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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003
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 No. 33-7591
Oglethorpe Power Corporation
(An Electric Membership Corporation)
(Exact name of registrant as specified in its charter)
Georgia 58-1211925
(State or other jurisdiction of (I.R.S. employer
incorporation or organization identification no.)
Post Office Box 1349
2100 East Exchange Place
Tucker, Georgia 30085-1349
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (770) 270-7600
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 Securities Exchange Act of 1934). Yes [ ] No [X]
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.
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OGLETHORPE POWER CORPORATION
INDEX TO QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2003
Page No.
--------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets as of March 31, 2003
(Unaudited) and December 31, 2002 3
Condensed Statements of Revenues and Expenses
(Unaudited) for the Three Months ended
March 31, 2003 and 2002 5
Condensed Statements of Patronage Capital and Membership
Fees and Accumulated Other Comprehensive Margin
(Unaudited) for the Three Months ended
March 31, 2003 and 2002 6
Condensed Statements of Cash Flows (Unaudited)
For the Three Months ended March 31, 2003 and 2002 7
Notes to Condensed Financial Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk 17
Item 4. Controls and Procedures 17
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES AND CERTIFICATIONS 19
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Oglethorpe Power Corporation
Condensed Balance Sheets
March 31, 2003 and December 31, 2002
===========================================================================================
(dollars in thousands)
2003 2002
Assets (Unaudited)
----------- -----------
Electric plant, at original cost:
In service $ 5,109,745 $ 5,030,333
Less: Accumulated provision for depreciation (2,025,828) (1,983,950)
----------- -----------
3,083,917 3,046,383
Nuclear fuel, at amortized cost 78,691 77,247
Construction work in progress 56,845 69,282
----------- -----------
3,219,453 3,192,912
----------- -----------
Investments and funds:
Decommissioning fund, at market 154,321 154,061
Deposit on Rocky Mountain transactions, at cost 73,923 72,698
Bond, reserve and construction funds, at market 21,755 26,505
Investment in associated organizations, at cost 28,458 28,244
----------- -----------
278,457 281,508
----------- -----------
Current assets:
Cash and temporary cash investments, at cost 115,631 151,311
Other short-term investments, at market 95,071 94,301
Receivables 106,827 91,798
Notes receivable 318,851 310,662
Inventories, at average cost 85,874 83,219
Prepayments and other current assets 3,684 3,841
----------- -----------
725,938 735,132
----------- -----------
Deferred charges:
Premium and loss on reacquired debt, being amortized 149,409 151,118
Deferred amortization of capital leases 109,829 109,567
Deferred debt expense, being amortized 18,139 18,376
Deferred nuclear outage costs, being amortized 23,755 22,778
Deferred asset retirement obligations costs, being amortized 28,660 --
Other 6,674 7,160
----------- -----------
336,466 308,999
----------- -----------
$ 4,560,314 $ 4,518,551
=========== ===========
The accompanying notes are an integral part of these condensed financial
statements.
3
Oglethorpe Power Corporation
Condensed Balance Sheets
March 31, 2003 and December 31, 2002
=========================================================================================
(dollars in thousands)
2003 2002
Equity and Liabilities (Unaudited)
----------- -----------
Capitalization:
Patronage capital and membership fees and accumulated
other comprehensive margin $ 383,282 $ 371,818
Long-term debt 2,782,715 2,835,997
Obligation under capital leases 354,599 358,676
Obligation under Rocky Mountain transactions 73,924 72,698
----------- -----------
3,594,520 3,639,189
----------- -----------
Current liabilities:
Long-term debt and capital leases due within one year 143,761 140,241
Accounts payable 51,294 53,283
Notes payable 305,515 297,776
Accrued interest 12,535 6,958
Accrued and withheld taxes 6,212 55
Other current liabilities 7,532 13,212
----------- -----------
526,849 511,525
----------- -----------
Deferred credits and other liabilities:
Gain on sale of plant, being amortized 47,765 48,383
Net benefit of Rocky Mountain transactions, being amortized 75,652 76,448
Decommissioning reserve -- 166,299
Asset retirement obligations 240,371 --
Interest rate swap arrangements 57,197 58,443
Other 17,960 18,264
----------- -----------
438,945 367,837
----------- -----------
$ 4,560,314 $ 4,518,551
=========== ===========
The accompanying notes are an integral part of these condensed financial
statements.
4
Oglethorpe Power Corporation
Condensed Statements of Revenues and Expenses (Unaudited)
For the Three Months Ended March 31, 2003 and 2002
=========================================================================================
(dollars in thousands)
Three month
--------------------------
2003 2002
----------- -----------
Operating revenues:
Sales to Members $ 262,514 $ 280,872
Sales to non-Members 10,977 7,006
----------- -----------
Total operating revenues 273,491 287,878
----------- -----------
Operating expenses:
Fuel 45,305 44,807
Production 56,303 60,329
Purchased power 83,972 94,752
Depreciation and amortization 32,764 32,384
Accretion 69 --
----------- -----------
Total operating expenses 218,413 232,272
----------- -----------
Operating margin 55,078 55,606
----------- -----------
Other income (expense):
Investment income 5,441 8,811
Amortization of deferred gains 619 619
Amortization of net benefit of sale of income tax benefits 796 2,799
Allowance for equity funds used during construction 125 111
Other 772 779
----------- -----------
Total other income 7,753 13,119
----------- -----------
Interest charges:
Interest on long-term-debt and capital leases 48,443 51,497
Other interest 1,738 5,202
Allowance for debt funds used during construction (869) (831)
Amortization of debt discount and expense 3,600 3,588
----------- -----------
Net interest charges 52,912 59,456
----------- -----------
Net margin $ 9,919 $ 9,269
=========== ===========
The accompanying notes are an integral part of these condensed financial
statements.
5
Oglethorpe Power Corporation
Condensed Statements of Patronage Capital and Membership Fees
and Accumulated Other Comprehensive Margin (Unaudited)
For the Three Months Ended March 31, 2003 and 2002
====================================================================================================
(dollars in thousands)
Patronage Accumulated
Capital and Other
Membership Comprehensive
Fees Margin (Loss) Total
--------------------------------------------
Balance at December 31, 2001 $ 410,029 ($ 42,361) $ 367,668
Components of comprehensive margin:
Net margin 9,269 9,269
Unrealized gain on interest rate swap arrangements 3,698 3,698
Unrealized gain on financial gas hedges 3,076 3,076
Unrealized loss on available-for-sale securities (1,436) (1,436)
------------
Total comprehensive margin 14,607
------------
- ----------------------------------------------------------------------------------------------------
Balance at March 31, 2002 $ 419,298 ($ 37,023) $ 382,275
====================================================================================================
Balance at December 31, 2002 $ 427,569 ($ 55,751) $ 371,818
Components of comprehensive margin:
Net margin 9,919 9,919
Unrealized gain on interest rate swap arrangements 1,246 1,246
Unrealized gain on financial gas hedges 1,381 1,381
Unrealized loss on available-for-sale securities (1,082) (1,082)
------------
Total comprehensive margin 11,464
------------
- ----------------------------------------------------------------------------------------------------
Balance at March 31, 2003 $ 437,488 ($ 54,206) $ 383,282
====================================================================================================
The accompanying notes are an integral part of these condensed financial
statements.
6
Oglethorpe Power Corporation
Condensed Statements of Cash Flows (Unaudited)
For the Three Months Ended March 31, 2003 and 2002
================================================================================================
(dollars in thousands)
2003 2002
----------- -----------
Cash flows from operating activities:
Net margin $ 9,919 $ 9,269
----------- -----------
Adjustments to reconcile net margin to net cash
provided by operating activities:
Depreciation and amortization, including nuclear fuel 46,439 45,212
Net accretion cost 69 --
Allowance for equity funds used during construction (125) (111)
Amortization of deferred gains (619) (619)
Amortization of net benefit of sale of income tax benefits (796) (2,799)
Other (263) 907
Change in operating assets and liabilities:
Receivables (15,029) (13,816)
Notes receivable 198 139
Inventories (2,655) (4,687)
Prepayments and other current assets 1,540 (6,765)
Accounts payable (1,989) (18,907)
Accrued interest 5,577 38,896
Accrued and withheld taxes 6,157 6,347
Power marketer reserve -- 12,538
Other current liabilities (5,680) (4,817)
Deferred nuclear outage costs (7,535) (9,838)
----------- -----------
Total adjustments 25,289 41,680
----------- -----------
Net cash provided by operating activities 35,208 50,949
----------- -----------
Cash flows from investing activities:
Property additions (22,437) (29,129)
Net proceeds from bond, reserve and construction funds 4,687 1,621
Increase in investment in associated organizations (213) (39)
Increase in other short-term investments (1,790) (1,564)
Increase in decommissioning fund (364) (2,300)
----------- -----------
Net cash used in investing activities (20,117) (31,411)
----------- -----------
Cash flows from financing activities:
Long-term debt proceeds, net (44) 322
Long-term debt payments (50,079) (20,521)
Increase (decrease) in notes payable 7,739 (15,887)
Increase in notes receivable under interim financing agreement (8,387) (9,785)
----------- -----------
Net cash used in financing activities (50,771) (45,871)
----------- -----------
Net decrease in cash and temporary cash investments (35,680) (26,333)
Cash and temporary cash investments at beginning of period 151,311 275,786
----------- -----------
Cash and temporary cash investments at end of period $ 115,631 $ 249,453
=========== ===========
Cash paid for:
Interest (net of amounts capitalized) $ 43,734 $ 14,557
Income taxes -- --
The accompanying notes are an integral part of these condensed financial
statements.
7
Oglethorpe Power Corporation
Notes to Condensed Financial Statements
March 31, 2003 and 2002
(A) The condensed financial statements included in this report have been
prepared by Oglethorpe Power Corporation (Oglethorpe), without audit,
pursuant to the rules and regulations of the Securities and Exchange
Commission (SEC). In the opinion of management, the information
furnished in this report reflects all adjustments (which include only
normal recurring adjustments) and estimates necessary to present
fairly, in all material respects, the results for the periods ended
March 31, 2003 and 2002. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted
pursuant to SEC rules and regulations, although Oglethorpe believes
that the disclosures are adequate to make the information presented not
misleading. These condensed financial statements should be read in
conjunction with the financial statements and the notes thereto
included in Oglethorpe's latest Annual Report on Form 10-K, as filed
with the SEC. Certain amounts for 2002 have been reclassified to
conform with the current period presentation. The results of operations
for the three-month period ended March 31, 2003 are not necessarily
indicative of results to be expected for the full year.
(B) Accounting for Asset Retirement Obligations. In June of 2001, the
Financial Accounting Standards Board (FASB) issued SFAS No. 143,
"Accounting for Asset Retirement Obligations." The statement provides
accounting and reporting standards for recognizing obligations related
to costs associated with the retirement of long-lived assets. SFAS No.
143 requires obligations associated with the retirement of long-lived
assets to be recognized at their fair value in the period in which they
are incurred if a reasonable estimate of fair value can be made. The
fair value of the asset retirement costs must be capitalized as part of
the carrying amount of the long-lived asset and subsequently allocated
to expense using a systematic and rational method over the asset's
useful life. Any subsequent changes to the fair value of the liability
due to passage of time or changes in the amount or timing of estimated
cash flows must be recognized as an accretion expense.
In January 2003, Oglethorpe adopted SFAS No. 143. The fair value of the
legal obligation recognized under SFAS No. 143 primarily relates to
Oglethorpe's nuclear facilities. In addition, Oglethorpe recognized
retirement obligations for ash handling facilities at the coal-fired
plants and solid waste landfills located at certain generating
facilities. The cumulative effect of adoption resulted in Oglethorpe
recording a regulatory asset of approximately $23,662,000, capitalized
asset retirement costs, net of accumulated amortization, of
approximately $45,304,000 and increased asset retirement obligations of
approximately $68,966,000. At December 31, 2002, Oglethorpe's
recognized liability for nuclear decommissioning was $166,299,000. On a
pro forma basis, the cumulative effect of adoption as of January 1,
2002 would have resulted in Oglethorpe recording a regulatory asset of
approximately $8,196,000. Oglethorpe has also identified retirement
obligations related to certain other generating facilities, however, a
liability for the removal of these facilities was not recorded because
no reasonable estimate can be made regarding the timing of any related
retirements.
8
Under SFAS No. 71, Oglethorpe may record an offsetting regulatory asset
or liability to reflect the difference in timing of recognition of the
costs of decommissioning for financial statement purposes and for
ratemaking purposes for both the cumulative effect of adoption and for
future periods timing differences. While RUS has not issued regulatory
guidance for adoption of SFAS No. 143, Oglethorpe's management expects
to receive permission from RUS to implement the provisions of SFAS No.
71 with respect to timing differences arising from cost recognition
under SFAS No. 143 and for ratemaking purposes. Oglethorpe estimates
that the annual difference will be approximately $5,000,000.
SFAS No. 143 does not permit non-regulated entities to continue
accruing future retirement costs associated with long-lived assets for
which there are no legal obligation to retire. Oglethorpe, in
accordance with regulatory treatment of these costs, continues to
recognize the removal costs for these other obligations in depreciation
rates. At March 31, 2003, the accumulated removal costs for other
obligations (regulatory liabilities) included in the accumulated
depreciation and amortization reserve was $37,588,000.
9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
For the Three Months Ended March 31, 2003 and 2002
- --------------------------------------------------
Net Margin
Oglethorpe's net margin for the three months ended March 31, 2003 was $9.9
million compared to $9.3 million for the same period of 2002.
Operating Revenues
Oglethorpe's operating revenues fluctuate from period to period based on factors
including weather and other seasonal factors, growth in the service territories
of Oglethorpe's 39 retail electric distribution cooperative members (the
Members), operating costs, availability of electric generation resources,
Oglethorpe's decisions of whether to dispatch its owned or purchased resources
or Member-owned resources over which it has dispatch rights and by Members'
decisions of whether to purchase a portion of their growth requirements from
Oglethorpe or from other suppliers and whether to schedule separately their
resources. A large number of Members have now elected to schedule separately
their percentage capacity responsibilities (their pro-rata shares) in Oglethorpe
resources to serve their retail and wholesale customers, although approximately
half of the elections were not effective until June 1, 2002.
Total revenues from sales to the Members for the three-month period ended March
31, 2003 were 6.5% lower than such revenues for the same period of 2002.
Megawatt-hour (MWh) sales to Members increased 3.0% in the current period
compared to the same period of 2002. The increase in MWh sales to Members in the
first quarter of 2003 resulted from higher sales to both scheduling Members and
from higher sales to Members who participate in Oglethorpe's capacity and energy
pool. The average revenue per MWh from sales to Members decreased 9.3% for the
current quarter compared to the same period of 2002.
The components of Member revenues for the three months ended March 31, 2003 and
2002 were as follows:
Three Months
Ended March 31,
-----------------------
2003 2002
---------- ----------
(dollars in thousands)
Capacity revenues $ 144,139 $ 149,986
Energy revenues 118,375 130,886
---------- ----------
Total $ 262,514 $ 280,872
========== ==========
Capacity revenues from Members for the three months ended March 31, 2003
decreased 3.9% compared to the same period of 2002. The decrease in capacity
revenues for the first quarter was primarily due to
10
lower purchased power capacity costs and interest costs for the current period
compared to the same period of 2002 (see "Operating Expenses" and "Interest
Charges" below). Energy revenues were 9.6% lower for the three-month period
ended March 31, 2003 compared to the same period of 2002. The decrease in energy
revenues for the first quarter of 2003 was primarily due to decreases in
purchased power energy costs and variable operations and maintenance (O&M)
expenses (see "Operating Expenses" below). Oglethorpe's average energy revenue
per MWh from sales to Members was 12.2% lower in the current quarter compared to
the same period of 2002.
Sales to non-Members were from energy sales to power companies and from energy
sales to LG&E Energy Marketing Inc. (LEM) and Morgan Stanley Capital Group Inc.
(Morgan Stanley) under their power marketer arrangements with Oglethorpe. The
following table summarizes the sources on non-Member revenues for the three
months ended March 31, 2003 and 2002:
Three Months
Ended March 31,
-----------------------
2003 2002
---------- ----------
(dollars in thousands)
Sales to power companies $ 10,672 $ 6,979
Sales to LEM and Morgan Stanley 305 27
---------- ----------
Total $ 10,977 $ 7,006
========== ==========
Sales to power companies represent sales made directly by Oglethorpe. Oglethorpe
sells for its own account any energy available from the portion of its resources
dedicated to Morgan Stanley that is not scheduled by Morgan Stanley pursuant to
the power marketer arrangement. Sales to power companies were higher in 2003
compared to 2002 partly due to an increase in MWhs and in revenues per MWh sold
to power companies on behalf of Members who participate in Oglethorpe's capacity
and energy pool and partly due to increased MWhs purchased for resale to power
companies.
Sales to LEM and Morgan Stanley represent the net energy transmitted on behalf
of LEM and Morgan Stanley off-system on an hourly basis from Oglethorpe's total
resources under the LEM and Morgan Stanley power marketer arrangements.
Oglethorpe sold this energy to LEM at Oglethorpe's cost, subject to certain
limitations, and to Morgan Stanley at a contractually fixed price. The volume of
sales to LEM and Morgan Stanley depends primarily on the power marketers'
decisions for servicing their load requirements.
Operating Expenses
Operating expenses for the three-month period ended March 31, 2003 were 6.0%
lower compared to the same period of 2002. The decrease during the first quarter
of 2003 compared to the same period of 2002 was primarily due to lower
production costs and purchased power costs.
Purchased power costs decreased 11.4% for the first quarter of 2003 compared to
the same period of 2002. Purchased MWhs decreased 2.0% in the first quarter of
2003 compared to the same period of 2002. The average cost per MWh of total
purchased power decreased 9.6% in the first quarter of 2003 compared to the same
period of 2002.
11
Purchased power costs were as follows:
Three Months
Ended March 31,
-----------------------
2003 2002
---------- ----------
(dollars in thousands)
Capacity costs $ 15,197 $ 20,298
Energy costs 68,775 74,454
---------- ----------
Total $ 83,972 $ 94,752
========== ==========
Purchased power capacity costs decreased 25.1% for the current period as
compared to the same period of 2002. The decreases in purchased power capacity
costs resulted from the termination of various power purchase agreements.
Purchased power energy costs for the three-month period ended March 31, 2003
were 7.6% lower compared to the same period of 2002. The average cost of
purchased power energy for the three months ended March 31, 2003 was 5.8% lower
compared to the same period of 2002. The decrease in total and average purchased
power energy costs is attributable to an accrual of $12.5 million, recorded in
the first quarter of 2002, in connection with the settlement of an arbitration
with LEM regarding the power marketer arrangement.
Production costs decreased 6.6% for the three-month period ended March 31, 2003
compared to the same period of 2002. The lower production costs in 2003 resulted
primarily from lower O & M costs incurred during scheduled spring outages at
Plants Scherer and Hatch in 2003 than corresponding O&M costs incurred in spring
of 2002.
Accretion expense represents the change in the asset retirement obligations due
to the passage of time. For nuclear decommissioning, Oglethorpe records a
regulatory asset for the timing difference in accretion expense recognized under
SFAS No. 143 compared to the expense recovered for ratemaking purposes. (See
"Notes to Condensed Financial Statements - (B)", above for a discussion
regarding adoption of SFAS No. 143.)
Other Income
Investment income decreased 38.2% or $3.4 million in the current period compared
to the same period of 2002 partly due to lower cash and temporary cash
investment balances, partly due to lower interest earnings on these investments
and partly due to lower earnings from the decommissioning fund. Amortization of
net benefit of sale of income tax benefits decreased $2 million in the
three-month period ended March 31, 2003 compared to the same period of 2002 due
to the completion of amortization of the safe harbor lease in March 2002.
Interest Charges
Interest on long-term debt and capital leases decreased 5.9% in the current
period compared to the same period of 2002 partly due to lower outstanding
principal balance, partly due to lower interest costs associated with the
issuance in October of 2002 of $92 million in variable rate tax-exempt Pollution
12
Control Revenue Bonds to refinance two $46 million medium-term notes and partly
due to cost savings from lower variable interest rates on long-term debt. Other
interest expense decreased $3.4 million or 66.6% in the current quarter compared
to the same period of 2002. Prior to adoption of SFAS No. 143, Oglethorpe
recorded interest expense for decommissioning as an offset to interest earnings
on the decommissioning fund. With the adoption of SFAS No. 143, no offsetting
adjustment for interest expense was recorded in 2003.
Financial Condition
Capital Requirements and Liquidity and Sources of Capital
- ---------------------------------------------------------
Financing for Talbot EMC and Chattahoochee EMC
In 2000, Oglethorpe submitted loan applications to the Rural Utilities Service
("RUS") to provide permanent financing for a six-unit, 618 MW gas-fired
combustion turbine project (currently owned by Talbot EMC) and a 468 MW
gas-fired combined cycle project (currently owned by Chattahoochee EMC). The
loan applications initially were submitted on behalf of either Oglethorpe or
related entities that might ultimately own the facilities. During the process of
evaluating the terms proposed by RUS for providing these loans to Talbot EMC and
Chattahoochee EMC, it was determined that the terms of the financing would be
more favorable if Oglethorpe owned the facilities and obtained the RUS
financing. In September 2002, RUS issued two RUS-guaranteed loan commitments
totaling approximately $589 million to Oglethorpe for these generating
facilities. The RUS-guaranteed loans will be funded through the Federal
Financing Bank ("FFB"). Concurrently with the funding of these loans, which is
currently scheduled to occur in the second quarter of 2003, Oglethorpe will
acquire the two generating facilities from Talbot EMC and Chattahoochee EMC
provided certain conditions are met. (See "Expected Facilities Acquisitions, RUS
Loans and Other New Arrangements" in Item 1 of Oglethorpe's Annual Report on
Form 10-K for the year ended December 31, 2002.)
Oglethorpe is currently providing interim loans to Talbot EMC and Chattahoochee
EMC to fund approximately fifty percent of the cost of these generating
facilities. Oglethorpe is funding these loans through the issuance of commercial
paper. As of March 31, 2003, $306 million in commercial paper was outstanding,
all of which was for this purpose. Oglethorpe expects to have up to
approximately $313 million of commercial paper outstanding for this purpose by
the time the RUS-guaranteed loans are funded. The remaining portion of the cost
of these generating facilities is being funded under two bridge loans from third
parties. The proceeds from the RUS-guaranteed loans will first be used to repay
the bridge loans and then to retire the outstanding commercial paper. At the
time the RUS-guaranteed loans are initially funded, Oglethorpe expects to
receive an advance from FFB of approximately $452 million, which will be
sufficient to repay the two bridge loans and to repay approximately $200 million
of outstanding commercial paper. After the initial funding, Oglethorpe expects
to receive a majority of the remaining loan funds later in 2003 and the final
amounts by the end of 2004.
For a discussion of the bridge loans and Oglethorpe's guarantee of the bridge
loan to Chattahoochee EMC and other contingent liabilities in connection with
the Talbot and Chattahoochee generating facilities, see "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Financial
Condition - Capital Requirements - Financing for Talbot EMC and
13
Chattahoochee EMC" and "Contingent Commitments" in Item 7 of Oglethorpe's Annual
Report on Form 10-K for the year ended December 31, 2002.
Liquidity
On September 25, 2002, Oglethorpe renewed its existing committed lines of credit
available for working capital and as support for Oglethorpe's commercial paper
program at a level of $320 million, with an expiration date of September 24,
2003. This credit facility is structured such that the commitment amount is
reduced to $290 million upon the earlier to occur of (i) June 30, 2003 or (ii)
receipt by Oglethorpe of funds totaling $350 million under the RUS-guaranteed
loans for the Talbot and Chattahoochee generating facilities. As discussed
above, Oglethorpe expects to receive approximately $452 million in funding under
the RUS-guaranteed loans prior to June 30, 2003. This amount will be sufficient
to repay the two bridge loans and approximately $200 million of the outstanding
commercial paper, leaving approximately $118 million in commercial paper
outstanding. However, if the initial funding of the RUS-guaranteed loans does
not occur by June 30, 2003 and the committed amount of the lines of credit is
reduced at that time, Oglethorpe would use its cash or another line of credit to
fund the difference between the amount of the outstanding loans to Talbot EMC
and Chattahoochee EMC and the reduced availability of commercial paper.
Oglethorpe also has a $50 million committed line of credit with the National
Rural Utilities Cooperative Finance Corporation ("CFC") that can be used for
general working capital purposes. No amounts are currently outstanding under
this facility.
General
- -------
Total assets and total equity plus liabilities as of March 31, 2003 were $4.6
billion, which was $42 million higher than the total at December 31, 2002. The
increase was due primarily to the recording of assets and associated liabilities
related to the adoption of SFAS No 143, "Accounting for Asset Retirement
Obligations", increases in receivables, and notes and interim financing
receivables. The increase was offset in part by depreciation of plant, and
decreases in cash and temporary cash investments.
Assets
Property additions for the three months ended March 31, 2003 totaled $22.4
million, primarily for purchases of nuclear fuel and for additions,
replacements, and improvements to existing generation facilities.
The decrease in construction work in progress was primarily the result of a
pollution control project at Plant Wansley being placed in service during the
first quarter of 2003.
The decrease in the bond, reserve and construction funds balance was the result
of lower debt service reserve requirements at March 31, 2003 as compared to
December 31, 2002.
The decrease in cash and temporary cash investments was a result of cash used in
financing and investing activities (including debt principal requirements)
exceeding cash provided from operations.
14
The receivable balances increased by $15.0 million at March 31, 2003 as compared
to December 31, 2002. At December 31, 2002 the receivables reflected Board
approved credits that were returned to the Members during the first quarter of
2003.
As a result of the adoption of SFAS No 143, "Accounting for Asset Retirement
Obligations", Oglethorpe has recorded a $28.7 million regulatory asset. (See
"Notes to Condensed Financial Statements - (B)", above for a discussion
regarding adoption of SFAS No. 143.)
Equity and Liabilities
Patronage capital and membership fees and other comprehensive margin increased
by $11.5 million to $383.3 million at March 31, 2003. Patronage capital and
membership fees, excluding accumulated other comprehensive loss, increased by
$9.9 million from $427.6 million at December 31, 2002 to $437.5 million at March
31, 2003. Accumulated other comprehensive loss decreased by $1.6 million, from a
loss of $55.8 million to a loss of $54.2 million.
Notes payable represents Oglethorpe's outstanding commercial paper used to fund,
on an interim basis, a portion of the Talbot EMC and Chattahoochee EMC
construction projects. (See "Capital Requirements and Liquidity and Sources of
Capital" above for a discussion regarding financing of these projects.)
The increase in accrued interest was largely due to the interest expense accrual
associated with the lease of Plant Scherer Unit No. 2, which is paid
semi-annually. At March 31, 2003 interest expense for three months of Scherer
debt was accrued, whereas no interest expense was accrued at December 31, 2002
as a result of the payment made (as due) on that date.
Accrued and withheld taxes increased as a result of the normal monthly accruals
for property taxes, which are generally paid in the fourth quarter of the year.
The decrease in other current liabilities resulted primarily from payment of
certain year-end accruals and a performance based pay accrual. In addition, the
December 31, 2002 balance included negative cash whereas there was no negative
cash balance at March 31, 2003. Somewhat offsetting this decrease was an
increase in accrued operating and maintenance expenses for Plant Doyle.
As a result of the adoption of SFAS No 143, "Accounting for Asset Retirement
Obligations", Oglethorpe has recorded a $240.4 million asset retirement
obligation. (See "Notes to Condensed Financial Statements " - Note (B), above
for a discussion regarding adoption of SFAS No. 143.)
New Accounting Pronouncements
For a discussion of New Accounting Pronouncements see Note B of Notes to
Condensed Financial Statements.
15
Forward-Looking Statements and Associated Risks
This Quarterly Report on Form 10-Q contains forward-looking statements,
including statements regarding, among other items, (i) anticipated transactions
by Oglethorpe and the Members and (ii) Oglethorpe's future capital requirements
and sources of capital. These forward-looking statements are based largely on
Oglethorpe's current expectations and are subject to a number of risks and
uncertainties, some of which are beyond Oglethorpe's control. For factors that
could cause actual results to differ materially from those anticipated by these
forward-looking statements, see "FACTORS AFFECTING THE ELECTRIC UTILITY
INDUSTRY" AND "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS-Expected Facilities Acquisitions, RUS Loans and Other New
Arrangements" and "-Miscellaneous-Competition" in Items 1 and 7 of Oglethorpe's
2002 Annual Report on Form 10-K. In light of these risks and uncertainties,
there can be no assurance that events anticipated by the forward-looking
statements contained in this Quarterly Report will in fact transpire.
16
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Oglethorpe's market risks have not changed materially from the market risks
reported in Oglethorpe's 2002 Annual Report on Form 10-K.
Item 4. Controls and Procedures
Within 90 days prior to the filing date of this report, Oglethorpe carried out
an evaluation, under the supervision and with the participation of its
management, including its President and Chief Executive Officer and Vice
President, Finance and Treasurer, of the effectiveness of the design and
operation of its disclosure controls and procedures (as defined in Rules
13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934, as amended).
Based on this evaluation, the President and Chief Executive Officer and the Vice
President, Finance and Treasurer concluded that Oglethorpe's disclosure controls
and procedures are effective to ensure that information required to be disclosed
by Oglethorpe in the reports that Oglethorpe files or submits under the
Securities Exchange Act is recorded, processed, summarized and reported within
the time periods required by the Securities Exchange Act and the rules
thereunder.
No significant changes occurred in Oglethorpe's internal controls or in other
factors that could significantly affect its internal controls since the date of
its evaluation. Oglethorpe has not found any significant deficiencies or
material weaknesses in these controls, which require any corrective actions
since the date of Oglethorpe's evaluation.
17
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Number Description
------ -----------
99.1 Certification Pursuant to 18 U.S.C. 1350, as
Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, by Thomas A. Smith
(Principal Executive Officer)
99.2 Certification Pursuant to 18 U.S.C. 1350, as
Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, by Anne F. Appleby
(Principal Financial Officer)
(b) Reports on Form 8-K
No reports on Form 8-K were filed by Oglethorpe for the quarter
ended March 31, 2003.
18
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.
Oglethorpe Power Corporation
(An Electric Membership Corporation)
Date: May 15, 2003 By: /s/ THOMAS A. SMITH
-------------------------------------
Thomas A. Smith
President and Chief Executive Officer
(Principal Executive Officer)
Date: May 15, 2003 /s/ MARK CHESLA
-------------------------------------
Mark Chesla
Controller
(Chief Accounting Officer)
19
CERTIFICATIONS
I, Thomas A. Smith, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Oglethorpe
Power Corporation (An Electric Membership Corporation);
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the period presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditor any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 15, 2003
/s/ THOMAS A. SMITH
- -------------------------------------
Thomas A. Smith
President and Chief Executive Officer
20
I, Anne F. Appleby, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Oglethorpe
Power Corporation (An Electric Membership Corporation);
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the period presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditor any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 15, 2003
/s/ ANNE F. APPLEBY
- -------------------------------------
Anne F. Appleby
Vice President, Finance and Treasurer
(Principal Financial Officer)
21