<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For Quarter Ended September 30, 2000 Commission File Number 333-42638
------------------ ---------
NRG Northeast Generating LLC
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(Exact name of registrant as specified in its charter)
Delaware 41-1937472
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
901 Marquette Avenue, Suite 2300 Minneapolis, MN 55402
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (612) 373-5300
---------------------------
1221 Nicollet Mall, Suite 700 Minneapolis, MN 55403
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Former name, former address and former fiscal year,
if changed since last report
Indicated by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
The Registrant meets the conditions set forth in general instruction H
(1) (a) and (b) of Form 10-Q and is therefore filing this form with the reduced
disclosure format.
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INDEX
PAGE NO.
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PART I
Item 1 Consolidated Financial Statements and Notes
Consolidated Statements of Income 1
Consolidated Balance Sheets 2-3
Consolidated Statements of Members' Equity 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6-7
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-11
PART II
Item 1 Legal Proceedings 12
Item 6 Exhibits, Financial Statement Schedules, and Reports 13
on Form 8-K
SIGNATURES 14
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CONSOLIDATED STATEMENTS OF INCOME
NRG NORTHEAST GENERATING LLC AND SUBSIDIARIES
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
(Thousands of Dollars) 2000 1999 2000 1999
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<S> <C> <C> <C> <C>
OPERATING REVENUES
Revenues from wholly-owned operations $ 265,687 $ 103,622 $ 793,241 $ 117,930
OPERATING COSTS AND EXPENSES
Operating costs 141,373 53,562 492,087 64,577
Depreciation and amortization 12,299 7,273 36,345 8,434
General and administrative expenses 4,509 1,588 13,212 1,839
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Total operating costs and expenses 158,181 62,423 541,644 74,850
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OPERATING INCOME 107,506 41,199 251,597 43,080
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OTHER INCOME (EXPENSE)
Other income, net 897 - 2,063 -
Interest expense (16,530) (11,479) (50,510) (12,734)
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Total other expense (15,633) (11,479) (48,447) (12,734)
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NET INCOME $ 91,873 $ 29,720 $ 203,150 $ 30,346
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</TABLE>
See notes to consolidated financial statements.
1
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CONSOLIDATED BALANCE SHEETS
NRG NORTHEAST GENERATING LLC AND SUBSIDIARIES
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
(Thousands of Dollars) 2000 1999
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<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 53,233 $ 10,551
Accounts receivable-trade 101,622 100,428
Inventory 137,942 108,262
Prepayments and other current assets 22,764 21,686
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Total current assets 315,561 240,927
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PROPERTY, PLANT AND EQUIPMENT, AT ORIGINAL COST
In service 1,483,185 1,451,745
Under construction 12,686 25,764
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1,495,871 1,477,509
Less accumulated depreciation (53,359) (17,026)
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Net property, plant and equipment 1,442,512 1,460,483
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OTHER ASSETS
Debt issuance costs, net of accumulated amortization of $241 and $3,664 9,716 3,228
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Total other assets 9,716 3,228
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TOTAL ASSETS $ 1,767,789 $ 1,704,638
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</TABLE>
See notes to consolidated financial statements.
2
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CONSOLIDATED BALANCE SHEETS
NRG NORTHEAST GENERATING AND SUBSIDIARIES
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
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<S> <C> <C>
LIABILITIES AND MEMBERS' EQUITY
CURRENT LIABILITIES
Credit facility debt $ - $ 35,766
Current portion of long-term debt 95,000 -
Accounts payable-affiliates 127,485 52,232
Accounts payable- trade 7,657 2,876
Accrued interest 19,276 1,125
Accrued fuel and purchased power expenses 32,071 26,007
Other current accrued liabilities 32,311 12,920
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Total current liabilities 313,800 130,926
LONG-TERM DEBT 655,000 646,564
OTHER LONG-TERM LIABILITIES 20,833 -
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Total liabilities 989,633 777,490
MEMBERS' EQUITY
Members' equity 778,156 927,148
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Total Members' Equity 778,156 927,148
COMMITMENTS AND CONTINGENCIES
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TOTAL LIABILITIES AND MEMBERS' EQUITY $ 1,767,789 $ 1,704,638
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</TABLE>
See notes to consolidated financial statements.
3
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CONSOLIDATED STATEMENT OF MEMBERS' EQUITY
NRG NORTHEAST GENERATING LLC AND SUBSIDIARIES
(UNAUDITED)
<TABLE>
<CAPTION>
Total
Members' Net Members'
(Thousands of Dollars) Contributions Income Equity
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BALANCES AT APRIL 27, 1999 $ - $ - $ -
Member contributions, net 337,121 337,121
Net income 30,346 30,346
---------------------------------------------
BALANCES AT SEPTEMBER 30, 1999 $ 337,121 $ 30,346 $ 367,467
---------------------------------------------
BALANCES AT JANUARY 1, 2000 $ 872,801 $ 54,347 $ 927,148
Member distributions, net (352,142) (352,142)
Net Income 203,150 203,150
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BALANCES AT SEPTEMBER 30, 2000 $ 520,659 $ 257,497 $ 778,156
---------------------------------------------
</TABLE>
4
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CONSOLIDATED STATEMENTS OF CASH FLOWS
NRG NORTHEAST GENERATING LLC AND SUBSIDIARIES
(UNAUDITED)
<TABLE>
<CAPTION>
APRIL 27, 1999
NINE MONTHS ENDED (INCEPTION) TO
SEPTEMBER 30, SEPTEMBER 30,
(Thousands of Dollars) 2000 1999
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 203,150 $ 30,346
Adjustments to reconcile net income to net cash
provided (used) by operating activities
Depreciation and amortization 36,345 8,434
Amortization of deferred financing costs 3,409 1,975
Cash provided (used) by changes in certain working capital items,
net of acquisition effects
Accounts receivable (1,235) (65,345)
Inventory (29,746) (462)
Prepayments and other current assets (1,095) (8,819)
Accounts payable-trade 4,781 1,726
Accounts payable-affiliates 75,273 14,184
Accrued fuel and purchased power expense 6,064 -
Accrued interest 18,151 -
Other current liabilities 19,391 -
Cash provided by changes in other assets and liabilities 20,836 2,561
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NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 355,324 (15,400)
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CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions, net of liabilities assumed - (915,245)
Purchase of plant, property and equipment (19,041) (2,075)
Proceeds from disposition of property and equipment 768 -
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NET CASH USED BY INVESTING ACTIVITIES (18,273) (917,320)
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CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings 750,000 613,890
(Distributions to) / Contributions from members (352,142) 337,121
Deferred financing costs (9,897) (6,659)
Principal payments on short-term debt (682,330) -
-----------------------------------------------------------------------------------------------------------------------------
NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES (294,369) 944,352
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NET INCREASE IN CASH AND CASH EQUIVALENTS 42,682 11,632
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 10,551 -
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 53,233 $ 11,632
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</TABLE>
See notes to consolidated financial statements.
5
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NRG NORTHEAST GENERATING LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NRG Northeast owns electric power generating plants in the northeastern region
of the United States. The Company was formed for the purpose of financing,
acquiring, owning, operating and maintaining, through its subsidiaries, the
facilities owned by Arthur Kill Power LLC, Astoria Gas Turbine Power LLC,
Connecticut Jet Power LLC, Devon Power LLC, Dunkirk Power LLC, Huntley Power
LLC, Middletown Power LLC, Montville Power LLC, Norwalk Harbor Power LLC, Oswego
Harbor Power LLC and Somerset Power LLC. NRG Northeast Generating LLC (Northeast
or the Company) is an indirect wholly owned subsidiary of NRG Energy, Inc. (NRG
Energy), a Delaware corporation. Additional information regarding the Company
can be found in NRG Energy's Form 10-Q for the nine months ended September 30,
2000.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with SEC regulations for interim financial information and with
the instructions to Form 10-Q. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. The accounting policies followed by the
Company are set forth in Note 1 to the Company's financial statements in its
Registration Statement (Form S-4). The following notes should be read in
conjunction with such policies and other disclosures in the Form S-4. Interim
results are not necessarily indicative of results for a full year.
In the opinion of management, the accompanying unaudited interim financial
statements contain all material adjustments necessary to present fairly the
consolidated financial position of the Company as of September 30, 2000 and
December 31, 1999, the results of its operations for the three and nine months
ended September 30, 2000 and 1999, and its cash flows and members' equity for
the nine months ended September 30, 2000 and 1999.
NOTE 1 - SHORT TERM BORROWINGS
On February 22, 2000, the Company entered into a 364-day $50 million
floating rate working capital revolving facility. The proceeds of this
facility will be used to finance the Company's working capital needs. As of
September 30, 2000 the Company had available $50 million under this
facility.
NOTE 2 - LONG TERM DEBT
In February 2000, the Company issued $750 million of Senior secured bonds
to refinance short-term project borrowings and for certain other purposes.
The bond offering included three tranches: $320 million with an interest
rate of 8.065% due in 2004, $130 million with an interest rate of 8.842%
due in 2015 and $300 milion with an interest rate of 9.292% due in 2024. In
October 2000, the Company filed with the Securities and Exchange Commission
and went effective with an exchange offer registration statement concerning
these bonds. The exchange offer will remove certain restrictions
surrounding the resale of these bonds.
NOTE 3 - CONTINGENT REVENUES
As of September 30, 2000, the Company had approximately $24.7 million of
disputed revenues related to certain revenues related to periods prior to
May 31, 2000. The Company is actively pursuing resolution and/or collection
of these amounts. The contingent revenues relate to the interpretation of
certain transmission power sales agreements and to sales to the New York
Power Pool and New England Power Pool, conflicting meter readings, pricing
of firm sales and other power pool reporting issues. These amounts have not
been recorded in the financial statements and will not be recognized as
income until disputes are resolved and collection is assured. During the
third quarter of 2000, the Company collected and recognized approximately
$23.6 million of disputed revenues.
6
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NOTE 4 - REGULATORY ISSUES
On March 30, 2000 the Company received notification from the New York
Independent System Operator (NYISO) of its petition to the Federal Energy
Regulatory Commission (FERC) to place a $2.52 per megawatt hour market cap
on ancillary service revenues. The NYISO also requested authority to impose
this cap on a retroactive basis to March 1, 2000. On May 31, 2000, the FERC
approved the NYISO's request to impose price limitations on one ancillary
service, Ten Minute Non-Synchronized Reserves (TMNSR) on a prospective
basis only, effective March 28, 2000. The FERC rejected the NYISO's request
for authority to adjust the market-clearing prices for TMNSR on a
retroactive basis. As a result of the FERC order (unless the NYISO or other
party successfully appeals the order), the Company will retain the
approximately $8.0 million of revenues collected in February 2000 and
approximately $8.2 million included in revenues, but not yet collected for
March 2000. The NYISO has requested the FERC to reconsider the order.
NOTE 5 - INVENTORY
Inventory, which is stated at the lower of weighted average cost or
market, consisted of:
(IN THOUSANDS) SEPTEMBER 30, 2000
-----------------------
Fuel oil $ 71,845
Spare parts 54,896
Coal 10,533
Kerosene 628
Other 40
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TOTAL $ 137,942
-----------------------
NOTE 6 - PROPERTY, PLANT AND EQUIPMENT, NET
Property, Plant and Equipment consist of:
(IN THOUSANDS) SEPTEMBER 30, 2000
-----------------------
Facilities, machinery and equipment $ 1,430,689
Land 51,900
Construction in progress 12,686
Office furnishings and equipment 596
Accumulated depreciation (53,359)
-----------------------
Property, Plant and Equipment, net $ 1,442,512
-----------------------
7
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition is omitted per
conditions as set forth in General Instructions H (1) (a) and (b) of Form 10-Q
for wholly owned subsidiaries. It is replaced with management's narrative
analysis of the results of operations as permitted by General Instructions H (2)
(a) of Form 10-Q for wholly owned subsidiaries (reduced disclosure format). This
analysis discusses the Company's revenue and expense items for the nine months
ended September 30, 2000.
RESULTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
OPERATING REVENUES
For the nine months ended September 30, 2000, revenues were $793.2
million, an increase of $675.3 million, over the same period in 1999. Revenues
for the nine months ended September 30, 2000 consisted primarily of sales from
long-term transition or capacity agreements, which represent approximately 53.1%
of total revenues. The remaining revenues of $372.1 million consist primarily of
sales from short-term spot and bilateral agreements.
OPERATING COSTS AND EXPENSES
Operating costs for the nine months ended September were $492.1 million.
Operating costs for the nine months ended September 30, 2000, represented
approximately 62.0% of total revenues. Operating costs consisted of expenses for
fuel, and plant operations and maintenance.
Fuel expense for the nine months ended September was $326.3 million. Fuel
expense included $79.4 million of coal, $127.8 million of natural gas and $119.1
million of fuel oil, diesel and other related costs. Fuel expense for the nine
months ended September 30, 2000, represented approximately 41.1% of total
revenues.
Plant operations and maintenance expense for the nine months ended
September 30, 2000 was $165.8 million. Plant operations and maintenance for the
nine months ended September 30, 2000, represented 20.9% of total revenues. Plant
operations and maintenance included labor and benefits under operating service
agreements of $45.7 million, maintenance parts, supplies and services of $63.3
million and property taxes and other expenses of $56.8 million, for the nine
months ended September 30, 2000.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization costs were $36.3 million for the nine months
ended September 30, 2000. Depreciation and amortization for the nine months
ended September 30, 2000 represented approximately 4.6% of total revenues. The
depreciation expense was primarily related to the acquisition costs of the
facilities, which are being depreciated over twenty-five to thirty years.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses were $13.2 million for the nine months
ended September 30, 2000. General and administrative expenses for the nine
months ended September 30, 2000, represented approximately 1.7% of total
revenues. General and administrative expenses include costs for outside legal
and other contract services,
8
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payments to NRG for corporate services, expenses related to office
administration, as well as costs for certain employee benefits incurred under
operating service agreements.
INTEREST EXPENSE
Interest expense for the nine months ended September 30, 2000 was $50.5
million. Interest expense for the nine months ended September 30, 2000 included
$47.1 million of interest and $3.4 million of amortization of deferred financing
costs. The interest relates to $750 million of senior secured bonds issued on
February 22, 2000 to refinance its short-term project borrowings and for certain
other purposes.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." In June 2000, SFAS No. 138 was issued which
includes several amendments to SFAS No. 133. This new standard is effective for
all fiscal quarters of all fiscal years beginning after June 15, 2000. The
Company plans to adopt this standard effective January 1, 2001, as required.
The new standard requires that all derivatives be reported on the balance
sheet at their fair values. For derivative instruments designated as fair value
hedges, changes in the fair value of the derivative instrument will generally be
offset on the income statement by changes in the fair value of the hedged item.
For derivative instruments designated as cash flow hedges, the effective portion
of any hedge is reported in other comprehensive income until it is cleared to
earnings during the same period in which the hedged item affects earnings. The
ineffective portion of all hedges will be recognized in current earnings each
period. Changes in the fair value of derivative instruments that are not
designated as a hedge will be recorded each period in current earnings.
The Company has entered into certain transactions in accordance with its
risk management policy to mitigate the variability of its earnings. The
Company's risk management policy specifies that no more than 50% of the
uncommitted energy or capacity of any facility will be sold forward without
appropriate approvals. In accordance with its risk management policy, the
Company has entered into long-term contracts of more than one-year including:
power purchase agreements with utilities and other third parties, standard offer
agreements to provide load serving entities with a percentage of their
requirements and transition power purchase agreements with the former owners of
acquired facilities. The Company also enters into short-term contracts or other
commitments of one year or less and spot sales including: spot market and other
sales into various wholesale power markets and bilateral contracts with third
parties. In addition to energy and capacity sales agreements the Company enters
into transactions for the physical delivery of commodities used to generate
electricity. These physical delivery transactions may take the form of fixed
price, floating price or indexed sales or purchases and options on physical
transactions such as puts, calls, basis transactions and swaps. Contracts for
the transmission and transportation of these commodities are also entered into
as needed to meet physical delivery requirements and obligations.
The Company may also use derivative financial instruments to mitigate the
impact of changes in interest rates on its cost of borrowing.
The Company has identified certain of these transactions as potentially
being derivatives under SFAS No. 133. However, due to the uncertainties involved
in the interpretation of the application of SFAS No. 133, as amended by SFAS No.
138, the Company has not yet determined what the impact might be of the adoption
of the standard on the Company's results of operations and statement of
financial position as of and for the period ended September 30, 2000. The
Company believes that once additional clarifying guidance is made available to
the industry the potential impact of adopting the standard will be more readily
determinable.
ENVIRONMENTAL AND OTHER CONTINGENCIES
Air quality in the northeastern region of the United States is affected by
air pollution transported within and into the region by prevailing winds. In
September 1994, 11 Northeastern states and the District of Columbia signed a
memorandum of understanding (the MOU) establishing a regional plan for reducing
Nox (nitrogen oxides) emissions from utility and large industrial boilers. Nox
contributes to the formation of ozone. The 12 jurisdictions signing this MOU
fall within the Ozone Transport Region (the OTR), created under the Clean Air
Act in recognition of the regional ozone problem facing the northeastern United
States. In addition to the MOU, the EPA has issued a regulation requiring 22
states in the eastern half of the United States to make significant Nox emission
reductions by May 1, 2003, and to subsequently cap those emissions (the
9
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SIP Call). The Nox emissions reductions required by the SIP Call are comparable
to the reductions required by the MOU. By order of the United States Court of
Appeals for the District of Columbia Circuit, the compliance date for the SIP
Call has been extended until May 31, 2004.
Nox regulations for New York, Massachusetts and Connecticut to implement
the MOU have been promulgated through the year 2002. New York, Massachusetts and
Connecticut have also promulgated regulations to implement the SIP Call and the
MOU for the years 2003 and beyond. Consistent with the MOU and the SIP Call,
emissions reductions are to be achieved through a cap on ozone season Nox
emissions from the largest sources of Nox, including the Company's facilities.
Under formulas established in the regulations, each source will be allocated a
number of "allowances," with each allowance representing one ton of nitrogen
oxides that the source is allowed to emit. The allowances can be bought and sold
through regional trading.
The Commonwealth of Massachusetts is seeking additional emissions
reductions beyond current requirements. The Massachusetts Department of
Environmental Protection has issued proposed regulations that would require
significant emissions reductions from certain coal-fired power plants in the
state, including the Company's Somerset facility. The Massachusetts Department
of Environmental Protection has proposed that such facilities comply with
stringent limits on emissions of nitrogen oxides by December 1, 2003; on
emissions of sulfur dioxides commencing on December 1, 2003, with further
reductions required by December 1, 2005; and on emissions of carbon dioxide by
December 1, 2005. In addition to output based limits (that is, a standard which
limits emissions to a certain rate per net megawatt hour), the proposed
regulations also would limit by December 1, 2005 the total emissions of nitrogen
oxides and sulfur dioxide at the Somerset facility to no more than 75% of the
average annual emissions from the Somerset facility for 1997-1999. Finally, the
proposed regulations require the Massachusetts Department of Environmental
Protection to evaluate, by December 31, 2002, the technical and economic
feasibility of controlling or eliminating mercury emissions by the year 2010,
and to propose mercury emission standards within 18 months of completion of the
feasibility evaluation. Compliance with these proposed regulations, if such
regulations become effective, could have a material impact on the operation of
the Company's Somerset facility. The Company believes that the annual average
carbon dioxide emission rate identified in the draft regulations cannot be met
by the Somerset facility. The public comment period for these rules closed in
August 2000. The Company participated in this public process and provided
comments on August 4, 2000; however, there is no assurance that the Company's
positions will be adopted.
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
sulfur dioxides by May 2003. The Executive Order requires reductions of sulfur
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 August 2000, the CDEP issued proposed regulations
to implement the Executive Order. Although the Company is actively participating
in the CDEP's rulemaking process, there is no assurance that the Company's
positions will be adopted.
REGULATORY ISSUES
The independent system operators who oversee most of the wholesale power
markets in which the Company operates 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. These types of price limitations and
other mechanisms may adversely impact the profitability of the Company's
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, the Company cannot quantify the impact on profitability with any
certainty. The Company will attempt to adjust its business operations to
mitigate the future impact of such limitations.
FORWARD-LOOKING STATEMENTS
Certain statements included in this quarterly report are forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities and Exchange Act of 1934. While the Company
believes that the expectations expressed in such forward-looking statements are
reasonable, it can give no assurances that these expectations will prove to have
been correct. In addition to any assumptions and other factors referred to
specifically in connection with such forward-looking statements, factors that
could cause the actual results to differ materially from those contemplated in
any forward-looking statements include, among others, the following:
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o Economic conditions including inflation rates and monetary
fluctuations;
o Trade, monetary, fiscal, taxation, and environmental policies of
governments, agencies and similar organizations in geographic areas
where we have a financial interest;
o Customer business conditions including demand for their products or
services and supply of labor and materials used in creating their
products and services;
o 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;
o Availability or cost of capital such as changes in: interest rates;
market perceptions of the power generation industry, the Company or
any of its affiliates; or security ratings;
o 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;
o Employee workforce factors including loss or retirement of key
executives, collective bargaining agreements with union employees,
or work stoppages;
o Increased competition in the power generation industry;
o Cost and other effects of legal and administrative proceedings,
settlements, investigations and claims;
o Technological developments that result in competitive disadvantages
and create the potential for impairment of existing assets;
o Factors associated with various investments including competition,
operating risks, dependence on certain suppliers and customers and,
environmental and energy regulations;
o Other business or investment considerations that may be disclosed
from time to time in the Company's or NRG Energy's Securities and
Exchange Commission filings or in other publicly disseminated
written documents, including the Company's Registration Statement
No. 333-42638, as amended.
The Company undertakes no obligation to update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
The foregoing review of factors that could cause the Company's actual results to
differ materially from those contemplated in any forward-looking statements
included in this quarterly report should not be construed as exhaustive.
11
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On or about July 12, 1999, Fortistar Capital Inc., a Delaware corporation, filed
a complaint in District Court (Fourth Judicial District, Hennepin County) in
Minnesota against NRG Energy asserting claims for injunctive relief and for
damages as a result of the NRG Energy's alleged breach of a confidentiality
letter agreement with Fortistar relating to the Oswego facility.
NRG Energy disputed Fortistar's allegations and has asserted numerous
counterclaims. NRG Energy has counterclaimed against Fortistar for breach of
contract, fraud and negligent misrepresentations and omissions, unfair
competition and breach of the covenant of good faith and fair dealing. NRG
Energy seeks, among other things, dismissal of Fortistar's complaint with
prejudice and rescission of the letter agreement.
A temporary injunction hearing was held on September 27, 1999. The acquisition
of the Oswego facility was closed on October 22, 1999, following notification to
the court of Oswego Power LLC's and Niagara Mohawk Power Corporation's intention
to close on that date. On January 14, 2000, the court denied Fortistar's request
for a temporary injunction. In April 2000, the Company filed a summary judgement
motion to dispose of the litigation. A hearing on this motion has not yet been
scheduled. NRG Energy intends to continue to vigorously defend the suit and
believes Fortistar's complaint to be with out merit. No trial date has been set.
On May 25, 2000 the New York Department of Environmental Conservation issued a
Notice of Violation to the Company and the prior owner of the Huntley and
Dunkirk facilities relating to physical changes made at those facilities prior
to the Company's assumption of ownership. The Notice of Violation alleges that
these changes represent major modifications undertaken without obtaining the
required permits. Although the Company has 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, the Company could be required, among other things, to install
specified pollution control technology to further reduce air emissions from the
Dunkirk and Huntley facilities and the Company could become subject to fines and
penalties associated with the current and prior operation of the facilities.
On May 31, 2000, FERC approved a request of the New York Independent System
Operator, to impose price limitations on one ancillary service, Ten Minute
Non-synchronized Reserves, on a prospective basis only, effective March 28,
2000; the date the NYISO began capping bids for that service. FERC rejected the
NYISO's request for authority to adjust the market clearing prices for that
service on a retroactive basis. As a result of the FERC order (unless the NYISO
or another party successfully appeals the order), the Company will retain the
approximately $8.0 million of revenues collected in February 2000 and
approximately $8.2 million included in revenues, but not collected, for March
2000. The NYISO has sought reconsideration of the FERC.
On September 21, 2000, Dunkirk Power LLC ("Dunkirk"), Huntley Power LLC
("Huntley") and Oswego Harbor Power LLC ("Oswego") filed an action before FERC
seeking its declaration that they are entitled to pay Niagara Mohawk Power
Corporation ("NiMo") wholesale prices for the power consumed at their respective
generating facilities, rather than paying for such station power at retail
rates, as NiMo alleges is required. On September 28, 2000, NiMo filed separate
actions against Dunkirk, Huntley and Oswego in the State Supreme Court of New
York, seeking in total, payment of approximately $7 million, which NiMo asserts
is due under such retail tariff.
There are no other material legal proceedings pending, other than ordinary
routine litigation incidental to the Company's business, to which the Company is
a party. There are no material legal proceedings to which an officer or director
is a party or has a material interest adverse to the Company or its
subsidiaries. There are no other material administrative or judicial proceedings
arising under environmental quality or civil rights statutes pending or known to
be contemplated by governmental agencies to which the Company is or would be a
party.
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<PAGE> 15
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
27 Financial Data Schedule for the period ended September 30, 2000.
(B) REPORTS ON FORM 8-K:
None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NRG Northeast Generating LLC
----------------------------
(Registrant)
/s/ Craig A. Mataczynski
---------------------------------
Craig A. Mataczynski, President
/s/ Brian B. Bird
----------------------------------
Brian B. Bird, Treasurer
(Principal Financial Officer)
Date: December 1, 2000
--------------------------------------
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