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This excerpt taken from the SO 10-K filed Feb 27, 2007. Off-Balance
Sheet Financing Arrangements
In 2001, the Company began an initial
10-year term
of a lease agreement for a combined cycle generating facility
built at Plant Daniel. In June 2003, the Company entered into a
restructured lease agreement for the Facility with Juniper, as
discussed in Note 7 to the financial statements under
“Operating Leases – Plant Daniel Combined Cycle
Generating Units.” Juniper has also entered into leases
with other parties unrelated to the Company. The assets leased
by the Company comprise less than 50 percent of
Juniper’s assets. The Company does not consolidate the
leased assets and related liabilities, and the lease with
Juniper is considered an operating lease. Accordingly, the lease
is not reflected in the balance sheets.
The initial lease term ends in 2011, and the lease includes a
renewal and a purchase option based on the cost of the Facility
at the inception of the lease, which was approximately
$370 million. The Company is required to amortize
approximately four percent of the initial acquisition cost over
the initial lease term. Eighteen months prior to the end of the
initial lease, the Company may elect to renew for 10 years.
If the lease is renewed, the agreement calls for the Company to
amortize an additional 17 percent of the initial completion
cost over the renewal period. Upon termination of the lease, at
the Company’s option, it may either exercise its purchase
option or the Facility can be sold to a third party.
The lease also provides for a residual value guarantee,
approximately 73 percent of the acquisition cost, by the
Company that is due upon termination of the lease in the event
that the Company does not renew the lease or purchase the
Facility and that the fair market value is less than the
unamortized cost of the Facility.
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