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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 33-46795
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OLD DOMINION ELECTRIC COOPERATIVE
(Exact name of Registrant as specified in its charter)
VIRGINIA 23-7048405
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
4201 Dominion Boulevard, Glen Allen, Virginia 23060
(Address of principal executive offices) (Zip code)
(804) 747-0592
(Registrant's telephone number, including area code)
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Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes No X
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
State the aggregate market value of the voting and non-voting common
equity held by non-affiliates of the Registrant. NONE
Indicate the number of shares outstanding of each of the Registrant's classes of
Common Stock, as of the latest practicable date. The Registrant is a membership
corporation and has no authorized or outstanding equity securities.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
OLD DOMINION ELECTRIC COOPERATIVE
1997 ANNUAL REPORT ON FORM 10-K
Item Page
Number Number
- ------ -------
PART I
1. Business.................................................................................... 1
2. Properties.................................................................................. 11
3. Legal Proceedings........................................................................... 11
4. Submission of Matters to a Vote of Security Holders......................................... 11
PART II
5. Market for Registrant's Common Equity and Related Stockholder Matters....................... 12
6. Selected Financial Data..................................................................... 12
7. Management's Discussion and Analysis of Financial Condition and Results of Operations....... 14
7A. Quantitative and Qualitative Disclosures About Market Risk.................................. 23
8. Financial Statements and Supplementary Data................................................. 24
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure........ 46
PART III
10. Directors and Executive Officers of the Registrant.......................................... 46
11. Executive Compensation...................................................................... 50
12. Security Ownership of Certain Beneficial Owners and Management.............................. 52
13. Certain Relationships and Related Transactions.............................................. 52
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K............................ 53
Signatures.................................................................................. 60
Exhibit Index............................................................................... 63
PART I
Item 1. Business
OLD DOMINION ELECTRIC COOPERATIVE
GENERAL
Old Dominion Electric Cooperative ("Old Dominion"), which was incorporated
under the laws of the Commonwealth of Virginia in 1948, is a not-for-profit
wholesale power supply cooperative engaged in the business of providing
wholesale electric service to its 12 member distribution cooperatives (the
"Members"). The Members, in turn, are engaged in the retail sale of power to
their consumers located in 70 counties throughout Virginia, Delaware, Maryland,
and parts of West Virginia. As of December 31, 1997, Old Dominion and its
Members served more than 400,000 retail electric consumers (meters) within Old
Dominion's and the Members' service territory, representing a total population
of approximately 1.0 million people. Old Dominion's principal executive offices
are located in the Innsbrook Corporate Center, at 4201 Dominion Boulevard, Glen
Allen, Virginia 23060 (telephone 804-747-0592).
Old Dominion is owned entirely by the Members, which are the purchasers of
the power sold by Old Dominion. The Members, in turn, are local consumer-owned
distribution cooperatives providing electric service on a retail basis. The
membership of each distribution cooperative consists of residential, commercial,
and industrial consumers within an exclusive certificated service territory
granted by the respective state's public utility commission. See "The
Members--Territorial Integrity." The Members purchase substantially all of their
power from Old Dominion pursuant to long-term wholesale power contracts with Old
Dominion (the "Wholesale Power Contracts"). See "Wholesale Power Contracts." Old
Dominion has no legal interest in, or obligation with respect to, any of the
assets, liabilities, equity, revenues or margins of such Members, other than its
rights under such contracts to receive payment for power supplied.
The service territory of Old Dominion and its Members includes primarily
suburban, rural, and recreational areas. The service territory does not have any
significant concentration of power purchases by any single employer or industry,
and predominantly reflects a residential load both in terms of power sales and
number of consumers.
Old Dominion was organized for the purpose of securing adequate sources of
power for the Members at the lowest possible cost. Prior to December 1983, Old
Dominion acted solely as a central negotiating agent for power purchased by the
Members. In December 1983, Old Dominion purchased from Virginia Electric and
Power Company ("Virginia Power") an 11.6% undivided ownership interest in the
North Anna Power Station ("North Anna"), a two-unit 1,790 megawatt ("MW") (net
capacity rating) nuclear power facility located in Louisa County, Virginia,
approximately 60 miles northwest of Richmond, Virginia. With the North Anna
purchase, Old Dominion became an operating utility. See "System Assets--Power
Supply--North Anna."
Old Dominion also holds a 50% undivided interest in the Clover Power
Station ("Clover"), a two-unit 882 MW (net capacity rating) coal-fired electric
generating facility near Clover, Virginia, approximately 100 miles southwest of
Richmond, Virginia. Clover Units 1 and 2 began commercial operation on October
7, 1995, and March 28, 1996, respectively. See "System Assets--Power
Supply--Clover."
Old Dominion also purchases power under agreements with Virginia
Power, Delmarva Power & Light Company ("Delmarva Power"), Public Service
Electric & Gas Company ("PSE&G"), American Electric Power-Virginia ("American
Electric Power"), and Allegheny Power System ("Allegheny Power"). See "System
Assets--Purchased Power."
As a not-for-profit electric cooperative, Old Dominion is currently exempt
from federal income taxation under Section 501(c)(12) of the Internal Revenue
Code of 1986, as amended.
Old Dominion is not a party to any collective bargaining agreement. Old
Dominion had 58 employees as of March 1, 1998, and believes that its relations
with its employees are good.
Wholesale Power Contracts
Old Dominion has entered into a long-term Wholesale Power Contract with
each of its Members. Each such contract provides that Old Dominion shall sell
and deliver to the Member, and the Member shall purchase and receive from Old
Dominion, all power that the Member requires for the operation of the Member's
system to the extent that Old Dominion has the power and facilities available.
The obligations of certain Members are subject to their right to purchase power
allocated to them from the Southeastern Power Administration ("SEPA"). See "The
Members--Contracts with SEPA." Each Wholesale Power Contract provides that if a
Member is required by law to purchase electric power from cogeneration
facilities or other qualifying facilities ("QFs"), Old Dominion may, at its
option, purchase such power from the Member at a rate not to exceed Old
Dominion's avoided cost. See "The Members--Power Purchases under PURPA."
Revenues from the following Members equaled or exceeded 10% of Old
Dominion's total revenues in 1997:
Percentage of
Old Dominion's
Members Revenues Total Revenues
- ------- -------- --------------
(in millions)
Northern Virginia Electric Cooperative....................................... $94.5 26.4%
Rappahannock Electric Cooperative............................................ 77.1 21.5
Delaware Electric Cooperative................................................ 37.2 10.4
For a discussion of concerns raised by Northern Virginia Electric
Cooperative and Rappahannock Electric Cooperative regarding the all-requirements
nature of the Wholesale Power Contracts, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Other Matters."
REGULATION
General
Old Dominion is subject to regulation by the Federal Energy Regulatory
Commission ("FERC"). Certain of Old Dominion's operations are also subject to
regulation by the Virginia Department of Environmental Quality ("DEQ"), the
Department of Energy ("DOE"), the Nuclear Regulatory Commission ("NRC"), and
other federal, state, and local authorities. Compliance with future laws or
regulations may increase Old Dominion's operating and capital costs by
requiring, among other things, changes in the design and operation of its
generation facilities.
The rates and charges made, demanded, or received by Old Dominion for the
transmission and wholesale sale of power in interstate commerce, are regulated
by FERC. Old Dominion's rates and charges for power furnished to its Members are
established by Old Dominion pursuant to a comprehensive rate formula filed with
FERC. The formula provides for periodic adjustments of rates to recover actual
costs without further application to FERC. FERC may also review Old Dominion's
rates upon its own initiative or upon complaints and may order a reduction of
any rates determined to be unjust, unreasonable, or otherwise unlawful and may
order a refund for amounts collected during such proceedings in excess of the
just, reasonable, and lawful rates.
In addition to its jurisdiction over rates, FERC regulates the issuance of
securities and assumption of liabilities by Old Dominion, as well as the
acquisition of securities of other utilities and the disposition of property
other than generating facilities. Under FERC regulations, Old Dominion is also
prohibited from selling, leasing, or otherwise disposing of the whole of its
facilities (other than generating facilities), or any part of such facilities
having a value in excess of $50,000, without FERC approval. Mergers,
consolidations, and the acquisition of the securities of any other public
utility by Old Dominion are also subject to FERC approval.
Since Old Dominion is regulated by FERC, the Virginia State Corporation
Commission ("VSCC") does not have jurisdiction over Old Dominion's rates and
services. The VSCC does, however, have oversight over the siting of Old
Dominion's utility facilities.
On behalf of its Members, Old Dominion has developed and published a
competitive bidding program for use in purchasing electric capacity and energy
from other power suppliers. This program represents a system-wide election to
use a centrally administered competitive bidding process for all Members to
satisfy the requirements of the Public Utility Regulatory Policies Act ("PURPA")
and the rules of the respective state commissions having regulatory authority
over the Members.
Environmental
Old Dominion is currently subject to regulation by the Environmental
Protection Agency and other federal, state, and local authorities with respect
to the emission, discharge, or release of certain materials into the
environment. As with all electric utilities, the operation of Old Dominion's
generating units could be affected by any environmental regulations promulgated
in the future. Capital expenditures and increased operating costs required to
comply with any such future regulations could be significant. Expenditures
necessary to ensure compliance with environmental standards or deadlines will
continue to be reflected in Old Dominion's capital and operating costs.
Old Dominion is subject to certain requirements of the Clean Air Act
("CAA"). The CAA requires utilities owning fossil fuel fired power stations to,
among other things, limit emissions of sulfur dioxide or obtain allowances for
such emissions, or both, and limit emissions of nitrogen oxides. Clover is
designed and licensed to operate at full capacity below the permitted sulfur
dioxide emissions levels and utilizes equipment which operates at a level which
is at or below the limitations for nitrogen oxide emissions.
Old Dominion is also subject to permit limitations for surface water
discharges and for the operation of a combustion waste landfill. Permits
required by the Clean Water Act, the Resource Conservation and Recovery Act, and
state laws have been issued. These permits are subject to reissuance and
continued review.
In connection with Clover, Old Dominion's direct capital expenditures for
environmental control facilities, excluding capitalized interest, were
approximately $.1 million in 1997. Direct capital expenditures for environmental
control facilities at North Anna, excluding capitalized interest, were
approximately $.4 million in 1997. Based on information provided by Virginia
Power, Old Dominion's portion of direct capital expenditures for environmental
control facilities planned for Clover and North Anna in the next five years is
estimated to be approximately $6.2 million and $.1 million, respectively. These
expenditures are included in Old Dominion's estimated capital expenditures for
the years 1998 through 2002. See Item 7. "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources."
The scientific community, regulatory agencies, and the electric utility
industry are examining the issues of global warming and acidic deposition, and
the possible health effects of electric and magnetic fields. While no definitive
scientific conclusions have been reached regarding these issues, it is possible
that new regulations pertaining to these matters could further increase the
capital and operating costs of electric utilities.
Old Dominion and its Members have entered into an agreement with the DOE to
participate in the voluntary Climate Challenge Program under the United States
Climate Challenge Action Plan. This voluntary program tracks reductions in
carbon dioxide emissions from efficiency programs. A report was submitted to the
DOE on December 14, 1996, summarizing various carbon dioxide reductions as a
result of efficiency programs and distribution system upgrades.
Nuclear
North Anna is subject to regulation by the NRC. Operating licenses issued
by the NRC are subject to revocation, suspension, or modification, and the
operation of a nuclear unit may be suspended if the NRC determines that the
public interest, health, or safety so requires. From time to time, new NRC
regulations require changes in the design, operation, and maintenance of
existing nuclear reactors. Virginia Power has advised Old Dominion that it
intends to work with industry groups on license renewal programs, and apply for
renewal of the current 40-year licenses for Units 1 and 2, which expire in 2018
and 2020, respectively. See Notes 1 and 12 to the Consolidated Financial
Statements for a discussion of other laws and regulations affecting Old Dominion
as a result of its ownership interest in North Anna.
Under the Nuclear Waste Policy Act ("NWPA"), the DOE is required to provide
for the permanent disposal of spent nuclear fuel produced by North Anna;
however, it is uncertain when these services will begin. Virginia Power
estimates that an interim spent nuclear fuel storage facility will be required
at North Anna in 1998 and submitted a license application to the NRC in May 1995
for such a facility at North Anna. Virginia Power anticipates that this
application will be approved in mid-1998. The VSCC began an investigation of
certain spent fuel storage and disposal issues on July 18, 1995. The VSCC
directed its staff to file a report setting forth its findings, recommendations,
and proposed policy statements regarding spent nuclear fuel disposal. On
February 27, 1996, the VSCC staff issued its report suggesting a definitive
policy be delayed until (1) a ruling is forthcoming on pending litigation which
seeks to impose on the federal government the obligation to begin acceptance of
spent nuclear fuel no later than January 31, 1998, (2) the outcome of proposed
legislation, which would amend the NWPA to require the development of a
centralized interim storage facility, has been determined, and (3) a vision of
the electric utility industry restructuring efforts has been more fully
conceptualized.
On January 31, 1997, Virginia Power joined 35 other electric utilities in
filing a petition in the United States Court of Appeals for the District of
Columbia, seeking to enforce the obligations of the DOE to begin accepting the
utilities' spent nuclear fuel for disposal by January 31, 1998, the date imposed
by the NWPA. Additional utilities have joined since the original filing. On
November 14, 1997, the Court issued an Order finding that the DOE's obligation
to begin accepting spent nuclear fuel by the deadline is unconditional, and that
the DOE may not excuse its delay on the grounds that it has not prepared a
permanent repository or interim storage facility. The Court found that the DOE's
spent fuel disposal contracts with the utilities offer a potentially adequate
remedy for the DOE's failure to meet its obligation. A petition for rehearing
was filed by the DOE on December 29, 1997.
COMPETITION
The electric utility industry is becoming increasingly competitive as a
result of deregulation, competing energy suppliers, new technology, and other
factors. The Energy Policy Act of 1992 amended the Federal Power Act and the
Public Utilities Holding Company Act to allow for increased competition among
wholesale electricity suppliers and increased access to transmission services by
such suppliers. A number of other significant factors have affected the
operations of electric utilities, including the availability and cost of fuel
for the generation of electric energy; the use of alternative fuel sources for
space and water heating and household appliances; fluctuating rates of load
growth; compliance with environmental and other governmental regulations;
licensing and other delays affecting the construction, operation, and cost of
new and existing facilities; and the effects of conservation, energy management,
and other governmental regulations on the use of electric energy. All these
factors present an increasing challenge to companies in the electric utility
industry, including Old Dominion and its Members, to reduce costs, increase
efficiency and innovation, and improve management of resources.
In an effort to achieve an orderly transition of the industry to a
competitive wholesale power market, FERC issued its final rules (Orders 888 and
889) providing for comparable transmission service for all users of the
transmission system. Such rules, which were issued on April 24, 1996, are
intended to promote wholesale competition through open access,
non-discriminatory transmission service and will become the catalyst for moving
the industry into a competitive marketplace. On March 4, 1997, FERC issued
Orders 888-A and 889-A reaffirming its basic determinations and clarifying
certain terms in Orders 888 and 889. On November 25, 1997, FERC issued Orders
888-B and 889-B which basically deny all requests for a rehearing regarding
Orders 888-A and 889-A.
The 1998 Session of the Virginia General Assembly passed a resolution
continuing its study of the effects on the Commonwealth of electric utility
industry restructuring. In addition, legislation was passed which sets a minimum
framework for the shape of restructuring. Such minimum framework includes: (1)
efforts to establish one or more regional power exchanges and independent system
operators by January 1, 2001; (2) a transition to retail competition and
deregulation of generation, transmission, and electric sales over a two-year
period beginning January 1, 2002; and (3) recovery of just and reasonable net
stranded costs. Old Dominion anticipates that the subcommittee established under
the resolution will propose comprehensive restructuring to begin in 2002 and be
completed by 2004.
On December 3, 1997, the Maryland Public Service Commission (the "Maryland
Commission") issued Order No. 73834 to commence a three-year phase-in of retail
competition beginning April 1999. The order identified many issues that must be
resolved in order to accomplish a comprehensive and orderly restructuring of the
retail electric industry in Maryland. As a result, over 20 roundtable committees
were created to resolve issues related to the implementation of customer choice.
However, in December 1997, the Maryland Commission delayed the implementation
date by 15 months.
On July 7, 1997, the Delaware General Assembly passed a resolution
directing the Delaware Public Service Commission (the "Delaware Commission") to
provide a report on restructuring the electric utility industry. After
initiating a docket to seek input, the Delaware Commission developed its report,
which it sent to the General Assembly on January 27, 1998. The report calls for
a 12-month period, after the legislation is passed, to deregulate the industry,
unbundle retail rates, set stranded cost recovery, and develop the guidelines
for competition and consumer education. Unlike all other states that have passed
restructuring legislation, there is no stated transition period for retail
customers. At the end of the 12-month period, all customers would be able to
choose a power supplier from competing generation suppliers. If legislation were
to pass by the end of the 1998 General Assembly session, competition would
commence before June 1, 1999. While the report considered and rejected mandatory
divestiture of generation by distribution utilities, it recommends that the
Delaware Commission be empowered to conduct a competitive bidding process to
determine the default supplier. This would occur only after such time as the
Delaware Commission has determined that the generation market is sufficiently
competitive. The default supplier provides service to those who cannot secure
lower priced electricity from the market or fail to make a decision to switch
suppliers from the existing electric utility. Delaware Electric Cooperative, one
of Old Dominion's 12 member distribution cooperatives, initially will be
required to serve as default supplier in its service territory through the
transition period and will continue to perform its regulated distribution
function during and after the transition to retail competition.
CONSERVATION AND LOAD MANAGEMENT
Energy Services
Old Dominion seeks to encourage and promote, through its Members and their
consumers, effective load reduction and energy efficiency programs. Load
management programs, combined with interruptible customers, provide Old Dominion
the peak load reduction capability of approximately 200 MW. Other programs
encourage the construction of efficient and affordable housing and the purchase
of energy efficient heating, ventilation, and air conditioning equipment. Member
cooperatives also support energy efficiency efforts by providing energy audits
and educational materials.
Seasonal Variations
Old Dominion's system is geographically divided into two separate and
distinctive power supply area systems --the mainland Virginia area system and
the Delmarva peninsula system. The two systems have similar customer usage
characteristics and distribution of sales by consumer classification.
Historically, the mainland Virginia area system's peak electric demand is in the
winter months, while the Delmarva peninsula system's peak electric demand is in
the summer months. While there is little variance between its summer and winter
peak electric demands, Old Dominion, representing both areas, typically has
experienced a slightly higher peak demand for power in the winter months. This
peak is due to the winter heating load, which reflects the large residential
component of Old Dominion's total load. The mainland Virginia area represented
80.3% of Old Dominion's 1997 peak demand.
THE MEMBERS
Territorial Integrity
The service territory of Old Dominion's Members ranges from the suburban
Washington D.C. area in northern Virginia to the Atlantic shore of Delaware, the
Appalachian Mountains, and the North Carolina border. Pursuant to statutes in
Virginia and Delaware and an order of the Maryland Commission, each of the
Members operating in those states has been granted an exclusive service
territory, certificated by its respective state commission. Generally, a
Member's certificated service territory cannot be changed, nor can customers in
such territories change electric suppliers, unless the applicable state
commission determines that the service provided by the certificated Member is
inadequate. For a discussion of recent legislative and regulatory actions, which
may eliminate these certificated service territories, see "Competition."
Subject to statutory limitations, a municipality operating an electric
system can expand into a Member's service territory by annexing a portion
thereof. The small number of municipally-owned electric systems in close
proximity to the Members' service territories and the statutory limitations on
annexation limit the threat to Old Dominion's Members. Moreover, Old Dominion's
Members would be entitled to compensation in the event any of their territory
was annexed. Virginia currently has a statutory moratorium on non-consensual
annexation by a city, which is scheduled to expire on July 1, 2000.
Contracts with SEPA
In addition to power purchased from Old Dominion under their Wholesale
Power Contracts, certain Members receive a power allocation from SEPA. The total
SEPA allocation to such Members is 76 MW plus associated energy, representing
approximately 5.6% of total Member peak demand and approximately 2.5% of total
Member energy requirements in 1997. Such Members' contracts with SEPA were
renewed in 1996. Each Member that purchases power from SEPA receives its
allotment directly from SEPA and pays SEPA directly for such power.
Power Purchases under PURPA
In addition to purchases from Old Dominion and SEPA, the Members are also
required to purchase power from QFs under PURPA. Purchases of power generated by
QFs constituted .1% of Old Dominion's energy requirements in 1997. In accordance
with FERC regulations, purchases from QFs must be made at avoided costs.
Although the Members are required to purchase power from QFs, such power is
currently being resold to Old Dominion at a rate not to exceed Old Dominion's
avoided costs. The costs are blended into Old Dominion's overall rates charged
to all Members. Under the Wholesale Power Contracts, Old Dominion may, at its
option, but is not obligated to, purchase this power. No determination has been
made as to whether the current arrangement will apply to power that Members may
be required to purchase from QFs in the future.
Cooperative Structure
Old Dominion is a membership corporation, and the Members are not
subsidiaries of Old Dominion. The Members operate their independent systems on a
not-for-profit basis. Accumulated margins remaining after payment of expenses
and provision for depreciation constitute patronage capital of the Members'
consumers. Refunds of accumulated patronage capital to the individual consumers
are made from time to time on a patronage basis subject to Member policies and
in conformity with limitations contained in the Members' Rural Utilities
Services mortgages.
SYSTEM ASSETS
Power Supply
North Anna. Old Dominion has an 11.6% undivided ownership interest in North
Anna, including nuclear fuel and common facilities at the power station, and a
portion of spare parts inventory and other support facilities. This undivided
ownership interest was acquired in 1983, more than five years after the
commencement of commercial operation of Unit 1 (June 1978) and more than three
years after the commencement of commercial operation of Unit 2 (December 1980).
Old Dominion is responsible for 11.6% of all post-acquisition date additions and
operating costs associated with North Anna, as well as a pro-rata portion of
Virginia Power's administrative and general expenses directly attributable to
North Anna, and must provide its own financing for these items. In addition, Old
Dominion separately provides for its portion of the decommissioning costs of
North Anna; see Note 1 to the Consolidated Financial Statements.
Like other nuclear plants, North Anna is subject to unanticipated or
extended outages for repairs, replacements, or modifications of equipment or to
comply with regulatory requirements. Such outages may involve significant
expenditures not previously budgeted, including replacement energy costs. Stress
corrosion cracking has occurred in steam generators of a certain design,
including those on North Anna Units 1 and 2. Accordingly, the steam generators
on Unit 1 were replaced in 1993 and the steam generators on Unit 2 were replaced
in 1995. During the year ended December 31, 1997, Unit 2 incurred a one day
unscheduled maintenance outage. There were no unscheduled maintenance outages on
Unit 1.
During 1997, North Anna provided approximately 22.0% of the energy
requirements of Old Dominion. For statistics regarding North Anna's
performance for the three year period ended December 31, 1997, see Item 7.
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Operating Expenses."
Clover. Units 1 and 2 of Clover, a joint project between Old Dominion and
Virginia Power in which each owns a 50% undivided interest, began commercial
operations on October 7, 1995, and March 28, 1996, respectively. Old Dominion
has entered into a sale and lease-back of its undivided interest in certain
pollution control assets at Clover and separate leases and lease-backs of its
undivided interest in each unit and related common facilities, including the
pollution control assets. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources." Old
Dominion is responsible for 50% of all post-construction additions and operating
costs associated with Clover, as well as a pro-rata portion of Virginia Power's
administrative and general expenses for Clover, and must provide its own
financing for these items.
During 1997, Clover provided approximately 30.2% of the energy
requirements of Old Dominion. For statistics regarding Clover's performance
for the year ended December 31, 1997, see Item 7. "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Operating
Expenses."
Purchased Power
In 1997, Old Dominion purchased approximately 47.8% of its total energy
requirements pursuant to agreements with five suppliers: Virginia Power, PSE&G,
Delmarva Power, American Electric Power, and Allegheny Power. These purchases
are system purchases that do not depend on the performance of any single unit in
a seller's system. Generally, under these arrangements, Old Dominion's purchases
expand and contract to fill the incremental requirements of the Members over
that provided by Old Dominion's owned generation, thereby minimizing any risk of
excess generating resources.
Virginia Power. Under the terms of the Interconnection and Operating
Agreement with Virginia Power ("I&O Agreement"), Old Dominion agreed to purchase
from Virginia Power reserve power for North Anna and its entire monthly
requirements for supplemental power to meet the needs of its Virginia Members
(except A&N Electric Cooperative) not met from Old Dominion's portion of North
Anna and Clover generation. Old Dominion's obligations to purchase supplemental
power may be reduced by any amount with nine years notice or through the
construction of jointly owned facilities or by 4% each year if notice is given
three months prior to year-end. Amendment No. 1 to the I&O Agreement (the
"Amendment") allows Old Dominion to accumulate its 4% per year reduction for the
life of the I&O Agreement. Under the terms of the Amendment, for the first four
years Old Dominion will purchase the 4% per year reduction from Virginia Power.
The Amendment has an effective date coincident with commercial operation of
Clover Unit 2 and expires in eight years.
On July 29, 1997, Old Dominion and Virginia Power signed an amended and
restated I&O Agreement. Under the terms of the amended I&O Agreement with
Virginia Power, Old Dominion will continue, through 2001, to purchase from
Virginia Power, at declining rates, all its monthly requirements for
supplemental demand to meet the needs of its Virginia Members (except A&N
Electric Cooperative) not met from Old Dominion's portion of North Anna and
Clover generation. Old Dominion will purchase its reserve capacity requirements
for North Anna and Clover from Virginia Power for the term of the amended I&O
Agreement, which expires on the earlier of the date on which all facilities at
North Anna have been retired or decommissioned and the date upon which Old
Dominion's interest in North Anna is reduced to zero. Old Dominion also has the
right to displace up to two-thirds of its supplemental energy requirements in
1998 and all its energy requirements in 1999. By 2002, purchases from Virginia
Power are to be at market prices. The amended I&O Agreement extends through 2005
unless either party exercises specific notice provisions in the agreement prior
to that time. If such notice provisions are exercised, purchases may be reduced
as early as 2002.
Additionally, under the terms of the amended I&O Agreement, services to Old
Dominion have been unbundled and terms for the provision of transmission and
ancillary services have been removed. These services will be provided pursuant
to Virginia Power's open access transmission tariff. Specific terms are provided
in a Service Agreement for Network Integration Transmission Service and a
Network Operating Agreement between Virginia Power and Old Dominion, both of
which also were executed on July 29, 1997.
The amended I&O Agreement and related transmission service agreements were
submitted to FERC on October 31, 1997. On December 22, 1997, FERC issued a
deficiency letter calling for additional cost support information and requiring
modification to move certain transmission terms over to the transmission
agreements. Old Dominion and Virginia Power made the required changes and
Virginia Power submitted the additional information and changes to FERC on
January 1, 1998. The amended I&O Agreement and related transmission agreements
were approved by FERC on March 11, 1998, retroactively effective to January 1,
1998.
Virginia Power supplied approximately 25.4% of Old Dominion's total energy
requirements in 1997.
PSE&G. Old Dominion has an agreement with PSE&G (the "PSE&G Agreement") to
purchase 150 MW of capacity, consisting of 75 MW intermediate and/or peaking
capacity and 75 MW base load capacity, and associated energy, through 2005. The
PSE&G Agreement contains fixed capacity charges for the base, intermediate, and
peaking capacity to be provided under the agreement. However, either party can
(within certain limits) apply to FERC to recover changes in certain costs of
providing services. In the event of a change in rate, the party adversely
affected may terminate the PSE&G Agreement, with one-year notice. Old Dominion
may purchase the energy associated with the PSE&G capacity from PSE&G or other
power suppliers. If purchased from PSE&G, the energy cost is based on PSE&G's
incremental cost above its native load, taking into account the Pennsylvania-New
Jersey-Maryland Interconnection economy energy transactions. If purchased from
other power suppliers, Old Dominion would pay the negotiated energy rate. Old
Dominion is presently purchasing the energy requirements from the short-term
markets.
In October 1997, Old Dominion filed with FERC a section 206 complaint
against PSE&G. Old Dominion believes its contract with PSE&G should be modified
to conform with the Pennsylvania-New Jersey-Maryland Interconnection
restructuring.
Approximately 13.8% of Old Dominion's total energy requirements in
1997 was supplied under the PSE&G Agreement.
Delmarva Power. Old Dominion has a partial requirements agreement with
Delmarva Power which obligates Delmarva Power to provide the balance of Old
Dominion's power requirements for A&N Electric Cooperative, Choptank Electric
Cooperative, and Delaware Electric Cooperative in excess of 150 MW purchased
from PSE&G or, within certain limits, any other capacity secured by Old Dominion
with proper notice to Delmarva Power. For the first five years of the agreement,
charges for service are based on a rate formula. The agreement continues through
2004 with automatic extensions for one-year periods unless either party gives
five years notice, or Old Dominion exercises it option to reduce its load by up
to 30% with two years notice or more than 30% with five years notice.
In August 1996, Old Dominion exercised its option under the partial
requirements agreement with Delmarva Power to reduce its power purchases by 30%
beginning in 1998. The notice was given based on a review of the wholesale power
bids that Old Dominion received in response to its request for proposals for
power purchase contracts. A joint venture contract with Conectiv and
Pennsylvania Power & Light to cover power purchases beginning September 1998 and
extending through December 2001 has been approved by FERC. In addition to its
notice to reduce power purchases by 30%, Old Dominion has given Delmarva Power
the required five years notice to terminate all purchases under the partial
requirements agreement by 2001.
Delmarva Power supplied approximately 6.3% of Old Dominion's total energy
requirements in 1997.
American Electric Power. Old Dominion purchases power from American
Electric Power pursuant to two agreements, which each expire in 2001. Combined,
the agreements allow for purchases of up to 100 MW a year. A third agreement,
which became effective April 1, 1996, provides for purchases of an additional
eight MW. Charges for power are assessed according to American Electric Power's
wholesale rate tariff filed with FERC.
American Electric Power supplied approximately 1.4% of Old Dominion's total
energy requirements in 1997.
Allegheny Power. Old Dominion entered into a five year fixed price contract
with Allegheny Power beginning January 1997. Transmission service is supplied
under Allegheny Power's open access transmission tariff.
Allegheny Power supplied approximately 0.9% of Old Dominion's total energy
requirements in 1997.
Transmission
Virginia Power System. Under the operating agreements for both North Anna
and Clover, Virginia Power has agreed to make available to Old Dominion its
transmission and distribution systems, as needed, to transmit Old Dominion's
power from North Anna and Clover, as well as power purchased from other
suppliers, to the Members' delivery points. Under the amended and restated I&O
Agreement, all transmission services will be supplied under Virginia Power's
open access transmission tariff. Terms for transmission and related services are
described in the Service Agreement for Network Integration Transmission Service
and the Network Operating Agreement between Old Dominion and Virginia Power.
In December 1996, FERC approved Virginia Power's rate schedule, entitled
Clover Transmission Interconnection Facilities Charges. The rate schedule sets
forth the terms and conditions under which Old Dominion will compensate Virginia
Power for 50% of the cost of the transmission facilities required to
interconnect Clover to the Virginia Power electric system. Those facilities
include two new 230 kV transmission lines, a new 500 kV transmission line
between Clover and the Carson substation, and related facilities.
Delmarva Power System. The power purchase contract with Delmarva Power
provides that Delmarva Power will transmit power to delivery points in the
service territories of A&N Electric Cooperative, Choptank Electric Cooperative,
and Delaware Electric Cooperative. Delmarva Power and Old Dominion currently
have a tariff and a settlement agreement filed with FERC concerning power
transmission. The power delivered under the contract with PSE&G is transmitted
by Delmarva Power under the terms of a transmission service agreement dated
October 31, 1994.
Other Transmission Systems. Allegheny Power, in its power sales contract
with Old Dominion, has agreed to transmit power pursuant to Allegheny Power's
open-access transmission tariff. In addition, the power purchase contracts
between American Electric Power and Old Dominion require American Electric Power
to transmit power to three delivery points in the service territory of Southside
Electric Cooperative.
Fuel Supply
Nuclear Fuel. Under the Purchase, Construction and Ownership Agreement, the
I&O Agreement, and the Nuclear Fuel Agreement between Old Dominion and Virginia
Power, each dated as of December 28, 1982, amended and restated October 17,
1983, Virginia Power has the authority and responsibility to procure nuclear
fuel for North Anna. Virginia Power employs both spot purchases and long-term
contracts to satisfy nuclear fuel requirements. The nuclear fuel supply and
related services are expected to be adequate to satisfy current and future
nuclear generation requirements. Virginia Power reports that current agreements,
inventories, and market conditions will support current and planned fuel cycles
throughout the remainder of the 1990s and into the early 2000s. Beyond that
period additional fuel will be purchased as needed.
Coal Supply. Under the Clover Operating Agreement between Old Dominion and
Virginia Power, dated as of May 31, 1990, Virginia Power has the authority and
responsibility to procure coal for Clover. As with nuclear fuel, Virginia Power
employs both spot purchases and long-term contracts to support its needs for
coal. Virginia Power anticipates that sufficient coal supplies at reasonable
prices will be available for the remainder of the 1990s.
Item 2. Properties
Information with respect to Old Dominion's properties is set forth under
the caption "System Assets" included in Item 1 and is incorporated herein by
reference.
Item 3. Legal Proceedings
Other than certain legal proceedings arising out of the ordinary course of
business, which management believes will not have a material adverse impact on
the results of operations or financial condition of Old Dominion, there is no
other litigation pending or threatened against Old Dominion. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--Other
Matters" for a discussion of certain disputes relating to Old Dominion's
interest in Seacoast, Inc.
Item 4. Submission of Matters to a Vote of Security Holders
None
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Not Applicable
Item 6. Selected Financial Data
The following table presents selected historical information relating to the
financial condition and results of operations of Old Dominion over the past five
years:
Year Ended December 31,
------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(in thousands, except ratios)
Statement of Operations Data:
Operating Revenues................................... $358,505 $366,909 $357,322 $336,541 $332,827
-------- -------- -------- ------- --------
Operating Expenses:
Operation:
Purchased power.................................. 163,726 182,854 234,295 233,916 238,532
Fuel and other................................... 61,979 59,758 29,175 12,165 11,740
-------- -------- -------- ------- --------
225,705 242,612 263,470 246,081 250,272
Maintenance........................................ 7,981 9,045 5,907 6,523 8,386
Administrative and general......................... 16,355 15,325 15,159 13,628 12,061
Depreciation and amortization...................... 31,488 26,724 11,989 8,868 8,937
Amortization of lease gains........................ (2,756) (1,596) - - -
Decommissioning cost............................... 681 681 681 681 681
Taxes other than income taxes...................... 6,715 6,338 4,106 3,943 3,562
-------- -------- -------- ------- --------
Total Operating Expenses............................. 286,169 299,129 301,312 279,724 283,899
-------- -------- -------- ------- --------
Operating Margin..................................... 72,336 67,780 56,010 56,817 48,928
-------- -------- -------- ------- --------
Other Income (Expense), net.......................... 528 (4,848) - - -
-------- -------- -------- ------- --------
Investment Income.................................... 3,532 6,475 8,330 4,724 2,211
-------- -------- -------- ------- --------
Interest Charges:
Interest on long-term debt, net.................... 63,742 60,865 64,748 64,601 57,569
Other.............................................. 247 328 221 230 321
Allowance for borrowed funds used
during construction.............................. (392) (4,026) (34,657) (40,984) (35,967)
-------- -------- -------- ------- --------
Net Interest Charges............................... 63,597 57,167 30,312 23,847 21,923
-------- -------- -------- ------- --------
Net Margin........................................... $ 12,799 $ 12,240 $ 34,028 $ 37,694 $ 29,216
======== ======== ======== ======= ========
Margins for Interest Ratio(1)........................ 1.20 1.20 1.53 1.59 1.51
- -------------------
(1) Under the Indenture (as hereinafter defined), Old Dominion is required,
subject to regulatory approval, to establish and collect rates which are
reasonably expected to yield Margins for Interest ("MFI") for the 12-month
period commencing with the effective date of such rates equal to at least
1.20 times total interest charges during such 12-month period on all
indebtedness secured under the Indenture or by a lien equal or prior to the
lien of the Indenture (the "MFI Ratio"). The MFI Ratio is determined by
dividing Old Dominion's MFI by its Interest Charges (as hereinafter
defined) where: MFI is defined as the sum of (i) net margins for the
period, plus (ii) Interest Charges and accruals for Federal and other taxes
imposed on income, minus (iii) the amount, if any, by which certain
non-operating margins otherwise includable in net margins exceed 60% of
such net margins. Interest Charges are defined as the total interest
charges (whether capitalized or expensed) of Old Dominion on all
indebtedness secured under the Indenture or by a lien equal or prior to the
lien of the Indenture, including amortization of debt discount and expense
or premium. The MFI Ratio decreased from 1995 to 1996 primarily due to the
discontinuance of the Equity Development Plan (as hereinafter defined) as
of December 31, 1995.
December 31,
---------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- -----
(in thousands, except ratios)
Balance Sheet Data:
Electric Plant:
In service, net.................................... $ 798,383 $ 824,455 $ 552,784 $ 206,202 $ 210,393
Construction work in progress...................... 12,701 11,106 269,554 551,042 438,283
---------- ---------- ---------- ---------- ----------
Net Electric Plant................................. 811,084 835,561 822,338 757,244 648,676
Other Assets......................................... 318,828 320,785 256,608 316,657 422,122
---------- ---------- ---------- ---------- ----------
Total Assets......................................... $1,129,912 $1,156,346 $1,078,946 $1,073,901 $1,070,798
========== ========== ========== ========== ==========
Capitalization:
Patronage capital (1).............................. $ 197,552 $ 184,753 $ 172,513 $ 138,485 $ 100,791
Long-term debt..................................... 605,878 664,490 738,974 793,070 861,702
---------- ---------- ---------- ---------- ----------
Total capitalization............................... $ 803,430 $ 849,243 $ 911,487 $ 931,555 $ 962,493
========== ========== ========== ========== ==========
Equity Ratio(2)...................................... 24.6% 21.8% 18.9% 14.9% 10.5%
==== ==== ==== ==== ====
- -------------------
(1) Since its incorporation, Old Dominion has not distributed patronage capital
to its Members; however, in December 1997, Old Dominion's Board of Directors
approved the retirement of $3.1 million of patronage capital.
(2) Equity ratio equals patronage capital divided by total capitalization. The
equity ratio increased from 1996 to 1997 due to the purchase of $32.0
million of debt, $16.9 of debt service payments, and the addition of $12.8
million of equity. The equity ratio increased from 1995 to 1996 due to the
purchase of $83.1 million of debt, $18.4 million of debt service payments,
and the addition of $12.2 million of equity.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
Old Dominion operates on a not-for-profit basis and, accordingly, seeks
only to generate revenues sufficient to recover its cost of service and to
generate margins sufficient to establish reasonable reserves and meet financial
coverage requirements. Revenues in excess of expenses in any year are designated
as net margins in Old Dominion's Consolidated Statements of Revenues, Expenses
and Patronage Capital. Retained net margins are designated in Old Dominion's
Consolidated Statements of Revenues, Expenses and Patronage Capital and
Consolidated Balance Sheets as patronage capital, which is assigned to each
Member on the basis of patronage. Patronage capital currently constitutes all of
Old Dominion's equity. Since its incorporation, Old Dominion has not distributed
patronage capital to its Members. Any distributions are subject to the
discretion of the Board of Directors of Old Dominion and to certain restrictions
contained in the Indenture of Mortgage and Deed of Trust, dated as of May 1,
1992, between Old Dominion and Crestar Bank, as trustee, (as supplemented by
five supplemental indentures thereto, hereinafter collectively referred to as
the "Indenture"). In December 1997, Old Dominion's Board of Directors approved
the retirement of approximately $3.1 million of patronage capital, which was
disbursed in February 1998.
Under a rate formula accepted for filing by the Federal Energy Regulatory
Commission ("FERC") in 1992, the rates charged by Old Dominion are developed
using a rate methodology under which all categories of costs are specifically
separated as components of the formula to determine Old Dominion's revenue
requirements. The rate methodology uses traditional techniques to allocate costs
to capacity and energy in establishing rates to the Members. The formula is
intended to permit collection of revenues which, together with revenues from all
other sources, are equal to all costs and expenses recorded on Old Dominion's
books, plus an additional 20% of total interest charges, plus additional equity
contributions as approved by Old Dominion's Board of Directors. It also provides
for the periodic adjustment of rates to recover actual prudently incurred costs,
whether they increase or decrease, without further application to and acceptance
by FERC.
In order to minimize power costs to Members and provide for uncertainties
connected with the establishment of prospective rates, Old Dominion's Board of
Directors established a plan (the "Margin Stabilization Plan") in 1984 which
allows Old Dominion to review its actual cost of service and power sales as of
year-end and adjust revenues from the Members to take into account actual
results and financial coverage. Old Dominion's FERC rate formula allows Old
Dominion to recover and refund amounts under the Margin Stabilization Plan. All
adjustments, whether increases or decreases, are recorded in the year affected
and allocated to Members based on power sales during that year. Such increases
or decreases are collected from Members, or offset against amounts owed by the
Members, in the succeeding year.
Under the Indenture, Old Dominion is required, subject to regulatory
approval, to establish and collect rates which are reasonably expected to yield
Margins for Interest ("MFI") for the 12-month period commencing with the
effective date of such rates equal to at least 1.20 times total interest charges
during such 12-month period on all indebtedness secured under the Indenture or
by a lien equal or prior to the lien of the Indenture (the "MFI Ratio"). The
Indenture limits the amount of certain non-operating margins that may be taken
into account in calculating MFI to 60% of net margins. Since 1984, Old
Dominion's first full year as an operating utility, Old Dominion's non-operating
margins have not equaled or exceeded 60% of net margins. The management of Old
Dominion does not anticipate that such non-operating margins will equal or
exceed 60% of net margins in the foreseeable future. The management of Old
Dominion also believes that the rate formula described above and the rates and
charges established under the Wholesale Power Contracts will enable Old Dominion
to achieve such MFI.
Old Dominion achieved an MFI Ratio of 1.20 in 1997, 1.20 in 1996, and 1.53
in 1995. The MFI Ratio decreased from 1995 to 1996 due to the discontinuance of
the Equity Development Plan (as hereinafter defined) as of December 31, 1995.
Under the Margin Stabilization Plan, Old Dominion reduced revenues and
related receivables from Members for 1997, 1996, and 1995 power sales in the
amount of $8.0 million, $3.5 million, and $3.5 million, respectively.
Results of Operations
Operating Revenues. Old Dominion's operating revenues are derived from
power sales to its Members and to non-members. Revenues from sales to Members
are a function of the requirement for power by the Members' consumers and Old
Dominion's cost of service in meeting that requirement. The major factors
affecting the Members' consumers' demand for power are the growth in the number
of consumers and seasonal weather fluctuations.
Old Dominion's energy sales to its members, operating revenues, and average
power cost for the past three years were as follows:
Total Average
Operating Power
Year Ended December 31, Sales Revenues Cost
----------------------- ----- --------- -------
(MWh) (in millions) ($/MWh)
1997....................................... 7,665,042 $358.1 $46.72
1996....................................... 7,482,482 366.5 48.98
1995....................................... 7,258,301 357.3 49.23
The average power cost to Members is based on the blended cost of power
from all Old Dominion resources. Old Dominion's average cost per MWh fluctuates
inversely with the level of generation from the North Anna Power Station ("North
Anna") and the Clover Power Station ("Clover"), as measured by their respective
capacity factors. Accordingly, in years in which North Anna and Clover perform
at a high capacity factor, Old Dominion's average cost per MWh decreases because
the cost of energy generated from North Anna and Clover is less than replacement
supplemental energy purchased under the Interconnection and Operating Agreement
with Virginia Power ("I&O Agreement").
Changes (increase/(decrease)) in operating revenues by component for the
past three years were as follows:
Year Ended December 31,
--------------------------------------------
1997 1996 1995
--------- -------- --------
(in thousands)
Sales to Members:
Power sales volume...................................... $ 4,957 $ 21,378 $25,897
Blended rates........................................... (1,694) (1,982) (2,898)
Fuel adjustment revenues................................ (7,156) (10,175) (1,768)
Margin Stabilization Plan adjustment.................... (4,500) (15) (463)
-------- -------- -------
(8,393) 9,206 20,768
Sales to Non-members...................................... (11) 381 13
-------- -------- -------
$ (8,404) $ 9,587 $20,781
======== ======== =======
Operating revenues decreased from 1996 to 1997 primarily due to a $7.1
million decrease in fuel adjustment revenues caused by lower energy costs and a
$4.5 million increase in the margin stabilization plan adjustment. Additionally,
operating revenues decreased from 1996 to 1997 due to a 1% reduction in the
demand rate as of April 1, 1997. The decrease in operating revenues was offset
by a $5.0 million increase in sales volume, which resulted from a 2.4% increase
in energy sales. There was no significant change in demand sales. Operating
revenues increased from 1995 to 1996 primarily due to a 7.4% increase in demand
sales and a 3.1% increase in energy sales. The increases in demand and energy
sales were caused by an increase in Members' consumers combined with colder than
normal temperatures in February, March, and April 1996, and extremely hot
temperatures in May 1996. Heating and cooling degree days were as follows:
1997 1996 Normal
---- ---- ------
Cooling degree days......................... 1,323 1,468 1,632
Percentage change compared to
prior year................................ (9.86)% 0.40%
Heating degree days......................... 3,816 3,933 3,769
Percentage change compared to
prior year................................ (2.98)% (2.01)%
The Board of Directors approved a 4.0% reduction in the demand rate to the
members effective April 1, 1998. Based on projected purchased power costs and
other operating expenses for 1998, Old Dominion plans no increase in the base
energy rate for the 1998 rate year.
Operating Expenses. Old Dominion has an 11.6% ownership interest in North
Anna. While nuclear power plants, such as North Anna, generally have relatively
high fixed costs, such facilities operate with relatively low variable costs due
to lower fuel costs and technological efficiencies. Owners of nuclear power
plants, including Old Dominion, incur the embedded fixed costs of these nuclear
facilities whether or not the units operate.
Old Dominion also has a 50% undivided interest in Clover. Unit 1 began
commercial operation on October 7, 1995, and Unit 2 began commercial operation
on March 28, 1996.
When either North Anna or Clover is off-line, Old Dominion must purchase
replacement power under the I&O Agreement that is more costly. Any change in the
amount of Old Dominion's energy output from North Anna or Clover displaces or is
replaced by higher cost supplemental energy purchases from Virginia Power. As a
result, Old Dominion's operating expenses, and therefore its rates to the
Members, are significantly impacted by the operation of North Anna and Clover.
North Anna and Clover capacity factors for the past three years were as
follows:
North Anna Clover
---------------------------- ----------------------------
Year Ended December 31, Year Ended December 31,
---------------------------- ----------------------------
1997 1996 1995 1997 1996 1995
---- ---- ---- ---- ---- ----
Unit 1.................... 91.5% 88.5% 99.8% 61.6% 57.1 -
Unit 2.................... 99.7 77.7 76.3 63.7 70.9 -
Combined.................. 95.6 83.1 88.0 62.7 64.0 -
North Anna Unit 1 was off-line 32 days in 1997, 32 days in 1996, and 1 day
in 1995. Unit 2 was off-line one day in 1997, 79 days in 1996, and 69 days in
1995. The 1997 Unit 1 outage was for scheduled maintenance and refueling. The
1997 Unit 2 outage was for unscheduled maintenance. During 1996, Unit 1 was
off-line 29 days for scheduled maintenance and refueling and three days for
unscheduled maintenance. Unit 2 was off-line 34 days in 1996 for scheduled
refueling and 45 days for equipment failure caused by foreign material blocking
the cooling flow.
North Anna Units 1 and 2 are scheduled for refueling outages in 1998.
These outages have no impact on Old Dominion's results of operations; however,
outages are a factor in the determination of the rates charged to Members.
In February 1997, it was determined that the chimney liners on both Clover
Units 1 and 2 would be replaced by the Clover Consortium at no cost to the joint
owners except in lost generation and minimal overhead costs. See Item 1.
"Business--System Assets" in Old Dominion's 1995 Form 10-K for a discussion of
the Clover Consortium. The chimney liner replacement on Unit 1 began September
1, 1997, and was completed November 10, 1997, 35 days ahead of schedule. The
chimney liner replacement on Unit 2 began March 1, 1998 and is expected to be
complete May 11, 1998.
During the year ended December 31, 1997, Clover Unit 1 was off-line 72
days for repairs to the chimney's liner, 14 days for unscheduled maintenance and
5 days for scheduled maintenance. In 1997, Clover Unit 2 was off-line 75 days
for repairs resulting from damage when necessary auxiliary power was not
available after the unit tripped off-line, six days for unscheduled maintenance
and 11 days for a scheduled warranty inspection.
Old Dominion's energy supply for the past three years was as follows:
Year Ended December 31,
-----------------------------------------
1997 1996 1995
------- ----------- ---------
(MWh)
North Anna............................................. 1,739,108 1,515,777 1,608,983
--------- --------- ---------
Clover (1)............................................. 2,394,471 2,246,920 318,504
--------- --------- ---------
Purchased power:
Virginia Power.................................... 2,006,955 2,137,318 3,862,619
PSE&G............................................. 1,095,120 1,066,678 954,690
Delmarva Power.................................... 500,573 528,368 605,691
Other............................................. 181,612 173,806 118,518
--------- --------- ---------
Subtotal....................................... 3,784,260 3,906,170 5,541,518
--------- --------- ---------
Total Available Energy...................... 7,917,839 7,668,867 7,469,005
========= ========= =========
- -----------------------
(1) Clover Unit 1 began commercial operation on October 7, 1995; Unit 2 began
commercial operation on March 28, 1996.
Purchased power costs decreased in 1997 as compared to the same period in
1996 due to the operations of North Anna and Clover and due to milder weather in
1997. Purchased power costs decreased in 1996 as compared to 1995 primarily as a
result of Clover operations, since Unit 1 was in service for the whole year and
Unit 2 came on-line in March 1996.
Fuel costs increased in 1996 and again in 1997 as a result of Clover
operations. Additionally, in 1997, fuel costs increased because of increased
production at North Anna.
Maintenance expense decreased during 1997 as compared to 1996 due to the
classification of costs in 1997 as production expense rather than as maintenance
expense. Maintenance costs in 1996 were greater than in 1995 due to Clover
operations in 1996.
Administrative and general expenses increased in 1997 mainly due to an
increase in legal and consulting fees. Expenses also increased due to a change
in estimate of the annual FERC fee.
Depreciation and amortization expense increased in 1997 due to accelerated
amortization of regulatory assets, an increase in Clover depreciation caused by
a change in the estimated life of the Clover ash site landfill, and the
operation of both Clover units during the entire year of 1997. Clover Unit 2 was
in operation for only nine months in 1996. Depreciation and amortization
increased in 1996 as a result of the commencement of Clover Unit 1 operations.
Amortization of lease gains represents the recognition of the portion of
the gains attributable to 1997 and 1996 on the two long-term Clover lease
transactions completed in 1996. The gains are being amortized ratably into
income over the operating lease terms of 21.8 years and 23.4 years for Clover
Units 1 and 2, respectively.
Periodically, a site-specific study is performed to determine the
decommissioning cost estimate for North Anna. Annual decommissioning costs were
$.7 million in 1997 and 1996. Virginia Power's 1994 Decommissioning Cost Study
for the North Anna Power Station supports the amount currently being accrued and
recovered through rates.
Taxes other than income taxes increased in 1996 and again in 1997 due to an
increase in property taxes on Clover resulting from the completion of
construction. Additionally, there was an increase in gross receipts taxes
resulting from an increase in generation.
The change in other income/(expense), net, in 1997 and 1996 is due to the
reserve that was recorded against Old Dominion's loan to Seacoast, Inc. in
1996. The reserve expense was off-set by an additional billing to Virginia Power
for direct overhead costs related to Clover for the period 1990 through 1995 and
also by the recognition of a gain on a 1995 cross-border lease transaction.
Investment income decreased in 1997 as compared to 1996 primarily due to
lower investment balances. Investment income decreased in 1996 as compared to
1995 primarily due to lower interest rates and the decrease in the Equity
Development Fund balance.
Interest on long-term debt, net, increased in 1997 as compared to 1996
because the imputed interest on Old Dominion's First Mortgage Bonds, 1992 Series
B, which had been deferred, was fully expensed in 1997. The increase was offset
by a decrease in interest expense resulting from the purchase, in April 1997, of
$32.0 million of outstanding debt combined with $16.9 million of debt service
payments. Interest on long-term debt, net, decreased in 1996 as compared to 1995
due to the purchase of $83.1 million of debt and $18.4 million of debt service
payments in 1996. The 1997 and 1996 debt purchases resulted in net interest
savings of $42.9 million and $137.8 million, respectively, over the life of the
debt.
Allowance for borrowed funds used during construction decreased in 1997 and
1996 because interest capitalization on Clover ceased as the units began
commercial operation.
Equity Development Plan. In the years 1988 through 1995, Old Dominion
charged rates to its Members based on the cost of purchased power that would
have been incurred had Old Dominion not entered into a lower-cost, 300 MW,
five-year power purchase contract with Allegheny Power System (1988 through
1992) and subsequently with Virginia Power (1993 through 1995). This rate
treatment was designed and approved by Old Dominion's Board of Directors as an
equity development plan (the "Equity Development Plan") to provide capital
resources for Clover by allowing Members' rates to remain at the level that
would have existed in the absence of the lower-cost power purchase contract. As
a result of this rate treatment, net margins for 1995 were $19.0 million higher
than they would have been absent the Equity Development Plan. Old Dominion
discontinued the Equity Development Plan effective December 31, 1995.
Equity Contribution. Old Dominion has increased equity through the
collection of margins sufficient to meet a 1.20 MFI Ratio and through equity
development programs as approved by the Board of Directors from time to time. In
1995, the Board of Directors of Old Dominion approved the retention of $2.0
million of additional margins in excess of the 1.20 MFI Ratio and the Equity
Development Plan. There were no additional margins retained in 1997 or 1996.
Liquidity and Capital Resources
Old Dominion's cash flows from operating activities are affected
principally by the level of Old Dominion's net margins. The lower margins in
1997 and 1996 resulted from the discontinuance of the Equity Development Plan
effective December 31, 1995, debt service payments, and a decrease in the margin
requirement associated with the purchase of debt ($32.0 million in 1997 and
$83.1 million in 1996). Cash flows from operating activities also were affected
by the increase in amortization expense resulting from the write-off of certain
regulatory assets. The higher level of net margins in 1995 resulted primarily
from additional margins retained under the Equity Development Plan and the
additional margin requirements associated with additional indebtedness
principally related to Clover.
In November 1997, Old Dominion refinanced $1.0 million of its First
Mortgage Bonds, 1992 Series C due 1997. The refinanced bonds, 1997 Series A,
are due in 2002 at an interest rate of 4.9%.
During 1997, 1996, and 1995, Old Dominion purchased approximately $32.0
million, $83.1 million, and $36.5 million, respectively, of its First Mortgage
Bonds, 1992 Series A and 1993 Series A. The transactions resulted in net losses
of approximately $2.5 million in 1997, $2.2 million in 1996 and $4.9 million in
1995, including a write-off of original issuance costs. The net losses have been
deferred and are being amortized over the life of the remaining bonds. Of the
First Mortgage Bonds purchased in 1995, $6.5 million was retired in April 1995
and $30.0 million was retired in March 1996.
In March 1996, after all its contingent obligations connected therewith
were satisfied, Old Dominion recognized a gain of $5.8 million from a 1994
cross-border tax benefit lease transaction.
Old Dominion's capital improvement requirements are projected based on
long-range plans and supporting studies. The following projections are a product
of Old Dominion's most recently updated plans, and are subject to continuing
review and periodic revision. The table below summarizes Old Dominion's
historical and projected capital improvements, including nuclear fuel, for 1995
through 2002 (in millions):
Historical Projected
-------------------------- -----------------------------------------
1995 1996 1997 1998 1999 2000 2001 2002
---- ---- ---- ---- ---- ---- ----- ------
Clover............................. $70.6 $20.7 $ 2.5 $ 2.2 $ 2.3 $ 2.1 $ 2.6 $ .9
North Anna......................... 13.3 12.8 7.2 11.6 9.7 7.6 10.9 7.9
Other.............................. .5 1.2 .3 - - - - -
----- ----- ------ ------ ------ ------ ------ ------
Total........................... $84.4 $34.7 $ 10.0 $ 13.8 $ 12.0 $ 9.7 $ 13.5 $8.8
===== ===== ====== ====== ====== ====== ====== ======
Old Dominion's share of the costs to construct Clover was approximately
$633.6 million, including capitalized interest.
Virginia Power replaced the steam generators at North Anna Unit 2 during
the second quarter of 1995. Old Dominion's portion of the Unit 2 steam generator
replacement cost, including capitalized interest, was approximately $13.8
million.
Old Dominion expects to satisfy the approximately $57.8 million of capital
expenditure requirements through 2002 with internally generated funds.
Old Dominion has established unsecured short-term lines of credit to
provide additional sources of financing. Old Dominion has a $30.0 million
committed line of credit with NationsBank N.A., which expires on September 30,
1998, and is expected to be renewed. Additionally, Old Dominion has a $20.0
million committed line of credit with National Rural Utilities Cooperative
Finance Corporation, a $20.0 million committed line of credit with CoBank, ACB,
and a $15.0 million committed line of credit with First Union National Bank, all
of which expire on December 31, 1998, and are expected to be renewed. Old
Dominion also has arranged uncommitted short-term borrowing arrangements
aggregating $40.0 million. Due to limitations contained in certain of these
uncommitted facilities, no more than $85.0 million in total can be outstanding
at any time under Old Dominion's committed and uncommitted short-term borrowing
arrangements. At December 31, 1997 and 1996, Old Dominion had no short-term
borrowings outstanding under any of these arrangements.
Accounting Standards. Old Dominion had determined that the impact
of recently issued accounting pronouncements is not material to its
consolidated results of operations and financial position.
Other Matters
On July 29, 1997, Old Dominion and Virginia Power signed an amended and
restated I&O Agreement. The I&O Agreement was filed with FERC and was approved
on March 11, 1998, effective retroactive to January 1, 1998. The terms of the
I&O Agreement extend through 2005, unless either party exercises specific notice
provisions in the agreement prior to that time. If such notice provisions are
exercised, purchases may be reduced as early as 2002. The I&O Agreement covers
the supply of supplemental, peaking and reserve power plus a new power
transmission relationship that takes into account a national policy of opening
power lines to competing wholesale power suppliers. It also allows the two
companies to make the transition to a competitive electric power market over a
five-year period. Old Dominion estimates that this new wholesale power contract
with Virginia Power could generate significant savings for its Members over
current rates.
On April 17, 1997, the turbine generator unit on Clover Unit 2 was damaged
when necessary auxiliary power was not available after the unit tripped
off-line. The damage, repairs for which were approximately $5.8 million (Old
Dominion's share being $2.9 million), was covered by insurance. Old Dominion's
share of the insurance deductible was $250,000. Repairs to the unit have been
completed and the unit was back in operation on July 2, 1997. During the outage,
replacement power was purchased from Virginia Power at supplemental rates.
In 1996, Old Dominion entered into two long-term lease and leaseback
transactions involving Clover Units 1 and 2. The net benefit to Old Dominion
from these transactions was approximately $63.0 million. After the transactions
closed, the staff of the Virginia State Corporation Commission ("VSCC") assessed
a 2.1% gross receipts tax on the approximately $635.0 million base value of the
leaseback transactions. Old Dominion paid the $13.3 million gross receipts tax
assessment under protest on June 1, 1997 and deferred the expense pending the
outcome of a hearing with the VSCC. A hearing with the VSCC was held on
September 9, 1997, to review the assessment of gross receipts taxes and a
judgment was subsequently rendered in favor of Old Dominion. The $13.3 million
was returned to Old Dominion on September 30, 1997 and was offset against the
deferral.
In 1995, Old Dominion and 10 of its 12 member distribution systems
established an affiliate, CSC Services, Inc. ("CSC"), to explore alternative
business opportunities on behalf of the cooperatives. During 1996, CSC invested
in an approximate one-half interest in Seacoast Power LLC, whose wholly-owned
subsidiary, Seacoast, Inc. ("Seacoast"), executed a six-month power sales
contract with INECEL, the state-owned electric utility in Ecuador. CSC and the
other participants in Seacoast Power LLC also formed Power Ventures LLC ("Power
Ventures"). Through loans of approximately $17.5 million to Seacoast, Old
Dominion and CSC funded approximately one-half the cost to construct and operate
the generating assets necessary to fulfill the power sales contract with INECEL.
Because of contract disputes, INECEL did not pay invoices rendered by Seacoast
for energy made available under the terms of the power sales contract.
Accordingly, in July 1996, Seacoast filed a $26.0 million lawsuit in Ecuador
against INECEL seeking to recover approximately $16.3 million in amounts owed
under the power sales contract, plus damages and fees. Management of Seacoast
plans to pursue this matter; however, a trial date has not been set. Old
Dominion and Seacoast have sold their interest in this venture but have retained
their interest in this lawsuit.
On May 24, 1996, a default judgment of approximately $27.0 million was
rendered against Seacoast pursuant to a claim filed in the District Court of
Travis County, Texas, by an entity seeking damages for breach of an oral
contract by the former owners of Seacoast. On January 29, 1998, the Texas Court
of Appeals issued an order affirming the default judgment against Seacoast but
reversing and remanding the award of damages as factually unsupported.
On February 27, 1997, Southside Electric Cooperative ("Southside"), one of
two Member distribution systems that did not participate in forming CSC, raised
a question as to whether the loss, with respect to Old Dominion's interest in
Seacoast, should be borne totally by Old Dominion, thus resulting in a greater
financial burden on Southside. Southside asserts that their share of the loss
should be limited to a prorata share of Old Dominion's 30% common equity
participation in CSC, which may be less than their proportionate share as an Old
Dominion member.
On October 16, 1997, the Board of Directors of Southside passed a resolution
outlining various issues of concern with Old Dominion. Management believes these
issues will be resolved over time and without a material impact on Old
Dominion's financial position.
On October 14, 1997, Old Dominion's Board of Directors approved a resolution
adopting certain strategic objectives designed to mitigate the effects of the
transition to a competitive electric market (the "Strategic Plan Initiative").
Management is currently evaluating various alternatives as Old Dominion prepares
for transition to competition. The Strategic Plan Initiative could result in an
alternate treatment of Old Dominion's excess margins, which are currently
returned to Members through the Margin Stabilization Plan.
Northern Virginia Electric Cooperative ("NOVEC"), Rappahannock Electric
Cooperative ("REC"), and Southside have voiced concerns about the level and
timing of stranded cost recovery as contemplated by the Strategic Plan
Initiative. Further, NOVEC and REC have expressed concerns about the Strategic
Plan Initiative regarding: (1) the all-requirements nature of the Wholesale
Power Contracts that they have with Old Dominion, and (2) whether Old Dominion
has the right under the Wholesale Power Contracts to "over-collect" monies from
its members for future debt retirement or for payment of future stranded costs.
To address these concerns Old Dominion is working with representatives from
NOVEC and REC.
Future Issues
Competition
The electric utility industry is becoming increasingly competitive as a
result of deregulation, competing energy suppliers, new technology, and other
factors. The Energy Policy Act of 1992 amended the Federal Power Act and the
Public Utilities Holding Company Act to allow for increased competition among
wholesale electricity suppliers and increased access to transmission services by
such suppliers. A number of other significant factors have affected the
operations of electric utilities, including the availability and cost of fuel
for the generation of electric energy; the use of alternative fuel sources for
space and water heating and household appliances; fluctuating rates of load
growth; compliance with environmental and other governmental regulations;
licensing and other delays affecting the construction, operation, and cost of
new and existing facilities; and the effects of conservation, energy management,
and other governmental regulations on the use of electric energy. All these
factors present an increasing challenge to companies in the electric utility
industry, including Old Dominion and its Members, to reduce costs, increase
efficiency and innovation, and improve management of resources.
In an effort to achieve an orderly transition of the industry to a
competitive wholesale power market, FERC issued its final rules (Orders 888 and
889) providing for comparable transmission service for all users of the
transmission system. Such rules, which were issued on April 24, 1996, are
intended to promote wholesale competition through open access,
non-discriminatory transmission service and will become the catalyst for moving
the industry into a competitive marketplace. On March 4, 1997, FERC issued
Orders 888-A and 889-A reaffirming its basic determinations and clarifying
certain terms in Orders 888 and 889. On November 25, 1997, FERC issued Orders
888-B and 889-B which basically deny all requests for a rehearing regarding
Orders 888-A and 889-A.
The 1998 Session of the Virginia General Assembly passed a resolution
continuing its study of the effects on the Commonwealth of electric utility
industry restructuring. In addition, legislation was passed which sets a minimum
framework for the shape of restructuring. Such minimum framework includes: (1)
efforts to establish one or more regional power exchanges and independent system
operators by January 1, 2001; (2) a transition to retail competition and
deregulation of generation, transmission, and electric sales over a two-year
period beginning January 1, 2002; and (3) recovery of just and reasonable net
stranded costs. Old Dominion anticipates that the subcommittee established under
the resolution will propose comprehensive restructuring to begin in 2002 and be
completed by 2004.
On December 3, 1997, the Maryland Public Service Commission (the "Maryland
Commission") issued Order No. 73834 to commence a three-year phase-in of retail
competition beginning April 1999. The order identified many issues that must be
resolved in order to accomplish a comprehensive and orderly restructuring of the
retail electric industry in Maryland. As a result, over 20 roundtable committees
were created to resolve issues related to the implementation of customer choice.
However, in December 1997, the Maryland Commission delayed the implementation
date by 15 months.
On July 7, 1997, the Delaware General Assembly passed a resolution
directing the Delaware Public Service Commission (the "Delaware Commission") to
provide a report on restructuring the electric utility industry. After
initiating a docket to seek input, the Delaware Commission developed its report,
which it sent to the General Assembly on January 27, 1998. The report calls for
a 12-month period, after the legislation is passed, to deregulate the industry,
unbundle retail rates, set stranded cost recovery, and develop the guidelines
for competition and consumer education. Unlike all other states that have passed
restructuring legislation, there is no stated transition period for retail
customers. At the end of the 12-month period, all customers would be able to
choose a power supplier from competing generation suppliers. If legislation were
to pass by the end of the 1998 General Assembly session, competition would
commence before June 1, 1999. While the report considered and rejected mandatory
divestiture of generation by distribution utilities, it recommends that the
Delaware Commission be empowered to conduct a competitive bidding process to
determine the default supplier. This would occur only after such time as the
Delaware Commission has determined that the generation market is sufficiently
competitive. The default supplier provides service to those who cannot secure
lower priced electricity from the market or fail to make a decision to switch
suppliers from the existing electric utility. Delaware Electric Cooperative, one
of Old Dominion's 12 member distribution cooperatives, initially will be
required to serve as default supplier in its service territory through the
transition period and will continue to perform its regulated distribution
function during and after the transition to retail competition.
Year 2000 Impact
Old Dominion is assessing the impact of year 2000 compliance as it relates
to its information systems and vendor supplied application software. Management
anticipates that some computer systems may require modification or replacement.
At this time, Old Dominion has not determined the cost of modifying or replacing
its internal use software to become 2000 compliant. Management does not
currently anticipate any significant or material impact on Old Dominion's
financial position as a result of implications associated with this issue.
Utility Operations
On September 10, 1997, the Nuclear Regulatory Commission ("NRC") published
a proposed rule for financial assurance requirements related to nuclear
decommissioning. If these proposed rules were to be implemented without further
clarification or modification, Old Dominion could be required to either pre-fund
or provide acceptable security for a portion of its nuclear decommissioning
liability.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not Applicable
Item 8. Financial Statements and Supplementary Data
CONSOLIDATED FINANCIAL STATEMENTS
INDEX
Page
Number
------
Report of Independent Accountants................................................................... 25
Consolidated Balance Sheets......................................................................... 26
Consolidated Statements of Revenues, Expenses and Patronage Capital................................. 27
Consolidated Statements of Cash Flows............................................................... 28
Notes to Consolidated Financial Statements.......................................................... 29
REPORT OF INDEPENDENT ACCOUNTANTS
To The Board of Directors
Old Dominion Electric Cooperative
We have audited the accompanying consolidated balance sheets of Old Dominion
Electric Cooperative and its subsidiary (the "Cooperative") as of December 31,
1997 and 1996, and the related consolidated statements of revenues, expenses and
patronage capital and cash flows for each of the three years ended December 31,
1997. These financial statements are the responsibility of the Cooperative's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Old Dominion
Electric Cooperative and its subsidiary as of December 31, 1997 and 1996, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
Richmond, Virginia
February 26, 1998, except for the
seventh and eighth paragraphs
of Note 15, as to which
the date is March 16, 1998
OLD DOMINION ELECTRIC COOPERATIVE
CONSOLIDATED BALANCE SHEETS
As of December 31, 1997 and 1996
(In thousands) 1997 1996
- ----------------------------------------------------------------------------------------------------------------------
ASSETS
- -------------------------------------------------------------
Electric Plant:
In service $ 885,670 $ 882,879
Less accumulated depreciation (116,409) (91,525)
------------ ------------
769,261 791,354
Nuclear fuel, at amortized cost 6,401 8,311
Plant acquisition adjustment, at amortized cost 22,721 24,790
Construction work in progress 12,701 11,106
------------ ------------
Net Electric Plant 811,084 835,561
------------ ------------
Decommissioning Fund 44,162 39,298
Other Investments and Funds 24,539 35,112
Restricted Investments and Funds 116,080 109,019
Current Assets:
Cash and cash equivalents 61,740 46,217
Note receivable, net of allowance of $1.6 million in 1997
and 1996 - 6,992
Receivables, net of allowance of $4.4 million in 1997
and $5.1 million in 1996 34,582 36,084
Fuel stock 4,254 3,052
Materials and supplies, at average cost 5,362 5,186
Prepayments 1,439 1,187
------------ ------------
Total Current Assets 107,377 98,718
------------ ------------
Deferred Charges 14,058 27,412
Other Assets 12,612 11,226
------------ ------------
Total Assets $ 1,129,912 $ 1,156,346
============ ============
CAPITALIZATION AND LIABILITIES
- ------------------------------------------------------------
Capitalization:
Patronage capital $ 197,552 $ 184,753
Long-term debt 605,878 664,490
------------ ------------
Total Capitalization 803,430 849,243
------------ ------------
Current Liabilities:
Long-term debt due within one year 30,116 17,928
Accounts payable 31,732 26,553
Accounts payable - Member deposits 26,118 19,164
Construction contract payable - 15,283
Deferred energy 3,960 1,771
Accrued interest 4,111 4,445
Accrued taxes 263 497
Other 4,151 4,342
------------ ------------
Total Current Liabilities 100,451 89,983
------------ ------------
Decommissioning Reserve 44,162 39,298
Deferred Credits 61,782 64,868
Obligations Under Long-Term Leases 119,343 112,202
Other Liabilities 744 752
Commitments and Contingencies (Notes 1, 2, 3, 11, 12 and 15)
------------ ------------
Total Capitalization and Liabilities $ 1,129,912 $ 1,156,346
============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
OLD DOMINION ELECTRIC COOPERATIVE
CONSOLIDATED STATEMENTS OF REVENUES,
EXPENSES AND PATRONAGE CAPITAL
For The Years Ended December 31, 1997, 1996, and 1995
(In thousands) 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------
Operating Revenues
Sales to Members $ 358,122 $ 366,515 $ 357,309
Sales to non-member 383 394 13
---------- ---------- ----------
358,505 366,909 357,322
---------- ---------- ----------
Operating Expenses:
Operation:
Fuel 39,982 39,085 11,755
Purchased power 163,726 182,854 234,295
Other 21,997 20,673 17,420
---------- ---------- ----------
225,705 242,612 263,470
Maintenance 7,981 9,045 5,907
Administrative and general 16,355 15,325 15,159
Depreciation and amortization 31,488 26,724 11,989
Amortization of lease gains (2,756) (1,596) -
Decommissioning cost 681 681 681
Taxes other than income taxes 6,715 6,338 4,106
---------- ---------- ----------
Total Operating Expenses 286,169 299,129 301,312
---------- ---------- ----------
Operating Margin 72,336 67,780 56,010
---------- ---------- ----------
Other Income (Expense), net 528 (4,848) -
---------- ---------- ----------
Investment Income:
Interest 3,449 5,082 8,018
Other 83 1,393 312
---------- ---------- ----------
Total Investment Income 3,532 6,475 8,330
---------- ---------- ----------
Interest Charges:
Interest on long-term debt, net 63,742 60,865 64,748
Other 247 328 221
Allowance for borrowed funds used during construction (392) (4,026) (34,657)
---------- ---------- ----------
Net Interest Charges 63,597 57,167 30,312
---------- ---------- ----------
Net Margin 12,799 12,240 34,028
Patronage Capital-beginning of year 184,753 172,513 138,485
---------- ---------- ----------
Patronage Capital-end of year $ 197,552 $ 184,753 $ 172,513
========== =========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
OLD DOMINION ELECTRIC COOPERATIVE
CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Years Ended December 31, 1997, 1996, and 1995
(In thousands) 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------
Cash Provided by Operating Activities:
Net margin $ 12,799 $ 12,240 $ 34,028
Adjustments to reconcile net margin to net cash provided
by operating activities:
Depreciation 26,415 24,534 9,812
Amortization 14,305 5,402 8,786
Decommissioning cost 681 681 681
Amortization of lease obligations 8,197 4,636 -
Reserve for interest in Seacoast - 11,512 -
Provision for contingent liability - 630 -
Gain from lease transactions (2,756) (7,361) -
Changes in Current Assets and Current Liabilities:
Change in current assets (128) (6,113) (1,423)
Change in current liabilities 13,233 (15,970) 15,473
Decrease in deferred charges 9,034 807 424
Increase in other assets (1,574) (1,756) (4,890)
Increase in deferred credits - 61,064 -
(Decrease) Increase in other liabilities (8) 2,464 (556)
---------- ----------- -----------
Net Cash Provided by Operating Activities 80,198 92,770 62,335
---------- ----------- -----------
Cash (Used for) Provided by Financing Activities:
Additions to long-term debt - 23,884 -
Obligations under long-term lease - 107,566 -
Borrowings under lines of credit - (8,700) 8,700
Reductions of long-term debt (48,616) (100,642) (54,381)
---------- ----------- -----------
Net Cash (Used for) Provided by Financing Activities (48,616) 22,108 (45,681)
---------- ----------- -----------
Cash Used for Investing Activities:
Additions to electric plant (24,786) (47,049) (87,970)
Decommissioning fund deposits (681) (681) (681)
Reduction of other investments and funds, net 10,573 23,697 87,699
Additions to restricted investments and funds (8,117) (109,019) -
Note Receivable 6,992 698 (13,793)
Retirement work in progress (40) 23 580
---------- ----------- -------------
Net Cash Used for Investing Activities (16,059) (132,331) (14,165)
---------- ----------- -------------
Net Change in Cash and Cash Equivalents 15,523 (17,453) 2,489
Beginning of Year Cash and Cash Equivalents 46,217 63,670 61,181
---------- ----------- -------------
End of Year Cash and Cash Equivalents $ 61,740 $ 46,217 $ 63,670
========== =========== =============
- ------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
OLD DOMINION ELECTRIC COOPERATIVE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - Summary of Significant Accounting Policies
General:
Old Dominion Electric Cooperative ("Old Dominion") is a not-for-profit wholesale
power supply cooperative incorporated under the laws of the Commonwealth of
Virginia in 1948. It provides wholesale electric service to 12 member
distribution cooperatives (the "Members") engaged in the retail sale of power to
member consumers located in Virginia, Delaware, Maryland, and parts of West
Virginia. Old Dominion's Board of Directors is composed of two representatives
from each of the Members. Old Dominion's rates are not regulated by the
respective states' public service commissions, but are set periodically by a
formula that was accepted for filing by the Federal Energy Regulatory Commission
("FERC") on May 18, 1992.
Old Dominion complies with the Uniform System of Accounts prescribed by FERC. In
conformity with generally accepted accounting principles ("GAAP"), the
accounting policies and practices applied by Old Dominion in the determination
of rates are also employed for financial reporting purposes.
The preparation of the consolidated financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the amounts
reported therein. Actual results could differ from those estimates.
The accompanying financial statements reflect the consolidated accounts of Old
Dominion and Dominion Power Control, Ltd. ("DPC"), a wholly owned subsidiary of
Old Dominion which provides financing for a load management system used by Old
Dominion and its Members. All intercompany balances and transactions have been
eliminated in consolidation. Old Dominion's 50% ownership interest in Regional
Headquarters, Inc. ("RHI") (Note 13) is recorded under the equity method of
accounting.
Electric Plant:
Electric plant is stated at original cost when first placed in service. Such
cost includes contract work, direct labor and materials, allocable overhead, and
an allowance for borrowed funds used during construction. Upon the partial sale
or retirement of plant assets, the original asset cost and current disposal
costs less sale proceeds, if any, are charged or credited to accumulated
depreciation. In accordance with industry practice, no profit or loss is
recognized in connection with normal sales and retirements of property units.
The plant acquisition adjustment represents the excess of the cost of the plant
to Old Dominion over the original cost less accumulated depreciation at the time
of acquisition.
Maintenance and repair costs are expensed as incurred. Replacements and renewals
of items considered to be units of property are capitalized to the property
accounts.
Depreciation, Amortization, and Decommissioning:
Depreciation is based on the straight-line method at rates, which are designed
to amortize the original cost of properties over their service lives.
Depreciation rates for jointly-owned depreciable plant balances at the North
Anna Nuclear Power Station ("North Anna") were approximately 3.2% in 1997, 2.9%
in 1996, and 2.9% in 1995. The depreciation rate for jointly owned depreciable
plant balances at the Clover Power Station ("Clover") was approximately 2.5% in
1997, 1996, and 1995. The North Anna plant acquisition adjustment is being
amortized for ratemaking and accounting purposes over a 40-year period using the
straight-line method. In 1997, Old Dominion's Board of Directors approved the
acceleration of the recovery of the remaining plant acquisition adjustment to be
completed in 1998. In 1997, approximately $2.9 million of accelerated
amortization was recorded on certain regulatory assets. In 1996, approximately
$2.5 million of accelerated depreciation was recorded on the assets of DPC to
adjust the balances to the net realizable value.
Old Dominion accrues decommissioning cost over the expected service life of
North Anna and makes periodic deposits in a trust fund, such that the fund
balance will equal Old Dominion's estimated cost at the time of decommissioning.
The present value of the future decommissioning cost is credited to the
decommissioning reserve; increases are charged to Members through their rates.
The estimated cost to decommission North Anna is based on Virginia Power's "1994
Decommissioning Cost Study for the North Anna Power Station." The cost estimate
is based on the DECON alternative in which the equipment, structure, and
portions of the facility and site containing radioactive contaminants are
removed or decontaminated to a level that permits the property to be released
for unrestricted use shortly after cessation of operations. Virginia Power
updates the decommissioning study approximately every four years. Old Dominion's
portion of the estimated cost of decommissioning North Anna is expected to be
approximately $58.1 million in 1994 dollars. The decommissioning of North Anna
is expected to begin at the expiration date of each unit's operating license,
which is 2018 and 2020 for North Anna Units 1 and 2, respectively. In the event
the assumed return on the trust fund is not earned, the management of Old
Dominion believes that any additional cost incurred will be recoverable through
rates.
Amounts held in the decommissioning trust fund, which equals the decommissioning
reserve, at December 31, 1997 and 1996, were $44.2 million and $39.3 million,
respectively. Annual decommissioning expense, net of earnings on funds was $.7
million in 1997, 1996, and 1995.
Nuclear Fuel:
Owned nuclear fuel is amortized on a unit-of-production basis sufficient to
fully amortize, over the estimated service life, the cost of fuel plus future
storage and disposal costs.
Under the Nuclear Waste Policy Act of 1982 ("NWPA"), the Federal government has
the responsibility for the permanent disposal of spent nuclear fuel. In
accordance with the provisions of the NWPA, contracts with the Department of
Energy ("DOE") have been executed to provide for the permanent disposal of spent
nuclear fuel produced by North Anna, however, it is uncertain when these
services will begin. Virginia Power estimates that an interim spent nuclear fuel
storage facility will be required at North Anna in 1998 and submitted a license
application to the Nuclear Regulatory Commission ("NRC") in May 1995, for such a
facility at North Anna. Virginia Power anticipates that this application will be
approved in mid-1998. Old Dominion is making quarterly payments based on net
electricity generated and sold by each reactor as its share of the disposal
costs. These costs are recovered in current rates.
Under the Energy Policy Act of 1992, all domestic utilities which purchased
enriched uranium from the DOE during the years 1969 through 1991 are required to
make payments to the DOE which, in the aggregate, total a maximum of $150.0
million (adjusted annually for inflation) each year for a new uranium enrichment
decontamination and decommissioning fund. Such payments, which commenced in
1993, are required to continue for a period of 15 years. At December 31, 1997
and 1996, the total accrued liability was $3.5 million and $3.8 million,
respectively, which represents Old Dominion's pro-rata share. This amount has
been recorded as a deferred charge and will be amortized and recovered by Old
Dominion through rates over the 15-year funding period.
Allowance for Borrowed Funds Used During Construction:
Old Dominion capitalizes interest on borrowings for significant construction
projects. Income earned on trusteed construction funds is net against the amount
of interest charges capitalized. Interest capitalized in 1997, 1996, and 1995
was $.4 million, $4.0 million, and $34.7 million, respectively.
Income Taxes:
As a not-for-profit electric cooperative, Old Dominion is currently exempt from
federal income taxation under Section 501(c)(12) of the Internal Revenue Code of
1986, as amended. Accordingly, provisions for income taxes have not been
reflected in the accompanying consolidated financial statements.
Operating Revenues:
Sales to Members consist of power sales pursuant to long-term wholesale power
contracts ("Wholesale Power Contracts") which Old Dominion maintains with each
of its Members. These Wholesale Power Contracts obligate each Member to pay Old
Dominion for power furnished in accordance with rates established by Old
Dominion. Power furnished is determined based on month-end meter readings.
Sales to non-members consist of excess energy from Clover sold to Virginia
Power, a related party, under the terms of the contracts between Old Dominion
and Virginia Power relating to the construction and operation of Clover ("Clover
Agreements").
Deferred Charges and Other Assets:
Certain costs have been deferred based on rate action by Old Dominion's Board of
Directors and approval by FERC. These costs will be recognized as expense
concurrent with their recovery through rates.
Other Assets include costs associated with the issuance of debt. These costs are
being amortized using the effective interest method over the life of the
respective debt issues.
Deferred Energy:
A deferral method of accounting is used to recognize differences between Old
Dominion's actual energy and fuel expenses and the energy and fuel revenues
collected from its Members. The deferred credit at December 31, 1997, of $4.0
million will be returned to the Members during 1998 in accordance with the
tariffs then in effect. The deferred credit at December 31, 1996, of $1.8
million was returned to the Members during 1997 in accordance with the tariffs
then in effect.
Investments:
Financial instruments included in the decommissioning fund and other investments
and funds are classified as available-for-sale, and accordingly, are carried at
fair value. Unrealized gains and losses on investments held in the
decommissioning fund are deferred as an adjustment to the decommissioning
reserve until realized.
Old Dominion's investments in marketable securities, which are actively managed,
are classified as available-for-sale and are recorded at fair value in other
investments and funds. Unrealized gains or losses on other investments, if
material, are reflected as a component of capitalization. Investments that Old
Dominion has the positive intent and ability to hold to maturity are classified
as held-to-maturity and are recorded at amortized cost in restricted investments
and other investments.
Restricted Investments:
Restricted investments include amounts received from two long-term lease
transactions, which are restricted for payment of lease obligations.
Patronage Capital:
Old Dominion is organized and operates as a cooperative. Patronage capital is
the retained net margins of Old Dominion which have been allocated to its
Members based upon their respective power purchases in accordance with Old
Dominion's bylaws. Since its incorporation, Old Dominion has not distributed
patronage capital to its Members. Any distributions in the future are subject to
the discretion of the Board of Directors of Old Dominion and the restrictions
contained in the Indenture of Mortgage and Deed of Trust, dated as of May 1,
1992, between Old Dominion and Crestar Bank, as trustee (as supplemented by five
supplemental indentures thereto, is hereinafter referred to as the "Indenture").
In December 1997, Old Dominion's Board of Directors approved the retirement of
approximately $3.1 million of patronage capital, which was disbursed in February
1998.
Outage Provision:
The normal maintenance and refueling cycle for each of the North Anna nuclear
units is 18 months. During outage periods, approximately 35 days per unit, Old
Dominion incurs higher operation and maintenance costs and supplemental energy
purchases. Although the supplemental energy purchases are deferred and collected
in accordance with the deferred energy policy, the other outage costs are
charged to expense as incurred and have a direct impact on net margins. Old
Dominion has a policy of accruing a portion of incremental outage expenses that
are scheduled for the succeeding year. Operating expenses in 1997, 1996, and
1995 include $1.3 million, $1.2 million, and $1.3 million, respectively, accrued
under this policy.
Concentrations of Credit Risk:
Financial instruments which potentially subject Old Dominion to concentrations
of credit risk consist of cash equivalents, investments, and receivables arising
from energy sales to Members and from Virginia Power related to Clover and other
transactions. Old Dominion places its temporary cash investments with high
credit quality financial institutions and invests in debt securities with high
credit standards as required by the Indenture and the Board of Directors. Cash
and cash investment balances may exceed FDIC insurance limits. Concentrations of
credit risk with respect to receivables arising from energy sales to Members are
limited due to the large member consumer base that represents Old Dominion's
cooperative Members' accounts receivable.
Impairment of Long-Lived Assets:
During 1996, Old Dominion adopted Statement of Financial Accounting Standards
No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of" ("SFAS 121"). SFAS 121 requires that long-lived assets
and certain identifiable intangibles held and used by Old Dominion be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Old Dominion reviews all
appropriate assets for potential impairment on an ongoing basis.
Cash Equivalents:
For purposes of the Consolidated Statements of Cash Flows, Old Dominion
considers all unrestricted highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.
Reclassifications:
Certain reclassifications have been made to the accompanying prior years'
consolidated financial statements to conform to the current year presentation.
NOTE 2 - Jointly Owned Plants
On December 21, 1983, Old Dominion purchased from Virginia Power an 11.6%
undivided ownership interest in North Anna, a two-unit, 1,790 MW (net capacity
rating) nuclear generating facility, as well as nuclear fuel and common
facilities at the power station, and a portion of spare parts, inventory and
other support facilities. Old Dominion is responsible for 11.6% of all
post-acquisition date additions and operating costs associated with the plant,
as well as a pro-rata portion of Virginia Power's administrative and general
expenses for North Anna, and must provide its own financing for these items. Old
Dominion's portion of assets, liabilities, and operating expenses associated
with North Anna are included in the consolidated financial statements. At
December 31,1997, Old Dominion had an outstanding accounts payable balance of
$.6 million due to Virginia Power for operation, maintenance, and capital
investment at the facility. At December 31, 1996, Old Dominion had an
outstanding accounts receivable balance of $.1 million due from Virginia Power
for operation, maintenance, and capital investment at the facility.
In 1992, construction began on Clover, a two-unit, 882 MW (net capacity rating)
coal-fired generating facility in which Old Dominion and Virginia Power each
hold a 50% undivided interest. Unit 1 began commercial operation on October 7,
1995, and Unit 2 began commercial operation on March 28, 1996. Old Dominion is
responsible for 50% of all post-construction additions and operating costs
associated with Clover, as well as a pro-rata portion of Virginia Power's
administrative and general expenses for Clover, and must provide its own
financing for these items. Old Dominion's portion of assets, liabilities, and
operating expense associated with Clover are included in the consolidated
financial statements. Old Dominion's share of the costs to construct Clover was
approximately $633.6 million, including capitalized interest. In connection with
its duties as construction agent for Clover, Old Dominion had an outstanding
accounts receivable balance of $.1 million at December 31, 1997 and 1996.
Old Dominion's investment in jointly owned plants at December 31, 1997, was as
follows:
North Anna Clover
---------- ------
(in millions, except percentages)
Ownership interest 11.6% 50.0%
Electric plant $348.5 $635.2
Accumulated depreciation
and amortization 152.4 33.4
Construction work in progress 12.4 .3
Projected capital expenditures for North Anna for 1998 through 2002 are $11.6
million, $9.7 million, $7.6 million, $10.9 million, and $7.9 million,
respectively. Projected capital expenditures for Clover for 1998 through 2002
are $2.2 million, $2.3 million, $2.1 million, $2.6 million, and $.9 million,
respectively.
NOTE 3 - Power Purchase Agreements
In 1997, 1996, and 1995, North Anna and Clover together furnished approximately
52.2%, 49.1%, and 25.8%, respectively, of Old Dominion's energy requirements.
The remaining needs were satisfied through purchases of supplemental power from
Virginia Power and other power companies. Under the terms of the Interconnection
and Operating Agreement with Virginia Power ("I&O Agreement"), executed in
connection with Old Dominion's purchase of its 11.6% interest in North Anna, Old
Dominion agreed to purchase from Virginia Power reserve power for North Anna and
its entire monthly requirements for supplemental power to meet the needs of its
Virginia Members (except A&N Electric Cooperative) not met from Old Dominion's
portion of North Anna and Clover generation. The I&O Agreement provides that Old
Dominion may reduce its obligations to purchase supplemental power by any amount
with nine years advance notice or through the construction of jointly-owned
facilities, or by up to 4% each year, if notice is given at least three months
prior to calendar year end. Amendment No. 1 to the I&O Agreement ("Amendment")
allows Old Dominion to accumulate its 4% per year reduction for the life of the
I&O Agreement. Under the terms of the Amendment, for the first four years Old
Dominion will purchase the 4% per year reduction from Virginia Power. The
Amendment has an effective date coincident with commercial operation of Clover
Unit 2 and expires in eight years.
On July 29, 1997, Old Dominion and Virginia Power signed an amended and restated
I&O Agreement, effective January 1, 1998. Under the terms of the amended I&O
Agreement with Virginia Power, Old Dominion will continue, through 2001, to
purchase from Virginia Power, at declining rates, all its monthly requirements
for supplemental demand to meet the needs of its Virginia Members (except A&N
Electric Cooperative) not met from Old Dominion's portion of North Anna and
Clover generation. Old Dominion will purchase its reserve capacity requirements
for North Anna and Clover from Virginia Power for the term of the I&O Agreement,
which expires on the earlier of the date on which all facilities at North Anna
have been retired or decommissioned and the date upon which Old Dominion's
interest in North Anna is reduced to zero. Old Dominion also has the right to
displace up to two-thirds of its supplemental energy requirements in 1998 and
all its energy requirements in 1999. By 2002, purchases from Virginia Power are
to be at market prices. The amended I&O Agreement extends through 2005 unless
either party exercises specific notice provisions in the agreement prior to that
time. If such notice provisions are exercised, purchases may be reduced as early
as 2002.
Additionally, under the terms of the amended I&O Agreement, services to Old
Dominion have been unbundled and terms for the provision of transmission and
ancillary services have been removed. These services will be provided pursuant
to Virginia Power's open access transmission tariff. Specific terms are provided
in a Service Agreement for Network Integration Transmission Service and a
Network Operating Agreement between Virginia Power and Old Dominion, both of
which also were executed on July 29, 1997.
The amended I&O Agreement and related transmission service agreements were
submitted to FERC on October 31, 1997. On December 22, 1997, FERC issued a
deficiency letter calling for additional cost support information and requiring
modification to move certain transmission terms over to the transmission
agreements. Old Dominion and Virginia Power made the required changes and
Virginia Power submitted the additional information and changes to FERC on
January 1, 1998. The amended I&O Agreement was approved by FERC on March 11,
1998, retroactively effective to January 1, 1998.
Old Dominion has an agreement with Public Service Electric & Gas (the "PSE&G
Agreement") to purchase 150 MW of capacity, consisting of 75 MW intermediate
and/or peaking capacity and 75 MW base load capacity, and associated energy,
through 2005. The PSE&G Agreement contains fixed capacity charges for the base,
intermediate, and peaking capacity to be provided under the agreement. However,
either party can (within certain limits) apply to FERC to recover changes in
certain costs of providing services. In the event of a change in rate, the party
adversely affected may terminate the PSE&G Agreement, with one-year notice.
Old Dominion may purchase the energy associated with the PSE&G capacity from
PSE&G or other power suppliers. If purchased from PSE&G, the energy cost is
based on PSE&G's incremental cost above its native load, taking into account
the Pennsylvania-New Jersey-Maryland Interconnection economy energy
transactions. If purchased from other power suppliers, Old Dominion would
pay the negotiated energy rate. Old Dominion is presently purchasing the
energy requirements from the short-term markets.
Beginning January 1, 1995, Old Dominion's partial requirements agreement with
Delmarva Power & Light Company ("Delmarva Power") became effective, obligating
Delmarva Power to provide Old Dominion's power requirements for its three
Members east of the Chesapeake Bay in excess of 150 MW purchased from PSE&G
or, within certain limits, any other capacity secured by Old Dominion with
proper notice to Delmarva Power. For the first five years, charges for service
are based on a rate formula. The agreement continues through 2004 with automatic
extensions for one-year periods unless either party gives five years notice, or
Old Dominion exercises its option to reduce its load by up to 30% with two years
notice or more than 30% with five years notice.
In August 1996, Old Dominion exercised its option under the partial requirements
agreement with Delmarva Power to reduce its power purchases by 30% beginning in
1998. The notice was given based on a review of the wholesale power bids that
Old Dominion received in response to its request for proposals for power
purchase contracts. A joint venture contract with Conectiv and Pennsylvania
Power & Light to cover power purchases beginning in September 1998 and extending
through December 2001 has been approved by FERC. In addition to its notice to
reduce power purchases by 30%, Old Dominion has given Delmarva Power the
required five years notice to terminate all purchases under the partial
requirements agreement by 2001.
Old Dominion's purchased power costs for the past three years were as follows:
Year Ended December 31,
-------------------------------
1997 1996 1995
-------- ------ -----
(in millions)
Virginia Power $ 79.9 $100.7 $159.6
Delmarva Power 34.8 34.1 32.8
PSE&G 39.0 37.6 36.9
Other 10.0 10.5 5.0
------ ------ ------
$163.7 $182.9 $234.3
====== ====== ======
Old Dominion's power purchase agreements contain certain firm capacity and
minimum energy requirements. As of December 31, 1997, Old Dominion's minimum
purchase commitments under the various agreements, without regard to capacity
reductions or cost adjustments, were as follows:
Firm Minimum
Capacity Energy
Year Ending December 31, Requirements Requirements Total
------------------------ ------------ ------------- -----
(in millions)
1998 $ 16.7 $ - $ 16.7
1999 16.8 - 16.8
2000 17.2 - 17.2
2001 17.0 - 17.0
2002 13.4 - 13.4
Thereafter 34.1 - 34.1
------- ------ ------
$ 115.2 $ - $ 115.2
====== ====== ======
NOTE 4 - Wholesale Power Contracts
Old Dominion has Wholesale Power Contracts with all of its Members whereby each
Member is obligated to purchase substantially all of its power requirements from
Old Dominion through the year 2028. Each such contract provides that Old
Dominion shall sell and deliver to the Member, and the Member shall purchase and
receive from Old Dominion, all power that the Member requires for the operation
of the Member's system to the extent that Old Dominion has the power and
facilities available. Each Member is required to pay Old Dominion monthly for
power furnished under its Wholesale Power Contract in accordance with rates and
charges established by Old Dominion pursuant to a rate formula filed with FERC.
Under the accepted rate formula, the rates charged by Old Dominion are developed
using a rate methodology under which all categories of costs are specifically
separated as components of the formula to determine Old Dominion's revenue
requirements. The rate formula method uses traditional techniques to allocate
costs to capacity and energy in establishing rates to the Members. The formula
is intended to permit collection of revenues, which, together with revenues from
all other sources, are equal to all costs and expenses recorded on Old
Dominion's books, plus an additional 20% of total interest charges, plus
additional equity contributions as approved by Old Dominion's Board of
Directors. It also provides for the periodic adjustment of rates to recover
actual, prudently incurred costs, whether they increase or decrease, without
further application to and acceptance by FERC. Old Dominion's rate formula
allows Old Dominion to recover and refund amounts under the Margin Stabilization
Plan (as hereinafter defined).
In order to ensure that only actual cost of power service plus necessary margins
are billed to the Members each year, and to provide for uncertainties connected
with the establishment of prospective rates, in 1984 Old Dominion's Board of
Directors established a plan (the "Margin Stabilization Plan") which allows Old
Dominion to review its actual cost of service and power sales as of year end and
adjust revenues from the Members to take into account actual results and
financial coverages. All adjustments, whether increases or decreases, are
recorded in the year affected and allocated to Members based on power sales
during that year. Such increases or decreases are either collected from Members,
or offset against amounts owed by the Members, in the succeeding year. Under the
Margin Stabilization Plan, Old Dominion reduced revenues and related receivables
from Members for 1997, 1996, and 1995 power sales in the amount of $8.0 million,
$3.5 million, and $3.5 million, respectively.
In 1995, Old Dominion retained excess margins pursuant to rate treatment
approved by its Board of Directors under an equity development plan (the "Equity
Development Plan") designed to provide capital resources for Clover. As a result
of this rate treatment, net margins for 1995 were $19.0 million higher than they
would have been absent the Equity Development Plan. Old Dominion discontinued
the Equity Development Plan effective December 31, 1995; however, Old Dominion
will continue to increase equity through the collection of margins sufficient to
meet the 1.20 margins for interest requirement of the Indenture and through
equity development programs as approved by the Board of Directors from time to
time. The cash equivalent of the cumulative additional net margins earned under
the Equity Development Plan was $15.0 million and $46.0 million at December 31,
1996 and 1995, respectively, and has been set aside in a separate fund. Such
amounts are included in other investments and funds in the accompanying
consolidated financial statements. There were no cumulative additional net
margins from the Equity Development Plan remaining in 1997.
Revenues from the following Members equaled or exceeded 10% of Old Dominion's
total revenues for the past three years:
Year Ended December 31,
------------------------------
1997 1996 1995
----- ----- -----
(in millions)
Northern Virginia Electric Cooperative $94.5 $98.4 $95.1
Rappahannock Electric Cooperative 77.1 78.4 77.0
Delaware Electric Cooperative 37.2 38.2 37.6
NOTE 5 - Note Receivable
At December 31, 1997, Old Dominion had a note receivable of approximately $1.6
million, which has been fully reserved, from Seacoast, Inc., a wholly-owned
subsidiary of Seacoast Power LLC. See Note 15 - Commitments and Contingencies.
NOTE 6 - Long-Term Lease Transactions
On March 1, 1996, Old Dominion finalized a long-term lease transaction with an
owner trust for the benefit of an equity investor. Under the terms of the
transaction, Old Dominion entered into a 48.8-year lease of its interest in
Clover Unit 1 (valued at $315.0 million) to such owner trustee, and
simultaneously entered into a 22-year lease of the interest back from such owner
trustee. As a result of the transaction, Old Dominion recorded a deferred gain
of $23.6 million, which is being amortized into income ratably over the
21.8-year operating lease term. A portion of the proceeds from the transaction,
$23.9 million, was used to retire a portion of Old Dominion's 8.76% First
Mortgage Bonds, 1992 Series A. Concurrent with the retirement of its 1992 Series
A bonds, Old Dominion issued a like amount of zero coupon First Mortgage Bonds,
1996 Series A with an effective interest rate of 7.06%. The lease transaction
increased other non-current liabilities and restricted investments and funds by
$51.5 million and $50.5 million, respectively.
On July 31, 1996, Old Dominion finalized a long-term lease transaction with a
business trust created for the benefit of another equity investor. Under the
terms of the transaction, Old Dominion entered into a 63.4-year lease of its
interest in Clover Unit 2 (valued at $320.0 million) to such business trust and
simultaneously entered into a 23-year lease of the interest back from such
business trust. As a result of the transaction, Old Dominion recorded a deferred
gain of $39.3 million, which is being amortized into income ratably over the
23.4-year operating lease term. The lease transaction increased other
non-current liabilities and restricted investments and funds by $56.1 million
and $53.9 million, respectively.
NOTE 7 - Investments and Funds-Restricted and Unrestricted
Investments and funds consist of the following:
December 31,
------------------------------
1997 1996
------ ------
(in thousands)
Decommissioning Fund (trusteed) $ 44,162 $ 39,298
------- --------
Other Investments and Funds:
Patronage Capital and Capital Term Certificates of CFC 910 914
Regional Headquarters, Inc. (Note 13)
Common stock 455 455
CSC Services, Inc. (Note 15) - -
Common stock - 65
Preferred stock - 196
Equity Development Plan Fund (Note 4) - 15,001
Equity Reinvestment Fund - 14,926
Managed Bond Fund 19,774 -
Other 3,400 3,555
-------- ----------
Subtotal 24,539 35,112
-------- ---------
Restricted cash and investments:
Lease deposits 116,080 109,019
-------- ---------
Total Investments and Funds $184,781 $183,429
======== ========
The preceding amounts were invested as follows:
U.S. Government securities $ 38,602 $ 53,619
Corporate obligations 58,536 27,335
Mortgage-backed securities 3,318 -
Corporate common stock 26,782 10,331
Corporate preferred stock - 196
Corporate commercial paper - 27,931
Short term investment funds 56,632 62,721
Other 911 1,296
-------- ---------
Total Investments and Funds $184,781 $183,429
======== ========
There was no patronage capital allocation from National Rural Utilities
Cooperative Finance Corporation ("CFC") in 1997 or 1996.
Realized gains and losses on securities are determined on the basis of specific
identification. During 1997, sales proceeds were $38.4 million and gross
realized gains were $.3 million. There were no realized losses in 1997. During
1996, securities held by Old Dominion were classified as held-to-maturity;
therefore, no realized gains or losses were recorded.
At December 31, 1997 and 1996, the aggregate market value of the above
investments, based on quoted market prices obtained from independent sources,
was $194.2 million and $183.4 million, respectively.
NOTE 8 - Long-Term Debt
Long-term debt consists of the following:
December 31,
---------------------------------
1997 1996
-------- ---------
(in thousands)
$1,025,000 principal amount of First Mortgage Bonds,
1997 Series A, due 2002 at an interest rate of 4.9% $ 1,025 -
$109,182,937 principal amount of First Mortgage Bonds,
1996 Series B, due 2018 at an effective rate of 7.06% 109,182 -
$25,565,962 principal amount of First Mortgage Bonds,
1996 Series A, due 1997 at an effective rate of 7.06% - $ 25,566
$130,000,000 principal amount of First Mortgage Bonds,
1993 Series A, due 2013 at an interest rate of 7.48% 128,300 128,300
$120,000,000 principal amount of First Mortgage Bonds,
1993 Series A, due 2023 at an interest rate of 7.78% 66,500 66,500
$350,000,000 principal amount of First Mortgage Bonds,
1992 Series A, due 2022 at an interest rate of 8.76% 211,655 243,665
$150,000,000 principal amount of First Mortgage Bonds,
1992 Series A, due 2002 at an interest rate of 7.97% 140,800 140,800
$50,000,000 principal amount of First Mortgage Bonds,
1992 Series A, due 1997 at an interest rate of 7.27% - 16,603
$60,210,000 principal amount of First Mortgage Bonds,
1992 Series C, due 1997 through 2022 at interest rates
ranging from 4.9% to 6.5% 59,185 60,210
Louisa County Pollution Control Revenue Bonds (North Anna),
due December 1, 2008, with variable interest rates
(averaging 3.67% in 1997 and 4.23% in 1996) 6,750 6,750
Non-recourse debt of DPC due in monthly installments
through 2001, with variable interest rates (averaging
5.14% in 1997 and 4.97% in 1996) 2,022 2,322
-------- --------
725,420 690,716
Less unamortized discounts (89,426) (8,298)
Less current maturities (30,116) (17,928)
-------- --------
Total Long-Term Debt $605,878 $664,490
======== ========
Substantially all assets of Old Dominion are pledged as collateral under the
Indenture.
The non-recourse debt of DPC is collateralized by a $2.3 million letter of
credit.
During 1997, 1996, and 1995, Old Dominion purchased approximately $32.0 million,
$83.1 million, and $36.5 million, respectively, of its First Mortgage Bonds,
1992 Series A and 1993 Series A. The transactions resulted in net losses of
approximately $2.5 million in 1997, $2.2 million in 1996, and $4.9 million in
1995, including a write-off of original issuance costs. The net losses have been
deferred and are being amortized over the life of the remaining bonds. Of the
First Mortgage Bonds purchased in 1995, $6.5 million was retired in April 1995
and $30.0 million was retired in March 1996.
On February 13, 1997, Old Dominion refinanced its First Mortgage Bonds, 1996
Series A. The refinanced bonds. Series 1996 B, have an effective interest rate
of 7.06% and are due in 2018, except for approximately $.6 million which is due
January 1998.
In November 1997, Old Dominion refinanced $1.0 million of its First Mortgage
Bonds, 1992 Series C. The refinanced bonds, 1997 Series A, are due in 2002 at an
interest rate of 4.9%.
Estimated maturities of long-term debt for the next five years are as follows:
Years Ending December 31, (in thousands)
------------------------- ---------------
1998 $30,116
1999 29,590
2000 29,700
2001 30,487
2002 30,515
The aggregate fair value of long-term debt was $773.4 million and $734.3 million
at December 31, 1997 and 1996, respectively, based on current market prices. For
debt issues that are not quoted on an exchange, interest rates currently
available to Old Dominion for issuance of debt with similar terms and remaining
maturities are used to estimate fair value. Old Dominion believes that the
carrying amount of debt issues with variable rates that are refinanced at
current market rates is a reasonable estimate of their fair value.
NOTE 9 - Short-Term Borrowing Arrangements
Old Dominion has unsecured short-term lines of credit to provide additional
sources of financing. Old Dominion has a $30.0 million committed line of credit
with NationsBank N.A., which expires on September 30, 1998, and is expected to
be renewed. Additionally, Old Dominion has a $20.0 million committed line of
credit with CFC, a $20.0 million committed line of credit with CoBank, ACB, and
a $15.0 million committed line of credit with First Union National Bank, all of
which expire on December 31, 1998, and are expected to be renewed. In addition,
Old Dominion also has uncommitted short-term borrowing arrangements aggregating
$40.0 million. Due to limitations contained in certain of these uncommitted
facilities, no more than $85.0 million in total can be outstanding at any time
under Old Dominion's committed and uncommitted short-term borrowing
arrangements. At December 31, 1997 and 1996, Old Dominion had no short-term
borrowings outstanding under any of these arrangements.
Old Dominion maintains a policy which allows Members to pay monthly power bills
before their final due date. Under this policy, Old Dominion will pay interest
on early payment balances at a blended investment and outside short-term
borrowing rate. Amounts advanced by Members are classified as accounts
payable-Member deposits and totaled $26.1 million and $19.2 million at
December 31, 1997 and 1996, respectively.
NOTE 10 - Cross-Border Tax Benefit Lease
In December 1994, Old Dominion entered into a cross-border tax benefit lease
with Esbelto BV ("Esbelto"), a Netherlands limited liability company and an
affiliate of Internationale Nederlanden Group ("ING"). Under the terms of the
transaction, Old Dominion transferred nominal title to certain qualifying
pollution control equipment (the "Qualifying Equipment") located at Clover to
Esbelto for a cash payment of $104.8 million, and concurrently entered into an
agreement to lease the Qualifying Equipment back from Esbelto. The lease
agreement has an 18-year term, requires Old Dominion to provide for all repair
and maintenance costs (including insurance and taxes), and provides Old Dominion
with a repurchase option exercisable at the end of the 10th year of the term and
other purchase options in specified circumstances. The Qualifying Equipment was
transferred subject to the lien of the Indenture, and title will revert to Old
Dominion upon exercise of any repurchase option. To fully defease its basic
obligations under the lease, including the 10th year repurchase option, Old
Dominion irrevocably deposited $99.0 million of the proceeds with another ING
affiliate. In return, Esbelto released Old Dominion from its direct obligations
under the lease agreement. The lease agreement required Old Dominion to ensure
that Clover Units 1 and 2 were placed into service; accordingly, Old Dominion
included the gain in other liabilities at December 31, 1995. Old Dominion
recognized the gain of $5.8 million in March 1996, after Clover Unit 2 was
placed into commercial operation and Old Dominion's obligations in connection
with the lease were fulfilled. Accordingly, Old Dominion has recorded the
equipment as an asset on its consolidated financial statements. However, since
Old Dominion's basic obligations under the lease agreement are fully defeased,
the lease obligations are not reflected on the consolidated financial
statements.
NOTE 11 - Employee Benefits
Substantially all Old Dominion employees participate in the National Rural
Electric Cooperative Association ("NRECA") Retirement and Security Program, a
noncontributory, defined benefit multi-employer master pension plan. The cost of
the plan is funded annually by payments to NRECA to ensure that annuities in
amounts established by the plan will be available to individual participants
upon their retirement. Accumulated benefits and plan assets are not determined
or allocated separately by individual employer. Pension expense for 1997, 1996,
and 1995 was $186,000, $104,000, and $150,000, respectively.
Old Dominion has also elected to participate in the SelectRe Pension Plan, a
defined contribution multi-employer retirement plan administered by the NRECA.
Under the plan, employees may elect to have up to 23% or $10,000, whichever is
less, of their salary withheld on a pre-tax basis, subject to Internal Revenue
Service limitations, and invested on their behalf. As an additional incentive,
Old Dominion matches up to the first 2% of each employee's contribution to the
plan. Old Dominion's matching contributions were $64,000, $62,000, and $63,000
in 1997, 1996, and 1995, respectively.
Certain executive officers of Old Dominion also participate in an unfunded
salary continuation plan, which provides for post employment compensation for
these officers. Old Dominion is accruing the expected present values of the
future benefits over the estimated remaining working lives of these individuals.
Old Dominion's expense under this plan was $11,000 in 1997, $11,000 in 1996, and
$18,000 in 1995.
Old Dominion and the Virginia, Maryland and Delaware Association of Electric
Cooperatives ("VMDA") entered into an agreement with the President and Chief
Executive Officer of the organizations to jointly fund a supplemental retirement
package on his behalf with an annual fixed contribution of $60,000. Old
Dominion's expense under this agreement was $60,000 in 1997 and 1996 and $45,000
in 1995.
Old Dominion provides no other significant postretirement benefits to its
employees. However, in conjunction with the I&O Agreement, Old Dominion is
required to pay 11.6% of the operating costs associated with North Anna and 50%
of the operating costs associated with Clover, including postretirement benefits
of Virginia Power employees whose costs are allocated to those stations. These
postretirement benefits other than pensions resulted in an increase in expense
to Old Dominion of approximately $971,000 in 1997, $812,000 in 1996, and
$483,000 in 1995. Old Dominion is recovering the increased expense as it is
billed by Virginia Power.
NOTE 12 - Insurance
As a joint owner of North Anna, Old Dominion is a party to the insurance
policies which Virginia Power procures to limit the risk of loss associated with
a possible nuclear incident at the station, as well as policies regarding
general liability and property coverage. All policies are administered by
Virginia Power, which charges Old Dominion for its proportionate share of the
costs.
The Price-Anderson Act limits the public liability of an owner of a nuclear
power plant to $8.9 billion for a single nuclear incident. The Price-Anderson
Amendments Act of 1988 allows for an inflationary provision adjustment every
five years. Virginia Power has purchased $200 million of coverage from the
commercial insurance pools with the remainder provided through a mandatory
industry risk-sharing program. In the event of a nuclear incident at any
licensed nuclear reactor in the United States, Virginia Power and Old Dominion,
jointly, could be assessed up to $81.7 million (including a 3% insurance premium
tax for Virginia) for each licensed reactor not to exceed $10.3 million
(including a 3% insurance premium tax for Virginia) per year per reactor. There
is no limit to the number of incidents for which this retrospective premium can
be assessed.
Nuclear liability coverage for claims made by nuclear workers first hired on or
after January 1, 1988, except those arising out of an extraordinary nuclear
occurrence, is provided under the Master Worker insurance program. (Those first
hired into the nuclear industry prior to January 1, 1988, are covered by the
policy discussed above.) The aggregate limit of coverage for the industry is
$400 million ($200 million policy limit with automatic reinstatements of an
additional $200 million). Virginia Power and Old Dominion, jointly, are
contingently liable for a maximum retrospective assessment of approximately
$12.3 million (including a 3% insurance premium tax for Virginia).
Virginia Power's current level of property insurance coverage, $2.55 billion for
North Anna, exceeds the NRC's minimum requirement for nuclear power plant
licensees of $1.06 billion for each reactor site and includes coverage for
premature decommissioning and functional total loss. The NRC requires that the
proceeds from this insurance be used first to return the reactor to and maintain
it in a safe and stable condition, and second to decontaminate the reactor and
station site in accordance with a plan approved by the NRC. The property
insurance coverage provided to Virginia Power and Old Dominion, jointly, is
provided by Nuclear Mutual Limited ("NML") and Nuclear Electric Insurance
Limited ("NEIL"), two mutual insurance companies, and is subject to
retrospective premium assessments in any policy year in which losses exceed the
funds available to these insurance companies. The maximum assessment for the
current policy period is $37.0 million. Based on the severity of the incident,
the Boards of Directors of the nuclear insurers have the discretion to lower the
maximum retrospective premium assessment or eliminate either or both completely.
Virginia Power and Old Dominion, jointly, have the financial responsibility for
any losses that exceed the limits or for which insurance proceeds are not
available, because they must first be used for stabilization and
decontamination.
Virginia Power purchases insurance from NEIL to cover the cost of replacement
power during a prolonged outage of a nuclear unit due to direct physical damage
of the unit. Under this program, Virginia Power and Old Dominion, jointly, are
subject to a retrospective premium assessment for any policy year in which
losses exceed funds available to NEIL. The current policy period's maximum
assessment is $8.7 million.
Old Dominion's share of the contingent liability for the coverage assessments
described above is a maximum of $25.7 million at December 31, 1997.
NOTE 13 - Regional Headquarters, Inc.
Old Dominion and the VMDA are equal joint owners of RHI. Old Dominion's Members
are represented on both the VMDA's and Old Dominion's Boards of Directors. RHI
holds title to the office building that is being leased to Old Dominion, the
VMDA and third party lessees. As a 50% owner, Old Dominion is obligated to make
lease payments equal to one-half of RHI's annual operating expenses, net of
rental income from third party lessees, through the year 2016. Old Dominion is
presently paying approximately 74.2% of RHI's net costs based on its relative
occupancy. During 1997, 1996, and 1995, Old Dominion paid $215,000, $248,000,
and $293,000, respectively, to RHI for rent. At December 31, 1997 and 1996, Old
Dominion had outstanding accounts receivable of $67,000 and $41,000,
respectively, due from RHI.
Estimated future lease payments, without regard to changes in square footage,
third party occupancy rates, operating costs and inflation are as follows:
Year Ending December 31, (in thousands)
----------------------- ---------------
1998 $293
1999 293
2000 293
2001 293
2002 293
2003 and thereafter 4,102
-----
$5,567
======
The assets and liabilities of RHI at December 31, 1997, were $5.6 million
(primarily the book value of the office building) and $4.6 million (primarily an
industrial development bond payable), respectively. Old Dominion records its
investment in RHI under the equity method.
NOTE 14 - Supplemental Cash Flows Information
Cash paid for interest, net of allowance for funds used during construction,
in 1997, 1996, and 1995 was $63.9 million, $57.7 million, and $30.8 million,
respectively.
Changes in construction work in progress in 1995 included a non-cash decrease in
construction contract payable and retainage of approximately $8.3 million.
Unrealized deferred gains/(losses) on the decommissioning fund of approximately
($26,000) and $.5 million in 1997 and 1996, respectively, have been included in
the decommissioning reserve.
NOTE 15 - Commitments and Contingencies
Legal - Old Dominion is subject to legal proceedings and claims which arise from
the ordinary course of business. In the opinion of management, the amount of
ultimate liability with respect to the actions will not materially affect the
consolidated financial position of Old Dominion.
In 1995, Old Dominion and 10 of its 12 member distribution systems established
an affiliate, CSC Services, Inc. ("CSC"), to explore alternative business
opportunities on behalf of the cooperatives. During 1996, CSC invested in an
approximate one-half interest in Seacoast Power LLC, whose wholly-owned
subsidiary, Seacoast, Inc. ("Seacoast"), executed a six-month power sales
contract with INECEL, the state-owned electric utility in Ecuador. Through loans
of approximately $17.5 million to Seacoast, Old Dominion and CSC funded
approximately one-half the cost to construct and operate the generating assets
necessary to fulfill the power sales contract with INECEL.
Because of contract disputes, INECEL did not pay invoices rendered by Seacoast
for energy made available under the terms of the power sales contract.
Accordingly, in July 1996, Seacoast filed a $26.0 million lawsuit in Ecuador
against INECEL seeking to recover approximately $16.3 million in amounts owed
under the power sales contract, plus damages and fees. Management of Seacoast
plans to pursue this matter; however, a trial date has not been set.
On May 24, 1996, a default judgment of approximately $27.0 million was rendered
against Seacoast pursuant to a claim filed in the District Court of Travis
County, Texas, by an entity seeking damages for breach of an oral contract by
the former owners of Seacoast. On January 29, 1998, the Texas Court of Appeals
issued an order affirming the default judgment against Seacoast but reversing
and remanding the award of damages as factually unsupported.
On February 27, 1997, Southside Electric Cooperative ("Southside") one of two
Member distribution systems that did not participate in forming CSC, raised a
question as to whether the loss, with respect to Old Dominion's interest in
Seacoast, should be borne totally by Old Dominion, thus resulting in a greater
financial burden on Southside. Southside asserts that their share of the loss
should be limited to a prorata share of Old Dominion's 30% common equity
participation in CSC, which may be less than their proportionate share as an Old
Dominion member.
On October 16, 1997, the Board of Directors of Southside passed a resolution
outlining various issues of concern with Old Dominion. Management believes these
issues will be resolved over time and without a material impact on Old
Dominion's financial position.
On October 14, 1997, Old Dominion's Board of Directors approved a resolution
adopting certain strategic objectives designed to mitigate the effects of the
transition to a competitive electric market (the "Strategic Plan Initiative").
Management is currently evaluating various alternatives as Old Dominion prepares
for transition to competition. The Strategic Plan Initiative could result in an
alternate treatment of Old Dominion's excess margins, which are currently
returned to Members through the Margin Stabilization Plan.
Northern Virginia Electric Cooperative ("NOVEC"), Rappahannock Electric
Cooperative ("REC"), and Southside have voiced concerns about the level and
timing of stranded cost recovery as contemplated by the Strategic Plan
Initiative. Further, NOVEC and REC have expressed concerns about the Strategic
Plan Initiative regarding: (1) the all-requirements nature of the Wholesale
Power Contracts that they have with Old Dominion, and (2) whether Old Dominion
has the right under the Wholesale Power Contracts to "over-collect" monies from
its members for future debt retirement or for payment of future stranded costs.
To address these concerns Old Dominion is working with representatives from
NOVEC and REC.
Environmental - Old Dominion is currently subject to regulation by the
Environmental Protection Agency and other federal, state, and local authorities
with respect to the emission, discharge, or release of certain materials into
the environment. As with all electric utilities, the operation of Old Dominion's
generating units could be affected by any environmental regulations promulgated
in the future. Capital expenditures and increased operating costs required to
comply with any such future regulations could be significant. Expenditures
necessary to ensure compliance with environmental standards or deadlines will
continue to be reflected in Old Dominion's capital and operating costs.
Old Dominion is subject to certain requirements of the Clean Air Act ("CAA").
The CAA requires utilities owning fossil fuel fired power stations to, among
other things, limit emissions of sulfur dioxide or obtain allowances for such
emissions, or both, and limit emissions of nitrogen oxides. Clover is designed
and licensed to operate at full capacity within its allocated allowances for
sulfur dioxide and utilizes equipment which operates at a level significantly
below the limitations for nitrogen oxide emissions.
Old Dominion is also subject to permit limitations for surface water discharge
and for the operation of a combustion waste landfill. Permits required by the
Clean Water Act, the Resource Conservation and Recovery Act, and state laws have
been issued. These permits are subject to reissuance and continued review.
Insurance - Under several of the nuclear insurance policies procured by Virginia
Power and to which Old Dominion is a party, Old Dominion is subject to
retrospective premium assessments in any policy year in which losses exceed the
funds available to the insurance companies. See Note 12 to the Consolidated
Financial Statements.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not Applicable
PART III
Item 10. Directors and Executive Officers of the Registrant
Old Dominion is governed by a Board of 24 Directors, consisting of two
representatives from each Member. Each of the 12 Members nominates two Directors
who must be either a Director or an employee of the Member in good standing. The
candidates for Director are then elected to Old Dominion's Board of Directors by
voting delegates from each Member elected by each Member's local Board of
Directors and authorized to represent such Member at the annual meeting. Old
Dominion's Board of Directors sets policy and provides direction to Old
Dominion's President. The Board of Directors generally meets monthly. The
Members do not have a right to vote on any matters other than the election of
Directors.
The day-to-day business and affairs of Old Dominion are administered by Old
Dominion's President. The following table sets forth certain information with
respect to the executive officers of Old Dominion.
Executive Officers of Old Dominion
The executive officers of Old Dominion, as of March 1, 1998, their
respective ages and their respective positions with Old Dominion are listed
below. Each executive officer of Old Dominion serves at the discretion of the
Board of Directors.
Name Age Positions Held
------------------------ --- --------------------------------------------
Ronald W. Watkins 56 President and Chief Executive Officer
Daniel M. Walker 52 Vice President of Accounting and Finance
Konstantinos N. Kappatos 55 Vice President of Engineering and Operations
Ronald W. Watkins has served as President and Chief Executive Officer of
Old Dominion since April 1, 1995; President of the Virginia Maryland and
Delaware Association of Electric Cooperatives ("VMDA") (an electric cooperative
association which provides services to the Members and certain other electric
cooperatives) since April 1, 1995; a Director and President of CSC Services,
Inc. ("CSC") since June 1996; and President and Chief Executive Officer of the
Nebraska Public Power District from May 1989 until March 1995.
Daniel M. Walker has been Vice President of Accounting and Finance of Old
Dominion since January 1984; Assistant Treasurer of Dominion Power Control, Ltd.
("DPC") since December 1986; Assistant Treasurer of Regional Headquarters, Inc.
("RHI") since December 1986; and was Director of Accounting and Finance for the
Utility Division of the Virginia State Corporation Commission ("SCC") from June
1981 until December 1983.
Konstantinos N. Kappatos has been Vice President of Engineering and
Operations of Old Dominion since January 1984.
Directors of Old Dominion
The directors of Old Dominion, as of March 1, 1998, their respective ages,
their respective positions with Old Dominion, if any, their respective principal
occupations and employment during the past five years and other directorships
held by each director are listed below.
William M. Alphin (Age 67) has been a Director of Old Dominion since
September 1980; a Director of CSC since June 1996; Treasurer of RHI since May
1987; a Director of DPC since July 1988; a Director of Rappahannock Electric
Cooperative since January 1980; a Director of the VMDA since July 1987; and an
insurance advisor with Virginia Farm Bureau Insurance Company since October
1975.
John C. Anderson (Age 60) has been a Director of Old Dominion since
October 1982; President and Chief Executive Officer of Southside Electric
Cooperative since September 1982; and a Director of CFC from February 1991 until
March 1996.
E. Paul Bienvenue (Age 58) has been Chairman of Old Dominion's Board of
Directors since July 1995; President of DPC since July 1995; Vice Chairman of
Old Dominion's Board of Directors from January 1984 until July 1995; a Director
of Old Dominion since September 1981; Vice President of DPC from December 1990
until July 1995; General Manager of Delaware Electric Cooperative since
September 1981; a Director of Seaford Golf and Country Club since January 1996:
a Director of United Utility Supply Cooperative Corporation since June 1985;
Executive Vice President and General Manager of Rural Electric TV, Inc. since
May 1989; and a Director of Nanticoke Health Services, Inc. since November 1995.
Frank W. Blake (Age 79) has been a Director of Old Dominion since July
1977; a Director of A&N Electric Cooperative since September 1963; a Director of
the VMDA since July 1987; a self-employed buyer and seller of real estate since
October 1943; a Methodist Minister; and was co-owner of Maxine's Jewelry & Gifts
from August 1962 until December 1993.
John E. Bonfadini (Age 59) has been a Director of Old Dominion since July
1977; a Director of DPC since July 1994; a Director of Northern Virginia
Electric Cooperative since September 1975; a Director of National Cooperative
Services Corporation, a private cooperative providing lease financing, since
February 1988; and a professor at George Mason University since July 1980.
M. John Bowman (Age 52) has been a Director of Old Dominion since July
1974; a Director of CSC since June 1996; Executive Vice President and General
Manager of Mecklenburg Electric Cooperative since January 1980; and a Director
of NRECA since February 1993.
Dick D. Bowman (Age 69) has been a Director of Old Dominion since July
1993; a Director of DPC since October 1996; a Director of Shenandoah Valley
Electric Cooperative since November 1970; President of Bowman Brothers, Inc., a
farm equipment retailer, since November 1976; a Director of Rockingham Mutual
Insurance Co. since December 1977; a Director of Shenandoah Telecommunication
Co. since December 1980; Vice President of Shenandoah Valley Electric
Cooperative from June 1989 until June 1991 and from June 1993 until June 1994;
and President of Shenandoah Valley Electric Cooperative from June 1991 until
June 1993.
M Dale Bradshaw (Age 44) has been a Director of Old Dominion since January
1995; Manager of Prince George Electric Cooperative since January 1995; and
District Manager of Davidson Electric Membership Corporation from September 1988
until December 1994.
Vernon N. Brinkley (Age 51) was Secretary/Treasurer of Old Dominion's
Board of Directors from July 1992 until July 1997; a Director of Old Dominion
since October 1982; a Director of CSC since June 1996; Secretary/Treasurer of
DPC from July 1992 until July 1997; President and General Manager of A&N
Electric Cooperative since October 1995; Executive Vice President and General
Manager of A&N Electric Cooperative from September 1982 until October 1995; and
a Director of Central Area Data Processing since May 1991.
Calvin P. Carter (Age 73) has been a Director of Old Dominion since May
1991; a Director of Southside Electric Cooperative since June 1972; self
employed as the owner of Carter's Store, a retail store, since April 1960; the
owner of Carter Stone Co., a stone quarry, since June 1965; and a member of the
Campbell County Board of Supervisors since November 1979.
Glenn F. Chappell (Age 54) has been a Director of Old Dominion since
December 1995; a Director of Prince George Electric Cooperative since February
1985; a Director of the VMDA since December 1995; and a self-employed farmer
since 1962.
Stanley C. Feuerberg (Age 46) has been a Director of Old Dominion since
July 1992; a Director of CSC since June 1996; President and Chief Executive
Officer of Northern Virginia Electric Cooperative since January 1992; and was
Vice President and Chief Operating Officer of Vermont Electric Power Company,
Inc. from July 1985 until January 1992.
Hunter R. Greenlaw, Jr. (Age 52) has been a Director of Old Dominion since
November 1991; a Director of CSC since June 1996; a Director of Northern Neck
Electric Cooperative since May 1979; and the President of Greenlaw Properties,
Ltd., a real estate development and general contracting company, since August
1974.
Bruce A. Henry (Age 52) has been a Director of Old Dominion since November
1993; a Director of Delaware Electric Cooperative since August 1978; and the
owner and Secretary/Treasurer of Delmarva Builders, Inc. since January 1981.
Frederick L. Hubbard (Age 57) has been a Director of Old Dominion since
November 1991; Executive Vice President and General Manager of Choptank Electric
Cooperative since May 1991; a Director of Peoples Bank of Maryland since June
1996; and was Manager of Electric Operations for Choptank Electric Cooperative
from June 1982 until May 1991.
David J. Jones (Age 49) has been a Director of Old Dominion since July
1986; a Director of Mecklenburg Electric Cooperative since June 1982; a Director
of DPC since August 1990; Vice President of Exchange Warehouse, Inc. since April
1996; the owner and operator of Big Fork Farms since April 1970; and was a
member of the Virginia Polytechnic Institute Extension Advisory Board, a
farmers' advisory board, from January 1985 until October 1992.
Hugh M. Landes (Age 60) has been a Director of Old Dominion since January
1978; General Manager of BARC Electric Cooperative since March 1978; and a
Director of United Utility Supply Cooperative Corporation since June 1981.
William M. Leech, Jr. (Age 70) has been a Director of Old Dominion since
August 1977; a Director of DPC since July 1995; a Director of BARC Electric
Cooperative since October 1970; a Director of CSC since June 1996; and was
engaged in farming from September 1955 until December 1988 at which point he
retired.
James M. Reynolds (Age 50) was Chairman of Old Dominion's Board of
Directors from July 1992 until July 1995; a Director of Old Dominion since May
1977; President of DPC from July 1992 until July 1995; General Manager of
Community Electric Cooperative since April 1977; was Secretary/Treasurer of Old
Dominion's Board of Directors from March 1981 until July 1992; was Secretary of
DPC from December 1986 until July 1988; was Secretary/Treasurer of DPC from July
1988 until July 1992; and was a Director of CFC from February 1983 until
February 1989.
Charles R. Rice, Jr. (Age 56) has been Vice Chairman of Old Dominion's
Board of Directors since July 1995; a Director of Old Dominion since August
1986; General Manager of Northern Neck Electric Cooperative since August 1986;
and a Director of Northern Neck Electric Cooperative, Ltd since July 1997.
Cecil E. Viverette, Jr. (Age 56) has been Secretary/Treasurer of Old
Dominion's Board of Directors since July 1997; a Director of Old Dominion since
March 1988; President of RHI since July 1990; President of Rappahannock Electric
Cooperative since March 1988; and was Assistant Manager of Rappahannock Electric
Cooperative from October 1978 until March 1988.
Gwaltney W. White, Jr. (Age 70) has been a Director of Old Dominion since
June 1989; Vice President of RHI since July 1990; a Director of Community
Electric Cooperative since March 1983; Chairman of the Board of Directors of CSC
since June 1996; a Director of Prescription Fertilizer and Chemical Company,
Inc. since January 1968; was a farmer and peanut buyer from January 1948 until
January 1990; and was the Vice President of Prescription Fertilizer and Chemical
Company, Inc. from January 1968 until January 1994.
Carl R. Widdowson (Age 59) has been a Director of Old Dominion since
February 1987; a Director of Choptank Electric Cooperative since February 1980;
a Director of DPC since July 1988; and a farmer since December 1956.
C. Douglas Wine (Age 55) has been a Director of Old Dominion since April
1991; President and Chief Executive Officer of Shenandoah Valley Electric
Cooperative since July 1995; Secretary of RHI since April 1991; Executive Vice
President of Shenandoah Valley Electric Cooperative from April 1991 until July
1995; a Director of an advisory board to the Board of Directors of First
Virginia Bank - Blue Ridge since April 1991; Manager of North River Telephone
Cooperative since January 1994; and was the Operations Manager of Shenandoah
Valley Electric Cooperative from January 1984 until March 1991.
Item 11. Executive Compensation
The following table sets forth information concerning compensation awarded
to, earned by or paid to any person serving as Old Dominion's President and
Chief Executive Officer or acting in a similar capacity during the last
completed fiscal year and Old Dominion's two executive officers (collectively
the "Named Executives") for services rendered to Old Dominion in all capacities
during each of the last three fiscal years. The table also identifies the
principal capacity in which each of the Named Executives served Old Dominion at
the end of fiscal year 1997.
SUMMARY COMPENSATION TABLE
Annual Compensation
Other
Annual All Other
Compen- Compen-
Name and Salary Bonus sation sation
Principal Position Year (2)(3) (4) (5)
- -----------------------------------------------------------------------------------------------------------------
Ronald W. Watkins(1) 1997 $321,593 - $ 1,149 $21,440
President and Chief 1996 360,900 - 1,181 12,559
Executive Officer 1995 190,137 - 37,613 945
Daniel M. Walker 1997 143,530 $6,500 - 20,939
Vice President of Accounting 1996 139,323 - - 15,693
and Finance 1995 133,952 - - 16,287
Konstantinos N. Kappatos 1997 143,530 7,500 - 22,676
Vice President of Engineering 1996 139,323 - - 17,297
and Operations 1995 133,952 - - 17,827
- -------------------
(1) In 1991, Old Dominion and the VMDA entered into an agreement pursuant to
which the VMDA agreed to contribute to the President and Chief Executive
Officer's annual compensation. In 1997, 1996, and 1995, VMDA contributed
$24,000, $50,000, and $30,000, respectively, toward Mr. Watkin's annual
compensation.
(2) Includes amounts deferred by the Named Executives under the provisions of
the SelectRe Pension Plan (the "401(k) Plan") a multi-employer tax
qualified retirement plan administered by the National Rural Electric
Cooperative Association. All employees of Old Dominion are eligible to
become participants on the first day of the month following completion of
one year of eligible service.
(3) In March 1995, Old Dominion and the VMDA entered into an agreement with Mr.
Watkins pursuant to which Old Dominion and the VMDA agreed to fund a
supplemental retirement package for Mr. Watkins with an annual fixed
contribution of $60,000. The amount paid in 1996 by Old Dominion was
$60,000 for 1997 and $108,300 for 1996 and 1995 combined.
(4) Perquisites and other personal benefits paid to Mr. Watkins in 1997 and
1996 included expenses for a company automobile. Neither Mr. Walker nor Mr.
Kappatos received any perquisites or other personal benefits in any of the
fiscal years covered by the table.
(5) The amount reflected in this column for 1997 is composed of contributions
made by Old Dominion under the Retirement and Security Plan, the 401(k)
Plan, payments made by Old Dominion for life insurance coverage and amounts
accrued by Old Dominion under the Salary Continuation Plan . Specifically
these amounts for fiscal year 1997 were $15,267, $4,733, $1,440, and $0 for
Mr. Watkins; $8,428, $2,871, $801, and $8,840 for Mr. Walker; and $8,428,
$2,871, $801, and $10,577 for Mr. Kappatos, respectively.
Effective August 1, 1994, Old Dominion pays the 12 Directors who are not
employees of its Members an $800 per month retainer plus $200 for any specially
called meetings and reimburses all Directors for out-of-pocket expenses incurred
in attending meetings.
Contract with Executive Officer
On March 9, 1995, Old Dominion and the VMDA entered into an agreement with
Ronald W. Watkins in which the companies agreed to pay Mr. Watkins $250,000 per
year when carrying out the responsibilities as President and Chief Executive
Officer. The agreement also provides for an automobile and all benefits
available to other employees. Additionally, Old Dominion and the VMDA entered
into an agreement effective April 1, 1995, to jointly fund a supplemental
retirement package for Mr. Watkins with an annual fixed contribution of $60,000.
Defined Benefit Plan
Old Dominion has elected to participate in the NRECA Retirement and
Security Program (the "Plan"), a noncontributory, defined benefit multi-employer
master pension plan maintained and administered by the NRECA for the benefit of
its member systems and their employees. The Plan is a qualified pension plan
under Section 401(a) of the Internal Revenue Code of 1986. The following table
lists the estimated current annual pension benefit payable at "normal retirement
age," age 65, for participants in the specified final average salary and years
of benefit service categories for the given current multiplier of 1.7%. Benefits
which accrue under the Plan are based upon the base annual salary as of November
of the previous year. As a result of changes in Internal Revenue Service
regulations, the base annual salary used in determining benefits is limited to
$150,000 effective January 1, 1994.
Years of Benefit Service
--------------------------------------------------------------
Final Average Salary 15 20 25 30 35
-------------------- ------ ------ ----- ---- ------
$ 75,000 $19,125 $25,500 $31,875 $ 38,250 $ 44,625
100,000 25,500 34,000 42,500 51,000 59,500
125,000 31,875 42,500 53,125 63,750 74,375
150,000 38,250 51,000 63,750 76,500 89,250
The pension benefits indicated above are the estimated annual straight
life as well as the joint and surviving spouse life annuity amounts payable by
the Plan, and they are not subject to any deduction for Social Security or other
offset amounts. The participant's annual pension at his normal retirement date
is equal to the product of his years of benefit service times final average
salary times the multiplier in effect during years of benefit service. The
multiplier was 1.7% commencing January 1, 1992.
As of December 31, 1997, years of credited service under the Plan at
"normal retirement age" for each of the Named Executives was: Mr. Watkins,
2.75 years; Mr. Walker, 12.92 years; and Mr. Kappatos, 12.92 years.
Salary Continuation Plan
Certain executive officers of Old Dominion also participate in a salary
continuation plan. Pursuant to this plan, Old Dominion has entered into
agreements with each of the Named Executives, providing in part, that if the
Named Executive has attained the age of 50 or older on the date his employment
is terminated for any reason whatsoever, absent malfeasance in office, Old
Dominion will pay certain compensation for a period of 15 years, beginning at
age 65. The amount of such compensation increases under a formula which
considers the Named Executive's age and years of service on the date of
termination of employment, with a maximum compensation of $35,000 per year
payable if the Named Executive's employment is terminated at age 65 or older.
Each agreement provides for payment of similar benefits to the Named Executive's
beneficiaries in the event of his death or permanent disability. Old Dominion
maintains life insurance coverage on each of the Named Executives to recover
from the insurance proceeds a sum approximately sufficient to offset the
aggregate benefits payable under each agreement.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Not Applicable
Item 13. Certain Relationships and Related Transactions
Not Applicable
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The following documents are filed as part of this Form 10-K.
1. Financial Statements
See Index on page 24.
2. Financial Statement Schedules
None to be included.
3. Exhibits
*3(i) Articles of Incorporation of Old Dominion Electric
Cooperative (filed as exhibit 3.1 to the Registrant's Form S-1
Registration Statement, File No. 33-46795, filed on March 27,
1992).
*3(ii) Bylaws of Old Dominion Electric Cooperative, as amended and
restated, October 6, 1992 (filed as exhibit 3.2 to the
Registrant's Form 10-K for the year ended December 31, 1992, File
No. 33-46795, filed on March 30, 1993).
*4.1 Indenture of Mortgage and Deed of Trust, dated as of May 1, 1992,
between Old Dominion Electric Cooperative and Crestar Bank, as
Trustee (filed as exhibit 4.1 to the Registrant's Form 10-K for
the year ended December 31, 1992, File No. 33-46795, filed on
March 30, 1993).
*4.2 First Supplemental Indenture, dated as of August 1, 1992, to the
Indenture of Mortgage and Deed of Trust, dated as of May 1, 1992,
between Old Dominion Electric Cooperative and Crestar Bank, as
Trustee (filed as exhibit 4.22 to the Registrant's Form 10-K for
the year ended December 31, 1992, File No. 33-46795, filed on
March 30, 1993).
*4.3 Second Supplemental Indenture, dated as of December 1, 1992, to
the Indenture of Mortgage and Deed of Trust, dated as of May 1,
1992, between Old Dominion Electric Cooperative and Crestar Bank,
as Trustee (filed as exhibit 4.24 to the Registrant's Form 10-K
for the year ended December 31, 1992, File No. 33-46795, filed on
March 30, 1993).
*4.4 Third Supplemental Indenture, dated as of May 1, 1993, to the
Indenture of Mortgage and Deed of Trust, dated as of May 1, 1992,
between Old Dominion Electric Cooperative and Crestar Bank, as
Trustee (filed as exhibit 4.1 to the Registrant's Form 10-Q for
the quarter ended June 30, 1993, File No. 33-46795, filed on
August 10, 1993).
*4.5 Fourth Supplemental Indenture, dated as of December 15, 1994, to
the Indenture of Mortgage and Deed of Trust dated as of May 1,
1992, between Old Dominion Electric Cooperative and Crestar Bank,
as Trustee (filed as exhibit 4.5 to Registrant's Form 10-K for
the year ended December 31, 1996, File No. 33-46795, on March 20,
1997).
*4.6 Fifth Supplemental Indenture, dated as of February 29, 1996, to
the Indenture of Mortgage and Deed of Trust dated as of May 1,
1992, between Old Dominion Electric Cooperative and Crestar Bank,
as Trustee (filed as exhibit 4.6 to Registrant's Form 10-K for
the year ended December 31, 1996, File No. 33-46795, on March 20,
1997).
*4.7 Form of Bonds, 1992 Series A (filed as exhibit 4.2 to Amendment
No. 1 to the Registrant's Form S-1 Registration Statement, File
No. 33-46795, filed on May 6, 1992).
*4.8 Form of Bonds, 1992 Series C (filed as exhibit 4.23 to the
Registrant's Form 10-K for the year ended December 31, 1992, File
No. 33-46795, filed on March 30, 1993).
*4.9 Form of Bonds, 1993 Series A (filed as exhibit 4.2 to the
Registrant's Form S-1 Registration Statement, File No.
33-61326, filed on April 19, 1993).
*10.1 Nuclear Fuel Agreement between Virginia Electric and Power
Company and Old Dominion Electric Cooperative, dated as of
December 28, 1982, amended and restated October 17, 1983 (filed
as exhibit 10.1 to the Registrant's Form S-1 Registration
Statement, File No. 33-46795, filed on March 27, 1992).
*10.2 Purchase, Construction and Ownership Agreement between Virginia
Electric and Power Company and Old Dominion Electric Cooperative,
dated as of December 28, 1982, amended and restated October 17,
1983 (filed as exhibit 10.2 to the Registrant's Form S-1
Registration Statement, File No. 33-46795, filed on March 27,
1992).
*10.3 Interconnection and Operating Agreement between Virginia Electric
and Power Company and Old Dominion Electric Cooperative, dated as
of December 28, 1982, amended and restated October 17, 1983
(filed as exhibit 10.3 to the Registrant's Form S-1 Registration
Statement, File No. 33-46795, filed on March 27, 1992).
*10.4 Amendment No. 1 to the Interconnection and Operating Agreement
between Virginia Electric and Power Company and Old Dominion
Electric Cooperative, effective on the date of commercial
operation for Clover Unit 2 or December 31, 1996, whichever
occurs first (filed as exhibit 10.4 to the Registrant's Form 10-K
for the year ended December 31, 1994, File No. 33-46795, filed on
March 15, 1995).
*10.5 Clover Purchase, Construction and Ownership Agreement between Old
Dominion Electric Cooperative and Virginia Electric and Power
Company, dated as of May 31, 1990 (filed as exhibit 10.4 to the
Registrant's Form S-1 Registration Statement, File No. 33-46795,
filed on March 27, 1992).
*10.6 Amendment No. 1 to the Clover Purchase, Construction and
Ownership Agreement between Old Dominion Electric Cooperative
and Virginia Electric and Power Company, effective March 12,
1993 (filed as exhibit 10.34 to the Registrant's Form S-1
Registration Statement, File No. 33-61326, filed on April 19,
1993).
*10.7 Clover Operating Agreement between Virginia Electric and Power
Company and Old Dominion Electric Cooperative, dated as of May
31, 1990 (filed as exhibit 10.6 to the Registrant's Form S-1
Registration Statement, File No. 33-46795, filed on March 27,
1992).
*10.8 Amendment to the Clover Operating Agreement between Virginia
Electric and Power Company and Old Dominion Electric Cooperative,
effective January 17, 1995 (filed as exhibit 10.8 to the
Registrant's Form 10-K for the year ended December 31, 1994, File
No. 33-46795, on March 15, 1995).
*10.9 Coal-Fired Unit Turnkey Contract (Volume 1), dated April 6, 1989,
and the Unit 2 Amendment (Volume 1), dated May 31, 1990, between
Virginia Electric and Power Company and Old Dominion Electric
Cooperative, Westinghouse Electric Corporation, Black & Veatch
Engineers-Architects, Combustion Engineering, Inc. and H.B.
Zachry Company (Volumes 2 - 11 contain technical specifications
only) (filed as exhibit 10.7 to the Registrant's Form S-1
Registration Statement, File No. 33-46795, filed on March 27,
1992).
*10.10 Electric Service Agreement between Old Dominion Electric
Cooperative and Appalachian Power Company, dated July 2, 1990
(filed as exhibit 10.8 to the Registrant's Form S-1 Registration
Statement, File No. 33-46795, filed on March 27, 1992).
*10.11 Electric Service Agreement between Old Dominion Electric
Cooperative and Appalachian Power Company, dated March 6, 1991
(filed as exhibit 10.9 to the Registrant's Form S-1 Registration
Statement, File No. 33-46795, filed on March 27, 1992).
*10.12 Electric Service Agreement between The Potomac Edison Company and
Old Dominion Electric Cooperative, dated October 4, 1991 (filed
as exhibit 10.11 to the Registrant's Form S-1 Registration
Statement, File No. 33-46795, filed on March 27, 1992).
*10.13 Amendment to Electric Service Agreement between The Potomac
Edison Company and Old Dominion Electric Cooperative, dated
October 4, 1991 (filed as exhibit 10.36 to Amendment No. 2 to
the Registrant's Form S-1 Registration Statement, File No.
33-61326, filed on May 26, 1993).
*10.14 Lease Agreement between Old Dominion Electric Cooperative and
Regional Headquarters, Inc., dated July 29, 1986 (filed as
exhibit 10.27 to the Registrant's Form S-1 Registration
Statement, File No. 33-46795, filed on March 27, 1992).
*10.15 Credit Agreement between Virginia Electric and Power Company and
Old Dominion Electric Cooperative, dated as of December 1, 1985
(filed as exhibit 10.28 to the Registrant's Form S-1 Registration
Statement, File No. 33-46795, filed on March 27, 1992).
*10.16 Nuclear Decommissioning Trust Agreement between Old Dominion
Electric Cooperative and Bankers Trust Company, dated March 1,
1991 (filed as exhibit 10.29 to the Registrant's Form S-1
Registration Statement, File No. 33-46795, filed on March 27,
1992).
*10.17 Form of Salary Continuation Plan (filed as exhibit 10.31 to the
Registrant's Form S-1 Registration Statement, File No. 33-46795,
filed on March 27, 1992).
*10.18 Amended and Restated Wholesale Power Contract between Old
Dominion Electric Cooperative and A&N Electric Cooperative,
dated April 24, 1992 (filed as exhibit 10.34 to Amendment
No. 2 to the Registrant's Form S-1 Registration Statement, File
No. 33-46795, filed on May 27, 1992).
*10.19 Amended and Restated Wholesale Power Contract between Old
Dominion Electric Cooperative and BARC Electric Cooperative,
dated April 22, 1992 (filed as exhibit 10.35 to Amendment
No. 1 to the Registrant's Form S-1 Registration Statement, File
No. 33-46795, filed on May 6, 1992).
*10.20 Amended and Restated Wholesale Power Contract between Old
Dominion Electric Cooperative and Choptank Electric
Cooperative, dated April 20, 1992 (filed as exhibit 10.36 to
Amendment No. 1 to the Registrant's Form S-1 Registration
Statement, File No. 33-46795, filed on May 6, 1992).
*10.21 Amended and Restated Wholesale Power Contract between Old
Dominion Electric Cooperative and Community Electric
Cooperative, dated April 28, 1992 (filed as exhibit 10.37 to
Amendment No. 1 to the Registrant's Form S-1 Registration
Statement, File No. 33-46795, filed on May 6, 1992).
*10.22 Amended and Restated Wholesale Power Contract between Old
Dominion Electric Cooperative and Delaware Electric
Cooperative, dated April 22, 1992 (filed as exhibit 10.38 to
Amendment No. 1 to the Registrant's Form S-1 Registration
Statement, File No. 33-46795, filed on May 6, 1992).
*10.23 Amended and Restated Wholesale Power Contract between Old
Dominion Electric Cooperative and Mecklenburg Electric
Cooperative, dated April 15, 1992 (filed as exhibit 10.39 to
Amendment No. 1 to the Registrant's Form S-1 Registration
Statement, File No. 33-46795, filed on May 6, 1992).
*10.24 Amended and Restated Wholesale Power Contract between Old
Dominion Electric Cooperative and Northern Neck Electric
Cooperative, dated April 21, 1992 (filed as exhibit 10.40 to
Amendment No. 1 to the Registrant's Form S-1 Registration
Statement, File No. 33-46795, filed on May 6, 1992).
*10.25 Amended and Restated Wholesale Power Contract between Old
Dominion Electric Cooperative and Northern Virginia Electric
Cooperative, dated April 17, 1992 (filed as exhibit 10.41 to
Amendment No. 1 to the Registrant's Form S-1 Registration
Statement, File No. 33-46795, filed on May 6, 1992).
*10.26 Amended and Restated Wholesale Power Contract between Old
Dominion Electric Cooperative and Prince George Electric
Cooperative, dated May 6, 1992 (filed as exhibit 10.42 to
Amendment No. 2 to the Registrant's Form S-1 Registration
Statement, File No. 33-46795, filed on May 27, 1992).
*10.27 Amended and Restated Wholesale Power Contract between Old
Dominion Electric Cooperative and Rappahannock Electric
Cooperative, dated April 17, 1992 (filed as exhibit 10.43 to
Amendment No. 1 to the Registrant's Form S-1 Registration
Statement, File No. 33-46795, filed on May 6, 1992).
*10.28 Amended and Restated Wholesale Power Contract between Old
Dominion Electric Cooperative and Shenandoah Valley Electric
Cooperative, dated April 23, 1992 (filed as exhibit 10.44 to
Amendment No. 1 to the Registrant's Form S-1 Registration
Statement, File No. 33-46795, filed on May 6, 1992).
*10.29 Amended and Restated Wholesale Power Contract between Old
Dominion Electric Cooperative and Southside Electric
Cooperative, dated April 22, 1992 (filed as exhibit 10.45 to
Amendment No. 1 to the Registrant's Form S-1 Registration
Statement, File No. 33-46795, filed on May 6, 1992).
*10.30 Capacity and Energy Sales Agreement between Old Dominion Electric
Cooperative and Public Service Electric and Gas, dated December
17, 1992, effective January 1, 1995 (filed as exhibit 10.30 to
the Registrant's Form 10-K for the year ended December 31, 1992,
File No. 33-46795, filed on March 30, 1993).
*10.31 First Supplement to Capacity and Energy Sales Agreement between
Old Dominion Electric Cooperative and Public Service Electric &
Gas, dated March 26, 1993 (filed as exhibit 10.32 to the
Registrant's Form S-1 Registration Statement, File No. 33-61326,
filed on April 19, 1993).
*10.32 Letter Agreement between Old Dominion Electric Cooperative and
Delmarva Power & Light Company, dated March 2, 1993 (filed as
exhibit 10.35 to the Registrant's Form S-1 Registration
Statement, File No. 33-61326, filed on April 19, 1993).
*10.33 Wholesale Partial Requirements Service Agreement between Delmarva
Power & Light Company and Old Dominion Electric Cooperative,
effective January 1, 1995 (filed as exhibit 10.38 to Registrant's
Form 10-K for the year ended December 31, 1994, File No.
33-46795, on March 15, 1995).
*10.34 Transmission Service Agreement between Delmarva Power & Light
Company and Old Dominion Electric Cooperative, effective January
1, 1995 (filed as exhibit 10.39 to Registrant's Form 10-K for the
year ended December 31, 1994, File No. 33-46795, on March 15,
1995).
*10.35 Participation Agreement, dated as of February 29, 1996, among Old
Dominion Electric Cooperative, State Street Bank and Trust
Company, the Owner Participant named therein and Utrecht-America
Finance Co (filed as exhibit 10.35 to Registrant's Form 10-K for
the year ended December 31, 1996, File No. 33-46795, on March 20,
1996).
*10.36 Clover Unit 1 Equipment Interest Lease Agreement, dated as of
February 29, 1996, between Old Dominion Electric Cooperative, as
Equipment Head Lessor, and State Street Bank and Trust Company,
as Equipment Head Lessee (filed as exhibit 10.36 to Registrant's
Form 10-K for the year ended December 31, 1996, File No.
33-46795, on March 20, 1996).
**10.37 Equipment Operating Lease Agreement, dated as of February 29,
1996, between State Street Bank and Trust Company, as Lessor, and
Old Dominion Electric Cooperative, as Lessee (filed as
exhibit 10.37 to Registrant's Form 10-K for the year ended
December 31, 1996, File No. 33-46795, on March 20, 1996).
**10.38 Corrected Option Agreement to Lease, dated as of February
29, 1996, among Old Dominion Electric Cooperative and State
Street Bank and Trust Company (filed as exhibit 10.38 to
Registrant's Form 10-K for the year ended December 31, 1996, File
No. 33-46795, on March 20, 1996).
*10.39 Clover Agreements Assignment and Assumption Agreement, dated as
of February 29, 1996, between Old Dominion Electric Cooperative,
as Assignor, and State Street Bank and Trust Company, as Assignee
(filed as exhibit 10.39 to Registrant's Form 10-K for the year
ended December 31, 1996, File No. 33-46795, on March 20, 1996).
*10.40 Deposit Agreement, dated as of February 29, 1996, between Old
Dominion Electric Cooperative, as Depositor, and Cooperatieve
Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank Nederland",
New York Branch, as Issuer (filed as exhibit 10.40 to
Registrant's Form 10-K for the year ended December 31, 1996, File
No. 33-46795, on March 20, 1996).
*10.41 Deposit Pledge Agreement, dated as of February 29, 1996, between
Old Dominion Electric Cooperative, as Pledgor, and State Street
Bank and Trust Company, as Pledgee (filed as exhibit 10.41 to
Registrant's Form 10-K for the year ended December 31, 1996, File
No. 33-46795, on March 20, 1996).
*10.42 Payment Undertaking Agreement, dated as of February 29, 1996,
between Old Dominion Electric Cooperative and Cooperatieve
Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank Nederland",
New York Branch (filed as exhibit 10.42 to Registrant's Form 10-K
for the year ended December 31, 1996, File No. 33-46795, on March
20, 1996).
*10.43 Payment Undertaking Pledge Agreement, dated as of February 29,
1996, between Old Dominion Electric Cooperative, as Payment
Undertaking Pledgor, and State Street Bank and Trust Company, as
Payment Undertaking Pledgee (filed as exhibit 10.43 to
Registrant's Form 10-K for the year ended December 31, 1996, File
No. 33-46795, on March 20, 1996).
*10.44 Pledge Agreement, dated as of February 29, 1996, between Old
Dominion Electric Cooperative, as Pledgor, and State Street Bank
and Trust Company, as Pledgee (filed as exhibit 10.44 to
Registrant's Form 10-K for the year ended December 31, 1996, File
No. 33-46795, on March 20, 1996).
*10.45 Tax Indemnity Agreement, dated as of February 29, 1996, among Old
Dominion Electric Cooperative, State Street Bank and Trust
Company, the Owner Participant named therein and Utrecht-America
Finance Co. (filed as exhibit 10.45 to Registrant's Form 10-K for
the year ended December 31, 1996, File No. 33-46795, on March 20,
1996).
*10.46 Participation Agreement, dated as of July 1, 1996, among Old
Dominion Electric Cooperative, Clover Unit 2 Generating Trust,
Wilmington Trust Company, the Owner Participant named therein and
Utrecht-America Finance Co. (filed as exhibit 10.46 to
Registrant's Form 10-K for the year ended December 31, 1996, File
No. 33-46795, on March 20, 1996).
**10.47 Clover Unit 2 Equipment Interest Agreement, dated as of July
1, 1996, between Old Dominion Electric Cooperative and
Clover Unit 2 Generating Trust (filed as exhibit 10.47 to
Registrant's Form 10-K for the year ended December 31, 1996, File
No. 33-46795, on March 20, 1996).
**10.48 Operating Equipment Agreement, dated as of July 1, 1996,
between Clover Unit 2 Generating Trust and Old Dominion Electric
Cooperative (filed as exhibit 10.48 to Registrant's Form 10-K for
the year ended December 31, 1996, File No. 33-46795, on March 20,
1996).
*10.49 Clover Agreements Assignment and Assumption Agreement, dated as
of July 1, 1996, between Old Dominion Electric Cooperative, as
Assignor, and Clover Unit 2 Generating Trust, as Assignee (filed
as exhibit 10.49 to Registrant's Form 10-K for the year ended
December 31, 1996, File No. 33-46795, on March 20, 1996).
*10.50 Deed of Ground Lease and Sublease Agreement, dated as of July 1,
1996, between Old Dominion Electric Cooperative, as Ground
Lessor, and Clover Unit 2 Generating Trust, as Ground Lessee
(filed as exhibit 10.50 to Registrant's Form 10-K for the year
ended December 31, 1996, File No. 33-46795, on March 20, 1996).
*10.51 Guaranty Agreement, dated as of July 1, 1996, between Old
Dominion Electric Cooperative and AMBAC Indemnity Corporation
(filed as exhibit 10.51 to Registrant's Form 10-K for the year
ended December 31, 1996, File No. 33-46795, on March 20, 1996).
*10.52 Investment Agreement, dated as of July 31, 1996, among AMBAC
Capital Funding, Inc., Old Dominion Electric Cooperative and
AMBAC Indemnity Corporation (filed as exhibit 10.52 to
Registrant's Form 10-K for the year ended December 31, 1996, File
No. 33-46795, on March 20, 1996).
*10.53 Investment Agreement Pledge Agreement, dated as of July 1, 1996,
among Old Dominion Electric Cooperative, as Investment Agreement
Pledgor, AMBAC Indemnity Corporation, the Owner Participant named
therein and Clover Unit 2 Generating Trust (filed as exhibit
10.53 to Registrant's Form 10-K for the year ended December 31,
1996, File No. 33-46795, on March 20, 1996).
*10.54 Equity Security Pledge Agreement, dated as of July 1, 1996,
between Old Dominion Electric Cooperative, as Pledgor, and
Wilmington Trust Company, as Collateral Agent (filed as exhibit
10.54 to Registrant's Form 10-K for the year ended December 31,
1996, File No. 33-46795, on March 20, 1996).
*10.55 Payment Undertaking Agreement, dated as of July 1, 1996, between
Old Dominion Electric Cooperative and Cooperatieve Centrale
Raiffeisen-Boerenleenbank B.A., "Rabobank Nederland", New York
Branch (filed as exhibit 10.55 to Registrant's Form 10-K for the
year ended December 31, 1996, File No. 33-46795, on March 20,
1996).
*10.56 Payment Undertaking Pledge Agreement, dated as of July 1, 1996,
between Old Dominion Electric Cooperative, as Payment Undertaking
Pledgor, and Clover Unit 2 Generating Trust, as Payment
Undertaking Pledgee (filed as exhibit 10.56 to Registrant's Form
10-K for the year ended December 31, 1996, File No. 33-46795, on
March 20, 1996).
*10.57 Subordinated Deed of Trust and Security Agreement, dated as of
July 1, 1996, among Old Dominion Electric Cooperative, Richard W.
Gregory, Trustee, and Michael P. Drzal, Trustee (filed as exhibit
10.57 to Registrant's Form 10-K for the year ended December 31,
1996, File No. 33-46795, on March 20, 1996).
*10.58 Subordinated Security Agreement, dated as of July 1, 1996, among
Old Dominion Electric Cooperative, the Owner Participant named
therein, AMBAC Indemnity Corporation and Clover Unit 2 Generating
Trust (filed as exhibit 10.58 to Registrant's Form 10-K for the
year ended December 31, 1996, File No. 33-46795, on March 20,
1996).
*10.59 Tax Indemnity Agreement, dated as of July 1 1996, between Old
Dominion Electric Cooperative and the Owner Participant named
therein (filed as exhibit 10.59 to Registrant's Form 10-K for the
year ended December 31, 1996, File No. 33-46795, on March 20,
1996).
21 Subsidiaries of Old Dominion Electric Cooperative (not included
because Old Dominion Electric Cooperative's subsidiaries,
considered in the aggregate as a single subsidiary, would not
constitute a "significant subsidiary" under Rule 1-02(w) of
Regulation S-X).
27 Financial Data Schedule.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the fourth quarter of 1997.
- ----------------------
* Incorporated herein by reference.
** These leases relate to Old Dominion Electric Cooperative's interest in all
of Clover Unit 1 and Clover Unit 2, as applicable, other than the
foundations. At the time these leases were executed, Old Dominion had
entered into identical leases with respect to the foundations as part of
the same transactions. Old Dominion Electric Cooperative agrees to furnish
to the Commission, upon request, a copy of the leases of its interest in
the foundations for Clover Unit 1 and Clover Unit 2, as applicable.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
OLD DOMINION ELECTRIC COOPERATIVE
Registrant
Date: March 31, 1998 By: /s/ RONALD W. WATKINS
-----------------------------
Ronald W. Watkins
President and Chief Executive 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 in the following capacities on March 31, 1998.
Signature Title
--------- ------
/s/ RONALD W. WATKINS
-----------------------
Ronald W. Watkins President (principal executive officer)
/s/ DANIEL M. WALKER
-----------------------
Daniel M. Walker Vice President of Accounting & Finance
(principal financial officer)
/s/ ROBERT L. KEES
-----------------------
Robert L. Kees Controller (principal accounting officer)
/s/ WILLIAM M. ALPHIN
-----------------------
William M. Alphin Director
/s/ JOHN C. ANDERSON
-----------------------
John C. Anderson Director
/s/ E. PAUL BIENVENUE
-----------------------
E. Paul Bienvenue Director
/s/ FRANK W. BLAKE
-----------------------
Frank W. Blake Director
/s/ JOHN E. BONFADINI
-----------------------
John E. Bonfadini Director
Signature Title
--------- -----
/s/ M. JOHN BOWMAN
-----------------------
M. John Bowman Director
/s/ DICK D. BOWMAN
-----------------------
Dick D. Bowman Director
/s/ M. DALE BRADSHAW
-----------------------
M. Dale Bradshaw Director
/s/ VERNON N. BRINKLEY
-----------------------
Vernon N. Brinkley Director
/s/ CALVIN P. CARTER
-----------------------
Calvin P. Carter Director
/s/ GLENN F. CHAPPELL
-----------------------
Glenn F. Chappell Director
/s/ STANLEY C. FEUERBERG
-----------------------
Stanley C. Feuerberg Director
/s/ HUNTER R. GREENLAW, JR.
-----------------------
Hunter R. Greenlaw, Jr. Director
/s/ BRUCE A. HENRY
-----------------------
Bruce A. Henry Director
/s/ FREDERICK L. HUBBARD
-----------------------
Frederick L. Hubbard Director
/s/ DAVID J. JONES
-----------------------
David J. Jones Director
/s/ HUGH M. LANDES
-----------------------
Hugh M. Landes Director
/s/ WILLIAM M. LEECH, JR.
-----------------------
William M. Leech, Jr. Director
/s/ JAMES M. REYNOLDS
-----------------------
James M. Reynolds Director
/s/ CHARLES R. RICE, JR.
-----------------------
Charles R. Rice, Jr. Director
Signature Title
--------- -----
/s/ CECIL E. VIVERETTE, JR.
-----------------------
Cecil E. Viverette, Jr. Director
/s/ GWALTNEY W. WHITE, JR.
-----------------------
Gwaltney W. White, Jr. Director
/s/ CARL R. WIDDOWSON
-----------------------
Carl R. Widdowson Director
/s/ C. DOUGLAS WINE
-----------------------
C. Douglas Wine Director
- ----------------------
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO
SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES
PURSUANT TO SECTION 12 OF THE ACT.
As of the date this annual report on Form 10-K was filed with the
Securities and Exchange Commission, Old Dominion had not yet furnished to its
security holders copies of its annual report for fiscal year 1996. Old Dominion
undertakes that it will file four copies of such annual report with the
Securities and Exchange Commission when such report is sent to security holders.