 1995, interconnection facilities between the plants were completed and the transfer of steam commenced. CPD steam sharing resulted in an expense, net of royalties and other related costs, of $9,634, $5,751, and $18,618 for the years ended December 31, 2001, 2000, and 1999, respectively.
(9) Settlement of Litigation
In February 2000, the Coso Partnerships reached a settlement with Edison, subject to the approval of the CPUC, which approval was received in December 2000. The case has not yet been dismissed pending completion of certain obligations under the settlement agreements. The cost of the settlement will be allocated among the Coso Partnerships. A portion of that cost was reflected in the purchase accounting applied to the acquisition of CalEnergy's interest in the Partnership (see note 3). The balance of the settlement was charged to settlement of litigation and related expenses.
(10) Subsequent Event
On March 1, 2002, Edison reached certain financing milestones and paid the Partnership for revenue generated but not recognized for the period November 2000 through March 26, 2001. As such, the Partnership will recognize this revenue in the first quarter of 2002.
(a) In the opinion of the Caithness Coso Funding Corp. and the Partnerships, all adjustments, which consist of normal recurring accruals to present a fair statement of the amounts shown for such periods, have been made.
(b) The provision for doubtful accounts previously recorded for the quarter ended March 31, 2001 for Coso Finance Partners, Coso Energy Developers, and Coso Power Developers of $25,817, $25,950 and $26,998, respectively, has been reclassified as a reduction of revenue to conform with the 2001 financial statements presentation.
(c) The income from the reduction in the provision for doubtful accounts previously recorded for the quarter ended June 30, 2001 for Coso Finance Partners, Coso Energy Developers, and Coso Power Developers of $4,204 $4,120 and $4,265, respectively, has been reclassified to revenue to conform with the 2001 financial statements presentation.
Supplemental Condensed Combined Financial Information for Coso Partnerships
The following information presents unaudited condensed combined financial statements of the Coso Partnerships. These financial statements represent a compilation of the financial statements of Caithness Coso Funding Corp., Coso Finance Partners, Coso Energy Developers and Coso Power Developers for the periods indicated. This supplemental financial information is not required by GAAP and has been provided to facilitate a more comprehensive understanding of the financial position, operating results and cash flows of the Coso partnerships as a whole, which jointly and severally guarantee the repayment of Caithness Coso Funding Corp's senior notes. The unaudited condensed combined financial statements should be read in conjunction with each individual partnerships financial statements and their accompanying notes.
COSO PARTNERSHIPS
NOTES TO THE UNAUDITED CONDENSED
COMBINED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
(1) Basis of Presentation
The accompanying unaudited condensed combined financial statements were derived from the stand alone financial statements of Caithness Coso Funding Corp., Coso Finance Partners, Coso Energy Developers and Coso Power Developers. All intercompany accounts and transactions were eliminated. This financial information has been provided to facilitate a more comprehensive understanding of the financial position, operating results and cash flows of the Coso Partnerships as a whole. The unaudited condensed combined financial statements should read in conjunction with each individual partnership's financial statements.
(2) Acquisition
On February 25, 1999, Caithness Acquisition Company, LLC (CAC), a wholly owned subsidiary of Caithness Energy, LLC, purchased all of the interests in the Coso projects that were owned by CalEnergy Company Inc. (CalEnergy), which is now known as MidAmerican Energy Holdings Company. The purchase price consisted of $205.0 million in cash, plus $5.0 million in contingent payments, plus the assumption of CalEnergy's and its affiliates' share of debt outstanding. The acquisition was accounted for under the purchase method, and no goodwill was recorded. After Caithness Acquisition's purchase of CalEnergy's interest in Coso Partnerships, a new basis of accounting was adopted and is referred to as "New Basis" as compared to the former cost basis which is referred to as "Old Basis" in the financial statements. The purchase price was allocated to the portion of the assets and liabilities purchased from CalEnergy based upon their fair values, with the amount of fair value of net assets in excess of the purchase price being allocated to long-lived assets on a pro-rata basis.
In order to complete the purchase of CalEnergy's interest in Coso Partnerships, Caithness Acquisition arranged for short-term debt financing of approximately $211.5 million. This short-term debt was repaid on May 28, 1999 from a portion of the proceeds from the offering of senior secured notes (see note 3).
(3) Debt Financing
On May 28, 1999 Caithness Coso Funding Corp. loaned approximately $413.0 million to Coso Partnerships from a portion of the proceeds from the offering of senior secured notes. The loan consists of one note of $110.0 million with an interest rate of 6.80% and another of $303.0 million with an interest rate of 9.05% with maturity dates of December 15, 2001 and December 15, 2009, respectively. All prior project loans of approximately $351.4 million were repaid from the proceeds of the financing and an extraordinary loss from the early extinguishment of this debt was incurred for approximately $6.3 million. The extraordinary loss was due to a premium and other costs incurred to pay the prior project loans before maturity.
(4) Reclassifications
Certain reclassifications have been made to the 2000, statement of operations to conform to the 2001 presentation.
Item 9.
Item 9. Changes in and disagreements with Accountants on Accounting and Financial Disclosure.
Since 1991, Caithness Energy and CalEnergy, the then present co-sponsors of the Coso projects, had engaged PricewaterhouseCoopers LLP to audit the financial statements of the Coso partnerships. On February 25, 1999, CAC purchased all of CalEnergy's interests in the Coso projects, and Caithness Energy engaged KPMG LLP, its own independent certified public accountants, to audit future financial statements of the Coso partnerships. In connection with the audits of the financial statements of Coso Finance Partners and Coso Finance Partners II, Coso Energy Developers and Coso Power Developers for the period ended February 25, 1999, (i) Caithness Energy had no disagreements with PricewaterhouseCoopers LLP on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements if not resolved to the satisfaction of PricewaterhouseCoopers LLP would have caused them to make reference thereto in their reports on the financial statements for such years, and (ii) the reports of PricewaterhouseCoopers LLP on the Coso partnerships did not contain any adverse opinion or disclaimer of opinion, and were not modified as to uncertainty, audit scope or accounting principles except for the reference to the Coso partnerships' adoption in 1998 of Statement of Position No. 98-5, "Reporting on the Costs of Start-up Activities."
Part III
Item 10.
Item 10. Directors and Executive Officers of the Registrant.
The following table sets forth the persons who served as our directors and executive officers as of December 31, 2001:
James D. Bishop, Sr., Chairman, Chief Executive Officer and a Director of Funding Corp. and of Caithness Energy, has served as a Director of Caithness Corporation since its inception in 1975. Mr. Bishop served as Caithness Corporation's President from its inception until December 1986 and has served as Chairman of Caithness Corporation since January 1987. Mr. Bishop also serves as a director for various other entities which engage in independent power production and natural resource exploration and development. Mr. Bishop holds a Master of Business Administration degree from Harvard Business School and a Bachelor of Arts degree from Yale University. Mr. Bishop is the father of James D. Bishop, Jr. and Barbara Bishop Gollan.
Leslie J. Gelber, President, Chief Operating Officer and a Director of Funding Corp. and of Caithness Energy, has served as President and Chief Operating Officer of Caithness Corporation since January 1999. Prior to joining Caithness Corporation, Mr. Gelber served as President of Cogen Technologies, Inc., which is also engaged in the field of independent power production, from August 1998 until December 1998. From July 1993 to July 1998, Mr. Gelber served as President of ESI Energy, Inc., the non-regulated independent power company owned by FPL Group, Inc. Mr. Gelber holds a Master of Business Administration degree from the University of Miami and holds a Bachelor of Arts degree in Economics from Alfred University.
James D. Bishop, Jr., Vice Chairman and a Director of Funding Corp. and of Caithness Energy, joined Caithness Corporation in 1988 and served as President and Chief Operating Officer of Caithness Corporation from November 1995 until December 1998. Mr. Bishop also serves on all the boards of directors and management committees of the entities and joint ventures affiliated with Caithness Corporation. Mr. Bishop holds a Master of Business Administration degree from the Kellogg Graduate School of Management at Northwestern University and holds a Bachelor of Science degree from Trinity College. Mr. Bishop is the son of James D. Bishop, Sr. and the brother of Barbara Bishop Gollan.
Christopher T. McCallion, Executive Vice President, Chief Financial Officer and a Director of Funding Corp. and of Caithness Energy, served as Vice President and Controller of Caithness Corporation from July 1991 to November 1995, and has served as Executive Vice President and Chief Financial Officer of Caithness Corporation since November 1995. Mr. McCallion holds a Bachelor of Science degree from Seton Hall University.
Kenneth P. Hoffman a Senior Vice President of Funding Corp and of Caithness Energy, joined Caithness Corporation in March of 2000. Prior to joining Caithness, Mr. Hoffman was a Vice President of FPL Energy, Inc. From 1989 until 1993 he was the Vice President of Business Management of ESI Energy, Inc. Before 1989, Mr. Hoffman was employed by Florida Power & Light Company. Mr. Hoffman holds a Master of Business Administration degree from Florida International University and a Bachelor of Science degree from Rochester Institute of Technology.
Larry K. Carpenter, Executive Vice President and a Director of Funding Corp. and of Caithness Energy, has served as an Executive Vice President of Caithness Corporation since January 1999. Prior to joining Caithness Corporation, Mr. Carpenter served as Vice President of Development at ESI Energy, Inc., the non-regulated independent power company owned by FPL Group Inc., from 1985 to December 1998. Mr. Carpenter holds a Bachelor of Science degree in Electrical Engineering from the University of Florida.
Mark A. Ferrucci, a Director of Funding Corp., has served as the independent director of Funding Corp. since May 1999. Since 1997, Mr. Ferrucci has been an employee of CT Corporation System, an independent company that provides corporate and UCC services to businesses and law firms. From 1977 until 1992, Mr. Ferrucci served as CT Corporation System's Assistant Secretary and as Assistant Vice President of CT Corporation System from 1992 until the present.
David V. Casale, a Vice President and the Controller of Funding Corp. and of Caithness Energy joined Caithness Corporation in December 1991 and has served as a Vice President and as its Controller since November 1995. Mr. Casale also serves on the boards of directors of joint ventures affiliated with Caithness Corporation. Mr. Casale holds a Bachelor of Arts degree from Adelphi University.
John A. McNamara, Vice President Finance of Funding Corp. and of Caithness Energy, joined Caithness Corporation in September of 1990 and has served as Vice President since 1999. Prior to joining Caithness, Mr. McNamara was a broker with Bradley & Company, an account executive with First Georgetown Securities, Inc. and a staff member of the United States Senate Committee on Small Business. He received a Masters of Business Administration degree from Georgetown University and a Bachelor of Arts degree from Denison University.
Barbara Bishop Gollan, a Vice President of Funding Corp. and of Caithness Energy, joined Caithness Corporation as Vice President in October 1990. Ms. Gollan has authored and co-authored a number of technical papers on geothermal systems, which were presented to the Geothermal Resources Council, the Geologic Society of America and the Stanford Geothermal Workshop. Ms. Gollan holds a Master of Science degree in Geology and Geochemistry from Stanford University and holds a Bachelor of Arts degree from Amherst College. Ms. Gollan is the daughter of Mr. James D. Bishop, Sr. and the sister of James D. Bishop, Jr.
The Board of Directors appointed Mr. Ferrucci as an independent director. The unanimous affirmative vote of our Board of Directors (including Mr. Ferrucci) is required before certain actions can be taken, including, but not limited to, (1) engaging in any business or activity other than issuing the senior secured notes and making the related loans to the Coso partnerships, (2) incurring any debt, or assuming or guaranteeing any debt of any other entity, (3) dissolving or liquidating, (4) consolidating, merging or selling all or substantially all of our assets or (5) instituting any bankruptcy or insolvency proceedings.
Item 11.
Item 11. Executive Compensation.
None of the directors or executive officers of Funding Corp. receives any compensation for his or her services, except Mr. Ferruci, who receives $8,400 in compensation annually for services provided.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth, as of December 31, 2001 certain information regarding the beneficial ownership of Coso Funding Corp.'s voting securities and the beneficial ownership of the voting securities of each of the Coso partnerships by:
(1) Each person who is known by us and the Coso partnerships to beneficially own 5% or more of Coso Funding Corp.'s voting securities or 5% or more of the voting securities of any Coso partnership,
(2) Each of Coso Funding Corp.'s directors and executive officers who also act in similar capacities on behalf of the managing partner of each Coso partnership and each of the delegates to the management committee of each Coso partnership, and
(3) All of Coso Funding Corp.'s directors and executive officers who also act in similar capacities for the managing partnership of each Coso partnership and all of the delegates to the management committee of each Coso partnership as a group.
Beneficial ownership has been determined in accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as amended. Except as otherwise noted, each person named below has an address in care of our principal executive offices.
* Less than 5.0%.
(1) The address of such person is c/o Caithness Corporation, 565 Fifth Avenue, 29th Floor, New York, New York 10017-2478.
(2) The beneficial ownership of James D. Bishop, Sr.'s interests is based upon his ownership of shares of common stock of Mojave Power, Inc. and Mojave Power II, Inc. which own, indirectly through various entities, general partnership interests in the Navy I partnership and the Navy II partnership. In addition to these interests, James D. Bishop, Sr. is the beneficiary of The James D. Bishop Trust--2001 ( "Bishop, Sr. Trust "), which owns shares of common stock of Caithness Corporation and membership units in Caithness 1997, LLC. Caithness Corporation and Caithness 1997, LLC own, indirectly through various entities, general partnership interests in the Navy I partnership, the BLM partnership and the Navy II partnership, which collectively own all of the shares of common stock of Funding Corp. The voting rights to the shares of common stock of Caithness Corporation held by the Bishop, Sr. Trust have been transferred to The Caithness Entities Voting Trust, the trustee of which is James D. Bishop, Jr. The Bishop, Sr. Trust is irrevocable. James D. Bishop, Sr., therefore, does not have voting or investment power over these shares of common stock of Caithness Corporation.
(3) Owner of economic interests in the Coso partnerships through Caithness Corporation's employee incentive plans, which economic interests are not listed on this table.
(4) James D. Bishop, Jr. is: (i) the beneficiary of The James D. Bishop, Jr. Irrevocable Trust--1996 (the "Bishop, Jr. Trust "), which owns shares of common stock of Caithness Corporation, and membership units in Caithness 1997, LLC, the voting rights of which have been transferred to the Caithness Entities Voting Trust, the trustee of which is James D. Bishop, Jr.; (ii) the owner of common stock of Caithness Corporation and Mojave Power, Inc, and membership units in Caithness 1997, LLC; and (iii) the trustee of The Caithness Entities Voting Trust which possesses sole voting control over the shares of common stock of Caithness Corporation held by the Bishop, Sr. Trust, The Barbara Bishop Gollan Irrevocable Trust--1996 (the "Gollan Trust "), The Elizabeth Bishop DeLuca Irrevocable Trust--1996 and The Linda Bishop Fotiu Irrevocable Trust--1996. The interests listed in (i) and (ii) above entitle James D. Bishop, Jr. to the following indirect beneficial ownership interests: Funding Corp. (1.6%); Navy I partnership (1.6%); BLM partnership (1.5%); and Navy II partnership (1.6%). James D. Bishop, Jr. disclaims beneficial ownership of the interests listed in (iii) above.
(5) Barbara Bishop Gollan is the beneficiary of the Gollan Trust, which owns shares of common stock of Caithness Corporation, and membership units in Caithness 1997, LLC. The voting rights to the shares of common stock of Caithness Corporation held by the Gollan Trust have been transferred to The Caithness Entities Voting Trust, the trustee of which is James D. Bishop, Jr. The Gollan Trust is irrevocable. Barbara Bishop Gollan, therefore, does not have voting or investment power over these shares of common stock of Caithness Corporation.
(6) Dominion Energy, Inc. owns: (i) a limited liability company membership interest in Caithness BLM Group, LP, a Delaware limited partnership, which owns a limited liability company membership interest in Caithness Coso Holdings, LLC, which owns a general partnership interest in the BLM partnership; and (ii) a limited liability company membership interest in Navy II Group which owns a general partnership interest in the Navy II partnership.
(7) Mojave Energy Company owns limited liability company membership interests in Caithness Power, LLC, which owns, indirectly through various entities, general partnership interests in each of the Coso partnerships.
Item 13.
Item 13. Certain Relationships and Related Transactions.
The Coso Partnerships
Each of the Coso partnerships has two general partners, a managing partner and a non-managing partner. Under the amended and restated partnership agreement, the managing partner of each Coso partnership is generally responsible for the management and control of the day-to-day business and affairs. The managing partner of the Navy I partnership is New CLOC Company, LLC, a Delaware limited liability company, the managing partner of the BLM partnership is New CHIP Company, LLC, a Delaware limited liability company and the managing partner of the Navy II partnership is New CTC Company, LLC, a Delaware limited liability company. The non-managing partner of the Navy I partnership is ESCA, LLC, a Delaware limited liability company, the non-managing partner of the BLM partnership is Caithness Coso Holdings, LLC, a Delaware limited liability company, and the non-managing partner of the Navy II partnership is Caithness Navy II Group, LLC, a Delaware limited liability company.
Each managing partner is a limited liability company managed by a manager who is appointed by Caithness Acquisition Company, LLC (CAC), the sole member of each managing partner. The manager is responsible for the ordinary course management and operations by its Coso partnership. CAC has appointed itself as the manager of each managing partner. CAC has also appointed Mr. Ferrucci as the independent manager of each managing partner. (In addition, each of the managing members of the non-managing partners has appointed Mr. Ferrucci as the independent manager of that non-managing partner.) The approval of the independent manager is required before the managing partner (or the non-managing partner, as the case may be) may take certain actions that do not involve the ordinary course management and operations by the Coso partnerships of the Coso projects, including, among others, (1) commencing any bankruptcy or insolvency proceeding involving the managing partner, (2) incurring any debt in the name of the managing partner for which it would be liable, (3) dissolving, liquidating, consolidating or merging, or selling all or substantially all of the assets of, its respective Coso partnership, or (4) engaging in any business or activity other than acting as the managing partner of its respective Coso partnership. Each managing partner also has its officers, who are also officers of Funding Corp. , who act on behalf of the managing partners of the Coso partnerships.
CAC, a limited liability company, is the manager and sole member of each of the managing partners. Caithness Energy, LLC (Caithness Energy) as the manager and sole owner of CAC, has delegated its role as manager of CAC to the CAC board of directors, including the power to manage the managing partners of the Coso partnerships. Each managing partner's officers are also the officers of CAC. None of the persons acting on behalf of the Coso partnerships receives any compensation from the Coso partnerships for his or her services, except that nominal compensation is paid in consideration for Mr. Ferrucci's services.
Caithness Energy is governed by a board of directors and not by its members. The directors of Funding Corp., other than Mr. Ferrucci, also currently serve as members of the board of directors of Caithness Energy. Under the limited liability company agreement of Caithness Energy, Caithness Corporation is entitled to appoint a number of members to the Board of Directors of Caithness Energy who hold, in the aggregate, a majority of the votes of all members of such board of directors. Caithness Corporation's present appointees are Messrs. Bishop, Sr., and Bishop, Jr. In addition, Messrs. Gelber, Carpenter and McCallion serve as voting members of the board of directors of Caithness Energy pursuant to their individual executive compensation agreements with Caithness Energy. These five individuals, together with Mr. Ferrucci, serve as the CAC board of directors.
Management Committees
Under the amended and restated partnership agreement of each Coso partnership, the managing partner is subject to the directives of a management committee which oversees the business operations of the Coso partnership. The managing partner of a Coso partnership may not take certain specific actions without the consent of the management committee of that Coso partnership. However, the management committee may not direct the managing partner of the Coso partnership to take any action over which the independent manager has exclusive authority without the requisite approval of the independent manager. The management committee of each Coso partnership consists of four delegates, two of which are appointed by the managing partner and two of which are appointed by the non-managing partner. Each partner may substitute or change its delegates.
Under the amended and restated partnership agreements of the Coso partnerships, each partner may appoint one delegate with multiple votes. The names of the delegates appointed by affiliates of Caithness Energy to the management committees of the Coso partnerships are set forth below.
As of December 31, 2001, the following persons were the members of the management committee of each Coso partnership, as applicable. Each person has two votes on each management committee on which he serves:
Management Committee Fees
The members of the management committees are not entitled to any direct compensation from Funding Corp. or the Coso partnerships. However, each Coso partnership previously paid its two general partner's annual management committee fees for their participation on the management committee of that Coso partnership. The following table sets forth, for the years ended December 31, 1998, 1999, 2000 and 2001, the total amount of management committee fees paid or payable by each of the Coso partnerships to its partners:
The Coso partnerships no longer pay management committee fees to their managing partners.
Funding Corp.
As of June 30, 1999, the authorized capital stock of Funding Corp. consisted of 1,000 shares of common stock, par value 1 cent per share, of which 300 shares were outstanding. The outstanding common stock is owned equally by the Coso partnerships.
Coso Partnerships
The directors and executive officers also act in similar capacities on behalf of the managing partner of each Coso partnership and, except for Mr. Ferrucci, on behalf of CAC and Caithness Energy. Several of these directors and executive officers beneficially own the securities of Caithness Corporation, who beneficially owns the majority of membership interests of Caithness Energy.
Part IV
Item 14.
Item 14. Exhibits, Financial Statements Schedules, and Reports on Form 8-K.
(a) Documents filed as part of this report:
Financial Statements and Schedules
(b) Current reports on Form 8-K:
The Coso Partnerships filed current reports on Form 8-K dated December 1, 2001 reporting an amendment to the agreement entered into on June 19, 2001 between Edison and the Coso partnerships that addresses renewable energy pricing and payment issues.
(c) Exhibits:
The exhibits listed on the accompanying Index to Exhibits are filed as part of this Annual Report.
INDEX TO EXHIBITS
Exhibit Number Description of Exhibit ------ ----------------------
3.1 Certificate of Incorporation of Caithness Coso Funding Corp.*
3.2 Bylaws of Caithness Coso Funding Corp.*
3.3 Third Amended and Restated Partnership Agreement of Coso Finance Partners, dated as of May 28, 1999.*
3.4 Third Amended and Restated Partnership Agreement of Coso Energy Developers, dated as of May 28, 1999.*
3.5 Third Amended and Restated Partnership Agreement of Coso Power Developers, dated as of May 28, 1999.*
3.6 Amendment Agreement, dated as of May 28, 1999, by and among Coso Finance Partners, Caithness Acquisition Company, LLC, New CLOC Company, LLC, ESCA, LLC and Coso Operating Company LLC.*
3.7 Amendment Agreement, dated as of May 28, 1999, by and among Coso Energy Developers, Caithness Acquisition Company, LLC, New CHIP Company, LLC, Caithness Coso Holdings, LLC and Coso Operating Company LLC.*
3.8 Amendment Agreement, dated as of May 28, 1999, by and among Coso Power Developers, Caithness Acquisition Company, LLC, New CTC Company, LLC, Caithness Navy II Group, LLC and Coso Operating Company LLC.*
4.1 Indenture, dated as of May 28, 1999, among Caithness Coso Funding Corp., Coso Finance Partners, Coso Energy Developers, Coso Power Developers, and U.S. Bank Trust National Association as trustee and as collateral agent.*
4.3 Notation of Guarantee, dated as of May 28, 1999, of Coso Finance Partners.*
4.4 Notation of Guarantee, dated as of May 28, 1999, of Coso Energy Developers.*
4.5 Notation of Guarantee, dated as of May 28, 1999, of Coso Power Developers.*
4.6 Registration Rights Agreement, dated as of May 28, 1999, by and among Caithness Coso Funding Corp., Coso Finance Partners, Coso Energy Developers, Coso Power Developers, and Donaldson, Lufkin & Jenrette Securities Corporation.*
10.1 Deposit and Disbursement Agreement, dated as of May 28, 1999, among Caithness Coso Funding Corp., Coso Finance Partners, Coso Energy Developers, Coso Power Developers, and U.S. Bank Trust National Association, as collateral agent, as trustee, and as depositary.*
10.2 Credit Agreement, dated as of May 28, 1999, between Caithness Coso Funding Corp. and Coso Finance Partners.*
10.3 Promissory Note due 2001 of Coso Finance Partners in favor of Caithness Coso Funding Corp.*
10.4 Promissory Note due 2009 of Coso Finance Partners in favor of Caithness Coso Funding Corp.*
10.5 Credit Agreement, dated as of May 28, 1999, between Caithness Coso Funding Corp. and Coso Energy Developers.*
10.6 Promissory Note due 2001 of Coso Energy Developers in favor of Caithness Coso Funding Corp.*
10.7 Promissory Note due 2009 of Coso Energy Developers in favor of Caithness Coso Funding Corp.*
10.8 Credit Agreement, dated as of May 28, 1999, between Caithness Coso Funding Corp. and Coso Power Developers.*
10.9 Promissory Note due 2001 of Coso Power Developers in favor of Caithness Coso Funding Corp.*
10.10 Promissory Note due 2009 of Coso Power Developers in favor of Caithness Coso Funding Corp.*
10.11 Purchase Agreement, dated as of May 21, 1999, by and among Caithness Coso Funding Corp., as Issuer, Coso Finance Partners, Coso Energy Developers and Coso Power Developers, as guarantors, and Donaldson, Lufkin & Jenrette Securities Corporation, as initial purchaser.*
10.12 Security Agreement, dated as of May 28, 1999, executed by and among Caithness Coso Funding Corp. in favor of U.S. Bank Trust National Association, as collateral agent.*
10.13 Security Agreement, dated as of May 28, 1999, executed by and among Coso Finance Partners in Favor of U.S. Bank Trust National Association, as collateral agent.*
10.14 Security Agreement, dated as of May 28, 1999, executed by Coso Energy Developers in favor of U.S. Bank Trust National Association, as collateral agent.*
10.15 Security Agreement, dated as of May 28, 1999, executed by Coso Power Developers in favor of U.S. Bank Trust National Association, as collateral agent.*
10.18 Security Agreement (Navy I project permits), dated as of May 28, 1999, executed by Coso Operating Company LLC in favor of U.S. Bank Trust National Association, as collateral agent.*
10.19 Security Agreement (BLM project permits), dated as of May 28, 1999, executed by Coso Operating Company LLC in favor of U.S. Bank Trust National Association, as collateral agent.*
10.20 Security Agreement (Navy II project permits), dated as of May 28, 1999, executed by Coso Operating Company LLC in favor of U.S. Bank Trust National Association, as collateral agent.*
10.24 Deed of Trust, Assignment of Rents, Fixture Filing and Security Agreement, dated as of May 28, 1999, executed by Coso Finance Partners in favor of U.S. Bank Trust National Association, as trustee, and as beneficiary.*
10.25 Deed of Trust, Assignment of Rents, Fixture Filing and Security Agreement, dated as of May 28, 1999, executed by Coso Energy Developers in favor of U.S. Bank Trust National Association, as trustee, and as beneficiary.*
10.26 Deed of Trust, Assignment of Rents, Fixture Filing and Security Agreement, dated as of May 28, 1999, executed by Coso Power Developers in favor of U.S. Bank Trust National Association, as trustee, and as beneficiary.*
10.27 Deed of Trust, Assignment of Rents, Fixture Filing and Security Agreement, dated as of May 28, 1999, executed by Coso Transmission Line Partners in favor of U.S. Bank Trust National Association, as trustee, and as beneficiary.*
10.28 Deed of Trust, Assignment of Rents, Fixture Filing and Security Agreement, dated as of May 28, 1999, executed by China Lake Joint Venture in favor of U.S. Bank Trust National Association, as trustee, and as beneficiary.*
10.29 Deed of Trust, Assignment of Rents, Fixture Filing and Security Agreement, dated as of May 28, 1999, executed by Coso Land Company in favor of U.S. Bank Trust National Association, as trustee, and as beneficiary.*
10.30 Stock Pledge Agreement, dated as of May 28, 1999, by Coso Finance Partners, Coso Energy Developers and Coso Power Developers in favor of U.S. Bank Trust National Association, as Collateral agent.*
10.31 Partnership Interest Pledge Agreement (Navy I), dated as of May 28, 1999, by ESCA, LLC and New CLOC Company, LLC, in favor of U.S. Bank Trust National Association, as collateral agent.*
10.32 Partnership Interest Pledge Agreement (BLM), dated as of May 28, 1999, by Caithness Coso Holdings, LLC and New CHIP Company, LLC, in favor of U.S. Bank Trust National Association, as Collateral agent.*
10.33 Partnership Interest Pledge Agreement (Navy II), dated as of May 28, 1999, by Caithness Navy II Group, LLC and New CTC Company, LLC, in favor of U.S. Bank Trust National Association, as collateral agent.*
10.34 Partnership Interest Pledge Agreement (CTLP), dated as of May 28, 1999, by Coso Energy Developers and Coso Power Developers, in favor of U.S. Bank Trust National Association, as Collateral agent.*
10.35 Partnership Interest Pledge Agreement (CLJV), dated as of May 28, 1999, by Caithness Acquisition Company, LLC and Caithness Geothermal 1980 Ltd., LP, in favor of U.S. Bank Trust National Association, as collateral agent.*
10.36 Partnership Interest Pledge Agreement (CLC), dated as of May 28, 1999, by Caithness Acquisition Company, LLC and Caithness Geothermal 1980 Ltd., LP, in favor of U.S. Bank Trust National Association, as collateral agent.*
10.37 Promissory Notes Security Agreement, dated as of May 28, 1999, by Caithness Coso Funding Corp., in favor of U.S. Bank Trust National Association, as collateral agent.*
10.38 Original Service Contract N62474-79-C-5382, dated December 6, 1979, between U.S. Naval Weapons Center and California Energy Company, Inc., Contractor (the "Navy Contract "), including all Amendments thereto.*
10.39 Escrow Agreement, dated December 16, 1992, as amended, by and among Coso Finance Partners, Bank of America and the Navy.*
10.40 Offer to Lease and Lease for Geothermal Resources, Serial No. 11402, dated April 29, 1985 but Effective May 1, 1985, from the United States of America, acting through the Bureau of Land Management, to California Energy Company, Inc.; as assigned by Assignment Affecting Record Title to Geothermal Resources Lease, dated June 24, 1985, but effective July 1, 1985 from California Energy Company, Inc. to Coso Land Company; as assigned by Assignment of Record Title Interest in a Lease for Oil and Gas or Geothermal Resources, dated April 20, 1988, but effective May 1, 1988 from Coso Land Company to Coso Geothermal Company; as assigned by Assignment of Record Title Interest in a Lease for Oil and Gas or Geothermal Resources dated April 20, 1988 but effective May 1, 1988 from Coso Geothermal Company to Coso Energy Developers.*
10.41 Geothermal Resources Lease, Serial No. CA-11383, by and between the United States of America, acting through the Bureau of Land Management, and the LADWP, effective as of January 1, 1988; as assigned by Lease Assignment Agreement by and between LADWP and Coso Land Company, dated September 10, 1997; as assigned by Assignment of Record Title Interest in Lease for Oil and Gas or Geothermal Resources, by and between the United States of America, acting through the Bureau of Land Management, and Coso Land Company, effective January 1, 1998; and as extended by Extension of primary term of CACA-11383 to September 23, 2004.*
10.42 Geothermal Resources Lease, Serial No. CA-11384, by and between the United States of America, acting through the Bureau of Land Management, and the LADWP, effective as of February 1, 1982; as assigned by Lease Assignment Agreement by and between LADWP and Coso Land Company, dated September 10, 1997; as assigned by Assignment of Record Title Interest in a Lease for Oil and Gas or Geothermal Resources (CACA-11384), by and between the United States of America, acting through the Bureau of Land Management, and Coso Land Company, effective as of January 1, 1998; and as extended by extension of primary term of CACA-11385 to December 24, 2002.*
10.43 Geothermal Resources Lease, Serial No. CA-11385, by and between the United States of America, acting through the Bureau of Land Management, and the LADWP, effective as of February 1, 1982; as assigned by Lease Assignment Agreement by and between LADWP and Coso Land Company, dated September 10, 1997; as assigned by Assignment of Record Title Interest in a Lease for Oil and Gas or Geothermal Resources (CACA-11385) by and between the United States of America, acting Through the Bureau of Land Management, and Coso Land Company, effective as of January 1, 1998; and as extended by extension of primary term of CACA-11385 to December 24, 2002.*
10.44 License for Electric Power Plant Site Utilizing Geothermal Resources between the United States of America, Licensor, through the Bureau of Land Management, and Coso Energy Developers, Licensee, Serial No. CACA 22512, dated March 8, 1989 (expires 3/8/19).*
10.45 License for Electric Power Plant Site Utilizing Geothermal Resources between the United States of America, acting through the Bureau of Land Management, and Coso Energy Developers, Licensee, Serial No. 25690, dated 12/29/1989 (expires 12/28/19).*
10.46 Right of Way CA-18885 by and between the United States of America, acting through the Bureau of Land Management, and California Energy Company, Inc., dated May 7, 1986 (telephone cable)(expires 5/7/16).*
10.47 Right of Way CA-13510 by and between the United States of America, acting through the Bureau of Land Management, and California Energy Company, Inc., dated April 12, 1984 (Coso office site)(expires 4/12/14).*
10.48 Agreement of Transfer and Assignment (Navy I Transmission Line), dated July 14, 1987, among China Lake Joint Venture and Coso Finance Partners.*
10.49 Agreement of Transfer and Assignment (Navy II Transmission Line), dated July 31, 1989, among Coso Power Developers and Coso Transmission Line Partners.*
10.50 Agreement of Transfer and Assignment (BLM Transmission Line), dated July 31, 1989, among Coso Energy Developers and Coso Transmission Line Partners.*
10.51 Agreement Regarding Overriding Royalty (CLC Royalty), dated May 5, 1988, between Coso Energy Developers and Coso Land Company.*
10.52 Coso Geothermal Exchange Agreement, dated January 11, 1994, by and among Coso Finance Partners, Coso Energy Developers, Coso Power Developers, and California Energy Company, Inc.*
10.53 Amendment to Coso Geothermal Exchange Agreement, dated April 12, 1995, by and among Coso Finance Partners, Coso Energy Developers, Coso Power Developers, and California Energy Company, Inc.*
10.55 Operation and Maintenance Agreement (Navy I Project), dated May 28, 1999, by and among FPL Energy Operating Services, Inc. and Coso Operating Company, LLC and New CLOC Company, LLC.*
10.56 Operation and Maintenance Agreement (BLM Project), dated May 28, 1999, by and among FPL Energy Operating Services, Inc. and Coso Operating Company, LLC and New CHIP Company, LLC.*
10.57 Operation and Maintenance Agreement (Navy II Project), dated May 28, 1999, by and among FPL Energy Operating Services, Inc. and Coso Operating Company, LLC and New CTC Company, LLC.*
10.58 Field Operation and Maintenance Agreement (Navy I), dated February 25, 1999, between Coso Operating Company, LLC and New CLOC Company, LLC.*
10.59 Field Operations and Maintenance Agreement (Navy II), dated February 25, 1999, between Coso Operating Company, LLC and New CTC Company, LLC.*
10.60 Field Operations and Maintenance Agreement (BLM), dated February 25, 1999, between Coso Operating Company, LLC and New CHIP Company, LLC.*
10.61 Purchase Agreement, dated as of January 16, 1999, by and among Caithness Energy, L.L.C., Caithness Acquisition Company, LLC, and California Energy Company, Inc.*
10.62 Agreement Concerning Consideration, dated as of February 25, 1999, by and among Caithness Energy, L.L.C., Caithness Acquisition Company, L.L.C., New CLOC Company, LLC, New CHIP Company, LLC, New CTC Company, LLC, and CalEnergy Company, Inc.*
10.63 Future Revenue Agreement, dated February 25, 1999, by and between Caithness Energy, L.L.C., Caithness Acquisition Company, LLC, New CTC Company, LLC, New CLOC Company, LLC, NewCHIP Company, LLC, Coso Finance Partners, Coso Energy Developers, Coso Power Developers, and California Energy Company, Inc.*
10.64 Acknowledgment and Agreement--Release, dated January 16, 1999, executed by Caithness Resources, Inc., Caithness Corporation, Caithness Power, L.L.C., James Bishop Sr., and Caithness CEA Geothermal, LP (appended to Exhibit 10.61).*
10.65 Acknowledgment and Agreement--Indemnity, dated May 28, 1999, executed by Coso Finance Partners, New CLOC Company, LLC, ESCA, LLC, Coso Energy Developers, New CHIP Company, LLC, Caithness Coso Holdings, LLC, Coso Power Developers, New CTC Company, LLC, and Caithness Navy II Group, LLC.*
10.66 Acknowledgment and Agreement--Release, dated May 28, 1999, executed by Coso Finance Partners, New CLOC Company, LLC, ESCA, LLC, Coso Energy Developers, New CHIP Company, LLC, Caithness Coso Holdings, LLC, Coso Power Developers, New CTC Company, LLC, and Caithness Navy II Group, LLC.*
10.67 Acknowledgment and Agreement--Indemnity, dated January 16, 1999, executed by Caithness Resources, Inc., Caithness Corporation, Caithness Power, L.L.C., China Lake Operating Company, Coso Technology Corporation and Coso Hotsprings Intermountain Power (appended to Exhibit 10.61).*
10.68 Power Purchase Agreement (modified Standard Offer No.4) (Navy I), dated as of June 4, 1984, as Amended, by and between Southern California Edison Company and Coso Finance Partners (as assignee of China Lake Joint Venture).*
10.69 Power Purchase Agreement (modified Standard Offer No.4) (BLM), dated as of February 1, 1985, by and between Southern California Edison Company and Coso Energy Developers (as assignee of China Lake Joint Venture).*
10.70 Power Purchase Agreement (modified Standard Offer No.4) (Navy II), dated as of February 1, 1985, by and between Southern California Edison Company and Coso Power Developers (as assignee of China Lake Joint Venture).*
10.72 Interconnection and Integration Facilities Agreement (BLM project), dated December 15, 1988, Between Southern California Edison Company and Coso Energy Developers (as assignee of China Lake Joint Venture).*
10.73 Interconnection and Integration Facilities Agreement (Navy II project), dated December 15, 1988, Between Southern California Edison Company and Coso Power Developers (as assignee of China Lake Joint Venture).*
10.77 Operating Fee Subordination Agreement (Navy I), dated as of May 28, 1999, by and among Coso Operating Company, LLC, and U.S. Bank Trust National Association, as collateral agent.*
10.78 Operating Fee Subordination Agreement (BLM), dated as of May 28, 1999, by and among Coso Operating Company, LLC, and U.S. Bank Trust National Association, as collateral agent.*
10.79 Operating Fee Subordination Agreement (Navy II), dated as of May 28, 1999, by and among Coso Operating Company, LLC, and U.S. Bank Trust National Association, as collateral agent.*
10.80 Management Fee Subordination Agreement (Navy I), dated as of May 28, 1999, by and among ESCA, LLC, New CLOC Company, LLC, Coso Finance Partners, and U.S. Bank Trust National Association, as collateral agent.*
10.81 Management Fee Subordination Agreement (BLM), dated as of May 28, 1999, by and among Caithness Coso Holdings, LLC, New CHIP Company, LLC, Coso Energy Developers, and U.S. Bank Trust National Association, as collateral agent.*
10.82 Management Fee Subordination Agreement (Navy II), dated as of May 28, 1999, by and among Caithness Navy II Group, LLC, New CTC Company, LLC, Coso Power Developers, and U.S. Bank Trust National Association, as collateral agent.*
10.83 Cotenancy Agreement, dated as of May 28, 1999, by and among Coso Finance Partners, Coso Energy Developers, and Coso Power Developers.*
10.84 Acquisition Agreement, dated as of May 28, 1999, among Coso Land Company, Coso Finance Partners, Coso Energy Developers, Coso Power Developers, and Coso Operating Company, LLC.*
10.85 Assignment and Assumption Agreement, dated as of May 28, 1999, by and among MidAmerican Energy Holdings Company as successor-in-interest to Cal Energy Company, Inc., Coso Energy Developers, Coso Power Developers and Coso Finance Partners.*
21.1 Subsidiaries of Caithness Coso Funding Corp., Coso Finance Partners, Coso Energy Developers, and Coso Power Developers.*
23.3 Consent of Sandwell Engineering Inc.*
23.4 Consent of Henwood Energy Services, Inc.*
23.5 Consent of GeothermEx, Inc.*
23.6 Consent of Riordan & McKinzie, A Professional Law Corporation (included in Exhibit 5.1).*
23.7 Consent of Reed Smith Shaw & McClay LLP (included in Exhibit 5.2).*
24.1 Powers of Attorney (included on pages II-9, II-11, II-13 and II-15).*
25.1 Form T-1 Statement of Eligibility and Qualification of U.S. Bank Trust National Association as Trustee.*
27.1 Financial Data Schedule--Form SX--Caithness Coso Funding Corp.
27.2 Financial Data Schedule--Form SX--Coso Finance Partners.
27.3 Financial Data Schedule--Form SX--Coso Energy Developers.
27.4 Financial Data Schedule--Form SX--Coso Power Developers.
99.1 Sale Agreement by and between Caithness Acquisition Company, LLC, and ESI Geothermal, Inc. dated as of October 6, 1999.**
99.2 Assignment, Assumption and Novation Agreement (Coso Finance Partners) by and between FPL Energy Operating Services, Inc. and Coso Operating Company, LLC dated October 18, 1999.**
99.3 Assignment, Assumption and Novation Agreement (Coso Energy Developers) by and between FPL Energy Operating Services, Inc. and Coso Operating Company, LLC dated October 18, 1999.**
99.4 Assignment, Assumption and Novation Agreement (Coso Power Developers) by and between FPL Energy Operating Services, Inc. and Coso Operating Company, LLC dated October 18, 1999.**
* Incorporated herein by reference from the Registration Statement on Form S-4, Registration No. 333-83815 filed with the Securities and Exchange Commission (the SEC) by Coso Funding Corp. on October 7, 1999, as amended.
** Incorporated herein by reference from the Form 8-K on report dated October 18, 1999 for Coso Funding Corp., filed with the SEC.
EXHIBIT 27.1 Form S-X Commercial and Industrial Companies
Financial Data Schedule Worksheet for: CAITHNESS COSO FUNDING CORP. ---------------------------- Review the following list of tags for Article 5 and fill in the correct data in the column(s) provided. Generally, only one column of information will be required, however, two columns are provided if required in the Financial Data Schedule.
Unless otherwise noted, all tags are required. A response is required for each item within the schedule. Use the value "0" (zero) if information is immaterial, inapplicable or unknown. Decimals may not be used to state financial data except as indicated. Values not provided will be entered as "0" (zero). Missing dates will be entered as "TO COME". Please be sure to verify all information in the EDGARized exhibit.
To include a footnote, place a number in parentheses next to the value and provide the text of each corresponding footnote at the end of the worksheet form.
Do you wish to include a LEGEND? This schedule contains summary financial Yes X No information extracted from *_____________ --- --- and_is equalified in its entirety by reference to such financial statements. *Identify the financial statement(s) to be referenced in the legend:
RESTATED
Are your financials being "restated" (NO VALUE REQUIRED) from a previously file period? Yes X No --- --- CIK Use this section only for coregistrant Does this data apply to a coregistrant filings. Yes X No --- --- COREGISTRANT CIK:
NAME Use this section only for coregistrant Does this data apply to a coregistrant filings. Yes X No --- --- COREGISTRANT NAME:
MULTIPLIER Do the financials require a multiplier X 1,000 1,000,000,000 --- ---- other than 1 (one)? X Yes No 1,000,000 1,000,000,000,000 --- --- --- ----
CURRENCY CURRENCY OF FINANCIAL DATA: Is the currency used other than US Dollars? Use in conjunction with EXCHANGE RATE tag. Yes X No --- --- PERIOD TYPE - MOS - MOS -- ---- -- ---- X YEAR X YEAR --- --- (for annual report filings) OTHER OTHER ---- ---- FISCAL YEAR END (example: DEC-31-1997) Dec - 31 - 2000 DEC - 31 - 2001 --------------- --------------- mmm - dd - yyyy mmm - dd - yyyy
PERIOD START (example: JAN-01-1997) Jan - 01 - 2000 JAN - 01 - 2001 --------------- --------------- mmm - dd - yyyy mmm - dd - yyyy
PERIOD END (example: SEP-30-1997) Dec - 31 - 2000 DEC - 31 - 2001 --------------- --------------- mmm - dd - yyyy mmm - dd - yyyy
EXCHANGE RATE EXCHANGE RATE: EXCHANGE RATE:
Is the exchange rate other than 1 (one)? Value may contain up to 5 decimal places) Use in conjunction with CURRENCY tag. Yes X No --- ---
EXHIBIT 27.2 Form S-X Commercial and Industrial Companies
Financial Data Schedule Worksheet for: COSO FINANCE PARTNERS --------------------- Review the following list of tags for Article 5 and fill in the correct data in the column(s) provided. Generally, only one column of information will be required, however, two columns are provided if required in the Financial Data Schedule.
Unless otherwise noted, all tags are required. A response is required for each item within the schedule. Use the value "0" (zero) if information is immaterial, inapplicable or unknown. Decimals may not be used to state financial data except as indicated. Values not provided will be entered as "0" (zero). Missing dates will be entered as "TO COME". Please be sure to verify all information in the EDGARized exhibit.
To include a footnote, place a number in parentheses next to the value and provide the text of each corresponding footnote at the end of the worksheet form.
Do you wish to include a LEGEND? This schedule contains summary financial Yes X No information extracted from *_____________ --- --- and_is equalified in its entirety by reference to such financial statements. *Identify the financial statement(s) to be referenced in the legend:
RESTATED
Are your financials being "restated" (NO VALUE REQUIRED) from a previously file period? Yes X No --- --- CIK Use this section only for coregistrant Does this data apply to a coregistrant filings. Yes X No --- --- COREGISTRANT CIK:
NAME Use this section only for coregistrant Does this data apply to a coregistrant filings. Yes X No --- --- COREGISTRANT NAME:
MULTIPLIER Do the financials require a multiplier X 1,000 1,000,000,000 --- ---- other than 1 (one)? X Yes No 1,000,000 1,000,000,000,000 --- --- --- ----
CURRENCY CURRENCY OF FINANCIAL DATA: Is the currency used other than US Dollars? Use in conjunction with EXCHANGE RATE tag. Yes X No --- --- PERIOD TYPE - MOS - MOS -- ---- -- ---- X YEAR X YEAR --- --- (for annual report filings) OTHER OTHER ---- ---- FISCAL YEAR END (example: DEC-31-1997) Dec - 31 - 2000 DEC - 31 - 2001 --------------- --------------- mmm - dd - yyyy mmm - dd - yyyy
PERIOD START (example: JAN-01-1997) Jan - 01 - 2000 JAN - 01 - 2001 --------------- --------------- mmm - dd - yyyy mmm - dd - yyyy
PERIOD END (example: SEP-30-1997) Dec - 31 - 2000 DEC - 31 - 2001 --------------- --------------- mmm - dd - yyyy mmm - dd - yyyy
EXCHANGE RATE EXCHANGE RATE: EXCHANGE RATE:
Is the exchange rate other than 1 (one)? Value may contain up to 5 decimal places) Use in conjunction with CURRENCY tag. Yes X No --- ---
EXHIBIT 27.3 Form S-X Commercial and Industrial Companies
Financial Data Schedule Worksheet for: COSO ENERGY DEVELOPERS ---------------------- Review the following list of tags for Article 5 and fill in the correct data in the column(s) provided. Generally, only one column of information will be required, however, two columns are provided if required in the Financial Data Schedule.
Unless otherwise noted, all tags are required. A response is required for each item within the schedule. Use the value "0" (zero) if information is immaterial, inapplicable or unknown. Decimals may not be used to state financial data except as indicated. Values not provided will be entered as "0" (zero). Missing dates will be entered as "TO COME". Please be sure to verify all information in the EDGARized exhibit.
To include a footnote, place a number in parentheses next to the value and provide the text of each corresponding footnote at the end of the worksheet form.
Do you wish to include a LEGEND? This schedule contains summary financial Yes X No information extracted from *_____________ --- --- and_is equalified in its entirety by reference to such financial statements. *Identify the financial statement(s) to be referenced in the legend:
RESTATED
Are your financials being "restated" (NO VALUE REQUIRED) from a previously file period? Yes X No --- --- CIK Use this section only for coregistrant Does this data apply to a coregistrant filings. Yes X No --- --- COREGISTRANT CIK:
NAME Use this section only for coregistrant Does this data apply to a coregistrant filings. Yes X No --- --- COREGISTRANT NAME:
MULTIPLIER Do the financials require a multiplier X 1,000 1,000,000,000 --- ---- other than 1 (one)? X Yes No 1,000,000 1,000,000,000,000 --- --- --- ----
CURRENCY CURRENCY OF FINANCIAL DATA: Is the currency used other than US Dollars? Use in conjunction with EXCHANGE RATE tag. Yes X No --- --- PERIOD TYPE - MOS - MOS -- ---- -- ---- X YEAR X YEAR --- --- (for annual report filings) OTHER OTHER ---- ---- FISCAL YEAR END (example: DEC-31-1997) Dec - 31 - 2000 DEC - 31 - 2001 --------------- --------------- mmm - dd - yyyy mmm - dd - yyyy
PERIOD START (example: JAN-01-1997) Jan - 01 - 2000 JAN - 01 - 2001 --------------- --------------- mmm - dd - yyyy mmm - dd - yyyy
PERIOD END (example: SEP-30-1997) Dec - 31 - 2000 DEC - 31 - 2001 --------------- --------------- mmm - dd - yyyy mmm - dd - yyyy
EXCHANGE RATE EXCHANGE RATE: EXCHANGE RATE:
Is the exchange rate other than 1 (one)? Value may contain up to 5 decimal places) Use in conjunction with CURRENCY tag. Yes X No --- ---
EXHIBIT 27.4 Form S-X Commercial and Industrial Companies
Financial Data Schedule Worksheet for: COSO POWER DEVELOPERS --------------------- Review the following list of tags for Article 5 and fill in the correct data in the column(s) provided. Generally, only one column of information will be required, however, two columns are provided if required in the Financial Data Schedule.
Unless otherwise noted, all tags are required. A response is required for each item within the schedule. Use the value "0" (zero) if information is immaterial, inapplicable or unknown. Decimals may not be used to state financial data except as indicated. Values not provided will be entered as "0" (zero). Missing dates will be entered as "TO COME". Please be sure to verify all information in the EDGARized exhibit.
To include a footnote, place a number in parentheses next to the value and provide the text of each corresponding footnote at the end of the worksheet form.
Do you wish to include a LEGEND? This schedule contains summary financial Yes X No information extracted from *_____________ --- --- and_is equalified in its entirety by reference to such financial statements. *Identify the financial statement(s) to be referenced in the legend:
RESTATED
Are your financials being "restated" (NO VALUE REQUIRED) from a previously file period? Yes X No --- --- CIK Use this section only for coregistrant Does this data apply to a coregistrant filings. Yes X No --- --- COREGISTRANT CIK:
NAME Use this section only for coregistrant Does this data apply to a coregistrant filings. Yes X No --- --- COREGISTRANT NAME:
MULTIPLIER Do the financials require a multiplier X 1,000 1,000,000,000 --- ---- other than 1 (one)? X Yes No 1,000,000 1,000,000,000,000 --- --- --- ----
CURRENCY CURRENCY OF FINANCIAL DATA: Is the currency used other than US Dollars? Use in conjunction with EXCHANGE RATE tag. Yes X No --- --- PERIOD TYPE - MOS - MOS -- ---- -- ---- X YEAR X YEAR --- --- (for annual report filings) OTHER OTHER ---- ---- FISCAL YEAR END (example: DEC-31-1997) Dec - 31 - 2000 DEC - 31 - 2001 --------------- --------------- mmm - dd - yyyy mmm - dd - yyyy
PERIOD START (example: JAN-01-1997) Jan - 01 - 2000 JAN - 01 - 2001 --------------- --------------- mmm - dd - yyyy mmm - dd - yyyy
PERIOD END (example: SEP-30-1997) Dec - 31 - 2000 DEC - 31 - 2001 --------------- --------------- mmm - dd - yyyy mmm - dd - yyyy
EXCHANGE RATE EXCHANGE RATE: EXCHANGE RATE:
Is the exchange rate other than 1 (one)? Value may contain up to 5 decimal places) Use in conjunction with CURRENCY tag. Yes X No --- ---
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.
Date: March 14, 2002 CAITHNESS COSO FUNDING CORP., a Delaware corporation
By: /S/ CHRISTOPHER T. MCCALLION ---------------------------- Christopher T. McCallion Executive Vice President & Chief Financial Officer (Principal Financial and Accounting Officer)
COSO FINANCE PARTNERS a California general partnership
By: New CLOC Company, LLC, its Managing General Partner
By: /S/ CHRISTOPHER T. MCCALLION ---------------------------- Christopher T. McCallion Executive Vice President & Chief Financial Officer (Principal Financial and Accounting Officer)
COSO ENERGY DEVELOPERS a California general partnership
By: New CHIP Company, LLC, its Managing General Partner
By: /S/ CHRISTOPHER T. MCCALLION ---------------------------- Christopher T. McCallion Executive Vice President & Chief Financial Officer (Principal Financial and Accounting Officer)
COSO POWER DEVELOPERS a California general partnership
By: New CTC Company, LLC, its Managing General Partner
By: /S/ CHRISTOPHER T. MCCALLION ---------------------------- Christopher T. McCallion Executive Vice President & Chief Financial Officer (Principal Financial and Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.