SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) December 19, 2000
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Southern Energy, Inc.
(Exact name of registrant as specified in its charter)
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Delaware 001-16107 58-2056305
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(State or other jurisdiction (Commission File (IRS Employer Identification
of incorporation) Number) No.)
1155 Perimeter Center West Suite 100, Atlanta, Georgia 30338
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (678) 579-5000
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N/A
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(Former name or former address, if changed since last report.)
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Item 2. Acquisition or Disposition of Assets.
On December 19, 2000, Southern Energy, Inc. (the Company), through its
subsidiaries and together with lessors in a leveraged lease transaction, closed
the asset purchase from Potomac Electric Power Company (PEPCO) of PEPCO's
generation assets in Maryland and Virginia. The net purchase price for these
acquisitions was approximately $2.75 billion which includes working capital and
capital expenditures of approximately $100 million and approximately $1.5
billion provided by a leveraged lease transaction. As part of the acquisition,
the Company also assumed net liabilities, primarily transition power agreements
and obligations under power purchase agreements, of approximately $2.4 billion.
The acquired assets consist primarily of four generating stations:
o the 1,412 MW coal and oil-fired Morgantown station located in Charles
County, Maryland, approximately 50 miles from Washington, D.C.,
o the 2,423 MW coal, oil and gas-fired Chalk Point station located in
Prince George's County, Maryland, approximately 45 miles from
Washington, D.C., including the assignment of PEPCO's rights and
obligations to the 84 MW Southern Maryland Electric Cooperative, Inc.
combustion turbine located at the Chalk Point station site,
o the 837 MW coal, oil and gas-fired Dickerson station located in upper
Montgomery County, Maryland, approximately 30 miles from
Washington, D.C., and
o the 482 MW coal-fired Potomac River station located in Alexandria,
Virginia, in close proximity to Washington, D.C.
In addition to the electric generating stations described above, the
Company, through subsidiaries, also acquired three separate coal ash storage
areas, a 51.5 mile oil pipeline serving the Chalk Point and Morgantown stations,
and an engineering and maintenance service facility and related assets. The
Company also entered into a lease of the land on which the Potomac River station
is located, power sales agreements with PEPCO under two separate transition
power agreements with terms of up to four years, a local area support agreement
with PEPCO requiring the Potomac River station to operate for purposes of
supporting a local load pocket, a three-year operation and maintenance agreement
for PEPCO's two generating stations located in the District of Columbia (Benning
and Buzzard Point) and the assumption of five of PEPCO's power purchase
agreements totaling 735 MW (Ohio Edison, Panda-Brandywine, Northeast Maryland
Waste Disposal Authority, Prince George's County Detention Center and Gude
Landfill). The Company's rights to acquire the assets were assigned to certain
of the Company's subsidiaries and the Company executed and delivered to PEPCO a
parent guarantee to support the obligations of subsidiaries under the project
agreements. In addition, as part of the acquisition, approximately 950 PEPCO
employees became employees of a subsidiary of the Company.
The acquired assets are located in the PJM Interconnection market, which
encompasses all or a part of Pennsylvania, New Jersey, Maryland, Virginia and
the District of Columbia. The PJM Interconnection market is the largest
centrally-dispatched power pool in the United States. The PJM Interconnection
enables participants to buy and sell energy and ancillary services, schedule
bilateral transactions and reserve transmission service.
The PEPCO assets provide a range of capacity across the PJM Interconnection
dispatch curve. There is approximately 2,700 MW of baseload capacity, 1,400 MW
of cycling capacity, and 1,055 MW of peaking capacity. Likewise, there is a wide
range of fuels consumed at the facilities, and approximately 94% of the total
generating capacity can burn multiple fuels.
As part of the acquisition, the Company entered into two separate transition
power agreements with PEPCO to provide energy, capacity and ancillary services
to PEPCO's default retail customers. One of the transition power agreements is
for service to PEPCO's default customers in Maryland and has a term through June
30, 2004. The other transition power agreement is for service to PEPCO's default
customers in the District of Columbia and expires December 18, 2004. Under both
transition power agreements, the Company is obligated to provide capacity and
ancillary services for the entire term. The Company is also obligated under both
contracts to provide 100% of the energy requirements for the first contract year
and 75% of the energy requirements for the second contract year. Beginning in
the second contract year, PEPCO has the option of purchasing additional energy
requirements in 25% increments up to the level purchased in the prior contract
year. PEPCO's current peak demand requirements for the existing retail customers
are approximately 5,300 MW. With a total generation portfolio of 5,889 MW,
including the power purchase agreements, these transition power agreements
provide a significant portion of the Company's revenues for the first two to
four years and thereby mitigate the market price volatility risk. The pricing
for these services in each of the agreements is below current market prices.
Under the asset purchase and sale agreement, the Company assumed the
obligations and benefits of five power purchase agreements with a total capacity
of 735 MW. Three of the power purchase agreements (Ohio Edison, Panda-Brandywine
and Northeast Maryland Waste Disposal Authority) represent 730 MW.
In connection with the acquisition, the Company entered into credit
agreements with a syndicate of banks led by Credit Suisse First Boston, New York
Branch, as arranger, and seven other banks that provided the following:
o two facilities to SE North America Generating, the Company's
wholly-owned subsidiary, totaling $1.02 billion with recourse to SE
North America Generating
o one facility of $650 million to the Company with recourse to the Company
In addition, the Company entered into leveraged lease transactions that provided
$1.5 billion of the purchase price at closing. Equity funding by third party
owner lessors provided approximately $299 million. The issuance and sale of
three series of certificates pursuant to a 144A offering raised the remaining
$1.22 billion of lease debt. Under the leveraged lease financing arrangements,
the owner lessors acquired the Dickerson and Morgantown baseload facilities and
leased these facilities to a subsidiary of the Company under long term lease
agreements. The leases will be treated as operating leases for book purposes
whereby one of the Company's subsidiaries will record periodic lease rental
expenses.
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Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements of the businesses acquired.
N/A
(b) Pro forma financial information.
Pro forma financial information will be provided in an amended
8-K filing on or before March 3, 2001.
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SIGNATURE
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.
Date: January 3, 2001 SOUTHERN ENERGY, INC.
By /s/ James A. Ward
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James A. Ward
Senior Vice President, Finance
And Accounting
(Principal Accounting Officer)
