<PAGE> 1
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED JANUARY 10, 2000)
$350,000,000
NRG ENERGY, INC.
[NRG LOGO] 8.25% SENIOR NOTES DUE 2010
------------------------
The notes will bear interest at the rate of 8.25% per year. Interest on the
notes is payable on September 15 and March 15 of each year, beginning on March
15, 2001. The notes will mature on September 15, 2010. We may redeem some or all
of the notes at any time. The redemption prices are discussed under the caption
"Description of Notes -- Optional Redemption."
The notes will be senior obligations of ours and will rank equally with all
of our existing and future unsecured senior indebtedness.
------------------------
INVESTING IN THE NOTES INVOLVES CERTAIN RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE S-7.
------------------------
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 SENIOR NOTE TOTAL
--------------- ------------
<S> <C> <C>
Public Offering Price(1) 99.703% $348,960,500
Underwriting Discount 0.650% $ 2,275,000
Proceeds to NRG Energy, Inc. (before expenses) 99.053% $346,685,500
</TABLE>
-------------------------
(1) Plus accrued interest from September 11, 2000, if settlement occurs after
that date.
------------------------
The underwriters are offering the notes subject to various conditions. The
underwriters expect to deliver the notes to purchasers, in book-entry form only
through The Depository Trust Company, on or about September 11, 2000.
------------------------
Joint Book-Running Managers
BANC OF AMERICA SECURITIES LLC SALOMON SMITH BARNEY
Co-Manager
MERRILL LYNCH & CO.
September 6, 2000
<PAGE> 2
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS 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 OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE OF THE DOCUMENT
CONTAINING THE INFORMATION.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
Prospectus Supplement Summary............................... S-1
Risk Factors................................................ S-7
Use of Proceeds............................................. S-17
Description of Notes........................................ S-18
Underwriting................................................ S-20
Legal Matters............................................... S-21
PROSPECTUS
Where You Can Find More Information......................... 1
Forward Looking Statements.................................. 2
The Company................................................. 4
Use of Proceeds............................................. 4
Earnings to Fixed Charges Ratio............................. 4
Description of Debt Securities.............................. 5
Plan of Distribution........................................ 13
Legal Matters............................................... 14
Experts..................................................... 14
</TABLE>
<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 prospectus supplement and the accompanying
prospectus.
NRG ENERGY, INC.
NRG Energy, Inc. is a leading global energy company primarily engaged in
the acquisition, development, ownership and operation of power generation
facilities and the sale of energy, capacity and related products. We believe we
are one of the three largest independent power generation companies in the
United States and the fifth largest independent power generation company in the
world, measured by our net ownership interest in power generation facilities. We
own all or a portion of 60 generation projects that have a total generating
capacity of 23,611 megawatts ("MW"); our net ownership interest in those
projects is 13,672 MW, of which 10,910 MW are located in the United States. Upon
the closing of our pending acquisition from Conectiv of interests in six power
generation facilities and the 100 year lease of the Flinders Power assets, both
of which we expect to occur later this year, we will have interests in projects
having a total generating capacity of 29,433 MW; our net ownership interest will
be 16,307 MW. In addition, we have an active acquisition and development program
through which we are pursuing additional generation projects.
As the following table illustrates, we have grown significantly during
recent years, primarily as a result of our success in acquiring domestic power
generation facilities:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS
------------------------------ ENDED JUNE 30,
1997 1998 1999 2000
------- ------- -------- --------------
<S> <C> <C> <C> <C>
Net Ownership Interest (in MW at end of
period).............................. 2,637 3,300 10,990 13,637
Operating Income (in thousands)........ $18,109 $57,012 $109,520 $217,065
</TABLE>
We intend to continue our growth through a combination of targeted
acquisitions in selected core markets, the expansion or repowering of existing
facilities and the development of new greenfield projects. To prepare for
expansion, repowering and greenfield opportunities, we have agreed to purchase
16 turbine generators from GE Power Systems and two turbine generators from
Siemens Westinghouse over a six year period commencing in 2001. These new
turbines, which we expect to install at domestic facilities, will have a
combined generating capacity of approximately 3,300 MW.
In addition to our power generation projects, we also have interests in
district heating and cooling systems and steam transmission operations. Our
thermal and chilled water businesses have a steam and chilled water capacity
equivalent to approximately 1,537 MW. We believe that through our subsidiary NEO
Corporation we are one of the largest landfill gas generation companies in the
United States, extracting methane from landfills to generate electricity. NEO
owns 31 landfill gas collection systems and has 57 MW of net ownership interests
in related electric generation facilities. NEO also has 35 MW of net ownership
interests in 18 small hydroelectric facilities.
We were established in 1989 and are a majority-owned subsidiary of Xcel
Energy, Inc. Our headquarters and principal executive offices are located at
1221 Nicollet Mall, Suite 700, Minneapolis, Minnesota 55403. Our telephone
number is (612) 373-5300. Effective September 15, 2000, our headquarters and
principal executive offices will be located at 901 Marquette Avenue, Suite 2300,
Minneapolis, Minnesota 55402-3265.
S-1
<PAGE> 4
STRATEGY
Our vision is to be a well-positioned, top three generator of power in
selected core markets. Central to this vision is the pursuit of a well-balanced
generation business diversified in terms of geographic location, fuel type and
dispatch level. Currently, 80% of our generation is located in the United States
in three core markets: our Northeast, South Central and West Coast regions. With
our diversified asset base, we seek to have generating capacity available to
back up any given facility during its outages, whether planned or unplanned,
while having ample resources to take advantage of peak power market price
opportunities and periods of constrained availability of generating capacity,
fuels and transmission.
Our strategy is to capitalize on our acquisition, development and operating
skills to build a balanced, global portfolio of power and thermal generation
assets. We intend to implement this strategy by continuing an aggressive but
thoughtful acquisition program and accelerating our development of existing site
expansion projects and greenfield projects. We believe that our operational
skills and experience give us a strong competitive position in the unregulated
generation marketplace.
We have organized our operations geographically such that inventories,
maintenance, backup power supply and other operational functions are pooled
within a region. This approach enables us to realize cost savings and enhances
our ability to meet our facility availability goals. Our availability goals are
not driven by traditional benchmarks, such as daily or annual availability, but
are focused on each facility's availability during periods when power prices are
significantly above the variable cost of producing power at that facility
-- what we call "in-market" availability.
By leveraging the talents of our regional management teams, focusing on our
regional market expertise and operating experience and utilizing our asset base
on a regional rather than a project basis, we believe we can best position
ourselves for long term profitability. Achieving "critical mass" in core markets
should allow us to capitalize on opportunities available in those markets.
We do not own nor do we have any present intention to own any interest in
nuclear generation facilities.
Domestic. We intend to focus our near-term domestic development and
acquisition plans on our existing three core markets, our Northeast, South
Central and West Coast regions, and to add the Mid-Atlantic region as our fourth
core market upon the closing of our planned acquisition from Conectiv. We will
consider domestic projects outside of these markets if we believe that an
opportunity exists to create a new core market or that the projected returns
from a particular project warrant an investment.
International. Based upon our assessment of market opportunities and our
portfolio risk management criteria, we intend to leverage our reputation,
experience and expertise in order to acquire foreign assets in selected
countries. We are presently focusing our international development and
acquisition activities in the United Kingdom, Central Europe, Turkey, Australia
and, to a lesser extent, Latin America. In the future, we will consider other
areas that are consistent with our strategy.
RECENT DEVELOPMENTS
INITIAL PUBLIC OFFERING
In June 2000, we successfully completed the initial public offering of
32,395,500 shares of our common stock. Our gross proceeds from the offering
before expenses, including exercise of the over-allotment option, were
approximately $456.8 million. The shares sold in the offering represent
approximately 18% of our common equity. As of the date of this prospectus
supplement, Xcel Energy owns 147,604,500 shares of our class A common stock,
which represents the remaining 82% of our common equity and 98% of the combined
voting power of our class A common stock and common stock.
S-2
<PAGE> 5
RECENT AND PENDING ACQUISITIONS AND EXPANSION PROJECTS
COMPLETED
CAJUN FACILITIES
In March 2000, we acquired 1,708 MW of coal and gas-fired generation assets
in Louisiana for approximately $1,026 million. These assets were formerly owned
by Cajun Electric Power Cooperative, Inc., and we refer to them as the "Cajun
facilities". We sell a significant amount of the energy and capacity of the
Cajun facilities to 11 of Cajun Electric's former power cooperative members.
Seven of these cooperatives have entered into 25-year power purchase agreements
with us, and four have entered into two to four year power purchase agreements.
In addition, we sell power under contract to two municipal power authorities and
one investor-owned utility that were former customers of Cajun Electric. We
estimate that payments under the contracts with the 11 cooperatives will account
for approximately 72% of the Cajun facilities' projected 2001 revenues, and that
payments under the contracts with the municipal power authorities and the
investor-owned utility will account for approximately an additional 7% of such
revenues.
We have completed the feasibility study for, and have commenced the
permitting process in respect of, an approximately 240 MW expansion project at
our existing Cajun facilities. The energy and capacity generated by the
expansion project may be used to help meet our obligations under the Cajun
facilities' power purchase agreements, with any excess power and capacity being
marketed by our subsidiary NRG Power Marketing. The expansion project is
targeted to begin commercial operation in June 2001.
KILLINGHOLME
In March 2000, we acquired the Killingholme A generation facility from
National Power plc for L390 million (approximately $615 million at the time of
acquisition), subject to post-closing adjustments. Killingholme is a combined
cycle gas-fired base-load facility located in North Lincolnshire, England. The
facility comprises three units with a total generating capacity of 680 MW. We
own and operate the facility, which sells its power into the wholesale
electricity market of England and Wales.
ROCKY ROAD
In July 2000, we and Dynegy Inc. completed a 100 MW expansion of the Rocky
Road Power Plant, a natural gas-fired simple cycle peaking facility in East
Dundee, Illinois. The installation of the additional 100 MW natural gas-fired
combustion turbine increases that facility's generating capacity to 350 MW. We
acquired a 50% interest in the Rocky Road Power Plant in December 1999 for
approximately $60 million.
HARRISBURG STEAM WORKS
In July 2000, we completed our $11.7 million purchase of Harrisburg Steam
Works and Statoil Energy Power/Paxton L.P. located in Harrisburg, Pennsylvania
from Statoil Energy Inc. Harrisburg Steam Works provides steam to more than 300
residential, commercial and industrial customers, including the City of
Harrisburg, Pennsylvania and the Commonwealth of Pennsylvania. Statoil Energy
Power/Paxton L.P. owns a cogeneration facility capable of producing 12 MW of
electrical power while supplying nearly 30% of the steam requirements for
Harrisburg Steam Works. Also included in the purchase was a nationwide diesel
engine service business and a chiller plant that serves the Harrisburg Hospital.
DOVER, DELAWARE
In August 2000, we completed our acquisition from Statoil Energy, Inc. of a
190,000 pounds of steam per hour, 18 MW coal fired cogeneration facility that
provides steam and electricity to a major manufacturing facility located in
Dover, Delaware. We paid approximately $35 million for this facility. Excess
electrical energy is sold through the Dover municipal electric utility. In a
separate purchase agreement, we agreed to purchase for approximately $2.5
million Statoil's Distributed Generation and
S-3
<PAGE> 6
Engineering Services Group, which consists of three generation projects totaling
6.2 MW as well as a diesel-services group. We expect to complete the acquisition
of these groups in the third quarter of 2000.
PENDING
CONECTIV FACILITIES
In January 2000, we executed purchase agreements with subsidiaries of
Conectiv to acquire 1,875 MW of coal, gas and oil-fired electric generating
capacity and other assets. We will pay approximately $800 million for the
assets, a portion of which will be financed by project-level debt. The assets
include the BL England and Deepwater facilities in New Jersey, the Indian River
facility in Delaware and the Vienna facility in Maryland, and interests in the
Conemaugh (7.6%) and Keystone (6.2%) facilities in Pennsylvania. The purchase
also includes excess emission allowances. Subject to receipt of required
regulatory approvals, we expect the acquisition to close in the fourth quarter
of 2000. Subject to final documentation, we will sell 500 MW of capacity and
associated energy to a subsidiary of Conectiv under a five-year power purchase
agreement commencing upon the closing of the acquisition.
FLINDERS POWER
In August 2000, we were named the successful bidder in the South Australia
government's electricity privatization auction for Flinders Power, South
Australia's final generation company to be privatized. We agreed to pay AUS $313
million (US$180 million as of August 2000) for a 100 year lease of certain
Flinders Power assets, including two power stations totaling 760 MW. In
addition, we are receiving a 20 year lease, renewable for additional 10 year
terms, of the Leigh Creek coal mine and a dedicated rail line. The 100 year
lease also includes managing the long-term fuel supply and power purchase
agreement of the 180 MW Osborne Cogeneration Station. We expect to close this
transaction in the third quarter of 2000.
NARVA POWER
In June 2000, the Estonian cabinet approved the terms under which we may
proceed to purchase a 49% interest in Narva Power, which owns approximately
2,700 MW of oil shale-fired generation plants and a 51% interest in state-owned
oil shale mines. A government-owned entity, Eesti Energia, will retain 51%
ownership of Narva Power. The terms of our purchase include a commitment by
Narva Power to invest approximately $361 million for reconstructing and
refurbishing the generation plants and making environmental improvements. The
purchase price of our interest will be between $65 and $70 million. Narva
Power's two stations, Balti and Eesti, currently supply more than 90% of
Estonia's electricity. Narva Power will enter into a 15-year power purchase
agreement with Eesti Energia.
MERGER OF NORTHERN STATES POWER COMPANY AND NEW CENTURY ENERGIES, INC.
In August 2000, our former parent company, Northern States Power Company,
and New Century Energies, Inc. completed their merger. The surviving company
operates under the new name Xcel Energy, Inc. As a result of the merger, the
shares of our class A common stock previously owned by Northern States Power are
now owned by Xcel Energy.
S-4
<PAGE> 7
THE OFFERING
Securities Offered............ $350,000,000 principal amount of 8.25% Senior
Notes due 2010.
Maturity Date................. September 15, 2010.
Interest Payment Dates........ September 15 and March 15, commencing March 15,
2001.
Ranking....................... The notes will be senior unsecured obligations
and will rank equally with all of our existing
and future senior unsecured indebtedness. All
existing and future liabilities of our
subsidiaries and project affiliates will be
effectively senior to the notes.
Ratings....................... The notes have been assigned ratings of "BBB-"
by Standard & Poor's Ratings Group and "Baa3"
by Moody's Investors Service, Inc.
Optional Redemption........... We may redeem the notes at any time at the
redemption price described in "Description of
Notes - Optional Redemption".
Sinking Fund.................. None.
Change of Control............. Upon a "Change of Control" (as defined in
"Description of Debt Securities - Change of
Control" in the accompanying prospectus), a
holder of notes may require us to repurchase
that holder's notes, in whole or in part, at
101% of the principal amount of the notes, plus
accrued interest. A Change of Control will not
be deemed to have occurred if, after giving
effect thereto, the notes are rated BBB- or
better by Standard & Poor's Ratings Group and
Baa3 or better by Moody's Investors Service,
Inc.
Use of Proceeds............... The net proceeds from the sale of the notes are
estimated to be approximately $346.6 million.
The net proceeds of this offering will be used
for repayment of short-term indebtedness
incurred to fund acquisitions, and for
investments and general corporate purposes.
S-5
<PAGE> 8
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
The summary historical financial data set forth below as of December 31,
1997, 1998 and 1999, and for the years then ended have been derived from our
audited consolidated financial statements. The financial data set forth below as
of June 30, 1999 and 2000, and for the six-month periods then ended, and for the
twelve months ended June 30, 2000, have been derived from our unaudited
financial statements, which were prepared on a basis consistent with our audited
consolidated financial statements. All dollar amounts are set forth in
thousands.
CONSOLIDATED STATEMENTS OF INCOME DATA:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------- TWELVE MONTHS ENDED ---------------------
1997 1998 1999 JUNE 30, 2000 1999 2000
--------- --------- --------- ------------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues from wholly-owned operations.... $ 92,052 $ 100,424 $ 432,518 $1,141,144 $ 97,881 $ 806,507
Equity in earnings of unconsolidated
affiliates............................. 26,200 81,706 67,500 90,737 15,292 38,529
--------- --------- --------- ---------- --------- ---------
Total operating revenues................. 118,252 182,130 500,018 1,231,881 113,173 845,036
Operating costs and expenses............. (100,143) (125,118) (390,498) (906,107) (112,362) (627,971)
--------- --------- --------- ---------- --------- ---------
Operating income......................... 18,109 57,012 109,520 325,774 811 217,065
Other income (expense)(1)................ 11,371 9,379 14,970 10,301 2,153 (2,516)
Interest expense......................... (30,989) (50,313) (93,376) (200,704) (26,847) (134,175)
Income tax benefit (expense)(2).......... 23,491 25,654 26,081 (27,250) 25,284 (28,047)
--------- --------- --------- ---------- --------- ---------
Net income............................... $ 21,982 $ 41,732 $ 57,195 $ 108,121 $ 1,401 $ 52,327
========= ========= ========= ========== ========= =========
</TABLE>
CONSOLIDATED BALANCE SHEET DATA:
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF JUNE 30,
------------------------------------ -----------------------
1997 1998 1999 1999 2000
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net property, plant and equipment.......................... $ 185,891 $ 204,729 $1,975,403 $1,127,203 $3,690,857
Net equity investments in projects......................... 694,655 800,924 932,591 811,491 949,129
Total assets............................................... 1,168,102 1,293,426 3,431,684 2,401,762 5,489,956
Long-term recourse debt, including current maturities...... 499,982 505,550 915,000 675,000 1,157,768
Long-term non-recourse debt, including current
maturities............................................... 120,873 120,926 1,056,860 134,661 2,301,936
Stockholders' equity....................................... 450,698 579,332 893,654 698,526 1,360,914
</TABLE>
OTHER DATA:
<TABLE>
<CAPTION>
AS OF AND FOR THE
AS OF AND FOR THE SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, AS OF AND FOR THE JUNE 30,
---------------------------- TWELVE MONTHS ENDED ------------------
1997 1998 1999 JUNE 30, 2000 1999 2000
------- ------- -------- ------------------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Consolidated EBITDA(3)........................... $39,790 $82,711 $161,516 $412,928 $13,989 $265,401
Total debt to total capitalization ratio......... 57.9% 52.0% 72.4% 72.7% 69.2% 72.7%
Ratio of recourse debt to recourse debt and
equity......................................... 52.6% 46.6% 58.4% 49.3% 56.2% 49.3%
Consolidated interest expense coverage
ratio(4)....................................... 1.28x 1.64x 1.72x 2.06x 0.52x 1.98x
Ratio of earnings to fixed charges(5)............ 1.16x (6) 1.04x 1.27x 1.08x 1.40x
Power generation capacity (MW), net.............. 2,637 3,300 10,990 13,637 6,946 13,637
Thermal energy generation capacity:
mmBtus per hour, net........................... 2,693 2,905 3,400 3,400 3,315 3,400
MW equivalent, net(7).......................... 950 1,012 1,204 1,204 1,151 1,204
</TABLE>
---------------
(1) Includes pretax charges of $9.0 million, $26.7 million and $0 in the years
1997, 1998 and 1999, respectively, $0 for the six months ended June 30, 1999
and $2.0 million for the six and twelve months ended June 30, 2000 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, $30.0 million in 1998, $15.5 million in 1999 and $0 for the six months
ended June 30, 1999 and the six and twelve months ended June 30, 2000.
(2) We are included in the consolidated federal income tax and state franchise
tax returns of Xcel Energy. We calculate our tax position on a separate
company basis under a tax sharing agreement with Xcel Energy and receive
payment from Xcel Energy for tax benefits and pay Xcel Energy for tax
liabilities.
(3) EBITDA is the sum of income (loss) before income taxes, interest expense
(net of capitalized interest) and depreciation and amortization expense.
EBITDA is a measure of financial performance not defined under generally
accepted accounting principles, which you should not consider in isolation
or as a substitute for net income, cash flows from operations or other
income or cash flow data prepared in accordance with generally accepted
accounting principles or as a measure of a company's profitability or
liquidity. In addition, EBITDA may not be comparable to similarly titled
measures presented by other companies and could be misleading because all
companies and analysts do not calculate it in the same fashion.
(4) This coverage ratio equals EBITDA divided by interest expense.
(5) 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.
(6) Due primarily to undistributed equity from unconsolidated affiliates,
earnings did not cover fixed charges by $7.3 million.
(7) Includes chilled water capacity. Our conversion of thermal generation
capacity to MW from British thermal units per hour is based upon the thermal
constant of 3,412.14 British thermal units per hour per kilowatt hour. Our
conversion of chilled water capacity to MW is based upon 12,000 British
thermal units per hour per ton of chilled water capacity, as well as the
thermal constant of 3,412.14 British thermal units per hour per kilowatt
hour.
S-6
<PAGE> 9
RISK FACTORS
Before purchasing the notes you should carefully consider the following
risk factors as well as the other information contained in this prospectus
supplement, the accompanying prospectus and the information incorporated by
reference in order to evaluate an investment in the notes.
RISKS RELATING TO THE WHOLESALE POWER MARKETS
OUR REVENUES ARE NOT PREDICTABLE BECAUSE MANY OF OUR POWER GENERATION
FACILITIES OPERATE, WHOLLY OR PARTIALLY, WITHOUT LONG-TERM POWER PURCHASE
AGREEMENTS.
Historically, substantially all revenues from independent power generation
facilities were derived under power purchase agreements having terms in excess
of 15 years, pursuant to which all energy and capacity was generally sold to a
single party at fixed prices. Because of changes in the industry, the percentage
of facilities, including ours, with these types of long-term power purchase
agreements has decreased, and it is likely that over time, most of our
facilities will operate without these agreements. Without the benefit of these
types of power purchase agreements, we cannot assure you that we will be able to
sell the power generated by our facilities or that our facilities will be able
to operate profitably.
BECAUSE WHOLESALE POWER PRICES ARE SUBJECT TO EXTREME VOLATILITY, THE
REVENUES THAT WE GENERATE ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS.
We must sell all or a portion of the energy, capacity and other products
from many of our facilities into wholesale power markets. The prices of energy
products in those markets are influenced by many factors outside of our control,
including fuel prices, transmission constraints, supply and demand, weather,
economic conditions, and the rules, regulations and actions of the system
operators in those markets. In addition, unlike most other commodities, energy
products cannot be stored and therefore must be produced concurrently with their
use. As a result, the wholesale power markets are subject to significant price
fluctuations over relatively short periods of time and can be unpredictable.
WE HAVE A LIMITED HISTORY OF SELLING AND MARKETING PRODUCTS IN THE
WHOLESALE POWER MARKETS AND MAY NOT BE ABLE TO SUCCESSFULLY MANAGE THE
RISKS ASSOCIATED WITH THIS ASPECT OF OUR BUSINESS.
We are exposed to market risks through our power marketing business, which
involves the establishment of trading positions in the energy, fuel and emission
allowance markets on a short-term basis. We sell forward contracts and options
and establish positions in, and sell on the spot market, our energy, capacity
and other energy products that are not otherwise committed under long-term
contracts. In addition, we use these trading activities to procure fuel and
emission allowances for our facilities on the spot market. We have been managing
risks associated with price volatility in this manner for only a limited amount
of time. We may not be able to effectively manage this price volatility, and may
not be able to successfully manage the other risks associated with trading in
energy markets, including the risk that counterparties may not perform.
RISKS RELATING TO OUR OPERATIONS
WE HAVE MADE SUBSTANTIAL INVESTMENTS IN OUR RECENT ACQUISITIONS AND OUR
SUCCESS DEPENDS ON THE APPROPRIATENESS OF THE PRICES WE PAID FOR THESE
ACQUISITIONS AS WELL AS ON OUR ABILITY TO SUCCESSFULLY INTEGRATE, OPERATE
AND MANAGE THE ACQUIRED ASSETS.
During the period from December 31, 1998 through June 30, 2000, we have
more than quadrupled our net ownership interests in power generation facilities,
expanding from 3,300 MW of net ownership interests in power generation
facilities to approximately 13,637 MW of net ownership interests. During the
rest of this year, if we complete the pending Conectiv and Flinders
acquisitions, we will increase our net ownership interests in power generation
facilities by an additional 2,635 MW of generating capacity. The prices we paid
in these acquisitions were based on our assumptions as to the economics of
operating the acquired facilities and the prices at which we would be able to
sell energy, capacity and other products
S-7
<PAGE> 10
from them. If any of the assumptions as to a given facility prove to be
materially inaccurate, it could have a significant impact on the financial
performance of that facility and possibly on our entire company. In connection
with these acquisitions, we have hired and will hire a substantial number of new
employees. We may not be able to successfully integrate all of the newly hired
employees, or profitably integrate, operate, maintain and manage our newly
acquired power generation facilities in a competitive environment. In addition,
operational issues may arise as a result of a lack of integration or our lack of
familiarity with issues specific to a particular facility.
OUR PROJECT DEVELOPMENT AND ACQUISITION ACTIVITIES MAY NOT BE SUCCESSFUL
WHICH WOULD IMPAIR OUR ABILITY TO EXECUTE OUR GROWTH STRATEGY.
We may not be able to identify attractive acquisition or development
opportunities or to complete acquisitions or development projects that we
undertake. If we are not able to identify and complete additional acquisitions
and development projects, we will not be able to successfully execute our growth
strategy. Factors that could cause our acquisition and development activities to
be unsuccessful include the following:
- competition,
- inability to obtain additional capital on acceptable terms,
- inability to obtain required governmental permits and approvals,
- cost-overruns or delays in development that make continuation of a
project impracticable,
- inability to negotiate acceptable acquisition, construction, fuel supply
or other material agreements, and
- inability to hire and retain qualified personnel.
WE INCUR SIGNIFICANT EXPENSES IN EVALUATING POTENTIAL PROJECTS, MOST OF
WHICH ARE NOT ULTIMATELY ACQUIRED OR COMPLETED.
In order to implement our growth strategy, we must continue to actively
pursue acquisition and development opportunities. Substantial expenses are
incurred in investigating and evaluating any potential opportunity before we can
determine whether the opportunity is feasible or economically attractive. In
addition, we expect to participate in many competitive bidding processes for
power generation facilities that require us to incur substantial expenses
without any assurance that our bids will be accepted. As a result, we expect
that our development expenses will increase in the future with no assurance that
we will be successful in acquiring or completing additional new projects.
CONSTRUCTION, EXPANSION, REFURBISHMENT AND OPERATION OF POWER GENERATION
FACILITIES INVOLVE SIGNIFICANT RISKS THAT CANNOT ALWAYS BE COVERED BY
INSURANCE OR CONTRACTUAL PROTECTIONS.
The construction, expansion and refurbishment of power generation, thermal
energy production and transmission and resource recovery facilities involve many
risks, including:
- supply interruptions,
- work stoppages,
- labor disputes,
- social unrest,
- weather interferences,
- unforeseen engineering, environmental and geological problems, and
- unanticipated cost overruns.
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The ongoing operation of these facilities involves all of the risks
described above, in addition to risks relating to the breakdown or failure of
equipment or processes and 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 we maintain insurance, obtain warranties from vendors and
obligate contractors 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. Any of these
risks could cause us to operate below expected capacity levels, which in turn
could result in lost revenues, increased expenses, higher maintenance costs and
penalties. As a result, a project may operate at a loss or be unable to fund
principal and interest payments under its project financing agreements, which
may result in a default under that project's indebtedness.
WE ARE EXPOSED TO THE RISK OF FUEL COST INCREASES AND INTERRUPTION IN FUEL
SUPPLY BECAUSE OUR FACILITIES GENERALLY DO NOT HAVE LONG-TERM FUEL SUPPLY
AGREEMENTS.
Most of our domestic power generation facilities that sell energy into the
wholesale power markets purchase fuel under short-term contracts or on the spot
market. Even though we attempt to hedge some portion of our known fuel
requirements, we still may face the risk of supply interruptions and fuel price
volatility. The price we can obtain for the sale of energy may not rise at the
same rate, or may not rise at all, to match a rise in fuel costs. This may have
a material adverse effect on our financial performance.
WE OFTEN RELY ON SINGLE SUPPLIERS AND AT TIMES WE RELY ON SINGLE CUSTOMERS
AT OUR FACILITIES, EXPOSING US TO SIGNIFICANT FINANCIAL RISKS IF EITHER
SHOULD FAIL TO PERFORM THEIR OBLIGATIONS.
We often rely on a single supplier for the provision of fuel, water and
other services required for operation of a facility, and at times, we rely on a
single customer or a few customers to purchase all or a significant portion of a
facility's output, in some cases under long-term agreements that provide the
support for any project debt used to finance the facility. 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.
Consequently, the financial performance of any such facility is dependent on the
continued performance by customers and suppliers of their obligations under
these long-term agreements and, in particular, on the credit quality of the
project's customers and suppliers.
OUR SIGNIFICANT BUSINESS OPERATIONS OUTSIDE THE UNITED STATES EXPOSE US TO
LEGAL, TAX, CURRENCY, INFLATION, CONVERTIBILITY AND REPATRIATION RISKS, AS
WELL AS POTENTIAL CONSTRAINTS ON THE DEVELOPMENT AND OPERATION OF OUR
POTENTIAL BUSINESS, ANY OF WHICH CAN LIMIT THE BENEFITS TO US OF EVEN A
SUCCESSFUL FOREIGN PROJECT.
A key component of our business strategy is the development and acquisition
of projects outside the United States in areas such as the United Kingdom,
Australia, Central Europe and Latin America. The economic and political
conditions in many of the countries where we have assets or in which we are or
may be exploring development or acquisition opportunities present many risks.
These risks, such as 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 are generally greater than risks 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 these projects.
Operations in foreign countries also can present currency exchange,
inflation, convertibility and repatriation risks. In 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 acceptable currencies or to move funds offshore from such
countries. Furthermore, the central bank of any foreign country may have the
authority in certain circumstances to suspend, restrict or otherwise impose
conditions on foreign exchange transactions or to approve distributions to
foreign
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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 can offer no assurance 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 acceptable currency to pay their obligations to us.
As part of privatizations or other international 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 invest with partners having the necessary expertise. However, we
can offer no assurance 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.
THE LOY YANG FACILITY IN WHICH WE HAVE INVESTED IS EXPERIENCING FINANCIAL
DIFFICULTIES BECAUSE OF LOWER THAN EXPECTED WHOLESALE POWER PRICES, WHICH
COULD RESULT IN AN EVENT OF DEFAULT UNDER ITS LOAN AGREEMENTS.
Energy prices in the Victoria region of the National Electricity Market of
Australia into which our Loy Yang facility sells its power have been
significantly lower than we had expected when we acquired our interest in that
facility. As a result, the Loy Yang project company is currently prohibited by
its loan agreements from making equity distributions to the project owners.
Based on our forecasted power prices, we expect that the Loy Yang project
company will fail to meet required coverage ratios under its loan agreements
beginning in the third quarter of 2001, which constitutes an event of default.
Moreover, if market prices in Victoria continue at current levels, which are
below our forecasted power prices, we expect that the Loy Yang project company
will be unable to service its long-term senior debt obligations beginning in the
first quarter of 2002. In either case, absent a restructuring of the project
company's debt, the project company's lenders would be allowed to accelerate the
project company's indebtedness. We could be required to write off all or a
significant portion of our current US$250 million investment in this project as
a result of such acceleration, or as a result of a determination by the project
company that a write-down of its assets is required or our determination that we
would not be able to recover our investment in the project.
RISKS RELATING TO OUR CORPORATE AND FINANCIAL STRUCTURE
BECAUSE WE OWN LESS THAN 100% OF SOME OF OUR PROJECT INVESTMENTS, WE CANNOT
EXERCISE COMPLETE CONTROL OVER THEIR OPERATIONS.
We have limited control over the development, construction, acquisition or
operation of some project investments and joint ventures because our investments
are in projects where we beneficially own less than 50% of the ownership
interests. A substantial portion of our future investments in international
projects may also take the form of minority interests. We seek to exert a degree
of influence with respect to the management and operation of projects in which
we own less than 50% of the ownership interests by negotiating to obtain
positions on management committees or to receive certain limited governance
rights such as rights to veto significant actions. However, we may not always
succeed in such negotiations. We may be dependent on our co-venturers to
construct and operate such projects. Our co-venturers may not have the level of
experience, technical expertise, human resources management and other attributes
necessary to construct and operate these projects. The approval of co-venturers
also may be required for us to receive distributions of funds from projects or
to transfer our interest in projects.
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WE REQUIRE SIGNIFICANT AMOUNTS OF CAPITAL TO GROW OUR BUSINESS AND OUR
FUTURE ACCESS TO SUCH FUNDS IS UNCERTAIN.
We will require continued access to substantial debt and equity capital
from outside sources on acceptable terms in order to assure the success of
future projects and acquisitions, including the planned Conectiv acquisition.
Our ability to arrange debt financing, either at the corporate level or on a
non-recourse project-level 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 the regional wholesale power
markets,
- maintenance of acceptable credit ratings,
- the success of current projects,
- the perceived quality of new projects, and
- provisions of tax and securities laws that may impact 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. We also may not be successful
in structuring future financing for our projects on a substantially non-recourse
basis.
The equity capital for our projects has been provided by
internally-generated cash flow from our projects and other borrowings and, prior
to completion of the merger of Northern States Power and New Century Energies,
Inc., equity contributions from Northern States Power. We cannot assure you that
Xcel Energy will continue to provide additional equity capital to us or permit
us to raise additional equity capital from others. Any inability to raise
additional equity capital will restrict our ability to execute our growth
strategy.
WE HAVE SUBSTANTIAL INDEBTEDNESS, WHICH COULD ADVERSELY AFFECT OUR ABILITY
TO MAKE PAYMENTS DUE ON THE NOTES.
As of June 30, 2000, we had total recourse debt of $1,324 million, with an
additional $2,302 million of non-recourse debt appearing on our balance sheet.
The percentage of our total recourse debt to recourse debt and equity was 49.3%
as of June 30, 2000. The indenture for the notes does not limit our ability to
incur additional indebtedness. The substantial amount of debt that we have 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 notes, and that our leveraged capital structure could limit our
ability to finance the acquisition and development of additional projects, to
compete effectively, to operate successfully under adverse economic conditions
and to fully implement our strategy.
In addition, our lenders may accelerate our credit facilities and public
debt instruments upon the occurrence of events of default or if we undergo a
change of control. Because Xcel Energy controls approximately 98% of the total
voting power of our common stock and our class A common stock, we have no
ability to prevent a change of control. If our indebtedness is accelerated, we
may not have sufficient capital to fully pay holders of notes the amounts due
under the notes or to redeem any notes tendered pursuant to the Change of
Control Offer described under "Description of Debt Securities -- Change of
Control" in the accompanying prospectus.
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WE HAVE GUARANTEED OBLIGATIONS AND LIABILITIES OF OUR PROJECT SUBSIDIARIES
AND AFFILIATES WHICH WOULD BE DIFFICULT FOR US TO SATISFY IF THEY ALL CAME
DUE SIMULTANEOUSLY.
In many of our projects, we have executed guarantees of the project
affiliate's indebtedness, equity or operating obligations. In addition, in
connection with the purchase and sale of fuel, emission allowances and power
generation products to and from third parties with respect to the operation of
some of our generation facilities, we are required to guarantee a portion of the
obligations of certain of our subsidiaries. These guarantees totaled
approximately $379.5 million as of June 30, 2000. We may not be able to satisfy
all of these guarantees and other obligations if they were to come due at the
same time, which would have a material adverse effect on us.
OUR HOLDING COMPANY STRUCTURE LIMITS OUR ACCESS TO THE FUNDS OF PROJECT
SUBSIDIARIES AND PROJECT AFFILIATES THAT WE WILL NEED IN ORDER TO SERVICE
OUR CORPORATE-LEVEL INDEBTEDNESS.
The notes will be exclusively our obligations and not those of any of our
subsidiaries or project affiliates. As a result, all existing and future
liabilities of our direct and indirect subsidiaries and project affiliates will
be effectively senior to the notes. Substantially all of our operations are
conducted by our project subsidiaries and project affiliates. Our cash flow and
our ability to service our corporate-level indebtedness when due is dependent
upon our receipt of cash dividends and distributions or other transfers from our
projects 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. In addition, a substantial
amount of the assets of our project subsidiaries and project affiliates has been
pledged as collateral under their debt agreements.
Our project subsidiaries and project affiliates are separate and distinct
legal entities that have no obligation, contingent or otherwise, to pay any
amounts due under our indebtedness or to make any funds available to us, whether
by dividends, loans or other payments, and they do not guarantee the payment of
our corporate-level indebtedness. We own less than 50% of the ownership
interests in many of our foreign projects, and therefore we are unable to
unilaterally cause dividends or distributions to be made 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 notes 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 notes 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.
There can be no assurance that cash available from our domestic operations
and the repayment to us of loans made by us to our foreign affiliates will be
sufficient to make corporate-level debt payments, including payments due on the
notes, as and when due. If we elect to repatriate cash from foreign subsidiaries
or affiliates 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 cash.
POTENTIAL CONFLICTS OF INTEREST WITH OUR CONTROLLING STOCKHOLDER MAY BE
RESOLVED IN A MANNER THAT IS ADVERSE TO US.
Xcel Energy, our controlling stockholder, and directors and officers of
Xcel Energy and its subsidiaries who may be our directors, are in positions
involving the possibility of conflicts of interest with respect to transactions
in which both we and Xcel Energy have an interest. In addition, Xcel Energy,
subject to its fiduciary duties owed to our minority stockholders, may compete
with us for business opportunities that may be attractive to both us and to Xcel
Energy. We can offer no assurance that any such conflict will be resolved in our
favor.
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THE MERGER OF NORTHERN STATES POWER AND NEW CENTURY ENERGIES WILL CONSTRAIN
THE CONDUCT OF OUR BUSINESS.
The merger of Northern States Power and New Century Energies was accounted
for as a "pooling of interest." In accordance with the "pooling of interest"
rules, neither company can alter their equity interests or dispose of a material
portion of their assets through the date of the merger and for a period of time
thereafter. These constraints may limit our flexibility to conduct our business
as we otherwise would absent such constraints.
The shares of our class A common stock that were owned by Northern States
Power prior to the completion of the merger are now owned by a wholly-owned
subsidiary of the surviving corporation in the merger, Xcel Energy. Xcel Energy
is subject to the provisions of various energy-related laws and regulations,
including the Public Utility Holding Company Act of 1935 ("PUHCA"), and, in
turn, we are subject to certain constraints imposed by PUHCA.
IF XCEL ENERGY COULD NOT CONSOLIDATE US ON ITS UNITED STATES FEDERAL INCOME
TAX RETURNS, WE COULD LOSE THE REIMBURSEMENT WE RECEIVE FOR TAX BENEFITS.
We are a member of Xcel Energy's consolidated tax group for purposes of
United States federal income taxes. We have generated significant tax assets in
the past from which Northern States Power has been able to benefit. We received,
subject to possible adjustment, $13.4 million for the year ended December 31,
1999 for the use of such benefits. If Xcel Energy owns common stock or class A
common stock representing less than 80% of our voting power, or equity
securities representing less than 80% of our value, or cannot generate
substantial taxable income to utilize such tax benefits, we will no longer
receive a cash reimbursement for these benefits on a dollar-for-dollar basis and
we may not be able to use all of the benefits immediately.
MANY OF OUR INCOME TAX REPORTING POSITIONS HAVE NOT BEEN AUDITED AND COULD
BE DISALLOWED.
In connection with the preparation of Northern States Power's consolidated
income tax returns, we have taken tax positions on many issues, including issues
relating to Section 29 tax credits and international tax structures. Although we
believe that our reporting positions are correct, many of these returns have not
been audited and we cannot assure you that our reporting positions will not be
disallowed.
RISKS RELATING TO OUR INDUSTRY
OUR BUSINESS IS SUBJECT TO SUBSTANTIAL GOVERNMENTAL REGULATION AND
PERMITTING REQUIREMENTS AND MAY BE ADVERSELY AFFECTED BY ANY FUTURE
INABILITY TO COMPLY WITH EXISTING OR FUTURE REGULATIONS OR REQUIREMENTS.
In General. Our business is subject to extensive energy, environmental and
other laws and regulations of federal, state and local authorities. We generally
are required to obtain and comply with a wide variety of licenses, permits and
other approvals in order to operate our facilities. We may incur significant
additional costs because of our compliance with these requirements. If we fail
to comply with these requirements, we could be subject to civil or criminal
liability and the imposition of liens or fines. In addition, existing
regulations may be revised or reinterpreted, new laws and regulations may be
adopted or become applicable to us or our facilities, and future changes in laws
and regulation may have a detrimental effect on our business. Furthermore, with
the continuing trend toward stricter standards, greater regulation, more
extensive permitting requirements and an increase in the assets we operate, we
expect our environmental expenditures to be substantial in the future.
Energy Regulation. PUHCA and the Federal Power Act ("FPA") regulate public
utility holding companies and their subsidiaries and place certain constraints
on the conduct of their business. The Public Utility Regulatory Policies Act of
1978 ("PURPA") provides to qualifying facilities ("QFs") exemptions from federal
and state laws and regulations, including PUHCA and most provisions of the FPA.
The Energy Policy Act of 1992 also provides relief from regulation under PUHCA
to exempt wholesale
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generators ("EWGs") and foreign utility companies ("FUCOs"). Maintaining the
status of our facilities as QFs, EWGs or FUCOs is conditioned on their
continuing to meet statutory criteria, and could be jeopardized, for example, by
the making of retail sales by an EWG in violation of the requirements of the
Energy Policy Act. Prior to the completion of the merger between Northern States
Power and New Century Energies, we were not subject to regulation as a
registered holding company under PUHCA. Now that the merger is completed, we are
subject to regulation as a subsidiary of a registered holding company under
PUHCA. These regulations include restrictions imposed upon aggregate investment
by registered holding companies in EWGs and FUCOs that are financed by
contributions or guarantees by the parent holding company. These investment
restrictions, issued pursuant to SEC regulations, limit registered holding
company investment in EWGs and FUCOs without prior SEC approval to 50% of the
registered holding company's consolidated retained earnings. The existence of
such investment cap and the potential need to request SEC waivers of or
increases in the cap could delay or prevent any infusions of capital from Xcel
Energy that it may otherwise desire to make.
We are continually in the process of obtaining or renewing federal, state
and local approvals required to operate our facilities. Additional regulatory
approvals may be required in the future due to a change in laws and regulations,
a change in our customers or other reasons. We may not always be able to obtain
all required regulatory approvals, and we may not be able to obtain any
necessary modifications to existing regulatory approvals or maintain all
required regulatory approvals. If there is a delay in obtaining any required
regulatory approvals or if we fail to obtain and comply with any required
regulatory approvals, the operation of our facilities or the sale of electricity
to third parties could be prevented or subject to additional costs.
Environmental Regulation. In acquiring many of our facilities, we assumed
on-site liabilities associated with the environmental condition of those
facilities, regardless of when such liabilities arose and whether known or
unknown, and in some cases agreed to indemnify the former owners of those
facilities for on-site environmental liabilities. We may not at all times be in
compliance with all applicable environmental laws and regulations. Steps to
bring our facilities into compliance could be prohibitively expensive, and may
cause us to be unable to pay our debts when due. Moreover, environmental laws
and regulations can change.
For example, on October 14, 1999, Governor Pataki of New York announced
that he was ordering the New York Department of Environmental Conservation to
require further reductions of sulphur dioxide and nitrogen oxides emissions from
New York power plants, beyond that which is required under current federal and
state law. These reductions would be phased in between January 1, 2003 and
January 1, 2007. Compliance with these emission reductions requirements, if they
become effective, could have a material adverse impact on the operation of some
of our facilities located in the State of New York.
On May 17, 2000, Governor Rowland of Connecticut issued an Executive Order
to the Connecticut Department of Environmental Protection ("CDEP") that requires
the CDEP to develop regulations, applicable to power plants and other major
sources of air pollution, to further reduce emissions of nitrogen oxides and
sulphur dioxides by May 2003. The Executive Order requires reductions of sulphur
dioxides by an amount that is 30 to 50% greater than current commitments and
reductions of nitrogen oxides that are 20 to 30% greater than current
commitments. The Executive Order provides that the CDEP should use market based
incentives and a system of creditable emissions allowances or credits to foster
cost effective reductions. In addition, the Connecticut legislature has in the
past considered, but rejected, legislation that would require older electrical
generation stations to comply with more stringent pollution standards than are
currently in effect in Connecticut for nitrogen oxides and sulphur dioxide
emissions. In 1999 and 2000, legislation was proposed in the Connecticut
legislature that could require our Connecticut facilities to rely on more
expensive fuels or install additional air pollution control equipment. If such
legislation were to become law without reflecting the benefit of critical
elements of current federal emission reduction initiatives, such as market based
emission trading between sources located across broad geographic regions, our
Connecticut facilities may be placed at a significant competitive disadvantage.
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We are subject to environmental investigations and lawsuits both on the
state and federal level. For instance, in May 2000, the New York Department of
Environmental Conservation issued a Notice of Violation to us and the prior
owner of our Huntley and Dunkirk facilities relating to physical changes made at
those facilities prior to our assumption of ownership. The Notice of Violation
alleges that these changes represent major modifications undertaken without
obtaining the required permits. Although we have a right to indemnification by
the previous owner for fines, penalties, assessments and related losses
resulting from the previous owner's failure to comply with environmental laws
and regulations, if these facilities did not comply with the applicable permit
requirements, we could be required, among other things, to install specified
pollution control technology to further reduce pollutant emissions from the
Dunkirk and Huntley facilities, and we could become subject to fines and
penalties associated with the current and prior operation of the facilities.
In addition, on November 3, 1999, the United States Department of Justice
filed suit against seven electric utilities for alleged violations of Clean Air
Act requirements related to modifications of existing sources at seventeen
utility generation stations located in the southern and midwestern regions of
the United States. The EPA also issued administrative notices of violation
alleging similar violations at eight other power plants owned by some of the
electric utilities named as defendants in the lawsuit, and also issued an
administrative order to the Tennessee Valley Authority for similar violations at
seven of its power plants. To date, no lawsuits or administrative actions have
been brought against us or any of our subsidiaries or affiliates or the former
owners of our facilities alleging similar violations, although a subsidiary of
Conectiv has received information requests from the EPA regarding the Deepwater
and BL England facilities that we have agreed to purchase. Lawsuits or
administrative actions alleging similar violations at our facilities could be
filed in the future and if successful, could have a material adverse effect on
our business.
OUR COMPETITION IS INCREASING.
The independent power industry is characterized by numerous strong and
capable competitors, some of which may have more extensive operating experience,
more extensive experience in the acquisition and development of power generation
facilities, larger staffs or greater financial resources than we do. Many of our
competitors also are seeking attractive power generation opportunities, both in
the United States and abroad. This competition may adversely affect our ability
to make investments or acquisitions. In recent years, the independent power
industry has been characterized by increased competition for asset purchases and
development opportunities.
In addition, regulatory changes have also been proposed to increase access
to transmission grids by utility and non-utility purchasers and sellers of
electricity. Industry deregulation may encourage the disaggregation of
vertically integrated utilities into separate generation, transmission and
distribution businesses. As a result, significant additional competitors could
become active in the generation segment of our industry.
WE FACE ONGOING CHANGES IN THE UNITED STATES UTILITY INDUSTRY THAT COULD
AFFECT OUR COMPETITIVENESS.
The United States 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-fired generation that is more efficient than our generation facilities 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. In addition, a number of states are considering or implementing
methods to introduce and promote retail competition. Recently, some utilities
have brought litigation aimed at forcing the renegotiation or termination of
power purchase agreements requiring payments to owners of QF projects based upon
past estimates of avoided cost that are now substantially in excess of market
prices. In the future, utilities, with the approval of state public utility
commissions, could seek to abrogate their existing power purchase agreements.
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Proposals have been introduced in Congress to repeal PURPA and PUHCA, and
FERC has publicly indicated support for the PUHCA repeal effort. 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.
Deregulation may not only continue to fuel the current trend toward
consolidation among domestic utilities, but may also encourage the
disaggregation of vertically-integrated utilities into separate generation,
transmission and distribution businesses.
In addition, the independent system operators who oversee most of the
wholesale power markets have in the past imposed, and may in the future continue
to impose, price limitations and other mechanisms to address some of the
volatility in these markets. For example, the independent system operator for
the New York Power Pool and the California independent system operator have
recently imposed price limitations. These types of price limitations and other
mechanisms in New York, California and elsewhere may adversely impact the
profitability of our generation facilities that sell energy into the wholesale
power markets. Given the extreme volatility and lack of meaningful long-term
price history in many of these markets and the imposition of price limitations
by independent system operators, we can offer no assurance that we will be able
to operate profitably in all wholesale power markets.
RISKS RELATING TO THE MARKET FOR THE NOTES.
THERE IS NOT A PUBLIC MARKET FOR THE NOTES.
The notes 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 notes, 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 notes, your ability to sell
your notes or the price at which you would be able to sell your notes.
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USE OF PROCEEDS
The net proceeds from the sale of the notes, estimated to be approximately
$346.6 million, will be used to repay all amounts outstanding under our
revolving credit facility ($255 million at August 31, 2000) and for investments
and other general corporate purposes. Amounts outstanding under this facility,
which matures on March 9, 2001, bear interest at a floating rate, which at
August 31, 2000 was 8.22%. The indebtedness outstanding under our revolving
credit facility was incurred principally in connection with acquisitions and for
general corporate purposes. The borrowing capacity that will become available
under our revolving credit facility as a result of this repayment will be used,
in part, to fund our anticipated Conectiv acquisition.
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DESCRIPTION OF NOTES
This section summarizes the specific financial and legal terms of the notes
that are more generally described under "Description of Debt Securities' in the
prospectus that is attached to the back of this prospectus supplement. If
anything described in this section is inconsistent with the terms described
under "Description of Debt Securities" in the attached prospectus, the terms
described here prevail.
- TITLE: 8.25% Senior Notes due 2010
- TOTAL INITIAL PRINCIPAL AMOUNT BEING ISSUED: $350,000,000. We may issue
additional notes without the consent of the holders of the notes.
- DUE DATE FOR PRINCIPAL: September 15, 2010
- INTEREST RATE: 8.25% per annum
- DATE INTEREST STARTS ACCRUING: September 11, 2000
- INTEREST DUE DATES: Every March 15 and September 15 until maturity
- FIRST INTEREST DUE DATE: March 15, 2001
- REGULAR RECORD DATES FOR INTEREST: Every March 1 and September 1
immediately preceding the applicable interest payment dates
- FORM OF NOTES: The notes will be issued as Global Securities, and may be
issued in certificated form only in the limited situations described
under "Description of Debt Securities -- Exchange of Book Entry Debt
Securities for Certificated Debt Securities" in the attached prospectus.
- NAME OF DEPOSITARY: The Depository Trust Company ("DTC").
- CHANGE OF CONTROL: Upon a Change of Control, a holder of notes may
require us to repurchase that holder's notes, in whole or in part, at
101% of the principal amount of the notes, plus accrued interest. A
Change of Control will not be deemed to have occurred if, after giving
effect to it, the notes are rated BBB- or better by Standard & Poor's
Ratings Group and Baa3 or better by Moody's Investors Service, Inc.
- OPTIONAL REDEMPTION: We may, at our option, redeem some or all of the
notes at any time. If we redeem the notes before September 15, 2010, we
must pay you whichever of the following two items is greater:
- 100% of the principal amount of the notes to be redeemed.
- a "make whole" amount, which will be calculated as described below.
When we redeem the notes, we must also pay all interest that has accrued
to the redemption date on the redeemed notes. The notes will stop bearing
interest on the redemption date, even if you do not collect the total
redemption price for your notes on that date.
- CALCULATION OF MAKE WHOLE AMOUNT: The "make whole" amount will equal the
sum of the present values of the Remaining Scheduled Payments (as defined
below) discounted, on a semiannual basis (assuming a 360-day year
consisting of twelve 30-day months), at a rate equal to the Treasury Rate
(as defined below) plus 25 basis points.
"REMAINING SCHEDULED PAYMENTS" means the remaining scheduled payments of
the principal and interest that would be due if the note were not
redeemed. However, if the redemption date is not a scheduled interest
payment date, the amount of the next succeeding scheduled interest payment
on the note will be reduced by the amount of interest accrued on the note
to the redemption date.
"TREASURY RATE" means an annual rate equal to the semiannual equivalent
yield to maturity of the Comparable Treasury Issue (as defined below),
assuming a price for the Comparable Treasury Issue (expressed as a
percentage of its principal amount) equal to the Comparable Treasury Price
(as defined below) for the redemption date. The semiannual equivalent
yield to maturity will be computed as of the third business day
immediately preceding the redemption date.
"COMPARABLE TREASURY ISSUE" means the United States Treasury security
selected by Banc of America Securities LLC, Salomon Smith Barney Inc., or
any of their respective affiliates as having
S-18
<PAGE> 21
a maturity comparable to the remaining term of the notes that would be
utilized, at the time of selection and in accordance with customary
financial practice, in pricing new issues of corporate debt issues of
comparable maturity to the remaining term of the notes.
"COMPARABLE TREASURY PRICE" means the average of three Reference Treasury
Dealer Quotations (as defined below) obtained by the trustee for the
redemption date.
"REFERENCE TREASURY DEALERS" means Banc of America Securities LLC and
Salomon Smith Barney Inc. (so long as they continue to be primary U.S.
Government securities dealers) and any two other primary U.S. Government
securities dealers chosen by us. If Banc of America Securities LLC or
Salomon Smith Barney Inc. ceases to be a primary U.S. Government
securities dealer, we will appoint in its place another nationally
recognized investment banking firm that is a primary U.S. Government
securities dealer.
"REFERENCE TREASURY DEALER QUOTATION" means the average, as determined by
the trustee, of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted in
writing to the trustee by a Reference Treasury Dealer at 3:30 p.m., New
York City time, on the third business day preceding the redemption date.
- REDEMPTION NOTICE: We will give notice of a redemption to DTC at least
30 days (but not more than 60 days) before we redeem the notes. If we
redeem only some of the notes, DTC's practice is to choose by lot the
amount to be redeemed from the notes held by each of its participating
institutions. DTC will give notice to these participants, and these
participants will give notice to any "Street Name" holders of any
indirect interests in the notes according to arrangements among them;
these notices may be subject to statutory or regulatory requirements. We
will not be responsible for giving notice to anyone other than DTC.
- SALE OF PROPERTIES OR ASSETS: Except for a sale of our assets
substantially as an entirety, and other than assets we are required to
sell to comply 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 (as defined below) 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 notes
offered hereby or debt ranking equally with the notes.
"CONSOLIDATED NET TANGIBLE ASSETS" means, as of the date of any
determination thereof, the total amount of all of our assets determined on
a consolidated basis in accordance with generally accepted accounting
principles ("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.
- SINKING FUND: There is no sinking fund.
- DEFEASANCE: We may choose to terminate some of our obligations under the
notes as described under "Description of Debt Securities -- Defeasance
and Covenant Defeasance" in the attached prospectus.
- TRUSTEE: We will issue the notes under an indenture with Wells Fargo
Bank Minnesota, National Association, as trustee, to be dated September
11, 2000.
S-19
<PAGE> 22
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 notes set forth opposite the name of such underwriter:
<TABLE>
<CAPTION>
NAME PRINCIPAL AMOUNT OF SENIOR NOTES
---- --------------------------------
<S> <C>
Banc of America Securities LLC.............................. $157,500,000
Salomon Smith Barney Inc. .................................. 157,500,000
Merrill Lynch, Pierce, Fenner & Smith
Incorporated................................... 35,000,000
Total.................................................. $350,000,000
============
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase the notes 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 notes if they purchase any of
the notes.
The underwriters, for whom Banc of America Securities LLC and Salomon Smith
Barney Inc. are acting as representatives, propose to offer some of the notes
directly to the public at the public offering price set forth on the cover page
of this supplement and some of the notes to certain dealers at the public
offering price less a concession not in excess of 0.400% of the principal amount
of the notes. The underwriters may allow, and such dealers may reallow, a
discount not in excess of 0.250% of the principal amount of the notes on sales
to certain other dealers. After the initial offering of the notes to the public,
the public offering price and such concessions may be changed by the
representatives.
The following table shows the underwriting discounts and commissions to be
paid to the underwriters by us in connection with this offering (expressed as a
percentage of the principal amount of the notes).
<TABLE>
<CAPTION>
PAID BY THE COMPANY
-------------------
<S> <C>
Per note.................................................... 0.650%
</TABLE>
In connection with the offering, Banc of America Securities LLC and Salomon
Smith Barney Inc., on behalf of the underwriters, may purchase and sell notes in
the open market. These transactions may include over-allotment, syndicate
covering transactions and stabilizing transactions. Over-allotment involves
syndicate sales of notes in excess of the principal amount of the notes to be
purchased by the underwriters in the offering, which creates a syndicate short
position. Syndicate covering transactions involves purchases of the notes 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 notes made for the purpose of preventing or retarding a decline in
the market price of the notes 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 or Salomon Smith Barney Inc., in covering syndicate
short positions or making stabilizing purchases, repurchases notes originally
sold by that syndicate member.
Any of these activities may cause the price of the notes 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 $105,000.
The representatives have performed certain investment banking and advisory
serviced 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.
S-20
<PAGE> 23
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.
LEGAL MATTERS
Gibson, Dunn & Crutcher LLP has rendered an opinion which was filed as an
exhibit to the registration statement with respect to the legality of the notes.
Legal matters with respect to the notes 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-21
<PAGE> 24
PROSPECTUS
$500,000,000
[NRG LOGO]
NRG ENERGY, INC.
DEBT SECURITIES
We may offer from time to time up to U.S. $500,000,000 worth of unsecured
senior debt securities in one or more series with the same or different terms.
Senior debt securities include our notes and other evidences of unsecured
indebtedness, which are for money borrowed and are not subordinated. We may sell
the debt securities through agents, dealers or underwriters we designate from
time to time.
The specific terms of these securities will be provided in supplements to
this prospectus. You should read this prospectus and the supplements carefully
before you invest.
------------------
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 January 10, 2000
<PAGE> 25
No person is authorized to give any information or to make any
representations other than those contained or incorporated by reference in this
prospectus, and, if given or made, such information or representations must not
be relied upon as having been authorized. This prospectus does not constitute an
offer to sell or the solicitation of an offer to buy any securities other than
the securities described in this prospectus or an offer to sell or the
solicitation of an offer to buy such securities in any circumstances in which
such offer or solicitation is unlawful. Neither the delivery of this prospectus,
nor any sale made hereunder, shall, under any circumstances, create any
implication that there has been no change in our affairs since the date hereof
or that the information contained or incorporated by reference herein is correct
as of any time subsequent to the date of such information.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ABOUT THIS PROSPECTUS....................................... 1
WHERE YOU CAN FIND MORE INFORMATION......................... 1
FORWARD-LOOKING STATEMENTS.................................. 2
THE COMPANY................................................. 4
USE OF PROCEEDS............................................. 4
EARNINGS TO FIXED CHARGES RATIO............................. 4
DESCRIPTION OF DEBT SECURITIES.............................. 5
PLAN OF DISTRIBUTION........................................ 13
LEGAL MATTERS............................................... 14
EXPERTS..................................................... 14
</TABLE>
<PAGE> 26
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we have filed with
the Securities and Exchange Commission using a "shelf" registration process.
Using this process, we may offer the securities described in this prospectus in
one or more offerings with a total initial offering price of up to $500,000,000.
This prospectus provides you with a general description of the securities we may
offer. Each time we offer securities, we will provide a supplement to this
prospectus. The prospectus supplement will describe the specific terms of that
offering. The prospectus supplement may also add, update or change the
information contained in this prospectus. Please carefully read this prospectus
and the prospectus supplement, in addition to the information contained in the
documents we refer you to under the heading "Where You Can Find More
Information."
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with 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.
This prospectus is part of a registration statement we have filed with the
SEC relating to debt securities. As permitted by SEC rules, 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 automatically update and supersede this information. We
incorporate by reference the documents listed below and any future filings made
by us with the SEC under Sections 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-K405 and Form 10-K405A for the fiscal year
ended December 31, 1998;
2. Our Quarterly Reports on Form 10-Q for the quarterly periods ended March
31, 1999; June 30, 1999 and September 30, 1999; and
3. Our Current Reports on Form 8-K as filed with the SEC on May 24, 1999;
June 28, 1999; July 8, 1999; July 16, 1999; September 14, 1999; October
14, 1999; November 3, 1999; November 8, 1999; and November 16, 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.
1
<PAGE> 27
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," "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:
- Economic conditions including inflation rates and monetary or currency
exchange rate fluctuations;
- Trade, monetary, fiscal, taxation, and environmental policies of
governments, agencies and similar organizations in geographic areas where
we have a financial interest;
- Customer business conditions including demand for their products or
services and supply of labor and materials used in creating their
products and services;
- Financial or regulatory accounting principles or policies imposed by the
Financial Accounting Standards Board, the Securities and Exchange
Commission, the Federal Energy Regulatory Commission and similar entities
with regulatory oversight;
- Availability or cost of capital such as changes in: interest rates;
market perceptions of the power generation industry, ourselves or any of
our subsidiaries; or security ratings;
- Factors affecting power generation operations such as unusual weather
conditions; catastrophic weather-related damage; unscheduled generation
outages, maintenance or repairs; unanticipated changes to fossil fuel or
gas supply costs or availability due to higher demand, shortages,
transportation problems or other developments; environmental incidents;
or electric transmission or gas pipeline system constraints;
- Employee workforce factors including loss or retirement of key
executives, collective bargaining agreements with union employees, or
work stoppages;
- Volatility of energy prices in a deregulated market environment;
- Increased competition in the power generation industry;
- Cost and other effects of legal and administrative proceedings,
settlements, investigations and claims;
- Technological developments that result in competitive disadvantages and
create the potential for impairment of existing assets;
- Factors associated with various investments including conditions of final
legal closing, partnership actions, competition, operating risks,
dependence on certain suppliers and customers, domestic and foreign
environmental and energy regulations;
- Limitations on our ability to control the development or operation of
projects in which we have less than 100% interest;
- A limited basis for management to project the results of future
operations due to the lack of operating history at development projects,
the lack of our operating history at the projects not yet owned and the
limited operating history at the remaining projects;
- The failure to timely satisfy the closing conditions contained in the
definitive agreements for the acquisitions of projects that have not yet
closed, many of which are beyond our control;
- Factors challenging the successful integration of projects not previously
owned or operated by us, including the ability to obtain operating
synergies;
2
<PAGE> 28
- Factors associated with operating in foreign countries including: delays
in permitting and licensing, construction delays and interruption of
business, political instability, risk of war, expropriation,
nationalization, renegotiation, or nullification of existing contracts,
changes in law, and the ability to convert foreign currency into United
States dollars.
We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
The foregoing review of factors should not be construed as exhaustive.
3
<PAGE> 29
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,
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 November 30,
1999 have a total design capacity of 18,243 megawatts ("MW"), of which we have
or will have total or shared operational responsibility for 12,548 MW and net
ownership of, or leasehold interests in, 8,672 MW. In addition, we have
substantial interests in district heating and cooling systems and steam
generation and transmission operations. As of November 30, 1999, these thermal
businesses had a steam capacity of approximately 3,835 million British thermal
units per hour ("mmBtu/hr."), of which our equity interest was 3,400 mmBtu/hr.
Refuse-derived fuel plants in which we have an ownership or operating interest
processed more than 1,260,000 tons of municipal solid waste into approximately
973,000 tons of refuse-derived fuel during the first eleven months of 1999.
We have experienced significant growth in the last eleven months, expanding
from 3,300 MW of net ownership interests in power generation facilities,
including those under construction, as of December 31, 1998 to 8,672 MW of net
ownership interests as of November 30, 1999. This growth resulted primarily from
a number of domestic 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").
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>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 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) 1.06x
</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 SEC 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, undistributed equity in our share of
operating earnings of unconsolidated affiliates (totaling $29.9 million) and
a write down of investment in projects (totaling $15.1 million), earnings
did not cover fixed charges by $47.9 million.
4
<PAGE> 30
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 a
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 an accompanying supplement, the trustee under the indentures
under which the debt securities will be issued will be Wells Fargo Bank
Minnesota, National Association. (See "Concerning the Trustee.")
GENERAL
The debt securities will be unsecured senior obligations of the Company.
Because we conduct substantially all of our business through 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 Xcel Energy.
Reference is made to an 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 a supplement.
5
<PAGE> 31
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 an accompanying supplement, the
indenture will provide that, we, at any time, may redeem the debt securities, in
whole or in part (if in 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 an 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 an
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 an 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 an 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" (defined
below) and (iv) liens granted
6
<PAGE> 32
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 an 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 an 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 an 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 an accompanying supplement.
Except as may otherwise be provided in an 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 an 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.
Except as may be provided otherwise in an 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.
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Except as may be provided otherwise in an 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 an 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 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 an 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
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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 an 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 an 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;
(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 an 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.
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Except to the extent otherwise stated in an 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 an 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 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, as amended, 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 an 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
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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 an 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. 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 an 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 an 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 an 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.
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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 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 or 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 an 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 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.
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EXCHANGE OF BOOK ENTRY DEBT SECURITIES FOR CERTIFICATED DEBT SECURITIES
Except as may otherwise be set forth in an 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 indentures
under which debt securities will be issued will be Wells Fargo 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 an accompanying supplement, the indenture and
the debt securities will be governed by New York law.
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.
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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 them against certain liabilities, including
liabilities under the Securities Act, or to contribute 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.
EXPERTS
The consolidated financial statements incorporated in this prospectus by
reference to the Annual Report on Form 10-K405 for the year ended December 31,
1998, have been so incorporated in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
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$350,000,000
NRG ENERGY, INC.
8.25% SENIOR NOTES DUE 2010
NRG LOGO
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PROSPECTUS SUPPLEMENT
SEPTEMBER 6, 2000
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Joint Book-Running Managers
BANC OF AMERICA SECURITIES LLC SALOMON SMITH BARNEY
Co-Manager
MERRILL LYNCH & CO.
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