<PAGE> 1
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED APRIL 7, 1999)
$240,000,000
NRG LOGO NRG ENERGY, INC.
8% REMARKETABLE OR REDEEMABLE SECURITIES (ROARS(SM))
DUE 2013 (REMARKETING DATE NOVEMBER 1, 2003)
------------------------
The ROARS will bear interest at the rate of 8% per year from the date of
delivery to but excluding November 1, 2003, which is the first Remarketing Date,
and then at a rate discussed under "Description of the ROARS." Interest on the
ROARS is payable on May 1 and November 1 of each year, beginning on May 1, 2000
and continuing through November 1, 2003, and then at intervals discussed under
"Description of the ROARS." On any Remarketing Date, the ROARS will either be
mandatorily tendered to and purchased by Credit Suisse Financial Products, as
Remarketing Dealer, or mandatorily redeemed by us, in each case at the prices
discussed under "Description of the ROARS." If purchased by the Remarketing
Dealer, the ROARS will bear interest from the Remarketing Date at a rate to be
determined as described under "Description of the ROARS." The ROARS will mature
on November 1, 2013. We may redeem all of the ROARS on any Remarketing Date at
prices described under "Description of the ROARS."
The ROARS will be senior obligations of ours and will rank equally with all
of our unsecured senior indebtedness.
------------------------
INVESTING IN THE ROARS INVOLVES CERTAIN RISKS. SEE "RISK FACTORS" BEGINNING
ON PAGE S-10.
------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus supplement or the related prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
------------------------
<TABLE>
<CAPTION>
Per ROARS Total
--------- -----
<S> <C> <C>
Public Offering Price....................................... 99.785% $239,484,000
Underwriting Discount....................................... 0.500% $ 1,200,000
Proceeds to the Company (before expenses)................... 102.165% $245,196,000
</TABLE>
------------------------
The underwriters are offering the ROARS subject to various conditions. The
underwriters expect to deliver the ROARS to purchasers on or about November 8,
1999.
------------------------
BANC OF AMERICA SECURITIES LLC
CIBC WORLD MARKETS
CREDIT SUISSE FIRST BOSTON
GOLDMAN, SACHS & CO.
------------------------
November 2, 1999
(SM) Service Mark of Banc of America Securities LLC
<PAGE> 2
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN OR INCORPORATED BY
REFERENCE IN THIS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS. WE HAVE NOT
AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION. WE ARE NOT MAKING
AN OFFER OF THESE SECURITIES IN ANY STATE WHERE THE OFFER IS NOT PERMITTED. YOU
SHOULD NOT ASSUME THAT THE INFORMATION PROVIDED BY THIS SUPPLEMENT OR THE
ACCOMPANYING PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON THE
FRONT OF THIS SUPPLEMENT.
-------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
Prospectus Supplement Summary............................... S-1
Risk Factors................................................ S-10
Business.................................................... S-20
Use of Proceeds............................................. S-30
Selected Consolidated Financial and Other Data.............. S-31
Earnings to Fixed Charges Ratio............................. S-33
Description of the ROARS.................................... S-34
Underwriting................................................ S-44
Legal Matters............................................... S-45
PROSPECTUS
Where You Can Find More Information......................... 2
Forward Looking Statements.................................. 2
The Company................................................. 3
Use of Proceeds............................................. 4
Earnings to Fixed Charges Ratio............................. 4
Description of Debt Securities.............................. 4
Plan of Distribution........................................ 15
Legal Matters............................................... 15
Experts..................................................... 16
</TABLE>
i
<PAGE> 3
PROSPECTUS SUPPLEMENT SUMMARY
The following summary is qualified in its entirety by and should be read
together with the more detailed information and financial statements included or
incorporated by reference in this supplement and the accompanying prospectus.
THE COMPANY
We are one of the leading participants in the independent power generation
industry. We are principally engaged in the acquisition, development and
operation of, and ownership of interests in, independent power production and
co-generation facilities, thermal energy production and transmission facilities,
landfill gas collection and associated electric generation facilities and
resource recovery facilities. The power generation facilities in which we
currently have interests, including those under construction, as of August 31,
1999, have a total design capacity of 15,522 megawatts ("MW"), of which we have
or will have total or shared operational responsibility for 11,175 MW and net
ownership of, or leasehold interests in, 6,945 MW. In addition, we have
substantial interests in district heating and cooling systems and steam
generation and transmission operations. As of August 31, 1999, these thermal
businesses had a steam capacity of approximately 3,750 million British thermal
units per hour (mmBtu/hr.), of which our equity interest was 3,315 mmBtu/hr.
Refuse-derived fuel plants in which we have an ownership or operating interest
processed more than 640,000 tons of municipal solid waste into approximately
520,000 tons of refuse-derived fuel during the first two quarters of 1999.
We were established in 1989 and are a wholly-owned subsidiary of Northern
States Power Company ("NSP"). Our headquarters and principal executive offices
are located at 1221 Nicollet Mall, Suite 700, Minneapolis, Minnesota 55403. Our
telephone number is (612) 373-5300.
STRATEGY
We intend to continue to grow through a combination of acquisitions and
greenfield development of power generation facilities, thermal energy production
and transmission facilities and related assets in the United States and abroad.
We believe that our facility operations and engineering expertise, fuel and
environmental strategies, labor and government relations expertise and legal and
financial skills give us a competitive advantage in the independent power
market. We also believe that our experience in meeting or exceeding applicable
environmental regulatory standards and our environmental compliance record will
give us an advantage as regulators continue to impose increasingly stringent
environmental requirements on the operation of power generation facilities. In
addition, we continue to have access to technical and administrative support
from NSP on a contract basis to augment our own expertise. We believe the
knowledge and expertise we have gained in the financial and legal restructuring
of our existing facilities, as well as our engineering expertise and reputation
with respect to environmental compliance and labor relations, can be effectively
employed in the development of both domestic and international greenfield
projects.
In the United States, our near-term focus will be primarily on the
acquisition of existing power generation capacity and thermal energy production
and transmission facilities, particularly in situations in which our expertise
can be applied to improve the operating and financial performance of the
facilities. In the international market, we will continue to pursue
S-1
<PAGE> 4
development and acquisition opportunities in those countries in which we believe
that the legal, political and economic environment is conducive to foreign
investment. We expect to acquire or develop most domestic and international
projects on a joint venture basis. Where appropriate, we will include a local or
host country partner or a partner with substantial experience in the area.
Although we exercise flexibility in structuring our investments in projects, our
goal is to own a 20% to 50% equity interest in, and have operating control or
influence over, the projects in which we invest. While we have made several
wholly-owned acquisitions during the past twelve months, in the future we may
seek partners for those acquisitions.
S-2
<PAGE> 5
RECENT DEVELOPMENTS
RECENT AND PENDING ACQUISITIONS
We have completed or we expect to complete several acquisitions for
domestic projects located on both the East and West coasts as a result of
entering into several binding purchase agreements since October 1998. The
summary we provide below of provisions of certain agreements is not complete and
should be read in conjunction with the actual agreements, which are, or will be,
filed as exhibits to our periodic reports filed with the Securities and Exchange
Commission. These completed or pending acquisitions include the following
assets:
EAST COAST
- In April 1999, we completed the purchase of the Somerset power station
from Montaup Electric Company, an affiliate of Eastern Utilities
Associates ("EUA"), for approximately $55 million. The Somerset station
is located in Somerset, Massachusetts and consists of two coal-fired
generating facilities with a nominal capacity rating of 181 MW, of which
69 MW is on deactivated reserve, and two aeroderivative combustion
peaking units with a nominal capacity rating of 48 MW. We hold a 100%
interest in this facility. In connection with this acquisition, we also
entered into a Wholesale Standard Offer Service Agreement pursuant to
which we are obligated to provide approximately 30% of the energy and
capacity requirements of certain EUA affiliates (which we estimate to be
approximately 275 MW at peak requirement) until December 31, 2009.
- In June 1999, we completed the purchase of the Astoria gas turbines
facility and the Arthur Kill generating facility from Consolidated Edison
Company of New York, Inc. ("ConEd") for approximately $505 million. These
facilities, located in New York City, have a combined nominal capacity
rating of 1,456 MW. In connection with the acquisition of each facility,
we entered into (i) Transition Energy Sales Agreements pursuant to which
energy from each facility is sold to ConEd for a transition period ending
on the date on which the independent system operator in New York State
("NYISO") commences operation of a spot market for energy and certain
ancillary services, and (ii) Transition Capacity Sales Agreements
pursuant to which capacity from each facility is sold to ConEd for a
transition period ending on the later of (a) the earlier of (i) December
31, 2002 or (ii) the date such facility receives notice from the NYISO
that none of the electric generating capacity of such facility is
required for meeting the installed capacity requirements in New York
City, or (b) the date the NYISO commences an auction for system capacity.
Pursuant to the Transition Energy Sales Agreements, we have agreed to
sell to ConEd at a fixed price varying amounts of energy from the Arthur
Kill generating facility and the Astoria gas turbine generating facility,
in each case in amounts to be specified by ConEd, up to the full
capability of each facility. Pursuant to the Transition Capacity Sales
Agreements, we have agreed to sell to ConEd at a fixed price, during
certain periods, up to 100% of the capacity of the Arthur Kill generating
facility and up to 100% of the capacity of the Astoria gas turbines
facility.
- In June 1999, we completed the purchase of the Dunkirk and Huntley
coal-fired generating facilities located near Buffalo, New York from
Niagara Mohawk Power Corporation ("NIMO") for approximately $355 million.
These facilities have a combined nominal capacity rating of 1,360 MW. In
connection with the acquisition of these generating facilities, we
entered into several Transition Power Purchase
S-3
<PAGE> 6
Agreements and a related swap agreement with NIMO pursuant to which NIMO
purchases certain energy and capacity from these facilities for a term of
four years. Pursuant to these agreements, we have agreed to sell 100% of
the capacity of, and an option to purchase up to 45% of the annual energy
output from, certain units of the Huntley facility and 100% of the
capacity of, and an option to purchase up to 39% of the annual energy
output from, the Dunkirk facility to NIMO at fixed prices.
- In October 1999, we completed the purchase of the 1700 MW oil/gas fired
Oswego generating facility located in Oswego, New York from NIMO and
Rochester Gas & Electric for approximately $85 million. This facility
consists of two units each having a nominal capacity rating of 850 MW.
This transaction is the subject of certain litigation. See "Legal
Proceedings." In connection with this acquisition, we entered into a
Transition Power Purchase Agreement with NIMO similar to those entered
into in connection with the acquisitions of the Dunkirk and Huntley
facilities (see above). Pursuant to this agreement, we have agreed to
sell 100% of the capacity of one unit, an option for up to 40% of the
capacity of the other unit, and an option to purchase a nominal amount of
energy to NIMO for a term of four years.
- In July 1999, we executed an acquisition agreement with Connecticut Light
& Power Company ("CL&P") to purchase four fossil fuel electric generating
facilities and numerous remote gas turbines facilities for approximately
$460 million. These facilities are located throughout Connecticut and
have a combined nominal capacity rating of 2,235 MW. The transaction is
expected to close in the fourth quarter of 1999, pending regulatory
approval. On October 29, 1999 we entered into a Standard Offer Service
Wholesale Sales Agreement with CL&P pursuant to which we will supply to
CL&P at fixed prices a specified share of a portion of CL&P's aggregate
retail load. The quantity of power to be supplied is equal to 35% of
CL&P's standard offer service load during calendar year 2000, 40% during
calendar years 2001 and 2002, and 45% during calendar year 2003. We
estimate that 45% of CL&P's standard offer service load in 2003 will be
approximately 2,070 MW at peak requirement. The agreement terminates on
December 31, 2003.
We have aggregated the completed acquisitions and we intend to aggregate
the remaining acquisitions into a regional generating company, NRG Northeast
Generating LLC. We have financed these acquisitions and we intend to finance the
pending acquisitions of these assets on a pooled basis with equity and project
debt. The proceeds of this offering will fund a portion of our equity
investment. We intend to actively market from these facilities energy, capacity
and other power generation products which are not required to satisfy our
obligations under the transition agreements we entered into in connection with
the acquisition of these facilities.
WEST COAST
In May 1999, we and Dynegy Inc. completed the purchase of 1,218 MW of power
generating facilities from San Diego Gas & Electric for approximately $356
million. These facilities are the 965 MW Encina Power Plant located adjacent to
the Pacific Ocean in Carlsbad, California and seventeen combustion turbines
totaling 253 MW located on seven different sites in San Diego County,
California. Dynegy Inc. and we each own 50% of these facilities. At the present
time, none of the energy or capacity from these units has been sold under a
long-term agreement to any third parties.
S-4
<PAGE> 7
We and Dynegy Inc. aggregated the Encina Power Plant, the San Diego
combustion turbines and other jointly owned assets into a regional generating
company, West Coast Power LLC, and financed the acquisition of the assets on a
pooled basis with nonrecourse debt as well as equity investments from both us
and Dynegy Inc.
CAJUN ELECTRIC POWER COOPERATIVE, INC.
In September 1999, the United States Bankruptcy Court for the Middle
District of Louisiana confirmed the Creditors' Plan of Reorganization (the
"Plan") for Cajun Electric Power Cooperative, Inc. ("Cajun"). Under the Plan,
Cajun's 1,708 MW fossil generating assets in Louisiana are to be sold to
Louisiana Generating LLC, a Delaware limited liability company that until
October 1999 was owned 50% by us and 50% by Southern Energy Inc. ("Southern
Energy"), a unit of Southern Company. In October 1999, we exercised an option to
purchase Southern Energy's 50% share in Louisiana Generating LLC; consequently,
we are currently the 100% owner of Louisiana Generating LLC. Louisiana
Generating LLC's purchase of Cajun's fossil-fueled generating assets is subject
to various regulatory approvals, and the transaction is expected to close in the
first quarter of 2000. We may seek a partner to acquire a share of Louisiana
Generating LLC from us.
COGENERATION CORPORATION OF AMERICA
We currently own 45.3% of the outstanding capital stock of Cogeneration
Corporation of America ("CogenAmerica"). In August 1999, CogenAmerica entered
into an Agreement and Plan of Merger (the "Merger Agreement") with Calpine
Corporation ("Calpine") and Calpine East Acquisition Corp. ("Calpine
Acquisition") pursuant to which Calpine Acquisition and CogenAmerica will merge.
Upon the closing of the merger, all outstanding shares of CogenAmerica's common
stock (other than shares held by Calpine Acquisition) will be converted into the
right to receive $25.00 per share in cash. Concurrently with the Merger
Agreement, we entered into a Contribution and Stockholders Agreement with
Calpine and Calpine Acquisition. Immediately prior to the closing of the merger,
we will contribute approximately 20% of our CogenAmerica shares to Calpine
Acquisition in exchange for 20% of the shares of stock of the surviving
corporation. The transaction, which is subject to CogenAmerica stockholder
approval and various regulatory approvals, is expected to close during the
fourth quarter of 1999.
LEGAL PROCEEDINGS
On or about July 12, 1999, Fortistar Capital, Inc. ("Fortistar") commenced
an action against us in Hennepin County (Minnesota) District Court, seeking
damages in excess of $100 million and an order restraining us from consummating
the acquisition of NIMO's Oswego generating facility. Fortistar's motion for a
temporary restraining order was denied, and a temporary injunction hearing was
held on September 27, 1999. The acquisition was closed on October 22, 1999,
following notification to the court of our intention to close on that date. To
this date we have not received notice of any ruling on the temporary injunction
motion. We intend to vigorously defend the suit and believe Fortistar's claims
to be without merit. We have asserted numerous counterclaims against Fortistar.
ENVIRONMENTAL MATTERS
On October 12, 1999, we received a letter from the Office of the Attorney
General of the State of New York alleging that, based on a preliminary analysis,
it believes that major
S-5
<PAGE> 8
modifications were made to the Huntley and Dunkirk facilities during NIMO's
ownership of these facilities without complying with environmental permitting
requirements. The letter requested documents relating to historic maintenance,
repair, and replacement work at these facilities, as well as other data relating
to operations and emissions from these facilities. It is our understanding that
the Attorney General sent identical letters to the owners and operators of all
of the coal-fired utility plants in New York. Although we do not have knowledge
that NIMO did not comply with the permitting requirements at the Huntley and
Dunkirk facilities, we have only recently initiated steps to investigate more
fully allegations to the contrary. Accordingly, we cannot predict the outcome of
this investigation. If it is determined that these facilities did not comply
with the permitting requirements, we could be required, among other things, to
install expensive pollution control technology to control the emissions of
sulfur dioxide and nitrogen oxide from the Huntley and Dunkirk facilities.
On October 14, 1999, Governor George Pataki of New York announced that he
is ordering the New York Department of Environmental Conservation to require
further reductions of sulfur dioxide emissions and nitrogen oxides emissions
from New York power plants that would go substantially beyond the reductions
required under current federal and state law.
PROPOSED MERGER OF NORTHERN STATES POWER COMPANY
On March 24, 1999, NSP and New Century Energies, Inc., a Delaware
corporation ("NCE"), entered into an Agreement and Plan of Merger providing for
a strategic business combination of NCE and NSP. Pursuant to the merger
agreement, NCE will be merged with and into NSP with NSP as the surviving
corporation in the merger. Subject to the terms of the merger agreement, at the
time of the merger, each share of NCE common stock, other than certain shares to
be canceled, together with any associated purchase rights, will be converted
into the right to receive 1.55 shares of NSP common stock. The merger is
expected to be a tax-free stock-for-stock exchange for shareholders of both
companies and to be accounted for as a pooling of interests.
Consummation of the merger is subject to certain closing conditions,
including, among others, approval or regulatory review by certain state
utilities regulators, the Securities and Exchange Commission under the Public
Utility Holding Company Act of 1935, the Federal Energy Regulatory Commission,
the Nuclear Regulatory Commission, the Federal Communications Commission and
expiration or termination of the waiting period applicable to the merger under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976. Each of NCE and NSP
has agreed to certain undertakings and limitations regarding the conduct of its
business prior to the closing of the transaction, some of which impact us, but
none of which materially impacts the conduct of our business. The merger is
expected to be completed during the second or third quarter of 2000.
EARNINGS FOR THE QUARTER ENDED SEPTEMBER 30, 1999
On October 14, 1999, we announced that we had net income of $27.6 million
for the third quarter of 1999, compared with a loss of $4.8 million for the
third quarter of 1998. These results reflect earnings from our recent
acquisitions in the Northeast region of the United States.
S-6
<PAGE> 9
SUMMARY OF TERMS OF THE SECURITIES
The following summary is a short description of the main terms of the
offering of the securities. For that reason, this summary does not contain all
of the information that may be important to you. To fully understand the terms
of the offering of the securities, you will need to read both this prospectus
supplement and the attached prospectus, each in its entirety.
ISSUER
NRG Energy, Inc., a Delaware company, will issue the ROARS.
TRUSTEE
Norwest Bank Minnesota, National Association.
OFFERED SECURITIES
We will issue $240,000,000 aggregate principal amount of 8% ROARS. The
ROARS will mature on November 1, 2013; however, we may repurchase all of the
ROARS before that date.
INTEREST RATES
The ROARS will bear interest at the rate of 8% per year from November 8,
1999 to but excluding November 1, 2003, which is the first Remarketing Date, and
then at a rate discussed under "Description of the ROARS."
INTEREST PAYMENT DATES
We will pay interest on May 1 and November 1, beginning on May 1, 2000 and
continuing through November 1, 2003, and then at intervals discussed under
"Description of the ROARS."
INTEREST ACCRUAL
The ROARS will accrue interest at a fixed rate or at a floating rate from
November 1, 2003, depending on our decision. If the rate is fixed, interest will
be computed on the basis of a 360-day year consisting of twelve 30-day months.
If the rate is floating, interest will be computed on the basis of the actual
number of days in the applicable floating rate reset period over a 360-day year.
For a more detailed description of the payment of interest, you should
refer to the sections of this prospectus supplement entitled "Description of the
ROARS -- Interest and Interest Payment Dates," "-- Interest Rate to Maturity"
and "-- Floating Rate Period."
RANKING
The ROARS will rank equally in right of payment with all of our existing
and future unsecured senior debt. The ROARS will rank senior to all of our
existing and future subordinated indebtedness.
MANDATORY TENDER
We have entered into a Remarketing Agreement with Credit Suisse Financial
Products, as Remarketing Dealer. This agreement gives the Remarketing Dealer the
option to purchase all of the ROARS on November 1, 2003 or any subsequent
Remarketing Date. The purchase price for the ROARS will be equal to 100% of the
aggregate principal outstanding on the first Remarketing Date or at the Dollar
Price on any subsequent Remarketing Date.
For a more detailed description of the mandatory tender, you should refer
to the section of this prospectus supplement entitled "Description of the ROARS
- --Mandatory Tender."
S-7
<PAGE> 10
MANDATORY REDEMPTION
If the Remarketing Dealer does not purchase the ROARS on any Remarketing
Date, the Trustee, on behalf of the beneficial owners, must require us to
purchase all of the ROARS for 100% of the aggregate principal outstanding on the
first Remarketing Date or at the Dollar Price on any subsequent Remarketing
Date, in addition to all accrued and unpaid interest, if any.
For a more detailed description of the mandatory redemption, you should
refer to the section of this prospectus supplement entitled "Description of the
ROARS -- Mandatory Redemption."
OPTIONAL REDEMPTION
If the Remarketing Dealer chooses to purchase the ROARS, we have the option
of redeeming all of the ROARS on November 1, 2003 or any subsequent Remarketing
Date at the Dollar Price, in addition to all accrued and unpaid interest, if
any.
RATINGS
The ROARS are rated "BBB-" by Standard & Poor's Ratings Group and "Baa3" by
Moody's Investors Service, Inc.
SINKING FUND
The ROARS are unsecured and not entitled to any sinking fund.
CHANGE OF CONTROL
If a "Change of Control" (as defined on page 7 of the attached prospectus)
occurs, each beneficial owner of the ROARS may require us to repurchase the
ROARS, in whole or in part, at 101% of the principal amount of the ROARS, plus
accrued and unpaid interest.
USE OF PROCEEDS
The net proceeds from the sale of the ROARS will be approximately $244.8
million. A portion of the net proceeds will be used to finance our equity
investment in connection with pending acquisitions. The remainder of the net
proceeds will be used for general corporate purposes, which may include:
- financing the development and construction of new facilities,
- additions to working capital,
- reductions of our indebtedness and our subsidiaries' indebtedness,
- financing of capital expenditures and
- potential acquisitions.
S-8
<PAGE> 11
SUMMARY AND CONSOLIDATED FINANCIAL AND OPERATING DATA
The summary historical financial data set forth below as of December 31,
1994, 1995, 1996, 1997 and 1998 and for the years then ended, have been derived
from our audited consolidated financial statements. The summary historical
financial data set forth below as of June 30, 1998 and 1999 and for the six
months then ended have been derived from our unaudited financial statements.
Certain financial information for the year ended December 31, 1994 has been
reclassified to conform to the financial presentation for the year ended
December 31, 1998. The selected capacity data set forth below has been supplied
by us. All dollar amounts are set forth in thousands.
CONSOLIDATED STATEMENTS OF INCOME DATA:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------------------ --------------------
1994 1995 1996 1997 1998 1998 1999
-------- -------- -------- --------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues from wholly-owned
operations................ $ 63,970 $ 64,180 $ 71,649 $ 92,052 $ 100,424 $ 49,782 $ 97,881
Equity in earnings of
unconsolidated
affiliates.............. 32,155 28,639 34,315 26,200 81,706 29,183 15,292
Operating Costs and
Expenses................ (63,529) (75,465) (84,188) (100,143) (125,118) (58,734) (112,362)
-------- -------- -------- --------- --------- -------- ---------
Operating Income.......... 32,596 17,354 21,776 18,109 57,012 20,231 811
Other Income
(Expense)(1)............ (586) 22,657 (7,453) (19,618) (40,934) (23,512) (24,694)
Income Tax Benefit
(Expense)(2)............ (2,472) (8,810) 5,655 23,491 25,654 16,339 25,284
-------- -------- -------- --------- --------- -------- ---------
Net Income................ $ 29,538 $ 31,201 $ 19,978 $ 21,982 $ 41,732 $ 13,058 $ 1,401
======== ======== ======== ========= ========= ======== =========
</TABLE>
CONSOLIDATED BALANCE SHEET AND OPERATING DATA:
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF JUNE 30,
-------------------------------------------------------- -----------------------
1994 1995 1996 1997 1998 1998 1999
-------- -------- -------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net property, plant
and equipment........ $107,634 $111,919 $129,649 $ 185,891 $ 204,729 $ 193,950 $1,127,203
Net equity
investments in
projects........... 164,863 221,129 365,749 694,655 800,924 781,496 811,491
Total assets......... 376,570 454,589 680,809 1,168,102 1,293,426 1,211,123 2,401,762
Long-term debt,
including current
maturities......... 93,339 90,034 212,141 620,855 626,476 690,555 1,570,893
Stockholder's
equity............. 234,722 319,764 421,914 450,698 579,332 447,297 698,526
Percentage of total
debt to
capitalization..... 28.5% 22.0% 33.5% 57.9% 52.0% 60.7% 69.2%
Our net power
generating capacity
(MW)............... 992 999 1,326 2,637 3,300 3,456 6,946
</TABLE>
- -------------------------
(1) Includes pretax charges of $5.0 million, $5.0 million, $1.5 million, $9.0
million and $26.7 million in the years 1994, 1995, 1996, 1997 and 1998,
respectively, to write-down the carrying value of certain energy projects.
These amounts also include the gain on sale of our interest in projects of
$8.7 million in 1997 and $30.0 million in 1998.
(2) We have substantial tax credits which can be utilized by NSP. NSP pays us
for these tax credits on a quarterly basis.
S-9
<PAGE> 12
RISK FACTORS
Before purchasing the ROARS you should carefully consider the following
risk factors as well as the other information contained in this supplement, the
accompanying prospectus, and the information incorporated by reference in order
to evaluate an investment in the ROARS.
RECENT SIGNIFICANT ACQUISITIONS REQUIRE SUCCESSFUL INTEGRATION, OPERATION AND
MANAGEMENT.
During the period from June 30, 1998 through August 31, 1999, we have more
than doubled our net ownership interests in power generation facilities,
expanding from 3,456 MW of net ownership interests in power generation
facilities (including those under construction) as of June 30, 1998 to
approximately 6,945 MW of net ownership interests as of August 31, 1999. This
growth resulted primarily from a number of domestic acquisitions, notably the
acquisition from Niagara Mohawk Power Corporation of the Huntley and Dunkirk
generating stations in upstate New York, the acquisition from Montaup Electric
Company of the Somerset generating station in Massachusetts, the acquisition
from San Diego Gas and Electric Company of the Encina generating station and
combustion turbines in California and the acquisition from Consolidated Edison
Company of New York of the Arthur Kill generating station and Astoria gas
turbines in New York City. During the course of our next two fiscal quarters, if
we complete our pending acquisitions, we will increase our net ownership
interests in power generation facilities by over 80%. In connection with these
recent acquisitions, we have hired a substantial number of new employees, most
of whom have previously been involved with the operation of one or more of the
acquired power generation facilities. In addition, we have hired new employees
to market the power, capacity and other products to be sold from such power
generation facilities and to coordinate the dispatch of such power generation
facilities. We cannot assure you that we will be able to successfully integrate
all of the newly hired employees, nor can we assure you that we will be able to
profitably integrate, operate, maintain and manage these recently acquired power
generation facilities (and the power generation facilities that we currently
expect to acquire in the near future) in a competitive environment in which
electricity rates will be determined by the operation of market forces.
MANY OF OUR POWER GENERATION FACILITIES, INCLUDING MOST OF OUR RECENTLY ACQUIRED
OR TO BE ACQUIRED FACILITIES, OPERATE WITHOUT LONG-TERM POWER PURCHASE
AGREEMENTS.
Although a number of our power generation facilities have long-term power
purchase agreements, we expect that the number of our facilities with these
agreements will decrease and that over time virtually all of our facilities will
operate without long-term power purchase agreements.
Historically, each of our power generation facilities had associated
long-term power purchase agreements under which all of the energy and capacity
were sold to a single party (typically the local utility) at fixed prices.
However, most of the power generation facilities in which we have recently
acquired or are acquiring interests do not have traditional long-term power
purchase agreements, and, therefore, we must sell all or a portion of the output
from these facilities into the market. Facilities that sell their output into
the market and operate without long-term power purchase agreements in place are
called "merchant" plants. The power generation facilities that we have recently
acquired or are acquiring in California, Connecticut, Massachusetts and New York
are considered to be merchant plants, although a portion of the output of
certain of these plants in the first several years of our ownership of
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them is contracted for under transition power purchase contracts with their
former owners. Not all of these power generation facilities, however, have
transition power purchase agreements covering all of even a portion of the
energy, capacity and other products that can be sold from such facilities. Thus,
revenues generated by these facilities are subject to significant variations
based upon prevailing market prices for energy, capacity and other products
which are influenced by a number of factors outside of our control, including
weather, economic conditions, and the particular operating profile and
generating capacity of the purchasing utility. While these merchant projects
introduce new risks and uncertainties, and require careful advance analysis of
the local power and fuel markets, we believe that they are becoming increasingly
accepted in the independent power market.
NEW MARKETS FOR POWER GENERATION PRODUCTS ARE UNPREDICTABLE.
All of our newly-acquired power generation facilities in the United States
(and the power generation facilities that we currently expect to acquire in the
near future) operate in unregulated markets in which prices for power generation
products (such as energy, capacity and ancillary services) are set by
competitive bidding processes. These new markets are unpredictable and are
subject to substantial price fluctuations over relatively short periods of time.
In addition, the independent system operators who oversee most of these new
energy markets have in the past, and may continue in the future, to impose price
limitations and other mechanisms to address some of the volatility in these
markets. These price limitations and other mechanisms may adversely impact the
profitability of our United States power generation facilities since we actively
participate in buying and selling power generation products in each of the
markets in which we own power generation facilities, even in cases where we have
transition power purchase agreements. Given the extreme volatility and lack of
meaningful price history in these markets and the potential for market
regulation by the independent system operators, we cannot assure you that we
will be able to operate profitably in these power generation markets.
INVESTMENTS IN LESS THAN 100% OWNED PROJECTS LIMIT OUR CONTROL.
Our ability to control the development, construction, acquisition or
operation of project investments and joint ventures is limited because many of
our current project investments consist of minority interests in project
affiliates (i.e., where we beneficially own 50% or less of the ownership
interests). A substantial portion of our future investments in projects may also
take the form of minority interests. As a result, the indenture for the ROARS
does not contain any limitations on our ability to make minority investments.
Although we seek to exert a degree of influence with respect to the
management and operation of projects in which we are a minority investor by
negotiating to receive certain limited governance rights (such as rights to veto
significant actions or to obtain positions on management committees), we may not
always succeed in such negotiations. We may be dependent on our co-venturers to
construct and operate such projects. We cannot assure you that our co-venturers
will have the same level of experience, technical expertise, human resources
management and other attributes that we possess. Any co-venturer may have
conflicts of interest, including those relating to its status as a provider of
goods or services to the project. The approval of co-venturers also may be
required for us to receive distributions of funds from projects.
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MOST OF OUR POWER GENERATING FACILITIES DO NOT HAVE LONG-TERM FUEL SUPPLY
CONTRACTS.
Most of our power generating facilities purchase fuel pursuant to
short-term contracts or on the spot market. Even though we will attempt to hedge
some portion of our known fuel requirements, we still may face the risk of
supply interruptions and fuel price volatility, which can result in potential
mismatches between energy prices and fuel costs. We believe that in a
competitive, merchant market in which power generating facilities operate
without long-term power purchase agreements, it is best to operate without
long-term fuel supply agreements, and that electricity prices will be closely
linked to the market price for fuel. However, we cannot assure you that we will
be able to pass along to our customers any increases associated with rising fuel
costs.
WE ARE UNCERTAIN ABOUT ACCESS TO CAPITAL FOR FUTURE PROJECTS.
We require continued access to debt capital from outside sources on
acceptable terms in order to assure the success of future projects and
acquisitions. Our ability to arrange financing on a substantially non-recourse
basis and the costs of such capital are dependent on numerous factors, including
general economic and capital market conditions, credit availability from banks
and other financial institutions, investor confidence in us, our partners and in
the local independent power market, the success of current projects, the
perceived quality of new projects and provisions of tax and securities laws that
are conducive to raising capital in this manner. In order to access capital on a
substantially non-recourse basis in the future, we may have to make larger
equity investments in, or provide more financial support for, our project
subsidiaries. To date, the equity capital for our projects has been provided by
equity contributions from NSP, internally-generated cash flow from our projects
and other borrowings. We cannot assure you that we will be successful in
structuring the financing for our projects on a substantially non-recourse basis
or that we will obtain sufficient additional equity capital from NSP, project
cash flow or additional borrowings to enable us to fund the equity commitments
required for future projects.
OUR HOLDING COMPANY STRUCTURE LIMITS OUR ABILITY TO SERVICE INDEBTEDNESS.
The ROARS will be exclusively our obligations and not those of any of our
project subsidiaries or project affiliates. As a result, all existing and future
liabilities of our direct and indirect subsidiaries and affiliates will be
effectively senior to the ROARS. Because substantially all of our operations are
conducted by our project subsidiaries and project affiliates, our cash flow and
our ability to service our indebtedness, including our ability to pay the
interest on and principal of the ROARS when due, will be dependent upon our
receipt of cash dividends and distributions or other transfers from our project
and other subsidiaries. The debt agreements of our subsidiaries and project
affiliates generally restrict their ability to pay dividends, make distributions
or otherwise transfer funds to us. The restrictions in such agreements generally
require that, prior to and after giving effect to the payment of dividends,
distributions or other transfers:
- such subsidiaries or project affiliates meet certain financial
performance or coverage ratios,
- no default or event of default shall have occurred, and
- the subsidiary or project affiliate proposing to pay the dividend,
distribution or other transfer must provide for the payment of other
current or prospective obligations, including operating expenses, debt
service and reserves.
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Our subsidiaries and project affiliates are separate and distinct legal
entities that have no obligation, contingent or otherwise, to pay any amounts
due pursuant to the ROARS or to make any funds available therefor, whether by
dividends, loans or other payments, and they do not guarantee the payment of
interest on, or principal of, the ROARS. We own a minority interest in many of
our projects, and therefore we are unable unilaterally to cause dividends or
distributions to be made to us from these operations.
Any right we may have to receive assets of any of our subsidiaries or
project affiliates upon a liquidation or reorganization of such subsidiaries or
project affiliates (and the consequent right of holders of the ROARS to
participate in the distribution of, or to realize proceeds from, those assets)
will be effectively subordinated to the claims of any such subsidiary's or
project affiliate's creditors, including trade creditors and holders of debt
issued by such subsidiary or project affiliate.
The indenture for the ROARS does not impose any limitation on the ability
of our subsidiaries or project affiliates to incur additional indebtedness or to
permit contractual restrictions on the distribution of cash to us. As part of
our global tax strategy, we intend to maintain our earnings from foreign
investments offshore, for reinvestment in other foreign projects. For this
reason, we intend to utilize the cash from our domestic operations, including
principal and interest received from the repayment of loans made by us to our
foreign affiliates, to make the payments with respect to the ROARS. We cannot
assure you that cash available from our domestic operations and the repayment of
the loans made to our foreign affiliates will be sufficient to make the payments
under the ROARS as and when due. If we elect to repatriate earnings from our
foreign operations to make these payments in case of such a shortfall, then we
may incur United States taxes, net of any available foreign tax credits, on the
repatriation of such foreign earnings. As a result of these additional taxes, we
cannot assure you that the foreign earnings would be sufficient to make the
payments on the ROARS as and when due.
WE HAVE A SUBSTANTIAL AMOUNT OF INDEBTEDNESS.
As of June 30, 1999, we had total recourse debt of $894 million, with an
additional $677 million of non-recourse debt appearing on our balance sheet. The
percentage of our total recourse debt to capitalization was 56.1% as of June 30,
1999. The indenture for the ROARS imposes no limitations on our ability to incur
additional indebtedness. Our substantial amount of debt and the debt of our
project subsidiaries and project affiliates presents the risk that we might not
generate sufficient cash to service our indebtedness, including the ROARS, and
that our leveraged capital structure could limit our ability to finance the
acquisition and development of additional projects, to compete effectively or to
operate successfully under adverse economic conditions.
In addition, under certain of the instruments governing our debt, including
our credit facilities and indentures governing our other outstanding public
debt, such debt may be accelerated upon certain events of default or if we
undergo a change of control. As a result, if any such event were to occur, we
may not have sufficient capital to fully pay holders of ROARS the amount due
under the ROARS or to redeem any ROARS tendered pursuant to the Change of
Control Offer described under "Description of Debt Securities -- Change of
Control" in the attached prospectus.
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WE DEPEND ON AND ARE CONTROLLED BY NORTHERN STATES POWER COMPANY.
NSP is our sole stockholder. Since our formation, NSP has provided all of
our equity funding for our business and operations. Our only other source of
funding has been our borrowings and internally-generated cash flow from our
existing projects and investments. We cannot assure you that NSP will contribute
additional equity capital to us in the future. In the absence of continued
equity contributions, we cannot assure you that we will have access to
sufficient capital to fund our obligations with respect to our existing projects
or to undertake new acquisition and development projects. In addition, as a
result of the pending NSP merger with NCE, we cannot assure you that NSP will
continue to act with respect to us as it has in the past. NSP is also not
required to continue to hold our stock.
As our sole stockholder, NSP has the power to control the election of the
directors and all other matters submitted for stockholder approval and may be
deemed to have control over our management and affairs. Currently, there are no
outside directors on our board of directors. In circumstances involving a
conflict of interest between NSP, as the sole stockholder, on the one hand, and
our creditors on the other, we cannot assure you that NSP would not exercise its
power to control us in a manner that would benefit NSP to the detriment of the
holders of ROARS. NSP has policies in place, pursuant to applicable law, to
ensure that its ratepayers are protected from affiliate transactions that may be
adverse to the ratepayers' interests. The indenture imposes no limitations on
our ability to pay dividends or to make other payments to NSP or on our ability
to enter into transactions with NSP or our other affiliates.
In addition, NSP is an important customer of, and supplier to, certain of
our businesses in the United States. We purchase steam production services from
NSP for our Rock-Tenn and Washco steam transmission lines and sell
refuse-derived fuel to NSP from our Newport resource recovery facility. We
provide management, operation and maintenance services for the Elk River
resource recovery facility and we dispose of the Elk River facility's refuse-
derived fuel ash at NSP's Becker ash landfill. The failure of NSP to comply with
its obligations to us under the agreements governing such sales and services
could have a material adverse effect on our revenues from these projects.
WE DO SIGNIFICANT BUSINESS OUTSIDE THE UNITED STATES.
A key component of our business strategy is the development or acquisition
of projects outside the United States. The economic and political conditions in
certain countries where we have interests or in which we are or could be
exploring development or acquisition opportunities present risks of delays in
permitting and licensing, construction delays and interruption of business, as
well as risks of war, expropriation, nationalization, renegotiation or
nullification of existing contracts and changes in law or tax policy, that are
greater than in the United States. The uncertainty of the legal environment in
certain foreign countries in which we may develop or acquire projects could make
it more difficult to obtain non-recourse project financing on suitable terms and
could impair our ability to enforce our rights under agreements relating to such
projects.
Operations in foreign countries also can present currency exchange,
inflation, convertibility and repatriation risks. In certain countries in which
we may develop or acquire projects in the future, economic and monetary
conditions and other factors could affect our ability to convert our earnings to
United States dollars or other hard currencies or to move funds offshore from
such countries. Furthermore, the central bank of any such country may have the
authority in certain circumstances to suspend, restrict or otherwise impose
conditions on
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foreign exchange transactions or to approve distributions to foreign investors.
Although we generally seek to structure our power purchase agreements and other
project revenue agreements to provide for payments to be made in, or indexed to,
United States dollars or a currency freely convertible into United States
dollars, we cannot assure you that we will be able to achieve this structure in
all cases or that a power purchaser or other customer will be able to obtain
sufficient dollars or other hard currency to pay such obligations.
As part of privatizations or other acquisition opportunities, we may make
investments in ancillary businesses not directly related to power generation,
thermal energy production and transmission or resource recovery and in which our
management may not have had prior experience. In such cases, our policy is to
attract partners with the necessary expertise. However, we cannot assure you
that such persons will be available as co-venturers in every case. In addition,
as a condition to participating in privatizations and refurbishments of formerly
state-owned businesses, we may be required to undertake transitional obligations
relating to union contracts, employment levels and benefits obligations for
employees, which could prevent or delay the achievement of desirable operating
efficiencies and financial performance.
OUR ACQUISITIONS AND DEVELOPMENTS MAY NOT BE PROFITABLE.
The development projects and acquisitions in which we may invest in the
future, including those described herein, may be large and complex, and we may
not be able to complete the development or acquisition of any such project.
Development projects and acquisitions require us to expend significant sums for
engineering, permitting, legal, financial advisory and other expenses in
preparation for competitive bids that we may not win or before it can be
determined whether a project is feasible, economically attractive or capable of
being financed. We cannot assure you that the projects that we pursue, and on
which we may spend significant sums, will prove to be desirable project
investments, or that we will be able to win any such competitive bids, obtain
new power purchase agreements, overcome any local opposition, or obtain the
necessary agreements, contracts, licenses, certifications and permits necessary
for the successful development of new projects and acquisition of interests in
existing projects. We may fail to acquire or develop projects despite having
incurred significant expenses. For instance, if we failed to complete the
pending asset acquisition from Connecticut Light & Power Company, as discussed
in the "Prospectus Supplement Summary," such failure could have a significant
impact on our forecasted financial results. Even if we are successful in the
development or acquisition of an interest in a project, we may require
substantial additional debt or equity financing for such projects, which
additional financing may not be available on acceptable terms, if at all. Most
acquisition agreements and power purchase agreements permit the seller or
customer, respectively, to terminate the agreement or impose penalties if the
acquisition or operation of the project, as the case may be, is not achieved by
a specified date.
In addition, debt covenants contained in project-level debt agreements may
preclude our project affiliates from making equity distributions to us. For
instance, due to lower than expected Australian power pool prices, absent
project debt restructuring, it is expected that the Loy Yang A project company
will experience difficulty meeting specified long-term debt coverage ratios
beginning in June 2001. This would trigger a senior debt "lock-up" under the
project's loan documents, which lock-up would prevent the Loy Yang A project
company from making equity distributions to its owners. As we did not expect the
Loy Yang A project company would make any equity distributions in the immediate
future, a senior debt lock-up will not have a material adverse effect on our
forecasted financial results.
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WE FACE STRONG COMPETITORS.
The independent power industry is characterized by numerous strong and
capable competitors, some of which have more extensive developmental or
operating experience, more extensive experience in the acquisition and
development of power generation capacity, larger staffs and greater financial
resources than we do. Further, in recent years, the domestic independent power
industry has been characterized by strong and increasing competition which has
contributed to a reduction in prices offered by utilities for power produced by
independent power producers and has resulted in lower returns to project
investors.
Many of our competitors also are seeking attractive opportunities, both in
the United States and abroad. This competition may adversely affect our ability
to make investments or acquisitions on terms favorable to us. Many foreign and
domestic utilities are now engaging in "competitive bid" solicitations for new
capacity demands or acquisitions.
CONSTRUCTION AND START-UP OF FACILITIES COULD ENCOUNTER UNFORESEEN PROBLEMS.
The construction, expansion or refurbishment of a power generation, thermal
energy production and transmission facility or resource recovery facility
involves many risks, including supply interruptions, work stoppages, labor
disputes, weather interferences, unforeseen engineering, environmental and
geological problems and unanticipated cost overruns. The commencement of
operation of such newly-constructed, expanded or refurbished facilities also
involves many risks, including the breakdown or failure of equipment or
processes and test performance below expected levels of output or efficiency.
New plants may employ recently developed and technologically complex equipment,
especially in the case of newer environmental emission control technology. While
insurance is maintained to protect against certain risks, warranties are
obtained from vendors for limited periods and contractors are obligated to meet
certain performance levels, the proceeds of such insurance, warranties or
performance guarantees may not be adequate to cover lost revenues, increased
expenses or liquidated damages payments. As a result, a project may operate at a
loss and be unable to fund principal and interest payments under its project
financing agreements, which may allow the affected lenders to accelerate such
debt.
In addition, many power and thermal energy purchase agreements permit the
customer to terminate the agreement, retain security posted by the developer as
liquidated damages or change the payments to be made to the project subsidiary
or the project affiliate in the event certain milestones, such as commencing
commercial operation of the project, are not met by specified dates. In the
event such a termination right is exercised, a project may not commence
generating revenues, the default provisions in a financing agreement may be
triggered, rendering such debt immediately due and payable, and the project may
be rendered insolvent as a result.
OPERATING BELOW EXPECTED CAPACITY LEVELS COULD RESULT IN PENALTIES.
The risks associated with operating a power generation facility, thermal
energy production and transmission facility, resource recovery facility or
mining facility include the breakdown or failure of generation equipment or
other equipment or processes, labor disputes, fuel interruption and operating
performance below expected levels. Operation below expected capacity levels may
result in lost revenues, increased expenses, higher maintenance costs and
penalties. As a result, a facility may be unable to perform its obligations
under its purchase agreements, triggering the default provisions in a financing
agreement, rendering
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such debt immediately due and payable, and the project may be rendered insolvent
as a result.
Certain power purchase agreements of our project subsidiaries or project
affiliates permit the purchaser to terminate the agreement, modify the payments
required under the agreement, recover payments previously made under the
agreement or require such project subsidiaries or project affiliates to pay
liquidated damages under the agreement in certain circumstances. While insurance
is maintained to protect against certain risks, warranties are obtained from
vendors for limited periods and contractors are obligated to meet certain
performance levels, the proceeds of such insurance, warranties or performance
guarantees may not be adequate to cover lost revenues, increased expenses or
liquidated damages payments. As a result, default provisions in the project
subsidiary's or project affiliate's financing agreements may be triggered, which
might allow the affected lenders to accelerate such debt.
WE HAVE GUARANTEED CERTAIN OBLIGATIONS AND LIABILITIES OF SOME SUBSIDIARIES.
We may be directly liable for the obligations of certain of our project
affiliates and other subsidiaries pursuant to guarantees relating to certain of
their indebtedness, equity and operating obligations. One example is our
guarantee of the obligations of our project subsidiary that operates the
Gladstone facility for up to AUS$25 million, indexed to the Australian consumer
price index, under the project subsidiary's operating and maintenance agreement
with the owners of the facility. In addition, in connection with the purchase
and sale of fuel, emission credits and power generation products to and from
third parties with respect to the operation of some of our generation facilities
in the United States, we may be required to guarantee a portion of the
obligations of certain of our subsidiaries. As of September 30, 1999, our
obligations pursuant to our guarantees of the performance, equity and
indebtedness obligations of our subsidiaries totaled approximately $316 million.
If we were required to satisfy all of these guarantees and other obligations,
such event would have a material adverse effect on our condition, financial and
otherwise.
WE DEPEND ON CERTAIN CUSTOMERS AND PROJECTS.
Our power generation, thermal energy production and transmission or
resource recovery facilities typically rely on a single supplier for each of the
provision of fuel, water and other services required for operation of the
facility and on a single customer or a few customers to purchase all of the
facility's output, in some cases under long-term agreements that provide the
support for any project debt used to finance such facilities. The failure of any
one customer or supplier to fulfill its contractual obligations to the facility
could have a material adverse effect on such facility's financial results. As a
result, the financial performance of such facilities is dependent on the
continued performance by customers and suppliers of their obligations under such
long-term agreements and, in particular, on the credit quality of the project's
customers.
WE ARE SUBJECT TO GOVERNMENTAL REGULATION.
We and the projects in which we invest are subject to a number of complex
and stringent environmental and other laws and regulations affecting many
aspects of our present and future operations, including the disposal of various
forms of waste and the construction or permitting of new facilities. These laws
and regulations generally require us to obtain and
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comply with a wide variety of licenses, permits and other approvals, and may in
some cases be enforced by both public officials and private individuals. We
cannot assure you that existing laws or regulations will not be revised or that
new laws or regulations will not be adopted or become applicable to us which
could have an adverse impact on our operations. There can be no assurance that
we will be able to recover all or any increased costs of compliance from our
customers or that our business and financial condition will not be materially
and adversely affected by future changes in environmental laws or regulations.
In addition, regulatory compliance for the construction of new facilities is a
costly and time-consuming process, and intricate and rapidly changing
environmental regulations may require major expenditures for permitting and
create the risk of expensive delays or material impairment of project value if
projects cannot function as planned due to changing regulatory requirements or
local opposition.
Public Utility Regulatory Policies Act ("PURPA") and the Public Utility
Holding Company Act of 1935 ("PUHCA"), are two of the laws (including the
regulations thereunder) that affect our operations. PURPA provides to qualifying
facilities ("QFs") certain exemptions from federal and state laws and
regulations, including organizational, rate and financial regulation. PUHCA
regulates public utility holding companies and their subsidiaries. We are not
and will not be subject to regulation as a holding company under PUHCA as long
as the domestic power plants we own are QFs under PURPA or are exempted as
exempt wholesale generators ("EWGs"), and so long as our foreign utility
operations are exempted as EWGs or foreign utility companies or are otherwise
exempted under PUHCA. QF status is conditioned on meeting certain criteria, and
could be jeopardized, for example, by the loss of a steam customer or reduction
of steam purchases below the amount required by PURPA.
WE FACE ONGOING CHANGES IN THE U.S. UTILITY INDUSTRY.
The U.S. electric utility industry is currently experiencing increasing
competitive pressures, primarily in wholesale markets, as a result of consumer
demands, technological advances, greater availability of natural gas and other
factors. The Federal Energy Regulatory Commission ("FERC") has implemented and
continues to propose regulatory changes to increase access to the nationwide
transmission grid by utility and non-utility purchasers and sellers of
electricity. A number of states are considering or implementing methods to
introduce and promote retail competition. Proposals have been introduced in
Congress to repeal PURPA and PUHCA, and the FERC has publicly indicated support
for the PUHCA repeal effort. Additionally, some utilities have brought
litigation aimed at forcing the renegotiation or termination of contracts
requiring payments to owners of qualifying facilities based upon past estimates
of avoided cost that are now substantially in excess of market prices. We cannot
assure you that, in the future, utilities, with the approval of state public
utility commissions, will not seek to abrogate their existing power purchase
agreements.
If the repeal of PURPA or PUHCA occurs, either separately or as part of
legislation designed to encourage the broader introduction of wholesale and
retail competition, the significant competitive advantages that independent
power producers currently enjoy over certain regulated utility companies would
be eliminated or sharply curtailed, and the ability of regulated utility
companies to compete more directly with independent power companies would be
increased. To the extent competitive pressures increase and the pricing and sale
of electricity assumes more characteristics of a commodity business, the
economics of domestic independent power generation projects may come under
increasing pressure, and the availability of long-term power purchase
agreements, which can serve as the basis for project financings, may decrease.
Deregulation may not only continue to fuel the current trend toward
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consolidation among domestic utilities, but may also encourage the
disaggregation of vertically-integrated utilities into separate generation,
transmission and distribution businesses. As a result, additional significant
competitors could become active in the independent power industry. In addition,
independent power producers may find it increasingly difficult to negotiate
long-term power sales agreements with solvent utilities, which may affect the
profitability and financial stability of independent power projects.
THERE IS A NOT A PUBLIC MARKET FOR THE ROARS.
The ROARS are a new issue of securities, and we do not intend to list them
on any securities exchange or apply for quotation through any inter-dealer
quotation system. The underwriters have advised us that they currently intend to
make a market in the ROARS, but the underwriters are not obligated to do so and
may discontinue any such market-making at any time. We cannot assure you as to
the liquidity of any market that may develop for the ROARS, your ability to sell
your ROARS or the price at which you would be able to sell your ROARS.
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BUSINESS
INTRODUCTION
We are one of the leading participants in the independent power generation
industry. We are principally engaged in the acquisition, development and
operation of, and ownership of interests in, independent power production and
co-generation facilities, thermal energy production and transmission facilities,
landfill gas collection and associated electric generation facilities and
resource recovery facilities. The power generation facilities in which we
currently have interests, including those under construction, as of August 31,
1999, have a total design capacity of 15,522 MW, of which we have or will have
total or shared operational responsibility for 11,175 MW and net ownership of,
or leasehold interests in, 6,945 MW. In addition, we have substantial interests
in district heating and cooling systems and steam generation and transmission
operations. As of August 31, 1999, these thermal businesses had a steam capacity
of approximately 3,750 mmBtu/hr., of which our equity interest was 3,315
mmBtu/hr. Refuse-derived fuel plants in which we have an ownership or operating
interest processed more than 640,000 tons of municipal solid waste into
approximately 520,000 tons of refuse-derived fuel during the first two quarters
of 1999.
We have experienced significant growth in the last year, expanding from
3,456 MW of net ownership interests in power generation facilities (including
those under construction) as of June 30, 1998 to 6,945 MW of net ownership
interests as of August 31, 1999. This growth resulted primarily from a number of
domestic acquisitions, notably the acquisition from Niagara Mohawk Power
Corporation of the Huntley and Dunkirk generating stations in upstate New York,
the acquisition from Montaup Electric Company of the Somerset generating station
in Massachusetts, the acquisition from San Diego Gas and Electric Company of the
Encina generating station and combustion turbines in California and the
acquisition from Consolidated Edison Company of New York of the Arthur Kill
generating station and Astoria gas turbines in New York City.
We expect this growth to continue into 2000. We have signed a purchase
agreement to acquire four generating stations and six remote gas turbines
located in Connecticut having an aggregate generating capacity of 2,235 MW from
Connecticut Light & Power Company. In addition, we expect to acquire a 1,708 MW
facility in Louisiana from Cajun Electric Power Cooperative, Inc. as part of its
bankruptcy reorganization. These acquisitions are scheduled to close in the
fourth quarter of 1999 or in early 2000. These assets will add an additional
5,643 MW of net ownership interests in power generation facilities to our
existing portfolio.
STRATEGY
We intend to continue to grow through a combination of acquisitions and
greenfield development of power generation facilities, thermal energy production
and transmission facilities and related assets in the United States and abroad.
We believe that our facility operations and engineering expertise, fuel and
environmental strategies, labor and government relations expertise and legal and
financial skills give us a competitive advantage in the independent power
market. We also believe that our experience in meeting or exceeding applicable
environmental regulatory standards and our environmental compliance record will
give us an advantage as regulators continue to impose increasingly stringent
environmental requirements on the operation of power generation facilities. In
addition, we continue to have access to technical and administrative support
from NSP on a contract basis to augment our own expertise. We believe the
knowledge and expertise we have gained in the financial and
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legal restructuring of our existing facilities, as well as our engineering
expertise and reputation with respect to environmental compliance and labor
relations, can be effectively employed in the development of both domestic and
international greenfield projects.
In the United States, our near-term focus will be primarily on the
acquisition of existing power generation capacity and thermal energy production
and transmission facilities, particularly in situations in which our expertise
can be applied to improve the operating and financial performance of the
facilities. In connection with this focus, we study the opportunities that may
be created by the current restructuring of the domestic electric utility
industry, particularly the divestiture by some utility companies of their
generating assets. In connection with these utility company divestitures of
generating assets, although the assets themselves may be held by a purchasing
subsidiary, in many instances the sellers require that we remain directly liable
for certain indemnity, operating, provision of replacement power and/or debt
payment obligations. We intend to focus our domestic development activities
primarily on the acquisition or development of facilities in excess of 100 MW
and to pursue smaller projects when we have the opportunity to combine several
smaller projects into a larger transaction. We are also working with several
industrial companies to develop energy projects that would provide both
electricity and steam for their production facilities. In addition, to the
extent that the replacement of aging power generating capacity or growth in
demand creates the need for new power generation facilities in the United
States, we intend to pursue opportunities to participate in the development of
such facilities.
In the international market, we will continue to pursue development and
acquisition opportunities in those countries in which we believe that the legal,
political and economic environment is conducive to foreign investment. Once we
have developed one project in a country, we use that as a base to develop other
projects in that same country or region, leveraging our experience and knowledge
to enhance our likelihood of success in the area. We intend to continue to
capitalize on opportunities created by the privatization of existing
government-owned generating capacity. In addition, due to the significant
existing demand for new power generating capacity in the international market,
we intend to engage in the development of international greenfield projects. We
intend to focus our international development activities primarily on the
acquisition or development of facilities with capacity in excess of 100 MW and
to pursue smaller projects when we have the opportunity to combine several
smaller projects into a larger transaction. We believe that the global market
will continue to provide attractive investment opportunities to us as the
countries that have initiated the privatization of their power generation
capacity and have solicited bids from private companies to purchase existing
facilities or to develop new capacity continue their privatization programs and
other countries begin similar privatization efforts.
We expect to acquire or develop most projects on a joint venture basis.
Where appropriate, we will include a local or host country partner or a partner
with substantial experience in the area. By doing so, we expect to gain a number
of advantages, including technical expertise possessed by others, greater
knowledge of and experience with the political, economic, cultural and social
conditions and commercial practices of the region or country where the project
is being developed, and the ability to leverage our human and financial
resources. A local partner also may, among other things, assist in obtaining
financing from local capital markets as well as building political and community
support for the project. We expect such joint ventures will enable us to share
the risks associated with the acquisition and development of larger projects.
Joint acquisition and development of future projects also should further reduce
our financial risk by building a more diversified portfolio of projects.
S-21
<PAGE> 24
Although we exercise flexibility in structuring our investments in
projects, our goal is to own a 20% to 50% equity interest in, and have operating
control or influence over, the projects in which we invest. However, we may in
some instances be willing to modify these targets for a particular project if we
determine that strategic considerations and anticipated returns, when combined
with other factors, such as the ability to exercise "negative control" (i.e.,
the ability to control material project decisions by exercising a veto right) or
the ability to exercise oversight authority in the development or operation of a
project, justify an investment in that project. Alternatively, we may consider
investments or projects in which we are the sole or a majority owner or in which
we own less than a 20% equity interest. While we have made several wholly-owned
acquisitions during the past twelve months, in the future we may seek partners
for those acquisitions. See "Risk Factors. -- Investments in less than 100%
owned projects limit our control."
We intend to pursue the acquisition and development of natural gas-fired
power generation facilities where appropriate to complement our existing and
anticipated future investments in coal and other solid fuel-fired facilities. We
currently hold no interest in, and have no present intention of investing in,
any nuclear generating facility.
DESCRIPTION OF OUR PROJECTS
We own interests in power generation and thermal generation projects and
other facilities described herein either directly or through project
subsidiaries or project affiliates. Each project is located on a site that is
owned or leased on a long-term basis by us, a project subsidiary or a project
affiliate. The ownership or leasehold interest generally is mortgaged to secure
project financing obligations, and, in certain instances, to secure the project
subsidiary's or project affiliate's obligations under its power purchase
agreement.
PROJECT AGREEMENTS
In the past, virtually all of our operating power generation facilities
have sold electricity under long-term power purchase agreements. A facility's
revenue from a power purchase agreement usually consists of two components:
energy payments and capacity payments. Energy payments, which are intended to
cover the variable costs of electric generation, such as fuel costs and variable
operation and maintenance expense, are normally based on a facility's net
electrical output measured in kilowatt hours, with payment rates either fixed or
indexed to the fuel costs of the power purchaser. Capacity payments, which are
generally intended to provide funds for the fixed costs incurred by the project
subsidiary or project affiliate, such as debt service on the project financing
and the equity return, are normally calculated based on the net electrical
output or the declared capacity of a facility and its availability.
Most of the more recent projects in which we have acquired or are acquiring
an interest do not have long-term power purchase agreements. For example, this
is true for Enfield because the United Kingdom has adopted a regulatory scheme
under which all generators must sell their output to a grid where the price is
established by a neutral regulator based on the market prices during each
defined period. Similarly, the San Joaquin Valley Energy Partners Facilities
accepted a buy-out of their long-term contracts, so if they recommence
operations, it is anticipated that they will be "merchant" plants (i.e., plants
operating without long-term power purchase agreements in place, selling their
output into the market). The generation facilities which we have recently
acquired in California, New York and
S-22
<PAGE> 25
Massachusetts will also be merchant plants, although a portion of the output of
certain of these plants in the first several years of our ownership of them is
contracted for, either under transition power purchase contracts with their
former owners or under bilateral contracts with other wholesale customers. In
the case of the Kladno project, where there is a long-term agreement, the energy
price is tied to the market price of electricity rather than to the costs
incurred by the project, so the contract does not provide the traditional level
of certainty and protection. In the case of the Loy Yang A project, Australian
power pool prices have been significantly lower than anticipated at the time of
our purchase of our interest in the Loy Yang A project, resulting in earnings
much lower than initially forecast. See "Risk Factors -- Our acquisitions and
developments may not be profitable." While these merchant projects introduce new
risks and uncertainties, and require careful advance analysis of the local power
markets, we believe that they are becoming increasingly accepted in the
independent power market.
NON-RECOURSE FINANCING
As with our existing facilities, we expect to finance most of our future
projects with debt as well as equity. Leveraged financing permits the
development of projects with a limited equity base but also increases the risk
that a reduction in revenues could adversely affect a particular project's
ability to meet its debt or lease obligations.
We have financed our principal power generation facilities, other than
Schkopau, primarily with non-recourse debt that is repaid solely from the
project's revenues and generally is secured by interests in the physical assets,
major project contracts and agreements, cash accounts and, in certain cases, the
ownership interest, in that project subsidiary. This type of financing is
referred to as "project financing." True project financing is not available for
all projects, including some assets purchased out of bankruptcy, some merchant
plants, some purchases of minority stock positions in publicly traded companies
and plants in certain countries that lack a sufficiently well-developed legal
system. Even in those instances, however, we may still be able to finance a
smaller portion of the total project cost with project financing, with the
remainder financed with debt that is either raised or supported at the corporate
rather than the project level.
Project financing transactions generally are structured so that all
revenues of a project are deposited directly with a bank or other financial
institution acting as escrow or security deposit agent. These funds then are
payable in a specified order of priority set forth in the financing documents to
ensure that, to the extent available, they are used first to pay operating
expenses, senior debt service and taxes and to fund reserve accounts.
Thereafter, subject to satisfying debt service coverage ratios and certain other
conditions, available funds may be disbursed for management fees or dividends
or, where there are subordinated lenders, to the payment of subordinated debt
service.
In the event of a foreclosure after a default, our project subsidiary or
project affiliate owning the facility would only retain an interest in the
assets, if any, remaining after all debts and obligations were paid. In
addition, the debt of each operating project may reduce the liquidity of our
equity interest in that project because the interest is typically subject both
to a pledge securing the project's debt and to transfer restrictions set forth
in the relevant financing agreements. Also, our ability to transfer or sell our
interest in certain projects is restricted by certain purchase options or rights
of first refusal in favor of our partners or the project's power and steam
purchasers and certain change of control restrictions in the project financing
documents.
S-23
<PAGE> 26
These project financing structures are designed to prevent the lenders from
looking to us or our other projects for repayment, that is, they are
"non-recourse" to us and our other project subsidiaries and project affiliates
not involved in the project, unless we or another project subsidiary or project
affiliate expressly agree to undertake liability. We have agreed to undertake
limited financial support for certain of our project subsidiaries in the form of
certain limited obligations and contingent liabilities. These obligations and
contingent liabilities take the form of guarantees of certain specified
obligations, indemnities, capital infusions and agreements to pay certain debt
service deficiencies. To the extent we become liable under such guarantees and
other agreements in respect of a particular project, distributions received by
us from other projects may be used by us to satisfy these obligations. To the
extent of these obligations, creditors of a project financing may have recourse
to us. See "Risk Factors -- We have guaranteed certain obligations and
liabilities of some subsidiaries."
EXPOSURE TO CURRENCY FLUCTUATION
As part of our strategy, we hold assets and liabilities denominated in
foreign currencies. We adjust the value of these holdings quarterly to reflect
fluctuations in the values of their respective currencies. This can, and has,
generated non-cash income and losses.
SUMMARY OF OUR PROJECTS
Listed below are descriptions of our interests in facilities, operations or
projects under construction as of August 31, 1999:
INDEPENDENT POWER PRODUCTION AND COGENERATION FACILITIES(1)
<TABLE>
<CAPTION>
LATER OF
DATE OF
ACQUISITION OUR
OR DATE OF PLANT PERCENTAGE
COMMERCIAL CAPACITY OWNERSHIP POWER
NAME AND LOCATION OF FACILITY OPERATION PRIMARY FUEL (MW)(2) INTEREST PURCHASER
- ----------------------------- ----------- ------------ -------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
INTERNATIONAL PROJECTS:
Loy Yang Power, Australia(3) 1997 Coal 2,000 25.37 Victorian Pool
Gladstone Power Station,
Australia 1994 Coal 1,680 37.50 QTPTC; BSL
Collinsville, Australia 1998 Coal 192 50.00 QTPTC
Energy Developments Limited,
Australia 1997 LFG/Methane 271 33.97 Various
Kladno Czech Republic,
existing project 1994 Coal 28 44.26 STE/Industrials
Kladno Czech Republic,
expansion project(4) 1999 Coal/Gas 345 44.50 STE/Industrials
Schkopau Power Station,
Germany 1996 Coal 960 20.95 VEAG
MIBRAG mbH(3), (Mumsdorf)
Germany 1994 Coal 110 33.33 WESAG
MIBRAG mbH(3), (Deuben)
Germany 1994 Coal 86 33.33 WESAG
MIBRAG mbH(3), (Wahlitz)
Germany 1994 Coal 37 33.33 WESAG
</TABLE>
S-24
<PAGE> 27
<TABLE>
<CAPTION>
LATER OF
DATE OF
ACQUISITION OUR
OR DATE OF PLANT PERCENTAGE
COMMERCIAL CAPACITY OWNERSHIP POWER
NAME AND LOCATION OF FACILITY OPERATION PRIMARY FUEL (MW)(2) INTEREST PURCHASER
- ----------------------------- ----------- ------------ -------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
Enfield (London) UK 1999 Gas 396 25.00 U.K. Electricity
Grid
COBEE, Bolivia 1996 Hydro/Gas 219 48.30 Electropaz/ELF
Latin Power (Mamonal),
Colombia 1994 Gas 90 6.45 Proelectrica
Latin Power (Termovalle),
Colombia 1998 Gas 199 4.88 EPSA
Latin Power (Termotasajero),
Colombia 1998 Coal 150 10.03 Colombian Grid
Latin Power (ELCOSA),
Honduras 1994 Oil 80 7.65 Empresa Nacional
de Energia
Electrica
Latin Power (Dr. Bird),
Jamaica 1995 Diesel 74 8.86 Jamaica Public
Service Company,
Ltd.
Latin Power (Orzunil),
Guatemala 1999 Geothermal 24 12.25 INDE
Latin Power (Aguaytia), Peru 1998 Gas 155 3.28 Central Peruvian
Electricity Grid
Kingston Cogeneration, Canada 1997 Gas 110 25.00 Ontario Hydro
DOMESTIC PROJECTS:
Energy Investors Fund, 1 and
3 1997 Various 1,129 1.01 Various
El Segundo Power, California 1998 Gas 1,020 50.00 California ISO
Long Beach Generating,
California 1998 Gas 530 50.00 California ISO
Crockett Cogeneration,
California 1997 Gas 240 24.88 PG&E
Encina, California 1999 Gas 965 50.00 Cal. Power
Exchange;
bilateral
contracts
San Diego Combustion
Turbines, California 1999 Gas 253 50.00 Cal. Power
Exchange;
bilateral
contracts
Curtis-Palmer Hydro, New York 1997 Hydro 58 8.50 NIMO
Arthur Kill, New York 1999 Gas 842 100.00 Con. Ed.; NYPP
Astoria Gas Turbines, New
York 1999 Gas 614 100.00 Con. Ed.; NYPP
Huntley, New York 1999 Coal 760 100.00 NIMO; NYPP
Dunkirk, New York 1999 Coal 600 100.00 NIMO; NYPP
</TABLE>
S-25
<PAGE> 28
<TABLE>
<CAPTION>
LATER OF
DATE OF
ACQUISITION OUR
OR DATE OF PLANT PERCENTAGE
COMMERCIAL CAPACITY OWNERSHIP POWER
NAME AND LOCATION OF FACILITY OPERATION PRIMARY FUEL (MW)(2) INTEREST PURCHASER
- ----------------------------- ----------- ------------ -------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
Mt. Poso Cogeneration,
California 1997 Coal 50 39.10 PG&E
PowerSmith Cogeneration,
Oklahoma 1997 Gas 110 8.75 OGE Energy
Turners Falls, Massachusetts 1997 Coal 20 8.90 Unitil Power
Somerset, Massachusetts 1999 Coal/Jet 229(5) 100.00 EUA; NEPOOL
Cogeneration Corporation of
America:
Cogen America (Parlin), New
Jersey 1996 Gas 122 45.21 Jersey Central
Power & Light
CogenAmerica (Newark), New
Jersey 1996 Gas 54 45.21 Jersey Central
Power & Light
CogenAmerica (Grays Ferry),
Pennsylvania 1998 Gas 150 22.61 PECO Energy
Company
CogenAmerica
(Philadelphia),
Pennsylvania 1996 Diesel 22 37.52 Philadelphia
Municipal
Authority
Cogen) Pennsylvania
CogenAmerica (Morris),
Illinois 1998 Gas 117 45.21 Equistar Petro
Chemicals, Inc.
CogenAmerica (Pryor),
Oklahoma 1997 Gas 110 45.21 OGE Energy
San Joaquin Valley (Madera),
California 1992 Biomass 23 45.00 NA(6)
San Joaquin Valley
(Chowchilla II), California 1992 Biomass 10 45.00 NA(6)
San Joaquin Valley (El Nido),
California 1992 Biomass 10 45.00 NA(6)
Jackson Valley Energy
Partners, California 1991 Biomass 16 50.00 PG&E
Artesia, California 1996 Gas 34 2.96 Southern
California
Edison
Cadillac Renewable Energy,
Michigan 1997 Wood 39 50.00 Consumers Energy
</TABLE>
S-26
<PAGE> 29
<TABLE>
<CAPTION>
LATER OF
DATE OF
ACQUISITION OUR
OR DATE OF PLANT PERCENTAGE
COMMERCIAL CAPACITY OWNERSHIP POWER
NAME AND LOCATION OF FACILITY OPERATION PRIMARY FUEL (MW)(2) INTEREST PURCHASER
- ----------------------------- ----------- ------------ -------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
Penobscot Energy Recovery,
Maine 1997 RDF 25 28.71 Bangor
Hydroelectric
Company
Maine Energy Recovery, Maine 1997 RDF 22 16.25 Central Maine
Power
</TABLE>
- -------------------------
(1) Does not include the small hydroelectric and landfill gas-fired power
generation facilities owned by NEO with an aggregate capacity of 136 MW, of
which NEO has net ownership of 71 MW. In addition, NEO has landfill gas
projects under construction with an aggregate capacity of 6 MW, of which NEO
has net ownership of 3 MW.
(2) Capacity shown is without deduction for internally consumed power.
(3) Each of Loy Yang and MIBRAG also owns coal mines which sell coal both to its
respective power plant and to third parties.
(4) Includes 74 MW gas-fired facility placed in service in March 1999 and 271 MW
coal-fired facility to be operational in late 1999.
(5) Includes 69 MW on deactivated reserve.
(6) Operations suspended following buy-out of power purchase contracts and
pending negotiation of new power purchase agreements or sale of such
facilities. PG&E has agreed to a buy-out of related power purchase
agreements, but retains a right of first refusal with respect to output of
facilities.
S-27
<PAGE> 30
PENDING GENERATION ASSET ACQUISITIONS
<TABLE>
<CAPTION>
OUR
EXPECTED PLANT PERCENTAGE
NAME AND LOCATION OF ACQUISITION PRIMARY CAPACITY OWNERSHIP POWER
FACILITY DATE FUEL (MW)(1) INTEREST PURCHASER
- --------------------- ------------------- ----------- -------- ---------- -----------------------
<S> <C> <C> <C> <C> <C>
Oswego, New York (1) Oil/Gas 1,700 100.00 NIMO; NYPP
CL&P Acquisitions
Middletown,
Connecticut Fourth Quarter 1999 Oil/Gas/Jet 856.2 100.00 NEPOOL
Montville,
Connecticut....... Fourth Quarter 1999 Oil/Diesel 497.6 100.00 NEPOOL
Norwalk, Connecticut Fourth Quarter 1999 Oil 353.0 100.00 NEPOOL
Devon, Connecticut Fourth Quarter 1999 Gas/Jet 400.5 100.00 NEPOOL
Branford,
Connecticut Fourth Quarter 1999 Jet Fuel 18.8 100.00 NEPOOL
Franklin Drive,
Connecticut Fourth Quarter 1999 Jet Fuel 18.3 100.00 NEPOOL
Torrington,
Connecticut Fourth Quarter 1999 Jet Fuel 21.8 100.00 NEPOOL
Cos Cob, Connecticut Fourth Quarter 1999 Jet Fuel 68.5 100.00 NEPOOL
Cajun (Baton Rouge),
Louisiana First Quarter 2000 Coal 1,708 100.00 Louisiana Cooperatives;
Merchant
</TABLE>
- -------------------------
(1) We completed the acquisition of the Oswego, New York facility in October
1999.
THERMAL ENERGY PRODUCTION AND TRANSMISSION FACILITIES
AND RESOURCE RECOVERY FACILITIES
<TABLE>
<CAPTION>
OUR PERCENTAGE THERMAL ENERGY
NAME AND LOCATION DATE OF OWNERSHIP PURCHASER/MSW
OF FACILITY ACQUISITION CAPACITY(2) INTEREST SUPPLIER
- --------------------- ----------- ---------------------- -------------- -------------------
<S> <C> <C> <C> <C>
THERMAL ENERGY PRODUCTION AND TRANSMISSION FACILITIES
Minneapolis Energy Steam: 1,323 mmBtu/hr. 100.00 Approximately 92
Center (388 MWt) steam customers and
(MEC), Minnesota 1993 Chilled water: 37,150 39 chilled water
tons customers
Pittsburgh Thermal Steam: 240 mmBtu/hr. 100.00 Approximately 29
LLC, Pennsylvania 1995 (70 Mwt) steam customers and
Chilled water-10,180 27 chilled water
tons customers
San Francisco Thermal Steam: 490 mmBtu/hr. 100.00 Approximately 185
LLC, California 1995 (144 Mwt) customers
San Diego Power & Chilled Water: 100.00 Approximately 19
Cooling, California 1997 8,000 tons customers
Rock-Tenn, Minnesota 1992 Steam: 100.00 Rock-Tenn Company
430 mmBtu/hr.
(126 MWt)
Washco, Minnesota 1992 160 mmBtu/hr. 100.00 Andersen
(47 MWt) Corporation
Minnesota
Correctional
Facility
Grand Forks Air Force 105 mmBtu/hr. 100.00 Grand Forks Air
Base, North Dakota 1992 (31 MWt) Force Base
Energy Center Kladno, 512 mmBtu/hr. 44.26 City of Kladno
Czech Republic (3) 1994 (150 MWt)
</TABLE>
S-28
<PAGE> 31
<TABLE>
<CAPTION>
OUR PERCENTAGE THERMAL ENERGY
NAME AND LOCATION DATE OF OWNERSHIP PURCHASER/MSW
OF FACILITY ACQUISITION CAPACITY(2) INTEREST SUPPLIER
- --------------------- ----------- ---------------------- -------------- -------------------
<S> <C> <C> <C> <C>
Camas Power Boiler, 200mmBtu/hr. 100.00 Fort James Corp.
Washington 1997 (59 MWt)
Resource Recovery MSW: 1,500 tons/day 100.00 Ramsey and
Facilities Newport, Washington Counties
Minnesota 1993
Elk River, Minnesota (4) MSW: 1,500 tons/day 0.00 Anoka, Hennepin,
and Sherburne
Counties;
Tri-County Solid
Waste Management
Commission
Penobscot Energy MSW: 800 tons/day 28.71 Bangor
Recovery, Maine 1997 Hydroelectric
Company
Maine Energy MSW: 680 tons/day 16.25 Central Maine Power
Recovery, Maine 1997
</TABLE>
- -------------------------
(1) Capacity shown is without deduction for internally consumed power.
(2) Thermal production and transmission capacity is based on 1,000 Btus per
pound of steam production or transmission capacity. The unit mmBtu is equal
to one million Btus.
(3) Kladno also is included in the Independent Power Production and Cogeneration
Facilities table on the preceding page.
(4) We operate the Elk River resource recovery facility on behalf of NSP.
S-29
<PAGE> 32
USE OF PROCEEDS
The net proceeds from the sale of the ROARS will be approximately $244.8
million. The principal use of the net proceeds will be to finance our equity
investment in connection with pending acquisitions. The remainder of the net
proceeds will be used for general corporate purposes, which may include
financing the development and construction of new facilities, additions to
working capital, reductions of our indebtedness and our subsidiaries'
indebtedness, financing of capital expenditures and potential acquisitions.
Funds not immediately required for such purposes may be invested in short-term
investment grade securities. Equity investments in pending acquisitions which
may be financed out of the proceeds of the ROARS include the acquisition by our
indirect subsidiaries, through separate transactions, of certain generating
assets from Connecticut Light & Power Company and Cajun Electric Power
Cooperative, Inc.
S-30
<PAGE> 33
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
The selected consolidated financial data set forth below as of December 31,
1994, 1995, 1996, 1997 and 1998 and for the years then ended, have been derived
from our audited consolidated financial statements. The selected consolidated
financial data set forth below as of June 30, 1998 and 1999 and for the six
months and twelve months then ended have been derived from our unaudited
financial statements. Certain financial information for the year ended December
31, 1994 has been reclassified to conform to the financial presentation for the
year ended December 31, 1998. The selected capacity data set forth below under
the caption "Other Data" has been supplied by us.
CONSOLIDATED STATEMENTS OF INCOME DATA:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------------------------- -------------------
1994 1995 1996 1997 1998 1998 1999
------- ------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING REVENUES
Revenues from wholly-owned
operations......................... $63,970 $64,180 $ 71,649 $ 92,052 $100,424 $ 49,782 $ 97,881
Equity in earnings of unconsolidated
affiliates......................... 32,155 28,639 34,315 26,200 81,706 29,183 15,292
------- ------- -------- -------- -------- -------- --------
Total operating revenues......... 96,125 92,819 105,964 118,252 182,130 78,965 113,173
OPERATING COSTS AND EXPENSES
Cost of wholly-owned operations...... 34,861 32,535 36,562 46,717 52,413 26,305 69,064
Depreciation and amortization........ 8,675 8,283 8,378 10,310 16,320 8,049 11,025
General, administrative, and
development........................ 19,993 34,647 39,248 43,116 56,385 24,380 32,273
------- ------- -------- -------- -------- -------- --------
Total operating costs and
expenses...................... 63,529 75,465 84,188 100,143 125,118 58,734 112,362
------- ------- -------- -------- -------- -------- --------
OPERATING INCOME....................... 32,596 17,354 21,776 18,109 57,012 20,231 811
OTHER INCOME (EXPENSE)
Minority interest.................... -- -- -- (131) (2,251) (1,160) (1,155)
Equity in gain from project
termination settlements(1)......... 9,685 29,850 -- -- -- -- --
Other income, net(2)................. (3,589) (104) 7,977 11,502 11,630 1,899 3,308
Interest expense..................... (6,682) (7,089) (15,430) (30,989) (50,313) (24,251) (26,847)
------- ------- -------- -------- -------- -------- --------
Total other income (expense)..... (586) 22,657 (7,453) (19,618) (40,934) (23,512) (24,694)
------- ------- -------- -------- -------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES...... 32,010 40,011 14,323 (1,509) 16,078 (3,281) (23,883)
INCOME TAX BENEFIT (EXPENSE)(3)........ (2,472) (8,810) 5,655 23,491 25,654 16,339 25,284
------- ------- -------- -------- -------- -------- --------
NET INCOME............................. $29,538 $31,201 $ 19,978 $ 21,982 $ 41,732 $ 13,058 $ 1,401
======= ======= ======== ======== ======== ======== ========
</TABLE>
- -------------------------
(1) In 1994, we and our partner in the Michigan Cogeneration Partners Limited
Partnership agreed to terminate a power sales contract with Consumers Power
Company. The contract related to a 65 MW cogeneration facility being
developed in Michigan. Due to the agreement to terminate the contract, we
recorded a one-time pre-tax gain of $9.7 million in 1994. Equity in gain
from project termination settlements in 1995 included a one-time pre-tax
gain of $29.9 million related to the settlement and termination of the San
Joaquin Valley power purchase agreements with PG&E.
(2) Includes pretax charges of $5.0 million, $5.0 million, $1.5 million, $9.0
million and $26.7 million in the years 1994, 1995, 1996, 1997 and 1998,
respectively, to write-down the carrying value of certain energy projects.
These amounts also include the gain on sale of interest in projects of $8.7
million in 1997 and $30.0 million in 1998.
(3) We are included in the consolidated federal income tax and state franchise
tax returns of NSP. We calculate our tax position on a separate company
basis under a tax sharing agreement with NSP and receive payment from NSP
for tax benefits and we pay NSP for tax liabilities.
S-31
<PAGE> 34
CONSOLIDATED BALANCE SHEET DATA:
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF JUNE 30,
-------------------------------------------------------- -----------------------
1994 1995 1996 1997 1998 1998 1999
-------- -------- -------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net property, plant
and equipment........ $107,634 $111,919 $129,649 $ 185,891 $ 204,729 $ 193,950 $1,127,203
Net equity
investments in
projects........... 164,863 221,129 365,749 694,655 800,924 781,496 811,491
Total assets......... 376,570 454,589 680,809 1,168,102 1,293,426 1,211,123 2,401,762
Long-term debt,
including current
maturities......... 93,339 90,034 212,141 620,855 626,476 690,555 1,570,893
Stockholder's
equity............. 234,722 319,764 421,914 450,698 579,332 447,297 698,526
</TABLE>
OTHER DATA:
<TABLE>
<CAPTION>
AS OF AND FOR
THE TWELVE
AS OF AND FOR THE MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------------- ----------------
1994 1995 1996 1997 1998 1998 1999
----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Our net power generating capacity
(MW)................................... 992 999 1,326 2,637 3,300 3,456 6,946
Our net thermal energy generating
capacity:
mmBtus per hour...................... 1,961 2,318 2,654 2,693 2,905 2,695 3,315
MWt.................................. 575 679 778 789 851 790 971
Consolidated interest expense coverage
ratio(1)............................. 7.09x 7.81x 2.47x 1.28x 1.64x 1.06x(2) 1.28x(2)
Consolidated funds from operations to
recourse interest expense coverage
ratio(3)............................. (4) (5) 1.75x 2.38x 1.77x 1.86x(6) 2.07x(6)
Recourse debt to recourse capital
ratio(7)............................. (8) 5.4% 24.3% 52.6% 46.6% 55.1% 56.1%
</TABLE>
- -------------------------
(1) This coverage ratio equals EBITDA (the sum of income (loss) before taxes,
interest expense (net of capitalized interest) and depreciation and
amortization expense) divided by interest expense.
(2) The twelve months shown from July 1 to June 30 is indicative of ongoing
operations without seasonality. For the six months ended June 30, 1998, the
interest expense coverage ratio was 1.20x, and for the six months ended June
30, 1999, the interest expense coverage ratio was 0.52x.
(3) This coverage ratio equals the sum of funds from operations plus recourse
interest expense divided by recourse interest expense. Funds from operations
is calculated by subtracting working capital changes from cash provided
(used) from operations.
(4) Not meaningful because there was no recourse interest expense in 1994.
(5) Due primarily to undistributed equity from unconsolidated affiliates, funds
from operations did not cover recourse interest by $13.3 million.
(6) The twelve months shown from July 1 to June 30 is indicative of ongoing
operations without seasonality. For the six months ended June 30, 1998, the
funds from operations to recourse interest expense coverage ratio was 0.98x
(funds from operations did not cover recourse interest by $0.3 million), and
for the six months ended June 30, 1999, the funds from operations to
recourse interest expense coverage ratio was 1.94x.
(7) This coverage ratio equals the debt owed or guaranteed by us divided by our
capitalization less non-recourse debt.
(8) Not meaningful because we did not have any recourse debt in 1994.
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EARNINGS TO FIXED CHARGES RATIO
The following table sets forth the ratio of our earnings to our fixed
charges for the periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------- -------------
1994 1995 1996 1997 1998 1998 1999
----- ----- ----- ----- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed
charges(1)....................... 2.98x 1.56x 1.75x 1.16x (2) (3) 1.08x(4)
</TABLE>
- -------------------------
(1) The ratio of earnings to fixed charges is calculated by dividing earnings by
fixed charges. For this purpose "earnings" means income (loss) before income
taxes less undistributed equity in our share of operating earnings of
unconsolidated affiliates less equity in gain from project termination
settlements plus cash distributions from project termination settlements
plus fixed charges. "Fixed charges" means interest expense plus interest
capitalized plus amortization of debt issuance costs plus one-third of our
annual rental expense which the Securities and Exchange Commission defines
as a reasonable approximation of rental expense interest.
(2) Due primarily to interest expense and undistributed equity in our share of
operating earnings of unconsolidated affiliates (totaling $23.4 million),
earnings did not cover fixed charges by $7.3 million.
(3) Due primarily to interest expense and undistributed equity in our share of
operating earnings of unconsolidated affiliates (totaling $16.2 million),
earnings did not cover fixed charges by $19.5 million.
(4) Includes distributed equity in our share of operating earnings of
unconsolidated affiliates (totaling $26.1 million).
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DESCRIPTION OF THE ROARS
The following description of the particular terms of the ROARS (referred to
in the accompanying prospectus as "debt securities") supplements and, to the
extent it is inconsistent with the description in the prospectus, replaces the
description of the general terms and provisions of the debt securities in the
prospectus. We will issue the ROARS under an indenture dated November 8, 1999
between us and Norwest Bank Minnesota, National Association, as trustee. We have
summarized select portions of the indenture below. The summary is not complete
and is qualified by reference to the indenture.
GENERAL
The ROARS will be limited to $240,000,000 aggregate principal amount and
will mature on November 1, 2013, but we may repurchase the ROARS before that
date as described in "Mandatory Redemption" below. We may also redeem all of the
ROARS, on any Remarketing Date, as described in "Optional Redemption" below. The
ROARS may also be purchased by the Remarketing Dealer as described in "Mandatory
Tender" below.
The ROARS rank equally in right of payment with all of our existing and
future unsecured senior debt. The ROARS rank senior to all of our existing and
future subordinated indebtedness.
The ROARS are unsecured and not entitled to any sinking fund.
The ROARS will initially be issued only in registered, book-entry form, in
denominations of $1,000 and any integral multiple thereof as described under
"Book-Entry, Delivery and Form." We will issue global securities in
denominations equal to the total principal amount of the outstanding ROARS.
If any interest, principal or other payment date of the ROARS (including
any payment in connection with the mandatory tender or any mandatory redemption
as described below) does not fall on a Business Day, a payment otherwise payable
on that day will be made on the next succeeding Business Day. It will have the
same effect as if made on the actual payment date, and no interest will accrue
for the period from and after such Interest Payment Date, Maturity Date or other
payment date.
"Business Day" means any day other than a Saturday or Sunday or a day on
which banking institutions in New York City or Minneapolis, Minnesota are
authorized or obligated by law or executive order to close. "London Business
Day" means any day on which dealings in U.S. dollars are transacted in the
London Inter-Bank Market.
We have agreed with the Remarketing Dealer that we will not cause or permit
the terms or provisions of the ROARS (or the indenture, as it relates to the
ROARS) to be modified in any way, and may not make open market or other
purchases of the ROARS except under the mandatory redemption or in other limited
circumstances, without the prior written consent of the Remarketing Dealer.
INTEREST AND INTEREST PAYMENT DATES
The ROARS will bear interest at 8% per year, from November 8, 1999 to but
excluding November 1, 2003 which is the first Remarketing Date. We will pay
interest semi-annually on May 1 and November 1 beginning on May 1, 2000.
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"Remarketing Date(s)" means November 1, 2003, and February 1, 2004, May 1,
2004, and August 1, 2004 if the Company has elected to exercise its Floating
Period Option.
We will pay interest on the ROARS, accruing from the Fixed Rate Remarketing
Date, semi-annually on each day that is a six-month anniversary of such date.
Interest on the ROARS from the Fixed Rate Remarketing Date will be computed on
the basis of a 360-day year consisting of twelve 30-day months.
Interest on the ROARS accruing during the Floating Rate Reset Period will
be payable on the next following Reference Rate Reset Date. Interest on the
ROARS during the Floating Rate Period will be computed on the basis of the
actual number of days in such Floating Rate Period over a 360-day year.
Interest payable on any Interest Payment Date will be payable to the
persons in whose names the ROARS are registered on the fifteenth calendar day
(whether or not a Business Day) immediately preceding the related Interest
Payment Date.
"Fixed Rate Remarketing Date" means the first Remarketing Date, assuming
the Remarketing Dealer has elected to purchase the ROARS and we have not elected
to exercise our Floating Period Option, or one of the subsequent Remarketing
Dates in the event that we have elected to terminate the Floating Rate Period.
Interest payments will be in the amount of interest accrued from and
including the next preceding Interest Payment Date (or from and including
November 8, 1999 if no interest has been paid or duly provided with respect to
the ROARS) to but excluding the relevant Interest Payment Date, Remarketing Date
or Stated Maturity Date, as the case may be.
INTEREST RATE TO MATURITY
Subject to the Remarketing Dealer's election to remarket the ROARS, by 3:30
p.m., New York City time, on the third Business Day immediately preceding any
Remarketing Date (a "Floating Rate Spread Determination Date" or the "Fixed Rate
Determination Date" depending on the following election), the Remarketing Dealer
will determine either the Floating Rate Spread in the case that we have elected
the Floating Period Option or the Interest Rate to Maturity to the nearest one
hundredth (0.01) of one percent per annum, unless we have chosen to redeem, or
are required to redeem, the ROARS. Each Floating Period Interest Rate will equal
the sum of a Reference Rate and a Floating Rate Spread. The Interest Rate to
Maturity shall be equal to the sum of 6.07% (the "Base Rate") and the Applicable
Spread, which will be based on the Dollar Price of the ROARS.
For this purpose, the following terms have the following meanings:
"Applicable Spread" shall be the lowest Bid, expressed as a spread (in the
form of a percentage or in basis points) above the Base Rate for the ROARS,
obtained by the Remarketing Dealer at 3:30 p.m., New York City time, on the
Fixed Rate Determination Date, from the Bids quoted to the Remarketing Dealer by
five Reference Corporate Dealers.
A "Bid" will be an irrevocable offer to purchase the total aggregate
outstanding principal amount of the ROARS at the Dollar Price, but assuming:
(1) an issue date that is the Fixed Rate Remarketing Date applicable
to such ROARS, with settlement on such date without accrued interest,
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<PAGE> 38
(2) a maturity date that is the 10th anniversary of the Fixed Rate
Remarketing Date, and
(3) a stated annual interest rate equal to the Base Rate plus the
spread bid by the applicable Reference Corporate Dealer.
If fewer than five Reference Corporate Dealers submit Bids, then the
Applicable Spread shall be the lowest such Bid obtained. The Interest Rate to
Maturity for the ROARS announced by the Remarketing Dealer, absent manifest
error, shall be binding and conclusive upon the beneficial owners, the Company
and the Trustee.
"Comparable Treasury Issues" for the ROARS means the U.S. Treasury security
or securities selected by the Remarketing Dealer, as of the first Remarketing
Date, as having an actual or interpolated maturity or maturities comparable to
the remaining term of the ROARS being purchased by the Remarketing Dealer.
"Comparable Treasury Price" means, with respect to the first Remarketing
Date:
(1) the offer prices for the Comparable Treasury Issues (expressed in
each case as a percentage of its principal amount) at 12:00 noon, New York
City time, on the first Determination Date, as set forth on "Telerate Page
500" (or such other page as may replace "Telerate Page 500"), or
(2) if such page (or any successor page) is not displayed or does not
contain such offer prices on the first Determination Date, the average of
the Reference Treasury Dealer Quotations for the first Remarketing Date,
after excluding the highest and lowest such Reference Treasury Dealer
Quotations, or if the Remarketing Dealer obtains fewer than four such
Reference Treasury Dealer Quotations, the average of all such Reference
Treasury Dealer Quotations.
"Telerate Page 500" means the display designated as "Telerate Page 500" on
Dow Jones Markets (or such other page as may replace "Telerate Page 500" on such
service) or such other service displaying the offer prices, as may replace Dow
Jones Markets.
"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and the Fixed Rate Remarketing Date, the offer prices
for the Comparable Treasury Issues (expressed in each case as a percentage of
its principal amount) quoted in writing to the Remarketing Dealer by such
Reference Treasury Dealer, by 3:30 p.m., New York City time, on the first
Determination Date.
"Dollar Price" means, with respect to the ROARS, the present value, as of
the first Remarketing Date, of the Remaining Scheduled Payments for such ROARS,
discounted to the first Remarketing Date on a semi-annual basis (assuming a
360-day year consisting of twelve 30-day months) at the Treasury Rate.
"Fixed Rate Determination Date" means the third Business Day prior to the
Fixed Rate Remarketing Date.
"Interest Rate to Maturity" means the sum of the Base Rate and the
Applicable Spread.
"Reference Corporate Dealer" means a leading dealer of publicly traded debt
securities, including our debt securities, which shall be selected by us. We
will advise the Remarketing Dealer of our selection of Reference Corporate
Dealers no later than five Business Days prior to the Fixed Rate Remarketing
Date. One of the Reference Corporate Dealers we select will be Credit Suisse
Financial Products, if it is then the Remarketing Dealer.
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<PAGE> 39
"Reference Treasury Dealer" means five dealers to be selected by us, and
their respective successors; provided that if any of the foregoing or their
affiliates ceases to be a primary U.S. Government securities dealer (a "Primary
Treasury Dealer"), we will substitute theretofor another Primary Treasury
Dealer. One of the Reference Treasury Dealers we select will be Credit Suisse
Financial Products, if it is then the Remarketing Dealer.
"Remaining Scheduled Payments" means, with respect to the ROARS, the
remaining scheduled payments of the principal and thereon, calculated at the
Base Rate applicable to such ROARS, that would be due after the first
Remarketing Date to and including the Stated Maturity Date; provided that if
such Remarketing Date is not an Interest Payment Date, the amount of the next
succeeding scheduled interest payment, calculated at the Base Rate will be
reduced by the amount of interest accrued, calculated at the Base Rate only, to
the first Remarketing Date.
"Treasury Rate" for the ROARS means, with respect to the first Remarketing
Date, the rate per annum equal to the semi-annual equivalent yield to maturity
or interpolated (on a day count basis) yield to maturity of the Comparable
Treasury Issues, assuming a price for the Comparable Treasury Issues (expressed
as a percentage of their principal amounts) equal to the Comparable Treasury
Price for such Remarketing Date.
FLOATING RATE PERIOD
Subject to the Remarketing Dealer's election to purchase the ROARS, but
prior to the fourth business day prior to the first Remarketing Date (the
Floating Period Notification Date), we may elect to exercise our Floating Period
Option. Under these circumstances, the ROARS will be remarketed at a floating
rate for a period of one year, or until such a date (the Floating Period
Termination Date) which is the Remarketing Date following the date on which we
elect to terminate such Floating Rate Period (the Floating Rate Period
Termination Notification Date), whichever is sooner.
The amount of the interest for each day that the ROARS are outstanding
during the Floating Rate Period will be calculated by dividing the Floating
Period Interest Rate in effect for such day by 360 and multiplying the result by
the Dollar Price. The amount of interest to be paid for any Floating Rate Reset
Period will be calculated by adding the daily interest amounts for each day in
the Floating Rate Reset Period.
For this purpose, the following terms have the following meanings:
"Floating Period Interest Rate" means the sum of the Reference Rate and the
Floating Rate Spread.
"Floating Rate Spread Determination Date" means the third Business Day
prior to each Floating Rate Remarketing Date.
"Floating Rate Remarketing Date(s)" means the following date(s) within the
Floating Rate Period, which we will select from the following alternatives,
assuming we have selected the Floating Period Option:
(1) each of the four successive quarterly dates: November 1, 2003;
February 1, 2004; May 1, 2004; and August 1, 2004 or
(2) each of the two successive semi-annual dates: November 1, 2003 and
May 1, 2004 or
(3) November 1, 2003.
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<PAGE> 40
"Floating Period Option" means our right, on any date subsequent to the
Remarketing Dealer's election to purchase the ROARS, but prior to the fourth
Business Day, prior to the first Remarketing Date, to require the Remarketing
Dealer to remarket the ROARS at the Floating Period Interest Rate.
"Floating Rate Period" means the period from (and including) the first
Floating Rate Remarketing Date to (but excluding) the Fixed Rate Remarketing
Date.
"Floating Rate Spread" shall be the lowest Bid expressed as a spread (in
the form of a percentage or in basis points) above the Reference Rate for the
ROARS obtained by the Remarketing Dealer at 3:30 p.m., New York City time, on
the third Business Day prior to each Floating Rate Remarketing Date, from the
Bids quoted to the Remarketing Dealer by five Reference Money Market Dealers.
A Bid will be an irrevocable offer to purchase the total aggregate
outstanding principal amount of the ROARS at the Dollar Price, but assuming:
(1) an issue date that is the following Floating Rate Remarketing Date
with settlement on the same date without accrued interest,
(2) a maturity date equal to the immediately following Floating Rate
Remarketing Date, or the Floating Period Termination Date, as the case may
be,
(3) a stated annual interest rate equal to the Reference Rate plus the
Floating Rate Spread,
(4) that the ROARS are callable by the Remarketing Dealer, at the
Dollar Price, on any Floating Rate Remarketing Date after the first
Remarketing Date and
(5) that we will purchase the ROARS at the Dollar Price on the
Business Day that is immediately following the Floating Rate Reset Period,
or on the Floating Period Termination Date, as the case may be, if not
previously called by the Remarketing Dealer.
If fewer than five Reference Money Market Dealers submit Bids as described
above, then the Floating Rate Spread will be the lowest such Bid obtained as
described above.
The Floating Period Interest Rate announced by the Remarketing Dealer,
absent manifest error, will be binding and conclusive upon the beneficial
owners, the Company and the Trustee.
"Floating Rate Reset Period" means the period from (and including) the
first Reference Rate Reset Date, to (but excluding) the next following Reference
Rate Reset Date, and thereafter the period from (and including) a Reference Rate
Reset Date to (but excluding) the next following Reference Rate Reset Date;
provided that the final Floating Rate Reset Period will run to (but exclude) the
Floating Period Termination Date.
"Reference Money Market Dealer" means a leading dealer of publicly traded
debt securities, including our debt securities, which we shall select, who are
also leading dealers in money market instruments. We will advise the Remarketing
Dealer of our selection of Reference Money Market Dealers no later than five
Business Days prior to each Floating Rate Remarketing Date. One of the Reference
Money Market Dealers we select will be Credit Suisse Financial Products, if it
is then the Remarketing Dealer.
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<PAGE> 41
"Reference Rate" means:
(1) The rate for each Floating Rate Reset Period which will be the
rate for deposits in U.S. Dollars for a period of three months which
appears on the Telerate Page 3750 (or any successor page) as of 11:00 a.m.,
London time, on the applicable Reference Rate Determination Date.
(2) If no rate appears on Telerate Page 3750 on the Reference Rate
Determination Date, the Remarketing Dealer will request the principal
London offices of four major reference banks in the London Inter-Bank
Market, to provide it with its offered quotation for deposits in U.S.
Dollars for the period of three months, commencing on the first day of the
Floating Rate Reset Period, to prime banks in the London Inter-Bank Market
at approximately 11:00 a.m., London time, on that Reference Rate
Determination Date and in a principal amount that is representative for a
single transaction in U.S. Dollars in that market at that time. If at least
two quotations are provided, then the Reference Rate will be the average of
those quotations. If fewer than two quotations are provided, then the
Reference Rate will be the average (rounded, if necessary, to the nearest
one hundredth of a percent) of the rates quoted at approximately 11:00
a.m., New York City time, on the Reference Rate Determination Date by three
major banks in New York City selected by the Remarketing Dealer for loans
in U.S. dollars to leading European banks, having a three-month maturity
and in a principal amount that is representative for a single transaction
in U.S. dollars in that market at that time. If the banks selected by the
Remarketing Dealer are not providing quotations in the manner described by
this paragraph, the rate for the Floating Rate Reset Period following the
Reference Rate Determination Date will be the rate in effect on that
Reference Rate Determination Date.
"Reference Rate Reset Date" means November 1, 2003; February 1, 2004; May
1, 2004; and August 1, 2004.
"Reference Rate Determination Date" will be the second day preceding each
Reference Rate Reset Date. In the event the Reference Rate Determination Date
falls on a non-Business Day in London, the interest rate will reset on the
following Business Day unless such Business Day would move the Reference Rate
Determination Date into the next calendar month, in which case it will be the
immediately preceding Business Day.
MANDATORY TENDER
On a Business Day not earlier than 15 Business Days prior to the first
Remarketing Date, and not later than 4:00 p.m., New York City time, on the 10th
Business Day prior to the first Remarketing Date, the Remarketing Dealer will
notify the Company and the Trustee as to whether it elects to purchase the ROARS
on such Remarketing Date (this Remarketing Date may also be referred to as the
Notification Date).
If the Remarketing Dealer so elects, such ROARS will be subject to
mandatory tender to the Remarketing Dealer for purchase and remarketing on such
Remarketing Date, in accordance with the terms and subject to the conditions
described in this prospectus supplement.
The ROARS will be remarketed at a fixed rate of interest, unless, on any
date subsequent to the Remarketing Dealer's election to purchase the ROARS, but
prior to the fourth business day, prior to the first Remarketing Date (the
Floating Period Notification Date), we have elected to exercise our Floating
Period Option. Under these circumstances, the
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<PAGE> 42
ROARS will be remarketed at a floating rate for a period of one year, or on such
a date (the Floating Period Termination Date) which is the Remarketing Date
following the date on which we elect to terminate such Floating Rate Period (the
Floating Rate Period Termination Notification Date), whichever is sooner, at
which time the ROARS will be remarketed at a fixed rate of interest unless we
have chosen to redeem, or are required to redeem, the ROARS.
The purchase price of such tendered ROARS will be equal to 100% of the
aggregate principal amount thereof on the first Remarketing Date, and the Dollar
Price on any subsequent Remarketing Date.
Subject to the Remarketing Dealer's election to remarket the ROARS, on the
first Remarketing Date the Remarketing Dealer will sell the total aggregate
principal amount of the ROARS at the Dollar Price to the Reference Money Market
Dealer, or to the Reference Corporate Dealer, whichever is applicable, providing
the lowest Bid. If the lowest Bid is submitted by two or more of the applicable
Reference Dealers, the Remarketing Dealer may sell such ROARS to one or more of
such Reference Dealers, as it will determine in its sole discretion.
If the Remarketing Dealer elects to remarket the ROARS, the obligation of
the Remarketing Dealer to purchase the ROARS on the first Remarketing Date is
subject to certain conditions set forth in the Remarketing Agreement.
If for any reason the Remarketing Dealer does not purchase all of the ROARS
on the first Remarketing Date, we will be required to redeem the ROARS at a
price equal to 100% of the aggregate principal amount of the ROARS, plus all
accrued and unpaid interest, if any, if such Remarketing Date is the first
Remarketing Date, or at the Dollar Price plus accrued and unpaid interest, if
any, on any such subsequent Remarketing Date.
NOTIFICATION OF INTEREST RATE TO MATURITY
Subject to the Remarketing Dealer's election to remarket the ROARS, and to
our election not to exercise our Floating Period Option, the Remarketing Dealer
shall notify us, the Trustee and DTC by telephone, confirmed in writing (which
may include facsimile or other electronic transmission), by 4:00 p.m., New York
City time, on the Fixed Rate Determination Date of the Interest Rate to Maturity
effective from and including the Fixed Rate Remarketing Date.
MANDATORY REDEMPTION
We will be required to redeem the ROARS in whole on the applicable
Remarketing Date at a price equal to 100% of the aggregate principal amount of
the ROARS, if such Remarketing Date is the first Remarketing Date, or at the
Dollar Price on any subsequent Remarketing Date, plus all accrued and unpaid
interest, if any, to the applicable Remarketing Date in the event that:
(1) the Remarketing Dealer for any reason does not elect, by notice to
us and the Trustee not later than such Notification Date, to purchase the
ROARS for remarketing on such Remarketing Date,
(2) prior to any Remarketing Date, the Remarketing Dealer resigns and
no successor has been appointed on or before such Determination Date,
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<PAGE> 43
(3) at any time after the Remarketing Dealer elects on the
Notification Date to remarket the ROARS, the Remarketing Dealer elects to
terminate the Remarketing Agreement in accordance with its terms,
(4) the Remarketing Dealer for any reason does not notify us of the
Floating Period Interest Rate or of the Interest Rate to Maturity by 4:00
p.m. New York City time, on the applicable Determination Date,
(5) the Remarketing Dealer for any reason does not deliver the
purchase price of the ROARS to the Trustee on the Business Day immediately
preceding such Remarketing Date, or does not purchase all tendered ROARS on
such Remarketing Date, or
(6) we for any reason fail to redeem the ROARS from the Remarketing
Dealer following our election to effect such redemption.
OPTIONAL REDEMPTION
If the Remarketing Dealer elects to remarket the ROARS, we will notify the
Remarketing Dealer and the Trustee, not later than 4:00 p.m., New York City
time, on the Business Day immediately preceding the first Determination Date, if
we irrevocably elect to exercise our right to redeem the ROARS, in whole, on the
first Remarketing Date.
If we so elect to redeem the ROARS, we will redeem the ROARS in whole on
the first Remarketing Date or any subsequent Remarketing Date at the Dollar
Price, plus all accrued and unpaid interest, if any, to such Remarketing Date.
We may elect to redeem the ROARS, in whole, on any subsequent Remarketing Date
at the Dollar Price plus accrued and unpaid interest, if any. In any case, we
will make payment to each Beneficial Owner of the ROARS, by book-entry through
DTC. Other than as set forth above, we will have no option to redeem the ROARS.
SETTLEMENT
In the event that the ROARS are remarketed, the Remarketing Dealer will pay
to the Trustee, not later than 12:00 noon, New York City time, on the first
Remarketing Date, an amount equal to 100% of the aggregate principal amount of
the ROARS or on any subsequent Remarketing Date, an amount equal to the Dollar
Price.
On any such Remarketing Date, the Remarketing Dealer will cause the Trustee
to make payment to the DTC participant of each tendering Beneficial Owner of
ROARS, subject to remarketing, by book-entry through DTC by the close of
business on such Remarketing Date, against delivery through DTC of such
Beneficial Owner's tendered ROARS, of the purchase price for such tendered ROARS
that have been purchased for remarketing by the Remarketing Dealer.
The purchase price of such tendered ROARS shall be equal to 100% of the
aggregate principal amount thereof, on the first Remarketing Date and at the
Dollar Price on any subsequent Remarketing Date. We will make, or cause the
Trustee to make, payment of interest to each Beneficial Owner of ROARS, due on a
Remarketing Date by book-entry through DTC, by the close of business on such
Remarketing Date.
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The transactions described above will be executed on each Remarketing Date
through DTC in accordance with the procedures of DTC, and the accounts of the
respective Participants will be debited and credited, and the ROARS delivered by
book-entry as necessary to effect the purchases and sales thereof.
Settlement for the ROARS will be made by the underwriters in immediately
available funds. All payments of principal, Liquidated Damages and interest in
respect of the ROARS in book-entry form will be made in immediately available
funds. The ROARS will trade in DTC's Same-Day Funds Settlement System until the
Maturity Date or Remarketing Date, as the case may be, or until the ROARS are
issued in definitive form, and secondary market trading activity in the ROARS
will be required by DTC to settle in immediately available funds.
The tender and settlement procedures described above, including the
provisions for payment to selling beneficial owners of tendered ROARS, or for
payment by the purchasers of ROARS, in a remarketing, may be modified to the
extent required by DTC or, if the book-entry system is no longer available for
the ROARS at the time of a remarketing, to the extent required to facilitate the
tendering and remarketing of ROARS in certificated form. In addition, the
Remarketing Dealer may modify the settlement procedures set forth above in order
to facilitate the settlement process.
As long as DTC or its nominee holds a certificate representing the ROARS in
the book-entry system of DTC, no certificates for such ROARS will be delivered
by any selling Beneficial Owner to reflect any transfer of such ROARS effected
in a remarketing. In addition, under the terms of the ROARS and the Remarketing
Agreement, we have agreed that (1) we will use our best efforts to maintain the
ROARS in book-entry form with DTC or any successor thereto, and to appoint a
successor depository to the extent necessary to maintain the ROARS in book-entry
form and (2) we will waive any discretionary right we otherwise have under the
Indenture to cause the ROARS to be issued in certificated form.
REMARKETING DEALER
On or prior to the date of original issuance of the ROARS, we will enter
into a Remarketing Agreement with the Remarketing Dealer. The Remarketing Dealer
will not receive any fees or reimbursement of expenses from us in connection
with the remarketing, except under certain circumstances. The aggregate price
paid to us by the underwriters for the purchase of the ROARS will include an
amount paid by the Remarketing Dealer for its right to remarket the ROARS.
We will agree to indemnify the Remarketing Dealer against certain
liabilities, including liabilities under the Securities Act, arising out of or
in connection with its duties under the Remarketing Agreement.
If the Remarketing Dealer elects to remarket the ROARS, the obligation of
the Remarketing Dealer to purchase the ROARS will be subject to several
conditions set forth in the Remarketing Agreement. In addition, upon the
occurrence of certain events after the Remarketing Dealer elects to remarket the
ROARS, the Remarketing Dealer will have the right to terminate the Remarketing
Agreement or terminate its obligation to purchase the ROARS, or, until 2:00
p.m., New York City time, on the Business Day immediately preceding the
applicable Remarketing Date, to redetermine the applicable Interest Rate.
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No Beneficial Owner of the ROARS will have any rights or claims under the
Remarketing Agreement or against us or the Remarketing Dealer, as a result of
the Remarketing Dealer not purchasing the ROARS.
The Remarketing Agreement will provide that the Remarketing Dealer may
resign at any time as Remarketing Dealer, such resignation to be effective ten
Business Days after the delivery to us and the Trustee of notice of such
resignation. In such case, we have no obligation to appoint a successor
Remarketing Dealer. The Remarketing Dealer may exercise any vote or join in any
action that any Beneficial Owner of ROARS may be entitled to exercise, or take,
as if it did not act in any capacity under the Remarketing Agreement. The
Remarketing Dealer, in its individual capacity, either as principal or agent,
may engage in or have an interest in any financial or other transaction with us,
as freely as if it did not act in any capacity under the Remarketing Agreement.
As long as the Remarketing Agreement is in effect, we will not acquire any
of the ROARS prior to any remarketing by the Remarketing Dealer, other than in
connection with the fulfillment of its obligation to redeem the ROARS, or the
exercise of its right to redeem the ROARS, on a Remarketing Date. After all
Remarketing Dates or termination of the Remarketing Agreement prior thereto, we
may at any time purchase any ROARS at any price in the open market or otherwise.
The ROARS so purchased by us may, at our discretion, be held, resold or
surrendered to the Trustee for cancellation.
RECENT ACCOUNTING DEVELOPMENTS
For purposes of financial accounting and reporting for publicly held
companies, the Securities and Exchange Commission may require prospective
investors to separately account for the option, embedded in the ROARS, which
allows the Remarketing Dealer to purchase the ROARS at 100% of the principal
amount thereof, for remarketing, on November 1, 2003. Persons considering the
purchase of the ROARS, who are required to file financial reports with the
Securities and Exchange Commission pursuant to the Exchange Act, should consult
their own accounting advisers concerning potential reporting requirements.
S-43
<PAGE> 46
UNDERWRITING
Subject to the terms and conditions stated in the underwriting agreement
dated the date hereof, each underwriter named below has severally agreed to
purchase, and we have agreed to sell to such underwriter, the principal amount
of ROARS set forth opposite the name of such underwriter:
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
NAME OF ROARS
---- ------------
<S> <C>
Banc of America Securities LLC..................... $150,000,000
CIBC World Markets Corp............................ 30,000,000
Credit Suisse First Boston Corporation............. 30,000,000
Goldman, Sachs & Co................................ 30,000,000
------------
Total.................................... $240,000,000
============
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase the ROARS included in this offering are subject to
approval of certain legal matters by counsel and to certain other conditions.
The underwriters are obligated to purchase all of the ROARS if they purchase any
of the ROARS.
The underwriters, for whom Banc of America Securities LLC, CIBC World
Markets Corp., Credit Suisse First Boston Corporation and Goldman, Sachs & Co.
are acting as representatives, propose to offer some of the ROARS directly to
the public at the public offering price set forth on the cover page of this
supplement and some of the ROARS to certain dealers at the public offering price
less a concession not in excess of 0.300% of the principal amount of the ROARS.
The underwriters may allow, and such dealers may reallow, a discount not in
excess of 0.250% of the principal amount of the ROARS on sales to certain other
dealers. After the initial offering of the ROARS to the public, the public
offering price and such concessions may be changed by the representatives.
We have agreed that, without the prior written consent of Banc of America
Securities LLC, we will not offer, sell or otherwise dispose of any debt
securities issued or guaranteed by us (other than the ROARS), or publicly
announce an intention to effect any such transaction, within 30 days after the
closing of this offering.
In connection with the offering, Banc of America Securities LLC, on behalf
of the underwriters, may purchase and sell ROARS in the open market. These
transactions may include over-allotment, syndicate covering transactions and
stabilizing transactions. Over-allotment involves syndicate sales of ROARS in
excess of the principal amount of the ROARS to be purchased by the underwriters
in the offering, which creates a syndicate short position. Syndicate covering
transactions involves purchases of the ROARS in the open market after the
distribution has been completed in order to cover syndicate short positions.
Stabilizing transactions consist of certain bids or purchases of ROARS made for
the purpose of preventing or retarding a decline in the market price of the
ROARS while the offering is in progress.
The underwriters may also impose a penalty bid. Penalty bids permit the
underwriters to reclaim a selling concession from a syndicate member when Banc
of America Securities LLC, in covering syndicate short positions or making
stabilizing purchases, repurchases ROARS originally sold by that syndicate
member.
S-44
<PAGE> 47
Any of these activities may cause the price of the ROARS to be higher than
the price that otherwise would exist in the open market in the absence of such
transactions. These transactions may be effected in the over-the-counter market
or otherwise and, if commenced, may be discontinued at any time.
We estimate that our total expenses of this offering will be $375,000.
The representatives have performed certain investment banking and advisory
services on our behalf from time to time for which they have received customary
fees and expenses. The representatives may, from time to time, engage in
transactions with and perform services on our behalf in the ordinary course of
their business.
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act, or to contribute to payments the
underwriters may be required to make in respect of any of those liabilities.
The ROARS are a new issue of securities with no established trading market.
We do not intend to apply for listing of the ROARS on any securities exchange or
for quotation through any inter-dealer quotation system. We have been advised by
the underwriters that they intend to make a market in the ROARS as permitted by
applicable laws and regulations. The underwriters are not obligated, however, to
make a market in the ROARS and any market making may be discontinued at any time
without notice. No assurances can be given as to the liquidity of, or trading
market for, the ROARS.
The Remarketing Dealer will pay to us 2.88% of the aggregate principal
amount of the ROARS as consideration for the right to purchase the ROARS at 100%
of their aggregate principal amount on the first Remarketing Date.
If the Remarketing Dealer purchases the ROARS on the first Remarketing Date
and subsequently offers the ROARS for resale, the resale of the ROARS may have
to be registered with the Securities and Exchange Commission under the
Securities Act. If the resale of the ROARS has to be registered, we have agreed
to pay the expenses incident to such a registration.
LEGAL MATTERS
Gibson, Dunn & Crutcher LLP of Denver, Colorado has rendered an opinion
which was filed as an exhibit to the registration statement with respect to the
legality of the ROARS. Legal matters with respect to the ROARS will be passed
upon for the underwriters by Skadden, Arps, Slate, Meagher & Flom LLP. Each of
Gibson, Dunn & Crutcher LLP and Skadden, Arps, Slate, Meagher & Flom LLP have
from time to time represented us, and may in the future from time to time
represent us, in connection with various matters. See "Legal Matters" in the
accompanying prospectus.
S-45
<PAGE> 48
PROSPECTUS
$500,000,000
[NRG LOGO] NRG ENERGY, INC.
DEBT SECURITIES
We may sell at various times up to U.S. $500,000,000 worth of notes,
debentures or other debt securities in one or more series with the same or
different terms. We may sell the debt securities through agents, dealers or
underwriters we designate from time to time. We will determine the specific
terms of the debt securities at the time we sell them and include the following
information in a prospectus supplement:
- - Total amount of securities offered
- - Maturity date of debt securities
- - Interest rates or method of calculating interest rates
- - Interest payment dates
- - Purchase price
- - Terms for repayment or redemption, if any
- - Currencies or currency units in which the debt securities are denominated or
payable
- - Form of debt securities (registered, bearer or uncertificated)
- - Whether the debt securities will be represented initially by a single
temporary or permanent global note
- - Agent, dealer or underwriter, if any
- - Commission an agent will receive or discount a dealer or underwriter will
receive and an estimate of the net proceeds we will receive
- - Any other terms applicable to the debt securities
------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
This prospectus may not be used to sell securities unless accompanied by a
prospectus supplement.
------------------------
The date of this Prospectus is April 7, 1999
<PAGE> 49
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission (the "SEC"). You may
read and copy any document we file at the SEC's public reference rooms in
Washington, D.C., New York, New York and Chicago, Illinois. Please call the SEC
at 1-800-732-0330 for further information on the public reference rooms. You may
also obtain copies of these materials from the public reference section of the
SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. Our
SEC filings are also available to the public from the SEC's web site at
http://www.sec.gov.
We have filed a registration statement on Form S-3 with the SEC under the
Securities Act of 1933. This prospectus does not contain all of the information
set forth in the registration statement. You should read the registration
statement for further information about us and the debt securities. You may
inspect the registration statement and its exhibits without charge at the office
of the SEC at 450 Fifth Street, N.W., in Washington, D.C. 20549, and you may
obtain copies from the SEC at prescribed rates.
The SEC allows us to "incorporate by reference" the information that we
file with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus. The information filed by us with the
SEC in the future will update and supersede this information. We incorporate by
reference the documents listed below and any future filings made by us with the
SEC under Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of
1934 until we sell all the debt securities:
1. Our Annual Report on Form 10-K for the fiscal year ended December
31, 1998; and
2. Our Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 1999.
You may request a copy of these filings, at no cost, by writing or calling
us at the following address or telephone number:
Investor Relations
NRG Energy, Inc.
1221 Nicollet Mall, Suite 700
Minneapolis, Minnesota 55403
(612) 373-5300
You should rely only on the information incorporated by reference or
provided in this prospectus or any prospectus supplement. We have not authorized
anyone else to provide you with different information. You should not assume
that the information in this prospectus or any prospectus supplement is accurate
as of any date other than the date on the front of these documents.
FORWARD-LOOKING STATEMENTS
This prospectus contains or incorporates by reference statements that do
not directly or exclusively relate to historical facts. Such statements are
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. You can typically identify forward-looking
statements by the use of forward-looking words, such as "may,"
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<PAGE> 50
"will," "could," "project," "believe," "anticipate," "expect," "estimate,"
"continue," "potential," "plan," "forecasts," and the like. These statements
represent our intentions, plans, expectations and beliefs and are subject to
risks, uncertainties and other factors. Many of these factors are outside our
control and could cause actual results to differ materially from such
forward-looking statements. These factors include, among others:
- general economic conditions in countries in which we do business
- industry restructuring, changes in the market price of electricity and
industry capacity
- demographic changes
- technology changes
- changes in electricity usage patterns and practices
- changes in fuel pricing
- our ability to become Year 2000 ready and the ability of our customers
and suppliers to become Year 2000 ready
THE COMPANY
GENERAL
We are one of the leading participants in the independent power generation
industry. We are principally engaged in the acquisition, development and
operation of, and ownership of interests in, independent power production and
co-generation facilities, thermal energy production and transmission facilities
and resource recovery facilities. The power generation facilities in which we
currently have interests (including those under construction) as of December 31,
1998 have a total design capacity of 10,605 megawatts ("MW"), of which we have
or will have total or shared operational responsibility for 6,966 MW and net
ownership of, or leasehold interests in, 3,300 MW. In addition, we have
substantial interests in district heating and cooling systems and steam
generation and transmission operations. As of December 31, 1998, these thermal
businesses had a steam capacity of approximately 3,750 million British thermal
units per hour. Our refuse-derived fuel ("RDF") plants processed more than
1,350,000 tons of municipal solid waste into approximately 1,100,000 tons of RDF
during 1998.
We have experienced significant growth in the last year, expanding from
2,650 MW of net ownership interests in power generation facilities (including
those under construction) as of December 31, 1997 to 3,300 MW of net ownership
interests as of December 31, 1998. This growth resulted primarily from a number
of domestic and international investments and acquisitions.
Our headquarters and principal executive offices are located at 1221
Nicollet Mall, Suite 700, Minneapolis, Minnesota 55403. Our telephone number is
(612) 373-5300. We were established in 1989 and are a wholly-owned subsidiary of
Northern States Power Company ("NSP").
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<PAGE> 51
USE OF PROCEEDS
Unless otherwise specified in the supplement which accompanies this
prospectus, we will use the net proceeds from the sale of the debt securities
for general corporate purposes, which may include financing the development and
construction of new facilities, additions to working capital, reductions of our
indebtedness and the indebtedness of our subsidiaries, financing of capital
expenditures and pending or potential acquisitions. We may invest funds not
immediately required for such purposes in short-term investment grade
securities. The amount and timing of sales of the debt securities will depend on
market conditions and the availability to us of other funds.
EARNINGS TO FIXED CHARGES RATIO
The following table sets forth the ratio of our earnings to our fixed
charges for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges(1)............ (2) 1.16x 1.75x 1.56x 2.98x
</TABLE>
- -------------------------
(1) The ratio of earnings to fixed charges is calculated by dividing earnings by
fixed charges. For this purpose "earnings" means income (loss) before income
taxes less undistributed equity in our share of operating earnings of
unconsolidated affiliates less equity in gain from project termination
settlements plus cash distributions from project termination settlements
plus fixed charges. "Fixed charges" means interest expense plus interest
capitalized plus amortization of debt issuance costs plus a reasonable
approximation of the interest factor of rental expenses.
(2) Due primarily to interest expense and undistributed equity from
unconsolidated affiliates, earnings did not cover fixed charges by $7.3
million.
DESCRIPTION OF DEBT SECURITIES
This prospectus describes the general terms and provisions of our debt
securities. When we offer to sell a particular series of debt securities, we
will describe the specific terms of the series in a supplement to this
prospectus. We will also indicate in the supplement whether the general terms
and provisions described in this prospectus apply to a particular series of debt
securities.
The following summaries of certain provisions of the indenture and the debt
securities do not purport to be complete. Except to the extent set forth in the
supplement with respect to a particular issue of debt securities, the indenture
or indentures for the debt securities will be substantially similar. Unless
otherwise stated in the supplement, the trustee under the first indenture under
which debt securities will be issued will be Norwest Bank Minnesota, National
Association. (See "Concerning the Trustee.")
GENERAL
The debt securities will be unsecured senior obligations of the Company, as
set forth in the accompanying supplement. Because we conduct substantially all
of our business through
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<PAGE> 52
numerous subsidiaries and affiliates, all existing and future liabilities of our
direct and indirect subsidiaries and affiliates will be effectively senior to
the debt securities. The debt securities will not be guaranteed by, or otherwise
be obligations of, our project subsidiaries and project affiliates, or our other
direct and indirect subsidiaries and affiliates or NSP.
Reference is made to the accompanying supplement for the following terms of
and information relating to the debt securities (to the extent such terms are
applicable to such debt securities):
- the specific designation, aggregate principal amount, purchase price and
denomination;
- the date of maturity;
- the interest rate or rates (or the method by which such rate will be
determined), if any;
- the date from which interest will accrue and dates on which any such
interest will be payable;
- our rights to defer interest, if any;
- the place or places where the principal of, premium, if any, and
interest, if any, on the debt securities will be payable;
- any redemption, repayment or sinking fund provisions;
- our obligation, if any, to offer to purchase the debt securities in the
event of a "Change of Control" (as defined below);
- any applicable material federal income tax consequences; and
- any other material specific terms of the debt securities, including any
material additional events of default or covenants provided for with
respect to the debt securities and any material terms that may be
required by or advisable under applicable laws or regulations.
The debt securities will bear interest at a fixed rate or a floating rate.
Debt securities bearing no interest or interest at a rate that at the time of
issuance is below the prevailing market rate may be sold or deemed to be sold at
a discount below their stated principal amount. With respect to any debt
securities as to which we have the right to defer interest, the holders of such
debt securities may be allocated interest income for federal and state income
tax purposes without receiving equivalent, or any, interest payments. Any
material federal income tax considerations applicable to any such discounted
debt securities or to certain debt securities issued at par that are treated as
having been issued at a discount for federal income tax purposes will be
described in the supplement.
GLOBAL DEBT SECURITIES
If any debt securities are represented by one or more global securities,
the applicable supplement will describe the terms of the depositary arrangement
with respect to such global securities.
REDEMPTION
Except as may otherwise be set forth in the accompanying supplement, the
indenture will provide that, we, at any time, may redeem the debt securities, in
whole or in part (if in
5
<PAGE> 53
part, by lot or by such other method as the trustee shall deem fair or
appropriate) at the redemption price of 100% of principal amount of such debt
securities, plus accrued interest on the principal amount, if any, to the
redemption date, plus the applicable "Make-Whole Premium" (as discussed below).
Except as may otherwise be set forth in the accompanying supplement, the
indenture will provide that, to determine the applicable Make-Whole Premium for
any debt security, an independent investment banking institution of national
standing that we select will compute, as of the third business day prior to the
redemption date, the sum of the present values of all of the remaining scheduled
payments of principal and interest from the redemption date to maturity on such
debt security computed on a semiannual basis by discounting such payments
(assuming a 360-day year consisting of twelve 30-day months) using a rate to be
set forth in the supplement. If the sum of these present values of the remaining
payments as computed above exceeds the aggregate unpaid principal amount of the
debt security that we will redeem plus any accrued but unpaid interest thereon,
the difference will be payable as a premium upon redemption of such debt
security. If the sum is equal to or less than such principal amount plus accrued
interest, we will pay no premium with respect to such debt security.
CERTAIN COVENANTS OF THE COMPANY
AFFIRMATIVE COVENANTS
In addition to such other covenants, if any, as may be described in the
accompanying supplement and except as may otherwise be set forth therein, the
indenture will require us, subject to certain limitations described therein, to,
among other things, do the following:
- deliver to the trustee copies of all reports filed with the SEC;
- deliver to the trustee annual officers' certificates with respect to our
compliance with our obligations under the indenture;
- maintain our corporate existence subject to the provisions described
below relating to mergers and consolidations; and
- pay our taxes when due except where we are contesting such taxes in good
faith.
The indenture may also, as set forth in the accompanying supplement,
restrict our business or operations or that of our subsidiaries or limit our
indebtedness.
RESTRICTIONS ON LIENS
Except as may otherwise be set forth in the accompanying supplement, the
indenture will provide that, so long as any of the debt securities are
outstanding, we will not pledge, mortgage, hypothecate or permit to exist any
mortgage, pledge or other lien upon any property at any time directly owned by
us to secure any indebtedness for money borrowed which is incurred, issued,
assumed or guaranteed by us ("Indebtedness"), without making effective
provisions whereby the debt securities shall be equally and ratably secured with
any and all such Indebtedness and with any other Indebtedness similarly entitled
to be equally and ratably secured; provided, however, that this restriction
shall not apply to or prevent the creation or existence of: (i) liens existing
at the original date of issuance of the debt securities; (ii) purchase money
liens which do not exceed the cost or value of the purchased property; (iii)
other liens not to exceed 10% of our "Consolidated Net Tangible Assets"
6
<PAGE> 54
(defined below) and (iv) liens granted in connection with extending, renewing,
replacing or refinancing in whole or in part the Indebtedness (including,
without limitation, increasing the principal amount of such Indebtedness)
secured by liens described in the foregoing clauses (i) through (iii). Except as
may otherwise be provided in the accompanying supplement, "Consolidated Net
Tangible Assets" will be defined as the following: as of the date of any
determination thereof, the total amount of all our assets determined on a
consolidated basis in accordance with GAAP as of such date less the sum of (a)
our consolidated current liabilities determined in accordance with GAAP and (b)
assets properly classified as intangible assets, in accordance with GAAP.
Except as may otherwise be set forth in the accompanying supplement, the
indenture will further provide that, in the event we propose to pledge, mortgage
or hypothecate any property at any time directly owned by us to secure any
Indebtedness, other than as permitted by clauses (i) through (iv) of the
previous paragraph, we will agree to give prior written notice thereof to the
trustee, who shall give notice to the holders of debt securities, and we will
further agree, prior to or simultaneously with such pledge, mortgage or
hypothecation, effectively to secure all the debt securities equally and ratably
with such Indebtedness.
The foregoing covenant will not restrict the ability of our subsidiaries
and affiliates to pledge, mortgage, hypothecate or permit to exist any mortgage,
pledge or lien upon their assets, in connection with project financings or
otherwise.
CHANGE OF CONTROL
Except as may otherwise be set forth in the accompanying supplement, the
indenture will provide that, if a Change of Control occurs, we will be obligated
to offer to purchase all outstanding debt securities. We will conduct any offer
to purchase debt securities upon a Change of Control in compliance with
applicable regulations under the federal securities laws, including Exchange Act
Rule 14e-l. Any limitations on our financial ability to purchase debt securities
upon a Change of Control will be described in the accompanying supplement.
Except as may otherwise be provided in the accompanying supplement, a
"Change of Control" will be defined in the indenture as any of the following:
- NSP (or its successors) ceases to own a majority of our outstanding
voting stock;
- at any time following the occurrence of the event described immediately
above, a person or group of persons (other than NSP) becomes the
beneficial owner, directly or indirectly, or has the absolute power to
direct the vote of more than 35% of our voting stock; or
- during any one year period, individuals who at the beginning of such
period constitute our board of directors cease to be a majority of the
board of directors (unless approved by a majority of the current
directors then in office who were either directors at the beginning of
such period or who were previously so approved).
A Change of Control shall be deemed not to have occurred if, following such
an event described above, the debt securities are rated BBB- or better by
Standard & Poor's Ratings Group and Baa3 or better by Moody's Investors Service,
Inc. Except as may otherwise be set forth in the accompanying supplement, our
failure to comply with the Change of Control covenant as to the debt securities
will be an "Event of Default" (as defined below) under the indenture. See
"Events of Default" below.
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<PAGE> 55
Except as may be provided otherwise in the accompanying supplement, the
Change of Control provisions may not be waived by the trustee or the board of
directors, and any modification thereof must be approved by each holder of a
debt security. We cannot assure you that we would have sufficient liquidity to
effectuate any required repurchase of debt securities upon a Change of Control.
Except as may be provided otherwise in the accompanying supplement, within
30 days following any Change of Control, we will be required to mail a notice to
each debt security holder (with a copy to the trustee) stating:
- that a Change of Control has occurred and that such holder has the right
to require us to repurchase such holder's debt securities (the "Change of
Control Offer");
- the circumstances and relevant facts regarding such Change of Control
(including information with respect to pro forma historical income, cash
flow and capitalization after giving effect to such Change of Control);
- the repurchase date (which shall be a business day and be not earlier
than 30 days or later than 60 days from the date such notice is mailed
(the "Repurchase Date"));
- that interest on any debt security tendered will continue to accrue;
- that interest on any debt security accepted for payment pursuant to the
Change of Control Offer shall cease to accrue after the Repurchase Date;
- that debt security holders electing to have a debt security purchased
pursuant to a Change of Control Offer will be required to surrender the
debt security, with the form entitled "Option to Elect Purchase" on the
reverse of the debt security completed, to the trustee at the address
specified in the notice prior to the close of business on the Repurchase
Date;
- that debt security holders will be entitled to withdraw their election if
the trustee receives, not later than the close of business on the third
business day (or such shorter periods as may be required by applicable
law) preceding the Repurchase Date, a telegram, telex, facsimile or
letter setting forth the name of the debt security holder, the principal
amount of debt securities the holder delivered for purchase and a
statement that such debt security holder is withdrawing its election to
have such debt securities purchased; and
- that debt security holders that elect to have their debt securities
purchased only in part will be issued new debt securities in a principal
amount equal to the unpurchased portion of the debt securities
surrendered.
MERGER, CONSOLIDATION, SALE, LEASE OR CONVEYANCE
Except as may otherwise be provided in the accompanying supplement, the
indenture will provide that we will not merge or consolidate with or into any
other person and we will not sell, lease or convey all or substantially all of
our assets to any person, unless we are the continuing corporation, or the
successor corporation or the person that acquires all or substantially all of
our assets is a corporation organized and existing under the laws of the United
States or a State thereof or the District of Columbia and expressly assumes all
of our obligations under the debt securities and the indenture, and, immediately
after such merger, consolidation, sale, lease or conveyance, such person or such
successor corporation is not in default in the performance of the covenants and
conditions in the indenture. The meaning of
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<PAGE> 56
the term "all or substantially all of the assets" has not been definitely
established and is likely to be interpreted by reference to applicable state law
if and at the time the issue arises and will be dependent on the facts and
circumstances existing at the time.
Except as may be provided otherwise in the accompanying supplement, the
indenture will provide that, except for a sale of our assets substantially as an
entirety as provided above, and other than assets we are required to sell to
conform with governmental regulations, we may not sell or otherwise dispose of
any assets (other than short-term, readily marketable investments purchased for
cash management purposes with funds not representing the proceeds of other asset
sales) if on a pro forma basis, the aggregate net book value of all such sales
during the most recent 12-month period would exceed 10% of our Consolidated Net
Tangible Assets computed as of the end of the most recent quarter preceding such
sale; provided, however, that any such sales shall be disregarded for purposes
of this 10% limitation if the proceeds are invested in assets in similar or
related lines of our business and, provided further, that we may sell or
otherwise dispose of assets in excess of such 10% if we retain the proceeds from
such sales or dispositions, which are not reinvested as provided above, as cash
or cash equivalents or we use the proceeds to purchase and retire the debt
securities.
REPORTING OBLIGATIONS
Except as may be provided otherwise in the accompanying supplement, the
indenture will provide that we will furnish or cause to be furnished to holders
of debt securities copies of our annual reports and of the information,
documents and other reports that we are required to file with the SEC pursuant
to Section 13 or 15(d) of the Exchange Act within 15 days after we file them
with the SEC.
EVENTS OF DEFAULT
Except as may be described in the accompanying supplement, an "Event of
Default" will be defined under the indenture as being:
(a) our failure to pay any interest on any senior debt security when
due, which failure continues for 30 days;
(b) our failure to pay principal or premium (including in connection
with a Change of Control) when due;
(c) our failure to perform any other covenant relative to the debt
securities or the indenture for a period of 30 days after the trustee gives
us written notice or we receive written notice by the holders of at least
25% in aggregate principal amount of the debt securities;
(d) an event of default occurring under any of our instruments under
which there may be issued, or by which there may be secured or evidenced,
any indebtedness for money borrowed that has resulted in the acceleration
of such indebtedness, or any default occurring in payment of any such
indebtedness at final maturity (and after the expiration of any applicable
grace periods), other than (i) indebtedness which is payable solely out of
the property or assets of a partnership, joint venture or similar entity of
which we or any of our subsidiaries or affiliates is a participant, or
which is secured by a lien on the property or assets owned or held by such
entity, without further recourse to us or (ii) indebtedness not exceeding
$20,000,000;
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(e) one or more final judgments, decrees or orders of any court,
tribunal, arbitrator, administrative or other governmental body or similar
entity for the payment of money aggregating more than $20,000,000 shall be
rendered against us (excluding the amount thereof covered by insurance) and
shall remain undischarged, unvacated and unstayed for more than 90 days,
except while being contested in good faith by appropriate proceedings; and
(f) certain events of bankruptcy, insolvency or reorganization in
respect of us.
The indenture will provide that if an Event of Default (other than an Event
of Default due to certain events of bankruptcy, insolvency or reorganization)
has occurred and is continuing, either the trustee or the holders of not less
than 25% in principal amount of the debt securities outstanding under the
indenture, or such other amount as may be specified in the supplement, may then
declare the principal of all debt securities under that indenture and interest
accrued thereon to be due and payable immediately.
Except to the extent otherwise stated in the accompanying supplement, the
indenture will contain a provision entitling the trustee, subject to the duty of
the trustee during a default to act with the required standard of care, to be
indemnified by the holders of debt securities before proceeding to exercise any
right or power under the indenture at the request of such holders. Subject to
such provisions in the indenture for the indemnification of the trustee and
certain other limitations, the holders of a majority in principal amount of the
debt securities then outstanding may direct the time, method and place of
conducting any proceeding for any remedy available to the trustee or exercising
any trust or power conferred on the trustee.
Except to the extent otherwise stated in the accompanying supplement, the
indenture will provide that no holder of debt securities may institute any
action against us under the indenture (except actions for payment of overdue
principal or interest) unless:
- such holder previously has given the trustee written notice of the
default and continuance thereof;
- the holders of not less than 25% in principal amount of the debt
securities then outstanding have requested the trustee to institute such
action and offered the trustee reasonable indemnity;
- the trustee has not instituted such action within 60 days of the request;
and
- the trustee has not received direction inconsistent with such written
request from the holders of a majority in principal amount of the debt
securities then outstanding under the indenture.
DEFEASANCE AND COVENANT DEFEASANCE
DEFEASANCE
Except to the extent otherwise stated in the accompanying supplement, the
indenture will provide that we will be deemed to have paid and will be
discharged from any and all obligations in respect of the debt securities, on
the 123rd day after the deposit referred to below has been made, and the
provisions of the indenture will cease to be applicable with respect to the debt
securities (except for, among other matters, certain obligations to register the
transfer of or exchange of the debt securities, to replace stolen, lost or
mutilated debt securities, to maintain paying agencies and to hold funds for
payment in trust) if (A) we have deposited with the trustee, in trust, money
and/or U.S. Government Obligations (as defined in
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the indenture) that, through the payment of interest and principal in respect
thereof in accordance with their terms, will provide money in an amount
sufficient to pay the principal of, premium, if any, and accrued interest on the
debt securities, at the time such payments are due in accordance with the terms
of the indenture, (B) we have delivered to the trustee (i) an opinion of counsel
to the effect that debt security holders will not recognize income, gain or loss
for federal income tax purposes as a result of our exercise of our option under
the defeasance provisions of the indenture and will be subject to federal income
tax on the same amount and in the same manner and at the same times as would
have been the case if such deposit, defeasance and discharge had not occurred,
which opinion of counsel must be based upon a ruling of the Internal Revenue
Service to the same effect or a change in applicable federal income tax law or
related treasury regulations after the date of the indenture and (ii) an opinion
of counsel to the effect that the defeasance trust does not constitute an
"investment company" within the meaning of the Investment Company Act of 1940
and after the passage of 123 days following the deposit, the trust fund will not
be subject to the effect of Section 547 of the U.S. Bankruptcy Code or Section
15 of the New York Debtor and Creditor Law, (C) immediately after giving effect
to such deposit, no Event of Default, or event that after the giving of notice
or lapse of time or both would become an Event of Default, shall have occurred
and be continuing on the date of such deposit or during the period ending on the
123rd day after the date of such deposit, and such deposit shall not result in a
breach or violation of, or constitute a default under, any other agreement or
instrument to which we are a party or by which we are bound and (D) if at such
time the debt securities are listed on a national securities exchange, we have
delivered to the trustee an opinion of counsel to the effect that the debt
securities will not be delisted as a result of such deposit and discharge.
DEFEASANCE OF CERTAIN COVENANTS AND CERTAIN EVENTS OF DEFAULT
Except to the extent otherwise stated in the accompanying supplement, the
indenture for the debt securities will further provide that the provisions of
the indenture will cease to be applicable with respect to (i) the covenants
described under "Change of Control" and (ii) clause (c) under "Events of
Default" with respect to such covenants and clauses (d) and (e) under "Events of
Default" upon the deposit with the trustee, in trust, of money and/or U.S.
Government Obligations that through the payment of interest and principal in
respect thereof in accordance with their terms will provide money in an amount
sufficient to pay the principal of, premium, if any, and accrued interest on the
debt securities, the satisfaction of the conditions described in clauses
(B)(ii), (C) and (D) of the preceding paragraph and our delivery to the trustee
of an opinion of counsel to the effect that, among other things, the holders of
the debt securities will not recognize income, gain or loss for federal income
tax purposes as a result of such deposit and defeasance of certain covenants and
Events of Default and will be subject to federal income tax on the same amount
and in the same manner and at the same times as would have been the case if such
deposit and defeasance had not occurred.
DEFEASANCE AND CERTAIN OTHER EVENTS OF DEFAULT
Except to the extent otherwise stated in the accompanying supplement, the
indenture will provide that if we exercise our option to omit compliance with
certain covenants and provisions of the indenture with respect to the debt
securities as described in the immediately preceding paragraph and the debt
securities are declared due and payable because of the occurrence of an Event of
Default that remains applicable, the amount of money and/or U.S.
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Government Obligations on deposit with the trustee will be sufficient to pay
amounts due on the debt securities at the time of their stated maturity, but may
not be sufficient to pay amounts due on the debt securities at the time of
acceleration resulting from such Event of Default. In such event, we shall
remain liable for such payments.
MODIFICATIONS TO THE INDENTURE
Except as may otherwise be set forth in the accompanying supplement, the
indenture will contain provisions permitting us and the trustee, with the
consent of the holders of not less than a majority in principal amount of the
debt securities then outstanding, to modify the indenture or the rights of the
debt security holders, except that no such modification may, without the consent
of each debt security holder, (i) extend the final maturity of any of the debt
securities or reduce the principal amount thereof, or reduce the rate or extend
the time of payment of interest thereon, or reduce any amount payable on
redemption thereof, or impair or affect the right of any debt security holder to
institute suit for the payment thereof or make any change in the covenant
regarding a Change of Control or (ii) reduce the percentage of debt securities,
the consent of the holders of which is required for any such modification.
Except as may otherwise be set forth in the accompanying supplement, the
indenture will provide that we and the trustee without the consent of any debt
security holder may amend the indenture and the debt securities for the purpose
of curing any ambiguity, or of curing, correcting or supplementing any defective
provision thereof, or in any manner which we and the trustee may determine is
not inconsistent with the debt securities and will not adversely affect the
interest of any debt security holder.
BOOK-ENTRY, DELIVERY AND FORM
Except as may otherwise be set forth in the accompanying supplement, the
indenture will provide that the debt securities will initially be issued in the
form of one or more registered notes in global form (the "Global Notes"). Each
Global Note will be deposited on the date of the closing of the sale of the debt
securities with, or on behalf of, The Depository Trust Company ("DTC"), as
depositary, and registered in the name of Cede & Co., as DTC's nominee.
DTC is a limited-purpose trust company created to hold securities for its
participants (the "Participants") and to facilitate the clearance and settlement
of transactions in those securities between Participants through electronic
book-entry changes in accounts of the Participants. The Participants include
securities brokers and dealers, banks, trust companies, clearing corporations
and certain other organizations. Access to DTC's system is also available to
other entities such as banks, brokers, dealers and trust companies that clear
through or maintain a custodial relationship with a Participant, either directly
or indirectly (collectively, the "Indirect Participants"). Persons who are not
Participants may beneficially own securities held by or on behalf of DTC only
through the Participants or the Indirect Participants. The ownership interest
and transfer of ownership interest of each actual purchase of each security held
by or on behalf of DTC are recorded on the records of the Participants and
Indirect Participants.
We expect that pursuant to procedures established by DTC, (i) upon deposit
of the Global Notes, DTC will credit the accounts of Participants designated by
the underwriters with portions of the principal amount of the Global Notes and
(ii) ownership of such interests in the Global Notes will be shown on, and the
transfer of ownership thereof will be effected
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only through, records maintained by DTC (with respect to the Participants) or by
the Participants and the Indirect Participants (with respect to other owners of
beneficial interests in the Global Notes).
Investors in the Global Notes may hold their interests therein directly
through DTC if they are Participants in such system, or indirectly through
organizations which are Participants in such system. All interests in a Global
Note may be subject to the procedures and requirements of DTC. The laws of some
states require that certain persons take physical delivery in certificated form
of securities that they own. Consequently, the ability to transfer beneficial
interests in a Global Note to such persons will be limited to that extent.
Because DTC can act only on behalf of Participants, which in turn act on behalf
of Indirect Participants and certain banks, the ability of a person having
beneficial interests in a Global Note to pledge such interest to persons that do
not participate in the DTC system, or otherwise take actions in respect of such
interest, may be affected by the lack of a physical certificate evidencing such
interests. For certain other restrictions on the transferability of the debt
securities, see "-- Exchange of Book-Entry Debt Securities for Certificated Debt
Securities" below.
Except as described below, owners of interests in the Global Notes will not
have debt securities registered in their name, will not receive physical
delivery of debt securities in certificated form and will not be considered the
registered owners of holders thereof under the indenture for any purpose.
Payments in respect of the Global Notes registered in the name of DTC or
its nominee will be payable by the trustee to DTC in its capacity as the
registered holder under the indenture. Under the terms of the indenture, the
trustee will treat the persons in whose names the debt securities, including the
Global Notes, are registered as the owners thereof for the purpose of receiving
such payments and for any and all purposes whatsoever. Consequently, neither the
trustee nor any agent thereof has or will have any responsibility or liability
for (i) any aspect of DTC's records or any Participant's or Indirect
Participant's records relating to or payments made on account of beneficial
ownership interests in the Global Note or for maintaining, supervising or
reviewing any of DTC's records or any Participant's or Indirect Participant's
records relating to the beneficial ownership interests in the Global Note or
(ii) any other matter relating to the actions and practices of DTC or any of its
Participants or Indirect Participants. DTC's current practice, upon receipt of
any payment in respect of securities such as the debt securities, is to credit
the accounts of the relevant Participants with the payment on the payment date,
in amounts proportionate to their respective holdings in principal amount of
beneficial interests in the relevant security as shown on the records of DTC
unless DTC has reason to believe it will not receive payment on such payment
date. Payments by the Participants and the Indirect Participants to the
beneficial owners of Notes will be governed by standing instructions and
customary practices and will be the responsibility of the Participants or the
Indirect Participants and will not be the responsibility of DTC, the trustee or
us. Neither we nor the trustee will be liable for any delay by DTC or any of its
Participants in identifying the beneficial owners of the debt securities, and we
and the trustee may conclusively rely on and will be protected in relying on
instructions from DTC or its nominee for all purposes.
Except as may otherwise be set forth in the accompanying supplement, DTC
will take any action permitted to be taken by a holder of the debt securities
only at the direction of one or more Participants to whose account with DTC
interests in the Global Notes are credited and only in respect of such portion
of the Notes as to which such Participant or Participants has or have given such
direction. However, if there is an Event of Default, DTC
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reserves the right to exchange the Global Notes for debt securities in
certificated form and to distribute such debt securities to its Participants.
The information in this section concerning DTC and its book-entry system
has been obtained from sources that we believe to be reliable, but we have not
independently determined the accuracy thereof. We will not have any
responsibility for the performance by DTC or its Participants of their
respective obligations under the rules and procedures governing their
operations.
EXCHANGE OF BOOK ENTRY DEBT SECURITIES FOR CERTIFICATED DEBT SECURITIES
Except as may otherwise be set forth in the accompanying supplement, a
Global Note is exchangeable for debt securities in registered certificated form
if (i) DTC notifies us that it is unwilling or unable to continue as clearing
agency for the Global Note or has ceased to be a clearing agency registered
under the Exchange Act and we thereupon fail to appoint a successor clearing
agency within 90 days, (ii) we in our sole discretion elect to cause the
issuance of definitive certificated debt securities or (iii) there has occurred
and is continuing an Event of Default or any event which after notice or lapse
of time or both would be an Event of Default under the indenture. In addition,
beneficial interests in a Global Note may be exchanged for certificated debt
securities upon request but only upon at least 20 days, prior written notice
given to the trustee by or on behalf of DTC in accordance with customary
procedures. In all cases certificated debt securities delivered in exchange for
any Global Note or beneficial interest therein will be registered in the names,
and issued in denominations of $100,000 and integral multiples of $1,000 in
excess thereof, requested by or on behalf of the clearing agency (in accordance
with its customary procedures).
CONCERNING THE TRUSTEE
Unless otherwise stated in the supplement, the trustee under the first
indenture under which debt securities will be issued will be Norwest Bank
Minnesota, National Association, and, unless stated in the applicable
supplement, (i) it or any other trustee may also be the trustee under any other
indenture for debt securities and (ii) any trustee or its affiliates may lend
money to us, including under our principal credit facility, and may from time to
time have lender or other business arrangements with us. The indenture will
contain certain limitations on the rights of the trustee, should it or its
affiliates then be our creditors, to obtain payment of claims in certain cases
or to realize on certain property received in respect of any such claim as
security or otherwise. The trustee and its affiliates will be permitted to
engage in other transactions; however, if they acquire any conflicting interest,
the conflict must be eliminated or the trustee must resign.
GOVERNING LAW
Unless otherwise specified in the accompanying supplement, the indenture
and the debt securities will be governed by New York law.
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PLAN OF DISTRIBUTION
We may offer and sell the debt securities (i) through agents, (ii) through
underwriters, (iii) through dealers, (iv) directly to purchasers (through a
specific bidding or auction process or otherwise), or (v) through a combination
of any such methods of sale. The distribution of the debt securities may be
effected from time to time in one or more transactions at a fixed price or
prices, which may be changed, or at market prices prevailing at the time of
sale, at prices relating to such prevailing market prices or at negotiated
prices.
Offers to purchase the debt securities may be solicited by agents
designated by us from time to time. Any such agent involved in the offer or sale
of the debt securities will be named, and any commissions payable by us to such
agent will be set forth, in the supplement. Unless otherwise indicated in the
supplement, any such agent will be acting on a best efforts basis for the period
of its appointment. Any such agent may be deemed to be an underwriter, as that
term is defined in the Securities Act, of the debt securities so offered and
sold.
If an underwriter or underwriters are utilized in the sale of the debt
securities, we will execute an underwriting agreement with such underwriter or
underwriters at the time an agreement for such sale is reached. The names of the
specific managing underwriter or underwriters, as well as any other
underwriters, and the terms of the transactions, including compensation of the
underwriters and dealers, which may be in the form of discounts, concessions or
commissions, if any, will be set forth in the supplement, which will be used by
the underwriters to make resales of the debt securities.
If a dealer is utilized in the sale of the debt securities, we or an
underwriter will sell such debt securities to the dealer, as principal. The
dealer may then resell such debt securities to the public at varying prices to
be determined by such dealer at the time of resale. The name of the dealer and
the terms of the transactions will be set forth in the supplement relating
thereto.
Offers to purchase the debt securities may be solicited directly by us and
sales thereof may be made by us directly to institutional investors or others.
The terms of any such sales, including the terms of any bidding or auction
process, if utilized, will be described in the supplement relating thereto.
We may enter into agreements with agents, underwriters and dealers under
which we may agree to indemnify then against certain liabilities, including
liabilities under the Securities Act, or to contribution by us to payments they
may be required to make in respect thereof. The terms and conditions of such
indemnification or contribution will be described in the applicable supplement.
Certain of the agents, underwriters or dealers, or their affiliates may be
customers of, engage in transactions with or perform services for us in the
ordinary course of business.
LEGAL MATTERS
Gibson, Dunn & Crutcher LLP of Denver, Colorado will issue an opinion to us
relating to the legality of the debt securities. If legal matters in connection
with offerings made by this prospectus are passed on by counsel for the
underwriters of an offering of the debt securities, that counsel will be named
in the prospectus supplement relating to that offering.
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EXPERTS
The consolidated financial statements incorporated in this prospectus by
reference to the Annual Report on Form 10-K for the year ended December 31,
1998, have been so incorporated in reliance on the report of Pricewaterhouse
Coopers LLP, independent accountants, given on the authority of said firm as
experts in auditing and accounting.
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$240,000,000
NRG ENERGY, INC.
8% REMARKETABLE OR REDEEMABLE SECURITIES (ROARS(SM))
DUE 2013 (REMARKETING DATE NOVEMBER 1, 2003)
[NRG LOGO]
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PROSPECTUS SUPPLEMENT
NOVEMBER 2, 1999
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BANC OF AMERICA SECURITIES LLC
CIBC WORLD MARKETS
CREDIT SUISSE FIRST BOSTON
GOLDMAN, SACHS & CO.
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