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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2004
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
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Commission File Number: (Under the Securities Act of 1933) 33-37977
MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
MICHIGAN 38-2726166
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 PROGRESS PLACE, MIDLAND, MICHIGAN 48640
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (989) 839-6000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2004
TABLE OF CONTENTS
Page
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PART I FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements (Unaudited)............................................. 2
Consolidated Balance Sheets .............................................................. 2
Consolidated Statements of Operations .................................................... 3
Consolidated Statements of Partners' Equity............................................... 4
Consolidated Statements of Cash Flows..................................................... 5
Condensed Notes to Unaudited Consolidated Financial Statements............................ 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................................. 15
Item 3. Quantitative and Qualitative Disclosures About Market Risk ............................... 22
Item 4. Controls and Procedures................................................................... 23
PART II OTHER INFORMATION
Item 1. Legal Proceedings......................................................................... 24
Item 6. Exhibits and Reports on Form 8-K.......................................................... 25
Signatures................................................................................ 26
Certifications............................................................................ 27
-1-
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements (Unaudited)
MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS AS OF
(In Thousands)
March 31,
2004 December 31,
(Unaudited) 2003
----------- ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 213,783 $ 173,651
Accounts and notes receivable - related parties 53,953 43,805
Accounts receivable 36,681 38,333
Gas inventory 9,541 20,298
Unamortized property taxes 43,481 17,672
Derivative assets 108,350 86,825
Broker margin accounts and prepaid expenses 5,885 8,101
----------- -----------
Total current assets 471,674 388,685
----------- -----------
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment 2,460,802 2,463,931
Pipeline 21,432 21,432
----------- -----------
Total property, plant and equipment 2,482,234 2,485,363
Accumulated depreciation (1,008,135) (991,556)
----------- -----------
Net property, plant and equipment 1,474,099 1,493,807
----------- -----------
OTHER ASSETS:
Restricted investment securities held-to-maturity 139,830 139,755
Derivative assets non-current 22,733 18,100
Deferred financing costs, net of accumulated amortization of
$17,608 and $17,285, respectively 7,357 7,680
Prepaid gas costs, spare parts deposit, materials and supplies 21,008 21,623
----------- -----------
Total other assets 190,928 187,158
----------- -----------
TOTAL ASSETS $ 2,136,701 $ 2,069,650
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 88,816 $ 57,368
Gas supplier funds on deposit 9,208 4,517
Interest payable 52,431 53,009
Current portion of long-term debt 134,576 134,576
----------- -----------
Total current liabilities 285,031 249,470
----------- -----------
NON-CURRENT LIABILITIES:
Long-term debt 1,018,645 1,018,645
Other 2,503 2,459
----------- -----------
Total non-current liabilities 1,021,148 1,021,104
----------- -----------
TOTAL LIABILITIES 1,306,179 1,270,574
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 8)
PARTNERS' EQUITY 830,522 799,076
----------- -----------
TOTAL LIABILITIES AND PARTNERS' EQUITY $ 2,136,701 $ 2,069,650
=========== ===========
The accompanying condensed notes are an integral part of these statements.
-2-
MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In Thousands)
Three Months Ended
March 31,
----------------------------
2004 2003
------------ ------------
OPERATING REVENUES:
Capacity $ 100,660 $ 99,543
Electric 54,229 48,043
Steam 5,618 5,583
------------ ------------
Total operating revenues 160,507 153,169
------------ ------------
OPERATING EXPENSES:
Fuel costs 81,835 59,937
Depreciation 22,267 22,180
Operations 4,757 4,601
Maintenance 3,654 3,511
Property and single business taxes 7,163 7,509
Administrative, selling and general 2,890 2,663
------------ ------------
Total operating expenses 122,566 100,401
------------ ------------
OPERATING INCOME 37,941 52,768
------------ ------------
OTHER INCOME (EXPENSE):
Interest and other income 1,167 1,369
Interest expense (27,708) (29,385)
------------ ------------
Total other income (expense), net (26,541) (28,016)
------------ ------------
NET INCOME $ 11,400 $ 24,752
============ ============
The accompanying condensed notes are an integral part of these statements.
-3-
MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF PARTNERS' EQUITY (Unaudited)
(In Thousands)
Three Months Ended
March 31,
--------------------------------------------------------------------------
2004 2003
----------------------------------- -----------------------------------
General Limited General Limited
Partners Partners Total Partners Partners Total
--------- --------- --------- --------- --------- ---------
BALANCE, BEGINNING OF PERIOD $ 684,334 $ 114,742 $ 799,076 $ 627,947 $ 106,363 $ 734,310
Comprehensive Income:
Net income 9,925 1,475 11,400 21,550 3,202 24,752
Other Comprehensive Income:
Unrealized gain on hedging activities
since beginning of period 23,428 3,481 26,909 18,909 2,810 21,719
Reclassification adjustments recognized
in net income above (5,975) (888) (6,863) (10,866) (1,615) (12,481)
--------- --------- --------- --------- --------- ---------
Total other comprehensive income change 17,453 2,593 20,046 8,043 1,195 9,238
Total Comprehensive Income 27,378 4,068 31,446 29,593 4,397 33,990
--------- --------- --------- --------- --------- ---------
BALANCE, END OF PERIOD $ 711,712 $ 118,810 $ 830,522 $ 657,540 $ 110,760 $ 768,300
========= ========= ========= ========= ========= =========
The accompanying condensed notes are an integral part of these statements.
-4-
MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In Thousands)
Three Months Ended
March 31,
------------------------
2004 2003
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 11,400 $ 24,752
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 22,590 22,533
Increase in accounts receivable (8,496) (8,780)
Decrease in gas inventory 10,757 13,796
Increase in unamortized property taxes (25,809) (22,415)
Decrease (increase) in broker margin accounts and prepaid expenses 2,216 (1,108)
Increase in derivative assets (6,112) (7,556)
Decrease (increase) in prepaid gas costs, spare parts deposit, materials
and supplies 615 (11,942)
Increase in accounts payable and accrued liabilities 31,448 35,801
Increase in gas supplier funds on deposit 4,691 76,912
Decrease in interest payable (578) (226)
Increase in other non-current liabilities 44 216
---------- ----------
Net cash provided by operating activities 42,766 121,983
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Plant modifications and purchases of plant equipment (2,559) (7,399)
Maturity of restricted investment securities held-to-maturity 114,661 153,174
Purchase of restricted investment securities held-to-maturity (114,736) (154,684)
---------- ----------
Net cash used in investing activities (2,634) (8,909)
---------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 40,132 113,074
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 173,651 160,425
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 213,783 $ 273,499
========== ==========
The accompanying condensed notes are an integral part of these statements.
-5-
MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
These consolidated financial statements and condensed notes should be read along
with the audited financial statements and notes contained in the Annual Report
on Form 10-K for the year ended December 31, 2003 of Midland Cogeneration
Venture Limited Partnership ("MCV"). In the opinion of management, the unaudited
financial information herein reflects all adjustments (which include only normal
recurring adjustments) necessary to assure the fair presentation of financial
position, results of operations and cash flows for the periods presented. Prior
period amounts have been reclassified for comparative purposes. These
reclassifications had no effect on net income. The consolidated financial
statements include the accounts of MCV and its wholly-owned subsidiaries. All
material transactions and balances among entities, which comprise MCV, have been
eliminated in the consolidated financial statements. Interim results may not be
indicative of results that may be expected for any other interim period or for
2004 as a whole.
(1) THE PARTNERSHIP AND ASSOCIATED RISKS
MCV was organized to construct, own and operate a combined-cycle,
gas-fired cogeneration facility (the "Facility") located in Midland,
Michigan. MCV was formed on January 27, 1987, and the Facility began
commercial operation in 1990.
In 1992, MCV acquired the outstanding common stock of PVCO Corp., a
previously inactive company which was dissolved on January 30, 2004.
MCV and PVCO Corp. had entered into a partnership agreement to form MCV
Gas Acquisition General Partnership ("MCV GAGP") for the purpose of
buying and selling natural gas on the spot market and other
transactions involving natural gas activities. Currently, MCV GAGP is
not actively engaged in any business activity.
The Facility has a net electrical generating capacity of approximately
1500 MW and approximately 1.5 million pounds of process steam capacity
per hour. MCV has entered into three principal energy sales agreements.
MCV has contracted to (i) supply up to 1240 MW of electric capacity
("Contract Capacity") to Consumers Energy Company ("Consumers") under
the Power Purchase Agreement ("PPA"), for resale to its customers
through 2025, (ii) supply electricity and steam to The Dow Chemical
Company ("Dow") through 2008 and 2015, respectively, under the Steam
and Electric Power Agreement ("SEPA") and (iii) supply steam to Dow
Corning Corporation ("DCC") under the Steam Purchase Agreement ("SPA")
through 2011. From time to time, MCV enters into other sales agreements
for the sale of excess capacity and/or energy available above MCV's
internal use and obligations under the PPA, SEPA and SPA. Results of
operations are primarily dependent on successfully operating the
Facility at or near contractual capacity levels and on Consumers'
ability to perform its obligations under the PPA. Sales pursuant to the
PPA have historically accounted for over 90% of MCV's revenues.
The PPA permits Consumers, under certain conditions, to reduce the
capacity and energy charges payable to MCV and/or to receive refunds of
capacity and energy charges paid to MCV if the Michigan Public Service
Commission ("MPSC") does not permit Consumers to recover from its
customers the capacity and energy charges specified in the PPA (the
"regulatory-out" provision). Until September 15, 2007, however, the
capacity charge may not be reduced below an average capacity rate of
3.77 cents per kilowatt-hour for the available Contract Capacity
notwithstanding the "regulatory-out" provision. Consumers and MCV are
required to support and defend the terms of the PPA.
The Facility is a qualifying cogeneration facility ("QF") originally
certified by the Federal Energy Regulatory Commission ("FERC") under
the Public Utility Regulatory Policies Act of 1978, as amended
("PURPA"). In order to maintain QF status, certain operating and
efficiency standards must be maintained on a calendar-year basis and
certain ownership limitations must be met. In the case of a
topping-cycle generating plant such as the Facility, the applicable
operating standard requires that the portion of total energy output
that is put to some useful purpose other than facilitating the
production of power (the "Thermal Percentage") be at least 5%. In
addition, the Facility must achieve a PURPA efficiency standard (the
sum of the useful power output plus one-half of the useful thermal
energy output, divided by the energy input (the "Efficiency
Percentage")) of at least 45%. If the Facility maintains a Thermal
Percentage of 15% or higher, the required Efficiency Percentage is
reduced to 42.5%. Since 1990, the Facility has achieved the applicable
Thermal and Efficiency Percentages. For the three months ended March
31, 2004, the Facility achieved a Thermal Percentage of 18.8% and an
-6-
MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Efficiency Percentage of 48.0%. The loss of QF status could, among
other things, cause the Facility to lose its rights under PURPA to sell
power to Consumers at Consumers' "avoided cost" and subject the
Facility to additional federal and state regulatory requirements. MCV
believes that the Facility will meet the required Thermal Percentage
and the corresponding Efficiency Percentage in 2004 and beyond, as well
as the PURPA ownership limitations.
The Facility is wholly dependent upon natural gas for its fuel supply
and a substantial portion of the Facility's operating expenses consist
of the costs of natural gas. MCV recognizes that its existing gas
contracts are not sufficient to satisfy the anticipated gas needs over
the term of the PPA and, as such, no assurance can be given as to the
availability or price of natural gas after the expiration of the
existing gas contracts. In addition, to the extent that the costs
associated with production of electricity rise faster than the energy
charge payments, MCV's financial performance will be negatively
affected. The extent of such impact will depend upon the amount of the
average energy charge payable under the PPA, which is based upon costs
incurred at Consumers' coal-fired plants and upon the amount of energy
scheduled by Consumers for delivery under the PPA. However, given the
unpredictability of these factors, the overall economic impact upon MCV
of changes in energy charges payable under the PPA and in future fuel
costs under new or existing contracts cannot accurately be predicted.
In July 2000, in response to rapidly escalating natural gas prices and
since Consumers electric rates were frozen, MCV entered into
transactions with Consumers whereby Consumers agreed to reduce MCV's
dispatch level and MCV agreed to share with Consumers the savings
realized by not having to generate electricity ("Dispatch Mitigation").
On January 1, 2004, Dispatch Mitigation ceased and Consumers began
dispatching MCV pursuant to a 915 MW settlement and a 325 MW settlement
"availability caps" provision (i.e., minimum dispatch of 1100 MW on-
and off-peak ("Forced Dispatch")). On February 12, 2004, MCV and
Consumers entered into a Resource Conservation Agreement ("RCA") which,
among other things, provides that Consumers will economically dispatch
MCV, if certain conditions are met. Such dispatch is expected to reduce
electric production from what would have occurred under the Forced
Dispatch, as well as decrease gas consumption by MCV. The RCA provides
that Consumers has a right of first refusal to purchase, at market
prices, the gas conserved under the RCA. The RCA further provides for
the parties to enter into another agreement implementing the terms of
the RCA including the sharing of savings realized by not having to
generate electricity, which the parties expect to execute in the second
quarter of 2004. The RCA is subject to MPSC approval and MCV and
Consumers must accept the terms of the MPSC order as a condition
precedent to the RCA becoming effective. The MPSC has established a
contested hearing schedule which is expected to result in an MPSC order
being issued in the fourth quarter of 2004. MCV cannot predict the
outcome of the MPSC proceedings necessary to effectuate the RCA. During
2003, when Dispatch Mitigation was in effect, MCV estimates that this
program resulted in net savings of approximately $2.2 million for the
three months ended March 31, 2003, a portion of which will be realized
in reduced maintenance expenditures in future years.
At both the state and federal level, efforts continue to restructure
the electric industry. A significant issue to MCV is the potential for
future regulatory denial of recovery by Consumers from its customers of
above market PPA costs Consumers pays MCV. At the state level, the MPSC
entered a series of orders from June 1997 through February 1998
(collectively the "Restructuring Orders"), mandating that utilities
"wheel" third-party power to the utilities' customers, thus permitting
customers to choose their power provider. MCV, as well as others, filed
an appeal in the Michigan Court of Appeals to protect against denial of
recovery by Consumers of PPA charges. The Michigan Court of Appeals
found that the Restructuring Orders do not unequivocally disallow such
recovery by Consumers and, therefore, MCV's issues were not ripe for
appellate review and no actual controversy regarding recovery of costs
could occur until 2008, at the earliest. In June 2000, the State of
Michigan enacted legislation which, among other things, states that the
Restructuring Orders (being voluntarily implemented by Consumers) are
in compliance with the legislation and enforceable by the MPSC. The
legislation provides that the rights of parties to existing contracts
between utilities (like Consumers) and QFs (like MCV), including the
rights to have the PPA charges recovered from customers of the
utilities, are not abrogated or diminished, and permits utilities to
securitize certain stranded costs, including PPA charges.
-7-
MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
In 1999, the U.S. District Court granted summary judgment to MCV
declaring that the Restructuring Orders are preempted by federal law to
the extent they prohibit Consumers from recovering from its customers
any charge for avoided costs (or "stranded costs") to be paid to MCV
under PURPA pursuant to the PPA. In 2001, the United States Court of
Appeals ("Appellate Court") vacated the U.S. District Court's 1999
summary judgment and ordered the case dismissed based upon a finding
that no actual case or controversy existed for adjudication between the
parties. The Appellate Court determined that the parties' dispute is
hypothetical at this time and the QFs' (including MCV) claims are
premised on speculation about how an order might be interpreted by the
MPSC, in the future.
MCV continues to monitor and participate in these industry
restructuring matters as appropriate, and to evaluate potential impacts
on both cash flows and recoverability of the carrying value of
property, plant and equipment. MCV management cannot, at this time,
predict the impact or outcome of these matters.
(2) RISK MANAGEMENT ACTIVITIES AND DERIVATIVE TRANSACTIONS
Fair Value of Financial Instruments
The carrying amounts of cash, cash equivalents and short-term
investments approximate fair value because of the short maturity of
these instruments. MCV's short-term investments, which are made up of
investment securities held-to-maturity, as of March 31, 2004 and
December 31, 2003, have original maturity dates of approximately one
year or less. The unique nature of the negotiated financing obligation
discussed in Note 7 makes it unnecessary to estimate the fair value of
the lessor group ("Owner Participants") underlying debt and equity
instruments supporting such financing obligation, since Statement of
Financial Accounting Standards ("SFAS") No. 107, "Disclosures about
Fair Value of Financial Instruments" does not require fair value
accounting for the lease obligation.
Accounting for Derivative Instruments and Hedging Activities
Effective January 1, 2001, MCV adopted SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities" which was issued in June
1998 and then amended by SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of
SFAS No. 133," SFAS No. 138 "Accounting for Certain Derivative
Instruments and Certain Hedging Activities - An amendment of FASB
Statement No. 133" and SFAS No. 149 "Amendment of Statement 133 on
Derivative Instruments and Hedging Activity (collectively referred to
as "SFAS No. 133"). SFAS No. 133 establishes accounting and reporting
standards requiring that every derivative instrument be recorded on the
balance sheet as either an asset or liability measured at its fair
value. SFAS No. 133 requires that changes in a derivative's fair value
be recognized currently in earnings unless specific hedge accounting
criteria are met. Special accounting for qualifying hedges in some
cases allows a derivative's gains and losses to offset related results
on the hedged item in the income statement or permits recognition of
the hedge results in other comprehensive income, and requires that a
company formally document, designate and assess the effectiveness of
transactions that receive hedge accounting.
Electric Sales Agreements
MCV believes that its electric sales agreements currently do not
qualify as derivatives under SFAS No. 133, due to the lack of an active
energy market (as defined by SFAS No. 133) in the State of Michigan and
the transportation cost to deliver the power under the contracts to the
closest active energy market at the Cinergy hub in Ohio and as such
does not record the fair value of these contracts on its balance sheet.
If an active energy market emerges, MCV intends to apply the normal
purchase, normal sales exception under SFAS No. 133 to its electric
sales agreements, to the extent such exception is applicable.
-8-
MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Natural Gas Supply Contracts
MCV management believes that its long-term natural gas contracts, which
do not contain volume optionality, qualify under SFAS No. 133 for the
normal purchases and normal sales exception. Therefore, these contracts
are currently not recognized at fair value on the balance sheet.
The FASB issued DIG Issue C-16, which became effective April 1, 2002,
regarding natural gas commodity contracts that combine an option
component and a forward component. This guidance requires either that
the entire contract be accounted for as a derivative or the components
of the contract be separated into two discrete contracts. Under the
first alternative, the entire contract considered together would not
qualify for the normal purchases and sales exception under the revised
guidance. Under the second alternative, the newly established forward
contract could qualify for the normal purchases and sales exception,
while the option contract would be treated as a derivative under SFAS
No. 133 with changes in fair value recorded through earnings. At April
1, 2002, MCV had nine long-term gas contracts that contained both an
option and forward component. As such, they were no longer accounted
for under the normal purchases and sales exception and MCV began
mark-to-market accounting of these nine contracts through earnings.
Based on the natural gas prices, at the beginning of April 2002, MCV
recorded a $58.1 million gain for the cumulative effect of this
accounting change. During the fourth quarter of 2002, MCV removed the
option component from three of the nine long-term gas contracts, which
should reduce some of the earnings volatility. From April 2002 to March
2004, MCV recorded an additional net mark-to-market gain of $23.2
million for these gas contracts for a cumulative mark-to-market gain
through March 31, 2004 of $81.3 million, which will reverse over the
remaining life of these gas contracts, ranging from 2004 to 2007.
For the three months ended March 31, 2004 and 2003, MCV recorded in
"Fuel costs" a $6.3 million and $10.2 million, respectively, net
mark-to-market gain in earnings associated with these contracts. In
addition, as of March 31, 2004 and December 31, 2003, MCV recorded
"Derivative assets" in Current Assets in the amount of $58.6 million
and $56.9 million, respectively, and for the same periods recorded
"Derivative assets non-current" in Other Assets in the amount of $22.7
million and $18.1 million, respectively, representing the
mark-to-market gain on these long-term natural gas contracts.
Natural Gas Supply Futures and Options
To manage market risks associated with the volatility of natural gas
prices, MCV maintains a gas hedging program. MCV enters into natural
gas futures and option contracts in order to hedge against unfavorable
changes in the market price of natural gas in future months when gas is
expected to be needed. These financial instruments are being utilized
principally to secure anticipated natural gas requirements necessary
for projected electric and steam sales, and to lock in sales prices of
natural gas previously obtained in order to optimize MCV's existing gas
supply, storage and transportation arrangements.
These financial instruments are derivatives under SFAS No. 133 and the
contracts that are utilized to secure the anticipated natural gas
requirements necessary for projected electric and steam sales qualify
as cash flow hedges under SFAS No. 133, since they hedge the price risk
associated with the cost of natural gas. MCV also engages in cost
mitigation activities to offset the fixed charges MCV incurs in
operating the Facility. These cost mitigation activities include the
use of futures and options contracts to purchase and/or sell natural
gas to maximize the use of the transportation and storage contracts
when it is determined that they will not be needed for Facility
operation. Although these cost mitigation activities do serve to offset
the fixed monthly charges, these cost mitigation activities are not
considered a normal course of business for MCV and do not qualify as
hedges under SFAS No. 133. Therefore, the resulting mark-to-market
gains and losses from cost mitigation activities are flowed through
MCV's earnings.
Cash is deposited with the broker in a margin account at the time
futures or options contracts are initiated. The change in market value
of these contracts requires adjustment of the margin account balances.
The margin account balance as of March 31, 2004 and December 31, 2003
was recorded as a current asset in "Broker margin accounts and prepaid
expenses," in the amount of $2.3 million and $4.1 million,
respectively.
-9-
MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
For the three months ended March 31, 2004, MCV has recognized in other
comprehensive income, an unrealized $20.0 million increase on the
futures contracts, which are hedges of forecasted purchases for plant
use of market priced gas. This resulted in a net $51.3 million gain in
other comprehensive income as of March 31, 2004. This balance
represents natural gas futures and options with maturities ranging from
April 2004 to December 2007, of which $33.9 million of this gain is
expected to be reclassified into earnings within the next twelve
months. MCV also has recorded, as of March 31, 2004, a $49.8 million
current derivative asset in "Derivative assets," representing the
mark-to-market gain on natural gas futures for anticipated projected
electric and steam sales accounted for as hedges. In addition, for the
three months ended March 31, 2004, MCV has recorded a net $5.2 million
gain in earnings from hedging activities related to MCV natural gas
requirements for Facility operations and a net $1.0 million gain in
earnings from cost mitigation activities.
For the three months ended March 31, 2003, MCV recognized an unrealized
$9.2 million increase in other comprehensive income on the futures
contracts, which are hedges of forecasted purchases for plant use of
market priced gas, which resulted in a $35.5 million gain balance in
other comprehensive income as of March 31, 2003. As of March 31, 2003,
MCV had recorded a $31.4 million current derivative asset in
"Derivative assets." For the three months ended March 31, 2003, MCV had
recorded a net $12.2 million gain in earnings from hedging activities
related to MCV natural gas requirements for Facility operations and a
net $.8 million loss in earnings from cost mitigation activities.
(3) GAS TURBINE SERVICE AGREEMENT
Under an amended service agreement entered into between MCV and Alstom
Power Company ("Alstom") (the "Amended Service Agreement"), Alstom
provided MCV spare parts for MCV's gas turbine generators ("GTGs") and
provided qualified service personnel and supporting staff to assist MCV
to perform scheduled inspections on the GTGs, and to repair the GTGs at
MCV's request. The Amended Service Agreement commenced on January 1,
1990, and was set to expire upon the earlier of the completion of the
ninth series of major GTG inspections or December 31, 2009, unless
terminated sooner by MCV for convenience or cause or by Alstom for
cause. Upon termination of the Amended Service Agreement (except
termination for cause by MCV), MCV must pay a cancellation payment of
approximately $5.8 million. MCV terminated the Amended Service
Agreement in February 2004, for cause and therefore does not owe Alstom
the estimated cancellation payment. MCV has invoiced Alstom for
approximately $3.0 million of overpayments by MCV due to reduced
equivalent operating hours experienced under the Amended Service
Agreement. These matters, as well as others, are disputed by Alstom.
MCV will seek final resolution of all disputes that have arisen and may
arise between the parties. At this time, other than recognition of the
$3.0 million receivable stated above, MCV has not recognized any other
liability to or receivable from Alstom, in connection with the contract
termination and any other issues. MCV cannot predict the outcome on
these disputes. Subsequent to this termination, maintenance, repairs
and parts are being performed/provided by MCV, General Electric
International Inc. ("GEII") and others.
Effective December 31, 2002, MCV has signed a new maintenance service
and parts agreement with GEII ("GEII Agreement"). GEII will provide
maintenance services and hot gas path parts for MCV's twelve GTGs under
terms and conditions similar to the Amended Service Agreement. GEII is
scheduled to be on site full time beginning July 1, 2004. The GEII
Agreement will cover four rounds of major GTG inspections, which are
expected to be completed by the year 2015, at a savings to MCV as
compared to the Service Agreement with Alstom. The GEII Agreement can
be terminated by either party for cause or convenience. Should
termination for convenience occur, a buy out amount will be paid by the
terminating party with payments ranging from approximately $19.0
million to $.9 million, based upon the number of operating hours
utilized since commencement of the GEII Agreement.
-10-
MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(4) RESTRICTED INVESTMENT SECURITIES HELD-TO-MATURITY
Non-current restricted investment securities held-to-maturity have
carrying amounts that approximate fair value because of the short
maturity of these instruments and consist of the following as of (in
thousands):
March 31, December 31,
2004 2003
---------- ------------
Funds restricted for rental payments pursuant to the Overall
Lease Transaction $ 137,327 $ 137,296
Funds restricted for management non-qualified plans 2,503 2,459
---------- ----------
Total $ 139,830 $ 139,755
========== ==========
(5) ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consist of the following as of
(in thousands):
March 31, December 31,
2004 2003
------------ ------------
Accounts payable
Related parties $ 8,417 $ 7,386
Trade creditors 44,729 34,786
Property and single business taxes 34,205 12,548
Other 1,465 2,648
------------ ------------
Total $ 88,816 $ 57,368
============ ============
(6) GAS SUPPLIER FUNDS ON DEPOSIT
Pursuant to individual gas contract terms with counterparties, deposit
amounts or letters of credit may be required by one party to the other
based upon the net amount of exposure. The net amount of exposure will
vary with changes in market prices, credit provisions and various other
factors. Collateral paid or received will be posted by one party to the
other based on the net amount of the exposure. Interest is earned on
funds on deposit. As of March 31, 2004, MCV is not supplying any credit
support to others in the form of cash or letters of credit. As of March
31, 2004, MCV is holding $9.2 million of cash on deposit and letters of
credit totaling $138.2 million from two gas suppliers, of which $118.0
million is a letter of credit from El Paso Corporation, a related
party.
(7) LONG-TERM DEBT
Long-term debt consists of the following as of (in thousands):
March 31, December 31,
2004 2003
------------ ------------
Financing obligation, maturing through 2015, payable in
semi-annual installments of principal and interest, secured by
property, plant and equipment $ 1,153,221 $ 1,153,221
Less current portion (134,576) (134,576)
------------ ------------
Total long-term debt $ 1,018,645 $ 1,018,645
============ ============
-11-
MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Financing Obligation
In 1990, MCV obtained permanent financing for the Facility by entering
into sale and leaseback agreements ("Overall Lease Transaction") with a
lessor group, related to substantially all of MCV's fixed assets.
Proceeds of the financing were used to retire borrowings outstanding
under existing loan commitments, make a capital distribution to the
partners of MCV and retire a portion of the notes issued by MCV to MEC
Development Corporation ("MDC") in connection with the transfer of
certain assets by MDC to MCV. In accordance with SFAS No. 98,
"Accounting For Leases," the Overall Lease Transaction has been
accounted for as a financing arrangement.
The financing obligation utilizes the effective interest rate method,
which is based on the minimum lease payments required through the end
of the basic lease term of 2015 and MCV management's estimate of
additional anticipated obligations after the end of the basic lease
term. The effective interest rate during the remainder of the basic
lease term is approximately 9.4%.
Interest and fees incurred related to long-term debt arrangements
during the three months ended March 31, 2004 and 2003 were $27.4
million and $29.0 million, respectively. Interest and fees paid for the
three months ended March 31, 2004 and 2003 were $27.9 million and $29.2
million, respectively.
(8) COMMITMENTS AND CONTINGENCIES
Property Tax Appeal
In 1997, MCV filed a property tax appeal against the City of Midland at
the Michigan Tax Tribunal contesting MCV's 1997 property taxes.
Subsequently, MCV filed appeals contesting its property taxes for tax
years 1998 through 2003 at the Michigan Tax Tribunal and expects to
make such a filing for 2004. A trial was held for tax years 1997 -
2000. The appeals for tax years 2001-2003 are being held in abeyance.
On January 23, 2004, the Michigan Tax Tribunal issued its decision in
MCV's tax appeal against the City of Midland for tax years 1997 through
2000 and has issued several erratum to the initial decision (together
the "MTT Decision"). MCV management has estimated that the MTT Decision
will result in a refund to MCV for the tax years 1997 through 2000 of
approximately $35 million in taxes plus $9 million of interest. The MTT
Decision has been appealed to the Michigan Appellate Court by the City
of Midland. MCV has filed a cross-appeal at the Michigan Appellate
Court. MCV management cannot predict the outcome of these legal
proceedings. MCV has not recognized any of the above stated refunds
(net of approximately $15.4 million of deferred expenses) in earnings
at this time.
NOx Allowances
The United States Environmental Protection Agency ("US EPA") has
conditionally approved the State of Michigan's - State Implementation
Plan ("SIP"), which includes an interstate NOx budget and allowance
trading program administered by the US EPA. Each NOx allowance permits
a source to emit one ton of NOx during the seasonal control period (May
1 through September 30). NOx allowances may be bought or sold and
unused allowances may be banked for future use, with certain
limitations. MCV estimates that it will have excess NOx allowances to
sell under this program. The current value of the excess 2004 NOx
allowances range from approximately $3.0 million to $4.2 million.
Consumers has given notice to MCV that it believes the ownership of the
NOx allowances under this program belong, at least in part, to
Consumers. MCV has initiated the dispute resolution process pursuant to
the PPA to resolve this issue and the parties have entered into a
standstill agreement deferring the resolution of this dispute. However,
either party may terminate the standstill agreement at any time and
reinstate the PPA's dispute resolution provisions. MCV management
cannot predict the outcome of this issue.
-12-
MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(9) RETIREMENT BENEFITS
Postretirement Health Care Plans
In 1992, MCV established defined cost postretirement health care plans
("Plans") that cover all full-time employees, excluding key management.
The Plans provide health care credits, which can be utilized to
purchase medical plan coverage and pay qualified health care expenses.
Participants become eligible for the benefits if they retire on or
after the attainment of age 65 or upon a qualified disability
retirement, or if they have 10 or more years of service and retire at
age 55 or older. The Plans granted retroactive benefits for all
employees hired prior to January 1, 1992. This prior service cost has
been amortized to expense over a five year period. MCV annually funds
the current year service and interest cost as well as amortization of
prior service cost to both qualified and non-qualified trusts. The MCV
accounts for retiree medical benefits in accordance with SFAS 106,
"Employers Accounting for Postretirement Benefits Other Than Pensions."
This standard required the full accrual of such costs during the years
that the employee renders service to the MCV until the date of full
eligibility.
Net periodic postretirement health care cost for the three months
ending March 31, included the following components (in thousands):
2004 2003
------- -------
Components of net periodic benefit cost:
Service cost $ 58.0 $ 47.4
Interest cost 43.7 39.7
Expected return on Plan assets (54.0) (36.5)
Amortization of unrecognized net (gain) or loss 3.9 6.8
------- -------
Net periodic benefit cost $ 51.6 $ 57.4
======= =======
Contributions
Since MCV's Plan is funded annually, no contributions have been made as
of March 31, 2004. MCV expects to contribute approximately $.2 million
to the Plans in December 2004.
Medicare Prescription Drug, Improvement and Modernization Act of 2003
On December 8, 2003, the Medicare Prescription Drug, Improvement and
Modernization Act of 2003 (the "Act") became law. The Act expanded
Medicare to include, for the first time, coverage for prescription
drugs. At this time, because of various uncertainties related to this
legislation and the appropriate accounting methodology, MCV has elected
to defer financial recognition of this legislation until the FASB
issues final accounting guidance. This deferral election is permitted
under SFAS No. 106-1, "Employers Accounting for Postretirement Benefits
Other Than Pensions." Based upon current conclusions of the Financial
Accounting Standards Board (which are subject to change), MCV does not
consider its Plans to be actuarially equivalent, since the Plans
benefits provided to eligible participants are not annual or on-going
in nature, but are a readily exhaustible, lump-sum amount available for
use at the discretion of the participant. Therefore, MCV does not
anticipate recording any adjustments to books of MCV, at the time of
final authoritative guidance is issued.
-13-
MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(10) PARTNERS' EQUITY AND RELATED PARTY TRANSACTIONS
The following table summarizes the nature and amount of each of MCV's
Partner's equity interest, interest in profits and losses of MCV at
March 31, 2004, and the nature and amount of related party transactions
or agreements that existed with MCV's partners or affiliates as of
March 31, 2004 and 2003, and for each of the three month periods ended
March 31 (in thousands).
Beneficial Owner, Equity
Partner, Type of Partner Equity
and Nature of Related Party Interest Interest Party Transactions and Agreements 2004 2003
- --------------------------------------------------------------------------------------------------------------------------------
CMS Energy Company
CMS Midland, Inc. $406,955 49.0% Power purchase agreements $149,446 $134,240
General Partner; wholly-owned ======== ======== Purchases under gas transportation agreements 2,314 5,822
subsidiary of Consumers Energy Purchases under spot gas agreements -- 79
Company Purchases under gas supply agreements -- 2,330
Gas storage agreement 641 641
Land lease/easement agreements 150 150
Accounts receivable 50,403 44,616
Accounts payable 1,677 3,751
Sales under spot gas agreements -- 3,051
El Paso Corporation
Source Midland Limited $145,121 18.1% Purchase under gas transportation agreements 3,123 3,177
Partnership ("SMLP") General Purchases under spot gas agreement -- 129
Partner; owned by subsidiaries Purchases under gas supply agreement 14,484 13,552
of El Paso Corporation Gas agency agreement 59 61
Accounts payable 5,987 5,505
Deferred reservation charges under gas
purchase agreement 4,336 5,915
Sales under spot gas agreements -- 3,474
Gas supplier funds on deposit 4 57,627
El Paso Midland, Inc. ("El Paso 87,072 10.9 See related party activity listed under
Midland") SMLP.
General Partner; wholly-owned
subsidiary of El Paso
Corporation
MEI Limited Partnership ("MEI") See related party activity listed under
A General and Limited Partner; SMLP.
50% interest owned by El Paso
Midland, Inc. and 50% interest
owned by SMLP
General Partnership
Interest 72,564 9.1
Limited Partnership
Interest 7,254 .9
Micogen Limited Partnership 36,279 4.5 See related party activity listed under
("MLP") Limited Partner, owned SMLP.
subsidiaries of El Paso
Corporation
-------- --------
Total El Paso Corporation $348,290 43.5%
======== ========
The Dow Chemical Company
The Dow Chemical Company $ 75,276 7.5% Steam and electric power agreement 9,665 9,910
Limited Partner ======== ======== Steam purchase agreement - Dow Corning
Corp (affiliate) 1,397 1,269
Purchases under demineralized water
supply agreement 2,166 1,909
Accounts receivable 3,549 3,155
Accounts payable 753 1,068
Standby and backup fees 184 185
Alanna Corporation
Alanna Corporation $ 1(1) .00001% Note receivable 1 1
Limited Partner; wholly-owned ======== --------
subsidiary of Alanna Holdings
Corporation
TOTAL PARTNERS' EQUITY $830,522 100.0%
======== --------
Footnotes to Partners' Equity and Related Party Transactions
(1) Alanna's capital stock is pledged to secure MCV's obligation under the
lease and other overall lease transaction documents.
-14-
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (MD&A)
MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP
This MD&A should be read along with the MD&A in the Annual Report on Form 10-K
for the year ended December 31, 2003 of the Midland Cogeneration Venture Limited
Partnership ("MCV").
Results of Operations:
"Safe Harbor" Statement Under the Private Securities Litigation Reform Act of
1995. This Quarterly Report on Form 10-Q contains certain "forward-looking
statements" as defined by the Private Securities Litigation Reform Act of 1995
(the "Act"), including without limitation, discussion as to expectations,
beliefs, plans, objectives and future financial performance, or assumptions
underlying or concerning matters discussed reflecting MCV's current expectations
of the manner in which the various factors discussed therein may affect its
business in the future. Any matters that are not historical facts are
forward-looking and, accordingly, involve estimates, assumptions, and
uncertainties that could cause actual results or outcomes to differ materially
from those expressed in the forward-looking statements. Accordingly, this "Safe
Harbor" Statement contains additional information about such factors relating to
the forward-looking statements. There is no assurance, however, that MCV's
expectations will be realized or that unexpected events will not have an adverse
impact on MCV's business.
Some important factors that could cause actual results or outcomes to differ
materially from those discussed in the forward-looking statements include
governmental policies, legislation and other regulatory actions (including those
of the Michigan Legislature, Congress, Federal Energy Regulatory Commission and
the Michigan Public Service Commission) with respect to cost recovery under the
PPA, industry restructuring or deregulation, operation of plant facilities
including natural gas pipeline and storage facilities, Consumers' ability to
perform its obligations under the PPA and present or prospective wholesale and
retail competition, among other factors. The business and profitability of MCV
is also influenced by other factors such as pricing and transportation of
natural gas, changes in accounting standards (such as accounting for derivative
instruments and hedging activities) and environmental legislation/regulation.
All such factors are difficult to predict, contain uncertainties which may
materially affect actual results, and are beyond the control of MCV.
Comparison of the Three Months ended March 31, 2004 and 2003:
Overview:
For the first quarter of 2004, MCV recorded net income of $11.4 million, which
includes a $6.3 million mark-to-market gain. The mark-to-market gain is on long
term gas contracts that began being marked-to-market, as required by SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." MCV's net
income for the first quarter of 2003 was $24.8 million, which included a $10.2
million mark-to-market gain on the long term gas contracts. The earnings
decrease for the first quarter of 2004 compared to 2003 of $13.4 million is the
result of a $3.9 million decrease in the long term gas contract mark-to-market
value, an increased net usage of natural gas from higher electric dispatch and
higher natural gas prices. This earnings decrease was partially offset by lower
interest expense.
-15-
Operating Revenues:
The following represents significant operating revenue statistics for the
following periods (dollars in thousands except average rates):
Three Months Ended
March 31,
------------------------
2004 2003
---------- ----------
Operating Revenues $ 160,507 $ 153,169
Capacity Revenue $ 100,660 $ 99,543
PPA Contract Capacity (MW) 1,240 1,240
Billed PPA Availability 98.5% 98.5%
Electric Revenue $ 54,229 $ 48,043
PPA Delivery as a Percentage of Contract Capacity 93.4% 79.3%
PPA, SEPA and Other Electric Deliveries (MWh) 2,656,320 2,254,127
Average PPA Variable Energy Rate ($/MWh) $ 15.69 $ 15.78
Average PPA Fixed Energy Rate ($/MWh) $ 3.59 $ 3.89
Steam Revenue $ 5,618 $ 5,583
Steam Deliveries (Mlbs) 1,757,400 1,750,100
For the first quarter of 2004, MCV's operating revenues increased $7.3 million
from the first quarter of 2003. This increase is due primarily to a higher
electric dispatch under Forced Dispatch. Also contributing to this increase is
one additional day of capacity revenue, as a result of 2004 being a leap year.
This increase was slightly offset by lower energy rates under the PPA with
Consumers and the SEPA with Dow.
Operating Expenses:
The table below reconciles MCV's fuel costs, as reported in the Consolidated
Statement of Operations, to the non-GAAP fuel costs reported below. The non-GAAP
fuel costs are a better representation of MCV's actual natural gas cost of
production utilized at the Facility. The table reconciles non-GAAP fuel costs
for the three months ended March 31, (dollars in thousands):
2004 2003
------- -------
Fuel costs (Consolidated Statement of Operations) $81,835 $59,937
Less: Mark-to-market ("MTM") value in fuel costs 6,351 10,226
------- -------
Non-GAAP fuel costs excluding MTM value $88,186 $70,163
======= =======
For the first quarter of 2004, MCV's operating expenses were $122.6 million,
which includes $81.8 million of fuel costs, including a $6.3 million
mark-to-market gain on certain natural gas contracts which contain optionality.
During this period, MCV purchased approximately 20.7 Bcf of natural gas, and a
net 2.7 Bcf was used for transportation fuel and as a net change to gas in
storage. During this same period, MCV consumed 23.4 Bcf at an average commodity
cost of $3.31 per MMBtu. For the first quarter of 2003, MCV's operating expenses
were $100.4 million, which includes $59.9 million of fuel costs, including a
$10.2 million mark-to-market net gain on the natural gas contracts which contain
optionality. During this period, MCV purchased approximately 16.5 Bcf of natural
gas, and a net 3.9 Bcf was used for transportation fuel and as a net change to
gas in storage. During this same period, MCV consumed 20.4 Bcf at an average
commodity cost of $2.94 per MMBtu, which includes the
-16-
effects of the disposition of excess gas supplies not required for generation.
Fuel costs for the first quarter of 2004 compared to 2003 increased by $18.0
million, excluding the effects of the quarterly mark-to-market adjustments for
both periods. This fuel cost increase was due to a higher gas usage resulting
from the increase in the electric dispatch and a higher natural gas prices.
Other Income (Expense):
For the first quarter of 2004 compared to 2003, interest expense decreased due
to a lower outstanding principal balance on MCV's financing obligation.
Liquidity and Capital Resources
For the three months ended March 31, 2004 and 2003, net cash generated by MCV's
operations was $42.8 million and $122.0 million, respectively. Included in MCV's
net cash generated as of March 31, 2004 is $4.7 million of cash collateral paid
to MCV, based upon the net amount of exposure on MCV's long term natural gas
contracts with counterparties. This collateral balance will vary with changes in
market prices, credit provisions and various other factors. MCV's cash and cash
equivalents have a normal cycle of collecting revenues less operating expenses
prior to making the semiannual payments under the financing obligation due in
January and July for the next eleven years. During the three months ended March
31, 2004 and 2003, MCV paid financing obligation requirements of $27.9 million
and $29.2 million, respectively, as required under the Overall Lease
Transaction.
MCV also has a $50 million working capital line ("Working Capital Facility"),
which was renewed through a syndication in August 2003, to provide temporary
financing, as necessary, for operations. The Working Capital Facility has been
collateralized by MCV's natural gas inventory and earned receivables. At any
given time, borrowings and letters of credit are limited by the amount of the
borrowing base, defined as 90% of earned receivables and 50% of natural gas
inventory, capped at $15 million. The borrowing base varies over the month as
receivables are earned, billed and collected and as natural gas inventory
balances are built and depleted. In addition, earned receivables borrowing base
can be affected by Consumers' credit rating. The Working Capital Facility term
currently expires on August 28, 2004. MCV did not utilize the Working Capital
Facility during the first three months of 2004. As of March 31, 2004, MCV had no
outstanding borrowings or letters of credit. MCV believes that amounts available
to it under the Working Capital Facility along with available cash reserves will
be sufficient to meet any working capital shortfalls that might occur.
In the near term, MCV expects to fund current operating expenses, capital
expenditures and financing obligations primarily through cash flows from
operations. Due to uneven scheduled financing obligation payments (high summer
payment, low winter payment), MCV anticipates that it will be drawing on its
cash reserves to fund temporary cash flow shortfalls to the extent available for
such purposes. These cash flow shortfalls are anticipated to be replenished
unless Forced Dispatch continues for an extended period of time. See Item 2,
"MD&A - Outlook Energy Rates and Cost of Production." As of March 31, 2004,
there were approximately $353.6 million of cash reserves of which $137.3 million
had been reserved for the debt portion of the financing obligation.
-17-
Disclosure about Contractual Obligations
MCV has assumed various financial obligations and commitments in the normal
course of its business. These obligations are considered to represent expected
cash payments that MCV is required to make under its existing contractual
arrangements. As of March 31, 2004, MCV has the following contractual financial
obligations and commitments:
Payments Due by Period (In Millions)
-----------------------------------------------------------------------
Less Than One to Three Three to More Than Five
Contractual Obligations Total One Year Years Five Years Years
- ------------------------------------------------------------------------------------------------------------------
Long term Debt (1) $ 1,736.2 $ 214.9 $ 330.4 $ 301.8 $ 889.1
======================================================================
Unconditional Purchase Obligations (2) $ 2,721.1 $ 249.9 $ 789.1 $ 693.2 $ 988.9
Other Long term Obligations (3) 218.7 9.2 30.9 25.0 153.6
----------------------------------------------------------------------
Total Contractual Cash Obligations $ 2,939.8 $ 259.1 $ 820.0 $ 718.2 $ 1,142.5
======================================================================
Amount of Commitment Expiration Per Period
--------------------------------------------------------------------------
Less Than One to Three Three to More Than Five
Commercial Commitments Total One Year Years Five Years Years
- ---------------------------------------------------------------------------------------------------------------------
Working Capital Facility $ 50.0 $ 50.0 $ -- $ -- $ --
======================================================================
(1) Represents expected cash payments, including interest.
(2) Represents estimated minimum commitments under current long term
natural gas contracts, natural gas transportation reservation charges,
GTG compressor parts and the ground lease agreement.
(3) Represents the cost of current Facility maintenance service agreements
and spare parts.
New Accounting Standards
On December 8, 2003, the Medicare Prescription Drug, Improvement and
Modernization Act of 2003 (the "Act") became law. The Act expanded Medicare to
include, for the first time, coverage for prescription drugs. At this time,
because of various uncertainties related to this legislation and the appropriate
accounting methodology, MCV has elected to defer financial recognition of this
legislation until the FASB issues final accounting guidance. This deferral
election is permitted under SFAS No. 106-1, "Employers Accounting for
Postretirement Benefits Other Than Pensions." Based upon current conclusions of
the Financial Accounting Standards Board (which are subject to change), MCV does
not consider its Plans to be actuarially equivalent, since the Plans benefits
provided to eligible participants are not annual or on-going in nature, but are
a readily exhaustible, lump-sum amount available for use at the discretion of
the participant. Therefore, MCV does not anticipate recording any adjustments to
books of MCV, at the time of final authoritative guidance is issued.
Off-Balance Sheet Arrangements
As part of MCV's ongoing business, MCV does not participate in transactions that
generate relationships with unconsolidated entities or financial partnerships,
such as entities often referred to as structured finance or special purpose
entities ("SPEs"), which would have been established for the purpose of
facilitating off-balance sheet arrangements or other contractually narrow or
limited purposes. As of March 31, 2004, MCV was not involved in any
unconsolidated SPE transactions.
Outlook
Results of operations are largely dependent on successfully maintaining
availability of the Facility at or near Contract Capacity levels, the
availability of natural gas and the level of energy rates paid to MCV relative
to the cost of fuel used for generation.
-18-
Operating Outlook. During the first three months of 2004, approximately 63% of
PPA revenues were capacity payments under the PPA, which were billed on
availability, subject to an annual availability cap of 98.5% pursuant to a
settlement agreement between MCV and Consumers. Actual PPA availability was
98.9% for the first three months of 2004, 99.4% for 2003 and 98.8% for 2002.
Availability will depend on the level of scheduled and unscheduled maintenance
outages, and on the sustained level of output from each of the GTGs and the
steam turbines. MCV expects long term PPA availability to meet or exceed the
capped level of 98.5%, though prolonged equipment outages could materially
reduce the level of availability.
Natural Gas. The Facility is wholly dependent upon natural gas for its fuel
supply and a substantial portion of the Facility's operating expenses consist of
the costs of natural gas. While MCV continues to pursue the acquisition of a
portion of its expected fuel supply requirements in future years, MCV recognizes
that its existing long term gas contracts are not sufficient to satisfy the
anticipated gas needs over the term of the PPA and, as such, no assurance can be
given as to the availability or price of natural gas after the expiration of its
existing fixed price gas contracts or for gas that may be required by the
Facility in excess of the gas that MCV has under contract.
Energy Rates and Cost of Production. Under the PPA, energy charges are based on
the costs associated with fuel inventory, operations and maintenance, and
administrative and general expenses associated with certain of Consumers' coal
plants. However, MCV's costs of producing electricity are tied, in large part,
to the cost of natural gas. To the extent that the costs associated with
production of electricity with natural gas rise faster than the energy charge
payments, which are based largely on Consumers' coal plant operation and
maintenance costs, MCV's financial performance would be negatively affected. In
addition, the extent to which the Facility is dispatched by Consumers can
exacerbate the divergence between variable revenues and costs of production. The
divergence between variable revenues and costs will become greater if the energy
charge (based largely on the cost of coal) declines or escalates more slowly
than the spot market or contract prices under which MCV purchases fuel.
Currently, MCV continues to purchase the majority of its natural gas
requirements under long term fixed price gas contracts, with a smaller portion
of gas purchased under long term market priced contracts and on the spot market.
MCV maintains a hedging program to mitigate risk associated with volatile market
prices in the gas market. MCV has entered into natural gas purchase and hedging
arrangements with respect to approximately 76% of its remaining 2004 expected
gas needs not provided for under its long term fixed price gas contracts. MCV
expects that its purchase and hedging arrangements will mitigate the effects of
rises in natural gas prices in future years, although high gas prices for an
extended period of time could adversely affect operating results.
In March 1998, Consumers began economically dispatching the Facility by
scheduling energy deliveries on an economic basis relative to the cost of other
energy resources available to Consumers, resulting in an average dispatch
(without dispatch reduction transactions) of approximately 79% from April 1998
through December 2003. Previously, the Facility was being dispatched on an
uneconomic basis (relative to the cost of other energy resources) under the
terms of the 915 MW settlement and the 325 MW settlement, averaging
approximately 90% annual dispatch. In July 2000, in response to rapidly
escalating natural gas prices and since Consumers electric rates were frozen,
MCV entered into transactions with Consumers whereby Consumers agreed to reduce
MCV's dispatch level and MCV agreed to share with Consumers the savings realized
by not having to generate electricity ("Dispatch Mitigation"). On January 1,
2004, Dispatch Mitigation ceased and Consumers began dispatching MCV pursuant to
a 915 MW settlement and a 325 MW settlement "availability caps" provision (i.e.,
minimum dispatch of 1100 MW on- and off-peak ("Forced Dispatch")). On February
12, 2004, MCV and Consumers entered into a Resource Conservation Agreement
("RCA") which, among other things, provides that Consumers will economically
dispatch MCV, if certain conditions are met. Such dispatch is expected to reduce
electric production from what would have occurred under the Forced Dispatch, as
well as decrease gas consumption by MCV. The RCA provides that Consumers has a
right of first refusal to purchase, at market prices, the gas conserved under
the RCA. The RCA further provides for the parties to enter into another
agreement implementing the terms of the RCA including the sharing of savings
realized by not having to generate electricity, which the parties expect to
execute in the second quarter of 2004. The RCA is subject to MPSC approval and
MCV and Consumers must accept the terms of the MPSC order as a condition
precedent to the RCA becoming effective. The MPSC has established a contested
hearing schedule, which is expected to result in an MPSC order being issued in
the fourth quarter of 2004. MCV cannot predict the outcome of the MPSC
proceedings necessary to effectuate the RCA. This Forced Dispatch is expected to
negatively affect MCV's financial performance in 2004 by approximately $40
million,
-19-
based upon projected spot gas prices of approximately $5.90/MMBtu. MCV expects
this level of reduced earnings and cash shortfalls to continue beyond 2004,
absent the establishment of a Dispatch Mitigation program. In addition,
continuation of Forced Dispatch coupled with high natural gas prices could
affect the recoverability of the carrying value of property, plant and
equipment. MCV management cannot, at this time, predict the impact or outcome of
these matters.
Capacity and Energy Payments Under the PPA. The PPA permits Consumers, under
certain conditions, to reduce the capacity and energy charges payable to MCV
and/or to receive refunds of capacity and energy charges paid to MCV if the MPSC
does not permit Consumers to recover from its customers the capacity and energy
charges specified in the PPA (the "regulatory-out" provision). Until September
15, 2007, the capacity charge may not be reduced below an average capacity rate
of 3.77 cents per kWh for the available Contract Capacity notwithstanding the
"regulatory-out" provision. MCV and Consumers entered into a settlement
agreement, effective January 1, 1999 ("Settlement Agreement"), which resolves
all of the previously disputed issues under the PPA and includes definitive
obligations for Consumers to make energy payments calculated in accordance with
the PPA, irrespective of any MPSC or the reviewing courts' decision which may
affect those issues or payments. The Settlement Agreement also provides that,
notwithstanding modifications to the Facility increasing its capacity, in
billing Consumers for capacity charges (at the rates set forth in the PPA)
availability would be capped at 98.5% of the 1240 MW ("98.5% cap") on a
calendar-year basis for the term of the PPA irrespective of any MPSC or the
reviewing courts' decision, which may affect this issue or payment. If Consumers
transfers (subject to MCV's prior consent) its rights of up to 1240 MW of
capacity and associated energy under the PPA to a third party for an extended
period of time, the 98.5% cap will not apply except that the 98.5% cap is, in
any event, reinstated on September 15, 2007. Notwithstanding the Settlement
Agreement, after September 15, 2007, an issue could exist as to whether or not
Consumers can exercise the "regulatory out" provision to reduce capacity
payments to MCV based upon the "availability caps" of 88.7% of the 1240 MW (both
on and off peak) of contract capacity as provided for in the 915 MW settlement
and the 325 MW settlement. Consumers and MCV are required to support and defend
the terms of the PPA.
Michigan Electric Industry Restructuring. The MPSC issued orders in 1997 and
1998 (collectively the "Restructuring Orders"). The Restructuring Orders provide
for a transition to a competitive regime whereby electric retail customers would
be able to choose their power supplier and pay negotiated or market-based rates
for such power supply. The Restructuring Orders also mandated that utilities
"wheel" third-party power to the utilities' customers. An issue involved in
restructuring, which could significantly impact MCV, is stranded cost recovery.
The Restructuring Orders allow recovery by utilities (including Consumers) of
net stranded costs, which include capacity charges from QFs, including MCV,
previously approved by the MPSC, incurred during the regulated era that will be
above market prices during the new competitive regime. However, it appears that
stranded cost recovery of above-market capacity charges in power purchase
contracts (including MCV's PPA) is limited to customers who chose an alternative
power supplier and are only paid for the period 1998 through 2007 (MCV's PPA
expires in 2025). Customers who chose to remain power supply customers of
Consumers will continue to pay capacity charges as part of rates charged by
Consumers, subject to MPSC rate regulation. The Restructuring Orders do not
otherwise specifically address the recovery of PPA capacity charges after 2007.
MCV, as well as others, filed appeals in state and federal courts challenging
the Restructuring Orders. The Michigan Court of Appeals found that the
Restructuring Orders do not unequivocally disallow recovery of PPA charges
(capacity and energy) by Consumers and, therefore, MCV's issues were not ripe
for appellate review and no actual controversy regarding recovery of costs could
occur until 2008, at the earliest. This order is now final.
In June 2000, the State of Michigan enacted legislation which, among other
things, states that the Restructuring Orders (being voluntarily implemented by
Consumers) are in compliance with the legislation and enforceable by the MPSC.
The legislation provides that the rights of parties to existing contracts
between utilities (like Consumers) and QFs (like MCV), including the rights to
have the PPA charges recovered from customers of the utilities, are not
abrogated or diminished, and permits utilities to securitize certain stranded
costs including PPA charges.
In MCV's federal court challenge to the Restructuring Orders, the U.S. District
Court granted summary judgment to MCV declaring, among other things, that the
Restructuring Orders are preempted by federal law to the extent they prohibit
Consumers from recovering from its customers any charge for avoided costs (or
"stranded costs") to be paid to MCV under PURPA pursuant to the PPA. In June
2001, the United States Court of Appeals ("Appellate
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Court") vacated the U.S. District Court's summary judgment and ordered the case
dismissed based upon a finding that no actual case or controversy existed for
adjudication between the parties. The Appellate Court determined that the
parties' dispute is hypothetical at this time and the QFs (including MCV) claims
are premised on speculation about how an order might be interpreted in the year
2007 or beyond by the MPSC.
Federal Electric Industry Restructuring. FERC has jurisdiction over wholesale
energy sales and is moving towards "market" based pricing of electricity as
opposed to traditional cost-based pricing. In April 1996, FERC issued Order No.
888 requiring all utilities that FERC regulates to file uniform transmission
tariffs providing for, among other things, non-discriminatory "open access" to
all wholesale buyers and sellers, including the transmission owner, on terms and
conditions established by FERC. Order No. 888 also requires utilities to
"functionally unbundle" transmission and separate transmission personnel from
those responsible for marketing generation. In December 1999, FERC issued a
final rule, Order No. 2000, designed to encourage all owners and operators of
interstate electric transmission lines to join regional transmission
organizations. In July 2001, FERC issued a Notice of Proposed Rulemaking to
establish a standard market design ("SMD") in order to remedy remaining undue
discrimination in transmission and wholesale energy markets. The SMD requires
all FERC jurisdictional transmission providers to transfer control of their
transmission facilities to an independent transmission provider who will provide
transmission service under a standardized tariff and administer market based
wholesale energy markets for day-ahead and real-time sales. The SMD proposal has
drawn strong criticism, the effect of which has been delaying the issuance of a
final SMD rule. In addition, federal energy legislation is proposed from time to
time with various provisions which could impact MCV. The SMD and/or federal
legislation could impact MCV in selling electricity in the wholesale market. MCV
management cannot predict the outcome of the SMD or the impact the SMD or
federal legislation may have on MCV's business, if any, at this time.
Critical Accounting Policies
In preparing MCV's financial statements in accordance with accounting principles
generally accepted in the United States, management must make a number of
estimates and assumptions related to the reporting of assets, liabilities,
revenues and expenses. The following areas represent those that management
believes are particularly important to the financial statements and that require
the use of significant estimates and assumptions.
Property, Plant and Equipment. As discussed in Item 2, "MD&A - Outlook", at both
the state and federal level, efforts continue to restructure the electric
industry. To date, restructuring has not negatively impacted MCV, but if
restructuring results in denying Consumers recovery of above-market PPA costs,
MCV's cash flows may be negatively impacted, especially in the period after
2007. Over 90% of MCV's revenues come from sales pursuant to the PPA. MCV
continues to monitor and participate in these matters as appropriate, and to
evaluate potential impacts on both cash flows and recoverability of the carrying
value of property, plant and equipment. Any future adjustment to property, plant
and equipment, if required, would result in a one-time negative earnings impact.
At this time, MCV management cannot predict the outcome of these matters or the
magnitude of any possible adjustment.
Derivative Instruments. As discussed in Item 1, "Notes to Consolidated Financial
Statements - Note 2, Risk Management Activities and Derivative Transactions -
Natural Gas Supply Contracts," MCV adopted SFAS No. 133, which establishes
accounting and reporting standards requiring that every derivative instrument be
recorded on the balance sheet as either an asset or liability measured at its
fair value. SFAS No. 133 requires that changes in the derivative's fair value be
recognized currently in earnings unless specific hedge accounting criteria are
met. Special accounting for qualifying hedges in some cases allows a
derivative's gains and losses to offset related results on the hedged item in
the income statement or permits recognition of the hedge results in other
comprehensive income, and requires that a company formally document, designate,
and assess the effectiveness of transactions that receive hedge accounting.
Should significant changes in the level of Facility operational dispatch or
purchases of long term gas occur, MCV would be required to re-evaluate its
accounting treatment for these long term gas contracts. This re-evaluation may
result in recording mark-to-market activity on some contracts, which could add
to earnings volatility. Based on the natural gas prices, at the beginning of
April 2002, MCV recorded a $58.1 million gain for the cumulative effect of this
accounting change. Since April 2002, MCV has recorded an additional
mark-to-market gain of $23.2 million for these gas contracts for a cumulative
mark-to-market gain through March 31, 2004 of $81.3 million, which will reverse
over the remaining life of these contracts, ranging from 2004 to 2007.
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Property Taxes. MCV currently accrues property taxes on the basis of the taxable
value as assessed by the taxing authorities. In 1997, MCV filed a property tax
appeal against the City of Midland at the Michigan Tax Tribunal contesting MCV's
1997 property taxes. Subsequently, MCV filed appeals contesting its property
taxes for tax years 1998 through 2003 at the Michigan Tax Tribunal and expects
to make such a filing for 2004. A trial was held for tax years 1997 - 2000. The
appeals for tax years 2001-2003 are being held in abeyance. On January 23, 2004,
the Michigan Tax Tribunal issued its decision in MCV's tax appeal against the
City of Midland for tax years 1997 through 2000 and has issued several erratum
to the initial decision (together the "MTT Decision"). MCV management has
estimated that the MTT Decision will result in a refund to MCV for the tax years
1997 through 2000 of approximately $35 million in taxes plus $9 million of
interest. The MTT Decision has been appealed to the Michigan Appellate Court by
the City of Midland. MCV has filed a cross-appeal at the Michigan Appellate
Court. MCV management cannot predict the outcome of these legal proceedings. MCV
has not recognized any of the above stated refunds (net of approximately $15.4
million of deferred expenses) in earnings at this time.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Market risks relating to MCV's operations result primarily from changes in
commodity prices, interest rates and foreign exchange rates. To address these
risks, MCV enters into various hedging transactions as described herein. MCV
does not use financial instruments for trading purposes and does not use
leveraged instruments. Fair values included herein have been determined based on
quoted market prices. The information presented below should be read in
conjunction with Part 1, Item 1, "Condensed Notes to Unconsolidated Financial
Statements - Note 2, Significant Accounting Policies and Note 7, Long Term
Debt".
Interest Rate Risk. In 1990, MCV obtained permanent financing for the Facility
by entering into sale and leaseback agreements ("Overall Lease Transaction")
with a lessor group, related to substantially all of MCV's fixed assets. In
accordance with SFAS No. 98, "Accounting For Leases," the sale and leaseback
transaction has been accounted for as a financing arrangement. The financing
arrangement, entered into for a basic term of 25 years, maturing in 2015, has an
effective interest rate of approximately 9.4%, payable in semi-annual
installments of principal and interest. Due to the unique nature of the
negotiated financing obligation it is unnecessary to estimate the fair value of
the Owner Participants' underlying debt and equity instruments supporting this
financing obligation, since SFAS No. 107 "Disclosure about Fair Value of
Financial Instruments" does not require fair value accounting for the lease
obligation.
To manage the effects of interest rate volatility on interest income while
maximizing return on permitted investments, MCV has established an interest rate
hedging program. The carrying amounts of MCV's short-term investments
approximate fair value because of the short term maturity of these instruments.
MCV's short-term investments, which are made up of investment securities held to
maturity and as of March 31, 2004, have original maturity dates of approximately
one year or less.
For MCV's financing obligations, the table below presents principal cash flows
and the related interest rate by expected maturity dates. The interest rate
reflects the fixed effective rate of interest of the financing arrangement:
Expected Maturity In
------------------------------------------------------------------------- Fair
2004 2005 2006 2007 2008 Thereafter Total Value
---- ---- ---- ---- ---- ---------- ----- -----
Debt:
Long term Debt Fixed
Rate (in millions) $214.9 $174.4 $156.0 $150.9 $150.9 $889.1 $1,736.2 N/A
Avg. Interest Rate 9.4% 9.4% 9.4% 9.4% 9.4% 9.4% 9.4%
Commodity Risk. MCV enters into natural gas futures and option contracts in
order to hedge against unfavorable changes in the market price of natural gas in
future months when gas is expected to be needed. These financial
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instruments are being utilized principally to secure anticipated natural gas
requirements necessary for projected electric sales and to lock in sales prices
of natural gas previously obtained in order to optimize MCV's existing gas
supply, storage and transportation arrangements.
The following table provides information about MCV's futures and option
contracts that are sensitive to changes in natural gas prices; these futures and
option contracts have maturity dates ranging from April 2004 to December 2007.
The table presents the carrying amounts and fair values at March 31, 2004:
Expected Maturity in 2004/2007 Fair Value
------------------------------ ----------
Futures Contracts:
Contract Volumes (10,000 MMBtu) Long/Buy 3,596 --
Contract Volumes (10,000 MMBtu) Sell/Short 7 --
Weighted Average Price Long (per MMBtu) $ 4.474 $ 5.763
Weighted Average Price Short (per MMBtu) $ 5.609 $ 6.019
Contract Amount ($US in Millions) $ 160.9 $ 207.3
Expected Maturity in 2005/2007 Fair Value
------------------------------ ----------
NYMEX Commodity Swap Contracts:
Contract Volumes (10,000 MMBtu) Long/Buy 1,003 --
Weighted Average Price Long (per 10,000 MMBtu) $ 4.830 $ 5.270
Contract Amount ($US in Millions) $ 48.4 $ 52.9
Expected Maturity in 2004/2005 Fair Value
------------------------------ ----------
Canadian (AECO) Basis Swap Contracts:
Contract Volumes (10,000 MMBtu) Long/Buy 591.5 --
Weighted Average Price Long (per 10,000 MMBtu) ($ 0.731) ($ 0.757)
Contract Amount ($US in Millions) ($ 4.3) ($ 4.5)
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
MCV's management, including the President and Chief Executive Officer, and the
Chief Financial Officer, Vice President and Controller, carried out an
evaluation of the effectiveness of MCV's disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of
1934, as amended) as of the end of the period covered by this report. Based on
such review of MCV's disclosure controls and procedures, the President and Chief
Executive Officer, and the Chief Financial Officer, Vice President and
Controller, have concluded that MCV's disclosure controls and procedures were
effective as of the end of the period covered by this report.
Changes in Internal Control Over Financial Reporting
There was no change in our internal control over financial reporting that
occurred during the last fiscal quarter covered by this report that has
materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The discussion below is limited to an update of events or developments that have
occurred in various judicial and administrative proceedings since March 1, 2004.
A complete summary of all outstanding legal proceedings is set forth in MCV's
Form 10-K for the year ended December 31, 2003 filed with the Securities and
Exchange Commission on March 1, 2004.
Property Taxes
In 1997, MCV filed a property tax appeal against the City of Midland at the
Michigan Tax Tribunal contesting MCV's 1997 property taxes. Subsequently, MCV
filed appeals contesting its property taxes for tax years 1998 through 2003 at
the Michigan Tax Tribunal and expects to make such a filing for 2004. A trial
was held for tax years 1997 - 2000. The appeals for tax years 2001-2003 are
being held in abeyance. On January 23, 2004, the Michigan Tax Tribunal issued
its decision in MCV's tax appeal against the City of Midland for tax years 1997
through 2000 and has issued several erratum to the initial decision (together
the "MTT Decision"). MCV management has estimated that the MTT Decision will
result in a refund to MCV for the tax years 1997 through 2000 of approximately
$35 million in taxes plus $9 million of interest. The MTT Decision has been
appealed to the Michigan Appellate Court by the City of Midland. MCV has filed a
cross-appeal at the Michigan Appellate Court. MCV management cannot predict the
outcome of these legal proceedings. MCV has not recognized any of the above
stated refunds (net of approximately $15.4 million of deferred expenses) in
earnings at this time.
NOx Allowances
The United States Environmental Protection Agency ("US EPA") has conditionally
approved the State of Michigan's - State Implementation Plan ("SIP"), which
includes an interstate NOx budget and allowance trading program administered by
the US EPA. Each NOx allowance permits a source to emit one ton of NOx during
the seasonal control period (May 1 through September 30). NOx allowances may be
bought or sold and unused allowances may be banked for future use, with certain
limitations. MCV estimates that it will have excess NOx allowances to sell under
this program. The current value of the excess 2004 NOx allowances range from
approximately $3.0 million to $4.2 million. Consumers has given notice to MCV
that it believes the ownership of the NOx allowances under this program belong,
at least in part, to Consumers. MCV has initiated the dispute resolution process
pursuant to the PPA to resolve this issue and the parties have entered into a
standstill agreement deferring the resolution of this dispute. However, either
party may terminate the standstill agreement at any time and reinstate the PPA's
dispute resolution provisions. MCV management cannot predict the outcome of this
issue.
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Item 6. Exhibits and Reports on Form 8-K
a.) List of Exhibits
31.1 - Certification of President and Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 - Certification of Chief Financial Officer, Vice President and
Controller Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
32.1 - Certification of President and Chief Executive Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 - Certification of Chief Financial Officer, Vice President and
Controller Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
b.) Reports on Form 8-K
Current report, dated January 23, 2004, containing Item 5, "Other
Events and Regulation FD Disclosure" reporting on MCV's property tax
order.
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SIGNATURES
Pursuant to the requirements 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.
MIDLAND COGENERATION VENTURE
LIMITED PARTNERSHIP
-----------------------------------------
(Registrant)
Dated: May 4, 2004 /s/James M. Kevra
-----------------------------------------
James M. Kevra
President and Chief Executive Officer
Dated: May 4, 2004 /s/James M. Rajewski
-----------------------------------------
James M. Rajewski
Chief Financial Officer,
Vice President and Controller
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EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
31.1 - Certification of President and Chief Executive Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 - Certification of Chief Financial Officer, Vice President and
Controller Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 - Certification of President and Chief Executive Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 - Certification of Chief Financial Officer, Vice President and
Controller Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.