<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 23, 2000
REGISTRATION NO. 333-42638
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
NRG NORTHEAST GENERATING LLC
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 4911 41-1937472
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
------------------------
901 MARQUETTE AVENUE, SUITE 2300
MINNEAPOLIS, MINNESOTA 55402
(612) 373-5300
(ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANTS' PRINCIPAL EXECUTIVE OFFICES)
------------------------
SEE TABLE OF ADDITIONAL REGISTRANTS
------------------------
JAMES J. BENDER, ESQ.
NRG NORTHEAST GENERATING LLC
901 MARQUETTE AVENUE, SUITE 2300
MINNEAPOLIS, MINNESOTA 55402
(612) 373-5300
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPY TO:
STACY J. KANTER, ESQ.
ERICA A. WARD, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
FOUR TIMES SQUARE
NEW YORK, NY 10036-6522
(212) 735-3000
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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PROPOSED MAXIMUM PROPOSED MAXIMUM
AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING
TITLE OF CLASS OF SECURITIES TO BE REGISTERED REGISTERED PER BOND(1) PRICE(1)
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
8.065% Series A-1 Senior Secured Bonds due
2004.................. $320,000,000 100% $320,000,000
------------------------------------------------------------------------------------------------------------------
8.842% Series B-1 Senior Secured Bonds
due 2015.............. $130,000,000 100% $130,000,000
------------------------------------------------------------------------------------------------------------------
9.292% Series C-1 Senior Secured Bonds due
2024.................. $300,000,000 100% $300,000,000
------------------------------------------------------------------------------------------------------------------
Guarantees.............. -- -- --
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------------------------------------------------------------------------------------------------------------------
<CAPTION>
--------------------------------------------- -------------------
--------------------------------------------- -------------------
AMOUNT OF
TITLE OF CLASS OF SECURITIES TO BE REGISTERED REGISTRATION FEE
--------------------------------------------- -------------------
<S> <C>
8.065% Series A-1 Senior Secured Bonds due
2004.................. $84,480(3)
--------------------------------------------------------------------------------------
8.842% Series B-1 Senior Secured Bonds
due 2015.............. $34,320(3)
----------------------------------------------------------------------------------------------------------
9.292% Series C-1 Senior Secured Bonds due
2024.................. $79,200(3)
------------------------------------------------------------------------------------------------------------------
Guarantees.............. (2)
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(f) promulgated under the Securities Act of 1933, as
amended.
(2) No separate consideration will be received for the Guarantees, and,
therefore, no additional registration fee is required.
(3) Pursuant to Rule 457(a) under the Securities Act, $84,480, $34,320 and
$79,200, respectively, of the Registration Fee was previously paid in
connection with the initial filing of this Registration Statement on Form
S-4 with the Securities and Exchange Commission on July 31, 2000.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT WILL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT WILL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OR UNTIL THIS REGISTRATION STATEMENT WILL BECOME EFFECTIVE ON
SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE> 2
TABLE OF ADDITIONAL REGISTRANTS
<TABLE>
<CAPTION>
PRIMARY STANDARD
EXACT NAME OF STATE OR OTHER JURISDICTION OF INDUSTRIAL CLASSIFICATION I.R.S. EMPLOYER
ADDITIONAL REGISTRANTS INCORPORATION OR FORMATION CODE NUMBER IDENTIFICATION NUMBER
------------------------------ ------------------------------- ------------------------- ---------------------
<S> <C> <C> <C>
Arthur Kill Power LLC* Delaware 4911 41-1937469
Astoria Gas Turbine Power LLC* Delaware 4911 41-1937470
Connecticut Jet Power LLC* Delaware 4911 41-1949386
Devon Power LLC* Delaware 4911 41-1949385
Dunkirk Power LLC* Delaware 4911 41-1937466
Huntley Power LLC* Delaware 4911 41-1937468
Middletown Power LLC* Delaware 4911 41-1949384
Montville Power LLC* Delaware 4911 41-1949383
Norwalk Power LLC* Delaware 4911 41-1949381
Oswego Harbor Power LLC* Delaware 4911 41-1937465
Somerset Power LLC* Delaware 4911 41-1924606
</TABLE>
---------------
* Address and telephone of principal executive offices are the same as those of
NRG Northeast Generating LLC.
<PAGE> 3
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT
SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER
OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED OCTOBER , 2000.
PROSPECTUS
NRG LOGO
NRG NORTHEAST GENERATING LLC
EXCHANGE OFFER FOR
$320,000,000 8.065% SERIES A-1 SENIOR SECURED BONDS DUE 2004
$130,000,000 8.842% SERIES B-1 SENIOR SECURED BONDS DUE 2015
$300,000,000 9.292% SERIES C-1 SENIOR SECURED BONDS DUE 2024
------------------------
THIS EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON NOVEMBER 27, 2000, UNLESS EXTENDED.
------------------------
TERMS OF THE EXCHANGE OFFER:
- We will exchange all outstanding bonds that are validly tendered and not
withdrawn prior to the expiration of the exchange offer.
- You may withdraw tendered outstanding bonds at any time prior to the
expiration of the exchange offer.
- The exchange of outstanding bonds will not be a taxable exchange for United
States federal income tax purposes.
- The terms of the bonds to be issued are substantially identical to the terms
of the outstanding bonds, except that transfer restrictions, registration
rights and liquidated damages provisions relating to the outstanding bonds do
not apply.
- We will not receive any proceeds from the exchange offer.
- There is no existing market for the bonds to be issued, and we do not intend
to apply for their listing on any securities exchange.
See the "Description of the Bonds" section beginning on page 67 for more
information about the bonds to be issued in this exchange offer.
THIS INVESTMENT INVOLVES RISKS. SEE THE SECTION ENTITLED "RISK FACTORS"
BEGINNING ON PAGE 17 FOR A DISCUSSION OF THE RISKS THAT YOU SHOULD CONSIDER
PRIOR TO TENDERING YOUR OUTSTANDING BONDS FOR EXCHANGE.
------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES AND
EXCHANGE COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED
UPON THE ADEQUACY OR THE ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
------------------------
Prospectus dated October , 2000.
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Where You Can Find More Information......................... ii
Forward-Looking Statements.................................. iii
Prospectus Summary.......................................... 1
Risk Factors................................................ 17
The Exchange Offer.......................................... 24
Use of Proceeds............................................. 33
Capitalization.............................................. 33
Selected Historical Financial Data.......................... 34
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 35
NRG Northeast, NRG Energy and Xcel Energy................... 39
Business of NRG Northeast and the Guarantors................ 41
Management.................................................. 56
Certain Relationships and Related Transactions.............. 58
Summary of Certain Principal Agreements..................... 59
Description of the Bonds.................................... 67
Description of Principal Financing Documents................ 74
Plan of Distribution........................................ 95
Certain U.S. Federal Income Tax Considerations.............. 96
Legal Matters............................................... 96
Experts..................................................... 96
Index to Financial Statements............................... F-1
Appendix: Glossary of Defined Terms......................... A-1
</TABLE>
------------------------
Our principal executive offices are located at 901 Marquette Avenue, Suite
2300, Minneapolis, Minnesota 55402, and our telephone number is (612) 373-5300.
i
<PAGE> 5
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-4 under the Securities Act of 1933 with respect to the bonds
offered in this prospectus. This prospectus, which forms part of the
registration statement, does not contain all of the information that is included
in the registration statement. You will find additional information about our
company and the bonds in the registration statement. Any statements made in this
prospectus concerning the provisions of legal documents are not necessarily
complete and you should read the documents that are filed as exhibits to the
registration statement for a more complete understanding of the document or
matter.
After the registration statement becomes effective, we will be subject to
the informational requirements of the Exchange Act of 1934, and will file
periodic reports, registration statements and other information with the SEC.
You may read and copy the registration statement and any of the other documents
we file with the SEC at the public reference facilities maintained by the SEC at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and
at the SEC's regional offices located at 7 World Trade Center, New York, New
York 10048 and at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Please call the SEC at 1-800-SEC-0330 for more information on
the public reference rooms. In addition, reports and other filings are available
to the public on the SEC's web site at http://www.sec.gov.
If for any reason we are not subject to the reporting requirements of the
Securities Exchange Act of 1934 in the future, we will still be required under
the indenture governing the bonds to furnish the holders of the bonds with
certain financial and reporting information. See "Description of Principal
Financing Documents -- Indenture -- Covenants of NRG Northeast -- Information
Requirements" for a description of the information we are required to provide.
NRG ENERGY, INC.
NRG Energy, Inc. files annual, quarterly and special reports, proxy
statements and other information with the SEC. You may read and copy any
document NRG Energy files 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-SEC-0330 for further information on the public reference rooms. NRG
Energy's SEC filings are also available to the public from the SEC's web site at
http://www.sec.gov. In addition, NRG Energy's SEC filings are available at the
offices of the New York Stock Exchange. For further information on obtaining
copies of NRG Energy's public filings at the New York Stock Exchange, you should
call (212) 656-5060.
You should rely only on the information provided in this prospectus or any
supplement. NRG Energy has not authorized anyone else to provide you with
different information. You should not assume that the information in this
prospectus is accurate as of any date other than the date on the front of this
prospectus.
XCEL ENERGY INC.
Xcel Energy Inc., formerly Northern States Power Company, files annual,
quarterly and special reports, proxy statements and other information with the
SEC. You may read and copy any document Xcel Energy files 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-SEC-0330 for further information on the public
reference rooms. Xcel Energy's SEC filings are also available to the public from
the SEC's web site at http://www.sec.gov. In addition, Xcel Energy's SEC filings
are available at the offices of the New York Stock Exchange. For further
information on obtaining copies of Xcel Energy's public filings at the New York
Stock Exchange, you should call (212) 656-5060.
You should rely only on the information provided in this prospectus or any
supplement. Xcel Energy has not authorized anyone else to provide you with
different information. You should not assume that the information in this
prospectus is accurate as of any date other than the date on the front of this
prospectus.
ii
<PAGE> 6
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements, which give our current
expectations of future events. You will recognize these statements because they
do not strictly relate to historical or current facts. Such statements may use
words such as "anticipate," "estimate," "expect," "project," "intend," "think,"
"believe," "will," "should" and other words or terms of similar meaning in
connection with any discussion of our future performance. For example, these
include statements relating to future actions, future performance, expenses and
the impact of the capital markets on our liquidity. From time to time, we also
may provide oral or written forward-looking statements in other material
released to the public.
Any or all of our forward-looking statements in this prospectus and in any
other public statements we make may turn out to be incorrect. They can be
affected by inaccurate assumptions or by known or unknown risks and
uncertainties. Many factors, which cannot be predicted with certainty, will be
important in determining our future results. Among such factors are:
- governmental, statutory, regulatory or administrative changes or
initiatives affecting us, the guarantors, our facilities, the contracts
relating to such facilities or the United States electricity industry
generally;
- demand for electric capacity and energy in the markets served by our
facilities;
- competition from other power plants, including new plants that may be
developed in the future;
- the cost and availability of fuel, fuel transportation services and
emissions credits for our facilities;
- our limited operating history as a stand-alone entity;
- the limited operating history of the entity which is providing power
marketing and fuel and emissions procurement services to us;
- the creditworthiness of our customers and other parties with whom we have
contracts;
- the cost and availability of transmission capacity for the electrical
energy generated by our facilities or required to satisfy power sales
made on our behalf;
- general economic conditions;
- demographic changes; and
- technological changes.
As a result of these factors, actual future results may vary materially.
Also, please note that the factors we discuss in this prospectus are those we
think could cause our actual results to differ materially from expected and
historical results. Other factors besides those listed above or under "Risk
Factors" could also adversely affect us.
Some of these factors and others are more fully discussed under the caption
"Risk Factors."
------------------------
iii
<PAGE> 7
PROSPECTUS SUMMARY
This summary contains basic information about us and this exchange offer
but may not contain all the information that is important to you. For a more
complete understanding of this exchange offer, we encourage you to read this
entire prospectus and the documents we refer you to. The words "we," "our,"
"ours" and "us" refer to NRG Northeast and include our guarantors on a
consolidated basis unless otherwise specified, and the term "NRG Northeast"
refers to NRG Northeast Generating LLC in its individual capacity, unless
otherwise specified. The term "bonds" refers, collectively, to the 8.065% Series
A-1 Senior Secured Bonds due 2004, the 8.842% Series B-1 Senior Secured Bonds
due 2015, and the 9.292% Series C-1 Senior Secured Bonds due 2024 offered in
this prospectus. The term "outstanding bonds" refers, collectively, to the
8.065% Series A Senior Secured Bonds due 2004, the 8.842% Series B Senior
Secured Bonds due 2015, and the 9.292% Series C Senior Secured Bonds due 2024
issued on February 22, 2000. You should carefully consider the information set
forth under "Risk Factors." In addition, certain statements are forward-looking
statements which involve risks and uncertainties. See "Forward-Looking
Statements." Certain terms used in this prospectus are defined in the "Glossary
of Defined Terms" included as Appendix A hereto.
THE EXCHANGE OFFER
BONDS OFFERED................. $320,000,000 aggregate principal amount of new
8.065% Series A-1 Senior Secured Bonds due
2004;
$130,000,000 aggregate principal amount of new
8.842% Series B-1 Senior Secured Bonds due
2015; and
$300,000,000 aggregate principal amount of new
9.292% Series C-1 Senior Secured Bonds due
2024,
all of which have been registered under the
Securities Act.
The terms of the bonds offered in the exchange
offer are substantially identical to those of
the outstanding bonds, except that certain
transfer restrictions, registration rights and
liquidated damages provisions relating to the
outstanding bonds do not apply to the new
registered bonds.
OUTSTANDING BONDS............. $320,000,000 aggregate principal amount of
8.065% Series A Senior Secured Bonds due 2004;
$130,000,000 aggregate principal amount of
8.842% Series B Senior Secured Bonds due 2015;
and
$300,000,000 aggregate principal amount of
9.292% Series C Senior Secured Bonds due 2024,
all of which were issued on February 22, 2000.
THE EXCHANGE OFFER............ We are offering to issue registered bonds in
exchange for a like principal amount and like
denomination of our outstanding bonds. We are
offering to issue these registered bonds to
satisfy our obligations under a registration
rights agreement that we entered into with the
initial purchasers of the outstanding bonds
when we sold them in a transaction that was
exempt from the registration requirements of
the Securities Act. You may tender your
outstanding bonds for exchange by following the
procedures described under the caption "The
Exchange Offer."
1
<PAGE> 8
TENDERS; EXPIRATION DATE;
WITHDRAWAL.................... The exchange offer will expire at 5:00 p.m.,
New York City time, on November 27, 2000,
unless we extend it. If you decide to exchange
your outstanding bonds for new bonds, you must
acknowledge that you are not engaging in, and
do not intend to engage in, a distribution of
the new bonds. You may withdraw any bonds that
you tender for exchange at any time prior to
November 27, 2000. If we decide for any reason
not to accept any outstanding bonds you have
tendered for exchange, those outstanding bonds
will be returned to you without cost promptly
after the expiration or termination of the
exchange offer. See "The Exchange Offer --
Terms of the Exchange Offer" for a more
complete description of the tender and
withdrawal provisions.
CONDITIONS TO THE EXCHANGE
OFFER......................... The exchange offer is subject to customary
conditions, some of which we may waive.
U.S. FEDERAL INCOME TAX
CONSEQUENCES................ Your exchange of outstanding bonds for bonds to
be issued in the exchange offer will not result
in any gain or loss to you for U.S. federal
income tax purposes.
USE OF PROCEEDS............... We will not receive any cash proceeds from the
exchange offer.
EXCHANGE AGENT................ The Chase Manhattan Bank.
CONSEQUENCES OF FAILURE TO
EXCHANGE...................... Outstanding bonds that are not tendered or that
are tendered but not accepted will continue to
be subject to the restrictions on transfer that
are described in the legend on those bonds. In
general, you may offer or sell your outstanding
bonds only if they are registered under, or
offered or sold under an exemption from, the
Securities Act and applicable state securities
laws. We, however, will have no further
obligation to register the outstanding bonds.
If you do not participate in the exchange
offer, the liquidity of your bonds could be
adversely affected.
CONSEQUENCES OF EXCHANGING
YOUR BONDS.................... Based on interpretations of the staff of the
SEC, we believe that you may offer for resale,
resell or otherwise transfer the bonds that we
issue in the exchange offer without complying
with the registration and prospectus delivery
requirements of the Securities Act if you:
- acquire the bonds issued in the exchange
offer in the ordinary course of your
business;
- are not participating, do not intend to
participate, and have no arrangement or
undertaking with anyone to participate, in
the distribution of the bonds issued to you
in the exchange offer; and
- are not an "affiliate" of our company as
defined in Rule 405 of the Securities Act.
If any of these conditions are not satisfied
and you transfer any bonds issued to you in the
exchange offer without delivering a proper
prospectus or without qualifying for a
registration exemp-
2
<PAGE> 9
tion, you may incur liability under the
Securities Act. We will not be responsible for
or indemnify you against any liability you may
incur.
Any broker-dealer that acquires bonds in the
exchange offer for its own account in exchange
for outstanding bonds which it acquired through
market-making or other trading activities, must
acknowledge that it will deliver a prospectus
when it resells or transfers any bonds issued
in the exchange offer. See "Plan of
Distribution" for a description of the
prospectus delivery obligations of
broker-dealers in the exchange offer.
3
<PAGE> 10
THE BONDS
The terms of the bonds we are issuing in this exchange offer and the
outstanding bonds are identical in all material respects, except:
- the bonds will have been registered under the Securities Act;
- the bonds will not contain transfer restrictions and registration rights
that relate to the outstanding bonds; and
- the bonds will not contain provisions relating to the payment of
liquidated damages to be made to the holders of the outstanding bonds
under circumstances related to the timing of the exchange offer.
A brief description of the material terms of the bonds follows:
ISSUER........................ NRG Northeast Generating LLC.
BONDS OFFERED................. $320,000,000 aggregate principal amount of
8.065% Series A-1 Senior Secured Bonds due
December 15, 2004;
$130,000,000 aggregate principal amount of
8.842% Series B-1 Senior Secured Bonds due June
15, 2015; and
$300,000,000 aggregate principal amount of
9.292% Series C-1 Senior Secured Bonds due
December 15, 2024.
ISSUE PRICE................... The issue price of the outstanding bonds was
the principal amount of the outstanding bonds
plus interest accrued from February 22, 2000.
INTEREST PAYMENT DATES........ June 15 and December 15 of each year,
commencing June 15, 2000.
AMORTIZATION.................. Principal of the bonds will be repaid in
accordance with the schedule set forth under
"Description of the Bonds -- Amortization of
the Bonds."
INITIAL AVERAGE LIVES......... Series A-1 Senior Secured Bonds due 2004:
approximately 2.4 years; Series B-1 Senior
Secured Bonds due 2015: approximately 9.5
years; and Series C-1 Senior Secured Bonds due
2024: approximately 21.7 years.
DENOMINATIONS................. NRG Northeast will issue the bonds in minimum
denominations of $100,000 or any integral
multiple of $1,000 in excess of $100,000.
RATINGS....................... "Baa3" by Moody's Investors Service, Inc. and
"BBB-" by Standard & Poor's Rating Services.
GUARANTORS.................... Each of our existing and certain future
subsidiaries will jointly and severally
guarantee the bonds. NRG Northeast has agreed
that it will at all times maintain at least a
50% ownership interest in the guarantors.
NATURE OF OBLIGATIONS......... NRG Northeast is obligated to make payments on
the bonds. Neither NRG Energy, our indirect
parent, nor Xcel Energy (formerly Northern
States Power Company), which indirectly owns
approximately 82% of the stock outstanding and
98% of the combined voting power of NRG
Energy's common stock and class A common stock,
nor any of their affiliates (other than the
guarantors) have guaranteed payment of the
bonds nor do they have any obligation to make
payments on the bonds (other than
4
<PAGE> 11
NRG Energy's obligation under any debt service
reserve support instrument).
OPTIONAL REDEMPTION........... NRG Northeast may redeem the bonds in whole or
in part at any time at a redemption price equal
to:
- 100% of the principal amount of the bonds
being redeemed, plus
- interest on the bonds being redeemed accrued
and unpaid through the date of redemption,
plus
- a make-whole premium based on an amount equal
to the excess, if any, of
(a) the present value of all interest and
principal payments scheduled to become due in
respect to the bonds (which is to be
determined on the basis of a discount rate
equal to the sum of a treasury rate plus 25
basis points) over
(b) the outstanding principal amount of the
applicable bonds.
MANDATORY REDEMPTION.......... The bonds will be subject to a mandatory
redemption in whole or in part in the event we
receive casualty insurance proceeds or
condemnation proceeds, as applicable, in
respect of any loss or damage to or
condemnation or other governmental taking of
any of our facilities or any part thereof, in
excess of $10 million; provided that we will
first be permitted to repair or rebuild such
facilities, or parts thereof, where there are
sufficient funds (including such insurance or
condemnation proceeds) to do so, and if we
provide an officer's certificate that certifies
that no material adverse effect on us could
reasonably be expected to result.
In the event that we repair or rebuild our
facilities and the insurance or condemnation
proceeds are greater than the cost of such
repair or rebuilding and if such excess amount
is greater than $5 million, only the remaining
insurance or condemnation proceeds over $5
million will be used for a mandatory redemption
or a repayment of senior secured indebtedness.
In the event of a mandatory redemption, the
redemption price for the bonds will be 100% of
the principal amount of the bonds being
redeemed plus interest accrued through the date
of redemption. Upon the occurrence of any event
requiring a redemption of bonds, we will be
required to redeem the bonds and repay other
senior secured indebtedness on a pro rata basis
in an aggregate amount equal to the loss
proceeds to be applied as described above.
CHANGE OF CONTROL............. Upon the occurrence of events involving a
change of control, we will be required to offer
to repurchase all or any part of the
outstanding bonds on the immediately following
payment date at a cash price equal to 101% of
the then outstanding principal amount of the
bonds, plus accrued and unpaid interest to the
date of payment. A change of control means:
- the acquisition of ownership, directly or
indirectly, beneficially or of record or
otherwise, by any person or group (within the
meaning of the Exchange Act and the rules of
the SEC thereunder as in effect on the date
of this prospectus) other than NRG
5
<PAGE> 12
Energy or its wholly-owned subsidiaries, of
ownership interests representing more than
50% of the aggregate ordinary voting power
represented by our membership interests; or
- the acquisition of direct or indirect control
of us by any person or group other than NRG
Energy or its wholly-owned subsidiaries.
However, there will be no change of control if
either:
- we receive a confirmation of the ratings of
the bonds in effect immediately prior to the
occurrence of the change of control; or
- the change of control is approved by holders
of bonds holding at least 66 2/3% in
aggregate principal amount of the
then-outstanding bonds.
DEBT SERVICE RESERVE
ACCOUNT....................... NRG Northeast established a debt service
reserve account for the benefit of the holders
of the bonds. This account must contain at all
times a sufficient amount to pay the projected
principal and interest on all series of bonds
due on the next scheduled payment date for each
series of bonds. We do not have to fund this
account with cash if we obtain an acceptable
debt service reserve support instrument, which
may be either an unconditional guarantee by NRG
Energy or any of its affiliates other than NRG
Northeast (so long as NRG Energy or such
affiliate maintains a long-term senior
unsecured debt rating of "Baa3" or better by
Moody's and "BBB-" or better by S&P) or a
letter of credit provided by a commercial bank
or other financial institution with a long-term
senior unsecured debt rating of "A2" or better
by Moody's and "A" or better by S&P. The
trustee will disburse funds from this account
only to pay principal and interest on, and fees
in respect of, the bonds in certain
circumstances. Currently the debt service
reserve requirement is being satisfied by a
guarantee given by NRG Energy.
RANKING OF THE BONDS.......... The bonds:
- are senior obligations of NRG Northeast;
- are equal in right of payment to all of NRG
Northeast's existing and future senior
indebtedness; and
- rank senior in right of payment to all of the
existing and future subordinated indebtedness
of NRG Northeast.
RANKING OF THE GUARANTEES..... The obligations under the guarantees:
- are senior obligations of the relevant
guarantor; and
- are equal in right of payment to all such
guarantor's indebtedness, which is restricted
to intercompany notes.
COLLATERAL.................... The bonds will be secured by a security
interest in:
- NRG Northeast's membership or other ownership
interests in the guarantors;
- NRG Northeast's rights under all intercompany
notes between NRG Northeast and the
guarantors;
6
<PAGE> 13
- the power sales and agency agreements, the
operations and maintenance agreements, the
corporate services agreements, the transition
power sales contracts entered into by NRG
Power Marketing or the guarantors and the
funds administration agreement;
- the debt service reserve account; and
- the revenues from power sales contracts
entered into by NRG Power Marketing
associated with existing or future facilities
owned by NRG Northeast or the guarantors.
Pursuant to a collateral agency and
intercreditor agreement, The Chase Manhattan
Bank will act as collateral agent and maintain
the collateral for the benefit of the trustee,
as representative of the holders of the bonds,
the agents under the working capital facility
and the lenders or agents in connection with
future senior secured debt, except for the debt
service reserve account which will be
maintained by the trustee solely for the
holders of the bonds and any bonds issued under
the indenture in the future. See "Description
of Principal Financing Documents -- Collateral
Agency and Intercreditor Agreement."
COVENANTS OF NRG NORTHEAST.... The terms of the indenture require NRG
Northeast to, among other things:
- provide financial statements, default notices
and other notices to the trustee;
- maintain our property and existence;
- maintain certain agreements;
- comply with applicable laws;
- pay taxes and maintain books and records;
- maintain certain insurance coverage;
- make certain future subsidiaries guarantors
of the bonds and retain in excess of a 50%
ownership interest in all guarantors;
- comply with certain regulatory requirements;
- maintain the debt service reserve account;
- comply with the financial information
requirements required under the indenture
until bonds that have been registered with
the SEC have been issued in exchange for the
outstanding bonds in accordance with the
registration rights agreement described
below; and
- maintain registration under the Exchange Act
after issuance of those bonds so long as
required by law.
The terms of the indenture restrict NRG
Northeast's ability to, among other things:
- incur additional debt;
- incur liens on its property or pledge its
assets;
7
<PAGE> 14
- engage in mergers, consolidations and sales
of assets;
- take any action which subjects NRG Northeast
or the guarantors to certain taxes;
- make distributions;
- make investments and acquisitions;
- enter into certain transactions with
affiliates; and
- enter into businesses other than ownership
and operation of power generation facilities
and ownership of subsidiaries which are
guarantors and unrestricted subsidiaries.
These restrictions are subject to a number of
important qualifications and exceptions which
are described under "Description of Principal
Financing Documents -- Indenture."
COVENANTS OF THE GUARANTORS... The terms of the indenture require each
guarantor to, among other things:
- maintain its property and existence;
- maintain certain insurance coverage;
- operate its facilities in accordance with
prudent industry practice; and
- comply with applicable laws.
The terms of the indenture restrict each
guarantor's ability to, among other things:
- incur any additional debt;
- incur liens on its property or pledge its
assets;
- engage in mergers, consolidations and sales
of assets;
- make distributions to any person other than
NRG Northeast;
- make investments and acquisitions;
- enter into certain transactions with
affiliates;
- enter into agreements which restrict its
ability to distribute money to NRG Northeast;
and
- enter into businesses other than the
ownership and operation of power generation
facilities.
These restrictions are subject to a number of
important qualifications and exceptions which
are described under the caption "Description of
Principal Financing Documents -- Indenture."
EXCHANGE OFFER; REGISTRATION
RIGHTS........................ We have agreed to use our reasonable best
efforts to:
- file a registration statement with the SEC
relating to the offer to exchange the
outstanding bonds for publicly registered
bonds with identical terms; and
- cause that registration statement to be
declared effective by November 20, 2000.
8
<PAGE> 15
If applicable interpretations of the staff of
the SEC do not permit NRG Northeast and the
guarantors to effect the exchange offer, we
will use our reasonable best efforts to file
with the SEC a registration statement for the
resale of the bonds and cause that registration
statement to be declared effective.
In the event that the registration statement is
not declared effective by November 20, 2000, or
the exchange offer is not consummated by
January 3, 2001, or if any such registration
statement ceases to be effective or useable
during the specified time period, we will be
obligated to pay additional interest in the
amount of 50 basis points to the holders of the
bonds until the registration statement is
declared effective and is useable or the
exchange offer is consummated.
Upon consummation of the exchange offer,
holders of the outstanding bonds will no longer
have any rights under the registration rights
agreement, except to the extent we have
continuing obligations to file a registration
statement for the resale of the bonds as
described above. For additional information,
see "Description of Principal Financing
Documents -- Registration Rights Agreement."
GOVERNING LAW................. The bonds and the documents related to the
issuance of the bonds will be governed by, and
construed in accordance with, the laws of the
State of New York.
9
<PAGE> 16
THE COMPANY
NRG Northeast Generating LLC is a Delaware limited liability company which,
through its family of subsidiaries, owns electric power generation plants in the
northeastern region of the United States. NRG Northeast is an indirect,
wholly-owned subsidiary of NRG Energy which has made a net investment of
approximately $921 million in NRG Northeast as of June 30, 2000.
We own a total of ten fossil fuel-fired and six remote gas turbine electric
power generation plants located in Connecticut, Massachusetts and New York,
providing approximately 6,495 MW of capable generating capacity. There are a
variety of ways in which the capacity of electric power generation plants can be
measured. We have chosen to express the capacity of our plants in terms of
capable generating capacity throughout this prospectus. A table summarizing the
characteristics of these facilities is set forth on page 12. We are a major
owner of independent electric power generation in terms of net megawatts of
generating capacity in the northeastern region of the United States.
Our assets represent a diversified regional base of competitive generating
facilities close to major load centers. Our revenues are derived from base-load
facilities, intermediate load facilities and peaking facilities. The facilities
are diversified in terms of fuel usage and include coal, natural gas and fuel
oil plants.
Our facilities sell their electrical power to diversified customers and
markets. In the first four calendar years of the term of the bonds, we expect to
sell a significant portion of our power pursuant to transition power sales
contracts with certain of the parties from whom we purchased the facilities. We
expect to sell the remainder of our power during this period primarily by
bidding into the New England Power Pool, which we will refer to as the NEPOOL,
and the New York Power Pool, which we will refer to as the NYPP (including the
area of the NYPP which is located in New York City and certain surrounding areas
which we will refer to as the New York City in-city market), the power pools in
which our facilities are located, and power pools in other areas. In later
years, we will look to maximize our revenues by seeking to optimize the mix of
sales pursuant to contracts and sales directly into these pools.
The facilities were purchased at prices we believe to be competitive
compared to recent auctions of generation assets in the northeastern region of
the United States. In addition, we believe that:
- The Dunkirk and Huntley facilities are among the lowest variable cost
fossil fuel plants that sell into the NYPP; we will operate these assets
as base-load facilities.
- The Connecticut facilities are strategically positioned for sales into
the NEPOOL and have a competitive advantage on transmission charges; we
will operate these facilities as peaking and intermediate facilities to
take advantage of market volatility.
- The Somerset facility provides low variable cost capacity, strategically
positioned to sell power into the NEPOOL; we intend to operate this
facility as a peaking and base-load facility, depending on market
conditions.
- The Oswego facility provides very low cost capacity and is a source of
excess emissions allowances that can be utilized at our other facilities;
we expect to operate this facility as a peaking facility.
- The Arthur Kill and Astoria facilities are located in the New York City
in-city market and represent approximately 20% of installed capacity
inside this transmission constrained area. We expect to benefit from the
fact that load serving entities in the New York City in-city market must
currently contract for 80% of their load obligation from in-city
resources and there is limited potential to construct new in-city
generation capacity or to gain transmission access to other generation
capacity. We expect to operate the Arthur Kill facility as an
intermediate and peaking facility and the Astoria facility as a peaking
facility.
We believe certain of the facilities and facility sites provide
opportunities for repowering or expansion of generation capacity. We also
believe that the diversity of our facilities, in terms of operating
characteristics, fuel sources, markets served, as well as their locational
advantages, puts us in a position to realize overall operational and financial
management synergies relating to integration of our fuel supply management and
10
<PAGE> 17
operating activities. Our relationship with NRG Energy allows us to draw on its
years of experience in the power sector by contracting with it and its
affiliates for many of these services.
NRG Northeast was formed for the purpose of financing, acquiring, owning,
operating and maintaining, through its subsidiaries and affiliates, the
independent electric generating facilities described in the following chart and
any others that we may acquire in the future.
Our headquarters and principal executive offices are located at 901
Marquette Avenue, Suite 2300, Minneapolis, Minnesota 55402. Our telephone number
is (612) 373-5300.
11
<PAGE> 18
NRG NORTHEAST FACILITIES
<TABLE>
<CAPTION>
FACILITY/LOCATION/ CAPABLE NO. OF POWER SALES
POWER POOL LOCATION MW UNITS DISPATCH TYPE FUEL TYPE CONTRACTS* SELLING UTILITY
------------------- ------- ------ ------------- --------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
ARTHUR KILL/ 842 3 Intermediate/ Natural Gas/Oil Yes The Consolidated Edison
Staten Island, NY/ Peaking Company of New York,
NYPP, New York City Inc. ("ConEd")
in-city
ASTORIA GAS TURBINES/ 614 11 Peaking Natural Gas/Oil Yes ConEd
Queens, NY/
NYPP, New York City
in-city
CONNECTICUT JET POWER/ 110 6 Peaking Oil Yes The Connecticut Light &
Branford, Cos Cob Power Company ("CL&P")
Torrington, and
Franklin Drive,
CT/NEPOOL
DEVON/ 358 7 Intermediate/ Natural Gas/Oil Yes CL&P
Milford, CT/ Peaking
NEPOOL
DUNKIRK/ 582 4 Base-load Coal Yes Niagara Mohawk Power
Dunkirk, NY/ Corporation ("NiMo")
NYPP
HUNTLEY/ 566 6 Base-load Coal Yes NiMo
Buffalo, NY/
NYPP
MIDDLETOWN/ 770 4 Intermediate/ Natural Gas/Oil Yes CL&P
Middletown, CT/ Peaking
NEPOOL
MONTVILLE/ 498 4 Intermediate/ Natural Gas/Oil Yes CL&P
Uncasville, CT/ Peaking
NEPOOL
NORWALK HARBOR/ 342 3 Intermediate/ Oil Yes CL&P
S. Norwalk, CT/ NEPOOL Peaking
OSWEGO/ 1,660 2 Peaking Oil/Natural Gas Yes NiMo/Rochester Gas and
Oswego, NY/ Electric Corporation
NYPP ("RG&E")
SOMERSET/ 153** 3** Base-load/ Coal/Oil Yes Montaup Electric Company
Somerset, MA/ Peaking ("MEC")
NEPOOL
Total................... 6,495 53
</TABLE>
---------------
* These contracts include the Arthur Kill and Astoria transition capacity
agreements, the Dunkirk and Huntley swap and transition power and energy
agreements, the Oswego transition power agreement, the Somerset wholesale
standard offer service agreement and the CL&P standard offer service
wholesale sales agreements. See "Summary of Certain Principal Agreements."
** One unit representing approximately 24 MW of capacity is currently leased to
Vermont Electric Power Company ("VELCO").
12
<PAGE> 19
OUR BUSINESS
We are a major owner of independent electric power generation in the
northeastern region of the United States. Our regional base of competitive
generating facilities is close to major load centers. We intend to pursue a
strategy of enhancing profitability and competitiveness of these facilities
through their efficient operation. We believe the diversity of our facilities,
in terms of operational characteristics and location in and access to multiple
power pools and fuel sources, is an important part of this strategy.
In order to operate our facilities and be competitive, we need to address
power marketing, fuel procurement, emissions management and operations and
maintenance issues relating to the facilities. We are utilizing certain
resources of NRG Energy and its affiliates by entering into contracts with NRG
Energy, NRG Power Marketing and subsidiaries of NRG Operating Services, to
provide key administrative, marketing and operational services to us. An example
of these contractual arrangements is shown in a diagram on page 15.
In particular, NRG Power Marketing, a wholly-owned subsidiary of NRG
Energy, has entered into power sales and agency agreements with each of the
guarantors for terms of approximately 30 years. NRG Power Marketing provides all
power marketing services, fuel procurement services and emissions management
services for the guarantors.
POWER MARKETING. NRG Power Marketing provides power marketing services to
the guarantors, including scheduling, pool bidding, contract management and
bilateral sales of excess capacity, energy and ancillary services, with gross
receipts less costs incurred due to the guarantors from such activities flowing
to NRG Northeast. NRG Power Marketing has the exclusive rights to market all
capacity, energy and ancillary services from the guarantors that the guarantors
have not otherwise committed under other contracts.
FUEL PROCUREMENT. NRG Power Marketing provides fuel procurement services
for natural gas, coal and oil purchasing; fuel inventory management; and
transportation arrangements. As part of NRG Northeast's fuel procurement
strategy, NRG Power Marketing will pursue short and intermediate fuel contracts
to hedge power sales contracts and other forward sales of power.
EMISSIONS MANAGEMENT. NRG Power Marketing provides emissions management
services for tracking, procurement, sales and allocation of emission allowances.
NRG Power Marketing will also assist the guarantors in performing ongoing
analyses comparing costs of installing and operating environmental control
equipment to emissions allowance procurement.
RISK MANAGEMENT. NRG Power Marketing will utilize certain risk management
policies and procedures to assist us with our objectives of maximizing net
operating margins while minimizing the risks associated with the cash flows
derived from these assets. Key risk management guidelines adopted by NRG Power
Marketing include: (i) a general prohibition on speculative activities; (ii)
mitigation of operational risk by not allowing more than 50% of available output
not already contracted to be sold forward unless approved by the NRG Power
Marketing board of directors; (iii) approval of counter-parties and their
trading limits by NRG Energy's treasury; and (iv) fuel and emissions allowance
requirements to be matched with future power sales commitments. These risk
management policies and procedures can only be changed by NRG Power Marketing's
board of directors.
OPERATIONS AND MAINTENANCE. Each of the guarantors has entered into an
operation and maintenance agreement with a separate subsidiary of NRG Operating
Services (other than the guarantors which own the Connecticut Jet and Middletown
facilities, which share an operator), which is a wholly-owned subsidiary of NRG
Energy. NRG Energy, through NRG Operating Services or other subsidiaries,
currently has contracts for the operations and maintenance of approximately
7,800 MW of power generation at thirty-one facilities worldwide, excluding the
NRG Northeast assets. Each NRG Operating Services subsidiary will be responsible
for operating and maintaining specific facilities.
SIGNIFICANT CUSTOMERS. We derived approximately 85.6% of our 1999 revenues
from three customers: NiMo (35.0%), ConEd (33.0%) and Eastern Utility
Association (17.6%). We sell energy and capacity to these customers under
transition agreements expiring in 2003, 2002 and 2009, respectively. For the
first six
13
<PAGE> 20
months of 2000, we derived approximately 87% of our revenues from three
customers: the independent system operator for the NYPP (39%), CL&P (31%) and
NiMo (17%). We sell energy and capacity to CL&P under a standard offer service
wholesale sales agreement expiring in 2003.
OUR OWNERSHIP
We are indirectly wholly-owned by NRG Energy, a leading participant in the
independent electric power generation industry throughout the world. Established
in 1989, NRG Energy is primarily engaged in the acquisition, development,
ownership and operation of power generation facilities and the sale of energy,
capacity and related products. On June 5, 2000, NRG Energy completed the initial
public offering of approximately 32 million shares of its common stock,
representing approximately 18% of its common equity. Upon completion of the
offering, Northern States Power Company (now Xcel Energy Inc.) owned
approximately 82% of the stock outstanding and 98% of the combined voting power
of NRG Energy's common stock and class A common stock.
In August 2000, New Century Energies, Inc. merged with and into Northern
States Power. Northern States Power, the corporation surviving the merger, was
renamed Xcel Energy Inc. As a result of the merger, the shares of NRG Energy's
common stock and class A common stock previously owned by Northern States Power
are now owned by Xcel Energy through its wholly-owned subsidiary Xcel Wholesale
Energy Group.
Xcel Energy is one of the ten largest electricity and natural gas companies
in the United States. Xcel Energy has six public utility subsidiaries that
collectively serve approximately 3,080,000 electric customers and 1,500,000 gas
customers in twelve states, and it has numerous non-utility subsidiaries,
including NRG Energy, which are engaged in energy-related businesses.
The first diagram on the following page illustrates our ownership.
14
<PAGE> 21
COMPANY STRUCTURE
[COMPANY STRUCTURE FLOW CHART]
------------------------------------
XCEL ENERGY INC.
------------------------------------
100%*
------------------------------------
XCEL WHOLESALE ENERGY GROUP
------------------------------------
82%*
------------------------------------
NRG ENERGY, INC.
------------------------------------
<TABLE>
<S> <C>
100% 100%
------------------------------------ ------------------------------------
Northeast Generation NRG Eastern LLC
Holding LLC ------------------------------------
------------------------------------ 50%
50%
</TABLE>
------------------------------------
NRG Northeast Generating LLC
------------------------------------
100%
<TABLE>
<S> <C> <C> <C> <C> <C>
--------------- --------------- --------------- --------------- --------------- ---------------
Arthur Kill Astoria Gas Connecticut Devon Dunkirk Huntley
Power LLC Turbine Jet Power Power LLC Power LLC Power LLC
--------------- Power LLC LLC --------------- --------------- ---------------
--------------- ---------------
--------------- --------------- --------------- --------------- ---------------
Middletown Montville Norwalk Oswego Somerset
Power LLC Power LLC Power LLC Harbor Power LLC
--------------- --------------- --------------- Power LLC ---------------
---------------
</TABLE>
------------------------
* Xcel Energy Inc. owns approximately 82% of the stock outstanding and 98% of
the combined voting power of NRG Energy, Inc.'s common stock and class A
common stock through its wholly owned subsidiary Xcel Wholesale Energy Group.
CONTRACTUAL ARRANGEMENTS -- EXAMPLE
[CONTRACTUAL ARRANGEMENTS FLOW CHART]
--------------------------------------
<TABLE>
<CAPTION>
------------------------------------ NRG ENERGY, INC. -----------------------------
| | | |
<S> | <C> <C> <C> | | <C> <C> | <C>
| 100% Corporate | | 100% | 100%
| Services | | |
| Agreement | | |
| | | |
NRG Operating Services, Inc. | NRG Northeast |
| | Generating LLC |
| | | |
| 100% | | 100% |
| | | |
| | | |
NRG Huntley -------------------------------- Huntley Power LLC ----------------------- NRG Power
Operations Inc. Operation and Power Sales and Marketing Inc.
Maintenance Agreement Agency Agreement
</TABLE>
- - - - - - - - Contractual Relationships
. . . . . . . . . . . . . . Ownership
15
<PAGE> 22
USE OF PROCEEDS
We will not receive any proceeds from the exchange offer.
We entered into a loan agreement, dated as of June 4, 1999, which we will
refer to as the "loan agreement", with several commercial banks and other
financial institutions, which provided for a 364-day term loan facility in an
amount up to $646.6 million, which we will refer to as the "term loan facility,"
and a 364-day revolving credit facility in an amount up to $40 million to
finance certain of our working capital needs, which we will refer to as the "old
working capital facility." We used the term loan facility to partially fund the
acquisition of our facilities (other than the Connecticut facilities). The
remainder of the purchase price for our facilities (other than the Connecticut
facilities) was funded with equity contributions from NRG Energy in the amount
of $353.6 million.
The purchase price for the Connecticut facilities, which were acquired in
December 1999, was funded in part by equity contributions and in part by loans,
both made by NRG Energy.
We used the proceeds from the sale of the outstanding bonds:
- to repay all amounts of principal and interest outstanding under the term
loan facility,
- to pay our costs and expenses in connection with the offering of the
bonds, and
- to repay to NRG Energy money loaned in connection with the purchase of
the Connecticut facilities.
Contemporaneously with the closing of the issuance of the outstanding
bonds, we entered into a new $50 million revolving credit facility. At that
time, the loan agreement was terminated.
CAPITALIZATION
The following table sets forth the actual consolidated capitalization of
NRG Northeast as of June 30, 2000.
<TABLE>
<CAPTION>
AS OF JUNE 30, 2000
ACTUAL CAPITALIZATION
---------------------
(IN THOUSANDS) (UNAUDITED)
<S> <C>
SHORT TERM DEBT:
Current portion of long term debt (a)....................... $ 95,000
LONG TERM DEBT:
Bonds (a)................................................... 655,000
----------
TOTAL DEBT.................................................. 750,000
MEMBER'S EQUITY (B)......................................... 920,758
----------
TOTAL DEBT AND MEMBER'S EQUITY.............................. $1,670,758
==========
</TABLE>
---------------
(a) On February 22, 2000, NRG Northeast issued $750 million of senior secured
bonds. Approximately $646.6 million was used to repay short-term borrowings
at December 31, 1999.
(b) Member's equity at June 30, 2000 reflects a net distribution of
approximately $117.7 million. This net distribution consists primarily of
the $95.8 million repayment of capital to NRG Energy and the payment of
$21.4 million of proceeds received upon the termination of certain treasury
locks to NRG Energy. The net distribution also includes the effect of
removing the minority interest in NRG Northeast and other minor items. In
addition to the net distribution described above, member's equity also
included net income of $111.3 million.
16
<PAGE> 23
RISK FACTORS
In addition to the information contained elsewhere in this prospectus, you
should carefully consider the following risk factors in evaluating the exchange
offer and an investment in the bonds.
YOU MAY HAVE DIFFICULTY SELLING THE OUTSTANDING BONDS THAT YOU DO NOT EXCHANGE.
If you do not exchange your outstanding bonds for the bonds offered in this
exchange offer, you will continue to be subject to the restrictions on the
transfer of your bonds. Those transfer restrictions are described in the
indenture governing the bonds and in the legend contained on the outstanding
bonds, and arose because we originally issued the outstanding bonds under
exemptions from, and in transactions not subject to, the registration
requirements of the Securities Act.
In general, you may offer or sell your outstanding bonds only if they are
registered under the Securities Act and applicable state securities laws, or if
they are offered and sold under an exemption from those requirements. We do not
intend to register the outstanding bonds under the Securities Act.
If a large number of outstanding bonds are exchanged for bonds issued in
the exchange offer, it may be more difficult for you to sell your unexchanged
bonds. In addition, if you do not exchange your outstanding bonds in the
exchange offer, you will no longer be entitled to have those bonds registered
under the Securities Act.
See "The Exchange Offer -- Consequences of Failure to Exchange Outstanding
Bonds" for a discussion of the possible consequences of failing to exchange your
bonds.
OUR REVENUES ARE NOT PREDICTABLE BECAUSE 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 number of
facilities with these types of long-term power purchase agreements has decreased
and is continuing to decrease. Our facilities currently 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.
Except to the extent provided in the transition power sales contracts we
(through NRG Power Marketing) must sell all or a portion of the energy, capacity
and other products from 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.
NRG POWER MARKETING HAS 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 the activities on our behalf of our
power marketer, which involve the establishment of trading positions in the
energy, fuel and emission allowance markets on a short-term basis. Our power
marketer, NRG Power Marketing, sells forward contracts and options and
establishes positions in, and sells on the spot market, our energy, capacity and
other energy products that are not otherwise committed under long-term
contracts. In addition, NRG Power Marketing uses these trading activities to
procure fuel and emission allowances for our facilities on the spot market. NRG
Power Marketing
17
<PAGE> 24
has been managing risks associated with price volatility in this manner for only
a limited period of time. It 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 counter
parties may not perform.
THE DAY-TO-DAY OPERATION OF POWER GENERATING FACILITIES INVOLVES OPERATIONAL
RISKS.
Operation of our facilities involves many operating risks common to most
power generating facilities, including:
- performance below expected levels of output or efficiency;
- interruptions in fuel supply;
- disruptions in the transmission of electricity;
- breakdown or failure of equipment or processes;
- violation of permit requirements; and
- operator error or catastrophic events such as fires, earthquakes,
explosions, floods or other similar occurrences affecting power
generation facilities.
In addition, although our facilities had a significant operating history at
the time we acquired them, we have a very limited history of owning and
operating these facilities and certain operational issues may arise as a result
of our lack of familiarity with issues specific to a particular facility or
component thereof or change in operating characteristics resulting from
regulation. A decrease or elimination of revenues generated by our facilities or
an increase in the costs of operating our facilities could decrease or eliminate
funds available to us to make payments on the bonds or our other obligations.
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.
Our facilities 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. The failure of any one customer or supplier to fulfill its
contractual obligations to a facility could have a material adverse effect on
that 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 and, in particular, on the credit quality of the
project's customers and suppliers.
OUR BUSINESS IS SUBJECT TO SUBSTANTIAL GOVERNMENTAL REGULATION AND PERMITTING
REQUIREMENTS AND MAY BE ADVERSELY AFFECTED BY ANY FUTURE INABILITY TO COMPLY
WITH EXISTING REGULATIONS OR REQUIREMENTS OR CHANGES IN APPLICABLE 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.
18
<PAGE> 25
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 future environmental expenditures to be substantial.
Energy Regulation. The Public Utility Holding Company Act of 1935
("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 Energy Policy Act of 1992 provides relief from regulation
under PUHCA to exempt wholesale generators ("EWGs"). Maintaining the status of
our facilities as EWGs 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. We are not
and will not be subject to regulation as a holding company under PUHCA as long
as the power plants we own are EWGs.
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 our facilities, we assumed, subject
to certain exceptions, all on-site liabilities associated with the environmental
condition of our facilities, regardless of when such liabilities arose and
whether known or unknown, and generally 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. The New York Department of Environmental Conservation is
currently working on draft regulations to implement Governor Pataki's
initiative. 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 August 2000, the CDEP issued proposed regulations
to implement the Executive Order. Although we are actively participating in the
CDEP's rulemaking process, there is no assurance that our positions will be
adopted. See "Business of NRG Northeast and the Guarantors -- Environmental
Matters."
The Commonwealth of Massachusetts is also 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 our 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
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which limits emissions to a certain rate per net megawatt hour), the proposed
regulations also would limit, by December 1, 2003, the total emissions of
nitrogen oxides and sulfur dioxide at the Somerset facility to no more than 75%
of the average annual emissions of the Somerset facility for the years
1997 - 1999. Finally, the proposed regulations require the Massachusetts
Department of Environmental Protection to evaluate, by December 1, 2002, the
technological 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 our Somerset facility. The annual average
carbon dioxide emission rate identified in the proposed regulations cannot be
met by the Somerset facility.
Finally, the Speaker of the New York City Council and other members of the
Council have introduced legislation that will require an agency designated by
the Mayor to establish an emissions standard for carbon dioxide that is no
greater than the emissions of carbon dioxide from electric generating units
(with a capacity of more than 25 megawatts) located in the City of New York in
1999 divided by the electricity generated in the same year by said units. The
proposed law would require the standard to be reduced, each year, by one percent
for each one hundred megawatts of electric generating capacity installed within
the City of New York during the previous calendar year, until the carbon dioxide
emission standard has been reduced by 30%. The proposed law requires that the
initial carbon dioxide emission standard be established by March 1, 2002.
Although the proposed law, if enacted, could have an impact on the operation of
our Arthur Kill facility and on certain of our Astoria peaking units, we believe
that we are in a better position to comply with this proposed law than many
other generating units located in the New York City market.
The New York Department of Environmental Conservation recently 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 air 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. See "Business -- Legal Proceedings."
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. Other than the Notice of Violation issued to the
Huntley and Dunkirk facilities, 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. 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 or greater financial resources than we do.
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.
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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. 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.
Proposals have been introduced in Congress to repeal PUHCA, and FERC has
publicly indicated support for the PUHCA repeal effort. If the repeal of 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, on May 31, 2000, FERC approved a
request of the independent system operator for the NYPP, which we will refer to
in this prospectus as the NY ISO, 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 NY ISO began capping bids for the
service. FERC rejected the NY ISO's request for authority to adjust the
market-clearing prices for that service on a retroactive basis. On June 30, 2000
the NY ISO sought reconsideration of this order. As a result of the FERC's order
(unless the NY ISO or other party successfully appeals the order) we will retain
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. If our positions do not prevail, our revenues from ancillary
services sold in the NYPP could be substantially reduced.
These types of price limitations and other mechanisms in New York 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.
WE RELY ON OUR CONTRACTUAL ARRANGEMENTS WITH NRG ENERGY AND ITS AFFILIATES TO
CONDUCT OUR BUSINESS.
We currently have no employees of our own and, accordingly, are dependent
on contractual arrangements with NRG Energy, NRG Power Marketing and
subsidiaries of NRG Operating Services to conduct our business. We are not
certain that we could easily replace any of these contractual arrangements with
a third party on substantially similar terms if any existing arrangement were to
be terminated. In addition, in the event the other contracting party performed
its obligations in a manner which resulted in a loss to us, our possible
remedies and indemnities under these agreements may not make us completely whole
due to limitations on liability provided by these contractual arrangements. Thus
the risk of poor performance by any of these contracting parties could be borne
by us under certain circumstances.
WE DEPEND ON AND ARE CONTROLLED BY NRG ENERGY AND XCEL ENERGY.
NRG Energy indirectly owns 100% of the equity interest in NRG Northeast,
and in turn Xcel Energy indirectly owns approximately 82% of the stock
outstanding and 98% of the combined voting power of NRG Energy's common stock
and class A common stock. In circumstances involving a conflict of interest
between
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NRG Energy, Xcel Energy or their affiliates, on the one hand, and our creditors,
on the other, we cannot guarantee that NRG Energy or Xcel Energy would not
exercise its power to control us in a manner that would benefit NRG Energy, Xcel
Energy and their affiliates to the detriment of the holders of the bonds.
Moreover, we cannot guarantee that NRG Energy or Xcel Energy will not in the
future elect to compete with us, directly or indirectly, including by acquiring
electrical generation assets which sell energy, capacity and/or ancillary
services into the NYPP and/or the NEPOOL.
WE ARE UNCERTAIN ABOUT OUR FUTURE ACCESS TO CAPITAL.
To date, the capital for the acquisition of our facilities has been
provided by equity contributions from NRG Energy and certain borrowings. We
cannot guarantee that we will be successful in obtaining sufficient additional
capital from NRG Energy or additional borrowings at favorable interest rates to
enable us to fund all of our future capital requirements.
WE MAY INCUR ADDITIONAL DEBT WHICH COULD ADVERSELY AFFECT YOU.
Subject to the indenture, we may incur additional debt, including
additional series of bonds, to pay for certain capital improvements and
expansions of our facilities, to refinance existing indebtedness and to make
additional distributions to our owners. Certain types of this permitted
indebtedness may rank equally with the bonds and share in the collateral
package.
THE INSURANCE COVERAGE FOR OUR FACILITIES MAY NOT BE ADEQUATE TO COVER POTENTIAL
LIABILITIES AND LOSSES.
We are required by the indenture to have insurance for our facilities in
amounts and against risks as are customarily maintained by companies engaged in
the same or similar operations operating in the same or similar locations. We
cannot guarantee that such insurance coverage for our facilities will be
available in the future on commercially reasonable terms.
WE ARE THE ONLY ONES REQUIRED TO MAKE PAYMENTS ON THE BONDS AND OUR ABILITY TO
DO SO IS DEPENDENT ON CIRCUMSTANCES BEYOND OUR CONTROL.
None of our affiliates, members or officers will be required to make
payments on the bonds, including NRG Energy and Xcel Energy (other than the
guarantors, and NRG Energy under any debt service reserve support instrument
issued in respect of our debt service reserve requirements). NRG Northeast is a
holding company and its only significant assets are its equity interests in the
guarantors. Our ability to make payments on the bonds (including prepayment
obligations triggered by specific kinds of change of control events which we
cannot necessarily control) is dependent on the ability of the guarantors to
make current payments on the intercompany notes and/or make equity
distributions.
YOU MAY FIND IT DIFFICULT TO SELL YOUR BONDS BECAUSE THERE IS NO EXISTING
TRADING MARKET FOR THE BONDS.
You may find it difficult to sell your bonds because an active trading
market for the bonds may not develop. The bonds are being offered to the holders
of the outstanding bonds. The outstanding bonds were issued on February 22,
2000, primarily to a small number of institutional investors and overseas
investors. After the exchange offer, the trading market for the remaining
untendered outstanding bonds could be adversely affected.
There is no existing trading market for the bonds. We do not intend to
apply for listing or quotation of the bonds on any exchange. Therefore, we do
not know the extent to which investor interest will lead to the development of a
trading market or how liquid that market might be. Although the initial
purchasers of the outstanding bonds have informed us that they currently intend
to make a market in the bonds, they are not required to do so, and they may
cease market-making at any time without notice. As a result, the market price of
the bonds issued in this exchange offer could be adversely affected.
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FEDERAL AND STATE STATUTES ALLOW COURTS, UNDER SPECIFIC CIRCUMSTANCES, TO VOID
SUBSIDIARY GUARANTEES AND REQUIRE HOLDERS OF BONDS TO RETURN PAYMENTS RECEIVED
FROM GUARANTORS.
Under the federal bankruptcy law and comparable provisions of state
fraudulent transfer laws, the guarantees by the guarantors of the bonds could be
voided, or claims in respect thereof could be subordinated to all other debts of
a guarantor, if, among other things, the guarantor, at the time it incurred the
indebtedness evidenced by its guarantee:
- received less than fair consideration or reasonably equivalent value for
the guarantee;
- was insolvent or rendered insolvent by reason of such issuance;
- was engaged in a business or transaction for which its remaining assets
constituted unreasonably small capital; or
- intended to incur, or believed that it would incur, debts beyond its
ability to pay such debts as they mature.
In addition, any payment by a guarantor pursuant to its guarantee could be
voided and required to be returned to that guarantor, or to a fund for the
benefit of the creditors of such guarantor. The guarantors' liabilities under
their guarantees are contractually limited to the maximum amount they could pay
without the guarantees being deemed to be fraudulent transfers. We cannot
guarantee, however, that this limitation would be effective and, if it were
effective, if the limited amount would be sufficient to pay the bonds in full.
IT MAY BE DIFFICULT TO REALIZE THE VALUE OF THE COLLATERAL PLEDGED TO SECURE THE
BONDS, AND THE PROCEEDS RECEIVED FROM A SALE OF THE COLLATERAL MAY BE
INSUFFICIENT TO REPAY THE BONDS.
Our obligation to make payments on the bonds is secured only by the
collateral described in this prospectus and, specifically, does not include a
lien on the physical assets comprising our facilities. The collateral agent's
ability to foreclose on the collateral on your behalf may be subject to
perfection and priority issues and to practical problems associated with the
realization of the collateral agent's security interest in the collateral. For
example, the collateral agent may need to obtain the consent of a third party
prior to transferring a contract. We cannot assure you that the collateral agent
will be able to obtain such consent. Further, we cannot assure you that
enforcement of the security interest with respect to the collateral would
provide sufficient funds to repay all amounts due on the bonds.
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THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
When we sold the outstanding bonds on February 22, 2000, we entered into a
registration rights agreement with the initial purchasers of those bonds. Under
the registration rights agreement, we agreed to use our reasonable best efforts
to file the registration statement of which this prospectus forms a part
regarding the exchange of the outstanding bonds for bonds which are registered
under the Securities Act and cause this registration statement to be declared
effective by the SEC by November 20, 2000. We also agreed to conduct this
exchange offer for at least 30 days after the date notice of the exchange offer
is mailed to the holders of the outstanding bonds. We will use our best efforts
to keep this registration statement effective until the exchange offer is
completed. The registration rights agreement provides that we will be required
to pay liquidated damages to the holders of the outstanding bonds if:
- the registration statement is not declared effective by November 20,
2000; or
- the exchange offer has not been consummated by January 3, 2001.
A copy of the registration rights agreement is filed as an exhibit to the
registration statement of which this prospectus forms a part.
TERMS OF THE EXCHANGE OFFER
This prospectus and the accompanying letter of transmittal together
constitute the exchange offer. Upon the terms and subject to the conditions set
forth in this prospectus and in the letter of transmittal, we will accept for
exchange outstanding bonds which are properly tendered on or before the
expiration date and are not withdrawn as permitted below. The expiration date
for this exchange offer is 5:00 p.m., New York City time, on November 27, 2000,
or such later date and time to which we, in our sole discretion, extend the
exchange offer.
The form and terms of the bonds being issued in the exchange offer are the
same as the form and terms of the outstanding bonds, except that:
- the bonds being issued in the exchange offer will have been registered
under the Securities Act;
- the bonds issued in the exchange offer will not bear the restrictive
legends restricting their transfer under the Securities Act; and
- the bonds being issued in the exchange offer will not contain the
registration rights and liquidated damages provisions contained in the
outstanding bonds.
Bonds tendered in the exchange offer must be in denominations of the
principal amount of $100,000 or any integral multiples of $1,000 in excess of
$100,000.
We expressly reserve the right, in our sole discretion:
- to extend the expiration date;
- to delay accepting any outstanding bonds;
- if any of the conditions set forth below under "-- Conditions to the
Exchange Offer" have not been satisfied, to terminate the exchange offer
and not accept any bonds for exchange; and
- to amend the exchange offer in any manner.
We will give oral or written notice of any extension, delay,
non-acceptance, termination or amendment as promptly as practicable by a public
announcement, and in the case of an extension, no later than 9:00 a.m., New York
City time, on the next business day after the previously scheduled expiration
date.
During an extension, all outstanding bonds previously tendered will remain
subject to the exchange offer and may be accepted for exchange by us. Any
outstanding bonds not accepted for exchange for any reason will
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be returned without cost to the holder that tendered them as promptly as
practicable after the expiration or termination of the exchange offer.
HOW TO TENDER OUTSTANDING BONDS FOR EXCHANGE
When the holder of outstanding bonds tenders, and we accept, bonds for
exchange, a binding agreement between us and the tendering holder is created,
subject to the terms and conditions set forth in this prospectus and the
accompanying letter of transmittal. Except as set forth below, a holder of
outstanding bonds who wishes to tender bonds for exchange must, on or prior to
the expiration date:
(1) transmit a properly completed and duly executed letter of
transmittal, including all other documents required by such letter of
transmittal, to The Chase Manhattan Bank (the "exchange agent") at the
address set forth below under the heading "-- The Exchange Agent"; or
(2) if bonds are tendered pursuant to the book-entry procedures set
forth below, the tendering holder must transmit an agent's message to the
exchange agent at the address set forth below under the heading "-- The
Exchange Agent."
In addition, either:
(1) the exchange agent must receive the certificates for the
outstanding bonds and the letter of transmittal;
(2) the exchange agent must receive, prior to the expiration date, a
timely confirmation of the book-entry transfer of the bonds being tendered
into the exchange agent's account at the Depository Trust Company ("DTC")
along with the letter of transmittal or an agent's message; or
(3) the holder must comply with the guaranteed delivery procedures
described below.
The term "agent's message" means a message, transmitted to DTC and received
by the exchange agent and forming a part of a book-entry transfer (a "book-entry
confirmation"), which states that DTC has received an express acknowledgment
that the tendering holder agrees to be bound by the letter of transmittal and
that we may enforce the letter of transmittal against such holder.
The method of delivery of the outstanding bonds, the letters of transmittal
and all other required documents is at the election and risk of the holders. If
such delivery is by mail, we recommend registered mail, properly insured, with
return receipt requested. In all cases, you should allow sufficient time to
assure timely delivery. No letters of transmittal or bonds should be sent
directly to us.
Signatures on a letter of transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the bonds surrendered for exchange are
tendered:
(1) by a holder of outstanding bonds who has not completed the box
entitled "Special Issuance Instructions" or "Special Delivery Instructions"
on the letter of transmittal; or
(2) for the account of an eligible institution.
An "eligible institution" is a firm which is a member of a registered
national securities exchange or a member of the National Association of
Securities Dealers, Inc., or a commercial bank or trust company having an office
or correspondent in the United States.
If signatures on a letter of transmittal or notice of withdrawal are
required to be guaranteed, the guarantor must be an eligible institution. If
bonds are registered in the name of a person other than the signer of the letter
of transmittal, the bonds surrendered for exchange must be endorsed by, or
accompanied by a written instrument or instruments of transfer or exchange, in
satisfactory form as determined by us in our sole discretion, duly executed by
the registered holder with the holder's signature guaranteed by an eligible
institution.
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We will determine all questions as to the validity, form, eligibility
(including time of receipt) and acceptance of bonds tendered for exchange in our
sole discretion. Our determination will be final and binding. We reserve the
absolute right to:
(1) reject any and all tenders of any bond improperly tendered;
(2) refuse to accept any bond if, in our judgment or the judgment of
our counsel, acceptance of the bond may be deemed unlawful; and
(3) waive any defects or irregularities or conditions of the exchange
offer as to any particular bond either before or after the expiration date,
including the right to waive the ineligibility of any holder who seeks to
tender bonds in the exchange offer.
Our interpretation of the terms and conditions of the exchange offer as to
any particular bonds either before or after the expiration date, including the
letter of transmittal and the instructions to it, will be final and binding on
all parties. Holders must cure any defects and irregularities in connection with
tenders of bonds for exchange within such reasonable period of time as we will
determine, unless we waive such defects or irregularities. Neither we, the
exchange agent nor any other person will be under any duty to give notification
of any defect or irregularity with respect to any tender of bonds for exchange,
nor will any of us incur any liability for failure to give such notification.
If a person or persons other than the registered holder or holders of the
outstanding bonds tendered for exchange signs the letter of transmittal, the
tendered bonds must be endorsed or accompanied by appropriate powers of
attorney, in either case signed exactly as the name or names of the registered
holder or holders that appear on the outstanding bonds.
If trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity sign the letter of transmittal or any bonds or any power of attorney,
such persons should so indicate when signing, and you must submit proper
evidence satisfactory to us of such person's authority to so act unless we waive
this requirement.
By tendering, each holder will represent to us that, among other things,
the person acquiring bonds in the exchange offer is obtaining them in the
ordinary course of its business, whether or not such person is the holder, and
that neither the holder nor such other person has any arrangement or
understanding with any person to participate in the distribution of the bonds
issued in the exchange offer. If any holder or any such other person is an
"affiliate," as defined under Rule 405 of the Securities Act, of our company, or
is engaged in or intends to engage in or has an arrangement or understanding
with any person to participate in a distribution of such bonds to be acquired in
the exchange offer, such holder or any such other person:
(1) may not rely on the applicable interpretations of the staff of the
SEC; and
(2) must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale
transaction.
Each broker-dealer who acquired its outstanding bonds as a result of
market-making activities or other trading activities and thereafter receives
bonds issued for its own account in the exchange offer, must acknowledge that it
will deliver a prospectus in connection with any resale of such bonds issued in
the exchange offer. The letter of transmittal states that by so acknowledging
and by delivering a prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act. See "Plan of
Distribution" for a discussion of the exchange and resale obligations of
broker-dealers in connection with the exchange offer.
ACCEPTANCE OF OUTSTANDING BONDS FOR EXCHANGE; DELIVERY OF BONDS ISSUED IN THE
EXCHANGE OFFER
Upon satisfaction or waiver of all of the conditions to the exchange offer,
we will accept, promptly after the expiration date, all outstanding bonds
properly tendered and will issue bonds registered under the Securities Act. For
purposes of the exchange offer, we will be deemed to have accepted properly
tendered outstanding bonds for exchange when, as and if we have given oral or
written notice to the exchange agent,
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with written confirmation of any oral notice to be given promptly thereafter.
See "-- Conditions to the Exchange Offer" for a discussion of the conditions
that must be satisfied before we accept any bonds for exchange.
For each outstanding bond accepted for exchange, the holder will receive a
bond registered under the Securities Act having a principal amount equal to, and
in the denomination of, that of the surrendered outstanding bond. Accordingly,
registered holders of bonds issued in the exchange offer on the relevant record
date for the first interest payment date following the consummation of the
exchange offer will receive interest accruing from the most recent date to which
interest has been paid or, if no interest has been paid on the outstanding
bonds, from February 22, 2000. Outstanding bonds that we accept for exchange
will cease to accrue interest from and after the date of consummation of the
exchange offer. Under the registration rights agreement, we may be required to
make additional payments in the form of liquidated damages to the holders of the
outstanding bonds under circumstances relating to the timing of the exchange
offer.
In all cases, we will issue bonds in the exchange offer for outstanding
bonds that are accepted for exchange only after the exchange agent timely
receives:
(1) certificates for such outstanding bonds or a timely book-entry
confirmation of such outstanding bonds into the exchange agent's account at
DTC;
(2) a properly completed and duly executed letter of transmittal or an
agent's message; and
(3) all other required documents.
If for any reason set forth in the terms and conditions of the exchange
offer we do not accept any tendered outstanding bonds, or if a holder submits
outstanding bonds for a greater principal amount than the holder desires to
exchange, we will return such unaccepted or non-exchanged bonds without cost to
the tendering holder. In the case of bonds tendered by book-entry transfer into
the exchange agent's account at DTC such non-exchanged bonds will be credited to
an account maintained with DTC. We will return the bonds or have them credited
to DTC as promptly as practicable after the expiration or termination of the
exchange offer.
BOOK ENTRY TRANSFERS
The exchange agent will make a request to establish an account at DTC for
purposes of the exchange offer within two (2) business days after the date of
this prospectus. Any financial institution that is a participant in DTC's system
must make book-entry delivery of outstanding bonds denominated in dollars by
causing DTC to transfer the outstanding bonds into the exchange agent's account
at DTC in accordance with DTC's procedures for transfer. Such participant should
transmit its acceptance to DTC on or prior to the expiration date or comply with
the guaranteed delivery procedures described below. DTC will verify such
acceptance, execute a book-entry transfer of the tendered outstanding bonds into
the exchange agent's account at DTC and then send to the exchange agent
confirmation of such book-entry transfer. The confirmation of such book-entry
transfer will include an agent's message confirming that DTC has received an
express acknowledgment from such participant that such participant has received
and agrees to be bound by the letter of transmittal and that we may enforce the
letter of transmittal against such participant. Delivery of bonds issued in the
exchange offer may be effected through book-entry transfer at DTC as applicable.
However, the letter of transmittal or facsimile thereof or an agent's message,
with any required signature guarantees and any other required documents, must:
(1) be transmitted to and received by the exchange agent at the
address set forth below under "-- Exchange Agent" on or prior to the
expiration date; or
(2) comply with the guaranteed delivery procedures described below.
GUARANTEED DELIVERY PROCEDURES
If a holder of outstanding bonds desires to tender such bonds and the
holder's bonds are not immediately available, or time will not permit such
holder's bonds or other required documents to reach the exchange agent
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<PAGE> 34
before the expiration date, or the procedure for book-entry transfer cannot be
completed on a timely basis, a tender may be effected if:
(1) the holder tenders the bonds through an eligible institution;
(2) prior to the expiration date, the exchange agent receives from
such eligible institution a properly completed and duly executed notice of
guaranteed delivery, substantially in the form we have provided, by
telegram, telex, facsimile transmission, mail or hand delivery, setting
forth the name and address of the holder of the bonds being tendered and
the amount of the bonds being tendered. The notice of guaranteed delivery
will state that the tender is being made and guarantee that within three
(3) New York Stock Exchange trading days after the date of execution of the
notice of guaranteed delivery, the certificates for all physically tendered
bonds, in proper form for transfer, or a book-entry confirmation, as the
case may be, together with a properly completed and duly executed letter of
transmittal or agent's message with any required signature guarantees and
any other documents required by the letter of transmittal will be deposited
by the eligible institution with the exchange agent; and
(3) the exchange agent receives the certificates for all physically
tendered outstanding bonds, in proper form for transfer, or a book-entry
confirmation, as the case may be, together with a properly completed and
duly executed letter of transmittal or agent's message with any required
signature guarantees and any other documents required by the letter of
transmittal, within three (3) New York Stock Exchange trading days after
the date of execution of the notice of guaranteed delivery.
WITHDRAWAL RIGHTS
You may withdraw tenders of your outstanding bonds at any time prior to
5:00 p.m., New York City time, on the expiration date.
For a withdrawal to be effective, you must send a written notice of
withdrawal to the exchange agent at one of the addresses set forth below under
"-- Exchange Agent." Any such notice of withdrawal must:
(1) specify the name of the person having tendered the outstanding
bonds to be withdrawn;
(2) identify the outstanding bonds to be withdrawn, including the
principal amount of such outstanding bonds; and
(3) where certificates for outstanding bonds are transmitted, specify
the name in which outstanding bonds are registered, if different from that
of the withdrawing holder.
If certificates for outstanding bonds have been delivered or otherwise
identified to the exchange agent, then, prior to the release of such
certificates the withdrawing holder must also submit the serial numbers of the
particular certificates to be withdrawn and signed notice of withdrawal with
signatures guaranteed by an eligible institution unless such holder is an
eligible institution. If bonds have been tendered pursuant to the procedure for
book-entry transfer described above, any notice of withdrawal must specify the
name and number of the account at DTC to be credited with the withdrawn bonds
and otherwise comply with the procedures of such facility. We will determine all
questions as to the validity, form and eligibility (including time of receipt)
of such notices and our determination will be final and binding on all parties.
Any tendered bonds so withdrawn will be deemed not to have been validly tendered
for exchange for purposes of the exchange offer. Any bonds which have been
tendered for exchange but which are not exchanged for any reason will be
returned to the holder thereof without cost to such holder. In the case of bonds
tendered by book-entry transfer into the exchange agent's account at DTC, the
bonds withdrawn will be credited to an account maintained with DTC for the
outstanding bonds. The bonds will be returned or credited to DTC account as soon
as practicable after withdrawal, rejection of tender or termination of the
exchange offer. Properly withdrawn bonds may be re-tendered by following one of
the procedures described under "-- How to Tender Bonds for Exchange" above at
anytime on or prior to 5:00 p.m., New York City time, on the expiration date.
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<PAGE> 35
CONDITIONS TO THE EXCHANGE OFFER
We are not required to accept for exchange, or to issue bonds in the
exchange offer for any outstanding bonds. We may terminate or amend the exchange
offer, if at any time before the acceptance of such outstanding bonds for
exchange:
(1) any federal law, statute, rule or regulation will have been
adopted or enacted which, in our judgment, would reasonably be expected to
impair our ability to proceed with the exchange offer;
(2) any stop order will be threatened or in effect with respect to the
registration statement of which this prospectus constitutes a part or the
qualification of the indenture under the Trust Indenture Act of 1939, as
amended;
(3) there will occur a change in the current interpretation by staff
of the SEC which permits the bonds issued in the exchange offer in exchange
for the outstanding bonds to be offered for resale, resold and otherwise
transferred by such holders, other than broker-dealers and any such holder
which is an "affiliate" of our company within the meaning of Rule 405 under
the Securities Act, without compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that such bonds
acquired in the exchange offer are acquired in the ordinary course of such
holder's business and such holder has no arrangement or understanding with
any person to participate in the distribution of such bonds issued in the
exchange offer;
(4) there has occurred any general suspension of or general limitation
on prices for, or trading in, securities on any national exchange or in the
over-the-counter market;
(5) any governmental agency creates limits that adversely affect our
ability to complete the exchange offer;
(6) there will occur any declaration of war, armed hostilities or
other similar international calamity directly or indirectly involving the
United States, or the worsening of any such condition that existed at the
time that we commence the exchange offer;
(7) there will have occurred a change (or a development involving a
prospective change) in our and our subsidiaries' businesses, properties,
assets, liabilities, financial condition, operations, results of operations
taken as a whole, that is or may be adverse to us; or
(8) we will have become aware of facts that, in our reasonable
judgment, have or may have adverse significance with respect to the value
of the outstanding bonds or the bonds to be issued in the exchange offer.
The preceding conditions are for our sole benefit and we may assert them
regardless of the circumstances giving rise to any such condition. We may waive
the preceding conditions in whole or in part at any time and from time to time
in our sole discretion. If we do so, the exchange offer will remain open for at
least three (3) business days following any waiver of the preceding conditions.
Our failure at any time to exercise the foregoing rights will not be deemed a
waiver of any such right and each such right will be deemed an ongoing right
which we may assert at any time and from time to time.
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<PAGE> 36
THE EXCHANGE AGENT
The Chase Manhattan Bank has been appointed as our exchange agent for the
exchange offer. All executed letters of transmittal should be directed to our
exchange agent at the address set forth below. Questions and requests for
assistance, requests for additional copies of this prospectus or of the letter
of transmittal and requests for notices of guaranteed delivery should be
directed to the exchange agent addressed as follows:
Main Delivery To:
The Chase Manhattan Bank
By mail, hand delivery or overnight courier:
The Chase Manhattan Bank
55 Water Street, Room 234
New York, New York 10041
Attention: Carlos Esteves -- Confidential
By facsimile transmission:
(for eligible institutions only)
212-638-7380
Confirm by Telephone:
212-638-0828
Delivery of the letter of transmittal to an address other than as set forth
above or transmission of such letter of transmittal via facsimile other than as
set forth above does not constitute a valid delivery of such letter of
transmittal.
FEES AND EXPENSES
We will not make any payment to brokers, dealers, or others soliciting
acceptance of the exchange offer except for reimbursement of mailing expenses.
The estimated cash expenses to be incurred in connection with the exchange
offer will be paid by us and are estimated in the aggregate to be approximately
$500,000.
TRANSFER TAXES
Holders who tender their outstanding bonds for exchange will not be
obligated to pay any transfer taxes in connection with the exchange. If,
however, bonds issued in the exchange offer are to be delivered to, or are to be
issued in the name of, any person other than the holder of the bonds tendered,
or if a transfer tax is imposed for any reason other than the exchange of
outstanding bonds in connection with the exchange offer, then the holder must
pay any such transfer taxes, whether imposed on the registered holder or on any
other person. If satisfactory evidence of payment of, or exemption from, such
taxes is not submitted with the letter of transmittal, the amount of such
transfer taxes will be billed directly to the tendering holder.
CONSEQUENCES OF FAILURE TO EXCHANGE OUTSTANDING BONDS
Holders who desire to tender their outstanding bonds in exchange for bonds
registered under the Securities Act should allow sufficient time to ensure
timely delivery. Neither the exchange agent nor our company is under any duty to
give notification of defects or irregularities with respect to the tenders of
bonds for exchange.
Outstanding bonds that are not tendered or are tendered but not accepted
will, following the consummation of the exchange offer, continue to be subject
to the provisions in the indenture regarding the transfer and exchange of the
outstanding bonds and the existing restrictions on transfer set forth in the
legend on the outstanding bonds and in the offering circular dated February 15,
2000, relating to the outstanding bonds. Except in limited circumstances with
respect to specific types of holders of outstanding bonds, we will have no
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<PAGE> 37
further obligation to provide for the registration under the Securities Act of
such outstanding bonds. In general, outstanding bonds, unless registered under
the Securities Act, may not be offered or sold except pursuant to an exemption
from, or in a transaction not subject to, the Securities Act and applicable
state securities laws. We do not currently anticipate that we will take any
action to register the outstanding bonds under the Securities Act or under any
state securities laws.
Upon completion of the exchange offer, holders of the outstanding bonds
will not be entitled to any further registration rights under the registration
rights agreement, except under limited circumstances.
Holders of the bonds issued in the exchange offer and any outstanding bonds
which remain outstanding after consummation of the exchange offer will vote
together as a single class for purposes of determining whether holders of the
requisite percentage of the class have taken certain actions or exercised
certain rights under the indenture.
CONSEQUENCES OF EXCHANGING OUTSTANDING BONDS
Based on interpretations of the staff of the SEC, as set forth in no-action
letters to third parties, we believe that the bonds issued in the exchange offer
may be offered for resale, resold or otherwise transferred by holders of those
bonds, other than by any holder which is an "affiliate" of our company within
the meaning of Rule 405 under the Securities Act. The bonds may be offered for
resale, resold or otherwise transferred without compliance with the registration
and prospectus delivery provisions of the Securities Act, if:
(1) the bonds issued in the exchange offer are acquired in the
ordinary course of such holder's business; and
(2) the holder, other than broker-dealers, has no arrangement or
understanding with any person to participate in the distribution of the
bonds issued in the exchange offer.
However, the SEC has not considered the exchange offer in the context of a
no-action letter and we cannot guarantee that the staff of the SEC would make a
similar determination with respect to the exchange offer as in such other
circumstances.
Each holder, other than a broker-dealer, must furnish a written
representation, at our request, that:
(1) it is not an affiliate of ours;
(2) it is not engaged in, and does not intend to engage in, a
distribution of the bonds issued in the exchange offer and has no
arrangement or understanding to participate in a distribution of bonds
issued in the exchange offer;
(3) it is acquiring the bonds issued in the exchange offer in the
ordinary course of its business; and
(4) it is not acting on behalf of a person who could not make
representations (1)-(3).
Each broker-dealer that receives bonds issued in the exchange offer for its
own account in exchange for outstanding bonds:
- must acknowledge that such outstanding bonds were acquired by such
broker-dealer as a result of market-making or other trading activities,
and
- acknowledged that it must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
transaction, including the delivery of a prospectus that contains
information with respect to any selling holder required by the Securities
Act in connection with any resale of the bonds issued in the exchange
offer.
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<PAGE> 38
Furthermore, any broker-dealer that acquired any of its outstanding bonds
directly from our company:
- may not rely on the applicable interpretation of the staff of the
SEC's position contained in Exxon Capital Holdings Corp., SEC
No-Action Letter (April 13, 1989), Morgan, Stanley & Co., Inc., SEC
No-Action Letter (June 5, 1991) and Shearman & Sterling, SEC No-Action
Letter (July 2, 1983) and
- must also be named as a selling holder of bonds in connection with the
registration and prospectus delivery requirements of the Securities
Act relating to any resale transaction.
See "Plan of Distribution" for a discussion of the exchange and resale
obligations of broker-dealers in connection with the exchange offer.
In addition, to comply with state securities laws of certain jurisdictions,
the bonds issued in the exchange offer may not be offered or sold in any state
unless they have been registered or qualified for sale in such state or an
exemption from registration or qualification is available and complied with by
the holders selling the bonds. We have agreed in the registration rights
agreement that, prior to any public offering of transfer restricted securities,
we will register or qualify the transfer restricted securities for offer or sale
under the securities laws of any jurisdiction requested by a holder. Unless a
holder requests, we currently do not intend to register or qualify the sale of
the bonds issued in the exchange offer in any state where an exemption from
registration or qualification is required and not available. "Transfer
restricted securities" means each bond until:
(1) the date on which such bond has been exchanged by a person other
than a broker-dealer for a bond in the exchange offer;
(2) following the exchange by a broker-dealer in the exchange offer of
a bond for a bond issued in the exchange offer, the date on which the bond
issued in the exchange offer is sold to a purchaser who receives from such
broker-dealer on or prior to the date of such sale a copy of this
prospectus;
(3) the date on which such bond has been effectively registered under
the Securities Act and disposed of in accordance with a shelf registration
statement that we file in accordance with the registration rights
agreement; or
(4) the date on which such bond is distributed to the public in a
transaction under Rule 144 of the Securities Act.
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<PAGE> 39
USE OF PROCEEDS
We will not receive any proceeds from the exchange offer.
We entered into a loan agreement, dated as of June 4, 1999, which we will
refer to as the "loan agreement", with several commercial banks and other
financial institutions, which provided for a 364-day term loan facility in an
amount up to $646.6 million, which we will refer to as the "term loan facility,"
and a 364-day revolving credit facility in an amount up to $40 million to
finance certain of our working capital needs, which we will refer to as the "old
working capital facility." We used the term loan facility to partially fund the
acquisition of our facilities (other than the Connecticut facilities). The
remainder of the purchase price for our facilities (other than the Connecticut
facilities) was funded with equity contributions from NRG Energy in the amount
of $353.6 million.
The purchase price for the Connecticut facilities, which were acquired in
December 1999, was funded in part by equity contributions and in part by loans,
both made by NRG Energy.
We used the proceeds from the sale of the outstanding bonds:
- to repay all amounts of principal and interest outstanding under the term
loan facility,
- to pay our costs and expenses in connection with the offering of the
bonds, and
- to repay to NRG Energy money loaned in connection with the purchase of
the Connecticut facilities.
Contemporaneously with the closing of the issuance of the outstanding
bonds, we entered into a new $50 million revolving credit facility. At that
time, the loan agreement was terminated.
CAPITALIZATION
The following table sets forth the actual consolidated capitalization of
NRG Northeast as of June 30, 2000.
<TABLE>
<CAPTION>
AS OF JUNE 30, 2000
ACTUAL CAPITALIZATION
---------------------
(IN THOUSANDS) (UNAUDITED)
<S> <C>
SHORT TERM DEBT:
Current portion of Long-term debt(a)........................ $ 95,000
LONG TERM DEBT:
Bonds(a).................................................... 655,000
----------
TOTAL DEBT.................................................. 750,000
MEMBER'S EQUITY(B).......................................... 920,758
----------
TOTAL DEBT AND MEMBER'S EQUITY.............................. $1,670,758
==========
</TABLE>
---------------
(a) On February 22, 2000, NRG Northeast issued $750 million of senior secured
bonds. Approximately $646.6 million was used to repay short-term borrowings
at December 31, 1999.
(b) Member's equity at June 30, 2000, reflects a net distribution of
approximately $117.7 million. This net distribution consists primarily of
the $95.8 million repayment of capital to NRG Energy and the payment of
$21.4 million of proceeds received upon the termination of certain treasury
locks to NRG Energy. The net distribution also includes the effect of
removing the minority interest in NRG Northeast and other minor items. In
addition to the net distribution described above, member's equity also
included net income of $111.3 million.
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<PAGE> 40
SELECTED HISTORICAL FINANCIAL DATA
The following table sets forth selected historical financial data for NRG
Northeast and the guarantors. NRG Northeast had no assets or operations prior to
its acquisition of its facilities. The Somerset facility was acquired by the
Somerset guarantor in April 1999 and ownership of the Somerset guarantor was
transferred to NRG Northeast in July 1999. The Arthur Kill, Astoria, Dunkirk and
Huntley facilities were each acquired in June 1999 and the Oswego facility was
acquired in October 1999. The Connecticut guarantors acquired their facilities
in December 1999. The ownership of the Connecticut guarantors was transferred to
NRG Northeast on the date of the issuance of the outstanding bonds. The selected
historical financial data as of and for the period ended December 31, 1999 has
been derived from the audited historical financial statements of NRG Northeast
included elsewhere in this prospectus. The selected historical financial data as
of and for the six months ended June 30, 2000 and for the period April 27, 1999
(Inception) to June 30, 1999 has been derived from the unaudited interim
historical financial statements of NRG Northeast included elsewhere in this
prospectus. The information set forth below should be read in conjunction with
the section of this prospectus captioned "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and our historical financial
statements and the accompanying notes included in this prospectus.
<TABLE>
<CAPTION>
AS OF AND FOR THE AS OF AND FOR
PERIOD FROM THE PERIOD
APRIL 27, 1999 APRIL 27, 1999 AS OF AND FOR THE
(INCEPTION) TO (INCEPTION) TO SIX MONTHS ENDED
DECEMBER 31, 1999 JUNE 30, 1999 JUNE 30, 2000
----------------- -------------- -----------------
(IN THOUSANDS, EXCEPT RATIO DATA) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
STATEMENT OF INCOME DATA (FOR THE PERIOD):
Revenues.................................... $ 258,574 $ 14,309 $ 527,554
---------- -------- ----------
Operating costs............................. 152,986 11,015 350,714
Depreciation and amortization............... 17,026 1,161 24,046
General and administrative expenses......... 7,805 251 8,702
Interest expenses........................... 26,410 1,255 33,980
Other (Income) expense, net................. -- -- (1,166)
---------- -------- ----------
Net income.................................. $ 54,347 $ 627 $ 111,278
========== ======== ==========
BALANCE SHEET DATA (AT THE END OF PERIOD):
Total assets................................ $1,704,638 $972,249 $1,785,773
Long term debt.............................. 646,564 -- 750,000
Total liabilities........................... 777,490 600,048 865,015
Members' equity............................. 927,148 372,201 920,758
---------- -------- ----------
OTHER DATA (FOR THE PERIOD):
EBITDA (1).................................. $ 97,783 $ 3,043 $ 169,304
Capital expenditures........................ 32,254 279 15,602
Ratio of earnings to fixed charges.......... 3.06x 1.50x 4.27x
</TABLE>
---------------
(1) 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.
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<PAGE> 41
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion contains forward-looking statements. These
statements are based on our current plans and expectations and involve risks and
uncertainties that could cause actual future activities and results of
operations to be materially different from those set forth in the
forward-looking statements. Important factors that could cause actual results to
differ include risks set forth in "Risk Factors."
NRG Northeast is a Delaware limited liability company formed on March 11,
1999 which, through its family of subsidiaries, owns electric generation plants
in the northeastern region of the United States. NRG Northeast is an indirect,
wholly-owned subsidiary of NRG Energy which was formed for the purpose of
financing, acquiring, owning, operating and maintaining, through its
subsidiaries and affiliates, the facilities described in this prospectus.
The Somerset facility was acquired in April 1999 and each of the Arthur
Kill, Astoria, Dunkirk and Huntley facilities were acquired in June 1999. The
Oswego facility was acquired in October 1999. The Connecticut guarantors, which
acquired the Connecticut facilities in December, 1999, were transferred to NRG
Northeast on the date of the issuance of the outstanding bonds. These facilities
were acquired for an aggregate purchase price of approximately $1,519 million.
These purchase prices were funded by the term loan facility and certain equity
contributions and loans from NRG Energy. See "Business of NRG Northeast and the
Guarantors -- Our Generating Facilities."
Prior to our acquisition of the facilities from ConEd, CL&P, NiMo, RG&E and
MEC, the facilities were operated by their former owners on a fully-integrated
basis with other assets and operations of those former owners. Therefore, no
historical financial information is available that would be meaningful or
indicative of the future results that may be achieved through the operation of
the facilities in light of the manner and regulatory and market environments in
which they are being operated by NRG Northeast. As a result, this Management's
Discussion and Analysis of Financial Condition and Results of Operations
reflects NRG Northeast's operations since formation but does not include a
discussion of, or comparison to, prior periods.
Our facilities sell their electrical power to diversified customers and
markets. In the first four calendar years of the term of the bonds, we expect to
sell a significant portion of our power pursuant to transition power sales
contracts with certain of the parties from whom we purchased the facilities. We
expect to sell the remainder of our power during this period primarily by
bidding into the New England Power Pool, and the New York Power Pool which is
located in New York City and certain surrounding areas, the power pools in which
our facilities are located, and power pools in other areas.
RESULTS OF OPERATIONS
Results of operations for the six months ended June 30, 2000 are discussed
below:
REVENUES
Revenues for the six months ended June 30, 2000 were $527.6 million.
Revenues for the six months ended June 30, 2000 consisted of $317.9 million of
sales from long term transition or capacity agreements which represent
approximately 60.3% of total revenues. The remaining revenues of $209.7 million
consist primarily of sales from short-term spot and bilateral agreements.
OPERATING COSTS
Operating costs for the six months ended June 30, 2000 were $350.7 million.
Operating costs for the six months ended June 30, 2000, represented 66% of total
revenues. Operating costs consisted of expenses for fuel and plant operations
and maintenance.
Fuel expense for the six months ended June 30, 2000 was $238.2 million.
Fuel expense included $52.8 million of coal, $95.5 million of natural gas and
$89.9 million of fuel oil, diesel and other related costs. Fuel expense for the
six months ended June 30, 2000 represented 45.1% of total revenues. We do not
incur fuel costs for certain facilities under the terms of our transition power
sales contracts.
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<PAGE> 42
Plant operations and maintenance expense for the six months ended June 30,
2000 was $112.5 million. Plant operations and maintenance for the six months
ended June 30, 2000, represented 21.3% of operating revenues. Plant operations
and maintenance included labor and benefits under operating service agreements
of $30.6 million, maintenance parts, supplies and services of $44.4 million and
property taxes and other expenses of $37.5 million, for the six months ended
June 30, 2000.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense for six months ended June 30, 2000
was $24.0 million. Depreciation expense was primarily related to the acquisition
costs of the facilities, which are being depreciated over thirty years.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses for the six months ended June 30, 2000
were $8.7 million. General and Administrative expenses included costs for
outside legal and other contract services, 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 six months ended June 30, 2000 was $34.0 million.
Interest expense included $30.7 million of interest on loans and $3.3 million of
amortization of deferred financing costs. The interest on loans relates to the
loan agreement, which includes the term loan facility, the working capital
facility and beginning February 22, 2000, $750 million of senior secured bonds.
The weighted average interest rate on these facilities for the period was 8.43%
and principal amounts owed under the facilities as of June 30, 2000 totaled $750
million.
On February 22, 2000, the Company issued $750 million of senior secured
bonds to refinance its 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 million with an interest rate of 9.292% due in 2024.
Results of operations from April 27, 1999 through December 31, 1999 are
discussed below:
REVENUES
Revenues for the period were $258.6 million. Revenues primarily consisted
of $190.2 million of sales from transition power sales contracts which represent
73.5% of total revenues. The remaining revenues of $68.4 million primarily
consist of sales from short-term spot and bilateral agreements.
OPERATING COSTS
Operating costs of $152.9 million consisted of expenses for fuel, market
energy purchases and plant operations and maintenance. Fuel expense of $78.5
million included $61.3 million of coal and $14.1 million of natural gas and $3.1
million of fuel oil and diesel. Energy purchases were $5.1 million and other
related expenses were $1.1 million. We do not incur fuel costs for certain
facilities under the terms of our transition power sales contracts.
Plant operations and maintenance expense was $68.2 million, which included
labor and benefits under operating service agreements of $19.1 million,
maintenance parts, supplies and services of $21.5 million and property taxes and
other expenses totaling $27.6 million.
DEPRECIATION
Depreciation expense was $17.0 million. Depreciation expense was primarily
related to the acquisition costs of the facilities, which are being depreciated
over thirty years.
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<PAGE> 43
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses were $7.8 million and included costs
for outside legal and other contract services, payments to NRG Energy 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 was $26.4 million, which included $22.7 million of
interest on loans and $3.7 million of amortization of deferred financing costs.
The interest on loans relates to the loan agreement, which includes the term
loan facility and the old working capital facility. The weighted average
interest rate on these facilities for the period was 6.86% and principal amounts
owed under the facilities as of December 31, 1999, were $682.3 million.
LIQUIDITY AND CAPITAL RESOURCES
In order to maintain the long-term high availability of our facilities, we
will incorporate standard overhaul cycles for major equipment. Funding is
budgeted to maintain existing equipment, to determine areas of replacement or
repair in order to sustain availability and to identify major expenses in
advance. We believe that our budgeted amounts will be sufficient to implement
the independent engineer's recommendations we received in connection with the
issuance of the outstanding bonds for this period of time and the independent
engineer has confirmed our budget as sufficient for this period. We have
budgeted in excess of $40 million for capital expenditures between 2000 and 2004
for environmental compliance, which includes the possible installation of NO(x)
control technology at the Somerset facility, intake screens at the Dunkirk
facility, the resolution of consent orders for remediation at the Arthur Kill
and Astoria facilities and the resolution of a consent order for water intake at
the Arthur Kill facility. The budget does not include capital expenditures that
may be required with respect to air pollution control initiatives recently
undertaken by New York City, New York State, Connecticut and Massachusetts or
with more expensive cooling water intake technology that may be required at our
Arthur Kill facility. See "Business of NRG Northeast and the
Guarantees -- Environmental Matters."
The use of the proceeds from the sale of the outstanding bonds was applied
as follows: (i) to repay all amounts of principal and interest outstanding under
the term loan facility, (ii) to pay our costs and expenses in connection with
the offering of the outstanding bonds, and (iii) to repay to NRG Energy money
loaned in connection with the purchase of the Connecticut facilities in December
1999. In addition, on the date of the issuance of the outstanding bonds, we
replaced our old working capital facility with a new $50 million working capital
facility. The indenture also permits certain additional borrowings as described
under "Description of Principal Financing Documents -- Indenture." We expect
that funds from our operations, borrowings under our new working capital
facility and other borrowings will be sufficient for our cash needs.
Pursuant to the indenture, we are required to establish a debt service
reserve account for the benefit of the holders of the bonds. This account must
contain at all times a sufficient amount to pay the projected principal and
interest payments on the bonds for the next six months. We have the option of
funding the debt service reserve account through cash or providing a debt
service reserve support instrument. NRG Energy has initially provided a debt
service reserve support instrument in the form of a guarantee to satisfy our
debt service reserve requirements with respect to the bonds.
SEASONALITY OF POWER GENERATION BUSINESS
Power sales are highly seasonal and are affected by unusual weather
conditions. While long-term prices of electricity are affected by the market
factors discussed above, such as current and future supply of electricity
generation capacity, the price of fuel to existing and potential new entrant
power stations and the transmission capacity between different regions,
short-term prices in the NYPP and the NEPOOL may also be affected by weather
conditions. Peak demand for electricity occurs during the summer months, caused
by increased use of air-conditioning equipment. Cooler than normal summer
temperatures may lead to reduced use of air-conditioners. This reduces
short-term electricity demand, and, consequently, may lead to a reduction in
wholesale electricity prices. To the extent that the output of the facilities
during these periods is not under contract, their revenue would be adversely
affected.
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RECENT DEVELOPMENTS
On January 19, 2000, NRG Energy announced the execution of an agreement to
acquire 1,875 MW of fossil-fueled electric generating capacity and other assets
from Conectiv, an electric utility based in Wilmington, Delaware. While we had
stated that it was possible that NRG Energy may elect to contribute or transfer
the Conectiv facilities to us, since the issue of the outstanding bonds NRG
Energy has decided it will not make such contribution or transfer.
On May 31, 2000, FERC approved a request of the NY ISO, 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 NY ISO began
capping bids for that service. FERC rejected the NY ISO'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 NY ISO or another party successfully
appeals the order), we 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 NY ISO has sought reconsideration of
the FERC order on June 30, 2000.
On June 5, 2000, NRG Energy consummated the initial public offering of its
common stock. Upon completion of the offering, Northern States Power Company
owned approximately 82% of the stock outstanding and 98% of the combined voting
power of NRG Energy's common stock and class A common stock. As a result of the
merger of New Century Energies, Inc. into Northern States Power in August 2000,
the corporation surviving the merger, Xcel Energy Inc., indirectly owns the
shares of NRG Energy's common stock and class A common stock previously held by
Northern States Power.
USE OF DERIVATIVES AND MARKET RISK
We may from time to time use derivative financial instruments to manage
exposure to fluctuations in interest rates. The use of these instruments may
expose us to market and credit risks. We have executed ISDA Master Agreements
with Citibank, N.A. and with The Chase Manhattan Bank pursuant to which we may
from time to time enter into interest rate swap and cap agreements and other
hedging transactions to moderate exposure to interest-rate changes and to lower
our overall cost of borrowing, and for other purposes. As of December 31, 1999,
we had in place six interest rate hedges with three separate counterparties, in
order to hedge our exposure to interest-rate changes in respect of the offering
of the outstanding bonds. These "treasury locks" had a notional amount of $600
million and had a market value of approximately $19.2 million at December 31,
1999. These hedges expired on February 29, 2000. We paid NRG Energy the proceeds
received by us from these contracts, which totaled $21.4 million.
Management believes that over exposure to credit risk due to
non-performance by the counterparties to its hedging contracts is insignificant
based on the investment grade rating of the counterparties.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standard Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities." This statement requires that all
derivatives be recognized at fair value in the balance sheet, and that changes
in fair value be recognized either currently in earnings or deferred as a
component of other comprehensive income, depending on the intended use of the
derivative, its resulting designation and its effectiveness. We plan to adopt
this standard in 2001, as required. The potential impact of implementing this
statement has not yet been determined.
In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities, an Amendment of FASB
Statement No. 133." This statement amends SFAS 133 in four areas, normal
purchases and sales contracts, definition of interest rate risk, hedging
recognized foreign currency denominated assets and liabilities and hedging
foreign currency risk and intercompany derivatives. We plan to adopt the
standard, as required. The potential impact of implementing this standard has
not been determined.
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<PAGE> 45
NRG NORTHEAST, NRG ENERGY AND XCEL ENERGY
NRG NORTHEAST
NRG Northeast Generating LLC is a Delaware limited liability company which,
through its subsidiaries, owns electric generation power plants in the
northeastern region of the United States. NRG Northeast is an indirect
wholly-owned subsidiary of NRG Energy which was formed for the purpose of
financing, acquiring, owning, operating and maintaining, through our
subsidiaries and affiliates, the facilities described in this prospectus.
NRG Northeast owns a 100% interest in each of its subsidiaries which were
formed to hold their respective assets. Our subsidiaries, 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 Power LLC, Oswego Harbor Power LLC and Somerset Power LLC, shown here
have jointly and severally guaranteed the bonds.
The following diagram illustrates our ownership:
[COMPANY STRUCTURE FLOW CHART]
------------------------------------
Xcel Energy Inc.
------------------------------------
100%*
------------------------------------
Xcel Energy Wholesale Energy Group
------------------------------------
82%*
------------------------------------
NRG Energy, Inc.
------------------------------------
<TABLE>
<S> <C>
100% 100%
------------------------------------ ------------------------------------
Northeast Generation NRG Eastern LLC
Holding LLC ------------------------------------
------------------------------------ 50%
50%
</TABLE>
------------------------------------
NRG Northeast Generating LLC
------------------------------------
100%
<TABLE>
<S> <C> <C> <C> <C> <C>
--------------- --------------- --------------- --------------- --------------- ---------------
Arthur Kill Astoria Gas Connecticut Devon Dunkirk Huntley
Power LLC Turbine Jet Power Power LLC Power LLC Power LLC
--------------- Power LLC LLC --------------- --------------- ---------------
--------------- ---------------
--------------- --------------- --------------- --------------- ---------------
Middletown Montville Norwalk Oswego Somerset
Power LLC Power LLC Power LLC Harbor Power LLC
--------------- --------------- --------------- Power LLC ---------------
---------------
</TABLE>
------------------------
* Xcel Energy Inc. owns approximately 82% of the stock outstanding and 98% of
the combined voting power of NRG Energy, Inc.'s common stock and class A
common stock through its wholly-owned subsidiary Xcel Wholesale Energy Group.
Our headquarters and principal executive offices are located at 901
Marquette Avenue, Suite 2300, Minneapolis, Minnesota 55402. Our telephone number
is (612) 373-5300.
NRG ENERGY
NRG Energy is a leading participant in the independent electric power
generation industry. Established in 1989, NRG Energy is primarily engaged in the
acquisition, development, ownership and operation of power generation facilities
and the sale of energy, capacity and related products. On June 5, 2000, NRG
Energy consummated the initial public offering of its common stock. Upon
completion of the offering, Northern States Power Company (now Xcel Energy Inc.)
indirectly owned approximately 82% of the stock outstanding and 98% of the
combined voting power of NRG Energy's common stock and class A common stock.
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<PAGE> 46
NRG Energy owns all or a portion of 63 generation projects that have total
generating capacity of 24,533 MW. Its net ownership interest in those projects
is 14,476 MW. Upon the closing of NRG Energy's pending acquisition from Conectiv
of interests in six power generation facilities, which NRG Energy expects to
occur in early 2001, it will have interests in projects having a total
generating capacity of 29,595 MW and its net ownership interest in those
projects will be 16,351 MW. NRG Energy has experienced significant growth in the
last year, expanding from 3,300 MW of net ownership interests in power
generation facilities (including those under construction) as of December 31,
1998 to 10,990 MW of net ownership interests as of December 31, 1999 and to
14,476 MW as of September 30, 2000.
NRG Energy has historically endeavored to make capital for additional
investments available by allowing other companies to purchase a portion of NRG
Energy's interests in companies wholly-owned by NRG Energy. While such a
sell-down of NRG Energy's interest in NRG Northeast is not currently
contemplated by NRG Energy, any potential holders of the bonds should consider
that such a sell-down is a possibility.
Additional and more detailed information concerning NRG Energy and its
business is set forth in its annual and periodic reports filed with the SEC. See
"Where You Can Find More Information."
NRG POWER MARKETING
NRG Power Marketing is a wholly-owned subsidiary of NRG Energy which was
formed in August 1997 for the purpose of serving the power marketing, fuel
procurement and emissions management needs of NRG Energy and its affiliates. It
currently has contracts to provide these services to each of the guarantors.
NRG OPERATING SERVICES
NRG Operating Services is a wholly-owned subsidiary of NRG Energy which was
formed in October 1992 for the purpose of operating and maintaining electric
power generation facilities owned by NRG Energy and its affiliates. NRG Energy,
through NRG Operating Services or other subsidiaries, currently has contracts
for the operation and maintenance of approximately 7,800 MW of power generation
at thirty-one facilities worldwide, excluding our facilities.
XCEL ENERGY
In August 2000, New Century Energies, Inc. merged with and into Northern
States Power. Northern States Power, the corporation surviving the merger, was
renamed Xcel Energy Inc. which is registered as a holding company subject to the
PUHCA. As a result of the merger, the shares of NRG Energy's common stock and
class A common stock previously owned by Northern States Power are now owned by
Xcel Energy through its wholly-owned subsidiary Xcel Wholesale Energy Group.
Xcel Energy is one of the ten largest electricity and natural gas companies
in the United States. Xcel Energy has six public utility subsidiaries that
collectively serve approximately 3,080,000 electric customers and 1,500,000 gas
customers in twelve states, and it has numerous non-utility subsidiaries,
including NRG Energy, which are engaged in energy-related businesses.
Additional and more detailed information concerning Xcel Energy and its
business is set forth in its annual and periodic reports filed with the SEC. See
"Where You Can Find More Information."
40
<PAGE> 47
BUSINESS OF NRG NORTHEAST AND THE GUARANTORS
INDUSTRY OVERVIEW
Until recently, the demand for power in the United States has been met by
utilities which would construct large-scale electric generating plants under
cost-of-service based regulation. Under this regulatory regime, in exchange for
their status as the designated provider of electricity in a given area, the
traditional electric utility agreed to submit its decisions regarding operation
of its business (e.g., construction of plants, closure of plants, etc.) to
public service commission scrutiny, and in exchange it received a moderate
guaranteed rate of return on the costs incurred in providing electric service.
Beginning in 1978, legislative changes designed to increase competition in
the electric industry spurred independent power producers to enter the power
market, beginning with an entrepreneurial group of cogenerators and small power
producers which was later joined by larger, better capitalized companies, such
as subsidiaries of fuel supply companies, electric utilities, engineering
companies, equipment manufacturers and affiliates of other industrial companies.
While these independent power producers were not subject to public service
commission review and scrutiny with respect to decisions they made and costs
they incurred, they were also not guaranteed any specified rate of return with
respect to their investments.
Many of the newly constructed or acquired independent power assets operate
without long-term power purchase agreements in place, selling their output into
the market or through shorter term bilateral contracts. Our facilities have
committed a portion of our energy and capacity pursuant to the transition power
sales contracts and we plan to sell our uncommitted energy, capacity and
ancillary services either directly into the market, through future power sales
contracts or pursuant to arrangements with power marketing entities. While the
absence of a long-term power purchase agreement introduces certain relatively
new risks and uncertainties to independent power producers, and requires careful
advance analysis of the local power markets, we believe this arrangement is
becoming increasingly accepted in the domestic independent power market.
The United States electric industry, including companies engaged in
providing generation, transmission, distribution and ancillary services, has
undergone significant change over the last several years, leading to significant
deregulation and increased competition. The FERC, pursuant to Order No. 888 and
Order No. 889, and as further refined and supplemented by Orders 888-A, -B and
-C (collectively, the "Open Access Rules"), requires the owners and operators of
electric transmission facilities to make those facilities available for
transmission on a non-discriminatory basis to all wholesale generators, sellers
and buyers of electricity ("wholesale wheeling").
The FERC has proposed further regulatory changes to improve access to the
nationwide transmission grid by utility and non-utility purchasers and sellers
of electricity and to promote wholesale market efficiency. In December 1999, the
FERC issued order No. 2000, which set forth minimum requirements for the
establishment and operation of Regional Transmission Organizations ("RTOs").
Order No. 2000 also set forth a voluntary procedure by which RTOs would be
established. In addition to wholesale wheeling, throughout the United States
there has been an increasing number of proposals at the state level to allow
retail customers to choose their electricity suppliers, with incumbent utilities
required to deliver such electricity over their transmission and distribution
systems ("retail wheeling"). Numerous electric utilities nationwide are in the
process of divesting all or a portion of their generation business or are
expected to commence such a process in the foreseeable future, as legislative
and regulatory developments drive the industry to disaggregate.
REGULATION
FEDERAL LAW
Federal Power Act. The Federal Power Act gives the FERC exclusive
rate-making jurisdiction over wholesale sales of electricity and the
transmission of electricity in interstate commerce. Pursuant to the Federal
Power Act, all public utilities subject to the FERC's jurisdiction are required
to file rate schedules with the FERC prior to commencement of wholesale sales or
transmission of electricity. Because the
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<PAGE> 48
guarantors will be selling power in the wholesale market, they are deemed to be
public utilities for purposes of the Federal Power Act. Arthur Kill Power,
Astoria Power, Dunkirk Power, Huntley Power, and Somerset Power applied for and
were granted market-based rate authority for the wholesale sales of power by the
FERC in Spring and early Summer 1999. Oswego Power filed for market-based rates
on July 19, 1999 and was granted market-based rate authority on September 15,
1999. On September 1, 1999, Connecticut Jet Power, Devon Power, Middletown
Power, Montville Power and Norwalk Power filed for market-based rates. The FERC
granted market-based rate authority to these guarantors on November 10, 1999. In
its orders, the FERC also granted waivers of certain of the accounting,
record-keeping and reporting requirements that are imposed on public utilities
with cost-based rate schedules.
In addition, the FERC's orders, as is customary with market-based rate
schedules, reserved the right to suspend, upon complaint, market-based rate
authority on a prospective basis if it is subsequently determined that we or any
of our affiliates exercised market power. If the FERC were to suspend
market-based rate authority, it would most likely be necessary to file, and
obtain FERC acceptance of, cost-based rate schedules. In addition, the loss of
market-based rate authority would subject the guarantors to the accounting,
record-keeping and reporting requirements that are imposed on public utilities
with cost-based rate schedules.
Public Utility Holding Company Act. PUHCA provides that any corporation,
partnership or other entity or organized group that owns, controls or holds
power to vote 10% or more of the outstanding voting securities of a "public
utility company" or a company that is a "holding company" of a public utility
company is subject to registration and regulation under PUHCA as a registered
holding company, unless an exemption is established or an order is issued by the
SEC declaring it not to be a holding company. Registered holding companies under
PUHCA are required to limit their utility operation to a single integrated
utility system and to divest any other operations not functionally related to
the operation of the utility system. In addition, a public utility company that
is a subsidiary of a registered holding company under PUHCA is subject to
financial and organizational regulation, including approval by the SEC of
certain of its financing transactions. However, under the Energy Policy Act, a
company engaged exclusively in the business of owning and/or operating a
facility used for the generation of electric energy exclusively for sale at
wholesale may be exempted from PUHCA regulation by operation of its status as an
exempt wholesale generator ("EWG") as defined under Section 32 of PUHCA. Each of
the guarantors qualifies to be an EWG and has filed with the FERC to confirm
that status.
If there occurs a "material change" in facts which might affect any of the
guarantors' continued eligibility for EWG status, within 60 days of such
material change, the relevant guarantor must (i) file a written explanation of
why the material change does not affect its EWG status, (ii) file a new
application for EWG status or (iii) notify the FERC that it no longer wishes to
maintain EWG status. If any of the guarantors were to lose its EWG status, we,
along with our affiliates, would be subject to regulation under PUHCA as a
public utility company. Absent a substantial restructuring of our business, it
would be difficult for us to comply with PUHCA without a material adverse effect
on our business.
STATE LAW
New York. Pursuant to the New York Public Service Law (the "NYPSL"), the
New York Public Service Commission ("NYPSC") regulates all "public utility
companies" or "utility companies" operating in New York. A "public utility
company" or "utility company" under the NYPSL includes, among other things, any
entity engaged in the production, transmission or distribution of electricity to
the public for light, heat or power purposes. The Huntley, Dunkirk, Oswego,
Arthur Kill and Astoria facilities (the "New York facilities"), each considered
an EWG, will not provide electricity directly to the public and each plans to
sell only at wholesale to power marketers, energy service companies or the NYPP.
Although the NYPSL is silent with respect to the utility status of electric
corporations selling at wholesale within New York, precedent of the NYPSC has
applied "lightened regulation" to New York EWGs, which provides for minimal
financial and organizational regulation. Each of the New York facilities has
been accorded lightened regulatory treatment by the NYPSC. The New York
facilities' rates, however, remain subject to the jurisdiction of the FERC.
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<PAGE> 49
Massachusetts. Pursuant to Chapter 164 of the Massachusetts General Laws,
a "wholesale generation company" includes any company engaged in the business of
producing, manufacturing or generating electricity for sale at wholesale only.
The Somerset facility, as an EWG, will not provide electricity directly to the
public and plans to sell only at wholesale to power marketers and energy service
companies and thus would be considered a wholesale generation company. Such
companies are subject to very limited regulation by the Massachusetts Department
of Telecommunications and Energy ("MDTE"), and the Somerset facility will not
likely be subject to regulation as a Massachusetts public utility or electric
company. If, however, the Somerset facility were deemed to be an electric
company by the MDTE, the MDTE could retroactively apply certain provisions of
the statutes to the Somerset facility. The Somerset facility would also be
subject to other laws and regulations (other than rate regulation) applicable to
Massachusetts electric companies. The Somerset facility's rates, however, would
remain subject to the jurisdiction of the FERC.
Connecticut. Pursuant to Title 16, Chapter 283 of the Connecticut General
Statutes, a "foreign electric company" is a corporation organized under the laws
of a state other than Connecticut authorized by that state to generate electric
energy. A foreign electric company is allowed to acquire and operate electric
utility facilities, which include generating stations, in Connecticut. However,
any foreign electric company which owns or operates any utility facility in the
state is deemed to be an "electric company" and a "public service company" for
all purposes of Title 16.
Pursuant to Title 16, Chapter 277 of the Connecticut General Statutes, a
"public service company" includes electric companies, but does not include EWGs.
An "electric company" includes every corporation engaged in generating
electricity to be transmitted or distributed within the state, but does not
include an EWG. The Connecticut Department of Public Utility Control ("DPUC")
has authority to adopt rules with respect to rates and charges, services,
accounting practices, safety and the conduct of operations generally of public
service companies, as it deems reasonable and necessary. The DPUC also must
approve the merger or consolidation of any public service company, and the
issuance of common stock, notes, bonds, evidence of indebtedness, or securities
by any public service company. A waiver of the requirement for preapproval of
debt and securities issuances is available if the foreign state of incorporation
regulates such issuances.
Since they are EWGs, Middletown Power, Montville Power, Norwalk Power,
Devon Power, and Connecticut Jet Power will not likely be regulated as public
service companies or electric companies by the DPUC. If, however, the
Connecticut facilities were deemed to be public service companies or electric
companies by the DPUC, the DPUC could retroactively apply certain provisions of
the statutes to the Connecticut facilities. The Connecticut facilities would
also be subject to other laws and regulations (other than rate regulation)
applicable to Connecticut public service or electric companies. The rates for
each of the Connecticut facilities, however, would remain subject to the
jurisdiction of the FERC.
Certain Regulatory Approvals. In order to put in place the ownership
structure described in this prospectus, we sought and received approval from the
FERC with respect to the transfers to NRG Northeast on the date of the issuance
of the outstanding bonds of: (i) the 0.5% membership interests in the New York
and Massachusetts guarantors previously held by each of the members of NRG
Northeast and (ii) the interest of NRG Connecticut, another subsidiary of NRG
Energy, in the Connecticut guarantors. On January 10, 2000, we filed with the
FERC requesting these approvals. We received these approvals on February 10,
2000 and they have subsequently become final. In addition, in order to enable
the New York guarantors to provide their guarantees in respect of the bonds, we
sought and received the approval of the NYPSC. We filed with the NYPSC
requesting this approval on January 11, 2000. We received this approval on
February 9, 2000, and it has subsequently become final.
COMPETITION
FEDERAL. The Energy Policy Act laid the ground work for a competitive
wholesale market for electricity. Among other things, the Energy Policy Act
expanded the FERC's authority to order wholesale wheeling, thus allowing
qualifying facilities under Public Utility Regulatory Policies Act, power
marketers and EWGs to compete more effectively in the wholesale market.
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In May 1996, the FERC issued the first of the Open Access Rules, which
requires utilities to offer eligible wholesale transmission customers
non-discriminatory open access on utility transmission lines on a comparable
basis to the utilities' own use of the lines. In addition, the Open Access Rules
direct the regional power pools (including the NYPP and the NEPOOL) that control
the major electric transmission networks to file uniform, non-discriminatory
open access tariffs. The Open Access Rules have been the subject of rehearing at
the FERC and are now undergoing judicial review.
Over the past few years, Congress and the administration of President
Clinton have considered various pieces of legislation to restructure the
electric industry that would require, among other things, customer choice and/or
repeal of PUHCA. The debate is likely to continue, and perhaps intensify. The
effect of enacting such legislation cannot be predicted with any degree of
certainty.
STATE. The Energy Policy Act did not preempt state authority to regulate
retail electric service. Historically, in most states, competition for retail
customers is limited by statutes or regulations granting existing electric
utilities exclusive retail franchises and service territories. Since the passage
of the Energy Policy Act, the advisability of retail competition has been the
subject of intense debate in federal and state legislative and regulatory
forums. Many states have taken steps to facilitate retail competition as a means
of stimulating competitive generation rates. Retail competition commenced in New
York and Massachusetts in 1998. Full retail competition commenced in Connecticut
on July 1, 2000.
POWER MARKETS
THE NEW YORK POWER POOL. The NYPP includes 34,000 MW of installed capacity
and serves almost all of New York State's electric power requirements. The
current members of the NYPP include the six New York investor-owned utilities,
the Long Island Power Authority and the New York Power Authority, various local
and municipal utilities, as well as a growing number of independent power
producers and power marketers. The NYPP has been restructured as a competitive,
non-discriminatory market through, among other things, the establishment of the
NY ISO and the creation of bid-based markets for energy, capacity and ancillary
services. The NY ISO commenced operations in November 1999. Most of New York
State's investor-owned utilities have completed or are in the process of
divesting their fossil generation assets as part of the restructuring of the
state's electricity markets. These divested plants will compete to varying
degrees with new merchant plants in the wholesale markets. The market-clearing
price for the NYPP's day-ahead and real-time energy markets will be calculated
by the NY ISO by determining the market-clearing price for transactions with
zonal adjustments to account for transmission constraints. All purchasers of
energy from the market will also pay a transaction charge set by the NY ISO to
settle system energy balancing and certain ancillary service costs.
THE NEW YORK CITY IN-CITY MARKET. In connection with the divestiture by
ConEd of certain of its electric generating resources in the New York City
in-city market, certain market power mitigation measures will be applied to
generators located in that area. The intent of these market power mitigation
measures is to alleviate concerns that the divested generation resources might
be able to exercise localized market power due to the current configuration of
New York City in-city market loads, generation, and transmission facilities and
related local reliability rules and transmission constraints. The market
mitigation measures are intended to be implemented by the NY ISO and tracked
through its market monitoring process.
On May 31, 2000, FERC approved a request of the NY ISO 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 NY ISO began
capping bids for that service. FERC rejected the NY ISO'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 NY ISO or another party successfully
appeals the order), we 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 NY ISO has sought reconsideration of
the FERC order.
THE NEW ENGLAND POWER POOL. The NEPOOL was originally formed to capture
the benefits of economic dispatch and joint planning between a large number of
utilities. The NEPOOL is populated with a large number of small utilities. The
region is a high variable cost power market, with oil/gas units operating in the
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margin. The NEPOOL has a large number of nuclear units, the continuing
operational status of which is, at present, unclear; this factor adds pressure
to the capacity needs in the NEPOOL service area. In addition, the region has
transmission constraints that limit imports from neighboring regions. As such,
the NEPOOL will require significant new capacity additions over the next few
years: approximately 7,000 MW of new capacity is projected to be needed by 2005,
driven by (i) current deficiencies and increased shortfalls due to load growth;
and (ii) economic retirements of older and inefficient units. The deficit could
grow much larger if there are further shutdowns of nuclear plants or aging
fossil capacity.
There are over 30,000 MW of new merchant plant proposals in the NEPOOL.
However, only about 2,500 MW of new merchant plants is actually under
construction. Virtually all proposals for new merchant plants in the NEPOOL are
for gas-fired combined cycle facilities, and are designed to meet incremental
generation requirements, and displace older, less efficient units. Some of this
capacity will require the addition of new gas pipeline capacity into New
England. In addition, approximately 12,500 MW of capacity in the NEPOOL has been
divested or is in the process of being divested. These divested generation
assets will compete with the new merchant plants in the wholesale market.
On May 1, 1999, ISO New England began administering the NEPOOL's
electricity marketplace through which energy, automatic generation control, and
several capacity services are supplied. ISO New England is a "day-ahead-hourly"
marketplace. This means that wholesale electricity suppliers and generators bid
their resources into the market the day before and submit separate bids for each
resource for each hour of the day. ISO New England tabulates the bids and stacks
them in dollar terms from lowest to highest matching the expected hourly demand
forecast for that hour and each hour in the next day. The ISO New England
operations staff then determines the least cost dispatch sequence for the next
day which reflects the actual bids. Generators will then be dispatched to match
the actual load occurring on the system. Unlike in the NYPP, there is no
hour-ahead market in the NEPOOL. Actual energy balancing differences from the
day-ahead schedule are accounted for through an uplift charge.
OUR GENERATING FACILITIES
We own a total of ten fossil fuel-fired and six remote gas turbine electric
power generation facilities, as described below. The purchase price set forth
below for certain of the facilities is based on an allocation made by us where
more than one facility was purchased pursuant to the same purchase and sale
agreement.
ARTHUR KILL FACILITY. The Arthur Kill facility was acquired from ConEd in
June 1999 for a purchase price of $395.5 million. The Arthur Kill facility,
located in Staten Island, New York, is a natural gas/oil-fired
intermediate/peaking plant consisting of 3 units and having capable capacity of
842 MW (including a black start gas turbine). We expect the Arthur Kill facility
to benefit from its location in the New York City in-city market due to
requirements that load-serving entities must contract with resources located in
the New York City in-city market for 80% of their needs, and there is limited
ability to build new capacity in this area or to gain access to this area by
means of transmission.
ASTORIA FACILITY. The Astoria facility was acquired from ConEd in June
1999 for a purchase price of $109.5 million. The Astoria facility, located in
Queens, New York, is a gas/liquid fuel-fired peaking plant consisting of 11
units and having capable capacity of 614 MW. We expect the Astoria facility to
benefit from its location in the New York City in-city market due to
requirements that load-serving entities must contract with resources located in
the New York City in-city market for 80% of their needs, and there is limited
ability to build new capacity in this area or to gain access to this area by
means of transmission.
CONNECTICUT JET FACILITIES. Six unmanned ICU facilities were acquired from
CL&P in December 1999 for a purchase price of $22.3 million. These ICU
facilities, located at local switchyards in Branford, Torrington Terminal,
Franklin Drive and Cos Cob, are oil-fired peaking units consisting of 6 units
and having an aggregate capable capacity of 110 MW.
DEVON FACILITY. The Devon facility was acquired from CL&P in December 1999
for a purchase price of $113.3 million. The Devon facility, located in Milford,
Connecticut, is a natural gas/oil-fired intermediate/peaking load facility
consisting of 7 units and having capable capacity of 358 MW.
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DUNKIRK FACILITY. The Dunkirk facility was acquired from NiMo in June 1999
for a purchase price of $193.3 million. The Dunkirk facility, located in
Dunkirk, New York (near Buffalo), is a coal-fired base-load facility consisting
of 4 units and having capable capacity of 582 MW. The Dunkirk facility is among
the lowest variable cost fossil fuel plants that sell into the NYPP. We plan to
operate it as a base-load facility.
HUNTLEY FACILITY. The Huntley facility was acquired from NiMo in June 1999
for a purchase price of $161.7 million. The Huntley facility, located five miles
northeast of Buffalo, New York, is a coal-fired base-load facility consisting of
6 units and having capable capacity of 566 MW. The Huntley facility is among the
lowest cost fossil fuel plants that sell into the NYPP. We plan to operate it as
a base-load facility.
MIDDLETOWN FACILITY. The Middletown facility was acquired from CL&P in
December 1999 for a purchase price of $225.8 million. The Middletown facility,
located in Middletown, Connecticut, is a natural gas/oil-fired
intermediate/peaking plant consisting of 4 units and having capable capacity of
770 MW.
MONTVILLE FACILITY. The Montville facility was acquired from CL&P in
December 1999 for a purchase price of $82.8 million. The Montville facility,
located in Uncasville, Connecticut, is a natural gas/oil-fired
intermediate/peaking load plant consisting of 4 units and having a capable
capacity of 498 MW.
NORWALK FACILITY. The Norwalk facility was acquired from CL&P in December
1999 for a purchase price of $75.0 million. The Norwalk facility, located in
Norwalk, Connecticut, is an oil-fired intermediate/peaking load plant consisting
of 3 units and having capable capacity of 342 MW.
OSWEGO FACILITY. The Oswego facility was acquired from NiMo and RG&E in
October 1999 for a purchase price of $84.9 million. The Oswego facility, located
in Oswego, New York, is a natural gas/oil-fired peaking plant consisting of 2
units and having capable capacity of 1,660 MW. The Oswego facility has very low
cost capacity and is a source of excess emissions allowances that can be
utilized at our other facilities. We expect to operate this facility as a
peaking facility.
SOMERSET FACILITY. The Somerset facility was acquired from MEC in April
1999 for a purchase price of $55.2 million. The Somerset facility, located in
Somerset, Massachusetts, is an oil/coal-fired base-load/peaking facility
consisting of 3 units and having capable capacity of 153 MW. One unit
representing approximately 24 MW of capacity is currently leased to VELCO. The
Somerset facility provides low variable cost capacity, strategically positioned
to sell power into the NEPOOL. We intend to operate this facility as a peaking
and base-load facility, depending on market conditions.
We believe the Connecticut facilities are strategically positioned for
sales into the NEPOOL and have a competitive advantage on transmission charges;
we will operate these facilities as peaking and intermediate facilities to take
advantage of market volatility. In addition, we believe certain of the
facilities and facility sites represent opportunities for repowering and/or
expansion of generation capacity. We believe it may be possible at the Huntley
and Arthur Kill facilities to generate revenues through steam sales. In
addition, we believe there are opportunities to improve on the existing fuel
supply arrangements at the facilities.
NRG NORTHEAST OPERATIONS
We are a major owner of independent electric power generation in the
northeastern region of the United States. Our regional base of competitive
generating facilities is close to major load centers. We intend to pursue a
strategy of enhancing profitability and competitiveness of these facilities
through their efficient operation. We believe the diversity of our facilities,
in terms of operational characteristics, location in and access to multiple
power pools and fuel sources, is an important part of this strategy.
In order to operate our facilities and be competitive in the northeast
market, we need to address power marketing, fuel procurement, emissions
management and operations and maintenance issues relating to the facilities. We
are utilizing certain resources of NRG Energy and its affiliates by entering
into contracts with NRG Energy, NRG Power Marketing and subsidiaries of NRG
Operating Services, to provide key financial, operational and administrative
services to us.
In particular, NRG Power Marketing, a wholly-owned subsidiary of NRG
Energy, has entered into power sales and agency agreements with each of the
guarantors for terms of approximately 30 years. NRG Power
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Marketing provides all power marketing services, fuel procurement services, and
emissions management services for the guarantors.
POWER MARKETING. NRG Power Marketing provides power marketing services to
the guarantors, including scheduling, pool bidding, contract management and
bilateral sales of excess capacity, energy and ancillary services, with gross
receipts less costs incurred due to the guarantors from such activities flowing
to NRG Northeast. NRG Power Marketing has the exclusive rights to market all
capacity, energy and ancillary services produced by the guarantors that the
guarantors have not otherwise committed under other contracts.
NRG Power Marketing will have an agency role in scheduling to the
appropriate independent system operator or power pool, and will also have a
principal role for bilateral sales and wheeling of energy to other power pools.
NRG Northeast and the guarantors will continue to evaluate the tradeoffs between
long-term contractual opportunities and shorter term merchant sales. See
"Summary of Certain Principal Project Documents."
NRG Power Marketing is directed to use NRG Northeast assets to maximize net
operating margins. With baseload units and facilities, NRG Power Marketing will
seek a constant reduction of fixed and variable costs in combination with
improved capacity factors. With intermediate/peaking units and facilities, NRG
Power Marketing will maximize revenues during peak pricing periods and minimize
expenses during low pricing periods.
The New York facilities sell capacity, energy and voltage support into the
NYPP centralized power market. The Somerset facility and the Connecticut
facilities sell capacity, energy and voltage support into the NEPOOL's
centralized power market. Our facilities may also enter into bilateral contracts
for the sale of capacity and energy to power marketers and load serving entities
within the NYPP, the NEPOOL and surrounding markets, as applicable. Our
facilities currently sell capacity, energy and ancillary services pursuant to
certain transition power sales contracts which range in term from one to ten
years.
FUEL PROCUREMENT. NRG Power Marketing provides fuel procurement services
to the guarantors for natural gas, coal and oil procurement; local gas
distribution and transportation company balancing; pipeline capacity purchasing
and balancing; position reporting; fuel inventory management; and barge and rail
management. As part of NRG Northeast's fuel procurement strategy, NRG Power
Marketing will pursue short and intermediate fuel contracts to hedge power sales
contracts and other forward sales of power. It will also actively manage the
fuel inventory and attempt to reduce barge, rail, inventory, fuel handling and
gas distribution charges.
EMISSIONS MANAGEMENT. NRG Power Marketing provides emissions management
services for tracking, procurement, sales and allocation of emissions
allowances. Emissions management will be closely integrated with plant
generation planning. NRG Power Marketing will also assist in performing ongoing
analyses comparing costs of installing and operating environmental control
equipment to emissions allowance procurement.
RISK MANAGEMENT. NRG Power Marketing will utilize certain risk management
policies and procedures to assist us with our objective of maximizing net
operating margins while minimizing the risks associated with the cash flows
derived from these assets. Key risk management guidelines adopted by NRG Power
Marketing include: (i) a general prohibition on speculative activities; (ii)
mitigation of operational risk by not allowing more than 50% of available output
not already contracted to be sold forward unless approved by the NRG Power
Marketing board of directors; (iii) approval of counter-parties and their
trading limits by NRG Energy's treasury; and (iv) fuel and emissions allowance
requirements to be matched with future power sale commitments. These risk
management policies and procedures can only be changed by the board of directors
of NRG Power Marketing.
OPERATIONS AND MAINTENANCE. Each of the guarantors has entered into an
operation and maintenance agreement with a facility-specific subsidiary (other
than the guarantors which own the Connecticut Jet and Middletown facilities,
which share an operator) of NRG Operating Services, which is a direct,
wholly-owned subsidiary of NRG Energy. The agreements are effective for five
years, with options to extend beyond five years. Under the agreements, the NRG
Operating Services company operator will be reimbursed for usual and
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customary costs related to providing the services, including plant labor and
other operating costs. NRG Energy, through NRG Operating Services or other
subsidiaries, currently has contracts for the operations and maintenance of
approximately 7,800 MW of power generation at thirty-one facilities worldwide,
excluding the NRG Northeast assets.
Each NRG Operating Services subsidiary will perform all administrative,
operations and maintenance work at its respective facility, including:
- coordinating the fuel delivery, unloading and inventory;
- developing a spare parts and inventory program;
- meeting external performance standards for transmission of electricity;
- providing operating and maintenance consulting to the guarantors as the
guarantors may deem necessary and desirable;
- performing and recording periodic operational tests of the facility
equipment scheduled by NRG Power Marketing in accordance with the NEPOOL
or the NYPP requirements, the manufacturer's specifications, legal
requirements, environmental guidelines and other established guidelines;
- cooperating with and assisting the guarantors in performing the
guarantors' obligations under agreements related to each facility;
- assisting its respective guarantor in preparing the budgets, including
providing operating budgets, rolling five year forecasts and providing
notice to the respective guarantor that the operating expenses exceed or
are expected to exceed the approved operating budget; and
- disposing of all waste material in accordance with legal requirements and
the guarantor's waste disposal arrangements, if any.
There are incentive fees and penalties based on performance in each
operation and maintenance agreement that attempt to align the operator's
incentives with NRG Northeast's incentives for additional net operating margin.
To ensure knowledge transfer, each operator has retained most of the plant
operators previously employed by the sellers of our facilities.
ENVIRONMENTAL MATTERS
GENERAL. NRG Northeast and its guarantors, like most industrial
enterprises, are subject to regulation with respect to the environmental impact
of their operations, including air and water quality control, limitations on
land use, disposal of wastes, aesthetics and other matters.
Environmental laws generally require air emissions and water discharges to
meet specified limits. They also impose potential joint and several liability,
without regard to fault, on the generators of various hazardous substances to
manage these materials properly and to clean up property affected by the
production and discharge of such substances. We have budgeted in excess of $40
million for capital expenditures between 2000 and 2004 for environmental
compliance, which includes the possible installation of NO(x) control technology
at the Somerset facility, intake screens at the Dunkirk facility, the resolution
of consent orders for remediation at the Arthur Kill and Astoria facilities, the
resolution of a consent order for water intake at the Arthur Kill facility, and
completing remediation-related requirements under the Connecticut Transfer Act.
The budget does not include capital expenditures that may be required with
respect to air pollution control initiatives recently undertaken by New York
City, New York State, Connecticut and Massachusetts or with more expensive
cooling water intake technology that may be required at our Arthur Kill
facility. See "Management's Discussion and Analysis of Financial Condition and
Results of Operation -- Liquidity and Capital Resources."
As a result of alleged historical noncompliance with environmental laws and
regulations, ConEd, the former owner of the Arthur Kill facility and the Astoria
facility, executed a series of consent orders with the
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NYDEC commencing in 1993. The consent orders imposed a number of obligations on
ConEd, including, but not limited to,
- the evaluation of the impact of water intake screens on aquatic species;
- the investigation and remediation of spills and releases of petroleum and
transformer fluids;
- the evaluation of wastewater discharge points to determine if all such
locations have been permitted;
- the inspection and evaluation of above ground petroleum storage tanks,
including the secondary containment for such tanks, and implementation of
corrective actions, if necessary;
- the performance of tightness testing of underground pipelines associated
with the above ground storage tanks; and
- compliance with air pollution requirements related to visible emissions.
The ConEd consent orders include provisions establishing stipulated
penalties for violations of the orders. In connection with the acquisition of
the Arthur Kill facility and the Astoria facility, Arthur Kill Power and Astoria
Power assumed ConEd's remaining obligations under the consent orders to the
extent the orders apply to those facilities. Arthur Kill Power and Astoria Power
are currently negotiating a consent order with the NYDEC to memorialize the
obligations we are assuming in connection with the ConEd consent orders. In July
2000, in a draft of this Consent Order, the NYDEC alleged that we did not submit
revised Title V air permit applications on a timely basis after ConEd withdrew
its Title V applications for the Arthur Kill and Astoria facilities. We believe
that these allegations are incorrect and are contesting the imposition of any
penalties for such alleged violations.
AIR POLLUTION CONTROL.
Sulfur Dioxide. The Clean Air Act provides for SO(2) emission reductions
to be achieved through a total cap on SO(2) emissions from affected units, and
an allocation of SO(2) "allowances" (each allowance authorizes the emission of
one ton of SO(2)). Units needing to cover emissions above their allocations can
buy allowances from sources that have excess allowances. Although we have
projected that the SO(2) allowances purchased and currently allocated to our
facilities will be in excess of predicted SO(2) emissions through the year 2009,
whether we will have an excess or deficit of SO(2) allowances for any given year
will depend, in part, on the capacity utilization of each of the facilities. If
necessary, we intend to comply with existing laws limiting SO(2) emissions by
purchasing additional allowances; however, depending on the extent of any
allowance deficits and the price and the availability of allowances for
purchase, we will consider changing to low sulfur coal, lower sulfur oil or the
installation of scrubbers. As discussed below, recent regulatory initiatives in
New York, Connecticut and Massachusetts may have an impact on our strategies
regarding SO(2) emissions reductions.
Nitrogen Oxides. 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 NO(x) emissions from utility and large industrial
boilers. NO(x) 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 NO(x) emission reductions by May 1, 2003, and to subsequently cap
those emissions (the "SIP Call"). The NO(x) 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.
NO(x) 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 NO(x)
emissions from the largest sources of NO(x), including our facilities. Under
formulas established in the
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regulations, each source will be allocated a number of "allowances," with each
allowance representing one ton of NO(x) that the source is allowed to emit. The
allowances can be bought and sold through a regional trading program similar to
the trading of SO(2) allowances established by the EPA pursuant to the Clean Air
Act. The extent of investment in control technologies, operational changes, and
allowance purchases required to comply with these regulations will be directly
related to the number of allowances our facilities receive and to the operation
of the facilities.
Based on the regulations and the projected operation of the facilities, we
have projected that the NO(x) allowances to be allocated to the facilities will
be less than the projected NO(x) emissions from the facilities by the year 2003
and for subsequent years. Whether we will have an excess or deficit of NO(x)
allowances for any given year will depend, in part, on the capacity utilization
of each of the facilities. We are evaluating the installation of pollution
control equipment at the Somerset facility to implement the "Consumers First"
Agreement between MEC and the Attorney General for the Commonwealth of
Massachusetts that requires the Somerset facility to reduce NO(x) emissions at
Unit 6 to 0.15 lb./mmBtu by the year 2003. As part of this evaluation we are
considering the purchase of allowances and/or credits to meet the goals of the
Agreement. To the extent necessary, we intend to implement a strategic plan for
the purchase of NO(x) allowances and/or reduction of NO(x) emissions through the
installation of pollution control equipment. As discussed below, recent
regulatory initiatives of New York, Connecticut and Massachusetts may impact our
strategies regarding NO(x) emissions reductions.
Public Policy Relating to Air Emissions. On May 25, 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 air 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.
On October 14, 1999, Governor Pataki of New York announced that he is
ordering the NYDEC to require further reductions of SO(2) emissions and NO(x)
emissions from New York power plants, beyond that which is required under
current federal and state law. Under Governor Pataki's directive, NO(x)
emissions during the "non-ozone" season would be required to be reduced by 40%
from the Ozone Transport Commission's baseline levels. This additional reduction
requirement would be phased in between January 1, 2003 and January 1, 2007. In
addition, Governor Pataki announced that he is ordering a reduction of SO(2)
emissions by 50% beyond the requirements of the federal Acid Rain Program. These
reductions would also be phased in between January 1, 2003 and January 1, 2007.
The New York Department of Environmental Conservation is currently working on
draft regulations to implement Governor Pataki's initiative. Compliance with
these emissions reductions requirements, if they become effective, could have a
material impact on the operation 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
sulfur dioxide by May 2003. The Executive Order requires reductions of sulfur
dioxide 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. In August 2000, the CDEP issued proposed regulations to implement
the Executive Order. With respect to sulfur dioxides, the CDEP proposes to phase
in new sulfur dioxide limitations beginning after December 31, 2001. The
regulation will ultimately require that after December 31, 2002, an operator of
a fossil fuel power plant will be required to either combust fossil fuel with a
fuel sulfur limit of equal to or less than 0.3% sulfur, by weight (dry basis),
or meet an average emissions rate of equal to or less than 0.3 lbs/mmBtu
calculated over an individual calendar month. The proposed regulation does allow
the operator to comply with the rule by meeting a higher limit if the operator
uses discrete emission
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reduction credits or federal SO(2) allowances to offset the increased emissions.
The proposed regulation also requires operators of fossil fuel power plants, for
each calendar year commencing January 1, 2002, to retire federal SO(2)
allowances (by transferring such allowances to a general account established by
the CDEP) equal to the amount of sulfur dioxide, in tons, emitted by the
operator in the State of Connecticut. The allowances that can be used to satisfy
this requirement must have been issued to sources in Connecticut, or if
necessary, to sources in "affected states" (Rhode Island, Massachusetts, New
York, or sources within 50 miles from the location of the Connecticut source
relying on the allowance). With respect to nitrogen oxides, the CDEP has
proposed that sources subject to the Connecticut NO(x) Budget Program be
required to meet a 0.15 lbs/mmBtu emission standard for each October 1 through
April 30 period, commencing October 1, 2003. The CDEP has proposed to provide
flexibility by allowing subject sources to use NO(x) allowances or NO(x)
discrete emission reduction credits to offset any emissions in excess of the
proposed standard. We have been actively engaged in commenting on the CDEP's
regulations and are continuing to discuss the regulations with the CDEP. If,
however, the CDEP promulgates its proposed regulations as described above, these
regulations could have a material impact on our Connecticut facilities.
The Commonwealth of Massachusetts is also 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 our 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, 2003, the total emissions of nitrogen oxides and sulfur dioxide
at the Somerset facility to no more than 75% of the average annual emissions of
the Somerset facility for the years 1997-1999. Finally, the proposed regulations
require the Massachusetts Department of Environmental Protection to evaluate, by
December 1, 2002, the technological 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 our Somerset
facility. The annual average carbon dioxide emission rate identified in the
proposed regulations cannot be met by the Somerset facility.
The Speaker of the New York City Council and other members of the Council
have introduced legislation that will require an agency designated by the Mayor
to establish an emissions standard for carbon dioxide that is no greater than
the emissions of carbon dioxide from electric generating units (with a capacity
of more than 25 megawatts) located in the City of New York in 1999 divided by
the electricity generated in the same year by said units. The proposed law would
require the standard to be reduced, each year, by one percent for each one
hundred megawatts of electric generating capacity installed within the City of
New York during the previous calendar year, until the carbon dioxide emission
standard has been reduced by 30%. The proposed law requires that the initial
carbon dioxide emission standard be established by March 1, 2002. Although the
proposed law, if enacted, could have an impact on the operation of our Arthur
Kill facility and on certain of our Astoria peaking units, we believe that,
relatively speaking, we are in a better position to comply with this proposed
law than many other generating units located in the New York City market.
Particulate Matter. A new ambient air quality standard was also adopted by
EPA in July 1997 to address emissions of fine particulate matter. It is widely
understood that attainment of the fine particulate matter standard may require
reductions in NO(x) and SO(2) emissions, although under the time schedule
announced by the EPA when the new standard was adopted, non-attainment areas
were not to have been designated until 2002 and control measures to meet the
standard were not to have been identified until 2005. However, in a May 14, 1999
decision, the D.C. Circuit remanded the standard to the EPA for further
justification. Accordingly, the impact, if any, of future revision to the fine
particulate matter ambient air quality standard on our facilities is uncertain
at this time.
As a result of alleged violations of opacity, or visible emissions,
standards at the Huntley, Dunkirk and Oswego facilities, NiMo, the former owner
and operator of these facilities, was in the process of negotiating a
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consent order with the NYDEC to resolve such violations at the time we acquired
these facilities. Under the terms of the asset purchase agreements, NiMo will be
responsible for any and all exceedances which occurred prior to the closing of
the transactions contemplated in the asset purchase agreements. We have agreed,
in connection with our acquisition of these facilities, to enter into separate
consent orders for each of these facilities, to address on-going and potential
future violations of opacity standards. We believe that the majority of the
opacity exceedances at the Dunkirk and Oswego facilities are non-preventable
events occurring as a result of startups and shutdowns at those facilities that
should not be subject to penalties under the New York regulations.
Hazardous Air Pollutants. The EPA is also evaluating whether to regulate
mercury emissions from coal-fired utility boilers. Because we do not know what
the EPA may require with respect to this issue, we are not able to evaluate the
impact of potential mercury regulations on the facilities that burn coal.
However, in 1999 the Dunkirk and Huntley facilities conducted coal sampling and
analysis as required by the EPA. Further, the Dunkirk facility was selected by
the EPA as a site where stack emissions sampling and analysis was to be
conducted. The stack sampling was completed in October, 1999. As noted above,
the Massachusetts Department of Environmental Protection has issued a proposed
regulation pursuant to which it will evaluate, by December 1, 2002, the
feasibility of regulating mercury emissions and will propose mercury emission
limits within 18 months of completing its feasibility report.
Greenhouse Gases. Since the adoption of the United Nations Framework on
Climate Change in 1992, there has been worldwide attention with respect to
greenhouse gas ("GHG") emissions. In December 1997, the Clinton Administration
participated in the Kyoto, Japan negotiations, where the basis of a Climate
Change treaty was formulated. Under the treaty, known as the Kyoto Protocol, the
United States would have an overall reduction target of 7% in GHG emissions from
1990 levels by 2008-2012. In 1997, the United States Senate passed a resolution
indicating that it would not ratify a GHG emissions reduction treaty that did
not involve commitments from developing nations to limit GHG emissions or one
that would damage the U.S. economy. To date, the Senate has not ratified the
Kyoto Protocol. We believe that as a result of curtailing emissions by operating
at reduced capacity factors, the anticipated repowering of existing generating
units and/or the replacement of such units with more energy efficient plants, we
will be in a good position to comply with GHG emission reduction requirements
should the U.S. Senate ratify the Kyoto Protocol.
As noted above, the Massachusetts Department of Environmental Protection
has issued a proposed regulation that will require the Somerset Facility to meet
output-based carbon dioxide emission rate limits by December 1, 2005. According
to the Massachusetts Department of Environmental Protection, these limits are
intended to achieve a reduction of carbon dioxide emissions of 7% below 1990
emissions levels. However, we do not expect the annual average proposed carbon
dioxide rate limitation of 1600 lbs. per net MWh to survive through the draft
regulation stage. Also as noted above, the New York City Council has introduced
legislation to require the establishment of an "output-based" carbon dioxide
emission standard, commencing in 2002, that would decline over time as newer,
more efficient electric generating units are constructed in New York City.
WATER POLLUTION CONTROL
The major issue facing the facilities with respect to its wastewater
discharges is the potential for more stringent regulation of cooling water
intake structures. We have submitted a Final Action Plan to the NYDEC with
respect to the Arthur Kill cooling water intake structures. However, the NYDEC
Division of Fish, Wildlife & Marine Resources, in July 2000, disapproved our
Final Action Plan as not being in compliance with the Best Technology Available
standard required by New York regulations. The NYDEC's letter suggests that we
may need to install technology to reduce impingement and entrainment of aquatic
species by 99% or more. We have suggested a less costly alternative to respond
to the NYDEC's concerns, and are in discussions with the NYDEC about this
alternative. At the Somerset facility, we expect to be required to undertake
entrainment and possibly impingement studies in connection with the renewal of
our National Pollutant Discharge Elimination System permit, although the scope
of such studies has not been determined by the EPA. We also anticipate making
capital improvements to the cooling water intake structure at the Montville,
Dunkirk, Oswego, and Huntley facilities (depending on future operations at the
latter two
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facilities). We have budgeted approximately $8 million (not including the
Huntley facility or any additional capital costs for cooling water intake
technology beyond that proposed in our Final Action Plan for the Arthur Kill
facility) in connection with water intake issues for the facilities.
With respect to cooling water intake structures, the EPA is currently
required under a consent decree to propose draft regulations on or before July
1999 and promulgate final regulations by August 2001. The EPA has indicated that
it intends to seek an extension of these deadlines. These regulations will
address, among other things, regulatory approaches for determining what
constitutes adverse environmental impact and what constitutes the best
technology available for minimizing adverse environmental impact. It is not
possible to determine at this time how the EPA will resolve these issues. The
EPA's regulations in general and these determinations in particular may have a
material effect on the adequacy of our capital budgets relating to cooling water
intake structures.
REMEDIATION
Under various federal, state and local environmental laws and regulations,
a current or previous owner or operator of any facility, including an electric
generating facility, may be required to investigate and remediate past releases
or threatened releases of hazardous or toxic substances or petroleum products
located at the facility, and may be held liable to a governmental entity or to
third parties for property damage, personal injury and investigation and
remediation costs incurred by a party in connection with any releases or
threatened releases. These laws, including the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended by the Superfund
Amendments and Reauthorization Act of 1986, impose liability without regard to
whether the owner knew of or caused the presence of the hazardous substances,
and courts have interpreted liability under such laws to be strict and joint and
several. The cost of investigation, remediation or removal of substances may be
substantial. In connection with our ownership and operation of our facilities,
we may be liable for such costs.
In connection with the divestiture of our facilities, the former owners of
the facilities undertook "Phase I" and "Phase II" environmental investigations
to evaluate the potential existence of contamination at the facilities and
whether remediation of such facilities would be required. A Phase I
environmental investigation typically involves a review of documents maintained
by the facility with respect to conditions at the facility; interviews with
facility personnel; review of governmental agency files; research into
historical operations at a facility; and a visual inspection of the facility. A
Phase II environmental investigation involves the collection and analysis of
samples from environmental media at a facility, with particular attention paid
to those areas of concern identified during the Phase I investigation.
We believe that some remediation will be required at the Astoria and Arthur
Kill facilities. The Astoria facility is contaminated with liquid phase
petroleum products at the soil/groundwater interface. Sampling in the
groundwater at the Arthur Kill facility revealed elevated levels of certain
metals in the groundwater and surface water in certain areas of this facility.
We have assumed an obligation to address contamination at these two facilities
pursuant to a consent order previously executed by and between the NYDEC and the
former owner of these facilities, ConEd. We have budgeted $3.5 million for the
remediation work at the Astoria facility and $1.5 million for the Arthur Kill
facility. Finally, with respect to the Somerset facility, we have completed our
remedial work for the three areas of concern located on the Somerset facility
property in accordance with Massachusetts Department of Environmental Protection
regulations. We expect that we will be required to remove a limited amount of
contaminated materials from the property acquired in connection with our
purchase of the Somerset facility.
In accordance with the requirements of the Connecticut Transfer Act, we
will be required to investigate and, if necessary, remediate existing
contamination found at the Devon, Norwalk, Montville, and Middletown facilities.
The Phase I and Phase II environmental assessments for these Connecticut
facilities revealed several contamination issues associated with fuel oil
storage tanks, ash ponds and ash disposal areas. However, we believe the only
significant concern with respect to these facilities relates to the on-site
placement of ash produced during the period when these facilities were
coal-fired. Testing of the ash has revealed relatively high concentrations of
arsenic, and samples of soils and groundwater in the vicinity of the ash
disposal areas have
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indicated exceedances of Connecticut regulatory standards for arsenic and
certain other metals. We intend to undertake additional sampling and analysis to
demonstrate that, given the limited access to the areas of the stations impacted
by the ash, affirmative remedial actions (other than property use restrictions
designed to limit access to the facilities by trespassers) will not be required.
We have currently budgeted approximately $1.5 million to (1) complete
remediation and closure activities associated with the Connecticut Transfer Act
and (2) complete closure of former RCRA facilities at the Connecticut
facilities. If we are required to undertake certain affirmative remedial
actions, such as providing cover over areas impacted by the ash to prevent
exposure to the ash, the costs for completing the Connecticut Transfer Act
process could be significantly higher.
LABOR RELATIONS
None of the operating employees at our facilities is an employee of NRG
Northeast or any guarantor. These operating employees are employed directly by
the respective subsidiary of NRG Operating Services that has contracted with the
guarantor to operate the facility. Many of the operating employees of the
respective operator subsidiaries were employed by the previous owner of that
facility. All of the facilities (other than the Middletown facility) are staffed
by a combination of union and non-union employees. The Middletown facility is
staffed completely by non-union employees. With respect to union employees, all
such employees are covered by current labor agreements with the relevant union,
which agreements have varying expiration dates. To date there are no unresolved
arbitrations filed by employees at any of our facilities.
INSURANCE
We maintain insurance coverages that, in the opinion of an insurance
consultant, are sufficiently comprehensive in scope and consistent with, or
exceed, those normally carried by companies engaged in the same or similar
businesses and owning similar properties and operating in the same or similar
locations. The insurance program includes all-risk property insurance that
provides replacement value cover for all real and personal property, losses from
boiler and machinery breakdowns, and business interruption for large generating
assets. All of these policies are subject to certain sublimits. We also carry
general liability insurance covering liabilities to third parties for bodily
injury or property damages resulting from operations, automobile liability
insurance and excess liability insurance. Further, we have the benefit of title
insurance and workers' compensation insurance. Limits and deductibles in respect
of these insurance policies are comparable to those carried by other electric
generating enterprises with similar capital structures and owning and operating
facilities of like size and type as our facilities.
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 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, tortious
interference with contract, prospective business opportunities and prospective
contractual relationships, 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's and NiMo's intention to close on
that date. On January 14, 2000, the court denied Fortistar's request for a
temporary injunction. In April, 2000, NRG Energy filed a summary judgment 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 without merit. No trial date has been set.
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NRG Energy has provided an indemnity to the trustee and the holders of the
bonds with respect to the Fortistar Litigation. See "Description of Principal
Financing Documents -- Indemnification Agreement."
On May 25, 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 air 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.
On May 31, 2000, FERC approved a request of the NY ISO, 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 NY ISO began
capping bids for that service. FERC rejected the NY ISO'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 NY ISO or another party successfully
appeals the order), we 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 NY ISO has sought reconsideration of
the FERC order.
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MANAGEMENT
ABOUT OUR MANAGEMENT COMMITTEE AND EXECUTIVE OFFICERS
NRG Northeast is a member-managed limited liability company, which means
that its members are responsible for managing its affairs. NRG Northeast's
members act collectively through a committee known as the Management Committee,
which has full authority to manage our business and affairs. Each member selects
three representatives to represent it at the Management Committee meetings.
Members of our Management Committee (and their ages) from each of NRG
Eastern LLC and Northeast Generation Holding LLC are David Peterson (59),
Leonard Bluhm (55) and Craig Mataczynski (40).
David H. Peterson has been a member of our Management Committee since April
29, 1999. Mr. Peterson has been Chairman of the Board of NRG Energy since
January 1994, Chief Executive Officer since November 1993, President since 1989
and a Director since 1989. Mr. Peterson was also Chief Operating Officer of NRG
Energy from June 1992 to November 1993. Prior to joining NRG Energy, Mr.
Peterson was Vice President, Non-Regulated Generation for Northern States Power
Company (now Xcel Energy Inc.), and he has served in various other management
positions with Northern States Power Company during the last 20 years.
Leonard A. Bluhm has been a member of our Management Committee since
January 26, 2000. Mr. Bluhm has been Executive Vice President and Chief
Financial Officer of NRG Energy since January 1997. Immediately prior to that,
he served as the first President and Chief Executive Officer, and subsequently
Chairman, of Cogeneration Corporation of America (formerly NRG Generating (U.S.)
Inc.) from May 1993. Mr. Bluhm has served in various management positions with
NRG Energy since joining NRG Energy in 1991. Mr. Bluhm previously served for
over 20 years in various financial positions with Northern States Power Company.
Craig A. Mataczynski has been a member of our Management Committee since
April 29, 1999. Mr. Mataczynski has also served as our President since June 1,
1999. He has been Senior Vice President, North America of NRG Energy, and
President and Chief Executive Officer of NRG Energy North America since July
1998. From December 1994 until July 1998, Mr. Mataczynski served as Vice
President, US Business Development of NRG Energy. From May 1993 to January 1995,
Mr. Mataczynski served as President of NEO Corporation, NRG Energy's
wholly-owned subsidiary that develops small electric generation projects within
the United States. Prior to joining NRG Energy, Mr. Mataczynski worked for
Northern States Power Company from 1982 to 1994 in various positions, including
Director, Strategy and Business Development and Director, Power Supply Finance.
Our executive officers and their respective positions are listed below.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Craig A. Mataczynski........................................ 40 President
Bryan K. Riley.............................................. 43 Vice President
Brian B. Bird............................................... 38 Treasurer
Michael J. Young............................................ 43 Secretary
</TABLE>
Set forth below are the principal occupations and business activities of
our executive officers (other than Mr. Mataczynski, whose principal occupations
and business activities are set forth above) for the past five years in addition
to their positions described above.
Bryan K. Riley has been our Vice President since August 20, 1999. He has
been Vice President of the eastern division of NRG Energy North America since
June 1999. Prior to joining NRG Energy, Mr. Riley was Vice President of Business
Development for PacificCorp from February to December 1998, where he was
responsible for energy investment in Eastern Europe, Commonwealth of Independent
States countries, the Middle East and Turkey. From 1980 to 1997, Mr. Riley held
several positions with Peabody Holding Company, Inc. Mr. Riley is based in NRG
Energy's Pittsburgh regional office.
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Brian B. Bird has been our Treasurer since June 1, 1999. He is the Vice
President and Treasurer of NRG Energy, and has been employed by NRG Energy since
1997. Mr. Bird was Director of Corporate Finance and Treasury for Deluxe
Corporation in Shoreview, Minnesota from September 1994 to May 1997. Prior to
that Mr. Bird was Manager of Finance for the Minnesota Vikings professional
football team from March 1993 to September 1994. Mr. Bird held several financial
management positions with Northwest Airlines in Minneapolis, Minnesota from 1988
to March 1993.
Michael J. Young has been our Secretary since June 1, 1999. He has been
Assistant General Counsel of NRG Energy since April 1999. Prior to joining NRG
Energy in May 1995, Mr. Young was an attorney at Cargill Inc. for five years,
and an associate with the law firm of Lindquist & Vennum in Minneapolis,
Minnesota for three years.
EXECUTIVE COMPENSATION
All our executive officers are employees of NRG Energy. They do not receive
any compensation from NRG Northeast.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Our members are NRG Eastern LLC and Northeast Generation Holding LLC, each
of which holds a 50% interest in us. We hold 100% of the ownership interest in
each of the guarantors. On the date of the issuance of the outstanding bonds,
our affiliate, NRG Connecticut, transferred its 100% ownership interest in the
Connecticut guarantors to us and we assumed certain debt to NRG Energy incurred
by NRG Connecticut in connection with the acquisition of the Connecticut
facilities. This debt to NRG Energy relating to the Connecticut facilities was
fully repaid from the proceeds of the issuance of the outstanding bonds. NRG
Energy, our indirect parent, owns a 100% interest in each of our members. Xcel
Energy (formerly Northern States Power Company) indirectly owns 82% of the stock
outstanding and 98% of the combined voting power of NRG Energy's common stock
and class A common stock. See "NRG Northeast, NRG Energy and Xcel Energy."
POWER SALES AND AGENCY AGREEMENTS
Each guarantor has entered into a power sales and agency agreement with NRG
Power Marketing, a wholly-owned subsidiary of NRG Energy, pursuant to which NRG
Power Marketing will provide services in the areas of managing, marketing and
selling the guarantors' energy and capacity; managing and procuring the
guarantors' fuel requirements; and managing the guarantors' emissions
allowances. See "Summary of Certain Principal Agreements."
During 1999 and for the six months ended June 30, 2000, we have recorded
gross receipts less costs incurred from NRG Power Marketing totaling $174.8
million and $291.6 million, respectively.
OPERATION AND MAINTENANCE AGREEMENTS
Each guarantor has entered into an operation and maintenance agreement with
a facility-specific subsidiary of NRG Operating Services, a wholly-owned
subsidiary of NRG Energy (other than the guarantors which own the Connecticut
Jet and Middletown facilities, which share an operator), pursuant to which the
subsidiary of NRG Operating Services will operate and maintain its respective
facility. See "Summary of Certain Principal Agreements."
During 1999 and for the six months ended June 30, 2000, we incurred
operating and maintenance costs billed from NRG Operating Services totaling
$42.7 million and $78.0 million, respectively.
CORPORATE SERVICES AGREEMENTS
Each guarantor has entered into a corporate services agreement with NRG
Energy pursuant to which NRG Energy will provide, on an as requested basis,
services relating to any corporate business functions in any area, including
areas such as human resources, accounting, finance, treasury, tax, office
administration, information technology, engineering, construction management,
environmental, legal and safety. See "Summary of Certain Principal Agreements."
During 1999 and for the six months ended June 30, 2000, we have paid NRG
Energy approximately $1.0 million and $1.5 million for corporate support and
services, respectively.
INTERCOMPANY NOTES
NRG Northeast has loaned each guarantor a portion of the funds used by such
guarantor to acquire its facility. The loan made by NRG Northeast to each
guarantor is evidenced by a note given by each guarantor to NRG Northeast
evidencing the indebtedness to be repaid to NRG Northeast by such guarantor. See
"Summary of Certain Principal Agreements."
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SUMMARY OF CERTAIN PRINCIPAL AGREEMENTS
The following is a summary of certain principal agreements related to our
facilities and our business and that of the guarantors, and it is not a full
statement of the terms of such agreements. Accordingly, the following summaries
of such agreements are qualified by reference to each agreement and are subject
to the terms of the full text of each agreement. Unless otherwise stated, any
reference in this prospectus to any agreement will mean such agreement and all
schedules, exhibits and attachments thereto as amended, supplemented or
otherwise modified and in effect as of the date hereof. Copies of all of these
agreements have been filed as exhibits to the registration statement of which
this prospectus forms a part. See "Where You Can Find More Information."
POWER SALES AND AGENCY AGREEMENTS
SCOPE. NRG Power Marketing has entered into power sales and agency
agreements with each of the guarantors for terms of approximately 30 years from
various execution dates. NRG Power Marketing will have the exclusive right and
obligation to effect the direction of the power output from the facilities. In
addition, pursuant to these agreements, NRG Power Marketing will (i) have the
exclusive right to manage, market and sell all power not otherwise sold or
committed by the guarantors, (ii) procure and provide to the guarantors all fuel
requirements required to operate their respective facilities and (iii) provide
emissions management services to the guarantors for the tracking, procurement,
sales and allocation of emissions allowances, and will also assist in performing
analyses comparing the costs of installing and operating environmental control
equipment to emissions allowance procurement. The guarantors must make all
commercially reasonable efforts in accordance with good utility practice to make
such power available to NRG Power Marketing at each agreed delivery point. In
the event the guarantor delivers less than the expected amount of power to the
delivery point, the guarantor will refund NRG Power Marketing for the amount of
any overpayment plus interest from the date of such overpayment until the amount
is paid in full. Also, NRG Power Marketing will assist the facilities in
performing all of the guarantors' obligations under the transition power sales
contracts.
PAYMENT. NRG Power Marketing will pay to each guarantor the "Net Power
Revenue" from its sales of power pursuant to the agreement. Net Power Revenue is
defined as the gross receipts for sales of power by NRG Power Marketing less (i)
payments by NRG Power Marketing to the guarantor pursuant to any of the
transition power sales contracts; (ii) transmission and other delivery costs;
(iii) any taxes paid by NRG Power Marketing in connection with the sale of
power; and (iv) any other costs incurred in connection with the sale of power,
including an arms-length, commercially reasonable allocation of overhead and
administrative costs. The guarantor will pay to NRG Power Marketing the costs of
fuel provided to the guarantor by NRG Power Marketing. In addition, NRG Power
Marketing will pay to the guarantor any amounts received for the sale of
emissions allowances provided by the guarantor to NRG Power Marketing and the
guarantor will pay to NRG Power Marketing any amounts due for the purchase of
emissions allowances from NRG Power Marketing.
If either party fails to make a payment when due, such overdue payment will
accrue interest at a rate of 2% from the due date until the date of payment. In
addition, if NRG Power Marketing is in default on a payment for power for 30
days after notice of such default, the guarantor may (i) suspend NRG Power
Marketing's responsibility for bidding and scheduling such guarantor's power
into the power pool; (ii) sell power into the power pool or to another power
marketer; (iii) terminate the agreement; or (iv) exercise any other remedy it
has available in law or equity with respect to such default.
INDEMNIFICATION AND LIMITATION OF LIABILITY. Title and risk of loss
related to the power procured by NRG Power Marketing will transfer to NRG Power
Marketing at a mutually agreed-upon delivery point. Each party will indemnify
the other for harm suffered arising from any act or incident occurring during
the period when control and title to the power is vested in the indemnifying
party, as designated by the delivery point.
TERM. The agreements terminate on December 31, 2030.
ASSIGNMENT. The agreements may not be assigned without the prior written
consent of the other party; provided, however, either party may, without the
consent of the other party (i) transfer, sell, pledge, encumber
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or assign the agreement or the accounts, revenues or proceeds hereof in
connection with any financing or other financial arrangements by or for the
benefit of the guarantor or NRG Northeast, (ii) transfer to a creditworthy
affiliate whose ability to perform its obligations is not materially different
from the transferring or assigning party, (iii) transfer to a person acquiring
all, or substantially all, the assets of a party, or (iv) in the case of the
guarantors, transfer to a person acquiring the entire facility; provided,
however, that in each case, except an assignment pursuant to clause (i) above,
the assignee must provide written consent to the terms and conditions of the
agreement and such assignee's creditworthiness and technical ability to perform
its obligations must not be materially different then that of the assignor.
ASSIGNMENT TO ISSUER. On the date of the issuance of the outstanding
bonds, each guarantor, with the consent of NRG Power Marketing, assigned its
rights to receive revenues under its respective power sales and agency agreement
(including rights in respect of the transition power sales contract attributable
to its facility) to NRG Northeast, such revenues to be used by NRG Northeast in
accordance with the funds administration agreement entered into by NRG Northeast
and the guarantors. This assignment may be terminated by any guarantor with
respect to its revenues upon 30 days written notice to NRG Power Marketing.
OPERATION AND MAINTENANCE AGREEMENTS
SCOPE. Each of the guarantors has entered into an operation and
maintenance agreement with a facility-specific subsidiary operator of NRG
Operating Services (other than the guarantors which own the Connecticut Jet and
Middletown facilities, which share an operator).
Each operator will perform all administrative, operation and maintenance
work at its respective facility, including:
- coordinating the fuel delivery, unloading and inventory;
- developing a spare parts and inventory program;
- meeting external performance standards for transmission of electricity;
- providing operating and maintenance consulting to the guarantors as the
guarantors may deem necessary and desirable;
- performing and recording periodic operational tests of the facility
equipment scheduled by NRG Power Marketing in accordance with the NEPOOL
or the NYPP requirements, the manufacturer's specifications, legal
requirements, environmental guidelines and other established guidelines;
- cooperating with and assisting the guarantors in performing the
guarantors' obligations under agreements related to each facility;
- assisting its respective guarantor in preparing the budgets, including
providing operating budgets, rolling five year forecasts and providing
notice to the respective guarantor that the operating expenses exceed or
are expected to exceed the approved operating budget; and
- disposing of all waste material in accordance with legal requirements and
the guarantor's waste disposal arrangements, if any.
PAYMENT. The base fee to be paid to each operator varies by facility
ranging from $300,000 to $750,000 per calendar year. The fee is not subject to
escalation during the term of the agreement. There are also incentive fees and
penalties based on performance under the approved operating budget, the heat
rate and safety. There are caps on both the incentive fees and penalties which
vary by facility. Each operator will be reimbursed for usual and customary
demobilization costs and severance costs, if any, if a guarantor elects not to
renew. Each guarantor will also fund an operating account for current and
reasonably-projected short-term operating costs.
INDEMNIFICATION AND LIMITATION OF LIABILITY. To the extent not otherwise
covered by facility insurance, each party will indemnify and hold harmless the
other party for any damages incurred as a result of a breach of the agreement by
the indemnifying party, unless, however, such damage is incurred as a result of
the gross
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negligence or misconduct of the indemnified party. The liability of either party
to the other for any and all losses incurred in connection with the agreement,
will in no case exceed five times the base annual operator fee.
TERM. Each agreement is effective for a term of five years beginning the
execution date of the agreement. The agreements are automatically renewed for
successive five year terms if the parties do not provide termination notice 180
days prior to the end of each term. A guarantor may terminate its respective
agreement at any time if it gives 6 month's notice and pays the present value of
the operator's fees for the remaining term discounted at prime plus 6%, plus the
customary demobilization costs.
ASSIGNMENT. The agreement may not be assigned without the prior written
consent of the other party unless such assignment (i) is in connection with a
financing by or for the benefit of the guarantor or NRG Northeast; (ii) is to a
creditworthy affiliate; (iii) to a person acquiring all, or substantially all,
the assets of a party; or (iv) in the case of the guarantor, to a person
acquiring the facility; provided, however, that in each case, except an
assignment pursuant to clause (i) above, the assignee must provide written
consent to the terms and conditions of the agreement and such assignee's
creditworthiness and technical ability to perform its obligations must not be
materially different than that of the assignor.
PENDING RENEGOTIATION. We intend to replace the existing operation and
maintenance agreements following renegotiation of their terms with NRG Operating
Services on behalf of the operators. Issues currently under discussion include
the amount of the annual fee payable to each operator, the current provisions in
the agreements for liquidated damages payable by the operators in the event
certain operating targets are not met, the appropriate targets to be set and the
basis for calculation of these targets. We expect that replacement of these
agreements will result in higher operating costs for the guarantors but will not
have a material adverse effect on NRG Northeast and the guarantors, taken as a
whole.
CORPORATE SERVICES AGREEMENTS
SCOPE. NRG Energy has entered into separate but identical agreements with
each guarantor pursuant to which NRG Energy will provide services in support of
the operations of the respective facilities. NRG Energy has agreed to provide,
on an as requested basis, any work, direction of work, technical or commercial
information, data, consulting, staff augmentation or any other corporate
business function performed for or on behalf of the guarantor or the operator,
as the case may be, by NRG Energy in functional areas such as, but not limited
to: human resources, accounting, finance, treasury, tax, office administration,
information technology, engineering, construction management, environmental,
legal and safety. The standard of performance for the services is with
reasonable diligence and dispatch in a prudent, cost effective and efficient
manner, in accordance with all applicable laws. NRG Energy may provide the
personnel to perform such services, in its sole discretion, or elect to have
these services performed by a third party, but NRG Energy will be ultimately
responsible for the services.
PAYMENT. NRG Energy will be paid for the personnel time and other costs
associated with performing the services, including transportation or relocation
costs of personnel; miscellaneous expenses; reproduction costs; cost of any
permits, fees, licenses or royalties; and premiums and brokerage fees on all
bonds and insurance policies required.
WARRANTY AND LIMITATION OF LIABILITY. NRG Energy warrants that the
services performed under the corporate services agreements will be in accordance
with accepted professional standards and practices. The sole and exclusive
remedy for breach of this warranty will be for NRG Energy to re-perform the
portion of the defective service. All costs of any re-performance will be
reimbursed by the guarantor to NRG Energy but NRG Energy will receive no
additional profit thereon. NRG Energy's legal liability under the agreement will
not exceed the value of its services performed during the calendar year prior to
the cause giving rise to or creating any such liability.
TERM. The term of the agreements commenced on the date of the execution of
the agreement and continues until terminated in writing by the guarantor. If
either party fails to perform its obligations or
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becomes subject to bankruptcy, an event of default will occur and the
non-defaulting party may elect to suspend or terminate the agreement upon notice
to the other party.
ASSIGNMENT. Neither party may assign its rights or obligations under the
agreement without the consent of the other party. However, NRG Energy, in its
sole discretion, may cause an affiliate or third-party provider to perform any
of the services required by NRG Energy.
TRANSITION POWER SALES CONTRACTS
For the first four years of the term of the bonds, we expect to sell a
significant portion of our power pursuant to transition power sales contracts
entered into between each guarantor or NRG Power Marketing, and the former
owners of the facilities. The transition power sales contracts for each of the
guarantors is described in more detail below.
ARTHUR KILL AND ASTORIA TRANSITION CAPACITY AGREEMENTS. Arthur Kill Power
and Astoria Power have entered into agreements with ConEd that obligate them, as
sellers, to maintain the electric generating capability and availability of
their respective facilities at specified levels for the terms of these
agreements, and whereby during certain periods, Arthur Kill Power and Astoria
Power have agreed to sell to ConEd at a fixed price up to 100% of the capacity
of each of the Arthur Kill and Astoria facilities, as long as the capacity is
counted in the installed capacity requirement for New York. The capacity must
satisfy all criteria, standards and requirements applicable to providers of
installed capacity established by the New York State Reliability Counsel
("NYSRC"), the Northwest Power Coordinating Council ("NPCC"), the North American
Electric Reliability Council ("NERC"), the NYPP or the NY ISO. Should the
capacity of the facility drop below the minimum level required, the guarantor
owning the facility will pay to ConEd a deficiency charge. The sellers may use
electric capacity other than that generated by their own plants to satisfy
ConEd's demands.
The guarantors will bill ConEd for the electricity capacity sold and ConEd
will bill the guarantors for any capacity deficiency payments on a monthly
basis. Any amount unpaid after it is due will accrue interest. Any dispute on
the amount payable will first be settled by good faith negotiation among the
parties
The agreements expire on the earlier of (i) December 31, 2002 or (ii) the
date on which Arthur Kill Power or Astoria Power receives written notice from
the NY ISO indicating that none of the electric capacity of the specified
facility is required for meeting the installed capacity requirements in New York
City.
DUNKIRK AND HUNTLEY SWAPTION ARRANGEMENT. For the first four years of the
term of the bonds, we estimate that a significant portion of the total revenues
from the Dunkirk and Huntley facilities will be derived from four-year
transition power sales contracts for capacity and energy. Under these
agreements, NRG Power Marketing, acting on behalf of Dunkirk Power and Huntley
Power, has agreed to sell to NiMo 100% of the capacity of the Dunkirk and
Huntley facilities, and an option to purchase up to 39% of the annual energy
output from the Dunkirk facility and 45% of the annual energy output from
certain units of the Huntley facility. We currently anticipate that energy not
sold to NiMo during the transition period will be sold to the NY ISO. Each of
the following agreements was executed on June 11, 1999 and extends for a term of
four years from the closing date of the asset purchase.
MASTER SWAP AGREEMENT. To hedge its transition to market rates, NiMo has
required NRG Power Marketing to enter into the ISDA Master Agreement (together
with the Schedule, the Confirmation and the Guarantee Agreement, the "Swap
Agreement"). Under the Swap Agreement, NiMo will pay to NRG Power Marketing a
fixed monthly price for the Dunkirk (units 1, 2, 3 and 4) and Huntley (units 67
and 68 only) facilities' capacity and ancillary services and NRG Power Marketing
will pay to NiMo the market rates for the related capacity and ancillary
services. The swap is only a financial contract and it incorporates the terms of
the ISDA Master Agreement.
NiMo will have the right from time to time to exercise a call option for an
additional swap pursuant to which, within a certain limit consistent with
outages and availability requirements, NiMo will nominate certain amounts of
energy from the Dunkirk and Huntley facilities and will pay to NRG Power
Marketing an amount for such energy determined in accordance with the heat rate
curve representing the nominated unit.
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NRG Power Marketing will pay to NiMo the market rates for such energy at the
time that the energy was nominated. However, NRG Power Marketing may refuse the
call option for either of the facilities if a facility is unexpectedly forced
off-line or derated sufficiently to be unable to fulfill the portion of the
specified quantity of power in the option. Any such refusal of the call option
will be limited to the Decline Quantity Cap, which is calculated based upon the
capacity of the relevant facility for the prior six months. NiMo will be
entitled to make up for any refused call option in the future by delivering
reasonable notice to NRG Power Marketing.
TRANSITION POWER PURCHASE AGREEMENT (HUNTLEY 65 OR 66 -- SECONDARY
CALL). Huntley Power has entered into an agreement with NiMo that gives NiMo
the option to purchase from the Huntley facility certain quantities of
electricity generated by the Huntley units 65 and 66, during the summer and
winter months, up to a specified maximum limit for the term of this agreement.
If Huntley Power is selling the electrical output generated by units 65 and 66
to a third party, Huntley Power may refuse to deliver such output to NiMo.
Furthermore, if unit 65 or 66 is generating for NiMo, Huntley Power has the
right to "recall" the unit(s) in order to facilitate a sale to a third party. If
Huntley Power fails to meet NiMo's quantity request for electricity output, it
will compensate NiMo. NiMo will pay Huntley Power according to the amount of
electricity output delivered to NiMo, on a monthly basis. Control and title pass
at the point of delivery of the energy and each party agrees to indemnify the
other against any claims arising out of any act or incident occurring during the
period when control and title of the electricity is vested in the indemnifying
party. Neither party may assign the agreement without the written consent of the
other party, except assignments in connection with any financing, to certain
qualified affiliates and in connection with any transfer of substantially all
the assets of such party.
TRANSITION POWER PURCHASE AGREEMENT (HUNTLEY POWER LLC -- CALL). Huntley
Power has entered into an agreement with NiMo that gives NiMo the option to
purchase from Huntley Power certain quantities of electricity generated by
Huntley units 67 or 68 (during peak and off-peak summer hours), within a
specified range of MW per hour, not to exceed 189 MW for any one hour during the
peak hours, for the term of the agreement. If Huntley Power fails to meet NiMo's
quantity request for electricity, Huntley Power will compensate NiMo for
quantities not provided. NiMo will pay Huntley Power according to the amount of
power delivered to NiMo, on a monthly basis. Control and title passes at the
point of delivery of the energy and each party will indemnify the other party
from any claims arising out of any act or incident occurring during the period
when control and title of the electricity is vested in the indemnifying party.
Neither party may assign the agreement without the written consent of the other
party, except assignments in connection with any financing, to certain qualified
affiliates and in connection with any transfer of substantially all the assets
of such party.
OSWEGO TRANSITION POWER AGREEMENT. Oswego Power has entered into a
four-year transition power sales contract with NiMo in order to hedge its
transition to market rates. Under the agreement, NiMo will pay to Oswego Power a
fixed monthly price plus start up fees for the right, but not the obligation, to
claim, at a specified delivery point or points, the installed capacity of unit 5
of the Oswego facility, for the right to exercise, at a specified price, an
option for 40% of the installed capacity of unit 6, and for the right to
exercise, at a specified price, an option for an additional 350 MW of installed
capacity from both units. The total amount of energy which Oswego Power must
supply under the call option is limited to a nominal amount of energy per year.
Oswego Power may refuse such option if the facility is unexpectedly unavailable
or derated sufficiently to be unable to fulfill the option, as long as Oswego
Power uses "good utility practice" to maintain the power stations. Oswego Power
may also choose to supply the energy required from another source as long as
adjustment is made for any difference in value between the agreed upon delivery
point and the actual point of delivery. In the event that Oswego Power is unable
to provide from its own sources installed capacity of unit 5 in the amount
claimed by NiMo, Oswego Power must procure the capacity from the market and
provide it to NiMo at no additional cost or else suffer a penalty. Each party
has agreed to indemnify the other party for any claims occurring while the other
party has control of the power. No party may assign the agreement without the
prior written consent of the other party except to an affiliate or in connection
with a merger or consolidation. The term of the agreement is for four years from
the closing date of the asset sale.
SOMERSET WHOLESALE STANDARD OFFER SERVICE AGREEMENT. NRG Power Marketing,
acting on behalf of Somerset Power, has entered into a Wholesale Standard Offer
Service Agreement, dated October 13, 1998
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and amended as of January 15, 1999 (the "WSO Agreement"), with Blackstone Valley
Electric Company, Eastern Edison Company, and Newport Electric Corporation
(collectively the "EUA Companies"), which obligates NRG Power Marketing to
provide each of the EUA Companies with firm all-requirements electric service,
including capacity, energy, reserves, losses and related services necessary to
serve approximately 30% of the EUA Companies' aggregate load attributable to
retail customers taking standard offer service which we estimate to be
approximately 275 MW at peak requirement. The difference between the EUA
Companies' service requirements and the Somerset facility's operational capacity
will be made up by a combination of power supplied by facilities owned by our
other guarantors and purchased power. NRG Power Marketing assumes all expenses,
liabilities and losses, regulatory or economical, related to such service. NRG
Power Marketing may supply the power to the EUA Companies at any point on the
NEPOOL transmission facilities system or on the EUA Companies' system.
The price for each unit of electricity is a combination of a fixed price
plus a fuel adjustment factor. The EUA Companies will calculate the estimated
power supplied each month and pay to NRG Power Marketing the price for such
electricity before the end of the next month. Any amounts unpaid by the due date
will accrue interest. The EUA Companies may make retroactive adjustments to the
bills for up to one year after the date of the original billing. NRG Power
Marketing must meet certain creditworthiness criteria for the term of the
agreement, or must provide a guaranty from an entity which meets the
creditworthiness criteria. The term extends from April 26, 1999, the closing
date of the asset purchase agreement until December 31, 2009. The agreement may
also be terminated in the case of an event of default or if the facility's
electric service requirement is less than 1 MW/hr for two consecutive months.
No party may assign the agreement without the prior written consent of the
other party except to an affiliate or in connection with a merger or
consolidation. Each party has agreed to indemnify the other party for all
damages or liabilities arising out of the wrongful acts or omissions by the
employees or agents of the indemnifying party unless caused by an act of
negligence or willful misconduct by the indemnified party.
CONNECTICUT FACILITIES STANDARD OFFER SERVICE WHOLESALE SALES
AGREEMENT. NRG Power Marketing has entered into a standard offer service
wholesale sales agreement with CL&P pursuant to which NRG Power Marketing will
supply CL&P at fixed prices a specified share of a portion of CL&P's aggregate
retail load. The quantity of power to be supplied is equal to 35% of CL&P's
standard offer service load during calendar year 2000, 40% during calendar years
2001 and 2002 and 45% during calendar year 2003. We estimate that 45% of CL&P's
standard offer service load in 2003 will be approximately 2,000 MW at peak
requirement.
NRG Power Marketing is responsible for delivering the contracted power to a
mutually agreed upon delivery point, at which point title to and liability for
the electricity passes to CL&P. NRG Power Marketing is also responsible for
forecasting for the purposes of meeting its supply obligation and for all ISO
and NEPOOL charges and expenses in connection with the delivery of power. CL&P
is responsible for arranging all delivery services for electricity from the
delivery point to retail customers.
The agreement also requires NRG Power Marketing to either (i) be a member
of the NEPOOL or (ii) have a contract with a member of the NEPOOL for the
duration of the term of the agreement which commences on January 1, 2000 and
expires on December 31, 2003.
No party may assign the agreement without the prior written consent of the
other party except to an affiliate or in connection with a merger or
consolidation. Each party has agreed to indemnify the other party for all
damages or liabilities arising out of the wrongful acts or omissions by the
employees or agents of the indemnifying party unless caused by an act of
negligence or willful misconduct by the indemnified party.
FUNDS ADMINISTRATION AGREEMENT
On the date of the issuance of the outstanding bonds, NRG Northeast and the
guarantors entered into a funds administration agreement, pursuant to which each
guarantor will assign its right to receive revenues under the power sales and
agency agreement to which it is a party to NRG Northeast and NRG Northeast
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will agree to perform accounting, tax and treasury functions for each guarantor.
NRG Northeast agrees that it will use these funds to pay expenses of each
guarantor, including the following:
- operating expenses;
- payments in connection with permitted indebtedness;
- capital expenditures; and
- other payments as directed by each guarantor.
Any funds remaining after making the foregoing payments will be disbursed
by NRG Northeast, as directed in writing by each guarantor, or held by NRG
Northeast until it receives written direction from each guarantor.
At the present time each guarantor has directed that any such remaining
funds be retained by NRG Northeast for its own account.
Any guarantor may terminate this funds administration agreement with
respect to itself upon 30 days' written notice to NRG Northeast.
INTERCONNECTION AGREEMENTS
Each of the guarantors has entered into a long-term interconnection
agreement with the utility from which it acquired its facility. Pursuant to such
interconnection agreements, the selling utility's transmission system will
remain interconnected with the guarantor's facility, which interconnection
facility will be operated by the utility at the guarantor's expense. The selling
utility typically has discretion to determine whether, when and in what manner
replacements or upgrades to the interconnection facility will be installed.
These interconnection agreements typically require that each guarantor's
facility conform to the selling utility's operational requirements. If
relocation, rearrangement or abandonment of the interconnection facility is
necessitated by practical, economical or governmental reasons, either party will
promptly inform the other party and the applicable guarantor will bear the costs
of relocation or modification of the interconnection facility.
The selling utility typically owns and maintains, at the guarantor's
expense, a metering system to calculate the amount of electricity transferred.
Each guarantor is typically required to provide reactive capability to regulate
and maintain system voltage at the delivery point. Each guarantor is also
responsible for the proper coordination of any applied under/over frequency
generator tripping and for maintenance of the operating voltage within a certain
range.
Each party is required to fully indemnify the other party as to its own
actions. Should any interconnection agreement be at variance with any laws,
regulations or ordinances, the relevant party is required to notify the other
party and the parties will negotiate in good faith to comply with the law.
These interconnection agreements are typically long-term agreements having
terms ranging from 20 years up to the time of retirement of the facility, unless
terminated earlier in accordance with the terms of the applicable agreement.
SITE AGREEMENTS
Each of the guarantors has entered into a site agreement with the utility
from which it acquired its facility, which clarifies the ownership of different
assets at the facilities and the continuing responsibilities and obligations
that each party has to the other with respect to access to, use of, and services
to be provided for and with respect to the property, assets and facilities of
the other.
SITE ACCESS. Under the site agreements, each guarantor typically grants
the selling utility access to parts of the electric generating assets acquired
by the guarantor, while the selling utility grants to the guarantor access to
parts of the transmission and distribution assets retained by the selling
utility. In order to conduct its business, each party is granted permanent
easements for access to and maintenance of its own facilities,
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systems and equipment, located on or in the property or the facilities of the
other. Each party is also required to grant reasonable access to all of its
properties and facilities as may be necessary to enable the other party to
maintain its respective facilities, systems, equipment, and property or, with
respect to the easement granted to the selling utility, to perform any required
environmental remediation on the guarantor's site.
MAINTENANCE. Each party will cooperate in providing routine maintenance to
all the facilities. Generally, for essential structures, the party owning such
structures is obligated to maintain them pursuant to good utility practice and
prepare and deliver a written report on the condition of such structure to the
other party. The selling utility has the right to operate certain of the
guarantor's systems and equipment that are essential to its transmission and
distribution system should the guarantor or its successor fail, upon notice and
an opportunity to cure, to operate such vital systems and equipment. Each party
may also construct new facilities, or modify or alter any facility, system or
equipment that is subject to the site agreement.
INFORMATION AND COOPERATION. The site agreements generally require a
guarantor to provide the information needed for operation, maintenance and
planning of the selling utility's transmission or distribution system. In
addition, each guarantor is often required to cooperate with the selling utility
in any investigation of any disturbance to or mis-operation of the transmission
or distribution system. Each party is required to promptly provide the other
with any notice of safety issues that may have an immediate adverse effect on
the other party's facilities, system or equipment.
ANCILLARY SERVICES AND INSURANCE. Each party is obligated to provide the
other with certain local services, and with such current, potential, metering
and contact outputs as are required for the operation of protection and control
systems. Each party is also obligated to provide to the other party all data
with respect to remote terminal units. Each party will maintain sufficient
insurance and provide regular notice of coverage to the other party. Each party
will be named as additional insured on the general liability insurance policies
of the other party.
TERM. The site agreements typically have very long terms, generally from
40 years up to the time of retirement of the facility.
PURCHASE AND SALE AGREEMENTS
NRG Energy entered into purchase and sale agreements with NiMo, ConEd,
CL&P, MEC and RG&E for the purchase of the guarantor facilities. The rights and
obligations of NRG Energy under the agreements have been assigned to, and
assumed by, each of the guarantors in respect of its facility pursuant to
certain assignment and assumption agreements.
Generally all the representations, covenants and warranties contained in
these agreements expired and were terminated upon the closing of the asset
sales. However, certain of the indemnification obligations (which have been
assumed by each guarantor in respect of its facility), including indemnification
of certain claims (including environmental claims) brought by third parties,
survive the applicable date of the issuance of the outstanding bonds for up to
18 months.
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DESCRIPTION OF THE BONDS
The terms of the bonds we are issuing in this exchange offer and the
outstanding bonds are identical in all material respects, except:
- the bonds issued in the exchange offer will have been registered under
the Securities Act;
- the bonds issued in the exchange offer will not contain transfer
restrictions and registration rights that relate to the outstanding
bonds; and
- the bonds issued in the exchange offer will not contain provisions
relating to the payment of liquidated damages to be made to the holders
of the outstanding bonds under circumstances related to the timing of the
exchange offer.
Any outstanding bonds that remain outstanding after the exchange offer,
together with bonds issued in the exchange offer, will be treated as a single
class of securities under the indenture for voting purposes. When we refer to
the term "bond" or "bonds", we are referring to both outstanding bonds and the
bonds to be issued in the exchange offer. When we refer to "holders" of the
bonds, we are referring to those persons who are the registered holders of bonds
on the books of the registrar appointed under the indenture.
The following is a description of certain provisions of the bonds offered
in this prospectus. The following information does not purport to be a complete
description of the bonds and is subject to, and qualified in its entirety by,
reference to the bonds and the indenture. Unless otherwise specified, the
following description applies to all of the bonds. For purposes of this section,
references to the "NRG Northeast", "us", "we" or "our" do not include the
guarantors.
GENERAL
The outstanding bonds were issued and the bonds will be issued pursuant to
an indenture, as supplemented by the first supplemental indenture, dated as of
February 22, 2000, by and among NRG Northeast, the guarantors and The Chase
Manhattan Bank, as trustee, in the United States in a private transaction, and
outside the United States in an offering pursuant to Regulation S under the
Securities Act, none of which is subject to the registration requirements of the
Securities Act. The terms of the bonds include those stated in the indenture and
those made part of the indenture by reference to the Trust Indenture Act. The
bonds are senior secured obligations and rank senior in right of payment to all
of our existing and future indebtedness that is designated as subordinate or
junior in right of payment to the bonds.
PRINCIPAL, MATURITY AND INTEREST
The Series A-1 Senior Secured Bonds is limited in aggregate principal
amount to $320,000,000 and will mature on December 15, 2004. The Series B-1
Senior Secured Bonds is limited in aggregate principal amount to $130,000,000
and will mature on June 15, 2015. The Series C-1 Senior Secured Bonds is limited
in aggregate principal amount to $300,000,000 and will mature on December 15,
2024. Interest on the bonds is payable semiannually in arrears on each June 15
and December 15, commencing on June 15, 2000 to holders of records on each June
1 or December 1, respectively, immediately preceding such payment date. Interest
will accrue on the basis of a 360-day year consisting of 12 months of 30 days at
a rate of 8.065% in the case of the Series A-1 Senior Secured Bonds, 8.842% in
the case of the Series B-1 Senior Secured Bonds and 9.292% in the case of the
Series C-1 Senior Secured Bonds. Principal, premium, if any, and interest on the
bonds will be payable at our office or agency maintained for such purpose within
New York City or, at our option, payment of interest may be made by check mailed
to the holders of the bonds at their respective addresses set forth in the
register of holders of the bonds. Until otherwise designated by us, our office
or agency in New York will be the office of the trustee maintained for such
purpose. The outstanding bonds are and the bonds will be issued in denominations
of $100,000 or any multiple of $1,000 in excess of $100,000.
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AMORTIZATION OF THE BONDS
The principal of the bonds is payable in semiannual installments on each
June 15 and December 15 occurring on or after December 15, 2000 to the
registered holder of the bonds on the immediately preceding regular record date,
such that the initial weighted average life is approximately 2.4 years, 9.5
years and 21.7 years for the Series A-1 Senior Secured Bonds, the Series B-1
Senior Secured Bonds and the Series C-1 Senior Secured Bonds, respectively. The
table on the following page shows the amount of principal of the bonds which is
payable on each semiannual principal payment date.
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<TABLE>
<CAPTION>
PRINCIPAL AMOUNT PRINCIPAL AMOUNT PRINCIPAL AMOUNT
PAYABLE ON PAYABLE ON PAYABLE ON
PRINCIPAL PAYMENT SERIES A-1 SENIOR SERIES B-1 SENIOR SERIES C-1 SENIOR
DATES SECURED BONDS SECURED BONDS SECURED BONDS
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C>
December 15, 2000............................ $ 50,000,000 $ 0 $ 0
June 15, 2001.............................. 45,000,000 0 0
December 15, 2001............................ 45,000,000 0 0
June 15, 2002.............................. 53,500,000 0 0
December 15, 2002............................ 53,500,000 0 0
June 15, 2003.............................. 17,500,000 0 0
December 15, 2003............................ 17,500,000 0 0
June 15, 2004.............................. 19,000,000 0 0
December 15, 2004............................ 19,000,000 0 0
June 15, 2005.............................. 0 0
December 15, 2005............................ 0 0
June 15, 2006.............................. 0 0
December 15, 2006............................ 0 0
June 15, 2007.............................. 16,500,000 0
December 15, 2007............................ 16,500,000 0
June 15, 2008.............................. 17,000,000 0
December 15, 2008............................ 17,000,000 0
June 15, 2009.............................. 19,000,000 0
December 15, 2009............................ 19,000,000 0
June 15, 2010.............................. 2,000,000 0
December 15, 2010............................ 2,000,000 0
June 15, 2011.............................. 2,000,000 0
December 15, 2011............................ 2,000,000 0
June 15, 2012.............................. 2,000,000 0
December 15, 2012............................ 2,000,000 0
June 15, 2013.............................. 2,500,000 0
December 15, 2013............................ 2,500,000 0
June 15, 2014.............................. 2,500,000 0
December 15, 2014............................ 2,500,000 0
June 15, 2015.............................. 3,000,000 0
December 15, 2015............................ 3,000,000
June 15, 2016.............................. 3,000,000
December 15, 2016............................ 3,000,000
June 15, 2017.............................. 3,500,000
December 15, 2017............................ 3,500,000
June 15, 2018.............................. 15,500,000
December 15, 2018............................ 15,500,000
June 15, 2019.............................. 17,000,000
December 15, 2019............................ 17,000,000
June 15, 2020.............................. 18,500,000
December 15, 2020............................ 18,500,000
June 15, 2021.............................. 20,000,000
December 15, 2021............................ 20,000,000
June 15, 2022.............................. 22,000,000
December 15, 2022............................ 22,000,000
June 15, 2023.............................. 23,000,000
December 15, 2023............................ 23,000,000
June 15, 2024.............................. 26,000,000
December 15, 2024............................ 26,000,000
------------ ------------ ------------
TOTAL.............................. $320,000,000 $130,000,000 $300,000,000
</TABLE>
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THE GUARANTEES
The bonds are jointly and severally guaranteed by all of our existing and
certain future subsidiaries. The obligations of the guarantors under their
guarantees are limited as necessary to minimize the risk that such guarantees
would constitute a fraudulent conveyance under applicable law. See "Risk
Factors -- Federal and state statutes allow courts, under specific
circumstances, to void subsidiary guarantees and require holders of bonds to
return payments received from guarantors."
The guarantees of the bonds: (i) are senior obligations of the relevant
guarantor; and (ii) are equal in right of payment to all of the relevant
guarantor's indebtedness, which is restricted to intercompany notes.
As of the date of this prospectus, all of our subsidiaries are guarantors
subject to the restrictive covenants of the indenture and the obligations under
the security agreement. However, under certain circumstances we will be
permitted to designate certain of our subsidiaries as "unrestricted
subsidiaries" which will not be subject to the restrictive covenants in the
indenture or the obligations under the security agreement. See "Description of
Principal Financing Documents -- Indenture -- Covenants of NRG
Northeast -- Certain Obligations Respecting Subsidiaries."
NATURE OF RECOURSE
Recourse for payment or performance of any of our obligations in respect of
the bonds will be limited solely to us and the guarantors (other than to the
extent NRG Energy provides a debt service reserve support instrument). Neither
any of our affiliates (other than the guarantors or NRG Energy to the extent it
provides a debt service reserve support instrument) nor any of our officers,
directors and stockholders or the officers, directors and stockholders of any of
our affiliates will be liable for the payment of the principal of, premium, if
any, or interest on the bonds, and holders of the bonds will have no claim
against or recourse to (whether by operation of law or otherwise) such entities
or persons or their affiliates.
RANKING
The bonds constitute our senior secured obligations and rank senior in
right of payment to all of our existing and future indebtedness that is
designated as subordinate or junior in right of payment to the bonds. The bonds
are fully and unconditionally guaranteed by each guarantor and secured by our
membership interests in the guarantors, our rights under intercompany notes with
the guarantors, the power sales and agency agreements, the operation and
maintenance agreements, the corporate services agreements and the transition
power sales contracts, the debt service reserve account and the revenues from
the power sales contracts entered into by NRG Power Marketing. The obligations
of each guarantor under the guarantees constitute senior unsecured debt of the
relevant guarantor. As a result, the bonds and guarantees rank equally with all
the senior debt of NRG Northeast and that of the guarantors, and rank senior to
all other indebtedness of NRG Northeast and the guarantors.
RATINGS
Moody's has assigned the bonds a long-term senior secured debt rating of
"Baa3" and S&P has assigned the bonds a long-term senior secured debt rating of
"BBB-". These expectations reflect only the views of Moody's and S&P,
respectively, at the time the rating is issued, and any explanation of the
significance of these ratings may be obtained only from the respective rating
agency. There is no assurance that these ratings will remain in effect for any
given period of time or that these ratings will not be lowered, suspended or
withdrawn entirely by Moody's or S&P if, in their judgment, circumstances so
warrant. Any lowering, suspension or withdrawal of these ratings may have an
adverse effect on the market price or marketability of the bonds.
REDEMPTION AND REPURCHASE
MANDATORY REDEMPTION
The bonds will be subject to mandatory redemption in whole or in part in
the event we receive casualty insurance proceeds or condemnation proceeds, as
applicable, in respect of any loss or damage to or
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condemnation or other governmental taking of any facility or any part thereof,
in excess of $10 million. Under the collateral agency and intercreditor
agreement, we and the guarantors are permitted to repair or rebuild such
facilities, or parts thereof if there are sufficient funds (including insurance
or condemnation proceeds) to do so, and if we provide an officer's certificate
that certifies that no material adverse effect on us, could reasonably be
expected to result. If we or any guarantor repair or rebuild any facility and
the insurance or condemnation proceeds are greater than the cost of such repair
or rebuilding and if such excess amount is greater than $5 million, then only
the remaining insurance or condemnation proceeds over $5 million will be applied
to a mandatory redemption or a repayment of senior secured indebtedness. In the
event of a mandatory redemption, the redemption price for the bonds will be 100%
of the principal amount of the bonds being redeemed plus interest accrued to but
excluding the date of redemption. Upon the occurrence of any event requiring a
redemption of bonds, we will be required to redeem the bonds and repay other
senior secured indebtedness on a pro rata basis in an aggregate amount equal to
the loss proceeds to be applied as described above.
OPTIONAL REDEMPTION
Any series of the bonds will be subject to optional redemption, in whole or
in part on a pro rata basis for the series, at any time, at a redemption price
equal to the principal of, the bond, plus accrued and unpaid interest on the
principal of the bond to but excluding the redemption date, plus a make-whole
premium.
The "make-whole premium" will be an amount equal to the excess, if any, of
(i) the present value of all interest and principal payments scheduled to become
due after the date of the optional redemption by NRG Northeast in respect of the
bonds being redeemed (the present value to be determined on the basis of a
discount rate equal to the sum of (a) a treasury rate and (b) 25 basis points)
over (ii) the outstanding principal amount of the bonds. "Treasury rate" means
the yield to maturity at the time of computation of United States Treasury
securities with a final maturity (as compiled and published in the most recent
Federal Reserve Statistical Release H.15(519) which has become publicly
available at least two Business Days in New York prior to the redemption date
(or, if such Statistical Release is no longer published, any publicly available
source or similar market data)) most nearly equal to the remaining average life
on the redemption date of the bonds being redeemed, provided, however, that if
the period from the redemption date to the maturity date of the series of bonds
being redeemed is less than one year, the weekly average yield on actually
traded United States Treasury securities adjusted to a constant maturity of one
year will be used.
SELECTION AND NOTICE
If less than all of the bonds are to be redeemed at any time, selection of
bonds for redemption will be made by the trustee on a pro rata basis. Notices of
redemption will be mailed by first class mail at least 30 days but not more than
60 days before the redemption date (unless a shorter period will be satisfactory
to the trustee) to each holder of the bonds at its registered address. If any
bond is to be redeemed in part only, the notice of redemption that relates to
that bond will state the portion of the principal amount of the bond to be
redeemed. A new bond in principal amount equal to the unredeemed portion of the
bond will be issued in the name of the holder of the bond upon cancellation of
the original bond. Bonds called for redemption become due on the date fixed for
redemption. On and after the redemption date, interest ceases to accrue on bonds
or portions of them called for redemption.
CHANGE OF CONTROL
Upon the occurrence of certain events involving a change of control, NRG
Northeast will be required to offer to repurchase all or any part of the
outstanding bonds at a cash price equal to 101% of the then outstanding
principal amount of the bonds, plus accrued and unpaid interest to but excluding
the date of payment. NRG Northeast must send a notice to holders of the bonds
within 30 days of a change of control and must repurchase any bonds validly
tendered pursuant to the offer within 30 to 60 days from the mailing of the
notice.
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A change of control means (a) the acquisition of ownership, directly or
indirectly, beneficially or of record or otherwise, by any person or group
(within the meaning of the Exchange Act and the rules of the SEC thereunder as
in effect on the date hereof) other than NRG Energy or wholly-owned
subsidiaries, of ownership interests representing more than 50% of the aggregate
ordinary voting power represented by our membership interests; or (b) the
acquisition of direct or indirect control of us by any person or group other
than NRG Energy or its wholly-owned subsidiaries otherwise than as described in
clause (a). However, there will be no change of control if either: (i) we
receive a confirmation of the ratings of the bonds in effect immediately prior
to the occurrence of such events; or (ii) that change of control is approved by
holders of the bonds holding at least 66 2/3% in the aggregate principal amount
of the then-outstanding bonds.
BOOK-ENTRY, DELIVERY AND FORM
The certificates representing the bonds will be issued in fully registered
form. Except as described below, the bonds will initially be represented by one
or more global bonds in fully registered form without interest coupons. The
global bonds will be deposited with, or on behalf of, The Depository Trust
Company ("DTC") and registered in the name of Cede & Co., as nominee of DTC, or
will remain in the custody of the trustee pursuant to the FAST Balance
Certificate Agreement between DTC and the trustee.
CERTAIN BOOK-ENTRY PROCEDURES FOR THE GLOBAL BONDS
The descriptions of the operations and procedures of DTC set forth below
are provided solely as a matter of convenience. These operations and procedures
are solely within the control of the respective settlement systems and are
subject to change by them from time to time. Neither we nor any of the initial
purchasers takes any responsibility for these operations or procedures, and
investors are urged to contact the relevant system or its participants directly
to discuss these matters.
DTC has advised us that it is (i) a limited-purpose trust company organized
under the laws of the State of New York, (ii) a "banking organization" within
the meaning of the New York Banking Law, (iii) a member of the Federal Reserve
System, (iv) a "clearing corporation" within the meaning of the Uniform
Commercial Code, as amended, and (v) a "clearing agency" registered pursuant to
Section 17A of the Exchange Act. DTC was created to hold securities for its
participants and facilitates the clearance and settlement of securities
transactions between participants through electronic book-entry changes to the
accounts of its participants, thereby eliminating the need for physical transfer
and delivery of certificates. DTC's participants include securities brokers and
dealers (including the initial purchasers), banks and trust companies, clearing
corporations and certain other organizations. Indirect access to DTC's system is
also available to indirect participants such as banks, brokers, dealers and
trust companies that clear through or maintain a custodial relationship with a
participant, either directly or indirectly. Investors who are not participants
may beneficially own securities held by or on behalf of DTC only through
participants or indirect participants.
We expect that pursuant to procedures established by DTC:
- Upon issuance of the global bonds, DTC will credit the respective
principal amounts of the bonds represented by the global bonds to the
accounts of persons who have accounts with DTC.Ownership of beneficial
interest in the global bonds will be limited to persons who have accounts
with DTC, who are referred to as participants, or persons who hold
interests through participants.
- Ownership of the beneficial interests in the bonds will be shown on, and
the transfer of ownership thereof will be effected only through, records
maintained by DTC (with respect to the interests of participants) and the
records of participants and the indirect participants (with respect to
the interests of persons other than participants).
The laws of some jurisdictions may require that certain purchasers of
securities take physical delivery of such securities in definitive form.
Accordingly, the ability to transfer interests in the bonds represented by a
global bond to these persons may be limited. In addition, because DTC can act
only on behalf of its participants, who in turn act on behalf of persons who
hold interests through participants, the ability of a
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person having an interest in bonds represented by a global bond to pledge or
transfer such interest to persons or entities that do not participate in DTC's
system, or to otherwise take actions in respect of such interest, may be
affected by the lack of a physical definitive security in respect of such
interest.
So long as DTC or its nominee is the registered owner of the global bonds,
DTC or the nominee, as the case may be, will be considered the sole owner or
holder of the bonds represented by the global bonds for all purposes under the
indenture and the bonds. Except as provided below, owners of beneficial
interests in a global bond will not be entitled to have bonds represented by the
global bonds registered in their names, will not receive or be entitled to
receive physical delivery of certificated bonds in definitive form, and will not
be considered the owners or holders of any bonds under the indenture for any
purpose, including with respect to the giving of any direction, instruction or
approval to the trustee thereunder. Accordingly, each holder of the bonds owning
a beneficial interest in the global bonds must rely on the procedures of DTC
and, if such holder of the bonds is not a participant or an indirect
participant, on the procedures of the participant through which such holder of
the bonds owns its interest, to exercise any rights of a holder of the bonds
under the indenture or such global bond. We understand that under existing
industry practice, in the event that we request any action of holders of bonds,
or a holder of the bonds that is an owner of a beneficial interest in a global
bond desires to take any action that DTC, as the holder of such global bond, is
entitled to take, DTC would authorize the participants to take such action and
the participants would authorize holders of the bonds owning through such
participants to take such action or would otherwise act upon the instruction of
such holders of the bonds. Neither we nor the trustee will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of bonds by DTC, or for maintaining, supervising or
reviewing any records of DTC relating to such bonds.
Payments with respect to the principal of, and premium, if any, if and
interest on, any bonds represented by the global bonds registered in the name of
DTC or its nominee on the applicable record date will be payable by the trustee
to DTC or its nominee in its capacity as the registered holder of the global
bonds. Under the terms of the indenture, we and the trustee may treat the
persons in whose names the bonds, including the global bonds, are registered as
the owners thereof for the purpose of receiving payment thereon and for any and
all other purposes whatsoever. Accordingly, neither we nor the trustee has or
will have any responsibility or liability for the payment of such amounts to
owners of beneficial interests in a global bond (including principal, premium,
if any, and interest). Payments by the participants and the indirect
participants to the owners of beneficial interests in a global bond will be
governed by standing instructions and customary industry practice and will be
the responsibility of the participants or the indirect participants and DTC.
Transfers between participants in DTC will be effected in accordance with
DTC's procedures, and will be settled in same-day funds.
CERTIFICATED BONDS
If (i) we notify the trustee in writing that DTC is no longer willing or
able to act as a depositary or DTC ceases to be registered as a clearing agency
under the Exchange Act and a successor depositary is not appointed within 90
days of such notice or cessation, (ii) we, at our option, notify the trustee in
writing that we elect to cause the issuance of bonds in definitive form under
the indenture or (iii) upon the occurrence of certain other events as provided
in the indenture, then, upon surrender by DTC of the global bonds, certificated
bonds will be issued to each person that DTC identifies as the beneficial owner
of the bonds represented by the global bonds. Upon any such issuance, the
trustee is required to register the certificated bonds in the name of the person
or persons (or the nominee of any thereof) and cause the same to be delivered
thereto.
Neither we nor the trustee will be liable for any delay by DTC or any
participant or indirect participant in identifying the beneficial owners of the
related bonds and each such person may conclusively rely on, and will be
protected in relying on, instructions from DTC for all purposes (including with
respect to the registration and delivery, and the respective principal amounts,
of the bonds to be issued).
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DESCRIPTION OF PRINCIPAL FINANCING DOCUMENTS
The following summaries of certain provisions of the financing documents do
not purport to be complete and are subject to, and are qualified in their
entirety by reference to, all of the provisions thereof, including definitions
therein of certain terms. Copies of the financing documents have been filed as
exhibits to the registration statement of which this prospectus forms a part.
See "Where You Can Find More Information." Capitalized terms used herein and not
otherwise defined in this prospectus have the meanings ascribed to such terms in
the respective financing documents. For purposes of this section, references to
the "NRG Northeast", "us", "we" and "our" do not include the guarantors.
LOAN FACILITIES
On June 4, 1999, we executed a loan agreement under which the lenders party
thereto agreed to loan, with the guarantee of certain of our guarantors, (i) an
aggregate principal amount of up to $646,564,000 under a term loan facility to
finance the acquisition of certain of our facilities, and (ii) $40,000,000 for
our working capital needs under our old working capital facility. As of December
31, 1999, the term loan facility had been fully drawn. All amounts outstanding
under the term loan facility were repaid in full with the proceeds of the sale
of the outstanding bonds. Contemporaneously with the closing of the issuance of
the outstanding bonds on February 22, 2000, we entered into a new working
capital facility. At that time, the loan agreement was terminated.
NEW WORKING CAPITAL FACILITY
On the date of the issuance of the outstanding bonds we entered into a
364-day $50 million floating rate working capital revolving facility provided by
a syndicate of financial institutions led by Citibank, N.A. and The Chase
Manhattan Bank. The proceeds of this facility will be used to finance the
ordinary course working capital needs (other than debt service) of us and the
guarantors. The lenders under this facility were granted a security interest in
the same collateral that secures the bonds (other than the debt service reserve
account which is maintained by the trustee solely for the benefit of the holders
of the bonds and the bonds issued under the indenture in the future) and ranks
equally with the holders of the bonds and the guarantors guaranteed repayment of
this facility. The covenants and events of default in the working capital
facility are substantially similar to those set forth in the indenture.
INDENTURE
The bonds will be issued pursuant to an indenture, as supplemented by the
first supplemental indenture, by and among NRG Northeast, the guarantors and The
Chase Manhattan Bank, as trustee. The terms of the bonds include those stated in
the indenture and those made part of the indenture by reference to the Trust
Indenture Act. The bonds are senior secured obligations and rank senior in right
of payment to all of our existing and future indebtedness that is designated as
subordinate or junior in right of payment to the bonds.
COVENANTS OF NRG NORTHEAST
Following is a description of certain covenants with which we are obligated
to comply under the indenture so long as any bonds remain outstanding.
Information Requirements
We will furnish or cause to be furnished to the trustee and the rating
agencies:
- within 105 days after the end of each fiscal year of NRG Northeast, (i)
the audited consolidated balance sheet and related statements of
operations, members' equity and cash flows of NRG Northeast and our
subsidiaries as of the end of and for such year, and (ii) the audited
consolidated balance sheet and related statements of operations, members'
equity and cash flows of NRG Northeast and the guarantors (excluding the
financial condition and results of operation of the unrestricted
subsidiaries) as of the end of and for such year setting forth in each
case in comparative form the figures for the
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previous fiscal year, all reported on by PricewaterhouseCoopers LLP or
other independent public accountants of recognized national standing
(without a "going concern" or like qualification or exception and without
any qualification or exception as to the scope of such audit) to the
effect that such consolidated financial statements present fairly in all
material respects our financial condition and results of operations and
the financial condition and results of operations of our subsidiaries on
a consolidated basis in accordance with GAAP consistently applied;
- within 60 days after the end of each of the first three quarters of each
fiscal year, (i) the unaudited consolidated balance sheet and related
statements of operations, members' equity and cash flows of NRG Northeast
and our subsidiaries as of the end of and for such fiscal quarter and the
then elapsed portion of the fiscal year and (ii) the unaudited
consolidated balance sheet and related statements of operation, members'
equity and cash flows of NRG Northeast and the guarantors (excluding the
financial condition and results of operations of the unrestricted
subsidiaries), setting forth in each case in comparative form the figures
for (or, in the case of the balance sheet, as of the end of) the
corresponding period or periods of the previous fiscal year, all
certified by an authorized representative of ours as presenting fairly in
all material respects our financial condition and results of operations
and the financial condition and results of operations of our subsidiaries
on a consolidated basis in accordance with GAAP consistently applied,
subject to normal year-end audit adjustments and the absence of
footnotes;
- concurrently with any delivery of financial statements under the
immediately preceding two "bullet points", an officer's certificate (i)
certifying as to whether, to the best knowledge of the signer thereof,
certain defaults have occurred and, if such a default has occurred,
specifying the details thereof and any action taken or proposed to be
taken with respect thereto, (ii) stating whether any change in GAAP or in
the application thereof has occurred since the date of the most recent
prior audited financial statements delivered pursuant to the first
"bullet point" above or delivered to holders of the bonds on or prior to
the date of the issuance of the outstanding bonds, as applicable, and, if
any such change has occurred, specifying the effect of such change on the
financial statements accompanying such certificate;
- concurrently with any delivery of financial statements under the first
"bullet-point" above, a certificate of the accounting firm that reported
on such financial statements stating whether they obtained knowledge
during the course of their examination of such financial statements of
defaults involving the making of restricted payments;
- promptly after the same become publicly available, copies of all periodic
and other reports, proxy statements and other materials filed by us or
any of the guarantors with the SEC, or any governmental authority
succeeding to any or all of the functions of said commission, or with any
national securities exchange, or distributed by us to our members
generally, as the case may be;
- promptly after receiving notice of the same, copies of any information
with respect to any material litigation or material governmental or
environmental proceedings against us or the guarantors; and
- promptly following any request, such other information regarding our
operations, business affairs and financial condition or the operations,
business affairs and financial condition of us or any of the guarantors,
or compliance with the terms of the indenture and the other transaction
documents, as the trustee or majority holders of the bonds may reasonably
request.
Maintenance of Existence
We will, and will cause each of the guarantors to, do or cause to be done
(i) all things necessary to preserve, renew and keep in full force and effect
our legal existence as a limited liability company, provided that we may change
our status as a limited liability company if each of the rating agencies
confirms its then current rating of the bonds and we otherwise comply with the
financing documents and (ii) all things reasonably necessary to preserve, renew
and keep in full force and effect the rights, licenses, permits, privileges and
franchises material to the conduct of our business as then conducted. The
foregoing will neither prohibit
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any merger, consolidation, liquidation or dissolution permitted under the
indenture, nor prohibit NRG Northeast or any guarantor from changing its status
as a limited liability company if the rating agencies confirm their current
ratings of the bonds and NRG Northeast or such guarantor otherwise complies with
all obligations under the financing documents.
Maintenance of Tax Status
We will not, and will cause each of the guarantors not to, voluntarily take
any action to cause us or any guarantors to be subject to taxation as a separate
entity for federal income tax purposes.
Compliance with Laws and Contractual Obligations
We will, and will cause each of our subsidiaries to, comply with all laws,
rules, regulations and orders of any governmental authority (including
environmental laws and ERISA matters), and all contractual obligations
applicable to us or our property, except where the failure to do so,
individually or in the aggregate, could not reasonably be expected to result in
a material adverse effect on us and the guarantors taken as a whole.
Maintenance of Property
We will, and will cause each of the guarantors to, keep and maintain all
property material to the conduct of our business in good working order and
condition, ordinary wear and tear excepted. Neither we nor any guarantor will be
prevented from disposing of any asset (subject to certain prohibitions on
selling assets and on making fundamental changes described under "Limitation on
Fundamental Changes" and "Limitation on Sale of Assets" below) or from
discontinuing the operation or maintenance of any of such material properties if
such discontinuance is, as determined by us in good faith, desirable in the
conduct of our business or the business of any guarantor and would not
reasonably be expected to have a material adverse effect on us and the
guarantors taken as a whole.
Insurance
We will, and will cause each of the guarantors to, maintain, with
financially sound and reputable insurance companies, insurance with respect to
each facility in such amounts and against such risks as are customarily
maintained by companies engaged in the same or similar businesses operating in
the same or similar locations. We will maintain and will cause each of the
guarantors to maintain insurance for risks customarily insured against by other
enterprises with similar capital structures and owning and operating facilities
of like size and type as that of the facilities in accordance with prudent
industry practice.
Flow of Funds
We will provide funds to each of the guarantors at such times and in such
amounts so as to enable each of the guarantors to pay all operating expenses
incurred by each such guarantor on or before the date such operating expenses
become due and payable. If, on the last business day of each calendar month, the
funds available to us exceed the amount equal to the aggregate amount of our
operating expenses and the operating expenses of the guarantors then due and
payable plus our operating expenses and those of the guarantors reasonably
anticipated to become due and payable during the following calendar month, then,
on or before the third business day of such following calendar month, we will
deposit into the debt service reserve account an amount equal to the lesser of
(i) the debt service reserve shortfall, if any, determined as at the last
business day of a calendar month and (ii) the amount of such excess.
Creation of the Debt Service Reserve Account
We established at the trustee's corporate trust office a special,
irrevocable collateral account called the debt service reserve account which
will be maintained at all times until the termination of the indenture. All
amounts from time to time held in this account will be held (i) in the name of
the trustee for the benefit of the holders and (ii) under the exclusive dominion
and control of the trustee. Except as expressly provided in the
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indenture, neither we nor any guarantor will have any right to withdraw funds
from this account. All amounts on deposit in the debt service reserve account
and all investments held therein will constitute a part of the collateral and
will not constitute payment of any bond until applied as provided in the
indenture. We irrevocably authorized the trustee to withdraw funds from the debt
service reserve account in accordance with the indenture.
The debt service reserve account must contain a sufficient amount at all
times to pay the principal and interest on all series of bonds due on the next
scheduled payment date for each series of bonds. We do not have to fund this
account with cash if we obtain an acceptable debt service reserve support
instrument which may be either a guarantee by an acceptable bank, NRG Energy or
its affiliate other than NRG Northeast (so long as NRG Energy or such affiliate
maintains a long-term senior unsecured debt rating of "Baa3" or better by
Moody's and "BBB-" or better by S&P) or a letter of credit provided by a
commercial bank or other financial institution with a long-term senior unsecured
debt rating of "A2" or better by Moody's and "A" or better by S&P.
We may direct withdrawal from the debt service reserve account (i) to the
extent that no other funds are available to pay principal or interest on the
bonds of any series that are due on the date of such withdrawal and (ii) if on
any scheduled payment date the trustee will have received from us funds that are
insufficient to pay the aggregate amount of the principal and interest then due.
If on any scheduled payment date the trustee will have received funds that
are insufficient to pay the aggregate amount of such principal and interest in
full, then, the trustee will transfer from the debt service reserve account, to
the extent funds are available therein, to the accounts of the holders an amount
equal to such insufficiency.
If on any date on which the trustee is required to make withdrawals from
the debt service reserve account, the funds on deposit are insufficient to make
such withdrawals, the trustee will draw on a demand payment under any debt
service reserve support instrument then in its possession in an amount equal,
when added to all amounts paid under each other debt service reserve support
instrument on such date, to such insufficiency.
Limitation on Incurrence of Indebtedness
We will not (i) create, incur, assume or permit to exist any indebtedness,
except permitted indebtedness; (ii) permit any guarantor to create, incur,
assume or permit to exist any indebtedness, except its guarantee of the bonds or
its guarantee of other permitted indebtedness (other than subordinated
indebtedness), and intercompany loans; or (iii) permit any unrestricted
subsidiary to create, incur, assume or permit to exist any indebtedness, except
for non-recourse obligations.
"permitted indebtedness" will be any of the following items of
indebtedness:
- the outstanding bonds and the bonds;
- other indebtedness, provided, that after giving effect to the incurrence
of such indebtedness on a pro forma basis and the application of the net
proceeds thereof (A) there is no current default or event of default
unless the proceeds of such indebtedness are applied to cure, and such
application does cure, such default or event of default; and (B) we
provide an officer's certificate that certifies that (x) the minimum
annual projected debt service coverage ratio for each calendar year
commencing with the year in which such indebtedness is incurred through
the final maturity of the bonds is no less than 2.00 to 1; and (y) the
debt service coverage ratio for our preceding four consecutive fiscal
quarters (taken as a whole) was not less than 2.00 to 1 (or such shorter
period covering the quarters ended subsequent to the issuance of the
bonds); and (C) each of the rating agencies confirms its then current
rating on the bonds;
- indebtedness for working capital purposes not to exceed in the aggregate
the sum of $50,000,000, plus, upon the acquisition of any subsequent
guarantor or any additional facility by a guarantor or NRG Northeast, 4%
of the indebtedness incurred by us in connection with such acquisition;
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- indebtedness related to permitted liens (as described under "Limitation
on Liens" below);
- indebtedness to any of the guarantors;
- indebtedness represented by hedging agreements permitted by the indenture
which are not for speculative purposes;
- indebtedness in the form of performance or payment guarantees entered
into by us in the ordinary course of business in connection with (i) fuel
procurement by NRG Power Marketing directly related to the facilities,
(ii) sales or purchases of emissions credits by NRG Power Marketing
directly related to the facilities and (iii) sales of electrical
generating energy, capacity and ancillary services by NRG Power Marketing
directly related to the facilities, in each case, so long as such
activities are not for speculative purposes;
- indebtedness in respect of letters of credit, surety bonds or performance
bonds issued in the ordinary course of business;
- trade accounts payable or other similar indebtedness arising, and accrued
expenses incurred, in the ordinary course of business (but not in any
case for borrowed money);
- other senior indebtedness not to exceed $15,000,000; and
- subordinated indebtedness.
"debt service coverage ratio" will mean for any period, on a consolidated
basis of NRG Northeast and the guarantors, without the inclusion of unrestricted
subsidiaries and without duplication, the ratio of (x) all revenues minus all
operating, maintenance, general and administrative expenses (other than
nonrecurring expenses in connection with the issuance of permitted
indebtedness), minus all capital expenditures (unless funded with permitted
indebtedness) to (y) the aggregate of principal, interest and fees payable on
the bonds and all other permitted indebtedness (other than subordinated
indebtedness, fees in connection with the issuance of permitted indebtedness and
principal payments under the working capital facility, provided that such
amounts remain available to be drawn under the working capital facility or are
refinanced under a replacement working capital facility) plus net payments under
any interest rate agreements less payments to be received under any letter of
credit for such period.
"intercompany loan" will mean loans to NRG Northeast or any guarantor by
NRG Northeast or any guarantor.
"non-recourse obligations" will mean indebtedness or other obligations or
liabilities (i) as to which neither we nor any of the guarantors (a) provides
credit support of any kind (including any undertaking, agreement or instrument
that would constitute indebtedness), (b) is directly or indirectly liable (as a
guarantor or otherwise) other than pursuant to a pledge by NRG Northeast of an
equity interest in the obligor of the indebtedness or (c) constitutes the lender
and (ii) no default with respect to which (including any rights any person may
have to take enforcement action against an unrestricted subsidiary) would permit
(upon notice, lapse of time or both) any holder of the bonds or any of our
indebtedness or any indebtedness of any guarantor to declare a default on such
indebtedness or cause the payment thereof to be accelerated or payable prior to
its stated maturity.
Limitation on Restricted Payments
We will not make, or agree to pay or make, directly or indirectly, any
restricted payment, unless, at the time of and after giving effect to such
restricted payment (i) no default or event of default will have occurred and be
continuing or would occur as a consequence of such restricted payment; (ii) the
debt service reserve account is funded up to the debt service reserve
requirement; (iii) the debt service coverage ratio for the preceding four
consecutive quarters (or such shorter period covering the quarters ended
subsequent to the issuance of the bonds, taken as a consecutive period) was not
less than 1.50 to 1.0 in the case of any such period ending prior to December
31, 2003 or 1.70 to 1.0 for any such period ending thereafter; (iv) the
projected debt service coverage ratio for the next succeeding eight calendar
quarters (taken as two periods of
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four quarters and determined as of the beginning of the quarter during which the
determination is made) is not less than 1.50 to 1.0 in the case of any such four
quarter period ending prior to December 31, 2003 or 1.70 to 1.0 for any such
four quarter period ending thereafter; and (v) we certify that making the
restricted payment would not reasonably be expected to have a material adverse
effect on us and the guarantors taken as a whole. Restricted payments by any
guarantor that is not a wholly-owned subsidiary of ours made otherwise than to
us will be subject to the restrictions set forth in clauses (i), (ii), (iii),
(iv) and (v) of the preceding sentence. Restricted payments to us by any of our
wholly-owned subsidiaries will not be subject to conditions.
"restricted payments" are (i) membership distributions by or distributions
in respect of any equity interest in us or any guarantor (in cash, property,
securities or obligations) on, or (ii) any other payments or distributions on
account of payments of interest, or the setting apart of money for a sinking or
other analogous fund for, or the purchase, redemption, retirement or other
acquisition of, (a) subordinated indebtedness or (b) any portion of any
membership interest or equity interest in us or such guarantor or of any
warrants, options or other rights to acquire any such membership interest or
equity interest (or to make any payments to any person, such as "phantom stock"
payments, where the amount thereof is calculated with reference to fair market
or equity value of NRG Northeast or any guarantors). However, distributions or
other payments by one of the guarantors to us will not constitute restricted
payments.
Notwithstanding the foregoing, we will not be restricted from making (i)
payments to NRG Energy of any proceeds from treasury locks entered into by us on
or prior to the date of the issuance of the outstanding bonds or (ii) the
repayment on that date of loans made by NRG Energy in connection with the
acquisition of the Connecticut facilities and assumed by us.
Limitation on Liens
We will not, nor will we permit any of the guarantors to, create, incur,
assume or permit to exist any lien on any property or asset now owned or
hereafter acquired, or assign or sell any income or revenues (including accounts
receivable) or rights in respect of any thereof, other than permitted liens.
"permitted liens" will be any of the following liens:
- liens in favor of us or any guarantor;
- liens imposed by law for taxes, assessments or governmental charges that
are not yet delinquent and remain payable without penalty or that are
being contested in compliance in good faith by appropriate proceeding;
- carriers', warehousemen's, mechanics', materialmen's, repairmen's and
other like liens imposed by law, arising in the ordinary course of
business and securing obligations that are not overdue by more than 45
days or are being contested in good faith by appropriate proceedings;
- pledges and deposits made in the ordinary course of business in
compliance with workers' compensation, unemployment insurance and other
social security laws or regulations or other statutory obligations of NRG
Northeast or any guarantor;
- cash deposits or rights of set-off to secure the performance of bids,
lenders, trade contracts, leases, statutory obligations, surety and
appeal bonds, performance bonds, government contracts and other
obligations of a like nature (other than for payment obligations of
borrowed money), in each case in the ordinary course of business;
- judgment liens in respect of judgments that do not give rise to an event
of default under the indenture;
- certain encumbrances and other easements, zoning restrictions,
rights-of-way and similar charges or encumbrances on real property
imposed by law or arising in the ordinary course of business that do not
secure any monetary obligations and do not materially detract from the
value of the affected property or interfere with our ordinary conduct of
business or the ordinary conduct of business of any of the guarantors;
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- liens securing hedging agreements which hedging agreements relate to
indebtedness that is secured by liens otherwise permitted under the
indenture;
- liens that are incidental to our business or the business of the
guarantors, are not for borrowing money and are not material, taken as a
whole to our business and the business of the guarantors;
- liens created or granted pursuant to the security documents; and
- liens with respect to other permitted indebtedness (other than
subordinated indebtedness), so long as the bonds are secured on an equal
and ratable basis with the obligation so secured until such obligation is
no longer secured.
Certain Obligations Respecting Subsidiaries.
In the event that we form or acquire any new subsidiary that constitutes a
subsidiary under the indenture, we must designate such new subsidiary as a
"guarantor" or an "unrestricted subsidiary" and we will or will cause each new
subsidiary designated as a guarantor:
- to become an "obligor" under the security agreement;
- to take such action (including delivering such membership interests or
other ownership interests, executing and delivering such Uniform
Commercial Code financing statements) as will be necessary to create and
perfect valid and enforceable first priority liens on substantially all
of the personal property of such guarantor on which a lien is required to
be created pursuant to the security agreement as collateral security for
the obligations of such guarantor under the indenture; and
- to take such action, from time to time as will be necessary to ensure
that any such guarantor remain at all times a "guarantor" under the
indenture except as otherwise permitted under the indenture.
An "unrestricted subsidiary" is (i) any of our subsidiaries that is
designated by our board of directors as an unrestricted subsidiary pursuant to a
board resolution; but only to the extent that such subsidiary: (a) has no
indebtedness or other liabilities or obligations other than non-recourse
obligations; (b) is not party to any agreement, contract, arrangement or
understanding with us or any of our guarantors unless the terms of any such
agreement, contract, arrangement or understanding are no less favorable to us or
such guarantor than those that might be obtained at the time from persons who
are not our affiliates; and (c) is a person with respect to which neither we nor
any of the guarantors has any direct or indirect obligation (x) to subscribe for
additional equity interests or (y) to maintain or preserve such person's
financial condition or to cause such person to achieve any specified levels of
operating results.
If, at any time, any unrestricted subsidiary would fail to meet the
foregoing requirements as an unrestricted subsidiary, it will thereafter cease
to be an unrestricted subsidiary and such subsidiary will be deemed to be a
guarantor and any indebtedness of such subsidiary will be deemed to be incurred
by a guarantor as of such date (and, if such indebtedness is not permitted to be
incurred as of such date the indenture, we will be in default). Our board of
directors may at any time designate any unrestricted subsidiary to be a
guarantor. Such a designation will be an incurrence of indebtedness by a
guarantor of any outstanding indebtedness of such unrestricted subsidiary and
such designation will only be permitted if (i) such indebtedness is permitted
under the indenture, and (ii) no default or event of default would occur or be
in existence following such designation.
We will, and will cause each of our subsidiaries to, take such action from
time to time as will be necessary to ensure that our ownership in the voting
equity interests of each of the guarantors will at all times exceed 50% of all
such voting equity interests. In the event that any additional membership
interests are issued by any subsidiary of ours (other than an unrestricted
subsidiary), we agree to deliver to the collateral agent pursuant to the
security agreement the certificates evidencing such equity interests,
accompanied by undated stock powers executed in blank and to take such other
action as the trustee will request to perfect the security interest created
therein pursuant to the security agreement.
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Limitation on Fundamental Changes
Except as permitted under the provision described "Limitation on Asset
Sales", we will not, nor will we permit any of the guarantors to, merge into or
consolidate with any other person or permit any other person to merge into or
consolidate with us, or sell, transfer, lease or otherwise dispose of all or any
substantial part of our assets, or all or substantially all of the membership or
other equity interests of any of our subsidiaries, or liquidate or dissolve,
except that, if, as a result thereof no default will have occurred and be
continuing:
- any subsidiary may merge into us in a transaction in which we are the
surviving corporation;
- any guarantor may merge into any guarantor in a transaction in which the
surviving entity is a guarantor and our economic interest in each merging
guarantor's assets will not have been diminished as a result of such
merger;
- any guarantor may sell, transfer, lease or otherwise dispose of its
assets to us or to another guarantor (provided that our economic interest
in such assets is not diminished as a result thereof); and
- any guarantor may liquidate or dissolve if the assets of that guarantor
are transferred to another guarantor (provided that our economic interest
in such assets is not diminished as a result thereof) and if we determine
in good faith that such liquidation or dissolution is in our best
interests and is not materially disadvantageous to the holders of the
bonds.
Limitation on Sale of Assets
We will not, and will not permit the guarantors to, sell or otherwise
dispose of any assets other than:
- transfers of assets among us and the guarantors;
- sales and dispositions in the ordinary course of business not in excess
of $20,000,000 in aggregate for us and the guarantors in any fiscal year;
- any sales or dispositions of surplus, obsolete or worn-out equipment;
- any sales or dispositions required for compliance with applicable law or
necessary governmental approvals;
- sales or dispositions of non-controlling ownership interests in
guarantors in accordance with the indenture so long as the guarantee with
regard to such guarantor stays in effect;
- sales or dispositions of ownership interests in unrestricted
subsidiaries;
- any sales or dispositions of assets permitted under the indenture as a
permitted fundamental change (see "Limitation on Fundamental Change"
above); and
- any other sale or other disposition so long as after giving effect to
such events, the rating agencies will have confirmed their respective
ratings of the bonds in effect immediately prior to such sale or other
disposition.
Limitation on Business Activities
We will not, nor will we permit any of the guarantors to, engage to any
material extent in any business other than, (i) in our case, the ownership of
the guarantors and the unrestricted subsidiaries and the ownership and operation
of non-nuclear electric generating facilities and (ii) in the case of the
guarantors (including subsequent guarantors), the ownership and operation of
their respective facilities and the ownership and operation of other non-nuclear
electric generating facilities.
Limitation on Transactions with Affiliates
Subject to certain exceptions, we will not, nor will we permit any of our
subsidiaries (other than unrestricted subsidiaries) to, sell, lease or otherwise
transfer any property or assets to, or purchase, lease or
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otherwise acquire any property or assets from, or otherwise engage in any other
transactions with, any of our affiliates, except:
- transactions in the ordinary course of business at prices and on terms
and conditions not less favorable to us or our subsidiary than could be
obtained on an arm's-length basis from unrelated third parties;
- transactions between or among us and the guarantors not involving any
other affiliate;
- any restricted payment permitted under the indenture; and
- transactions that are contemplated by any transaction document or any
extensions, renewals or replacements thereof that will not have a
material adverse effect on us and the guarantors, taken as a whole.
Limitation on Investments
We will not, nor will we permit any guarantor to, make or permit to remain
outstanding any investments except:
- investments outstanding on the date of the issuance of the outstanding
bonds;
- operating deposit accounts with banks;
- cash or permitted investments;
- investments by us or the guarantors in us or the guarantors (including
investments by us in intercompany loans);
- investments in another person, if as a result of such investment (A) such
other person becomes a guarantor or (B) such other person is merged or
consolidated with or into, or transfers or conveys all or substantially
all of its assets to us or a guarantor;
- investments representing capital stock or obligations issued to, us or
any guarantor in settlement of claims against any other person by reason
of a composition or readjustment of debt or a reorganization of any
debtor of ours or any guarantor;
- investments in the bonds;
- investments acquired by NRG Northeast or any of the guarantors in
connection with any asset sale permitted under the indenture to the
extent such investments are non-cash proceeds;
- any investment to the extent that the consideration therefor is capital
stock (other than redeemable capital stock) of NRG Northeast;
- investments consisting of security deposits with utilities and other
persons made in the ordinary course of business;
- hedging agreements entered into in the ordinary course of business and
not for speculative purposes;
- amounts which we or the guarantors would otherwise be permitted to make
under the indenture if such amount were a restricted payment; and
- additional investments up to but not exceeding $10,000,000 in the
aggregate.
For purposes of the immediately preceding "bullet-point" above, the
aggregate amount of an investment at any time will be deemed to be equal to (A)
the aggregate amount of cash, together with the aggregate fair market value of
property, including any securities, loaned, advanced, contributed, transferred
or otherwise invested that gives rise to such investment minus (B) the aggregate
amount of dividends, distributions or other payments received in cash in respect
of such investment; the amount of an investment will not in any event be reduced
by reason of any write-off of such investment nor increased by any increase in
the amount of earnings retained in the person in which such investment is made
that have not been dividend, distributed or otherwise paid out.
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"permitted investments" means investments in securities or other
instruments that are: (i) direct obligations of the United States, or any agency
thereof; (ii) obligations fully guaranteed by the United States or any agency
thereof; (iii) certificates of deposit issued by commercial banks under the laws
of the United States or any political subdivision thereof or under the laws of
Canada, Japan or any country that is a member of the European Economic Union
having a combined capital and surplus of at least $500,000,000 and having
long-term unsecured debt securities rated "A" or better by S&P and "A2" or
better by Moody's (but at the time of investment not more than $25,000,000 may
be invested in such certificates of deposit from any one bank); (iv) repurchase
obligations for underlying securities of the types described in clauses (i) and
(ii) above, entered into with any commercial bank meeting the qualifications
specified in clause (iii) above or any other financial institution having
long-term unsecured debt securities rated "A" or better by S&P and "A2" or
better by Moody's in connection with which such underlying securities are held
in trust or by a third-party custodian; (v) open market commercial paper of any
corporation incorporated or doing business under the laws of the United States
or of any political subdivision thereof having a rating of at least "A-1" from
S&P and "P-1" from Moody's (but at the time of investment not more than
$25,000,000 may be invested in such commercial paper from any one company); (vi)
investments in money market funds having a rating assigned by each of the rating
agencies equal to the highest rating assigned thereby to money market funds or
money market mutual funds sponsored by any securities broker dealer of
recognized national standing (or an affiliate thereof), having an investment
policy that requires substantially all the invested assets of such fund to be
invested in investments described in any one or more of the foregoing clauses
and having a rating of "A" or better by S&P and "A2" or better by Moody's
(including money market funds or money market mutual funds for which the trustee
in its individual capacity or any of its affiliates is investment manager or
adviser) or (vii) a deposit of any bank (including the trustee), trust company
or financial institution authorized to engage in the banking business having a
combined capital and surplus of at least $500,000,000, whose long-term,
unsecured debt is rated "A" or higher by S&P and "A2" or higher by Moody's.
Limitation on Restrictive Agreements
We will not, and will not permit any of the guarantors to, directly or
indirectly, enter into, incur or permit to exist any agreement or other
arrangement that prohibits, restricts or imposes any condition upon (a) our
ability or the ability of any guarantor to create, incur or permit to exist any
lien upon any of our or its property or assets that is either (i) created under
the transaction documents or (ii) in our favor, or (b) the ability of any
guarantor to pay dividends or other distributions with respect to any shares of
its capital stock or to make or repay loans or advances to us or any other
guarantor or to guarantee our indebtedness or any the indebtedness of any other
guarantor except such prohibition, restriction or condition existing under or by
reason of: (1) applicable law, (2) the indenture or any financing document, (3)
with respect to real property, customary non-assignment provisions of any
contract or any lease governing a leasehold interest of any guarantor, (4) any
agreements existing at the time of acquisition of any person or the properties
or assets of the person so acquired, which encumbrance or restriction is not
applicable to any person, or the properties or assets of any person, other than
the person or the properties or assets of the person so acquired, (5) agreements
listed in the indenture, (6) liens incurred in accordance with the indenture,
and (7) refinancing of indebtedness with respect to clauses (4) or (5).
Limitations on the Modification of Certain Documents
Without the prior consent of the majority holders of the bonds, we will not
agree or consent to, nor allow any of the guarantors to agree or consent to, any
termination, modification, supplement, replacement or waiver of any transaction
document unless such termination, modification, supplement, replacement or
waiver could not, individually or collectively with all other such terminations,
modifications, supplements, replacements and waivers, reasonably be expected to
have a material adverse effect on us and the guarantors, taken as a whole.
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Other Covenants
The indenture also contains certain other covenants, including our
obligations to, and to cause each of the guarantors to: (i) pay all taxes and
claims; (ii) maintain books and records; and (iii) maintain the EWG status of
each of the guarantors.
GUARANTOR COVENANTS
Following is a description of certain covenants made by each of the
guarantors in favor of the trustee and the holders of the bonds with which the
guarantors will be obligated to comply under the indenture so long as the bonds
remain outstanding.
Existence; Conduct of Business
Each guarantor will do or cause to be done all things necessary to
preserve, renew and keep in full force and effect such guarantor's legal
existence as a limited liability company and all things reasonably necessary to
preserve, renew and keep in full force and effect such guarantor's rights,
licenses, permits, privileges and franchises material to the conduct of such
guarantor's business as then conducted. The foregoing will neither prohibit any
merger, consolidation, liquidation or dissolution permitted under the indenture,
nor prohibit any guarantor from changing its status as a limited liability
company if the rating agencies confirm their current ratings of the bonds and
such guarantor otherwise complies with all obligations under the financing
documents.
Compliance with Laws and Contractual Obligations
Each guarantor will comply with all laws (including environmental laws and
ERISA matters) and all contractual obligations, in each case, as applicable to
such guarantor or its property, except where the failure to do so, individually
or in the aggregate, would not reasonably be expected to result in a material
adverse effect on us and the guarantors, taken as a whole.
Maintenance of Properties
Each guarantor will keep and maintain all property material to the conduct
of such guarantor's business in good working order and condition, ordinary wear
and tear excepted. The guarantor will not be prevented from disposing of any
asset (subject to compliance with the indenture) or from discontinuing the
operation or maintenance of any of such material properties if the guarantor
reasonably determines in good faith that such discontinuance is desirable in the
conduct of its business and would not reasonably be expected to have a material
adverse effect.
Insurance
Each guarantor will maintain, with financially sound and reputable
insurance companies, insurance with respect to each facility in such amounts and
against such risks as are customarily maintained by companies engaged in the
same or similar businesses operating in the same or similar locations in
accordance with prudent industry practices. Each guarantor agrees that it will
maintain insurance for risks customarily insured against by other enterprises
with similar capital structures and owning and operating facilities of like size
and type as that of the facilities in accordance with prudent industry practice.
Limitation on Indebtedness
Each guarantor will not create, incur, assume or permit to exist any
indebtedness, except intercompany loans, the guarantees of the bonds or
guarantees of other permitted indebtedness (other than subordinated
indebtedness).
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Limitation on Liens
Each guarantor will not create, incur, assume or permit to exist any lien
on any property or asset now owned or hereafter acquired by such guarantor, or
assign or sell any income or revenues (including accounts receivable) or rights
in respect of any thereof, except permitted liens.
Prohibition on Fundamental Changes
Except for the asset sales otherwise permitted by the indenture, each
guarantor will not merge into or consolidate with any other person, or permit
any other person to merge into or consolidate with such guarantor, or sell,
transfer, lease or otherwise dispose of all or any substantial part of its
assets, or liquidate or dissolve, except that (i) each guarantor may merge into
a subsidiary in a transaction in which such guarantor is the surviving
corporation, (ii) any guarantor may merge into any other guarantor in a
transaction in which the surviving entity is a guarantor, (iii) each guarantor
may sell, transfer, lease or otherwise dispose of such guarantor's assets to us
or a guarantor and (iv) any guarantor may liquidate or dissolve if we determine
in good faith that such liquidation or dissolution is in the best interests of
the guarantor and is not materially disadvantageous to the holders of the bonds,
provided that no default will have occurred and be continuing as a result of any
of the events described in clauses (i), (ii) or (iii) above.
Limitation on Business Activities
Each guarantor will not engage, to any material extent, in any business
other than the ownership and operation of non-nuclear electric generating
facilities. In the event an entity becomes a guarantor after the date of the
issuance of the outstanding bonds, such guarantor agrees that it will not engage
to any material extent in any business other than the ownership and, operation
of non-nuclear electric generating facilities.
Limitation on Payments
Each guarantor will not make, or agree to pay or make, directly or
indirectly, any restricted payment, unless such payment is only (a) to us at any
time or (b) to any future minority owners of the guarantors only if at the time
of such restricted payment we would be permitted to make the payment to such
other minority owner as if such minority owner held a minority interest in us
instead of such guarantor.
Limitation on Transactions with Affiliates
Subject to certain exceptions, each guarantor will not sell, lease or
otherwise transfer any property or assets to, or purchase, lease or otherwise
acquire any property or assets from, or otherwise engage in any other
transactions with, any of such guarantor's affiliates, except (a) transactions
in the ordinary course of business at prices and on terms and conditions not
less favorable to the guarantor than could be obtained on an arm's-length basis
from unrelated third parties, (b) transactions between or among such guarantor
and NRG Northeast or other guarantors not involving any other affiliate, (c) any
restricted payment permitted by the indenture and (d) transactions that are
contemplated by any transaction document or any extensions, renewals or
replacements thereof that will not have a material adverse effect on NRG
Northeast and the guarantors, taken as a whole.
Limitation on Investments
Each guarantor will not make or permit to remain outstanding any
investments except:
- investments outstanding on the date of the issuance of the outstanding
bonds and identified in the indenture;
- operating deposit accounts with banks;
- cash or permitted investments;
- investments by such guarantor in ourselves or other guarantors;
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- investments in another person, if as a result of such investment (A) such
other person becomes a guarantor or (B) such other person is merged or
consolidated with or into, or transfers or conveys all or substantially
all of its assets to NRG Northeast or a guarantor;
- investments representing capital stock or obligations issued to us or any
guarantor in settlement of claims against any other person by reason of a
composition or readjustment of debt or a reorganization of any debtor of
ours or any guarantor;
- investments in the bonds;
- investments acquired by any guarantor or in connection with any asset
sale permitted under the indenture to the extent such investments are
non-cash proceeds;
- any investment to the extent that consideration therefor is capital stock
(other than redeemable capital stock) of NRG Northeast;
- investments consisting of security deposits with utilities and other like
persons made in the ordinary course of business;
- hedging agreements entered into in the ordinary course of business and
not for speculative purposes;
- amounts constituting restricted payments which the guarantors would
otherwise be permitted to make to minority owners under the indenture;
and
- additional investments up to but not exceeding $10,000,000 in the
aggregate with respect to such guarantor, the other guarantors and NRG
Northeast.
For purposes of the immediately preceding "bullet point" above, the
aggregate amount of an investment at any time will be deemed to be equal to (A)
the aggregate amount of cash, together with the aggregate fair market value of
property, including any securities, loaned, advanced, contributed, transferred
or otherwise invested that gives rise to such investment minus (B) the aggregate
amount of dividends, distributions or other payments received in cash in respect
of such investment, the amount of an investment will not in any event be reduced
by reason of any write-off of such investment not increased by any increase in
the amount of earnings retained in the person in which such investment is made
that have not been divided, distributed or otherwise paid out.
Limitation on the Operation of Facilities
Each guarantor will operate, or cause to be operated, its respective
facility in accordance with prudent industry practices.
Prohibition on Sale of Assets
Each guarantor will not to sell or otherwise dispose of any assets other
than
- transfers of assets between us and another guarantor;
- sales and dispositions in the ordinary course of business not in excess
of $20,000,000 in the aggregate for such guarantor, any other guarantor
and NRG Northeast in any fiscal year;
- any sales or dispositions of surplus, obsolete or worn-out equipment;
- any sales or dispositions required for compliance with applicable law or
necessary governmental approvals;
- any sales or dispositions of assets permitted under the indenture as a
permitted fundamental change; and
- any other sale or other disposition so long as after giving effect to
such events, the rating agencies will have confirmed their respective
ratings of the bonds in effect immediately prior to such sale or other
disposition.
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Limitations on the Modification of Certain Documents
Without the prior consent of the majority holders of the bonds, the
guarantors will not agree or consent to any termination, modification,
supplement, replacement or waiver of any transaction document unless such
termination, modification, supplement, replacement or waiver could not,
individually or collectively with all other such terminations, modifications,
supplements, replacements and waivers, reasonably be expected to have a material
adverse effect on NRG Northeast and the guarantors, taken as a whole.
Events of Default
The indenture provides that each of the following constitutes an event of
default:
(i) we default in the payment of any principal or interest on any bond
when that principal or interest becomes due and payable, whether by
scheduled maturity or required redemption or by acceleration or otherwise,
for 15 days or more;
(ii) we default in the performance or observance in any material
respect of any other term, covenant, or obligation of ours under the
indenture, not otherwise expressly defined as an event of default, and the
continuance of such default for more than 60 days after the earliest to
occur of (i) actual knowledge by an executive officer of NRG Northeast of
such default, (ii) the time at which an executive officer of NRG Northeast
should reasonably have had knowledge of such default or (iii) notice from
the trustee or the holders of the bonds of such default;
(iii) we default under one or more agreements, instruments, mortgages,
bonds, debentures or other evidences of indebtedness under which the we or
any guarantor then has outstanding indebtedness in excess of $15,000,000,
individually or in the aggregate, and such default or defaults have
resulted in the acceleration of the maturity of such indebtedness and such
acceleration has not been annulled or rescinded;
(iv) an involuntary proceeding will be commenced or an involuntary
petition will be filed seeking (i) liquidation, reorganization or other
relief in respect of us or any of the guarantors or our debts, or of a
substantial part of our assets, under any federal, state or foreign
bankruptcy, insolvency, receivership or similar law now or hereafter in
effect or (ii) the appointment of a receiver, trustee, custodian,
sequestrator, conservator or similar official for us or any of the
guarantors or for a substantial part of its assets, and, in any such case,
such proceeding or petition will continue undismissed for a period of 60 or
more days or an order or decree approving or ordering any of the foregoing
will be entered;
(v) we or any of the guarantors will (a) voluntarily commence any
proceeding or file any petition seeking liquidation, reorganization or
other relief under any federal, state or foreign bankruptcy, insolvency,
receivership or similar law now or hereafter in effect, (b) consent to the
institution of, or fail to contest in a timely and appropriate manner, any
proceeding or petition described in clause (ix) of this section, (c) apply
for or consent to the appointment of a receiver, trustee, custodian,
sequestrator, conservator or similar official for us or for a substantial
part of our assets, (d) file an answer admitting the material allegations
of a petition filed against us in any such proceeding, (e) make a general
assignment for the benefit of creditors or (f) take any action for the
purpose of effecting any of the foregoing;
(vi) an event described in clauses (iv) or (v) above occurs with
respect to NRG Energy, NRG Power Marketing, NRG Operating Services or any
operator (so long as such operator continues to be a direct or indirect
subsidiary of NRG Energy), in each case to the extent a party to any
transaction document, and remains uncured for the grace periods provided in
such clauses, provided, however, that in respect of such an event relating
to an operator, we will have an additional 60-day period within which to
enter into a replacement operating arrangement, and provided further that
in no case will such an event in respect of an operator constitute an event
of default unless it has a material adverse effect on us and the guarantors
taken as a whole.
(vii) we or any of the guarantors will become unable, admit in writing
our inability or such guarantor's inability or fail generally to pay our
debts or such guarantor's debts as they become due;
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(viii) one or more judgments for the payment of money in an aggregate
amount in excess of $25,000,000 will be rendered against us or any of the
guarantors or any combination thereof and the same will remain undischarged
or unpaid for a period of 60 consecutive days during which execution will
not be effectively stayed;
(ix) we will be terminated, dissolved or liquidated (as a matter of
law or otherwise);
(x) the liens created by the collateral documents will at any time not
constitute a valid and perfected lien on the collateral intended to be
covered thereby (to the extent perfection by filing, registration,
recordation or possession is required herein or therein) in favor of the
trustee, free and clear of all other liens (other than liens permitted
under the indenture or under the respective collateral documents), or,
except for expiration in accordance with its terms, any of the collateral
documents will for whatever reason be terminated or cease to be in full
force and effect, or the enforceability thereof will be contested by us, or
any guarantor or any member of NRG Northeast on the date of this offering;
(xi) either (a) the indenture or any other financing document is
declared in a final non-appealable judgment to be unenforceable against us
or any guarantor, or we or any of the guarantors will have expressly
repudiated our or its obligations thereunder; or (b) any other transaction
document is declared in a final non-appealable judgment to be unenforceable
against any party thereto, or any such party will have expressly repudiated
its obligations thereunder and ceased to perform such obligations, or
defaulted in the performance or observance of any of its material
obligations thereunder and such default has continued unremedied for a
period of five days or more or any such party is the subject of any
proceeding under the federal bankruptcy code;
(xii) default by us, any guarantor or any counterparty under or
invalidity of any of (a) any power sales and agency agreement, (b) any
operation and maintenance agreement or (c) any corporate services agreement
to the extent such default under or invalidity of any such agreement (x)
continues for 30 consecutive days and (y) could reasonably be expected to
have a material adverse effect on us and the guarantors taken as a whole;
or
(xiii) failure to renew or replace any operation and maintenance
agreement (or to make a substantially similar arrangement with respect to
the operation and maintenance of a facility) upon (a) termination by a
guarantor or an operator, after having given 180 days notice of its intent
to terminate, within 5 days of such termination, (b) termination by any
guarantor, within 5 days of such termination, or (c) termination by any
operator, within 30 days of such termination.
ENFORCEMENT
If any event of default occurs and is continuing, the trustee may, and upon
written direction of holders of the bonds holding not less than 33 1/3% (in the
case of any event of default specified in clause (i) under "-- Events of
Default" above) or 50% (in the case of an event of default specified in clauses
(ii), (iii), (vi), (viii), (ix), (x), (xi), (xii) or (xiii) under "-- Events of
Default" above) of the aggregate principal amount of the bonds will, (a)
declare, by written notice, the entire outstanding principal amount of the bonds
and accrued interest thereon to be due and payable immediately. However, in the
case of an event of default arising from certain events of bankruptcy or
insolvency with respect to us or any of the guarantors, all outstanding
principal and accrued interest with respect to the bonds will become due and
payable without further action or notice; and (b) proceed to enforce all
remedies available to the trustee under the indenture and the other documents to
which the trustee is a party, including the collateral agency and intercreditor
agreement, or available under applicable law. Holders of the bonds may not
enforce the indenture or the bonds except as provided in the indenture. Subject
to certain limitations, holders of the bonds holding a majority in principal
amount at maturity of the then outstanding bonds may direct the trustee in its
exercise of any trust or power. The trustee may withhold from holders of the
bonds notice of any continuing default or event of default (except a default or
an event of default relating to the payment of principal or interest) if it
determines that withholding notice is in their interest.
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No holder of the bonds will have any right to institute any proceeding for
a remedy under the indenture unless:
- such holder of the bonds has previously given to the trustee written
notice of a continuing event of default;
- the holders of the bonds holding not less than 25% in aggregate principal
amount of the then outstanding bonds have made written request to the
trustee to institute such proceeding;
- the holders of the bonds, have offered to the trustee adequate security
and indemnity against costs and liabilities associated with such
proceeding;
- the trustee has failed to institute such proceeding within 60 days after
the receipt of such notice; and
- no direction inconsistent with such written request has been given to the
trustee during such 60 day period by the holders of the bonds of a
majority in aggregate principal amount of the outstanding bonds of such
series.
The right of any holder of the bonds, which is absolute and unconditional,
to receive payment of the principal of, premium, if any, and interest on its
bonds on or after the due date therein expressed, or to institute suit for the
enforcement of such payment on or after such due date, or the obligation of
ours, which is also absolute and unconditional, to pay the principal of,
premium, if any, and interest on each of such bonds to such holder of the bonds
thereof at the time and place set forth in the bonds, will not be impaired or
affected without the consent of such holder of the bonds.
Priority of Payments during an Event of Default
Any money collected by the trustee with respect to a series of bonds
pursuant to the indenture will be applied in the following order, at the date or
dates fixed by the trustee and, in case of the distribution of such money on
account of principal (or premium, if any) or interest, upon presentation of the
bonds of such series and the notation thereon of the payment if only partially
paid and upon surrender thereof if fully paid:
FIRST: To the payment of all amounts due the trustee as compensation
(including expenses and indemnities) under the indenture, and the balance.
SECOND: To the payment of the amounts then due and unpaid upon the
bonds of that series for principal (and premium, if any) and interest, in
respect of which or for the benefit of which such money has been collected,
ratably among bonds within each series and among the series, without
preference or priority of any kind, according to the amounts due and
payable on such bonds for principal (and premium, if any) and interest,
respectively.
Legal Defeasance and Covenant Defeasance
Legal and covenant defeasance will be permitted upon terms and conditions
customary for transactions of this nature.
Satisfaction and Discharge
We may terminate the indenture by delivering all outstanding bonds to the
trustee for cancellation and by paying all other sums payable under the
indenture.
Amendment, Supplement and Waiver
Except as provided in the next two succeeding paragraphs, with the consent
of the holders of at least a majority in aggregate principal amount of the bonds
of all series then outstanding, considered as one class, we may, and the
trustee, will, enter into supplemental indentures for the purpose of changing
provisions of the indenture. However, if there are bonds of more than one series
outstanding and if a proposed supplemental indenture will directly affect the
rights of the holders of one or more, but less than all, of such series, then
the
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consent of only the holders of not less than a majority in aggregate principal
amount of the outstanding bonds of all series so directly affected, considered
as one class, will be required.
Without the consent of each holder of the bonds affected, no supplemental
indenture will (with respect to any bonds held by a non-consenting holder of the
bonds):
- reduce the principal amount of bonds whose holders must consent to a
supplement or waiver;
- change the principal of or change the fixed maturity of any bond or alter
certain provisions with respect to the redemption of the bonds;
- change the rate of or change the time for payment of interest on any
bond;
- waive a default or an event of default in the payment of principal of,
premium, if any, or interest on the bonds;
- permit the creation of any lien prior to or, except as permitted by the
indenture, pari passu with the lien of the collateral documents with
respect to any collateral or deprive any holder of the security afforded
by the lien of the collateral documents;
- waive a redemption payment with respect to any bond; or
- make any change in the foregoing amendment and waiver provisions.
Notwithstanding the foregoing, without the consent of the holders, we may
enter into one or more supplemental indentures in form satisfactory to the
trustee or enter into any consent with respect to the collateral documents for
the purposes of:
- establishing the form and terms of bonds of any series permitted under
the indenture;
- evidencing the succession of another entity to us and the assumption by
any such successor to our covenants in the indenture;
- evidencing the succession of a new trustee pursuant to the indenture;
- adding further covenants, restrictions, conditions or provisions as the
board of directors will consider to be for the protection of the holders,
and to make the occurrence, or the occurrence and continuance of a
default in any such additional covenants, restrictions, conditions or
provisions an event of default permitting the enforcement of all or any
of the several remedies provided in the indenture;
- conveying, transferring and assigning to the trustee properties or assets
to secure the bonds, and to correct or amplify the description of any
property at any time subject to the indenture or the collateral documents
or to assure, convey and confirm unto the trustee any property subject or
required to be subject to the indenture or the collateral documents;
- modifying, eliminating or adding to the provisions of the indenture to
such extent as will be necessary to qualify, requalify or continue the
qualification of the indenture (including any supplemental indenture)
under the Trust Indenture Act, or under any similar United States federal
statute hereafter enacted, and to add to the indenture such other
provisions as may be expressly permitted by the Trust Indenture Act,
excluding, however, the provisions referred to in Section 316(a)(2) of
the Trust Indenture Act as in effect at the date as of which this
instrument was executed or any corresponding provision in any similar
United States federal statute hereafter enacted;
- permitting or facilitating the issuance of bonds in uncertificated form;
- changing or eliminating any provision of the indenture or the collateral
documents. However, if such change or elimination will adversely affect
the interests of the holders of the bonds of any series, such change or
elimination will not become effective with respect to such series;
- curing any ambiguity, correcting or supplementing any provision in the
indenture or the collateral documents that may be defective or
inconsistent with any other provision, or making any other
90
<PAGE> 97
provisions with respect to matters or questions arising under the indenture or
the collateral documents. Such action must not adversely affect the interest of
the holders of any series in any material respect; or
- providing for the issuance of exchange securities, as contemplated by the
registration rights agreement, and to make such other changes to the
indenture or the collateral documents as our board of directors
determines are necessary or appropriate in connection therewith. Such
action must not adversely affect the interests of the bondholder of any
series in any material respect.
Concerning the Trustee
Holders of the bonds holding a majority in principal amount of the then
outstanding bonds will have the right to direct the time, method and place of
conducting any proceeding for exercising any remedy available to the trustee,
subject to certain exceptions. The indenture provides that if an event of
default occurs (which is not cured), the trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the conduct
of his own affairs. Subject to such provisions, the trustee will be under no
obligation to exercise any of its rights or powers under the indenture at the
request of any holder of the bonds, unless such holder of the bonds will have
offered to the trustee security and indemnity satisfactory to it against any
loss, liability or expense.
Transfer and Exchange
A holder of the bonds may transfer or bonds in accordance with the
indenture. The registrar and the trustee may require a holder of the bonds,
among other things, to furnish appropriate endorsements and transfer documents
and the registrar may require a holder of the bonds to pay any taxes and fees
required by law or permitted by the indenture.
The registered holder of the bonds will be treated as the owner of it for
all purposes.
SECURITY AGREEMENTS
Pursuant to the security agreements, secured parties will have a security
interest in certain collateral, including:
- our membership or other ownership interests in the guarantors;
- our rights under all the intercompany notes between NRG Northeast and the
guarantors entered into on the date of the issuance of the outstanding
bonds;
- the balance from time to time in the collateral account;
- the power sales and agency agreements, the operation and maintenance
agreements, the corporate services agreements and the transition power
sales contracts; and
- the revenues from certain power sales contracts entered into by NRG Power
Marketing associated with the facilities owned by NRG Northeast or the
guarantors.
COLLATERAL AGENCY AND INTERCREDITOR AGREEMENT
Pursuant to the collateral agency and intercreditor agreement, NRG
Northeast, the guarantors, the trustee, the agents under the new working capital
facility, and any trustee or agents under any other senior secured debt document
agree to appoint The Chase Manhattan Bank as the collateral agent.
AUTHORITY OF COLLATERAL AGENT
The collateral agent will have the authority to administer the
intercreditor collateral in accordance with the security documents, and upon the
occurrence and continuance of an event where 67% of the combined exposure will
have been declared to be, or will automatically have become, due and payable
under the financing documents, as determined by the collateral agent based upon
written notices provided to the collateral agent by the secured parties (a
"trigger event"), will exercise, upon written instruction of persons
91
<PAGE> 98
that at such time hold at least 33 1/3% of the combined exposure (the "required
creditors"), such rights and remedies with respect to the intercreditor
collateral as are granted to it under the security documents and applicable law.
"combined exposure" means, as of any date of calculation, the sum
(calculated without duplication) of the following to the extent the same is held
by or represented by a secured party (i) the aggregate principal amount of all
bonds outstanding as of the calculation date, (ii) the aggregate principal
amount of all loans (if any) outstanding as of such calculation date under the
working capital facility, (iii) the aggregate amount of all undrawn financing
commitments as of such calculation date under the working capital facility
which, as of such calculation date, the lenders party to the working capital
agreement have no right to terminate, (iv) the aggregate principal amount of all
other senior secured debt (if any) outstanding as of such calculation date and
(v) the aggregate amount of all undrawn financing commitments under any senior
secured debt documents as of such calculation date which, as of such calculation
date, the creditors party to such other senior secured debt documents have no
right to terminate.
"intercreditor collateral" means any collateral in which there is a
security interest purported to be granted to a secured party other than the debt
service reserve account.
ACTIONS BY SECURED PARTIES
No secured party will have any right to (i) sell, exchange, release or
otherwise deal with any property pledged, assigned or mortgaged to secure the
financing liabilities, (ii) exercise or refrain from exercising any rights to
direct the collateral agent to take any action in respect of the intercreditor
collateral or (iii) take any other action with respect to the intercreditor
collateral (A) independently of the collateral agent or (B) other than to direct
the collateral agent to take action in accordance with the collateral agency and
intercreditor agreement.
PRIORITY OF PAYMENTS
Following the occurrence of a trigger event or upon the exercise of
remedies by the secured parties after an event of default, the proceeds of any
collection, sale or other realization of any part of the intercreditor
collateral will be applied by the collateral agent in the following order of
priority:
- First, to the payment of all reasonable costs and expenses relating to
the sale of the intercreditor collateral plus costs of the collateral
agent in enforcing the indemnity payment due to the collateral agent;
- Second, to the payment of accrued and unpaid interest on the bonds, the
working capital facility and any other senior secured debt, pro rata;
- Third, to the payment of principal, make-whole premiums, if any, and
breakage costs, if any, pro rata;
- Fourth, to the payment of other secured obligations owed to the trustee,
the working capital agents and each senior secured debt agent, pro rata;
and
- Finally, to the payment of the relevant obligor, or its successor or
assignees, or as a court of competent jurisdiction may direct, of any
surplus remaining.
EVENT OF LOSS
If an event of loss will occur and the determination is made that the
affected property cannot be rebuilt, repaired or restored or NRG Northeast
elects not to rebuild, repair or restore, and loss proceeds exceed $10 million,
then all of the loss proceeds in excess of $10 million will be distributed pro
rata among the secured parties. If an event of loss occurs and NRG Northeast
rebuilds, repairs or restores the affected property and the loss proceeds exceed
the actual cost of such rebuilding, repair or restoration by more than $5
million, then any excess loss proceeds over $5 million will be distributed pro
rata among the secured parties. The pro rata share of loss proceeds owing to the
trustee for the benefit of the holders of the bonds will be applied to the pro
rata redemption of the bonds in accordance with the indenture.
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<PAGE> 99
NOTICE
Each secured party will give each other secured party and the collateral
agent written notice of the occurrence of an event of default under such secured
party's financing documents of which it has written notice and of the occurrence
of an acceleration of the maturity of such secured party's financing
liabilities.
INDEMNIFICATION AGREEMENT
Pursuant to an indemnification agreement dated as of December 23, 1999, NRG
Energy gave an indemnification in respect of the Fortistar Litigation to the
lender representatives and the financing parties described in such
indemnification agreement. The indemnification agreement provides that NRG
Energy agrees to absolutely and unconditionally indemnify and hold harmless NRG
Northeast, the guarantors, the lender representatives and each financing party
and each related party of any of the foregoing persons (collectively,
"indemnified parties") from all claims of any nature against any indemnified
party arising out of or relating to the Fortistar Litigation.
NRG Energy has agreed that the trustee and the holders of the bonds also
constitute indemnified parties as such term is used in the indemnification
agreement.
REGISTRATION RIGHTS AGREEMENT
As part of the sale of the outstanding bonds and under a registration
rights agreement, dated as of February 15, 2000, NRG Northeast and the
guarantors agreed with the initial purchasers, for the benefit of the holders of
the outstanding bonds, to use their reasonable best efforts to file with the SEC
and cause to become effective, at our cost, a registration statement with
respect to a registered offer to exchange the outstanding bonds for bonds which
are in all material respects substantially identical to the outstanding bonds.
Once the registration statement that this prospectus is part of is declared
effective, we will offer the bonds in return for surrender of the outstanding
bonds. This offer will remain open for no less than 30 days after the date a
notice of the exchange offer is mailed to the holders of the outstanding bonds.
For each outstanding bond surrendered to us under the exchange offer, the holder
of outstanding bonds will receive bonds aggregating an equal principal amount.
Interest on each bond will accrue from the last scheduled payment date on which
interest was paid on the outstanding bond so surrendered or, if no interest has
been paid, since February 22, 2000.
If:
- because of any change in law or applicable interpretations by the staff
of the SEC we are not permitted to exchange the outstanding bonds for the
bonds, or
- any outstanding bonds validly tendered pursuant to the registered
exchange offer are not exchanged for bonds upon consummation of the
exchange offer, or
- any initial purchaser so requests with respect to outstanding bonds not
eligible to be exchanged for bonds in the registered exchange offer and
held by it following the consummation of the registered exchange offer,
or
- any applicable law or interpretations do not permit any holder of the
outstanding bonds other than the initial purchasers to participate in the
registered exchange offer, or
- any holder of the outstanding bonds that participates in the registered
exchange offer does not receive freely transferable exchange securities
in exchange for tendered securities, or
- we so elect,
then we will, at our cost, use our reasonable best efforts (subject to customary
representations and agreements of the holders of the bonds) to have a shelf
registration statement covering resale of the outstanding bonds declared
effective and kept effective until February 22, 2002, subject to specified
exceptions.
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<PAGE> 100
We will, in the event of such a shelf registration, provide to each holder
of the bonds copies of the prospectus, notify each holder of the bonds when a
registration statement for the outstanding bonds has become effective and take
certain other actions as are appropriate to permit resale of the outstanding
bonds.
In the event that any such exchange offer is not commenced or such
registration statement is not declared effective by November 20, 2000, the
exchange offer is not consummated by January 3, 2001 or any such registration
statement ceases to be effective or useable during the specified time period,
the respective annual interest rates on the outstanding bonds will increase by
50 basis points until the date on which such registration statement will have
become effective and is useable or such exchange offer is consummated.
Each holder of the bonds who wishes to exchange the outstanding bonds for
bonds in the exchange offer will be required to represent that any bonds to be
received by it will be acquired in the ordinary course of business and that at
the time of the commencement of the exchange offer it will have no arrangement
with any person to participate in the distribution (within the meaning of the
Securities Act) of the bonds.
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<PAGE> 101
PLAN OF DISTRIBUTION
Each broker-dealer that receives bonds for its own account in the exchange
offer must acknowledge that it will deliver a prospectus in connection with any
resale of the bonds. This prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of bonds
received in exchange for outstanding bonds where such outstanding bonds were
acquired as a result of market-making activities or other trading activities. We
have agreed that, for a period of 90 days after the expiration date of the
exchange offer, we will make this prospectus, as amended or supplemented,
available to any broker-dealer for use in connection with any resale. In
addition, until January 23, 2000, all dealers effecting transactions in the
bonds may be required to deliver a prospectus.
Neither NRG Northeast nor any of the guarantors will receive any proceeds
from any sale of bonds by broker-dealers. Bonds received by broker-dealers for
their own account in the exchange offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the bonds or a combination of these methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or at negotiated prices. Any resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any broker-dealer or
the purchasers of any of the bonds. Any broker-dealer that resells bonds that
were received by it for its own account in the exchange offer and any broker or
dealer that participates in a distribution of such bond
(1) may be deemed to be an "underwriter" within the meaning of the
Securities Act and
(2) must acknowledge that it must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with
the resale transaction, including the delivery of a prospectus that
contains information with respect to any selling holder required by the
Securities Act in connection with any resale transaction.
Furthermore, any broker dealer that acquired any of its outstanding bonds
directly from our company:
- may not rely on the applicable interpretation of the staff of the SEC's
position contained in Exxon Capital Holdings Corp., SEC No-Action Letter
(April 13, 1989), Morgan Stanley & Co., Inc., SEC No-Action Letter (June
5, 1991) and Shearman & Sterling, SEC No-Action Letter (July 2, 1983) and
- must also be named a selling holder of bonds in connection with the
registration and prospectus delivery requirements of the Securities Act
relating to any resale transaction.
Profit on any resale of the bonds issued in the exchange offer and any
commission or concessions received by any of these persons may be deemed to be
underwriting compensation under the Securities Act. The letter of transmittal
states that, by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of 90 days after the expiration date of the exchange offer NRG
Northeast will promptly send additional copies of this prospectus and any
amendment or supplement to this prospectus to any broker-dealer that requests
these documents in the letter of transmittal. NRG Northeast has agreed to pay
all expenses incident to the exchange offer (including the expenses of one
counsel for the holders of the bonds) other than commissions or concessions of
any broker-dealers and will indemnify the holders of the bonds (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act. We note, however, that, in the opinion of the SEC,
indemnification against liabilities arising under the federal securities laws is
against public policy and may be unenforceable.
95
<PAGE> 102
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of certain U.S. federal income tax
considerations relating to the exchange of the outstanding bonds for the bonds
issued in this exchange offer. This discussion is based on laws, regulations,
rulings and decisions now in effect, all of which are subject to change,
possibly with retroactive effect. NRG Northeast has not obtained, nor does it
intend to obtain, a ruling from the IRS as to any U.S. federal income tax
consequences discussed below and there can be no assurances that the IRS will
not take contrary positions. This discussion does not address all aspects of
U.S. federal income tax that may be relevant to particular holders of
outstanding bonds or bonds issued in this exchange offer. This discussion deals
only with holders of bonds who hold the bonds as capital assets and exchange
outstanding bonds for bonds pursuant to this exchange offer. This discussion
does not address the tax consequences arising under the laws of any foreign,
state or local jurisdiction. Prospective investors are urged to consult their
tax advisors regarding the U.S. federal tax consequences of acquiring, holding
and disposing of the bonds, as well as any tax consequences that may arise under
the laws of any foreign, state, local or other taxing jurisdiction.
THE EXCHANGE OFFER
An exchange of the outstanding bonds for the bonds pursuant to the exchange
offer will not be treated as an "exchange" for U.S. federal income tax purposes
because the terms of the bonds issued in the exchange offer are substantially
identical to the terms of the outstanding bonds. Consequently, a holder of the
outstanding bonds will not recognize taxable gain or loss as a result of
exchanging bonds pursuant to the exchange offer. The holding period of the bonds
issued in the exchange offer will be the same as the holding period of the
outstanding bonds and the tax basis of the bonds will be the same as the basis
in the outstanding bonds immediately before the exchange.
LEGAL MATTERS
Certain legal matters with respect to the bonds will be passed upon for us
by Skadden, Arps, Slate, Meagher & Flom LLP, New York, New York.
EXPERTS
The financial statements as of December 31, 1999 and for the periods then
ended included in this Prospectus are as follows: NRG Northeast Generating LLC,
Middletown Power LLC, Huntley Power LLC, Dunkirk Power LLC and Arthur Kill Power
LLC. Such financial statements have been so included in reliance on the reports
of PricewaterhouseCoopers LLP, independent accountants, given on the authority
of said firm as experts in auditing and accounting.
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<PAGE> 103
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
NRG NORTHEAST GENERATING LLC AND SUBSIDIARIES
Independent Accountant's Report............................. F-2
Index to Consolidated Financial Statements.................. F-3
Consolidated Balance Sheets................................. F-4
Consolidated Statements of Operations....................... F-5
Consolidated Statements of Cash Flows....................... F-6
Consolidated Statement of Member's Equity................... F-7
Notes to Consolidated Financial Statements.................. F-8
MIDDLETOWN POWER LLC
Independent Accountant's Report............................. F-21
Index to Financial Statements............................... F-22
Balance Sheets.............................................. F-23
Statements of Operations.................................... F-24
Statements of Cash Flows.................................... F-25
Statement of Member's Equity................................ F-26
Notes to Financial Statements............................... F-27
HUNTLEY POWER LLC
Independent Accountant's Report............................. F-35
Index to Financial Statements............................... F-36
Balance Sheets.............................................. F-37
Statements of Operations.................................... F-38
Statements of Cash Flows.................................... F-39
Statement of Member's Equity................................ F-40
Notes to Financial Statements............................... F-41
DUNKIRK POWER LLC
Independent Accountant's Report............................. F-50
Index to Financial Statements............................... F-51
Balance Sheets.............................................. F-52
Statements of Operations.................................... F-53
Statements of Cash Flows.................................... F-54
Statement of Member's Equity................................ F-55
Notes to Financial Statements............................... F-56
ARTHUR KILL POWER LLC
Independent Accountant's Report............................. F-66
Index to Financial Statements............................... F-67
Balance Sheets.............................................. F-68
Statements of Operations.................................... F-69
Statements of Cash Flows.................................... F-70
Statement of Member's Equity................................ F-71
Notes to Financial Statements............................... F-72
</TABLE>
F-1
<PAGE> 104
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Members of
NRG Northeast Generating LLC:
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statement of operations, of member's equity and of cash flows
present fairly, in all material respects, the financial position of NRG
Northeast Generating LLC and its subsidiaries at December 31, 1999, and the
results of their operations and their cash flows for the period from April 27,
1999 (Inception) through December 31, 1999 in conformity with accounting
principles generally accepted in the United States. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audit. We
conducted our audit of these statements in accordance with auditing standards
generally accepted in the United States, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
Minneapolis, MN
March 17, 2000
F-2
<PAGE> 105
NRG NORTHEAST GENERATING LLC AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Consolidated Balance Sheets................................. F-4
Consolidated Statements of Operations....................... F-5
Consolidated Statements of Cash Flows....................... F-6
Consolidated Statement of Member's Equity................... F-7
Notes to Consolidated Financial Statements.................. F-8
</TABLE>
F-3
<PAGE> 106
NRG NORTHEAST GENERATING LLC
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, 1999 JUNE 30, 2000
----------------- -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
(THOUSANDS OF DOLLARS)
CURRENT ASSETS:
Cash and cash equivalents................................. $ 10,551 $ 12,859
Accounts receivable....................................... 100,428 160,198
Inventory (Note 5)........................................ 108,262 128,389
Prepaid expenses.......................................... 21,686 23,428
---------- ----------
Total current assets................................. 240,927 324,874
Property, plant & equipment, net (Note 2)................. 1,460,483 1,452,101
Deferred financing costs, net (Note 2).................... 3,228 8,798
---------- ----------
Total assets......................................... $1,704,638 $1,785,773
========== ==========
LIABILITIES AND MEMBER'S EQUITY
LIABILITIES:
Current portion of long-term debt......................... $ -- $ 95,000
Credit facility debt...................................... 35,766 --
Accounts payable.......................................... 2,876 2,208
Accounts payable-affiliates............................... 52,232 5,979
Accrued interest.......................................... 1,125 2,712
Accrued fuel and purchased power expense.................. 26,007 51,685
Other accrued liabilities................................. 12,920 31,384
---------- ----------
Total current liabilities............................ 130,926 188,968
Long-term debt.............................................. 646,564 655,000
Other long-term liabilities................................. -- 21,047
---------- ----------
Total liabilities.................................... 777,490 865,015
MEMBER'S EQUITY............................................. 927,148 920,758
---------- ----------
Total liabilities and member's equity................ $1,704,638 $1,785,773
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 107
NRG NORTHEAST GENERATING LLC
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE PERIOD FOR THE SIX
APRIL 27, 1999 (INCEPTION) APRIL 27, 1999 (INCEPTION) MONTHS ENDED
TO DECEMBER 31,1999 TO JUNE 30, 1999 JUNE 30, 2000
-------------------------- -------------------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
(THOUSANDS OF DOLLARS)
Revenues.................................. $258,574 $14,309 $527,554
Operating Costs........................... 152,986 11,015 350,714
-------- ------- --------
Operating margin................... 105,588 3,294 176,840
Depreciation.............................. 17,026 1,161 24,046
General and Administrative Expenses....... 7,805 251 8,702
-------- ------- --------
Income from operations............. 80,757 1,882 144,092
Interest Expense.......................... 26,410 1,255 33,980
Other (Income) Expense, net............... -- -- (1,166)
-------- ------- --------
Net Income......................... $ 54,347 $ 627 $111,278
======== ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 108
NRG NORTHEAST GENERATING LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD
APRIL 27, 1999
FOR THE PERIOD (INCEPTION) FOR THE SIX
APRIL 27, 1999 (INCEPTION) TO JUNE 30, MONTHS ENDED
TO DECEMBER 31, 1999 1999 JUNE 30, 2000
-------------------------- -------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
(THOUSANDS OF DOLLARS)
Cash Flow from operating activities:
Net income................................. $ 54,347 $ 627 $ 111,278
Adjustments to reconcile net income to net
cash provided from operating activities:
Depreciation............................ 17,026 1,161 24,046
Amortization of deferred financing
costs................................. 3,664 310 3,295
Other, net.............................. (3) -- --
Changes in assets and liabilities:
Accounts receivable................... (97,763) (14,309) (59,770)
Inventories........................... (10,704) (1,981) (20,194)
Prepaid expenses...................... (10,420) (13,341) (1,743)
Accounts payable...................... 2,876 520 (668)
Accounts payable-affiliates........... 22,690 17,527 (46,233)
Accrued interest...................... 1,125 -- 1,587
Accrued fuel and purchased power
expense............................ 26,007 -- 25,678
Other accrued assets and
liabilities........................ 5,064 16,429 18,464
Cash provided by changes in other assets
and liabilities......................... -- -- 21,033
----------- --------- ---------
Net cash provided by operating
activities....................... 13,909 6,943 76,773
Cash flows from investing activities:
Business acquisition, net of liabilities
assumed................................. (1,519,365) (911,491) --
Proceeds from disposition of property and
equipment............................... 22 -- --
Capital expenditures....................... (32,254) (279) (15,602)
----------- --------- ---------
Net cash used in investing
activities....................... (1,551,597) (911,770) (15,602)
Cash flows from financing activities:
Repayment of short-term borrowings......... -- -- (682,330)
Proceeds from borrowings................... 682,330 539,897 750,000
Contributions (distributions) by member.... 872,801 371,594 (117,668)
Deferred financing costs................... (6,892) (6,659) (8,865)
----------- --------- ---------
Net cash flows provided by (used
in) financing activities......... 1,548,239 904,832 (58,863)
----------- --------- ---------
Net increase in cash and cash equivalents.... 10,551 5 2,308
Cash and cash equivalents at beginning of
period..................................... -- -- 10,551
----------- --------- ---------
Cash and cash equivalents at end of period... $ 10,551 $ 5 $ 12,859
=========== ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Interest paid (net of amount capitalized).... $ 21,786 $ -- $ 29,098
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 109
NRG NORTHEAST GENERATING LLC
CONSOLIDATED STATEMENT OF MEMBER'S EQUITY
<TABLE>
<S> <C>
(THOUSANDS OF DOLLARS)
Balance, April 27, 1999 (Inception)......................... $ --
Contributions............................................. 371,594
Net Income................................................ 607
---------
Balance, June 30, 1999 (Unaudited).......................... 372,201
=========
Contributions............................................. 501,207
Net Income................................................ 53,740
---------
Balance, December 31, 1999.................................. $ 927,148
=========
Balance, January 1, 2000.................................... $ 927,148
Distributions (Unaudited)................................. (117,668)
Net Income (Unaudited).................................... 111,278
---------
Balance, June 30, 2000 (Unaudited).......................... $ 920,758
=========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 110
NRG NORTHEAST GENERATING LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NRG Northeast Generating LLC ("the Company"), a wholly owned indirect
subsidiary of NRG Energy, Inc. ("NRG"), owns electric power generation 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 and affiliates 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.
As of December 31, 1999, the Company held a 99% interest in Arthur Kill
Power LLC, Astoria Gas Turbine Power LLC, Dunkirk Power LLC, Huntley Power LLC,
Oswego Harbor Power LLC and Somerset Power LLC. Northeast Generation Holding LLC
and NRG Eastern LLC, wholly owned subsidiaries of NRG Energy, Inc., each held a
minority interest of 0.5% in Arthur Kill Power LLC ("Arthur Kill Power"),
Astoria Gas Turbine Power LLC ("Astoria Gas Turbine Power"), Dunkirk Power LLC,
Huntley Power LLC ("Huntley Power"), Oswego Harbor Power LLC ("Oswego Power")
and Somerset Power LLC.
NRG Connecticut Generating LLC, a wholly owned subsidiary of NRG, owned
100% of Connecticut Jet Power LLC, Devon Power LLC, Middletown Power LLC,
Montville Power LLC and Norwalk Harbor Power LLC.
Effective January 1, 2000, the minority ownership interests held by
Northeast Generation Holding LLC and NRG Eastern LLC as well as the ownership
interests held by NRG Connecticut Generating LLC were transferred to the
Company. Since all assets and operations were under common ownership and control
since April 27, 1999 (Inception), the consolidated financial statements have
been presented on a combined basis without minority interest.
Additional information regarding the Company can be found in NRG's Form
10-K for the twelve months ended December 31, 1999.
In the opinion of management, the accompanying consolidated financial
statements present fairly the consolidated financial position of the Company as
of December 31, 1999, the results of its operations, cash flows and members'
equity for the period from April 27, 1999 to December 31, 1999.
NOTE 1 -- BUSINESS DEVELOPMENTS
In April 1999, the Somerset facility was acquired for approximately $55
million from Montaup Electric Company ("MEC"). The Somerset facility, located in
Somerset, Massachusetts, includes two coal-fired generating facilities and two
aeroderivative combustion turbine peaking units having a capacity of 160 MW,
excluding 69 MW on deactivated reserve.
In June 1999, the Huntley and Dunkirk facilities were acquired from Niagara
Mohawk Power Corporation ("NiMo") for approximately $355 million. The two
coal-fired facilities are located near Buffalo, New York, and have a combined
capacity of 1,360 MW.
In June 1999, the Arthur Kill and the Astoria facilities were acquired for
approximately $505 million from the Consolidated Edison Company of New York,
Inc. ("ConEd"). These facilities, which are located in Staten Island and Queens,
New York, have a combined capacity of 1,456 MW.
In October 1999, the 1,700 MW capacity oil and gas-fired Oswego facility
was acquired for approximately $85 million from NiMo and Rochester Gas and
Electric Corporation. The facility is located in Oswego, New York.
In December 1999, affiliates of the Company acquired four fossil fuel
electric generating stations and six remote gas turbines having an aggregate
capacity of 2,235 MW from Connecticut Light & Power Company ("CL&P") for
approximately $460 million, plus adjustments for working capital. These
facilities are located in Connecticut.
F-8
<PAGE> 111
NRG NORTHEAST GENERATING LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 1 -- BUSINESS DEVELOPMENTS -- (CONTINUED)
On January 19, 2000, NRG announced the execution of an agreement to acquire
1,875 MW of fossil-fueled electric generating capacity and other assets from
Conectiv, an electric utility based in Wilmington, Delaware. NRG has committed
to pay approximately $800 million for these assets, which are currently owned by
Conectiv's subsidiaries, Atlantic City Electric Company and Delmarva Power &
Light Company ("Delmarva"). Under a five-year power purchase agreement, NRG will
sell 500 MW of energy per year to Delmarva.
While the Company had stated that it was possible that NRG may elect to
contribute or transfer the Conectiv facilities to the Company, NRG has decided
it will not make such contribution or transfer (unaudited).
During 1999, the Company purchased the above mentioned facilities for an
aggregate purchase price of $1.5 billion. The acquisitions were accounted for as
purchases of assets in the following manner:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
Aggregate purchase price of net assets...................... $1,519,365
</TABLE>
The aggregate purchase price was allocated among the assets acquired and
liabilities assumed in the following amounts:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
ASSETS
Cash...................................................... $ 2,665
Inventory................................................. 97,447
Other current assets...................................... 11,266
Property, plant and equipment............................. 1,445,386
----------
Total Assets................................................ 1,556,764
LIABILITIES
Accounts payable -- affiliates............................ 29,543
Other current liabilities................................. 7,856
----------
Total Liabilities........................................... 37,399
NET ASSETS ACQUIRED......................................... $1,519,365
----------
</TABLE>
Pro forma information has not been presented for the assets acquired in
1999 due to the fact that the assets acquired do not constitute businesses under
Rule 11-01(d) of Regulation S-X. Accordingly, historical financial information
does not exist for the assets acquired.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries (referred to collectively herein as the Company). All
significant intercompany transactions and balances have been eliminated in
consolidation. Accounting policies for all of the Company's operations are in
accordance with accounting principles generally accepted in the United States.
F-9
<PAGE> 112
NRG NORTHEAST GENERATING LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Use of Estimates in Financial Statements
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect reported amounts of assets and liabilities
at the date of the financial statements and reported amounts of revenue and
expenses during the reporting period. Actual results may differ from those
estimates.
Cash and Cash Equivalents
The Company considers cash and cash equivalents to include cash and
short-term investments with original maturities of three months or less.
Inventory
Inventory consists of spare parts, coal, fuel oil and kerosene and is
stated at the lower of weighted average cost or market (Note 5).
Prepaid Expenses
Prepaid expenses include insurance, taxes and other prepayments.
Derivative Financial Instruments
Hedge accounting is applied only if the derivative reduces the risk of the
underlying hedged item and is designated at inception as a hedge, with respect
to the hedged item. If a derivative ceased to meet the criteria for deferral,
any gains or losses would be currently recognized in income. The Company does
not hold or issue derivative financial instruments for trading purposes.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is computed
on a straight-line basis over the following estimated useful lives:
<TABLE>
<S> <C>
Facilities, machinery and equipment......................... 25 to 30 years
Office furnishings and equipment............................ 3 to 10 years
</TABLE>
At December 31, 1999 and June 30, 2000, property, plant and equipment
consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 JUNE 30, 2000
----------------- -------------
(UNAUDITED)
<S> <C> <C>
(IN THOUSANDS)
Facilities, machinery and equipment..................... $1,398,166 $1,402,455
Land.................................................... 53,009 52,479
Construction in progress................................ 25,764 37,034
Office furnishings and equipment........................ 570 1,205
Accumulated depreciation................................ (17,026) (41,072)
---------- ----------
Property, plant and equipment (net)..................... $1,460,483 $1,452,101
========== ==========
</TABLE>
F-10
<PAGE> 113
NRG NORTHEAST GENERATING LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Deferred Financing Costs
Deferred financing costs at December 31, 1999 and June 30, 2000 consisted
of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 JUNE 30, 2000
----------------- -------------
(UNAUDITED)
<S> <C> <C>
(IN THOUSANDS)
Deferred financing costs................................ $ 6,892 $8,925
Accumulated amortization................................ (3,664) (127)
------- ------
Net deferred financing costs............................ $ 3,228 $8,798
======= ======
</TABLE>
Deferred financing costs consist of legal and other costs incurred by the
Company to obtain short-term financing. These costs are being amortized over the
terms of the related short-term debt.
Revenue Recognition
Revenue and related costs are recorded as electricity is generated or
services are provided.
Power Marketing Activities
The Company's subsidiaries have entered into contracts with a marketing
affiliate for the sale of energy, capacity and ancillary services produced by
these subsidiaries, which enables the affiliate to engage in forward sales and
hedging transactions to manage the subsidiaries' electricity price exposure. Net
gains or losses on hedges by the marketing affiliate, which are physically
settled, are recognized in the same manner as the hedged item. The Company
receives the net transaction price on all contracts that are physically settled
by its marketing affiliate (Note 6).
Income Taxes
The net income or loss of the Company for income tax purposes, along with
any associated tax credits, is included in the tax returns of NRG. Accordingly,
no provision has been made for federal or state income taxes in the accompanying
financial statements.
As of December 31, 1999, the accompanying financial statements report a
balance of $1,460,483 for net property, plant and equipment. The tax basis of
this property is estimated to be $1,377,804. The primary difference is due to
accelerated tax depreciation.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standard Board issued Statement of
Financial Accounting Standard (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement requires that all
derivatives be recognized at fair value in the balance sheet, and that changes
in fair value be recognized either currently in earnings or deferred as a
component of Other Comprehensive Income, depending on the intended use of the
derivative, its resulting designation and its effectiveness. The Company plans
to adopt this standard in 2001, as required. The potential impact of
implementing this statement has not yet been determined.
In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities, an Amendment of FASB
Statement No. 133." This Statement exceeds SFAS 133 in four areas, normal
purchase and sales contracts, definition of interest rate risk, hedging
recognized foreign currency denominated assets and liabilities and hedging
foreign currency risk and
F-11
<PAGE> 114
NRG NORTHEAST GENERATING LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
intercompany derivatives. The Company plans to adopt the amendment, if required.
The potential impact of implementing this federal law has not been determined
(unaudited).
Interim Results (Unaudited)
Information as of and for the six months ended June 30, 2000 is unaudited.
The information as of and furnished in the unaudited June 30, 2000 Balance
Sheet, Statement of Income and Cash Flows include all material adjustments,
consisting only of normal recurring accruals, which are, in the opinion of
management, necessary for a fair presentation of such financial statements. The
data disclosed in these notes to the financial statements for this period is
also unaudited.
NOTE 3 -- SHORT TERM BORROWINGS
At December 31, 1999, the Company had $682.3 million in short-term
borrowings under its credit facility, which had a weighted average interest rate
of 6.86% for the period. The credit facility consists of a $646.6 million term
loan facility and a $35.7 million working capital revolving facility.
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 June 30,
2000, the Company has available $50 million under this facility (unaudited).
NOTE 4 -- LONG TERM DEBT
On February 22, 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 percent due in 2004; $130 million with an interest rate of 8.842 percent
due in 2015; and $300 million with an interest rate of 9.292 percent due in
2024. The Company used $646.6 million of the proceeds to repay short-term
borrowings outstanding at December 31, 1999; accordingly $646.6 million of
short-term debt has been reclassified as long-term debt based on the
refinancing.
NOTE 5 -- INVENTORY
At December 31, 1999 and June 30, 2000, inventory, which is stated at the
lower of weighted average cost or market, consisted of:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 JUNE 30, 2000
----------------- -------------
(UNAUDITED)
<S> <C> <C>
(IN THOUSANDS)
Fuel Oil................................................ $ 35,773 $ 57,211
Spare Parts............................................. 55,198 55,012
Coal.................................................... 15,497 14,608
Kerosene................................................ 1,395 1,181
Other................................................... 399 377
-------- --------
Total.............................................. $108,262 $128,389
======== ========
</TABLE>
NOTE 6 -- RELATED PARTY TRANSACTIONS
The Company's subsidiaries have entered into power sales and agency
agreements with NRG Power Marketing Inc., a wholly-owned subsidiary of NRG. The
agreements are effective until December 31, 2030. Under the agreements, NRG
Power Marketing Inc. will (i) have the exclusive right to manage, market and
sell all power not otherwise sold or committed to or by such subsidiaries, (ii)
procure and provide to such
F-12
<PAGE> 115
NRG NORTHEAST GENERATING LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- RELATED PARTY TRANSACTIONS -- (CONTINUED)
subsidiaries all fuel required to operate their respective facilities and (iii)
market, sell and purchase all emission credits owned, earned or acquired by such
subsidiaries. In addition, NRG Power Marketing Inc. will have the exclusive
right and obligation to effect the direction of the power output from the
facilities.
Under the agreements, NRG Power Marketing Inc. pays to the subsidiaries
gross receipts generated through sales, less costs incurred by NRG Power
Marketing Inc. relative to its providing services (e.g. transmission and
delivery costs, fuel cost, taxes, employee labor, contract services, etc.).
During 1999 and for the six months ended June 30, 2000, the Company
recorded gross receipts less costs incurred from NRG Power Marketing Inc.
totaling $174.8 million and $291.6 million (unaudited), respectively.
The Company's subsidiaries have entered into operation and maintenance
agreements with subsidiaries of NRG Operating Services, Inc., a wholly-owned
subsidiary of NRG ("NRG Operating Services"). The agreements are effective for
five years, with options to extend beyond five years. Under the agreements, the
NRG Operating Services company operator operates and maintains its respective
facility, including (i) coordinating fuel delivery, unloading and inventory,
(ii) managing facility spare parts, (iii) meeting external performance standards
for transmission of electricity, (iv) providing operating and maintenance
consulting and (v) cooperating with and assisting the Company in performing the
Company's obligations under agreements related to its facilities.
Under the agreements, the operator will be reimbursed for usual and
customary costs related to providing the services including plant labor and
other operating costs. A demobilization payment will be made if the subsidiary
elects not to renew the agreement. There are also incentive fees and penalties
based on performance under the approved operating budget, the heat rate and
safety.
During 1999 and for the six months ended June 30, 2000, the Company
incurred operating and maintenance costs billed from NRG Operating Services
totaling $42.7 million and $78.0 million (unaudited), respectively.
The Company's subsidiaries have entered into agreements with NRG for
corporate support and services. The agreements are perpetual in term, unless
terminated in writing by a subsidiary. Under the agreements, NRG will provide
services, as requested, in areas such as human resources, accounting, finance,
treasury, tax, office administration, information technology, engineering,
construction management, environmental, legal and safety. Under the agreements,
NRG is paid for personnel time as well as out-of-pocket costs.
During 1999 and for the six months ended June 30, 2000, the Company paid
NRG approximately $1.0 million and $1.5 million (unaudited) for corporate
support and services, respectively.
Under the terms and conditions of the Company's recently completed bond
offering of $750 million, the Company is obligated to establish a debt service
reserve account for the benefit of the bond holders. This account must contain a
sufficient amount of cash to pay the projected principal and interest on the
bonds due in the next six months. The Company and NRG have entered into an
agreement that provides for an unconditional guarantee of the payment of at
least six-months of projected principal and interest on the bonds. This
guarantee precludes the Company from having to fund the debt service reserve
account with cash. NRG provides this service to the Company and its other
subsidiaries without cost.
NOTE 7 -- BENEFIT PLANS
The Company does not have any employees. The employees at each of the
operating facilities are employed by NRG Operating Services. The Company has
contracted with NRG Operating Services to
F-13
<PAGE> 116
NRG NORTHEAST GENERATING LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7 -- BENEFIT PLANS -- (CONTINUED)
operate each facility (Note 6). Many of the operating employees were formerly
employed by the previous owner of that facility.
PENSION BENEFITS -- 1999 ACQUISITIONS
During 1999, subsidiaries of the Company acquired several generating assets
and assumed benefit obligations for a number of employees associated with those
acquisitions. The benefit obligations included noncontributory defined benefit
pension formulas, matched 401(k) savings plans and contributory post-retirement
welfare plans. Approximately 56 percent of the benefit employees are represented
by eight local labor unions under collective bargaining agreements, which expire
between 2000 and 2003.
NRG Operating Services sponsors one noncontributory defined benefit pension
plan that covers most of the employees associated with the 1999 acquisitions.
Generally, the benefits are based on a combination of years of service, the
final average pay and Social Security benefits. The benefit plan data is shown
below, as the Company will be required to fund the plan under its agreement with
NRG Operating Services.
<TABLE>
<CAPTION>
COMPONENTS OF NET PERIODIC BENEFIT COST
DECEMBER 31,
1999
(THOUSANDS OF DOLLARS) ------------
<S> <C>
Service cost benefits earned................................ $ 968
Interest cost on benefit obligation......................... 1,115
Expected return on plan assets.............................. (1,193)
--------
Net periodic (benefit) cost............................ $ 890
========
RECONCILIATION OF FUNDED STATUS
(THOUSANDS OF DOLLARS) 1999
--------
Benefit obligation at beginning of year..................... $ 24,954
Additional acquisitions during the year..................... 27,330
Service cost................................................ 968
Interest cost............................................... 1,115
Plan amendments............................................. --
Actuarial gain.............................................. (1,098)
Benefit payments............................................ (403)
--------
Benefit obligation at Dec. 31.......................... $ 52,866
========
Fair value of plan assets at beginning of year.............. $ 24,905
Additional assets transferred............................... 10,070
Actual return on plan assets................................ 3,091
Benefit payments............................................ (403)
--------
Fair value of plan assets at Dec. 31................... $ 37,663
========
Funded status at Dec. 31- excess of assets over
obligation................................................ $(15,203)
Unrecognized transition (asset) obligation.................. --
Unrecognized prior service cost............................. --
Unrecognized net gain....................................... (2,996)
--------
(Accrued) Prepaid benefit obligation at Dec. 31............. $(18,199)
</TABLE>
F-14
<PAGE> 117
NRG NORTHEAST GENERATING LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7 -- BENEFIT PLANS -- (CONTINUED)
<TABLE>
<CAPTION>
COMPONENTS OF NET PERIODIC BENEFIT COST
DECEMBER 31,
1999
(THOUSANDS OF DOLLARS) ------------
<S> <C>
AMOUNT RECOGNIZED IN THE BALANCE SHEET
(THOUSANDS OF DOLLARS) 1999
--------
Prepaid benefit cost........................................ --
Accrued benefit liability................................... $(18,199)
--------
Net amount recognized -- (Accounts
payable -- affiliates)................................ $(18,199)
</TABLE>
The weighted average discount rate used in determining the actuarial
present value of the projected benefit obligation was 7.5% for December 31,
1999. The rate of increase in future compensation levels used in determining the
actuarial present value of the projected obligation was 4.5% for nonunion
employees and 3.50% for union employees. The assumed long-term rate of return on
assets used for cost determination was 8.5% for 1999.
POSTRETIREMENT HEALTH CARE
Under its agreement with NRG Operating Services, the Company assumed
postretirement health care benefits for some of the employees associated with
the 1999 acquisitions. The plan enables the Company and the retirees to share
the costs of retiree health care. The cost sharing varies by acquisition group
and collective bargaining agreements. There are no existing Company retirees
under these plans as of December 31, 1999. Complete valuation data is not
available for some of these groups. The estimated net periodic postretirement
benefit cost for 1999 is $0.85 million. The estimated accumulated postretirement
benefit obligation is $12 million at December 31, 1999.
401(k) PLANS
Under its agreement with NRG Operating Services, the Company established
several contributory defined contribution employee savings plans as a result of
its 1999 acquisition activity. These plans comply with Section 401(k) of the
Internal Revenue Code of 1986, as amended, and cover substantially all of the
NRG Operating Service's employees who are not covered by NSP's 401(k) Plan. The
Company matches specified amounts of employee contributions to the plan.
Employer contributions made to the Company's plans were approximately $0.31
million in 1999.
NOTE 8 -- SALES TO SIGNIFICANT CUSTOMERS
During 1999, sales to three customers accounted for 35.0%, 33.0% and 17.6%
of total revenues in 1999. During 1999, the Company entered into transition
agreements with these customers providing for the sale of energy, capacity and
other ancillary services generated from certain electric generating facilities
recently acquired from these customers and others. These agreements generally
range from four to ten years in duration. For the six months ended June 30,
2000, sales to three customers accounted for 39%, 31% and 17% of total revenues
(unaudited).
NOTE 9 -- DERIVATIVE FINANCIAL INSTRUMENTS
During the third quarter of 1999, the Company entered into $600 million of
"treasury locks," at various interest rates, which expired in February 2000. The
current market value of these hedges totaled approximately $19.2 million at
December 31, 1999. These treasury locks were an interest rate hedge for the
Company's bond offering that was completed on February 22, 2000. Upon
termination of the treasury locks the Company realized a gain of $21.4 million
which was deferred and is being amortized into income over the term of the
related bonds (unaudited). The proceeds of this bond offering were used to pay
down borrowings under the Company's existing short-term credit facility (Note 3
and Note 4).
F-15
<PAGE> 118
NRG NORTHEAST GENERATING LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9 -- DERIVATIVE FINANCIAL INSTRUMENTS -- (CONTINUED)
Management believes that the Company's exposure to credit risk due to
nonperformance by the counterparties to its hedging contracts is insignificant,
based on the investment grade rating of the counterparties.
NOTE 10 -- CONTINGENT REVENUES
During 1999, the first year of electricity deregulation in the state of New
York, the Company had claims related to certain revenues earned during the
period April 27, 1999 to December 31, 1999. The Company is actively pursuing
resolution and/or collection of these amounts, which totaled approximately $8.9
million as of December 31, 1999. 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. The contingent revenues relate to
interpretation of certain transition power sales agreements and to sales to the
New York Power Pool ("NYPP") and New England Power Pool ("NEPOOL"), conflicting
meter readings, pricing of firm sales and other power pool reporting issues.
Retroactive Market Cap (Unaudited)
On March 30, 2000, the Company received notification from the New York
Independent System Operator (NYISO) of their 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, FERC approved the NYISO's request to impose price
limitations on one ancillary service, Ten Minute Non-Synchronized Reserve
(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's 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. On June 30, 2000, the NYISO appealed the FERC's decision.
NOTE 11 -- COMMITMENTS AND CONTINGENCIES
Environmental
On October 14, 1999, Governor Pataki of New York announced that he is
ordering the New York Department of Environmental Conservation ("NYDEC") to
require further reductions of sulfur dioxide ("SO(2)") emissions and nitrogen
oxide ("NO(x)") emissions from New York power plants, beyond that which is
required under current Federal and state law. The additional reduction
requirement would be phased in between January 1, 2003 and January 1, 2007.
Compliance with these emissions reductions requirements, if they become
effective, could have a material impact on the operation of the Company's
subsidiaries that own certain New York facilities.
In a letter dated October 12, 1999, the Office of the Attorney General from
the State of New York alleged that, based on a preliminary analysis, it believes
major modifications were made to the Huntley and Dunkirk facilities during
NiMo's ownership of those facilities without obtaining appropriate air permits.
The Company has no reason to believe that NiMo did not comply with the
preconstruction permit requirements for the facilities, and, accordingly, cannot
predict the outcome of this investigation or its financial exposure related to
the claim.
As a result of alleged historical noncompliance with environmental laws and
regulations, ConEd, the former owner of the Arthur Kill and Astoria facilities,
executed a series of consent orders with the NYDEC
F-16
<PAGE> 119
NRG NORTHEAST GENERATING LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 11 -- COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
commencing in 1993. The consent orders imposed a number of obligations on ConEd,
including, but not limited to:
- the evaluation of the impact of water intake screens on aquatic species;
- the investigation and remediation of spills and releases of petroleum and
transformer fluids;
- the evaluation of wastewater discharge points to determine if all such
locations have been permitted;
- the inspection and evaluation of above ground petroleum storage tanks and
performance of testing associated with underground pipelines associated
with the storage tanks; and
- compliance with air pollution requirements related to visible emissions.
The ConEd consent orders include provisions establishing stipulated
penalties for violations of the orders. In connection with the acquisition of
the Arthur Kill and Astoria facilities, Arthur Kill Power and Astoria Gas
Turbine Power assumed certain remaining obligations under the consent orders to
the extent the orders apply to those facilities. These subsidiaries are
currently negotiating a consent order with the NYDEC to memorialize the
commitment they are assuming relative to the ConEd consent orders.
As a result of alleged violations of opacity, or visible emission,
standards at the Huntley, Dunkirk and Oswego facilities, NiMo, the former owner
and operator of these facilities, was in the process of negotiating a consent
order with NYDEC to resolve such violations at the time we acquired such
facilities. Under the terms of the asset purchase agreements, NiMo will be
responsible for any and all exceedences which occurred prior to the closing of
the transactions contemplated in the asset purchase agreements. The Company's
subsidiaries which own these facilities have agreed, in connection with their
acquisition of these facilities, to enter into separate consent orders for each
facility to address on-going and potential future violations of opacity
standards. The Company believes that almost all of the opacity exceedences at
the Dunkirk and Oswego facilities are non-preventable events occurring as a
result of startups and shutdowns at those facilities that should not be subject
to penalties under the New York regulations. These subsidiaries are currently in
discussions with the NYDEC regarding this issue. Opacity exceedences at the
Huntley Facility are also under discussion with NYDEC.
Environmental site agreements have been prepared for all of the recently
acquired assets. The remediation activities at the Arthur Kill, Astoria Gas
Turbine and Somerset facilities are still in the study phase. As such, the
remediation cost estimates are based on approaches that have not been approved
yet by the regulatory agencies involved. Data for additional investigations
performed at the Astoria Gas Turbine station and the approach being taken at the
Somerset Station may result in less costly remediation efforts than originally
estimated.
For the Connecticut facilities, the Company is planning to conduct
additional studies to better quantify remedial need. Such studies include the
preparation of risk assessments to justify remedial actions proposed by the
Company to the Connecticut Department of Environmental Protection and the United
States Environmental Protection Agency.
The Company has recorded approximately $5.8 million for expected
environmental costs related to site remediation issues at the Arthur Kill,
Astoria and Somerset facilities. These amounts are based on the environmental
assessments for these sites.
The Company has budgeted approximately $44 million for capital expenditure
between 2000 and 2004 for environmental compliance, which includes the above
remedial investigations, the installation of NO(x) control technology at the
Somerset facility, intake screens at the Dunkirk facility, the resolution of
consent orders for
F-17
<PAGE> 120
NRG NORTHEAST GENERATING LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 11 -- COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
remediation at the Arthur Kill and Astoria facilities and the resolution of
consent orders for water intake at the Arthur Kill facility.
Contractual Commitments
Upon the closing of the acquisition of the generating facilities now owned
by Arthur Kill Power and Astoria Gas Power, Arthur Kill Power and Astoria Gas
Turbine Power entered into agreements with ConEd, the previous owner of the
generating facilities. The agreements obligate Arthur Kill Power and Astoria Gas
Turbine Power to maintain specified levels of generating capability and
availability. ConEd will be billed for the electricity capacity sold to it and
ConEd will bill the respective subsidiary for any capacity deficiency should
capacity be unavailable when called on by ConEd.
For the next four years, the Company estimates that a significant portion
of the total revenues from the Dunkirk and Huntley facilities will be derived
from four-year transition contracts for capacity and energy. All forward
capacity is sold to NiMo during the transition period, with the remainder of
energy sold to the New York ISO. Each of the following agreements was executed
on June 11, 1999 and extends for a term of four years.
NRG Power Marketing has entered into an agreement with NiMo to hedge NiMo's
transition to market rates. Under the agreement, NiMo will pay a fixed monthly
price for the capacity and ancillary services provided by NRG Power Marketing.
NRG Power Marketing will pay to NiMo the market price for the related capacity
and ancillary services delivered.
NRG Power Marketing has entered into a swap agreement with NiMo to hedge
NiMo's transition to market rates. In accordance with the agreement, NiMo will
pay to NRG Power Marketing a fixed monthly price for the capacity and ancillary
services provided to NiMo related to Dunkirk units 1, 2, 3 and 4 and Huntley
units 67 and 68. NRG Power Marketing will pay to NiMo the market price for such
services.
NiMo may also exercise a call option for an additional swap under which
NiMo will nominate certain amounts of energy for the Dunkirk and Huntley
facilities and will pay to NRG Power Marketing an amount for such energy
determined in accordance with the nominated unit's heat rate curve. NRG Power
Marketing will pay to NiMo the market rates for such energy at the time the
energy was nominated.
Huntley Power has entered into two agreements with NiMo that gives NiMo the
option to purchase certain quantities of energy generated by Huntley units 65
and 66, during the summer and winter months and Huntley units 67 and 68 during
peak and off peak summer hours.
Oswego Power has entered into a 4-year transition power sales contract with
NiMo in order to hedge NiMo's transition to market rates. Under the agreement,
NiMo will pay to Oswego Power a fixed monthly price plus start up fees for the
right to claim, at a specified delivery point(s), the installed capacity of unit
5 and for the right to exercise an option for an additional 350 MW of installed
capacity.
NRG Power Marketing has entered into a wholesale standard offer service
agreement with Blackstone Valley Electric Company, Eastern Edison Company and
Newport Electric Corporation (collectively the EUA Company's). Under the
agreement, NRG Power Marketing is obligated to provide each of the EUA Company's
with firm all-requirements electric service, including capacity, energy,
reserves, line losses and related services necessary to serve a specified share
of the aggregate load attributable to retail customers taking standard offer
service. The price the EUA Company's pay to NRG Power Marketing for each unit of
electricity is a fixed price plus a fuel adjustment factor.
NRG Power Marketing has entered into a standard offer service wholesale
sales agreement with CL&P pursuant to which NRG Power Marketing will supply CL&P
at fixed prices a specified share of a portion of
F-18
<PAGE> 121
NRG NORTHEAST GENERATING LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 11 -- COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
CL&P's aggregate retail load. The quantity of power to be supplied is equal to
35% of CL&P's standard offer service load during calendar year 2000, 40% during
calendar years 2001 and 2002 and 45% during calendar year 2003.
NRG Power Marketing is responsible for delivering the contracted power to a
mutually agreed upon delivery point, at which point title to and liability for
the electricity passes to CL&P. NRG Power Marketing is also responsible for
forecasting for the purposes of meeting its supply obligation and for all the
Independent System Operator (ISO) and the NEPOOL charges and expenses in
connection with the delivery of power. CL&P is responsible for arranging all
delivery services for electricity from the delivery point to retail customers.
The agreement also requires NRG Power Marketing to either (i) be a member
of the NEPOOL or (ii) have a contract with a member of the NEPOOL for the
duration of the term of the agreement which commences on January 1, 2000 and
expires on December 31, 2003.
Litigation:
On or about July 12, 1999, Fortistar Capital Inc., a Delaware corporation
("Fortistar"), filed a Complaint in District Court (Fourth Judicial District,
Hennepin County) in Minnesota against NRG, asserting claims for injunctive
relief and for damages as a result of NRG's alleged breach of a letter agreement
with Fortistar relating to the Oswego Facility. NRG disputes Fortistar's
allegations and has asserted numerous counterclaims.
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's intention to close on that date. On
January 14, 2000, the court denied Fortistar's request for a temporary
injunction. NRG intends to continue to vigorously defend the suit and believes
Fortistar's claims to be without 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 regulated 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 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
(unaudited).
F-19
<PAGE> 122
MIDDLETOWN POWER LLC
FINANCIAL STATEMENTS
F-20
<PAGE> 123
REPORT OF INDEPENDENT ACCOUNTANTS
To the Management Committee
Of Middletown Power LLC:
In our opinion, the accompanying balance sheet and the related statement of
operations, of members' equity and of cash flows present fairly, in all material
respects, the financial position of Middletown Power LLC at December 31, 1999,
and the results of their operations and their cash flows for the period from
December 17, 1999 (Inception) through December 31, 1999 in conformity with
accounting principles generally accepted in the United States. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Minneapolis, MN
July 14, 2000
F-21
<PAGE> 124
MIDDLETOWN POWER LLC
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Balance Sheets.............................................. F-23
Statements of Operations.................................... F-24
Statements of Cash Flows.................................... F-25
Statement of Member's Equity................................ F-26
Notes to Financial Statements............................... F-27
</TABLE>
F-22
<PAGE> 125
MIDDLETOWN POWER LLC
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, 1999 JUNE 30, 2000
----------------- -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
(IN THOUSANDS)
CURRENT ASSETS:
Cash and cash equivalents................................. $ 2 $ 2
Accounts receivable....................................... 2,520 20,151
Inventory................................................. 17,024 17,126
Prepaid expenses and other current assets................. 379 5
-------- --------
Total current assets.............................. 19,925 37,284
Property, plant & equipment, net (Note 2)................. 212,553 209,324
Debt issuance costs, net of accumulated amortization of $0
and $12................................................ -- 814
-------- --------
Total assets...................................... $232,478 $247,422
======== ========
LIABILITIES AND MEMBER'S EQUITY
LIABILITIES:
Current liabilities:
Accounts payable -- trade.............................. $ -- $ 33
Notes payable -- affiliates, current................... -- 8,762
Checks in excess of cash............................... -- 168
Accounts payable -- affiliates......................... 5,157 13,843
Accrued interest....................................... -- 249
Accrued fuel and purchased power expense............... -- 3,052
Other accrued liabilities.............................. 156 3,279
-------- --------
Total current liabilities......................... 5,313 29,386
Notes payable -- affiliates............................ -- 60,588
-------- --------
Total liabilities................................. 5,313 89,974
Member's equity........................................ 227,165 157,448
-------- --------
Total liabilities and member's equity............. $232,478 $247,422
======== ========
</TABLE>
See accompanying notes to financial statements.
F-23
<PAGE> 126
MIDDLETOWN POWER LLC
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE SIX
DECEMBER 17, 1999 (INCEPTION) MONTHS ENDED
TO DECEMBER 31, 1999 JUNE 30, 2000
----------------------------- -------------
(THOUSANDS OF DOLLARS) (UNAUDITED)
<S> <C> <C>
Revenues.............................................. $2,520 $70,235
Operating Costs....................................... 1,256 64,284
------ -------
Operating margin................................. 1,264 5,951
Depreciation and Amortization......................... 309 3,531
General and Administrative Expenses................... 11 618
------ -------
Income from operations........................... 944 1,802
Interest expense...................................... -- 2,171
Other income, net..................................... -- (2)
------ -------
Net income....................................... $ 944 $ (367)
====== =======
</TABLE>
See accompanying notes to financial statements.
F-24
<PAGE> 127
MIDDLETOWN POWER LLC
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE SIX
DECEMBER 17, 1999 (INCEPTION) MONTHS ENDED
TO DECEMBER 31, 1999 JUNE 30, 2000
----------------------------- -------------
(THOUSANDS OF DOLLARS) (UNAUDITED)
<S> <C> <C>
Cash Flow from operating activities:
Net income............................................ $ 944 $ (367)
Adjustments to reconcile net income to net cash
provided from operating activities:
Depreciation and amortization....................... 309 3,531
Amortization of deferred financing costs............ -- 12
Changes in assets and liabilities:
Accounts receivable.............................. (2,520) (17,631)
Inventories...................................... -- (102)
Accrued fuel and purchased power expense......... -- 3,052
Prepaid expenses................................. 714 374
Accounts payable -- affiliates................... 677 8,686
Accounts payable -- trade........................ -- 33
Accrued interest................................. -- 249
Other current liabilities........................ 91 3,123
--------- --------
Net cash provided by operating activities...... 215 960
Cash flows from investing activities:
Business acquisition, net of liabilities assumed.... (225,815) --
Capital expenditures................................ (619) (302)
--------- --------
Net cash used in investing activities.......... (226,434) (302)
Cash flows from financing activities:
Proceeds of debt issuance........................ -- 69,350
Deferred financing costs......................... -- (826)
Checks in excess of cash......................... -- 168
Distributions to members......................... -- (69,350)
Contributions by members............................ 226,221 --
--------- --------
Net cash flows provided by financing
activities.................................. 226,221 (658)
--------- --------
Net increase in cash and cash equivalents............. 2 --
Cash and cash equivalents at beginning of period...... -- 2
--------- --------
Cash and cash equivalents at end of period............ $ 2 $ 2
========= ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid (net of amount capitalized)............. $ -- $ 1,910
</TABLE>
See accompanying notes to financial statements.
F-25
<PAGE> 128
MIDDLETOWN POWER LLC
STATEMENT OF MEMBER'S EQUITY
<TABLE>
<CAPTION>
(THOUSANDS OF DOLLARS)
<S> <C>
Balance, December 17, 1999 (Inception)...................... $ --
Contributions............................................. 226,221
Net Income................................................ 944
--------
Balance, December 31, 1999.................................. $227,165
========
Distributions (Unaudited)................................. (69,350)
Net Income (Unaudited).................................... (367)
--------
Balance, June 30, 2000 (Unaudited).......................... $157,448
========
</TABLE>
See accompanying notes to financial statements.
F-26
<PAGE> 129
MIDDLETOWN POWER LLC
NOTES TO FINANCIAL STATEMENTS
Middletown Power LLC ("the Company"), a wholly-owned subsidiary of NRG
Northeast Generating LLC ("NRG Northeast") owns and operates the approximately
856 Megawatt ("MW"), four unit, natural gas/oil fired intermediate/peaking
electric generating facility located in Middletown, Connecticut.
NRG Northeast, a wholly-owned indirect subsidiary of NRG Energy, Inc.
("NRG"), owns electric power generation plants in the northeastern region of the
United States. NRG Northeast was formed for the purpose of financing, acquiring,
owning, operating and maintaining, through its subsidiaries and affiliates the
electric generating 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.
As of December 31, 1999, NRG Northeast held a 99% interest in Arthur Kill
Power LLC, Astoria Gas Turbine Power LLC, Dunkirk Power LLC, Huntley Power LLC,
Oswego Harbor Power LLC and Somerset Power LLC. Northeast Generation Holding LLC
and NRG Eastern LLC each held a minority interest of 0.5% in Arthur Kill Power
LLC, Astoria Gas Turbine Power LLC, Dunkirk Power LLC, Huntley Power LLC, Oswego
Harbor Power LLC and Somerset Power LLC. Northeast Generation Holding LLC and
NRG Eastern LLC are wholly-owned subsidiaries of NRG Energy, Inc.
NRG Connecticut Generating LLC, a wholly owned subsidiary of NRG, owned
100% of Connecticut Jet Power LLC, Devon Power LLC, Middletown Power LLC,
Montville Power LLC and Norwalk Harbor Power LLC.
Effective January 1, 2000, the minority ownership interests held by
Northeast Generation Holding LLC and NRG Eastern LLC as well as the ownership
interests held by NRG Connecticut Generating LLC were transferred to NRG
Northeast. Since all assets and operations were under common ownership and
control since April 27, 1999 (Inception of NRG Northeast), the financial
statements have been presented on a combined basis without minority interest.
Additional information regarding NRG Northeast and the Company can be found
in NRG's Form 10-K for the twelve months ended December 31, 1999.
NOTE 1 -- BUSINESS DEVELOPMENTS
In December 1999, the Middletown facilities were acquired from Connecticut
Light and Power Company ("CL&P") for approximately $225.8 million. The four
natural gas/oil fired facilities are located in Middletown, Connecticut, and
have a capacity of 856 MW.
The acquisition was accounted for as the purchase of assets. The aggregate
purchase price was allocated among the assets acquired and liabilities assumed
in the following amounts based on a draft appraisal prepared in January 2000:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
ASSETS
Inventory................................................. $ 17,024
Other current assets...................................... 1,093
Property, plant and equipment............................. 212,243
--------
Total Assets................................................ 230,360
LIABILITIES
Accounts payable -- affiliates............................ 4,480
Other current liabilities................................. 65
--------
Total Liabilities........................................... 4,545
NET ASSETS ACQUIRED......................................... $225,815
========
</TABLE>
F-27
<PAGE> 130
MIDDLETOWN POWER LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates in Financial Statements
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect reported amounts of assets and liabilities
at the date of the financial statements and reported amounts of revenue and
expenses during the reporting period. Actual results may differ from those
estimates.
In recording transactions and balances resulting from business operations,
the Company uses estimates based on the best information available. Estimates
are used for such items as plant depreciable lives, uncollectible accounts and
actuarially determined benefit costs, among others. As better information
becomes available (or actual amounts are determinable), the recorded estimates
are revised. Consequently, operating results can be affected by revisions to
prior accounting estimates.
Cash and Cash Equivalents
The Company considers cash and cash equivalents to include cash and
short-term investments with original maturities of three months or less.
Inventory
Inventory consists of spare parts and fuel oil and is stated at the lower
of weighted average cost or market (Note 4).
Prepaid Expenses
Prepaid expenses include insurance, taxes and other prepayments.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is computed
on a straight-line basis over the following estimated useful lives:
<TABLE>
<S> <C>
Facilities, machinery and equipment......................... 25 to 30 years
Office furnishings and equipment............................ 3 to 10 years
</TABLE>
At December 31, 1999 and June 30, 2000 property, plant and equipment
consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 JUNE 30, 2000
----------------- -------------
(UNAUDITED)
<S> <C> <C>
(IN THOUSANDS)
Facilities, machinery and equipment............ $208,881 $209,465
Land........................................... 1,119 1,119
Construction in progress....................... 2,825 2,450
Office furnishings and equipment............... 37 130
Accumulated depreciation....................... (309) (3,840)
-------- --------
Property, plant and equipment (net)............ $212,553 $209,324
======== ========
</TABLE>
Revenue Recognition
Revenue and related costs are recorded as electricity is generated or
services are provided.
Power Marketing Activities
The Company has entered into a contract with a marketing affiliate for the
sale of energy, capacity and ancillary services produced, which enables the
affiliate to engage in forward sales and hedging transactions to manage the
Company's electricity price exposure. Net gains or losses on hedges by the
marketing affiliate,
F-28
<PAGE> 131
MIDDLETOWN POWER LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
which are physically settled, are recognized in the same manner as the hedged
item. The Company receives the net transaction price on all contracts that are
physically settled by its marketing affiliate.
Income Taxes
The net income or loss of the Company for income tax purposes, along with
any associated tax credits, is included in the tax returns of NRG. Accordingly,
no provision has been made for federal or state income taxes in the accompanying
financial statements.
As of December 31, 1999, the accompanying financial statements report a
balance of $212,553 for net property, plant and equipment. The tax basis of this
property is estimated to be $204,684. The primary difference is due to
accelerated tax depreciation.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standard Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities." This statement requires that all
derivatives be recognized at fair value in the balance sheet, and that changes
in fair value be recognized either currently in earnings or deferred as a
component of Other Comprehensive Income, depending on the intended use of the
derivative, its resulting designation and its effectiveness. The Company plans
to adopt this standard in 2001, as required. The potential impact of
implementing this statement has not yet been determined.
In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities, an Amendment of FASB
Statement No. 133." This Statement amends SFAS 133 in four areas, normal
purchases and sales contracts, definition of interest rate risk, hedging
recognized foreign currency denominated assets and liabilities and hedging
foreign currency risk and intercompany derivatives. The Company plans to adopt
the standard, as required. The potential impact of implementing this standard
has not been determined.
Interim Results (Unaudited)
Information as of and for the six months ended June 30, 2000 is unaudited.
The information as of and furnished in the unaudited June 30, 2000 Balance
Sheet, Statement of Income and Cash Flows include all material adjustments,
consisting only of normal recurring accruals, which are, in the opinion of
management necessary for a fair presentation of such financial statements. The
data disclosed in these notes to the financial statements for this period is
also unaudited.
NOTE 3 -- LONG TERM DEBT
On February 22, 2000, NRG Northeast 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 percent due in 2004; $130 million with an interest rate of 8.842 percent
due in 2015; and $300 million with an interest rate of 9.292 percent due in
2024. NRG Northeast used $646.6 million of the proceeds to repay short-term
borrowings outstanding at December 31, 1999; accordingly $646.6 million of
short-term debt has been reclassified as long-term debt based on the
refinancing. Each of the subsidiaries of NRG Northeast, of which the Company is
one, jointly and severally guarantee the bonds. The bonds are secured by a
security interest in NRG Northeast's membership or other ownership interest in
its subsidiaries that guarantee the bonds; NRG Northeast's rights under all
intercompany notes between it and its subsidiaries, the power sales and agency
agreements, the operations and maintenance agreements, the corporate services
agreements, the transition power sales contracts entered into by NRG Northeast
and its subsidiaries and the funds administration agreement; the debt service
reserve account; and the revenues from certain power sales contracts entered
into by NRG Power Marketing
F-29
<PAGE> 132
MIDDLETOWN POWER LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 -- LONG TERM DEBT -- (CONTINUED)
associated with existing or future facilities owned by NRG Northeast or its
subsidiaries. A portion of the interest expense related to these bonds will be
recognized as part of the Company's results of operations.
NOTE 4 -- INVENTORY
At December 31, 1999 and June 30, 2000, inventory, which is stated at the
lower of weighted average cost or market, consisted of:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 JUNE 30, 2000
----------------- -------------
(UNAUDITED)
<S> <C> <C>
(IN THOUSANDS)
Fuel Oil....................................... $12,342 $12,417
Spare Parts.................................... 4,682 4,709
------- -------
Total..................................... $17,024 $17,126
======= =======
</TABLE>
NOTE 5 -- RELATED PARTY TRANSACTIONS
On December 15, 1999 the Company entered into a power sales and agency
agreement with NRG Power Marketing Inc., a wholly-owned subsidiary of NRG. The
agreement is effective until December 31, 2030. Under the agreement, NRG Power
Marketing Inc. will (i) have the exclusive right to manage, market and sell all
power not otherwise sold or committed to or by the Company, (ii) procure and
provide to the Company all fuel required to operate its respective facilities
and (iii) market, sell and purchase all emission credits owned, earned or
acquired by the Company. In addition, NRG Power Marketing Inc. will have the
exclusive right and obligation to effect the direction of the power output from
the facilities.
Under the agreement, NRG Power Marketing Inc. pays to the Company gross
receipts generated through sales, less costs incurred by NRG Power Marketing
Inc. relative to its providing services (e.g. transmission and delivery costs,
fuel cost, taxes, employee labor, contract services, etc.).
During 1999 and for the six months ended June 30, 2000, the Company
recorded gross receipts less costs incurred from NRG Power Marketing Inc.
totaling $2.5 million and $15.3 million, respectively.
On December 15, 1999 the Company entered into an operation and maintenance
agreement with a subsidiary of NRG Operating Services, Inc., a wholly-owned
subsidiary of NRG ("NRG Operating Services"). The agreement is effective for
five years, with options to extend beyond five years. Under the agreement, the
NRG Operating Services company operator operates and maintains its respective
facility, including (i) coordinating fuel delivery, unloading and inventory,
(ii) managing facility spare parts, (iii) meeting external performance standards
for transmission of electricity, (iv) providing operating and maintenance
consulting and (v) cooperating with and assisting the Company in performing the
Company's obligations under agreements related to its facilities.
Under the agreement, the operator will be reimbursed for usual and
customary costs related to providing the services including plant labor and
other operating costs. A demobilization payment will be made if the subsidiary
elects not to renew the agreement. There are also incentive fees and penalties
based on performance under the approved operating budget, the heat rate and
safety.
During 1999 and for the six months ended June 30, 2000, the Company
incurred operating and maintenance costs billed from NRG Operating Services
totaling $1.2 million and $8.5 million, respectively.
On December 15, 1999 the Company entered into an agreement with NRG for
corporate support and services. The agreement is perpetual in term, unless
terminated in writing. Under the agreement, NRG will provide services, as
requested, in areas such as human resources, accounting, finance, treasury, tax,
office
F-30
<PAGE> 133
MIDDLETOWN POWER LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5 -- RELATED PARTY TRANSACTIONS -- (CONTINUED)
administration, information technology, engineering, construction management,
environmental, legal and safety. Under the agreement, NRG is paid for personnel
time as well as out-of-pocket costs.
During 1999, the Company did not incur any costs for corporate support and
services. For the six months ended June 30, 2000, the Company incurred $0.08
million for corporate support and services, respectively.
NOTE 6 -- BENEFIT PLANS
The Company does not have any employees. The employees at the operating
facility are employed by NRG Operating Services. NRG Northeast has contracted
with NRG Operating Services to operate the facility (Note 5). Many of the
operating employees were formerly employed by the previous owner of the
facility.
PENSION BENEFITS -- 1999 ACQUISITIONS
During 1999, subsidiaries of NRG Northeast acquired several generating
assets and assumed benefit obligations for a number of employees associated with
their acquisitions of generating assets. The benefit obligations included
noncontributory defined benefit pension formulas, matched 401(k) savings plans
and contributory post-retirement welfare plans. Approximately 56 percent of the
benefit employees are represented by eight local labor unions under collective
bargaining agreements, which expire between 2000 and 2003.
NRG Operating Services sponsors one noncontributory defined benefit pension
plan that covers most of the employees associated with the 1999 acquisitions.
Generally, the benefits are based on a combination of years of service, the
final average pay and Social Security benefits. The benefit plan data is shown
below, as NRG Northeast and its respective subsidiaries, including the Company,
will be required to fund the plan under its agreement with NRG Operating
Services.
<TABLE>
<CAPTION>
NRG
NORTHEAST MIDDLETOWN
PLAN PORTION
1999 1999
------------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
COMPONENTS OF NET PERIODIC BENEFIT COST
Service cost benefits earned................................ $ 968 $ 22
Interest cost on benefit obligation......................... 1,115 --
Expected return on plan assets.............................. (1,193) --
-------- -------
Net periodic (benefit) cost............................ $ 890 $ 22
======== =======
</TABLE>
F-31
<PAGE> 134
MIDDLETOWN POWER LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- BENEFIT PLANS -- (CONTINUED)
<TABLE>
<CAPTION>
NRG
NORTHEAST MIDDLETOWN
PLAN PORTION
1999 1999
------------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
RECONCILIATION OF FUNDED STATUS
Benefit obligation at beginning of year..................... $ 24,954 --
Additional acquisitions during the year..................... 27,330 $ 4,600
Service cost................................................ 968 22
Interest cost............................................... 1,115 --
Plan amendments............................................. -- --
Actuarial gain.............................................. (1,098) --
Benefit payments............................................ (403) --
-------- -------
Benefit obligation at Dec. 31.......................... $ 52,866 $ 4,622
======== =======
Fair value of plan assets at beginning of year.............. $ 24,905 $ --
Additional assets transferred............................... 10,070 --
Actual return on plan assets................................ 3,091 --
Benefit payments............................................ (403) --
-------- -------
Fair value of plan assets at Dec. 31................... $ 37,663 $ --
======== =======
Funded status at Dec. 31 -- excess of assets over
obligation................................................ $(15,203) $(4,622)
Unrecognized transition (asset) obligation.................. -- --
Unrecognized prior service cost............................. -- --
Unrecognized net gain....................................... (2,996) --
-------- -------
(Accrued) Prepaid benefit obligation at Dec. 31............. $(18,199) $(4,622)
</TABLE>
<TABLE>
<CAPTION>
1999 1999
------------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
AMOUNT RECOGNIZED IN THE BALANCE SHEET
Prepaid benefit cost........................................ -- --
Accrued benefit liability................................... $(18,199) $(4,622)
-------- -------
Net amount recognized -- (Accounts
payable -- affiliates)................................ $(18,199) $(4,622)
</TABLE>
The weighted average discount rate used in determining the actuarial
present value of the projected benefit obligation was 7.5% for December 31,
1999. The rate of increase in future compensation levels used in determining the
actuarial present value of the projected obligation was 4.5% for nonunion
employees and 3.5% for union employees. The assumed long-term rate of return on
assets used for cost determination was 8.5% for 1999.
POSTRETIREMENT HEALTH CARE
Under its agreement with NRG Operating Services, NRG Northeast assumed
postretirement health care benefits for some of the employees associated with
the 1999 acquisitions. The plan enables NRG Northeast and the retirees to share
the costs of retiree health care. The cost sharing varies by acquisition group
and collective bargaining agreements. There are no existing NRG Northeast
retirees under these plans as of December 31, 1999. Complete valuation data is
not available for some of these groups. The estimated net periodic
postretirement benefit cost for 1999 is $0.85 million. The estimated accumulated
postretirement benefit obligation is $12 million at December 31, 1999.
F-32
<PAGE> 135
MIDDLETOWN POWER LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- BENEFIT PLANS -- (CONTINUED)
401(k) PLANS
Under its agreement with NRG Operating Services, NRG Northeast established
several contributory defined contribution employee savings plans as a result of
its 1999 acquisition activity. These plans comply with Section 401(k) of the
Internal Revenue Code of 1986, as amended, and cover substantially all of the
NRG Operating Service's employees who are not covered by Northern States Power's
(NRG's parent) 401(k) Plan. NRG Northeast matches specified amounts of employee
contributions to the plan. Employer contributions made to NRG Northeast's plans
were approximately $0.31 million in 1999.
NOTE 7 -- SALES TO SIGNIFICANT CUSTOMERS
During 1999, sales to one customer (the previous owner of the generating
facilities) accounted for all of the Company's revenues in 1999. During 1999,
the Company entered into an agreement with the previous owner of the Company's
recently acquired electric generating facility for the sale of energy, capacity
and other ancillary services. This agreement accounted for all of the Company's
revenues during 1999 (Note 8). For the six months ended June 30, 2000 sales to
one customer accounted for 90% of the Company's revenues.
NOTE 8 -- COMMITMENTS AND CONTINGENCIES
Environmental
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. 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. Such legislation could require the Company's facilities located in
Connecticut to rely on more expensive fuels or install additional air pollution
control equipment. If such legislation were to become law and the schedule to
implement it were overly aggressive, the Connecticut facilities could be placed
at a significant competitive disadvantage.
Contractual Commitments
NRG Power Marketing has entered into a standard offer service wholesale
sales agreement with CL&P pursuant to which NRG Power Marketing will supply CL&P
at fixed prices a specified share of a portion of CL&P's aggregate retail load.
The quantity of power to be supplied is 35 percent of CL&P's standard offer
service load during calendar year 2000, 40 percent during calendar years 2001
and 2002 and 45 percent during calendar year 2003.
NRG Power Marketing is responsible for delivering the contracted power to a
mutually agreed upon delivery point at which point title to and liability for
the electricity passes to CL&P. NRG Power Marketing is also responsible for
forecasting for the purpose of meeting its supply obligation and for all
Independent System Operator and NEPOOL charges and expenses in connection with
the delivery of power. CL&P is responsible for arranging all delivery services
for electricity from the delivery point to retail customers.
The agreement also requires NRG Power Marketing to either (i) be a member
of NEPOOL or (ii) have a contract with a member of the NEPOOL for the duration
of the term of the agreement which commences January 1, 2000 and expires on
December 31, 2003.
F-33
<PAGE> 136
HUNTLEY POWER LLC
FINANCIAL STATEMENTS
F-34
<PAGE> 137
REPORT OF INDEPENDENT ACCOUNTANTS
To the Management Committee
Of Huntley Power LLC:
In our opinion, the accompanying balance sheet and the related statement of
operations, of members' equity and of cash flows present fairly, in all material
respects, the financial position of Huntley Power LLC at December 31, 1999, and
the results of their operations and their cash flows for the period from June
11, 1999 (Inception) through December 31, 1999 in conformity with accounting
principles generally accepted in the United States. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audit. We
conducted our audit of these statements in accordance with auditing standards
generally accepted in the United States, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
Minneapolis, MN
July 14, 2000
F-35
<PAGE> 138
HUNTLEY POWER LLC
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Balance Sheets.............................................. F-37
Statements of Operations.................................... F-38
Statements of Cash Flows.................................... F-39
Statement of Member's Equity................................ F-40
Notes to Financial Statements............................... F-41
</TABLE>
F-36
<PAGE> 139
HUNTLEY POWER LLC
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, 1999 JUNE 30, 2000
----------------- -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
(THOUSANDS OF DOLLARS)
CURRENT ASSETS:
Cash and cash equivalents................................. $ 1 $ 1
Accounts receivable....................................... 20,506 9,354
Accounts receivable -- affiliates......................... -- 8,268
Inventory................................................. 18,607 17,798
Prepaid expenses.......................................... 5,203 2,730
-------- --------
Total current assets.............................. 44,317 38,151
Property, plant & equipment, net (Note 2)................. 153,533 151,252
Deferred financing costs, net of accumulated amortization
of $548 and $15........................................ 432 1,036
-------- --------
Total assets...................................... $198,282 190,439
======== ========
LIABILITIES AND MEMBER'S EQUITY
LIABILITIES:
Current liabilities:
Notes payable -- affiliates, current portion........... -- 11,206
Accounts payable....................................... 175 203
Accounts payable -- affiliates......................... 22,682 --
Checks in excess of cash............................... -- 728
Accrued interest....................................... -- 317
Accrued fuel and purchased power expense............... 5,476 5,169
Accrued taxes.......................................... 494 494
Other current liabilities.............................. 2,052 4,909
-------- --------
Total current liabilities............................ 30,879 23,026
Notes Payable -- affiliates............................ 97,127 77,094
-------- --------
Total Liabilities................................. 128,006 100,120
MEMBER'S EQUITY............................................. 70,276 90,319
-------- --------
Total liabilities and member's equity............. $198,282 $190,439
======== ========
</TABLE>
See accompanying notes to financial statements.
F-37
<PAGE> 140
HUNTLEY POWER LLC
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE PERIOD FOR THE SIX
JUNE 11, 1999 (INCEPTION) JUNE 11, 1999 (INCEPTION) MONTHS ENDED
TO DECEMBER 31, 1999 TO JUNE 30, 1999 JUNE 30, 2000
------------------------- ------------------------- -------------
(THOUSANDS OF DOLLARS) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Revenues................................. $66,189 $ 3,985 $63,704
Operating Costs.......................... 50,795 3,386 44,576
------- ------- -------
Operating margin.................... 15,394 599 19,128
Depreciation and Amortization............ 2,869 256 2,511
General and Administrative Expenses...... 2,413 27 1,162
------- ------- -------
Income from operations.............. 10,112 316 15,455
Interest Expense......................... 4,424 -- 4,361
Other Income, Net........................ -- -- (122)
------- ------- -------
Net Income.......................... $ 5,688 $ 316 $11,216
======= ======= =======
</TABLE>
See accompanying notes to financial statements.
F-38
<PAGE> 141
HUNTLEY POWER LLC
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE PERIOD FOR THE SIX
JUNE 11, 1999 (INCEPTION) JUNE 11, 1999 (INCEPTION) MONTH PERIOD
TO DECEMBER 31, 1999 TO JUNE 30, 1999 ENDED JUNE 30, 2000
------------------------- ------------------------- -------------------
(THOUSANDS OF DOLLARS) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Cash Flow from operating
activities:
Net income......................... $ 5,688 $ 316 $ 11,216
Adjustments to reconcile net income
to net cash provided from
operating activities:
Depreciation and amortization.... 2,869 256 2,511
Amortization of deferred
financing costs............... 548 56 489
Changes in assets and
liabilities:
Accounts receivable........... (19,281) (3,985) 11,152
Accounts
receivable -- affiliates.... -- -- (8,268)
Inventories................... (3,695) (2,709) 809
Prepaid expenses.............. (5,203) (3,013) 2,473
Accounts payable.............. 175 -- 28
Accounts payable-affiliates... 22,658 1,548 (22,682)
Accrued interest.............. -- -- 317
Accrued fuel and purchased
power expense............... 5,476 -- (307)
Accrued taxes................. 494 -- (494)
Other current liabilities..... 2,052 8,730 3,351
--------- --------- ---------
Net cash provided by
operating activities..... 11,781 1,199 595
Cash flows from investing
activities:
Business acquisition, net of
liabilities assumed........... (161,715) (161,715) --
Capital expenditures............. (10,800) -- (230)
--------- --------- ---------
Net cash used in investing
activities............... (172,515) (161,715) (230)
--------- --------- ---------
Cash flows from financing
activities:
Principal payments on debt....... -- -- (97,127)
Proceeds from borrowings......... 97,127 97,127 88,300
Deferred financing costs......... (980) (1,198) (1,093)
Contributions by members......... 64,588 64,588 8,827
Checks in excess of cash......... -- -- 728
--------- --------- ---------
Net cash flows provided by
financing activities..... 160,735 160,517 (365)
--------- --------- ---------
Net increase in cash and cash
equivalents...................... 1 1 --
Cash and cash equivalents at
beginning of period.............. -- -- 1
--------- --------- ---------
Cash and cash equivalents at end of
period........................... $ 1 $ 1 $ 1
========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Interest paid (net of amount
capitalized)..................... $ 3,930 $ -- $ 3,555
</TABLE>
See accompanying notes to financial statements.
F-39
<PAGE> 142
HUNTLEY POWER LLC
STATEMENT OF MEMBER'S EQUITY
<TABLE>
<CAPTION>
(THOUSANDS OF DOLLARS)
<S> <C>
Balance, June 11, 1999 (Inception).......................... $ --
Contributions............................................. 64,588
Net Income................................................ 316
-------
Balance, June 30, 1999 (Unaudited).......................... 64,904
Contributions............................................. --
Net Income................................................ 5,372
-------
Balance, December 31, 1999.................................. 70,276
Contributions (Unaudited)................................. 8,827
Net Income (Unaudited).................................... 11,216
-------
Balance, June 30, 2000 (Unaudited).......................... $90,319
=======
</TABLE>
See accompanying notes to financial statements.
F-40
<PAGE> 143
HUNTLEY POWER LLC
NOTES TO FINANCIAL STATEMENTS
Huntley Power LLC ("the Company"), a wholly-owned subsidiary of NRG
Northeast Generating LLC ("NRG Northeast") owns and operates the approximately
760 Megawatt ("MW"), six unit, coal-fired base-load electric generating facility
located near Buffalo, New York.
NRG Northeast, a wholly-owned indirect subsidiary of NRG Energy, Inc.
("NRG"), owns electric power generation plants in the northeastern region of the
United States. NRG Northeast was formed for the purpose of financing, acquiring,
owning, operating and maintaining, through its subsidiaries and affiliates the
electric generating 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.
As of December 31, 1999, NRG Northeast held a 99% interest in Arthur Kill
Power LLC, Astoria Gas Turbine Power LLC, Dunkirk Power LLC, Huntley Power LLC,
Oswego Harbor Power LLC and Somerset Power LLC. Northeast Generation Holding LLC
and NRG Eastern LLC each held a minority interest of 0.5% in Arthur Kill Power
LLC, Astoria Gas Turbine Power LLC, Dunkirk Power LLC, Huntley Power LLC, Oswego
Harbor Power LLC and Somerset Power LLC. Northeast Generation Holding LLC and
NRG Eastern LLC are wholly-owned subsidiaries of NRG Energy, Inc.
NRG Connecticut Generating LLC, a wholly owned subsidiary of NRG, owned
100% of Connecticut Jet Power LLC, Devon Power LLC, Middletown Power LLC,
Montville Power LLC and Norwalk Harbor Power LLC.
Effective January 1, 2000, the minority ownership interests held by
Northeast Generation Holding LLC and NRG Eastern LLC as well as the ownership
interests held by NRG Connecticut Generating LLC were transferred to the
Company. Since all assets and operations were under common ownership and control
since April 27, 1999 (Inception of NRG Northeast), the financial statements have
been presented on a combined basis without minority interest.
Additional information regarding NRG Northeast and the Company can be found
in NRG's Form 10-K for the twelve months ended December 31, 1999.
NOTE 1 -- BUSINESS DEVELOPMENTS
In June 1999, the Huntley and Dunkirk facilities were acquired from Niagara
Mohawk Power Corporation ("NiMo") for approximately $355 million. The two
coal-fired facilities are located near Buffalo, New York, and have a combined
capacity of 1,360 MW. The Huntley facilities were acquired for approximately
$161.7 million and have a capacity of 760 MW.
The acquisition was accounted for as the purchase of assets. The aggregate
purchase price was allocated among the assets acquired and liabilities assumed
in the following amounts based on an appraisal completed in March 2000:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
ASSETS
Inventory................................................. $ 14,912
Other current assets...................................... 1,225
Property, plant and equipment............................. 145,602
--------
Total Assets................................................ 161,739
LIABILITIES
Accounts payable -- affiliates............................ 24
--------
Total Liabilities........................................... 24
NET ASSETS ACQUIRED......................................... $161,715
========
</TABLE>
F-41
<PAGE> 144
HUNTLEY POWER LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates in Financial Statements
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect reported amounts of assets and liabilities
at the date of the financial statements and reported amounts of revenue and
expenses during the reporting period. Actual results may differ from those
estimates.
In recording transactions and balances resulting from business operations,
the Company uses estimates based on the best information available. Estimates
are used for such items as plant depreciable lives, uncollectible accounts and
actuarially determined benefit costs, among others. As better information
becomes available (or actual amounts are determinable), the recorded estimates
are revised. Consequently, operating results can be affected by revisions to
prior accounting estimates.
Cash and Cash Equivalents
The Company considers cash and cash equivalents to include cash and
short-term investments with original maturities of three months or less.
Inventory
Inventory consists of spare parts, coal and fuel oil and is stated at the
lower of weighted average cost or market (Note 5).
Prepaid Expenses
Prepaid expenses include insurance, taxes and other prepayments.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is computed
on a straight-line basis over the following estimated useful lives:
<TABLE>
<S> <C>
Facilities, machinery and equipment......................... 25 to 30 years
Office furnishings and equipment............................ 3 to 10 years
</TABLE>
At December 31, 1999 and June 30, 2000, property, plant and equipment
consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 JUNE 30, 2000
----------------- -------------
(UNAUDITED)
<S> <C> <C>
(IN THOUSANDS)
Land............................................. $ 4,005 $ 3,750
Facilities, machinery and equipment.............. 143,802 144,240
Construction in progress......................... 8,416 8,480
Office furnishings and equipment................. 179 162
Accumulated depreciation......................... (2,869) (5,380)
-------- --------
Property, plant and equipment (net).............. $153,533 $151,252
======== ========
</TABLE>
Deferred Financing
Deferred financing costs consist of legal and other costs incurred to
obtain debt financing. These costs are being amortized over the terms of the
related debt.
F-42
<PAGE> 145
HUNTLEY POWER LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Revenue Recognition
Revenue and related costs are recorded as electricity is generated or
services are provided.
Power Marketing Activities
The Company has entered into a contract with a marketing affiliate for the
sale of energy, capacity and ancillary services produced, which enables the
affiliate to engage in forward sales and hedging transactions to manage the
Company's electricity price exposure. Net gains or losses on hedges by the
marketing affiliate, which are physically settled, are recognized in the same
manner as the hedged item. The Company receives the net transaction price on all
contracts that are physically settled by its marketing affiliate.
Income Taxes
The net income or loss of the Company for income tax purposes, along with
any associated tax credits, is included in the tax returns of NRG. Accordingly,
no provision has been made for federal or state income taxes in the accompanying
financial statements.
As of December 31, 1999, the accompanying financial statements report a
balance of $153,533 for net property, plant and equipment. The tax basis of this
property is estimated to be $151,434. The primary difference is due to
accelerated tax depreciation.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standard Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities." This statement requires that all
derivatives be recognized at fair value in the balance sheet, and that changes
in fair value be recognized either currently in earnings or deferred as a
component of Other Comprehensive Income, depending on the intended use of the
derivative, its resulting designation and its effectiveness. The Company plans
to adopt this standard in 2001, as required. The potential impact of
implementing this statement has not yet been determined.
In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities, an Amendment of FASB
Statement No. 133." This Statement amends SFAS 133 in four areas, normal
purchases and sales contracts, definition of interest rate risk, hedging
recognized foreign currency denominated assets and liabilities and hedging
foreign currency risk and intercompany derivatives. The Company plans to adopt
the standard, as required. The potential impact of implementing this standard
has not been determined.
Interim Results (unaudited)
Information as of and for the six months ended June 30, 2000 is unaudited.
The information as of and furnished in the unaudited June 30, 2000 Balance
Sheet, Statement of Income and Cash Flows include all material adjustments,
consisting only of normal recurring accruals, which are in the opinion of
management necessary for a fair presentation of such financial statements. The
data disclosed in these notes to the financial statements for this period is
also unaudited.
NOTE 3 -- SHORT TERM BORROWINGS
At December 31, 1999, NRG Northeast had $682.3 million in short-term
borrowings under its 364-day credit facility, which had a weighted average
interest rate of 6.86% for the period. Interest on the credit facility is
payable at a variable rate of LIBOR plus 0.125%. The credit facility consists of
a $646.6 million term loan
F-43
<PAGE> 146
HUNTLEY POWER LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 -- SHORT TERM BORROWINGS -- (CONTINUED)
facility and a $35.7 million working capital revolving facility. On June 11,
1999, the Company borrowed from NRG Northeast approximately $97.1 million of the
$646.6 million term loan facility proceeds pursuant to an intercompany loan
agreement to finance a portion of its purchase of its electric generating
facilities. The terms of the intercompany loan agreement are identical to NRG
Northeast's 364-day credit facility. During 1999, approximately $4.4 million of
interest expense related to the credit facility was recognized as part of the
Company's results of operations.
NOTE 4 -- LONG TERM DEBT
On February 22, 2000, NRG Northeast 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 percent due in 2004; $130 million with an interest rate of 8.842 percent
due in 2015; and $300 million with an interest rate of 9.292 percent due in
2024. NRG Northeast used $646.6 million of the proceeds to repay short-term
borrowings outstanding at December 31, 1999; accordingly $646.6 million of
short-term debt has been reclassified as long-term debt based on the
refinancing. Each of the subsidiaries of NRG Northeast, of which the Company is
one, jointly and severally guarantee the bonds. The bonds are secured by a
security interest in NRG Northeast's membership or other ownership interest in
its subsidiaries that guarantee the bonds; NRG Northeast's rights under all
intercompany notes between it and its subsidiaries, the power sales and agency
agreements, the operations and maintenance agreements, the corporate services
agreements, the transition power sales contracts entered into by NRG Northeast
and its subsidiaries and the funds administration agreements; the debt service
reserve account; and the revenues from certain power sales contracts entered
into by NRG Power Marketing associated with existing or future facilities owned
by NRG Northeast or its subsidiaries. A portion of the interest expense related
to these bonds will be recognized as part of the Company's results of
operations.
NOTE 5 -- INVENTORY
At December 31, 1999 and June 30, 2000, inventory, which is stated at the
lower of weighted average cost or market, consisted of:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 JUNE 30, 2000
----------------- -------------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C>
Fuel Oil......................................... $ 34 $ 44
Spare Parts...................................... 10,000 10,593
Coal............................................. 8,332 7,045
Other............................................ 241 116
------- -------
Total....................................... $18,607 $17,798
======= =======
</TABLE>
NOTE 6 -- RELATED PARTY TRANSACTIONS
On June 11, 1999 the Company entered into a power sales and agency
agreement with NRG Power Marketing Inc., a wholly-owned subsidiary of NRG. The
agreement is effective until December 31, 2030. Under the agreement, NRG Power
Marketing Inc. will (i) have the exclusive right to manage, market and sell all
power not otherwise sold or committed to or by the Company, (ii) procure and
provide to the Company all fuel required to operate its respective facilities
and (iii) market, sell and purchase all emission credits owned, earned or
acquired by the Company. In addition, NRG Power Marketing Inc. will have the
exclusive right and obligation to effect the direction of the power output from
the facilities.
Under the agreement, NRG Power Marketing Inc. pays to the Company gross
receipts generated through sales, less costs incurred by NRG Power Marketing
Inc. relative to its providing services (e.g. transmission and delivery costs,
fuel cost, taxes, employee labor, contract services, etc.).
F-44
<PAGE> 147
HUNTLEY POWER LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- RELATED PARTY TRANSACTIONS -- (CONTINUED)
During 1999 and for the six months ended June 30, 2000, the Company
recorded gross receipts less costs incurred from NRG Power Marketing Inc.
totaling $33.5 million and $38.7 million, respectively.
On June 11, 1999 the Company entered into an operation and maintenance
agreement with a subsidiary of NRG Operating Services, Inc., a wholly-owned
subsidiary of NRG ("NRG Operating Services"). The agreement is effective for
five years, with options to extend beyond five years. Under the agreement, the
NRG Operating Services company operator operates and maintains its respective
facility, including (i) coordinating fuel delivery, unloading and inventory,
(ii) managing facility spare parts, (iii) meeting external performance standards
for transmission of electricity, (iv) providing operating and maintenance
consulting and (v) cooperating with and assisting the Company in performing the
Company's obligations under agreements related to its facilities.
Under the agreement, the operator will be reimbursed for usual and
customary costs related to providing the services including plant labor and
other operating costs. A demobilization payment will be made if the subsidiary
elects not to renew the agreement. There are also incentive fees and penalties
based on performance under the approved operating budget, the heat rate and
safety.
During 1999 and for the six months ended June 30, 2000, the Company
incurred operating and maintenance costs billed from NRG Operating Services
totaling $10.6 million and $11.9 million, respectively.
On June 11, 1999 the Company entered into an agreement with NRG for
corporate support and services. The agreement is perpetual in term, unless
terminated in writing. Under the agreement, NRG will provide services, as
requested, in areas such as human resources, accounting, finance, treasury, tax,
office administration, information technology, engineering, construction
management, environmental, legal and safety. Under the agreement, NRG is paid
for personnel time as well as out-of-pocket costs.
During 1999 and for the six months ended June 30, 2000, the Company paid
NRG approximately $0.3 million and $0.3 million, respectively, for corporate
support and services.
NOTE 7 -- BENEFIT PLANS
The Company does not have any employees. The employees at the operating
facility are employed by NRG Operating Services. NRG Northeast has contracted
with NRG Operating Services to operate the facility (Note 6). Many of the
operating employees were formerly employed by the previous owner of the
facility.
PENSION BENEFITS -- 1999 ACQUISITIONS
During 1999, subsidiaries of NRG Northeast acquired several generating
assets and assumed benefit obligations for a number of employees associated with
their acquisitions of generating assets. The benefit obligations included
noncontributory defined benefit pension formulas, matched 401(k) savings plans
and contributory post-retirement welfare plans. Approximately 56 percent of the
benefit employees are represented by eight local labor unions under collective
bargaining agreements, which expire between 2000 and 2003.
NRG Operating Services sponsors one noncontributory defined benefit pension
plan that covers most of the employees associated with the 1999 acquisitions.
Generally, the benefits are based on a combination of years of service, the
final average pay and Social Security benefits. The benefit plan data is shown
below, as NRG Northeast and its respective subsidiaries, including the Company,
will be required to fund the plan under its agreement with NRG Operating
Services.
F-45
<PAGE> 148
HUNTLEY POWER LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7 -- BENEFIT PLANS -- (CONTINUED)
<TABLE>
<CAPTION>
NRG
NORTHEAST HUNTLEY POWER
PLAN PORTION
1999 1999
------------- -------------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
COMPONENTS OF NET PERIODIC BENEFIT COST
Service cost benefits earned................................ $ 968 $ 280
Interest cost on benefit obligation......................... 1,115 434
Expected return on plan assets.............................. (1,193) (526)
-------- -------
Net periodic (benefit) cost............................ $ 890 $ 188
======== =======
</TABLE>
<TABLE>
<CAPTION>
1999 1999
------------- -------------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
RECONCILIATION OF FUNDED STATUS
Benefit obligation at beginning of year..................... $ 24,954 $12,409
Additional acquisitions during the year..................... 27,330 --
Service cost................................................ 968 280
Interest cost............................................... 1,115 434
Plan amendments............................................. -- --
Actuarial gain.............................................. (1,098) (323)
Benefit payments............................................ (403) (200)
-------- -------
Benefit obligation at Dec. 31.......................... $ 52,866 $12,600
======== =======
Fair value of plan assets at beginning of year.............. $ 24,905 $12,385
Additional assets transferred............................... 10,070 --
Actual return on plan assets................................ 3,091 1,448
Benefit payments............................................ (403) (200)
-------- -------
Fair value of plan assets at Dec. 31................... $ 37,663 $13,633
======== =======
Funded status at Dec. 31 -- excess of assets over
obligation................................................ $(15,203) $ 1,033
Unrecognized transition (asset) obligation.................. -- --
Unrecognized prior service cost............................. -- --
Unrecognized net gain....................................... (2,996) (1,245)
-------- -------
(Accrued) Prepaid benefit obligation at Dec. 31............. $(18,199) $ (212)
</TABLE>
<TABLE>
<CAPTION>
1999 1999
------------- -------------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
AMOUNT RECOGNIZED IN THE BALANCE SHEET
Prepaid benefit cost........................................ -- --
Accrued benefit liability................................... $(18,199) $ (212)
-------- -------
Net amount recognized -- (Accounts
payable -- affiliates)................................ $(18,199) $ (212)
</TABLE>
The weighted average discount rate used in determining the actuarial
present value of the projected benefit obligation was 7.5% for December 31,
1999. The rate of increase in future compensation levels used in determining the
actuarial present value of the projected obligation was 4.5% for nonunion
employees and 3.50% for union employees. The assumed long-term rate of return on
assets used for cost determination was 8.5% for 1999. During 1999, the Company
recorded approximately $438,000 of pension expense.
F-46
<PAGE> 149
HUNTLEY POWER LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7 -- BENEFIT PLANS -- (CONTINUED)
POSTRETIREMENT HEALTH CARE
Under its agreement with NRG Operating Services, NRG Northeast assumed
postretirement health care benefits for some of the employees associated with
the 1999 acquisitions. The plan enables NRG Northeast and the retirees to share
the costs of retiree health care. The cost sharing varies by acquisition group
and collective bargaining agreements. There are no existing NRG Northeast
retirees under these plans as of December 31, 1999. Complete valuation data is
not available for some of these groups. The estimated net periodic
postretirement benefit cost for 1999 is $0.85 million. The estimated accumulated
postretirement benefit obligation is $12 million at December 31, 1999.
401(k) PLANS
Under its agreement with NRG Operating Services, NRG Northeast established
several contributory defined contribution employee savings plans as a result of
its 1999 acquisition activity. These plans comply with Section 401(k) of the
Internal Revenue Code of 1986, as amended, and cover substantially all of the
NRG Operating Service's employees who are not covered by Northern States Power's
(NRG's parent) 401(k) Plan. NRG Northeast matches specified amounts of employee
contributions to the plan. Employer contributions made to NRG Northeast's plans
were approximately $0.31 million in 1999.
NOTE 8 -- SALES TO SIGNIFICANT CUSTOMERS
During 1999, sales to one customer (the previous owner of the generating
facilities) accounted for 67.1 percent of the Company's revenues in 1999. During
1999, the Company entered into a transition agreement with the previous owner of
the Company's recently acquired electric generating facilities for the sale of
energy, capacity and other ancillary services. This transition agreement
accounted for a majority of the Company's revenues during 1999 (Note 9). For the
six months ended June 30, 2000, sales to two customers accounted for 48% and 45%
of the Company's revenues.
NOTE 9 -- COMMITMENTS AND CONTINGENCIES
Regulatory Issue
On May 31, 2000, the Federal Energy Regulatory Commission ("FERC") approved
a request of the New York Independent System Operator ("NYISO"), to impose price
limitations on one ancillary service, Ten Minute Non-Synchronized Reserve
("TMNSR"), on a prospective basis 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's order (unless the NYISO or
other party successfully appeals the order) NRG Northeast 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. On June 30, 2000 the NYISO appealed the FERC's decision rejecting its
request to adjust the market clearing prices on a retroactive basis. NRG
Northeast will attempt to revise its business plan to adjust its business
operations to mitigate the future impact of the Order.
Environmental
On October 14, 1999, Governor Pataki of New York announced that he is
ordering the New York Department of Environmental Conservation ("NYDEC") to
require further reductions of sulfur dioxide ("SO(2)") emissions and nitrogen
oxide ("NO(x)") 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 emissions
reductions requirements, if they become effective, could have a material adverse
impact on the operation of the Company's facilities located in the state of New
F-47
<PAGE> 150
HUNTLEY POWER LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9 -- COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
York. Due to the uncertainties involved in the adoption of these new emission
reduction requirements, the Company is unable to determine what impact these new
requirements may have on the Company's results of operations.
In a letter dated October 12, 1999, the Office of the Attorney General from
the State of New York alleged that, based on a preliminary analysis, it believes
major modifications were made to the Huntley and Dunkirk facilities during
NiMo's ownership of those facilities without obtaining appropriate air permits.
The Company has no reason to believe that NiMo did not comply with the
preconstruction permit requirements for the facilities, and, accordingly, cannot
predict the outcome of this investigation or its financial exposure related to
the claim.
As a result of alleged violations of opacity, or visible emission standards
at the Huntley, Dunkirk and Oswego facilities, NiMo, the former owner and
operator of these facilities, was in the process of negotiating a consent order
with NYDEC to resolve such violations at the time we acquired such facilities.
Under the terms of the asset purchase agreements, NiMo will be responsible for
any and all exceedences which occurred prior to the closing of the transactions
contemplated in the asset purchase agreements. The Company's subsidiaries which
own these facilities have agreed, in connection with their acquisition of these
facilities, to enter into separate consent orders for each facility to address
on-going and potential future violations of opacity standards. The Company
believes that almost all of the opacity exceedences at the Dunkirk and Oswego
facilities are non-preventable events occurring as a result of startups and
shutdowns at those facilities that should not be subject to penalties under the
New York regulations. These subsidiaries are currently in discussions with the
NYDEC regarding this issue. Opacity exceedences at the Huntley Facility are also
under discussion with NYDEC.
Contractual Commitments
For the next four years, the Company estimates that a significant portion
of the total revenues from the Dunkirk and Huntley facilities will be derived
from four-year transition contracts for capacity and energy. All forward
capacity is sold to NiMo during the transition period, with the remainder of
energy sold to the New York ISO. Each of the following agreements was executed
on June 11, 1999 and extends for a term of four years.
NRG Power Marketing has entered into an agreement with NiMo to hedge NiMo's
transition to market rates. Under the agreement, NiMo will pay a fixed monthly
price for the capacity and ancillary services provided by NRG Power Marketing.
NRG Power Marketing will pay to NiMo the market price for the related capacity
and ancillary services delivered.
NRG Power Marketing has entered into a swap agreement with NiMo to hedge
NiMo's transition to market rates. In accordance with the agreement, NiMo will
pay to NRG Power Marketing a fixed monthly price for the capacity and ancillary
services provided to NiMo related to Dunkirk units 1, 2, 3 and 4 and Huntley
units 67 and 68. NRG Power Marketing will pay to NiMo the market price for such
services.
NiMo may also exercise a call option for an additional swap under which
NiMo will nominate certain amounts of energy for the Dunkirk and Huntley
facilities and will pay to NRG Power Marketing an amount for such energy
determined in accordance with the nominated unit's heat rate curve. NRG Power
Marketing will pay to NiMo the market rates for such energy at the time the
energy was nominated.
Huntley Power has entered into two agreements with NiMo that gives NiMo the
option to purchase certain quantities of energy generated by Huntley units 65
and 66, during the summer and winter months and Huntley units 67 and 68 during
peak and off peak summer hours.
F-48
<PAGE> 151
DUNKIRK POWER LLC
FINANCIAL STATEMENTS
F-49
<PAGE> 152
REPORT OF INDEPENDENT ACCOUNTANTS
To the Management Committee
Of Dunkirk Power LLC:
In our opinion, the accompanying balance sheet and the related statement of
operations, of members' equity and of cash flows present fairly, in all material
respects, the financial position of Dunkirk Power LLC at December 31, 1999, and
the results of their operations and their cash flows for the period from June
11, 1999 (Inception) through December 31, 1999 in conformity with accounting
principles generally accepted in the United States. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audit. We
conducted our audit of these statements in accordance with auditing standards
generally accepted in the United States, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
Minneapolis, MN
July 14, 2000
F-50
<PAGE> 153
DUNKIRK POWER LLC
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Balance Sheets.............................................. F-52
Statements of Operations.................................... F-53
Statements of Cash Flows.................................... F-54
Statement of Member's Equity................................ F-55
Notes to Financial Statements............................... F-56
</TABLE>
F-51
<PAGE> 154
DUNKIRK POWER LLC
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, 1999 JUNE 30, 2000
----------------- -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
(THOUSANDS OF DOLLARS)
CURRENT ASSETS:
Cash and cash equivalents................................. $ 2 $ 2
Accounts receivable....................................... 13,804 11,301
Accounts receivable -- affiliates......................... -- 697
Inventory................................................. 8,643 11,227
Prepaid expenses.......................................... 2,016 2,289
-------- --------
Total current assets.............................. 24,465 25,516
Property, plant & equipment, net (Note 2)................. 183,365 183,876
Deferred financing costs, net of accumulated amortization
of $698 and $20........................................ 557 1,324
-------- --------
Total assets...................................... $208,387 $210,716
======== ========
LIABILITIES AND MEMBER'S EQUITY
LIABILITIES:
Current liabilities:
Notes payable -- affiliates, current portion........... -- 14,326
Accounts payable....................................... 946 1,337
Checks in excess of cash............................... 515 587
Accounts payable -- affiliates......................... 6,370 --
Accrued fuel and purchased power expense............... 2,394 3,419
Accrued interest....................................... -- 405
Accrued taxes.......................................... 409 409
Other current liabilities.............................. 1,030 2,565
-------- --------
Total current liabilities............................ 11,664 23,048
Notes payable -- affiliates............................ 124,118 98,578
-------- --------
Total liabilities................................. 135,782 121,626
MEMBER'S EQUITY............................................. 72,605 89,090
-------- --------
Total liabilities and member's equity............. $208,387 $210,716
======== ========
</TABLE>
See accompanying notes to financial statements.
F-52
<PAGE> 155
DUNKIRK POWER LLC
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE PERIOD FOR THE SIX
JUNE 11, 1999 (INCEPTION) JUNE 11, 1999 (INCEPTION) MONTHS ENDED
TO DECEMBER 31, 1999 TO JUNE 30, 1999 JUNE 30, 2000
------------------------- ------------------------- -------------
(THOUSANDS OF DOLLARS) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Revenues................................. $57,764 $3,923 $53,971
Operating Costs.......................... 43,021 3,456 39,056
------- ------ -------
Operating margin.................... 14,743 467 14,915
Depreciation and Amortization............ 3,628 347 3,099
General and Administrative Expenses...... 2,073 26 994
------- ------ -------
Income from operations.............. 9,042 94 10,822
Interest Expense......................... 5,604 -- 5,571
Other Income, Net........................ -- -- (20)
------- ------ -------
Net Income.......................... $ 3,438 $ 94 $ 5,271
======= ====== =======
</TABLE>
See accompanying notes to financial statements.
F-53
<PAGE> 156
DUNKIRK POWER LLC
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE PERIOD FOR THE SIX
JUNE 11, 1999 (INCEPTION) JUNE 11, 1999 (INCEPTION) MONTHS ENDED
TO DECEMBER 31, 1999 TO JUNE 30, 1999 JUNE 30, 2000
------------------------- ------------------------- -------------
(THOUSANDS OF DOLLARS) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Cash Flow from operating activities:
Net income............................. $ 3,438 $ 94 $ 5,271
Adjustments to reconcile net income to
net cash provided from operating
activities:
Depreciation and amortization........ 3,628 348 3,099
Amortization of deferred financing
costs............................. 698 71 622
Changes in assets and liabilities:
Accounts receivable............... (12,240) (3,923) 2,503
Accounts
receivable -- affiliates........ -- -- (697)
Inventories....................... 2,086 (1,266) (2,584)
Prepaid expenses.................. (2,017) (2,334) (273)
Accounts payable.................. 946 2 391
Accounts payable-affiliates....... 6,345 2,089 (6,370)
Accrued fuel and purchased power
expense......................... 2,394 -- 1,025
Accrued taxes..................... 409 -- (409)
Accrued interest.................. -- -- 405
Other current liabilities......... 1,030 6,451 1,944
--------- --------- ---------
Net cash provided by operating
activities................... 6,717 1,532 4,927
Cash flows from investing activities:
Business acquisition, net of
liabilities assumed............... (193,285) (199,330) --
Capital expenditures................. (5,976) -- (3,610)
--------- --------- ---------
Net cash used in investing
activities................... (199,261) (199,330) (3,610)
--------- --------- ---------
Cash flows from financing activities:
Principal payments on debt........... -- -- (124,118)
Proceeds from borrowings............. 124,118 124,118 112,904
Deferred financing costs............. (1,254) (1,531) (1,389)
Contributions by members............. 69,167 75,212 11,214
Checks in excess of cash............. 515 -- 72
--------- --------- ---------
Net cash flows provided by financing
activities........................... 192,546 197,799 (1,317)
--------- --------- ---------
Net increase in cash and cash
equivalents.......................... 2 1 --
Cash and cash equivalents at beginning
of period............................ -- -- 2
--------- --------- ---------
Cash and cash equivalents at end of
period............................... $ 2 $ 1 $ 2
========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Interest paid (net of amount
capitalized)......................... $ 5,195 $ -- $ 4,544
</TABLE>
See accompanying notes to financial statements.
F-54
<PAGE> 157
DUNKIRK POWER LLC
STATEMENT OF MEMBER'S EQUITY
<TABLE>
<S> <C>
(THOUSANDS OF DOLLARS)
Balance, June 11, 1999 (Inception).......................... $ --
Contributions............................................. 69,167
Net Income................................................ 94
-------
Balance, June 30, 1999 (Unaudited).......................... $69,261
=======
Contributions............................................. --
Net Income................................................ 3,344
-------
Balance, December 31, 1999.................................. 72,605
Contributions (Unaudited)................................. 11,214
Net Income (Unaudited).................................... 5,271
-------
Balance, June 30, 2000 (Unaudited).......................... $89,090
=======
</TABLE>
See accompanying notes to financial statements.
F-55
<PAGE> 158
DUNKIRK POWER LLC
NOTES TO FINANCIAL STATEMENTS
Dunkirk Power LLC ("the Company"), a wholly-owned subsidiary of NRG
Northeast Generating LLC ("NRG Northeast") owns and operates the approximately
600 Megawatt ("MW"), four unit, coal-fired base-load electric generating
facility located in Dunkirk, New York.
NRG Northeast, a wholly-owned indirect subsidiary of NRG Energy, Inc.
("NRG"), owns electric power generation plants in the northeastern region of the
United States. NRG Northeast was formed for the purpose of financing, acquiring,
owning, operating and maintaining, through its subsidiaries and affiliates the
electric generating 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.
As of December 31, 1999, NRG Northeast held a 99% interest in Arthur Kill
Power LLC, Astoria Gas Turbine Power LLC, Dunkirk Power LLC, Huntley Power LLC,
Oswego Harbor Power LLC and Somerset Power LLC. Northeast Generation Holding LLC
and NRG Eastern LLC each held a minority interest of 0.5% in Arthur Kill Power
LLC, Astoria Gas Turbine Power LLC, Dunkirk Power LLC, Huntley Power LLC, Oswego
Harbor Power LLC and Somerset Power LLC. Northeast Generation Holding LLC and
NRG Eastern LLC are wholly-owned subsidiaries of NRG Energy, Inc.
NRG Connecticut Generating LLC, a wholly owned subsidiary of NRG, owned
100% of Connecticut Jet Power LLC, Devon Power LLC, Middletown Power LLC,
Montville Power LLC and Norwalk Harbor Power LLC.
Effective January 1, 2000, the minority ownership interests held by
Northeast Generation Holding LLC and NRG Eastern LLC as well as the ownership
interests held by NRG Connecticut Generating LLC were transferred to NRG
Northeast. Since all assets and operations were under common ownership and
control since April 27, 1999 (Inception of NRG Northeast), the financial
statements have been presented on a combined basis without minority interest.
Additional information regarding NRG Northeast and the Company can be found
in NRG's Form 10-K for the twelve months ended December 31, 1999.
NOTE 1 -- BUSINESS DEVELOPMENTS
In June 1999, the Huntley and Dunkirk facilities were acquired from Niagara
Mohawk Power Corporation ("NiMo") for approximately $355 million. The two
coal-fired facilities are located near Buffalo, New York, and have a combined
capacity of 1,360 MW. The Dunkirk facilities were acquired for approximately
$193.3 million and have a capacity of 600 MW.
The acquisition was accounted for as the purchase of assets. The aggregate
purchase price was allocated among the assets acquired and liabilities assumed
in the following amounts based on an appraisal completed in March 2000:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
ASSETS
Accounts Receivable....................................... $ 1,565
Inventory................................................. 10,728
Property, plant and equipment............................. 181,017
--------
Total Assets................................................ 193,310
LIABILITIES
Accounts payable -- affiliates............................ 25
--------
Total Liabilities........................................... 25
NET ASSETS ACQUIRED......................................... $193,285
========
</TABLE>
F-56
<PAGE> 159
DUNKIRK POWER LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates in Financial Statements
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect reported amounts of assets and liabilities
at the date of the financial statements and reported amounts of revenue and
expenses during the reporting period. Actual results may differ from those
estimates.
In recording transactions and balances resulting from business operations,
the Company uses estimates based on the best information available. Estimates
are used for such items as plant depreciable lives, uncollectible accounts and
actuarially determined benefit costs, among others. As better information
becomes available (or actual amounts are determinable), the recorded estimates
are revised. Consequently, operating results can be affected by revisions to
prior accounting estimates.
Cash and Cash Equivalents
The Company considers cash and cash equivalents to include cash and
short-term investments with original maturities of three months or less.
Inventory
Inventory consists of spare parts, coal and fuel oil and is stated at the
lower of weighted average cost or market (Note 5).
Prepaid Expenses
Prepaid expenses include insurance, taxes and other prepayments.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is computed
on a straight-line basis over the following estimated useful lives:
<TABLE>
<S> <C>
Facilities, machinery and equipment......................... 25 to 30 years
Office furnishings and equipment............................ 3 to 10 years
</TABLE>
At December 31, 1999 and June 30, 2000, property, plant and equipment
consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 JUNE 30, 2000
----------------- -------------
(UNAUDITED)
<S> <C> <C>
(IN THOUSANDS)
Land........................................................ $ 1,879 $ 1,879
Facilities, machinery and equipment......................... 181,759 183,161
Construction in progress.................................... 3,268 5,444
Office furnishings and equipment............................ 87 119
Accumulated depreciation.................................... (3,628) (6,727)
-------- --------
Property, plant and equipment (net)......................... $183,365 $183,876
======== ========
</TABLE>
Deferred Financing
Deferred financing costs consist of legal and other costs incurred to
obtain debt financing. These costs are being amortized over the terms of the
related debt.
Revenue Recognition
Revenue and related costs are recorded as electricity is generated or
services are provided.
F-57
<PAGE> 160
DUNKIRK POWER LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Power Marketing Activities
The Company has entered into a contract with a marketing affiliate for the
sale of energy, capacity and ancillary services produced, which enables the
affiliate to engage in forward sales and hedging transactions to manage the
Company's electricity price exposure. Net gains or losses on hedges by the
marketing affiliate, which are physically settled, are recognized in the same
manner as the hedged item. The Company receives the net transaction price on all
contracts that are physically settled by its marketing affiliate.
Income Taxes
The net income or loss of the Company for income tax purposes, along with
any associated tax credits, is included in the tax returns of NRG. Accordingly,
no provision has been made for federal or state income taxes in the accompanying
financial statements.
As of December 31, 1999, the accompanying financial statements report a
balance of $183,365 for net property, plant and equipment. The tax basis of this
property is estimated to be $180,530. The primary difference is due to
accelerated tax depreciation.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standard Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities." This statement requires that all
derivatives be recognized at fair value in the balance sheet, and that changes
in fair value be recognized either currently in earnings or deferred as a
component of Other Comprehensive Income, depending on the intended use of the
derivative, its resulting designation and its effectiveness. The Company plans
to adopt this standard in 2001, as required. The potential impact of
implementing this statement has not yet been determined.
In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities, an Amendment of FASB
Statement No. 133." This Statement amends SFAS 133 in four areas, normal
purchases and sales contracts, definition of interest rate risk, hedging
recognized foreign currency denominated assets and liabilities and hedging
foreign currency risk and intercompany derivatives. The Company plans to adopt
the standard, as required. The potential impact of implementing this standard
has not been determined.
Interim Results (Unaudited)
Information as of and for the six months ended June 30, 2000 is unaudited.
The information as of and furnished in the unaudited June 30, 2000 Balance
Sheet, Statement of Income and Cash Flows include all material adjustments,
consisting only of normal recurring accruals, which are, in the opinion of
management necessary for a fair presentation of such financial statements. The
data disclosed to these notes to the financial statements for this period is
also unaudited.
NOTE 3 -- SHORT TERM BORROWINGS
At December 31, 1999, NRG Northeast had $682.3 million in short-term
borrowings under its 364-day credit facility, which had a weighted average
interest rate of 6.86% for the period. Interest on the credit facility is
payable at a variable rate of LIBOR plus 0.125%. The credit facility consists of
a $646.6 million term loan facility and a $35.7 million working capital
revolving facility. On June 11, 1999, the Company borrowed from NRG Northeast
approximately $124.1 million of the $646.6 million term loan facility proceeds
pursuant to an intercompany loan agreement to finance a portion of its purchase
of its electric generating facilities. The terms
F-58
<PAGE> 161
DUNKIRK POWER LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 -- SHORT TERM BORROWINGS -- (CONTINUED)
of the intercompany loan are identical to NRG Northeast's 364-day credit
facility. During 1999, approximately $5.6 million of interest expense related to
the credit facility was recognized as part of the Company's results of
operations.
NOTE 4 -- LONG TERM DEBT
On February 22, 2000, NRG Northeast 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 percent due in 2004; $130 million with an interest rate of 8.842 percent
due in 2015; and $300 million with an interest rate of 9.292 percent due in
2024. NRG Northeast used $646.6 million of the proceeds to repay short-term
borrowings outstanding at December 31, 1999; accordingly $646.6 million of
short-term debt has been reclassified as long-term debt based on the
refinancing. Each of the subsidiaries of NRG Northeast, of which the Company is
one, jointly and severally guarantee the bonds. The bonds are secured by a
security interest in NRG Northeast's membership or other ownership interest in
its subsidiaries that guarantee the bonds; NRG Northeast's rights under all
intercompany notes between it and its subsidiaries, the power sales and agency
agreements, the operations and maintenance agreements, the corporate services
agreements, the transition power sales contracts entered into by NRG Northeast
and its subsidiaries and the funds administration agreement; the debt service
reserve account; and the revenues from certain power sales contracts entered
into by NRG Power Marketing associated with existing or future facilities owned
by NRG Northeast or its subsidiaries. A portion of the interest expense related
to these bonds will be recognized as part of the Company's results of
operations.
NOTE 5 -- INVENTORY
At December 31, 1999 and June 30, 2000, inventory, which is stated at the
lower of weighted average cost or market, consisted of:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 JUNE 30, 2000
----------------- -------------
(UNAUDITED)
<S> <C> <C>
(IN THOUSANDS)
Fuel Oil......................................... $ 36 $ 37
Spare Parts...................................... 6,125 6,445
Coal............................................. 2,448 4,637
Other............................................ 34 108
------ -------
Total....................................... $8,643 $11,227
====== =======
</TABLE>
NOTE 6 -- RELATED PARTY TRANSACTIONS
On June 11, 1999 the Company entered into a power sales and agency
agreement with NRG Power Marketing Inc., a wholly-owned subsidiary of NRG. The
agreement is effective until December 31, 2030. Under the agreement, NRG Power
Marketing Inc. will (i) have the exclusive right to manage, market and sell all
power not otherwise sold or committed to or by the Company, (ii) procure and
provide to the Company all fuel required to operate its respective facilities
and (iii) market, sell and purchase all emission credits owned, earned or
acquired by the Company. In addition, NRG Power Marketing Inc. will have the
exclusive right and obligation to effect the direction of the power output from
the facilities.
Under the agreement, NRG Power Marketing Inc. pays to the Company gross
receipts generated through sales, less costs incurred by NRG Power Marketing
Inc. relative to its providing services (e.g. transmission and delivery costs,
fuel cost, taxes, employee labor, contract services, etc.).
F-59
<PAGE> 162
DUNKIRK POWER LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- RELATED PARTY TRANSACTIONS -- (CONTINUED)
During 1999 and for the six months ended June 30, 2000, the Company
recorded gross receipts less costs incurred from NRG Power Marketing Inc.
totaling $27.5 million and $36.7 million, respectively.
On June 11, 1999 the Company entered into an operation and maintenance
agreement with a subsidiary of NRG Operating Services, Inc., a wholly-owned
subsidiary of NRG ("NRG Operating Services"). The agreement is effective for
five years, with options to extend beyond five years. Under the agreement, the
NRG Operating Services company operator operates and maintains its respective
facility, including (i) coordinating fuel delivery, unloading and inventory,
(ii) managing facility spare parts, (iii) meeting external performance standards
for transmission of electricity, (iv) providing operating and maintenance
consulting and (v) cooperating with and assisting the Company in performing the
Company's obligations under agreements related to its facilities.
Under the agreement, the operator will be reimbursed for usual and
customary costs related to providing the services including plant labor and
other operating costs. A demobilization payment will be made if the subsidiary
elects not to renew the agreement. There are also incentive fees and penalties
based on performance under the approved operating budget, the heat rate and
safety.
During 1999 and for the six months ended June 30, 2000, the Company
incurred operating and maintenance costs billed from NRG Operating Services
totaling $12.1 million and $14.0 million, respectively.
On June 11, 1999 the Company entered into an agreement with NRG for
corporate support and services. The agreement is perpetual in term, unless
terminated in writing. Under the agreement, NRG will provide services, as
requested, in areas such as human resources, accounting, finance, treasury, tax,
office administration, information technology, engineering, construction
management, environmental, legal and safety. Under the agreement, NRG is paid
for personnel time as well as out-of-pocket costs.
During 1999 and for the six months ended June 30, 2000, the Company paid
NRG approximately $0.3 million and $0.2 million, respectively, for corporate
support and services.
NOTE 7 -- BENEFIT PLANS
The Company does not have any employees. The employees at the operating
facility are employed by NRG Operating Services. NRG Northeast has contracted
with NRG Operating Services to operate the facility (Note 6). Many of the
operating employees were formerly employed by the previous owner of the
facility.
PENSION BENEFITS -- 1999 ACQUISITIONS
During 1999, subsidiaries of NRG Northeast acquired several generating
assets and assumed benefit obligations for a number of employees associated with
their acquisitions of generating assets. The benefit obligations included
noncontributory defined benefit pension formulas, matched 401(k) savings plans
and contributory post-retirement welfare plans. Approximately 56 percent of the
benefit employees are represented by eight local labor unions under collective
bargaining agreements, which expire between 2000 and 2003.
NRG Operating Services sponsors one noncontributory defined benefit pension
plan that covers most of the employees associated with the 1999 acquisitions.
Generally, the benefits are based on a combination of years of service, the
final average pay and Social Security benefits. The benefit plan data is shown
below, as NRG Northeast and its respective subsidiaries, including the Company,
will be required to fund the plan under its agreement with NRG Operating
Services.
F-60
<PAGE> 163
DUNKIRK POWER LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7 -- BENEFIT PLANS -- (CONTINUED)
<TABLE>
<CAPTION>
NRG
NORTHEAST DUNKIRK
PLAN PORTION
1999 1999
------------- -------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
COMPONENTS OF NET PERIODIC BENEFIT COST
Service cost benefits earned................................ $ 968 $ 309
Interest cost on benefit obligation......................... 1,115 439
Expected return on plan assets.............................. (1,193) (532)
-------- -------
Net periodic (benefit) cost............................ $ 890 $ 216
======== =======
</TABLE>
<TABLE>
<CAPTION>
1999 1999
------------- -------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
RECONCILIATION OF FUNDED STATUS
Benefit obligation at beginning of year..................... $ 24,954 $12,545
Additional acquisitions during the year..................... 27,330 --
Service cost................................................ 968 309
Interest cost............................................... 1,115 439
Plan amendments............................................. -- --
Actuarial gain.............................................. (1,098) (290)
Benefit payments............................................ (403) (203)
-------- -------
Benefit obligation at Dec. 31.......................... $ 52,866 $12,800
======== =======
Fair value of plan assets at beginning of year.............. $ 24,905 $12,520
Additional assets transferred............................... 10,070 --
Actual return on plan assets................................ 3,091 1,533
Benefit payments............................................ (403) (203)
-------- -------
Fair value of plan assets at Dec. 31................... $ 37,663 $13,850
======== =======
Funded status at Dec. 31 -- excess of assets over
obligation................................................ $(15,203) $ 1,050
Unrecognized transition (asset) obligation.................. -- --
Unrecognized prior service cost............................. -- --
Unrecognized net gain....................................... (2,996) (1,291)
-------- -------
(Accrued) Prepaid benefit obligation at Dec. 31............. $(18,199) $ (241)
</TABLE>
<TABLE>
<CAPTION>
1999 1999
------------- -------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
AMOUNT RECOGNIZED IN THE BALANCE SHEET
Prepaid benefit cost........................................ -- --
Accrued benefit liability................................... $(18,199) $ (241)
-------- -------
Net amount recognized -- (Accounts
payable -- affiliates)................................ $(18,199) $ (241)
======== =======
</TABLE>
The weighted average discount rate used in determining the actuarial
present value of the projected benefit obligation was 7.5% for December 31,
1999. The rate of increase in future compensation levels used in determining the
actuarial present value of the projected obligation was 4.5% for nonunion
employees and 3.50% for union employees. The assumed long-term rate of return on
assets used for cost determination was 8.5% for 1999. During 1999, the Company
recorded approximately $516,000 of pension expense.
F-61
<PAGE> 164
DUNKIRK POWER LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7 -- BENEFIT PLANS -- (CONTINUED)
POSTRETIREMENT HEALTH CARE
Under its agreement with NRG Operating Services, NRG Northeast assumed
postretirement health care benefits for some of the employees associated with
the 1999 acquisitions. The plan enables NRG Northeast and the retirees to share
the costs of retiree health care. The cost sharing varies by acquisition group
and collective bargaining agreements. There are no existing NRG Northeast
retirees under these plans as of December 31, 1999. Complete valuation data is
not available for some of these groups. The estimated net periodic
postretirement benefit cost for 1999 is $0.85 million. The estimated accumulated
postretirement benefit obligation is $12 million at December 31, 1999.
401(k) PLANS
Under its agreement with NRG Operating Services, NRG Northeast established
several contributory defined contribution employee savings plans as a result of
its 1999 acquisition activity. These plans comply with Section 401(k) of the
Internal Revenue Code of 1986, as amended, and cover substantially all of the
NRG Operating Service's employees who are not covered by Northern States Power's
(NRG's parent) 401(k) Plan. NRG Northeast matches specified amounts of employee
contributions to the plan. Employer contributions made to NRG Northeast's plans
were approximately $0.31 million in 1999.
NOTE 8 -- SALES TO SIGNIFICANT CUSTOMERS
During 1999, sales to one customer (the previous owner of the generating
facilities) accounted for 86.0 percent of the Company's revenues in 1999. During
1999, the Company entered into a transition agreement with the previous owner of
the Company's recently acquired electric generating facilities for the sale of
energy, capacity and other ancillary services. This transition agreement
accounted for a majority of the Company's revenues during 1999 (Note 10). For
the six months ended June 30, 2000 sales to two customers accounted for 68% and
32% of the Company's revenues.
NOTE 9 -- CONTINGENT REVENUES
During 1999, the first year of electricity deregulation in the state of New
York, NRG Northeast had claims related to certain revenues earned during the
period April 27, 1999 to December 31, 1999. NRG Northeast is actively pursuing
resolution and/or collection of these amounts. 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. The contingent revenues relate
to interpretation of certain transition power sales agreements and to sales to
the New York Power Pool ("NYPP") and New England Power Pool ("NEPOOL"),
conflicting meter readings, pricing of firm sales and other power pool reporting
issues. Approximately $3.5 million of these contingent revenues relate to the
Company.
NOTE 10 -- COMMITMENTS AND CONTINGENCIES
Regulatory Issue
On May 31, 2000, the Federal Energy Regulatory Commission ("FERC") approved
a request of the New York Independent System Operator ("NYISO"), to impose price
limitations on one ancillary service, Ten Minute Non-Synchronized Reserve
("TMNSR"), on a prospective basis 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's order (unless the NYISO or
other party successfully appeals the order) NRG Northeast will retain the
approximately $8.0 million of revenue collected in February 2000 and
approximately $8.2 million included in revenues, but not yet collected for March
2000. On June 30, 2000 the NYISO appealed the FERC's decision rejecting its
request to adjust the market clearing prices on a
F-62
<PAGE> 165
DUNKIRK POWER LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 10 -- COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
retroactive basis. NRG Northeast will attempt to revise its business plan to
adjust its business operations to mitigate the future impact of the Order.
Environmental
On October 14, 1999, Governor Pataki of New York announced that he is
ordering the New York Department of Environmental Conservation ("NYDEC") to
require further reductions of sulfur dioxide ("SO(2)") emissions and nitrogen
oxide ("NO(x)") emissions from New York power plants, beyond that which is
required under current federal and state law. The additional reduction
requirement would be phased in between January 1, 2003 and January 1, 2007.
Compliance with these emissions reductions requirements, if they become
effective, could have a material adverse impact on the operation of the
Company's facilities located in the state of New York. Due to the uncertainties
involved in the adoption of these new emission reduction requirements, the
Company is unable to determine what impact these new requirements may have on
the Company's results of operations.
In a letter dated October 12, 1999, the Office of the Attorney General from
the State of New York alleged that, based on a preliminary analysis, it believes
major modifications were made to the Huntley and Dunkirk facilities during
NiMo's ownership of those facilities without obtaining appropriate air permits.
The Company has no reason to believe that NiMo did not comply with the
preconstruction permit requirements for the facilities, and, accordingly, cannot
predict the outcome of this investigation or its financial exposure related to
the claim.
As a result of alleged violations of opacity, or visible emission,
standards at the Huntley, Dunkirk and Oswego facilities, NiMo, the former owner
and operator of these facilities, was in the process of negotiating a consent
order with NYDEC to resolve such violations at the time we acquired such
facilities. Under the terms of the asset purchase agreements, NiMo will be
responsible for any and all exceedences which occurred prior to the closing of
the transactions contemplated in the asset purchase agreements. The Company's
subsidiaries which own these facilities have agreed, in connection with their
acquisition of these facilities, to enter into separate consent orders for each
facility to address on-going and potential future violations of opacity
standards. The Company believes that almost all of the opacity exceedences at
the Dunkirk and Oswego facilities are non-preventable events occurring as a
result of startups and shutdowns at those facilities that should not be subject
to penalties under the New York regulations. These subsidiaries are currently in
discussions with the NYDEC regarding this issue. Opacity exceedences at the
Huntley Facility are also under discussion with NYDEC.
Contractual Commitments
For the next four years, the Company estimates that a significant portion
of the total revenues from the Dunkirk and Huntley facilities will be derived
from four-year transition contracts for capacity and energy. All forward
capacity is sold to NiMo during the transition period, with the remainder of
energy sold to the New York ISO. Each of the following agreements was executed
on June 11, 1999 and extends for a term of four years.
NRG Power Marketing has entered into an agreement with NiMo to hedge NiMo's
transition to market rates. Under the agreement, NiMo will pay a fixed monthly
price for the capacity and ancillary services provided by NRG Power Marketing.
NRG Power Marketing will pay to NiMo the market price for the related capacity
and ancillary services delivered.
NRG Power Marketing has entered into a swap agreement with NiMo to hedge
NiMo's transition to market rates. In accordance with the agreement, NiMo will
pay to NRG Power Marketing a fixed monthly
F-63
<PAGE> 166
DUNKIRK POWER LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 10 -- COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
price for the capacity and ancillary services provided to NiMo related to
Dunkirk units 1, 2, 3 and 4 and Huntley units 67 and 68. NRG Power Marketing
will pay to NiMo the market price for such services.
NiMo may also exercise a call option for an additional swap under which
NiMo will nominate certain amounts of energy for the Dunkirk and Huntley
facilities and will pay to NRG Power Marketing an amount for such energy
determined in accordance with the nominated unit's heat rate curve. NRG Power
Marketing will pay to NiMo the market rates for such energy at the time the
energy was nominated.
F-64
<PAGE> 167
ARTHUR KILL POWER LLC
FINANCIAL STATEMENTS
F-65
<PAGE> 168
REPORT OF INDEPENDENT ACCOUNTANTS
To the Management Committee
Of Arthur Kill Power LLC:
In our opinion, the accompanying balance sheet and the related statement of
operations, of members' equity and of cash flows present fairly, in all material
respects, the financial position of Arthur Kill Power LLC at December 31, 1999,
and the results of their operations and their cash flows for the period from
June 25, 1999 (Inception) through December 31, 1999 in conformity with
accounting principles generally accepted in the United States. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Minneapolis, MN
July 14, 2000
F-66
<PAGE> 169
ARTHUR KILL POWER LLC
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Balance Sheets.............................................. F-68
Statements of Operations.................................... F-69
Statements of Cash Flows.................................... F-70
Statement of Member's Equity................................ F-71
Notes to Financial Statements............................... F-72
</TABLE>
F-67
<PAGE> 170
ARTHUR KILL POWER LLC
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, 1999 JUNE 30, 2000
----------------- -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
(THOUSANDS OF DOLLARS)
CURRENT ASSETS:
Cash and cash equivalents................................. $ 2 $ 2
Accounts receivable....................................... 23,737 30,121
Accounts receivable -- affiliates......................... -- 22,808
Inventory................................................. 8,584 8,507
Prepaid expenses.......................................... 6,225 5,872
-------- --------
Total current assets.............................. 38,548 67,310
Property, plant & equipment, net (Note 2)................. 401,000 397,698
Deferred financing costs, net of accumulated amortization
of $1,401 and $39...................................... 1,120 2,662
-------- --------
Total assets...................................... $440,668 $467,670
======== ========
LIABILITIES AND MEMBER'S EQUITY
LIABILITIES:
Current Liabilities:
Accounts payable....................................... 194 148
Notes payable -- affiliates, current portion........... -- 28,763
Checks in excess of cash............................... 5,837 8,583
Accounts payable-affiliates............................ 8,471 --
Accrued fuel and purchased power expense............... 10,068 17,860
Accrued interest....................................... -- 815
Other current liabilities (Note 10).................... 2,285 3,800
-------- --------
Total current liabilities.............................. 26,855 59,969
Notes payable -- affiliates............................ 249,505 198,137
MEMBER'S EQUITY............................................. 164,308 209,564
-------- --------
Total liabilities and member's equity............. $440,668 $467,670
======== ========
</TABLE>
See accompanying notes to financial statements.
F-68
<PAGE> 171
ARTHUR KILL POWER LLC
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE PERIOD FOR THE SIX
JUNE 25, 1999 (INCEPTION) JUNE 25, 1999 (INCEPTION) MONTHS ENDED
TO DECEMBER 31,1999 TO JUNE 30, 1999 JUNE 30, 2000
------------------------- ------------------------- -------------
(THOUSANDS OF DOLLARS) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Revenues............................... $59,155 $1,426 $97,694
Operating Costs........................ 21,220 73 56,820
------- ------ -------
Operating margin.................. 37,935 1,353 40,874
Depreciation and Amortization.......... 6,620 199 6,267
General and Administrative Expenses.... 2,292 -- 844
------- ------ -------
Income from operations............ 29,023 1,154 33,763
Interest Expense....................... 10,720 -- 11,158
Other Income, net...................... -- -- (46)
------- ------ -------
Net Income........................ $18,303 $1,154 $22,651
======= ====== =======
</TABLE>
See accompanying notes to financial statements.
F-69
<PAGE> 172
ARTHUR KILL POWER LLC
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE PERIOD FOR THE SIX
JUNE 25, 1999 (INCEPTION) JUNE 25, 1999 (DECEPTION) MONTHS ENDED
TO DECEMBER 31, 1999 TO JUNE 30, 1999 JUNE 30, 2000
------------------------- ------------------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
(THOUSANDS OF DOLLARS)
Cash Flow from operating activities:
Net income.............................. $ 18,303 $ 1,154 $ 22,651
Adjustments to reconcile net income to
net cash provided from operating
activities:
Depreciation and amortization......... 6,620 199 6,267
Amortization of deferred financing
costs.............................. 1,401 143 1,249
Changes in assets and liabilities:
Accounts receivable................ (23,737) (1,426) (6,384)
Accounts
receivable -- affiliates......... -- -- (22,808)
Inventories........................ 69 -- 77
Prepaid expenses................... (5,837) (5,801) 353
Accounts payable................... 193 11 (46)
Accounts payable -- affiliates..... (6,044) 8,732 (8,471)
Accrued fuel and purchased power
expense.......................... 10,068 -- 7,792
Accrued interest................... -- -- 815
Other current liabilities.......... 730 66 1,515
--------- -------- --------
Net cash provided by operating
activities.................... 1,766 3,078 3,010
Cash flows from investing activities:
Business acquisition, net of
liabilities assumed................ (395,510) (395,510) --
Capital expenditures.................. (5,080) -- (2,965)
--------- -------- --------
Net cash used in investing
activities.................... (400,590) (395,510) (2,965)
--------- -------- --------
Cash flows from financing activities:
Principal payments on debt............ -- -- (249,505)
Proceeds from borrowings.............. 249,505 249,505 226,900
Deferred financing costs.............. (2,521) (3,077) (2,791)
Contributions by members.............. 146,005 146,005 22,605
Checks in excess of cash.............. 5,837 -- 2,746
--------- -------- --------
Net cash flows provided by
financing activities.......... 398,826 392,433 (45)
--------- -------- --------
Net increase in cash and cash
equivalents........................... 2 1 --
Cash and cash equivalents at beginning
of period............................. -- -- 2
--------- -------- --------
Cash and cash equivalents at end of
period................................ $ 2 $ 1 $ 2
========= ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Interest paid (net of amount
capitalized).......................... $ 10,201 $ -- $ 9,093
</TABLE>
See accompanying notes to financial statements.
F-70
<PAGE> 173
ARTHUR KILL POWER LLC
STATEMENT OF MEMBER'S EQUITY
<TABLE>
<S> <C>
(THOUSANDS OF DOLLARS)
Balance, June 25, 1999 (Inception).......................... $ --
Contributions............................................. 146,005
Net Income................................................ 1,154
--------
Balance, June 30, 1999 (Unaudited).......................... 147,159
Contributions............................................. --
Net Income................................................ 17,149
--------
Balance, December 31, 1999.................................. 164,308
Contributions (Unaudited)................................. 22,605
Net Income (Unaudited).................................... 22,651
--------
Balance, June 30, 2000 (Unaudited).......................... $209,564
========
</TABLE>
See accompanying notes to financial statements.
F-71
<PAGE> 174
ARTHUR KILL POWER LLC
NOTES TO FINANCIAL STATEMENTS
Arthur Kill Power LLC ("the Company"), a wholly-owned subsidiary of NRG
Northeast Generating LLC ("NRG Northeast") owns and operates the approximately
842 Megawatt ("MW"), three unit, natural gas/oil fired intermediate/peaking
electric generating facility located in Staten Island, New York.
NRG Northeast, a wholly-owned indirect subsidiary of NRG Energy, Inc.
("NRG"), owns electric power generation plants in the northeastern region of the
United States. NRG Northeast was formed for the purpose of financing, acquiring,
owning, operating and maintaining, through its subsidiaries and affiliates the
electric generating 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.
As of December 31, 1999, NRG Northeast held a 99% interest in Arthur Kill
Power LLC, Astoria Gas Turbine Power LLC, Dunkirk Power LLC, Huntley Power LLC,
Oswego Harbor Power LLC and Somerset Power LLC. Northeast Generation Holding LLC
and NRG Eastern LLC each held a minority interest of 0.5% in Arthur Kill Power
LLC, Astoria Gas Turbine Power LLC, Dunkirk Power LLC, Huntley Power LLC, Oswego
Harbor Power LLC and Somerset Power LLC. Northeast Generation Holding LLC and
NRG Eastern LLC are wholly-owned subsidiaries of NRG Energy, Inc.
NRG Connecticut Generating LLC, a wholly owned subsidiary of NRG, owned
100% of Connecticut Jet Power LLC, Devon Power LLC, Middletown Power LLC,
Montville Power LLC and Norwalk Harbor Power LLC.
Effective January 1, 2000, the minority ownership interests held by
Northeast Generation Holding LLC and NRG Eastern LLC as well as the ownership
interests held by NRG Connecticut Generating LLC were transferred to NRG
Northeast. Since all assets and operations were under common ownership and
control since April 27, 1999 (Inception of NRG Northeast), the financial
statements have been presented on a combined basis without minority interest.
Additional information regarding the NRG Northeast and the Company can be
found in NRG's Form 10-K for the twelve months ended December 31, 1999.
In the opinion of management, the accompanying financial statements contain
all material adjustments necessary to present fairly the financial position of
the Company as of December 31, 1999, the results of its operations, cash flows
and members' equity for the period from June 25, 1999 to December 31, 1999.
NOTE 1 -- BUSINESS DEVELOPMENTS
In June 1999, the Arthur Kill and Astoria generating facilities were
acquired from the Consolidated Edison Company of New York, Inc. ("ConEd") for
approximately $505 million. These facilities are located in Staten Island and
Queens, New York, and have a combined capacity of 1,456 MW. The Arthur Kill
facilities were acquired for approximately $395.5 million and have a capacity of
842 MW.
F-72
<PAGE> 175
ARTHUR KILL POWER LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 1 -- BUSINESS DEVELOPMENTS -- (CONTINUED)
The aquisition was accounted for as the purchase of assets. The aggregate
purchase price was allocated among the assets acquired and liabilities assumed
in the following amounts based on an appraisal completed in October 1999:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
ASSETS
Inventory................................................. $ 8,654
Other current assets...................................... 388
Property, plant and equipment............................. 402,539
--------
Total Assets................................................ 411,581
LIABILITIES
Accounts payable -- affiliates............................ 14,515
Other current liabilities................................. 1,556
--------
Total Liabilities........................................... 16,071
NET ASSETS ACQUIRED......................................... $395,510
========
</TABLE>
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates in Financial Statements
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect reported amounts of assets and liabilities
at the date of the financial statements and reported amounts of revenue and
expenses during the reporting period. Actual results may differ from those
estimates.
In recording transactions and balances resulting from business operations,
the Company uses estimates based on the best information available. Estimates
are used for such items as plant depreciable lives, uncollectible accounts and
actuarially determined benefit costs, among others. As better information
becomes available (or actual amounts are determinable), the recorded estimates
are revised. Consequently, operating results can be affected by revisions to
prior accounting estimates.
Cash and Cash Equivalents
The Company considers cash and cash equivalents to include cash and
short-term investments with original maturities of three months or less.
Inventory
Inventory consists of spare parts and is stated at the lower of weighted
average cost or market (Note 5).
Prepaid Expenses
Prepaid expenses include insurance, taxes and other prepayments.
Interim Results (Unaudited)
Information as of and for the six months ended June 30, 2000 is unaudited.
The information as of and furnished in the unaudited June 30, 2000 Balance
Sheet, Statement of Income and Cash Flows include all material adjustments,
consisting only of normal recurring accruals, which are, in the opinion of
F-73
<PAGE> 176
ARTHUR KILL POWER LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
management necessary for a fair presentation of such financial statements. The
data disclosed in these notes to the financial statements for this period is
also unaudited.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is computed
on a straight-line basis over the following estimated useful lives:
<TABLE>
<S> <C>
Facilities, machinery and equipment......................... 25 to 30 years
Office furnishings and equipment............................ 3 to 10 years
</TABLE>
At December 31, 1999 and June 30, 2000, property, plant and equipment
consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 JUNE 30, 2000
----------------- -------------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C>
Land............................................. $ 25,963 $ 25,963
Facilities, machinery and equipment.............. 380,617 380,651
Construction in progress......................... 902 3,811
Office furnishings and equipment................. 138 160
Accumulated depreciation......................... (6,620) (12,887)
-------- --------
Property, plant and equipment (net).............. $401,000 $397,698
======== ========
</TABLE>
Deferred Financing
Deferred financing costs consist of legal and other costs incurred to
obtain debt financing. These costs are being amortized over the terms of the
related debt.
Revenue Recognition
Revenue and related costs are recorded as electricity is generated or
services are provided.
Power Marketing Activities
The Company has entered into a contract with a marketing affiliate for the
sale of energy, capacity and ancillary services produced, which enables the
affiliate to engage in forward sales and hedging transactions to manage the
Company's electricity price exposure. Net gains or losses on hedges by the
marketing affiliate, which are physically settled, are recognized in the same
manner as the hedged item. The Company receives the net transaction price on all
contracts that are physically settled by its marketing affiliate.
Income Taxes
The net income or loss of the Company for income tax purposes, along with
any associated tax credits, is included in the tax returns of NRG. Accordingly,
no provision has been made for federal or state income taxes in the accompanying
financial statements.
As of December 31, 1999, the accompanying financial statements report a
balance of $401,000 for net property, plant and equipment. The tax basis of this
property is estimated to be $394,802. The primary difference is due to
accelerated tax depreciation.
F-74
<PAGE> 177
ARTHUR KILL POWER LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
New Accounting Pronouncements
In June 1998, the Financial Accounting Standard Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities." This statement requires that all
derivatives be recognized at fair value in the balance sheet, and that changes
in fair value be recognized either currently in earnings or deferred as a
component of Other Comprehensive Income, depending on the intended use of the
derivative, its resulting designation and its effectiveness. The Company plans
to adopt this standard in 2001, as required. The potential impact of
implementing this statement has not yet been determined.
In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities, an Amendment of FASB
Statement No. 133." This Statement amends SFAS 133 in four areas, normal
purchases and sales contracts, definition of interest rate risk, hedging
recognized foreign currency denominated assets and liabilities and hedging
foreign currency risk and intercompany derivatives. The Company plans to adopt
the standard, as required. The potential impact of implementing this standard
has not been determined.
NOTE 3 -- SHORT TERM BORROWINGS
At December 31, 1999, NRG Northeast had $682.3 million in short-term
borrowings under its credit facility, which had a weighted average interest rate
of 6.86% for the period. The credit facility consists of a $646.6 million term
loan facility and a $35.7 million working capital revolving facility. The
Company borrowed from NRG Northeast approximately $249.5 million of the $646.6
million term loan facility proceeds pursuant to an intercompany loan agreement
to finance a portion of its purchase of its electric generating facilities.
During 1999, approximately $10.7 million of interest expense related to the
credit facility was recognized as part of the Company's results of operations.
NOTE 4 -- LONG TERM DEBT
On February 22, 2000, NRG Northeast 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 percent due in 2004; $130 million with an interest rate of 8.842 percent
due in 2015; and $300 million with an interest rate of 9.292 percent due in
2024. NRG Northeast used $646.6 million of the proceeds to repay short-term
borrowings outstanding at December 31, 1999; accordingly $646.6 million of
short-term debt has been reclassified as long-term debt based on the
refinancing. Each of the subsidiaries of NRG Northeast, of which the Company is
one, jointly and severally guarantee the bonds. The bonds are secured by a
security interest in NRG Northeast's membership or other ownership interest in
its subsidiaries that guarantee the bonds; NRG Northeast's rights under all
intercompany notes between it and its subsidiaries, the power sales and agency
agreements, the operations and maintenance agreements, the corporate services
agreements, the transition power sales contracts entered into by NRG Northeast
and its subsidiaries and the funds administration agreement; the debt service
reserve account; and the revenues from certain power sales contracts entered
into by NRG Power Marketing associated with existing or future facilities owned
by NRG Northeast or its subsidiaries. A portion of the interest expense related
to these bonds will be recognized as part of the Company's results of
operations.
F-75
<PAGE> 178
ARTHUR KILL POWER LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5 -- INVENTORY
At December 31, 1999 and June 30, 2000, inventory, which is stated at the
lower of weighted average cost or market, consisted of:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 JUNE 30, 2000
----------------- -------------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C>
Spare Parts...................................... $8,584 $8,507
====== ======
</TABLE>
NOTE 6 -- RELATED PARTY TRANSACTIONS
On June 25, 1999 the Company entered into a power sales and agency
agreement with NRG Power Marketing Inc., a wholly-owned subsidiary of NRG. The
agreement is effective until December 31, 2030. Under the agreement, NRG Power
Marketing Inc. will (i) have the exclusive right to manage, market and sell all
power not otherwise sold or committed to or by such subsidiaries, (ii) procure
and provide to such subsidiaries all fuel required to operate their respective
facilities and (iii) market, sell and purchase all emission credits owned,
earned or acquired by such subsidiaries. In addition, NRG Power Marketing Inc.
will have the exclusive right and obligation to effect the direction of the
power output from the facilities.
Under the agreement, NRG Power Marketing Inc. pays to the Company gross
receipts generated through sales, less costs incurred by NRG Power Marketing
Inc. relative to its providing services (e.g. transmission and delivery costs,
fuel cost, taxes, employee labor, contract services, etc.).
During 1999 and for the six months ended June 30, 2000, the Company
recorded gross receipts from NRG Power Marketing Inc. totaling $49.5 million and
$55.6 million, respectively.
On June 25, 1999 the Company entered into an operation and maintenance
agreement with a subsidiary of NRG Operating Services, Inc., a wholly-owned
subsidiary of NRG ("NRG Operating Services"). The agreement is effective for
five years, with options to extend beyond five years. Under the agreement, the
NRG Operating Services company operator operates and maintains its respective
facility, including (i) coordinating fuel delivery, unloading and inventory,
(ii) managing facility spare parts, (iii) meeting external performance standards
for transmission of electricity, (iv) providing operating and maintenance
consulting and (v) cooperating with and assisting the Company in performing the
Company's obligations under agreements related to its facilities.
Under the agreement, the operator will be reimbursed for usual and
customary costs related to providing the services including plant labor and
other operating costs. A demobilization payment will be made if the subsidiary
elects not to renew the agreement. There are also incentive fees and penalties
based on performance under the approved operating budget, the heat rate and
safety.
During 1999 and for the six months ended June 30, 2000, the Company
incurred operating and maintenance costs billed from NRG Operating Services
totaling $5.6 million and $9.7 million, respectively.
On June 25, 1999 the Company entered into an agreement with NRG for
corporate support and services. The agreement is perpetual in term, unless
terminated in writing. Under the agreement, NRG will provide services, as
requested, in areas such as human resources, accounting, finance, treasury, tax,
office administration, information technology, engineering, construction
management, environmental, legal and safety. Under the agreement, NRG is paid
for personnel time as well as out-of-pocket costs.
During 1999 and for the six months ended June 30, 2000, the Company paid
NRG approximately $0.1 million and $0.2 million, respectively for corporate
support and services.
F-76
<PAGE> 179
ARTHUR KILL POWER LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7 -- BENEFIT PLANS
The Company does not have any employees. The employees at the operating
facility are employed by NRG Operating Services. NRG Northeast has contracted
with NRG Operating Services to operate the facility (Note 6). Many of the
operating employees were formerly employed by the previous owner of the
facility.
PENSION BENEFITS -- 1999 ACQUISITIONS
During 1999, subsidiaries of NRG Northeast acquired several generating
assets and assumed benefit obligations for a number of employees associated with
those acquisitions. The benefit obligations included noncontributory defined
benefit pension formulas, matched 401(k) savings plans and contributory post-
retirement welfare plans. Approximately 56 percent of the benefit employees are
represented by eight local labor unions under collective bargaining agreements,
which expire between 2000 and 2003.
NRG Operating Services sponsors one noncontributory defined benefit pension
plan that covers most of the employees associated with the 1999 acquisitions.
Generally, the benefits are based on a combination of years of service, the
final average pay and Social Security benefits. The benefit plan data is shown
below, as NRG Northeast and its respective subsidiaries, will be required to
fund the plan under its agreement with NRG Operating Services.
<TABLE>
<CAPTION>
NRG
NORTHEAST ARTHUR KILL
PLAN PORTION
1999 1999
------------- -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
COMPONENTS OF NET PERIODIC BENEFIT COST
Service cost benefits earned................................ $ 968 $ 192
Interest cost on benefit obligation......................... 1,115 98
Expected return on plan assets.............................. (1,193) --
-------- -------
Net periodic (benefit) cost............................ $ 890 $ 290
======== =======
</TABLE>
<TABLE>
<CAPTION>
1999 1999
------------- -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
RECONCILIATION OF FUNDED STATUS
Benefit obligation at beginning of year..................... $ 24,954 $ --
Additional acquisitions during the year..................... 27,330 2,592
Service cost................................................ 968 192
Interest cost............................................... 1,115 98
Plan amendments............................................. -- --
Actuarial gain.............................................. (1,098) (82)
Benefit payments............................................ (403) --
-------- -------
Benefit obligation at Dec. 31.......................... $ 52,866 $ 2,800
======== =======
Fair value of plan assets at beginning of year.............. $ 24,905 $ --
Additional assets transferred............................... 10,070 --
Actual return on plan assets................................ 3,091 --
Benefit payments............................................ (403) --
-------- -------
Fair value of plan assets at Dec. 31................... $ 37,663 $ --
======== =======
</TABLE>
F-77
<PAGE> 180
ARTHUR KILL POWER LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7 -- BENEFIT PLANS -- (CONTINUED)
<TABLE>
<CAPTION>
1999 1999
------------- -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Funded status at Dec. 31 -- excess of assets over
obligation................................................ $(15,203) $(2,800)
Unrecognized transition (asset) obligation.................. -- --
Unrecognized prior service cost............................. -- --
Unrecognized net gain....................................... (2,996) (82)
-------- -------
(Accrued) Prepaid benefit obligation at Dec. 31............. $(18,199) $(2,882)
</TABLE>
<TABLE>
<CAPTION>
1999 1999
------------- -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
AMOUNT RECOGNIZED IN THE BALANCE SHEET
Prepaid benefit cost........................................ -- --
Accrued benefit liability................................... $(18,199) $(2,882)
-------- -------
Net amount recognized -- (Accounts payable -- affiliates)... $(18,199) $(2,882)
</TABLE>
The weighted average discount rate used in determining the actuarial
present value of the projected benefit obligation was 7.5% for December 31,
1999. The rate of increase in future compensation levels used in determining the
actuarial present value of the projected obligation was 4.5% for nonunion
employees and 3.50% for union employees. The assumed long-term rate of return on
assets used for cost determination was 8.5% for 1999. During 1999, the Company
recorded approximately $350,000 of pension expense.
POSTRETIREMENT HEALTH CARE
Under its agreement with NRG Operating Services, NRG Northeast assumed
postretirement health care benefits for some of the employees associated with
the 1999 acquisitions. The plan enables NRG Northeast and the retirees to share
the costs of retiree health care. The cost sharing varies by acquisition group
and collective bargaining agreements. There are no existing NRG Northeast
retirees under these plans as of December 31, 1999. Complete valuation data is
not available for some of these groups. The estimated net periodic
postretirement benefit cost for 1999 is $0.85 million. The estimated accumulated
postretirement benefit obligation is $12 million at December 31, 1999.
401(k) PLANS
Under its agreement with NRG Operating Services, NRG Northeast established
several contributory defined contribution employee savings plans as a result of
its 1999 acquisition activity. These plans comply with Section 401(k) of the
Internal Revenue Code of 1986, as amended, and cover substantially all of the
NRG Operating Service's employees who are not covered by NSP's 401(k) Plan. NRG
Northeast matches specified amounts of employee contributions to the plan.
Employer contributions made to NRG Northeast's plans were approximately $0.31
million in 1999.
NOTE 8 -- SALES TO SIGNIFICANT CUSTOMERS
During 1999, sales to two customers accounted for 80.9 (the previous owner
of the generating facilities) and 18.7 percent of the Company's revenues during
1999. During 1999, the Company entered into a transition agreement with the
previous owner of the Company's recently acquired electric generating facility
for the sale of energy, capacity and other ancillary services. The transition
agreement accounted for the majority of the Company's revenues during 1999. For
the six months ended June 30, 2000 sales to two customers accounted for 72% and
28% of the Company's revenues.
F-78
<PAGE> 181
ARTHUR KILL POWER LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9 -- COMMITMENTS AND CONTINGENCIES
Regulatory issue
On May 31, 2000, the Federal Energy Regulatory Commission ("FERC") approved
a request of the New York Independent System Operator ("NYISO"), to impose price
limitations on one ancillary service, Ten Minute Non-Synchronized Reserve
("TMNSR"), on a prospective basis 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's order (unless the NYISO or
other party successfully appeals the order) NRG Northeast 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. On June 30, 2000 the NYISO appealed the FERC's decision rejecting its
request to adjust the market clearing prices on a retroactive basis. NRG
Northeast will attempt to revise its business plan to adjust its business
operations to mitigate the future impact of the Order.
Contractual Commitments
Upon the closing of the acquisition of the generating facilities now owned
by the Company, the Company entered into an agreement with ConEd, the previous
owner of the generating facilities. The agreement obligates the Company to
maintain specified levels of generating capability and availability. During
certain periods, ConEd will purchase specified amounts of capacity, as long as
the capacity is counted in the installed capacity requirement for New York City.
The Company may use electric capacity other than that generated by its own
plants to satisfy ConEd's demands.
Environmental
On October 14, 1999, Governor Pataki of New York announced that he is
ordering the New York Department of Environmental Conservation ("NYDEC") to
require further reductions of sulfur dioxide ("SO(2)") emissions and nitrogen
oxide ("NO(x)") 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 emissions
reductions requirements, if they become effective, could have a material adverse
impact on the operation of the Company's facilities located in the state of New
York. Due to the uncertainties involved in the adoption of these new emission
reduction requirements, the Company is unable to determine what impact these new
requirements may have on the Company's results of operations.
In connection with the acquisition of the Company's facilities from ConEd,
the Company assumed ConEd's remaining obligations under certain consent orders
issued to ConEd by the New York Department of Environmental Conservation.
In connection with these environmental obligations, the Company has
recorded approximately $1.5 million for expected environmental costs related to
site remediation issues at the facility. This amount was recorded based on an
environmental assessment performed by the previous owner of the facilities which
determined that there existed elevated levels of certain metals in the ground
water and surface water in certain areas of the facility.
F-79
<PAGE> 182
APPENDIX
GLOSSARY OF DEFINED TERMS
Certain terms defined below are summaries of terms defined in, and are
defined more specifically in, the financing documents. Such summaries do not
purport to be complete and are subject to, and qualified in their entirety by
reference to, all of the provisions of the financing documents.
Unless the context otherwise requires, any reference in this prospectus to
any agreement will mean such agreement and all schedules, exhibits and
attachments thereto, as amended, supplemented or otherwise modified and in
effect as of the date of this prospectus. All terms defined herein used in the
singular will have the same meanings when used in the plural and vice versa.
"ACCEPTABLE BANK" means any commercial bank or other financial institution
which (a) is organized under the laws of the United States of America, any state
thereof or any other member of the Organization for Economic Cooperation and
Development or Japan and has an office in the United States of America, (b) has
capital, surplus and undivided profits of at least $1,000,000,000 and (c) has
outstanding long-term unsecured indebtedness which is rated "A" or better by S&P
and "A2" or better by Moody's (or an equivalent rating by another nationally
recognized statistical rating organization of similar standing if neither such
corporation is in the business of rating long-term unsecured bank indebtedness).
"ACCREDITED INVESTORS" has the meaning ascribed to such term under the
Securities Act.
"ARTHUR KILL FACILITY" means the natural gas/oil-fired intermediate/peaking
plant having capable capacity of 842 MW (including a black start gas turbine),
located in Staten Island, New York, and the related facilities, equipment and
agreements, and the business and activities related thereto.
"ARTHUR KILL POWER" means Arthur Kill Power LLC, a special-purpose Delaware
limited liability company which owns the Arthur Kill facility.
"ASTORIA FACILITY" means the natural gas/liquid-fuel fired peaking plant
having a capable capacity of 614 MW, located in Queens, New York, and the
related facilities, equipment and agreements, and the business and activities
related thereto.
"ASTORIA POWER" means Astoria Gas Turbine Power LLC, a special-purpose
Delaware limited liability company which owns the Astoria facility.
"BONDS" means, collectively, the $320 million 8.065% Series A-1 Senior
Secured Bonds due 2004, the $130 million 8.842% Series B-1 Senior Secured Bonds
due 2015 and the $300 million 9.292% Series C-1 Senior Secured Bonds due 2024,
registered with the SEC, to be offered in exchange for the outstanding bonds,
which will have substantially the same terms as the outstanding bonds, but which
will be freely transferable.
"BTU" means a British Thermal Unit.
"CL&P" means The Connecticut Light & Power Company, a Connecticut
corporation.
"CLEAN AIR ACT" means Title IV of the Federal Clean Air Act of the United
States.
"COLLATERAL AGENCY AND INTERCREDITOR AGREEMENT" means the Collateral Agency
and Intercreditor Agreement dated as of the date of the issuance of the
outstanding bonds among NRG Northeast, the guarantors, the trustee, the working
capital agents, each senior secured debt agent and the collateral agent.
"COLLATERAL AGENT" means The Chase Manhattan Bank, solely in its capacity
as collateral agent under the collateral agency and intercreditor agreement.
"CONED" means The Consolidated Edison Company of New York, Inc.
"CONNECTICUT FACILITIES" means, collectively, the Connecticut Jet
facilities, the Devon facility, the Middletown facility, the Montville facility
and the Norwalk facility.
"CONNECTICUT GUARANTORS" means, collectively, the guarantors which own the
Connecticut facilities.
A-1
<PAGE> 183
"CONNECTICUT JET FACILITIES" means the six remote oil-fired peaking
turbines located throughout Connecticut, having an aggregate capable capacity of
110 MW and the related facilities, equipment and agreements, as well as the
business and activities related thereto.
"CONNECTICUT JET POWER" means Connecticut Jet Power LLC, a Delaware limited
liability company, which owns the Connecticut Jet facilities.
"CORPORATE SERVICES AGREEMENTS" mean the corporate services agreement
between each of the guarantors and NRG Energy, as the same may be amended or
replaced.
"OLD WORKING CAPITAL FACILITY" means the 364-day revolving credit facility
in amounts up to $40 million currently available to us pursuant to the loan
agreement to financing our working capital needs.
"DEBT SERVICE RESERVE REQUIREMENT" means as of the date of determination,
the sum of all principal of and interest on all series of bonds then outstanding
projected to be payable on the next scheduled payment date for each series of
bonds.
"DEBT SERVICE RESERVE SUPPORT INSTRUMENT" means either an unconditional
guarantee by NRG Energy or any of its affiliates other than NRG Northeast (so
long as NRG Energy or such affiliate maintains a long-term senior unsecured debt
rating of "Baa3" or better by Moody's and "BBB-" or better by S&P) or a letter
of credit provided by a commercial bank or other financial or other financial
institution with a long-term senior unsecured debt rating of "A2" or better by
Moody's and "A" or better by S&P, in either case provided as security for
amounts to be paid out of the debt service reserve account.
"DEVON FACILITY" means the natural gas/oil-fired facility capable
intermediate/peaking load having a capable capacity of 358 MW located in
Milford, Connecticut and the related facilities, equipment and agreements, as
well as the business and activities related thereto.
"DEVON POWER" means Devon Power LLC, a special-purpose Delaware limited
liability company which owns the Devon facility.
"DISTRIBUTION COMPLIANCE PERIOD" means the period commencing on the later
of the commencement of the offering of the bonds and the date of the issuance of
the outstanding bonds and ending on the 40th day thereafter.
"DOLLAR" or "$" means the lawful currency of the United States of America.
"DPUC" means the Connecticut Department of Public Utility Control.
"DSCR" means debt service coverage ratio.
"DTC" means The Depository Trust Company, a limited-purpose trust company
created to hold securities for its participating organizations and to facilitate
the clearance and settlement of transactions in those securities between the
participating organizations.
"DUNKIRK FACILITY" means the coal-fired base load facility having a capable
capacity of 582 MW located in Dunkirk, New York, and the related facilities,
equipment and agreements, and the business and activities related thereto.
"DUNKIRK POWER" means Dunkirk Power LLC, a special-purpose Delaware limited
liability company which owns the Dunkirk facility.
"ENERGY POLICY ACT" means the Energy Policy Act of 1992.
"EPA" means the United States Environmental Protection Agency.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"EUA" means Eastern Utility Association.
"EUA COMPANIES" means, collectively, Blackstone Valley Electric Company,
Eastern Edison Company and Newport Electric Corporation.
A-2
<PAGE> 184
"EWG" means an exempt wholesale generator as defined under Section 32 of
PUHCA.
"EXCHANGE ACT" means the Securities Exchange Act of 1934.
"EXCHANGE OFFER" means the offer to exchange the outstanding bonds for one
or more new issues of senior bonds of NRG Northeast registered under the
Securities Act with substantially identical terms to those of the outstanding
bonds.
"FACILITIES" means, collectively, the Arthur Kill facility, the Astoria
facility, the Dunkirk facility, the Huntley facility, the Oswego facility, the
Somerset facility and the Connecticut facilities.
"FEDERAL ACID RAIN PROGRAM" refers to Title IV of the federal Clean Air
Act, 42 U.S.C. sec.sec. 7651-7651O.
"FERC" means the Federal Energy Regulatory Commission, or any successor
thereto.
"FINANCING COMMITMENTS" means any commitment to extend credit to NRG
Northeast pursuant to the indenture, any series supplemental indenture, the
bonds, the security agreement, the NRG power marketing security agreement, the
collateral agency and intercreditor agreement, the consent and agreements, the
intercompany loans and the registration rights agreement.
"FINANCING DOCUMENTS" means, collectively, the indenture, the bonds, the
Security Documents and the Registration Rights Agreement.
"FINANCING LIABILITIES" means all indebtedness, financial liabilities and
obligations of NRG Northeast or the guarantors, of whatsoever nature and
howsoever evidenced (including, but not limited to, principal, interest, fees,
reimbursement obligations, penalties, indemnities and legal and other expenses,
whether due after acceleration or otherwise) to the secured parties under or
pursuant to the indenture, the bonds, the working capital agreement, any other
senior secured debt documents, the security documents or any other agreement,
document or instrument evidencing, securing or relating to such indebtedness,
financial liabilities or obligations, to the extent arising on or prior to the
debt termination date, in each case, direct or indirect, primary or secondary,
fixed or contingent, now or hereafter arising out of or relating to any such
agreements.
"FORTISTAR LITIGATION" means the litigation filed by Fortistar Capital Inc.
on or about July 12, 1999, as more fully described in "Business of NRG Northeast
and the Guarantors -- Legal Proceedings."
"GAAP" means generally accepted accounting principles as in effect in the
United States from time to time.
"GHG" or "GREENHOUSE GASES" mean certain gases that interact with other
gases in the atmosphere to raise global temperatures, including carbon dioxide,
methane and nitrous oxide.
"GUARANTEE" means the guarantee of the bonds by each guarantor.
"GUARANTORS" means, collectively, Arthur Kill Power, Astoria Power, Dunkirk
Power, Huntley Power, Oswego Power, Somerset Power, Connecticut Jet Power, Devon
Power, Middletown Power, Montville Power and Norwalk Power.
"HOLDERS OF THE BONDS" means the registered holders of the bonds from time
to time.
"HUNTLEY FACILITY" means the coal-fired base load facility having a capable
capacity of 566 MW, located five miles northeast of Buffalo, New York, and the
related facilities, equipment and agreements, and the business and activities
related thereto.
"HUNTLEY POWER" means Huntley Power LLC, a special purpose Delaware limited
liability company which owns the Huntley facility.
"ICU" means internal combustion unit.
"INDENTURE" means the indenture, dated as of February 22, 2000, among NRG
Northeast, the guarantors and the trustee pursuant to which the outstanding
bonds were and the bonds will be issued.
A-3
<PAGE> 185
"INITIAL PURCHASERS" means Chase Securities Inc., Salomon Smith Barney
Inc., ABN AMRO Incorporated, CIBC World Markets Corp. and Dresdner Kleinwort
Benson N.A. LLC.
"INSTITUTIONAL ACCREDITED INVESTORS" or "IAIS" will have the meaning
ascribed to such term in subparagraph (a)(1), (2), (3) or (7) of Rule 501 under
the Securities Act.
"INSURANCE CONSULTANT" means Marsh USA, Inc.
"INSURANCE REPORT" means the report of the insurance consultant, dated
December 9, 1999.
"INTERCOMPANY LOANS" means indebtedness to NRG Northeast or any guarantor
by NRG Northeast or any guarantor.
"INTERCOMPANY NOTES" means those notes evidencing indebtedness owed by the
guarantors to NRG Northeast, which notes have been pledged to the trustee under
the Security Documents.
"INTERCREDITOR COLLATERAL" means the collateral under the security
agreement and any other collateral in which there is a security interest
purported to be granted.
"INVESTMENT COMPANY ACT" means the Investment Company Act of 1940, as
amended.
"ISDA" means the International Swap Dealers Association.
"ISO" means an independent system operator.
"ISO NEW ENGLAND" means the ISO which administers the NEPOOL's electricity
market-place.
"ISSUER" means NRG Northeast Generating LLC, a Delaware limited liability
company and an indirect wholly-owned subsidiary of NRG Energy.
"JOINT LEAD BOOK MANAGERS" means Chase Securities Inc. and Salomon Smith
Barney Inc.
"KW" means a kilowatt, a unit of electrical energy equal to one thousand
watts of power.
"KWH" means a unit of electrical energy equal to one kW of power supplied
or taken from an electric circuit steadily for one hour.
"LOAN AGREEMENT" means that certain loan agreement, dated as of June 4,
1999, among NRG Northeast as borrower, certain of the guarantors, as subsidiary
guarantors and several commercial banks and other financial institutions as
lenders, pursuant to which the term loan facility was made available to NRG
Northeast.
"MAJORITY HOLDERS" means the holders of more than 50% in aggregate
principal amount of the bonds.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on (i) the
business, assets, operations, prospects or condition, financial or otherwise of
NRG Northeast and the guarantors, taken as a whole, (ii) the ability of NRG
Northeast or any guarantor to perform any of its obligations under any
transaction document to which it is a party which are material to NRG Northeast
and the guarantors taken as a whole or (iii) the material rights of or benefits
available to the holders of the bonds or the trustee.
"MDTE" means the Massachusetts Department of Telecommunications and Energy.
"MEC" means Montaup Electric Company.
"MIDDLETOWN FACILITY" means the natural gas/oil-fired intermediate/peaking
plant having a capable capacity of 770 MW located in Middletown, Connecticut,
the related facilities, equipment and agreements, as well as the business and
activities related thereto.
"MIDDLETOWN POWER" means Middletown Power LLC, a special purpose Delaware
limited liability company which owns the Middletown facility.
"MMBTU" means one million Btus.
A-4
<PAGE> 186
"MOU" means the memorandum of understanding signed by 11 northeastern
states and the District of Columbia in September 1994 to establish a regional
plan for reducing NO(x) emissions from utility and large industrial boilers.
"MONTVILLE FACILITY" means the natural gas/oil-fired intermediate/peaking
plant having a capable capacity of 498 MW located in Uncasville, Connecticut,
and the related facilities, equipment and agreements, as well as the business
and activities related thereto.
"MONTVILLE POWER" means Montville Power LLC, a special purpose Delaware
limited liability company which owns the Montville facility.
"MOODY'S" means Moody's Investors Service, Inc., a Delaware corporation,
and its successors and assigns.
"MW" means a unit of electrical energy equal to one million watts of power.
"MWH" means a unit of electrical energy equal to one MW of power supplied
or taken from an electric circuit steadily for one hour.
"NEPOOL" means the New England Power Pool.
"NEW YORK AND MASSACHUSETTS FACILITIES" means, collectively, the New York
facilities and the Somerset facility.
"NEW YORK AND MASSACHUSETTS GUARANTORS" means, collectively, the guarantors
which own the New York and Massachusetts facilities.
"NEW YORK CITY IN-CITY MARKET" means that portion of the NYPP that is
located in New York City and certain surrounding areas.
"NEW YORK FACILITIES" means, collectively, the Arthur Kill, Astoria,
Dunkirk, Huntley and Oswego facilities.
"NEW YORK GUARANTORS" means, collectively, the guarantors which own the New
York facilities.
"NIMO" means Niagara Mohawk Power Corporation.
"NON-U.S. PERSON" means any person that, for U.S. federal income tax
purposes, is not a "U.S. Person".
"NORWALK FACILITY" means the oil-fired intermediate facility having a
capable capacity of 342 MW located on Manresa Island in South Norwalk,
Connecticut, and the related facilities, equipment and agreements, as well as
the business and activities related thereto.
"NORWALK POWER" means Norwalk Harbor Power LLC, a special purpose Delaware
limited liability company which owns and operates the Norwalk facility.
"NO(X)" means nitrogen oxides.
"NRG CONNECTICUT" means NRG Connecticut Generating LLC, a Delaware limited
liability company.
"NRG ENERGY" means NRG Energy, Inc., a Delaware corporation.
"NRG NORTHEAST" means NRG Northeast Generating LLC, a Delaware limited
liability company and an indirect wholly-owned subsidiary of NRG Energy.
"NRG OPERATING SERVICES" means NRG Operating Services Inc., a Delaware
corporation.
"NRG POWER MARKETING" means NRG Power Marketing Inc., a Delaware
corporation.
"NSR" means new source review, a regulatory program requiring the
preconstruction review of facility or operational modifications at major sources
of air pollution, if the geographic area in which the source is located is not
in compliance with national ambient air quality standards for the air pollutant
(i) as to which the facility is a major source and (ii) that will increase by a
significant amount as a result of the proposed modification.
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<PAGE> 187
"NY ISO" means the New York Independent System Operator, which administers
the NYPP's electricity market-place.
"NYDEC" means the New York Department of Environmental Conservation.
"NYPP" means the New York Power Pool.
"NYPSC" means the New York Public Service Commission.
"NYPSL" means the New York Public Service Law.
"OFFERING" means the offering of bonds described in this prospectus.
"OUTSTANDING BONDS" means, collectively, the $320 million 8.065% Series A
Senior Secured Bonds due 2004, the $130 million 8.842% Series B Senior Secured
Bonds due 2015 and the $300 million 9.292% Series C Senior Secured Bonds due
2024, issued on February 22, 2000 pursuant to the indenture.
"OPEN ACCESS RULES" means Order No. 888 and Order No. 889 of the FERC, as
further refined and supplemented by Orders 888-A-B and -C.
"OPERATION AND MAINTENANCE AGREEMENTS" means the operation and maintenance
agreement between each of the guarantors and the applicable operator, as amended
or replaced.
"OPERATOR" means each of (i) NRG Astoria Gas Turbine Operations Inc. with
respect to the Astoria facility; (ii) NRG Arthur Kill Power Operations Inc. with
respect to the Arthur Kill facility; (iii) NRG Devon Operations Inc. with
respect to the Devon facility; (iv) NRG Dunkirk Operations Inc. with respect to
the Dunkirk facility; (v) NRG Huntley Operations Inc. with respect to the
Huntley facility; (vi) NRG Middletown Operations Inc. with respect to the
Middletown facility and the Connecticut Jet facilities; (vii) NRG Montville
Operations Inc. with respect to the Montville facility; (viii) NRG Norwalk
Harbor Power Operations Inc. with respect to the Norwalk facility; (ix) NRG
Oswego Harbor Power Operations, Inc. with respect to the Oswego facility; and
(x) Somerset Operations Inc. with respect to the Somerset facility
(individually, an "operator" and collectively, the "operators").
"OSWEGO FACILITY" means the natural gas/oil-fired peaking plant having a
capable capacity of 1,660 MW located in Oswego, New York, and the related
facilities, equipment and agreements, and the business and activities related
thereto.
"OSWEGO POWER" means Oswego Harbor Power LLC, a special-purpose Delaware
limited liability company which owns and operates the Oswego facility.
"OTR" means the Ozone Transport Region created under the Clean Air Act.
"POWER SALES AND AGENCY AGREEMENTS" means the power sales and agency
agreements between each of the guarantors and NRG Power Marketing, as amended or
replaced.
"PROJECTED DEBT SERVICE COVERAGE RATIO" means, at any time of determination
thereof, a projection of the debt service coverage ratio over the period
specified, prepared by NRG Northeast in good faith based upon assumptions
consistent in all material respects with the transaction documents, historical
operating results, if any, and NRG Northeast's good faith projections of future
revenues and operating expenses of NRG Northeast and the guarantors in light of
the then existing or reasonably expected regulatory and market environments in
the markets in which the facilities are or will be operated and upon the
assumption that no early redemption or prepayment of the bonds of any series
will be made prior to the stated maturity of such series of bonds.
"PROSPECTUS" means this document in its entirety.
"PRUDENT INDUSTRY PRACTICE" means any of those practices, methods,
standards and acts (including but not limited to the practices, methods and acts
engaged in or approved by a significant portion of the electric power generation
industry in the United States) that, at a particular time, in the exercise of
reasonable judgment in
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<PAGE> 188
light of the facts known or that should reasonably have been known at the time a
decision was made, could have been expected to accomplish the desired result
consistent with good business practices, reliability, economy, safety and
expedition, and which practices generally conform to applicable law and
governmental approvals. Prudent Industry Practice is not intended to be limited
to the optimal practices that could be used to accomplish a desired result.
"PSD" means the prevention of significant deterioration regulatory program
requiring the preconstruction review of facility or operational modifications at
major sources of air pollution, if the geographic area in which the source is
located is in compliance with national ambient air quality standards for the air
pollutant that will increase by a significant amount as a result of the proposed
modification.
"PUHCA" means the Public Utility Holding Company Act of 1935, as amended.
"QUALIFIED INSTITUTIONAL BUYER" or "QIB" has the meaning ascribed to such
term in Rule 144A.
"RATING AGENCIES" means Moody's and S&P.
"RCRA" means the Resource Conservation and Recovery Act of 1976, as
amended.
"REGISTRATION RIGHTS AGREEMENT" means the registration rights agreement
dated as of February 15, 2000 entered into by NRG Northeast, the guarantors and
the initial purchasers.
"REGULATION S" means Regulation S promulgated under the Securities Act.
"RETAIL WHEELING" means a system in which retail customers are allowed to
choose their electricity suppliers, with incumbent utilities required to deliver
such electricity over their transmission and distribution systems.
"RG&E" means Rochester Gas & Electric Corporation.
"RTO" means Regional Transmission Organization.
"RULE 144A" means Rule 144A promulgated under the Securities Act.
"S&P" means Standard & Poor's Ratings Group, a division of McGraw-Hill
Companies, Inc., and its successors and assigns.
"SEC" means the United States Securities and Exchange Commission, or any
successor thereto.
"SECTION 126 RULE" means a regulation issued by the EPA that, when finally
promulgated, will require utilities and large industrial boilers in certain
"upwind" states to substantially reduce their NO(x) emissions by May 2003.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SECURITY DOCUMENTS" means the security agreement among NRG Northeast, the
guarantors and the collateral agent, the security agreement among NRG Power
Marketing and the collateral agent, the collateral agency and intercreditor
agreement and the intercompany loans.
"SENIOR SECURED DEBT" means all permitted indebtedness of NRG Northeast
(including the bonds in addition to the outstanding bonds) ranking pari passu as
to the payment with the bonds and which is secured by the collateral.
"SENIOR SECURED DEBT DOCUMENTS" means all agreements, documents and
instruments evidencing and or securing any senior secured debt.
"SERIES A-1 SENIOR SECURED BONDS" means the $320 million 8.065% Series A-1
Senior Secured Bonds due December 15, 2004, issued by NRG Northeast.
"SERIES B-1 SENIOR SECURED BONDS" means the $130 million 8.842% Series B-1
Senior Secured Bonds due June 15, 2015, issued by NRG Northeast.
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<PAGE> 189
"SERIES C-1 SENIOR SECURED BONDS" means the $300 million 9.292% Series C-1
Senior Secured Bonds due December 15, 2024, issued by NRG Northeast.
"SIP CALL" means a regulation issued by the EPA on September 24, 1998 that
requires 22 states in the eastern half of the United States to revise their
state implementation plans in order to achieve significant reductions in NO(x)
emissions commencing in May 2003.
"SOMERSET FACILITY" means the 153 MW capable oil/coal-fired
base-load/peaking plant located in Somerset, Massachusetts, and in each case the
related facilities, equipment and agreements, and the business and activities
related thereto.
"SOMERSET POWER" means Somerset Power LLC, a special-purpose Delaware
limited liability company which owns and operates the Somerset facility.
"SO(2)" means sulfur dioxide.
"SWAP AGREEMENT" means the ISDA Master Agreement, dated June 11, 1999,
between NiMo and NRG Power Marketing, relating to the Dunkirk facility and the
Huntley facility.
"TERM LOAN FACILITY" means the 364-day term loan facility in an amount up
to $646,564,000 made available to NRG Northeast pursuant to the loan agreement.
"TRANSACTION DOCUMENTS" means the indenture, the bonds, the Security
Documents, the registration rights agreement, the power sales and agency
agreements, the operation and maintenance agreements, the transition power sales
contracts, the corporate services agreements and the funds administration
agreement.
"TRANSITION POWER SALES CONTRACTS" means the following agreements: (i)
Transition Power Purchase Agreement (Huntley 65 or 66 Secondary Call) between
NiMo and Huntley Power, (ii) Transition Power Purchase Agreement (Huntley Power
LLC -- Call) between Huntley Power and NiMo, (iii) Transition Power Purchase
Agreement between NiMo and Oswego Power, (iv) Transition Capacity Agreements
between ConEd and each of Arthur Kill Power and Astoria Power, (v) Standard
Offer Service Wholesale Sales Agreement between CL&P and NRG Power Marketing,
(vi) Wholesale Standard Offer Service Agreement between NRG Power Marketing and
the EUA Companies, and (vii) the Swap Agreement, in each case as amended or
supplemented from time to time.
"TRUST INDENTURE ACT" means the Trust Indenture Act of 1939, as amended.
"TRUSTEE" means The Chase Manhattan Bank, as trustee under the indenture.
"WHOLESALE WHEELING" means a system in which the owners of operators of
electric transmission facilities make those facilities available for
transmission on a non-discriminatory basis to all wholesale generators, sellers
and buyers of electricity.
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<PAGE> 190
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON IS AUTHORIZED TO GIVE ANY
INFORMATION OR TO REPRESENT ANYTHING NOT CONTAINED IN THIS PROSPECTUS. YOU MUST
NOT RELY ON ANY UNAUTHORIZED INFORMATION OR REPRESENTATIONS. THIS PROSPECTUS
DOES NOT OFFER TO SELL OR ASK FOR OFFERS TO BUY ANY SECURITIES OTHER THAN THOSE
TO WHICH THIS PROSPECTUS RELATES AND IT DOES NOT CONSTITUTE AN OFFER TO SELL OR
ASK FOR OFFERS TO BUY ANY OF THE SECURITIES IN ANY JURISDICTION WHERE IT IS
UNLAWFUL, WHERE THE PERSON MAKING THE OFFER IS NOT QUALIFIED TO DO SO, OR TO ANY
PERSON WHO CANNOT LEGALLY BE OFFERED THE SECURITIES. THE INFORMATION CONTAINED
IN THIS PROSPECTUS IS CURRENT ONLY AS OF ITS DATE.
UNTIL JANUARY 23, 2000, ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS EXCHANGE OFFER, MAY BE REQUIRED
TO DELIVER A PROSPECTUS. EACH BROKER-DEALER THAT RECEIVES BONDS FOR ITS OWN
ACCOUNT PURSUANT TO THE EXCHANGE OFFER MUST ACKNOWLEDGE THAT IT WILL DELIVER A
PROSPECTUS IN CONNECTION WITH ANY RESALE OF SUCH BONDS. WE HAVE AGREED THAT FOR
A PERIOD OF 90 DAYS AFTER THE EXPIRATION DATE OF THE EXCHANGE OFFER WE WILL MAKE
THIS PROSPECTUS AVAILABLE TO ANY BROKER-DEALER FOR USE IN CONNECTION WITH ANY
SUCH RESALE.
------------------------
PROSPECTUS
------------------------
NRG NORTHEAST GENERATING LLC
EXCHANGE OFFER FOR
$320,000,000 8.065% SERIES A-1 SENIOR SECURED BONDS DUE 2004
$130,000,000 8.842% SERIES B-1 SENIOR SECURED BONDS DUE 2015
$300,000,000 9.292% SERIES C-1 SENIOR SECURED BONDS DUE 2024
------------------------
[NRG LOGO]
------------------------
October , 2000
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE> 191
PART II
ITEM 20. INDEMNIFICATION OF OFFICERS AND DIRECTORS
NRG Northeast Generating LLC and the guarantors are empowered by Section
18-108 of the Delaware Limited Liability Company Act, subject to the procedures
and limitations therein, to indemnify and hold harmless any member or manger or
other person of each of the companies or other person from and against any and
all claims and demands whatsoever, subject to such standards and restrictions,
if any, as are set forth in each of their limited liability company agreements.
Section 6.08 of the limited liability company agreements of NRG Northeast
Generating LLC and the guarantors provide that each member of the company shall
indemnify, protect, defend, release and hold harmless each other member, and
such other member's representatives, affiliates and their respective directors,
officers, employees and agents from and against any claims asserted by or on
behalf of any person (including another member), that arise out of, relate to or
are otherwise attributable to, directly or indirectly, a breach by the
indemnifying member of the agreement, or the negligence, gross negligence or
willful misconduct of the indemnifying member in connection with the agreement;
provided however, that the foregoing indemnification provision shall not apply
to any claim or other matter for which a member (or its representative) has no
liability or duty pursuant to Section 6.07 of the each agreement or is
indemnified or released pursuant to Section 6.02(a)(iii) of each agreement.
Section 6.02(a)(iii) of each of the limited liability company agreements of
NRG Northeast Generating LLC and the guarantors provides that the relevant
company shall indemnify, protect, defend, release and hold harmless each
representative of a member of the company on the Management Committee from and
against any claims asserted by or on behalf of any person (including another
member), other than the member that designated such Representative, that arise
out of, relate to or are otherwise attributable to, directly or indirectly, such
representative's service on the Management Committee, other than such claims
arising out of the fraud or willful misconduct of such representative.
Section 6.07 of each of the limited liability company agreements of NRG
Northeast Generating LLC and the guarantors includes the following disclaimers
of duties and liabilities the company's members.
(1) No member owes any duty (including any fiduciary duty ) to the
other members or to the company, other than the duties expressly set forth
in the agreement.
(2) No member shall be liable (whether in contract, tort or otherwise)
for special, indirect, incidental or consequential damages).
(3) The obligations of the member under the agreement are obligations
of the members only, and no recourse shall be available against any
officer, director or affiliate of any member, except as permitted under
applicable law.
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<PAGE> 192
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
1.1 Purchase Agreement, dated as of February 15, 2000, among NRG
Northeast Generating LLC and Chase Securities, Inc. and
Salomon Smith Barney Inc., as representatives of the Initial
Purchasers.+
3.1 Certificate of Formation of NRG Northeast Generating LLC.+
3.2 Limited Liability Company Agreement of NRG Northeast
Generating LLC.+
3.3 Certificate of Formation of Arthur Kill Power LLC.+
3.4 Limited Liability Company Agreement of Arthur Kill Power
LLC.+
3.5 Certificate of Formation of Astoria Gas Turbine Power LLC.+
3.6 Limited Liability Company Agreement of Astoria Gas Turbine
Power LLC.+
3.7 Certificate of Formation of Connecticut Jet Power LLC.+
3.8 Limited Liability Company Agreement of Connecticut Jet Power
LLC.+
3.9 Certificate of Formation of Devon Power LLC.+
3.10 Limited Liability Company Agreement of Devon Power LLC.+
3.11 Certificate of Formation of Dunkirk Power LLC.+
3.12 Limited Liability Company Agreement of Dunkirk Power LLC.+
3.13 Certificate of Formation of Huntley Power LLC.+
3.14 Limited Liability Company Agreement of Huntley Power LLC.+
3.15 Certificate of Formation of Middletown Power LLC.+
3.16 Limited Liability Company Agreement of Middletown Power
LLC.+
3.17 Certificate of Formation of Montville Power LLC.+
3.18 Limited Liability Company Agreement of Montville Power LLC.+
3.19 Certificate of Formation of Norwalk Power LLC.+
3.20 Limited Liability Company Agreement of Norwalk Power LLC.+
3.21 Certificate of Formation of Oswego Harbor Power LLC.+
3.22 Limited Liability Company Agreement of Oswego Harbor Power
LLC.+
3.23 Certificate of Formation of Somerset Power LLC.+
3.24 Limited Liability Company Agreement of Somerset Power LLC.+
4.1 Indenture, dated as of February 22, 2000, among NRG
Northeast Generating LLC, the Guarantors party thereto and
The Chase Manhattan Bank, as Trustee, relating to the Senior
Secured Bonds.+
4.2 First Supplemental Indenture, dated as of February 22, 2000,
among NRG Northeast Generating LLC, the Guarantors party
thereto and The Chase Manhattan Bank, as Trustee, relating
to the 8.065% Series A Senior Secured Bonds due 2004, 8.842
Series B Senior Secured Bonds due 2015 and 9.292% Series C
Senior Secured Bonds due 2024.+
4.3 Form of certificate of 8.065% Series A Senior Secured Bonds
due 2004 (included in Exhibit 4.2).+
4.4 Form of certificate of 8.842% Series B Senior Secured Bonds
due 2015 (included in Exhibit 4.2).+
4.5 Form of certificate of 9.292% Series C Senior Secured Bonds
due 2024 (included in Exhibit 4.2).+
4.6 Form of certificate of 8.065% Series A-1 Senior Secured
Bonds due 2004.+
4.7 Form of certificate of 8.842% Series B-1 Senior Secured
Bonds due 2015.+
4.8 Form of certificate of 9.292% Series C-1 Senior Secured
Bonds due 2024.+
</TABLE>
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<PAGE> 193
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
4.9 Exchange and Registration Rights Agreement, dated as of
February 15, 2000, by and among NRG Northeast Generating
LLC, the Guarantors party thereto, Chase Securities Inc. and
Salomon Smith Barney Inc., on behalf of the Initial
Purchasers.+
4.10 Security Agreement, dated as of February 22, 2000, by and
among NRG Northeast Generating LLC, the Guarantors party
thereto and The Chase Manhattan Bank, as Trustee.+
4.11 Security Agreement, dated as of February 22, 2000, between
NRG Power Marketing LLC and The Chase Manhattan Bank, as
Collateral Agent.+
5.1 Opinion and consent of Skadden, Arps, Slate, Meagher & Flom
LLP as to the legality of the bonds to be issued by NRG
Northeast Generating LLC.*
10.1 Collateral Agency and Intercreditor Agreement, dated as of
February 22, 2000, by and among NRG Northeast Generating
LLC, the Guarantors party thereto and The Chase Manhattan
Bank, as Working Capital Agent, Collateral Agent and
Trustee.+
10.2 Working Capital Agreement, dated as of February 22, 2000, by
and among NRG Northeast Generating LLC, the Guarantors party
thereto and Citibank, N.A. and The Chase Manhattan Bank, as
Working Capital Banks.+
10.3 Indemnification Agreement, dated as of December 23, 1999, by
and among NRG Energy, The Chase Manhattan Bank and Citibank,
N.A., as Lender Representatives and the Indemnified
Parties.+
10.4 Indemnification Consent Agreement, dated as of February 22,
2000, by and among NRG Energy, NRG Northeast Generating LLC,
the Initial Purchasers party thereto and The Chase Manhattan
Bank, as Trustee and Collateral Agent.+
10.5 Restated Intercompany Note dated as of February 22, 2000 by
Arthur Kill Power LLC in favor of NRG Northeast Generating
LLC.+
10.6 Restated Intercompany Note dated as of February 22, 2000 by
Astoria Gas Turbine Power LLC in favor of NRG Northeast
Generating LLC.+
10.7 Restated Intercompany Note dated as of February 22, 2000 by
Devon Power LLC in favor of NRG Northeast Generating LLC.+
10.8 Restated Intercompany Note dated as of February 22, 2000 by
Dunkirk Power LLC in favor of NRG Northeast Generating LLC.+
10.9 Restated Intercompany Note dated as of February 22, 2000 by
Huntley Power LLC in favor of NRG Northeast Generating LLC.+
10.10 Restated Intercompany Note dated as of February 22, 2000 by
Middletown Power LLC in favor of NRG Northeast Generating
LLC.+
10.11 Restated Intercompany Note dated as of February 22, 2000 by
Montville Power LLC in favor of NRG Northeast Generating
LLC.+
10.12 Restated Intercompany Note dated as of February 22, 2000 by
Norwalk Power LLC in favor of NRG Northeast Generating LLC.+
10.13 Restated Intercompany Note dated as of February 22, 2000 by
Oswego Harbor Power LLC in favor of NRG Northeast Generating
LLC.+
10.14 Restated Intercompany Note dated as of February 22, 2000 by
Somerset Power LLC in favor of NRG Northeast Generating
LLC.+
10.15 Working Capital Intercompany Note dated as of February 22,
2000 by each of the Guarantors in favor of NRG Northeast
Generating LLC.+
10.16 Funds Administration Agreement, dated as of February 22,
2000, by and among NRG Northeast Generating LLC and the
Guarantors party thereto.+
10.17 Power Sales and Agency Agreement dated as of June 25, 1999
between NRG Power Marketing, Inc. and Arthur Kill Power
LLC.+
</TABLE>
II-3
<PAGE> 194
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.18 Power Sales and Agency Agreement dated as of June 25, 1999
between NRG Power Marketing, Inc. and Astoria Gas Turbine
Power LLC.+
10.19 Power Sales and Agency Agreement dated as of December 15,
1999 between NRG Power Marketing, Inc. and Connecticut Jet
Power LLC.+
10.20 Power Sales and Agency Agreement dated as of December 15,
1999 between NRG Power Marketing, Inc. and Devon Power LLC.+
10.21 Power Sales and Agency Agreement dated as of June 11, 1999
between NRG Power Marketing, Inc. and Dunkirk Power LLC.+
10.22 Power Sales and Agency Agreement dated as of June 11, 1999
between NRG Power Marketing, Inc. and Huntley Power LLC.+
10.23 Power Sales and Agency Agreement dated as of December 15,
1999 between NRG Power Marketing, Inc. and Middletown Power
LLC.+
10.24 Power Sales and Agency Agreement dated as of December 15,
1999 between NRG Power Marketing, Inc. and Montville Power
LLC.+
10.25 Power Sales and Agency Agreement dated as of December 15,
1999 between NRG Power Marketing, Inc. and Norwalk Power
LLC.+
10.26 Power Sales and Agency Agreement dated as of October 22,
1999 between NRG Power Marketing, Inc. and Oswego Harbor
Power LLC.+
10.27 Amended and Restated Power Sales and Agency Agreement dated
as of July 15, 1999 between NRG Power Marketing, Inc. and
Somerset Power LLC.+
10.28 Operation and Maintenance Agreement dated as of June 25,
1999 between NRG Arthur Kill Operations, Inc. and Arthur
Kill Power LLC.+
10.29 Operation and Maintenance Agreement dated as of June 25,
1999 between NRG Astoria Gas Turbine Operations, Inc. and
Astoria Gas Turbine Power LLC.+
10.30 Operation and Maintenance Agreement dated as of December 15,
1999 between NRG Middletown Operations, Inc. and Connecticut
Jet Power LLC.+
10.31 Operation and Maintenance Agreement dated as of December 15,
1999 between NRG Devon Operations, Inc. and Devon Power
LLC.+
10.32 Operation and Maintenance Agreement dated as of June 11,
1999 between NRG Dunkirk Operations, Inc. and Dunkirk Power
LLC.+
10.33 Operation and Maintenance Agreement dated as of June 11,
1999 between NRG Huntley Operations, Inc. and Huntley Power
LLC.+
10.34 Operation and Maintenance Agreement dated as of December 15,
1999 between NRG Middletown Operations, Inc. and Middletown
Power LLC.+
10.35 Operation and Maintenance Agreement dated as of December 15,
1999 between NRG Montville Operations, Inc. and Montville
Power LLC.+
10.36 Operation and Maintenance Agreement dated as of December 15,
1999 between NRG Norwalk Harbor Operations, Inc. and Norwalk
Power LLC.+
10.37 Operation and Maintenance Agreement dated as of October 22,
1999 between NRG Oswego Harbor Power Operations, Inc. and
Oswego Harbor Power LLC.+
10.38 Amended and Restated Operation and Maintenance Agreement
dated as of July 15, 1999 between NRG Somerset Operations,
Inc. and Somerset Power LLC.+
10.39 Corporate Services Agreement between NRG Energy, Inc. and
Arthur Kill Power LLC dated as of June 25, 1999.+
10.40 Corporate Services Agreement between NRG Energy, Inc. and
Astoria Gas Turbine Power LLC dated as of June 25, 1999.+
</TABLE>
II-4
<PAGE> 195
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.41 Corporate Services Agreement between NRG Energy, Inc. and
Connecticut Jet Power LLC dated as of December 15, 1999.+
10.42 Corporate Services Agreement between NRG Energy, Inc. and
Devon Power LLC dated as of December 15, 1999.+
10.43 Corporate Services Agreement between NRG Energy, Inc. and
Dunkirk Power LLC dated as of June 11, 1999.+
10.44 Corporate Services Agreement between NRG Energy, Inc. and
Huntley Power LLC dated as of June 11, 1999.+
10.45 Corporate Services Agreement between NRG Energy, Inc. and
Middletown Power LLC dated as of December 15, 1999.+
10.46 Corporate Services Agreement between NRG Energy, Inc. and
Montville Power LLC dated as of December 15, 1999.+
10.47 Corporate Services Agreement between NRG Energy, Inc. and
Norwalk Power LLC dated as of December 15, 1999.+
10.48 Corporate Services Agreement between NRG Energy, Inc. and
Oswego Harbor Power LLC dated as of October 22, 1999.+
10.49 Amended and Restated Corporate Services Agreement between
NRG Energy, Inc. and Somerset Power LLC dated as of July 15,
1999.+
10.50 Transition Capacity Agreement between Arthur Kill Power LLC
and Consolidated Edison Company of New York, Inc. dated as
of June 25, 1999, incorporated by reference to Exhibit 10.30
to NRG Energy, Inc.'s Form 10Q for the quarter ended June
30, 1999.
10.51 Transition Capacity Agreement between Astoria Gas Turbine
Power LLC and Consolidated Edison Company of New York, Inc.
dated as of June 25, 1999, incorporated by reference to
Exhibit 10.29 to NRG Energy, Inc.'s Form 10Q for the quarter
ended June 30, 1999.
10.52 [Swap] Master Agreement dated as of June 11, 1999 between
Niagara Mohawk Power Corporation and NRG Power Marketing,
Inc., incorporated by reference to Exhibit 10.34 to NRG
Energy, Inc.'s Form 10Q for the quarter ended September 30,
1999.
10.53 Transition Power Purchase Agreement (Huntley 65 or 66
Secondary Call) between Niagara Mohawk Power Corporation and
Huntley Power LLC dated as of June 11, 1999.+
10.54 Transition Power Purchase Agreement (Huntley Power LLC -
Call) between Niagara Mohawk Power Corporation and Huntley
Power LLC dated as of June 11, 1999, incorporated by
reference to Exhibit 10.24 to NRG Energy, Inc.'s Form 10Q
for the quarter ended June 30, 1999.
10.55 Wholesale Standard Offer Service Agreement among Blackstone
Valley Electric Company, Eastern Edison Company, Newport
Electric Corporation and NRG Power Marketing Inc. dated as
of October 13, 1998 (incorporated by reference to Exhibit
10.18 to NRG Energy, Inc.'s Form 10Q for the quarter ended
June 30, 1999), as amended by First Amendment to Wholesale
Standard Offer Service Agreement dated as of January 15,
1999 (incorporated by reference to Exhibit 10.20 to NRG
Energy, Inc.'s Form 10Q for the quarter ended June 30,
1999).
10.56 Transition Power Purchase Agreement between Niagara Mohawk
Power Corporation and Oswego Harbor Power LLC dated as of
April 1, 1999, as amended by Transition Power Purchase 1st
Amendment between Niagara Mohawk Power Corporation and
Oswego Harbor Power LLC dated as of July 21, 1999 and 2nd
Amendment between Niagara Mohawk Power Corporation and
Oswego Harbor Power LLC dated as of October 19, 1999.+
10.57 Standard Offer Service Wholesale Sales Agreement between The
Connecticut Light and Power Company and NRG Power Marketing,
Inc. dated as of October 29, 1999, incorporated by reference
to Exhibit 10.35 to NRG Energy, Inc.'s Form 10Q for the
quarter ended September 30, 1999.
10.58 Site Agreement between Niagara Mohawk Power Corporation and
Huntley Power LLC dated as of May 11, 1999.+
</TABLE>
II-5
<PAGE> 196
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.59 Site Agreement between Niagara Mohawk Power Corporation and
Dunkirk Power LLC dated as of May 11, 1999.+
10.60 Site Agreement between Niagara Mohawk Power Corporation and
Oswego Harbor Power LLC dated as of August 19, 1999.+
10.61 Arthur Kill Continuing Site Agreement between Consolidated
Edison Company of New York, Inc. and NRG Energy, Inc. dated
as of January 27, 1999.+
10.62 Astoria Gas Turbine Continuing Site Agreement between
Consolidated Edison Company of New York, Inc. and NRG
Energy, Inc. dated as of January 27, 1999.+
10.63 Interconnection Agreement between Niagara Mohawk Power
Corporation and Huntley Power LLC dated as of April 14,
1999.+
10.64 Interconnection Agreement between Niagara Mohawk Power
Corporation and Dunkirk Power LLC dated as of April 14,
1999.+
10.65 Interconnection Agreement between Niagara Mohawk Power
Corporation and Oswego Harbor Power LLC dated as of July 30,
1999.+
10.66 Interconnection Agreement between The Connecticut Light and
Power Company and NRG Energy, Inc. dated as of July 1,
1999.+
10.67 Interconnection Agreement between Montaup Electric Company
and NRG Energy, Inc. dated as of October 13, 1998.+
10.68 Generating Plant and Gas Turbine Asset Purchase and Sale
Agreement for Arthur Kill Generating Plants located at
Staten Island, Richmond County, New York and Astoria Gas
Turbines located at Astoria, Queens County, New York between
Consolidated Edison Company of New York, Inc. and NRG
Energy, Inc. dated as of January 27, 1999, incorporated by
reference to Exhibit 10.21 to NRG Energy, Inc.'s Form 10Q
for the quarter ended June 30, 1999.
10.69 Asset Purchase Agreement between Montaup Electric Company
and NRG Energy, Inc. dated as of October 13, 1998.+
10.70 Asset Sales Agreement between Niagara Mohawk Power
Corporation and NRG Energy, Inc. dated as of December 23,
1998 (incorporated by reference to Exhibit 10.19 to NRG
Energy, Inc.'s Form 10Q for the quarter ended June 30,
1999), as amended by Amendment to the Asset Sales Agreement
dated as of June 11, 1999 (incorporated by reference to
Exhibit 10.28 to NRG Energy, Inc.'s Form 10Q for the quarter
ended June 30, 1999).
10.71 Asset Sales Agreement among Niagara Mohawk Power
Corporation, Rochester Gas and Electric Corporation, Oswego
Harbor Power LLC and NRG Energy, Inc. dated as of April 1,
1999.+
10.72 Asset Demarcation Agreement among The Connecticut Light and
Power Company, Connecticut Jet Power LLC, Devon Power LLC,
Middletown Power LLC, Montville Power LLC, Norwalk Power
LLC, NRG Devon Operations, Inc., NRG Middletown Operations,
Inc., NRG Montville Operations, Inc., NRG Norwark Harbor
Operations, Inc. and NRG Energy, Inc. dated as of December
15, 1999.+
10.73 Purchase and Sale Agreement between NRG Energy, Inc. and The
Connecticut Light and Power Company dated as of July 1,
1999.+
12.1 Statement re: Computation of Ratio of Earnings to Fixed
Charges.*
21.1 Subsidiaries of NRG Northeast Generating LLC.+
23.1 Consent of PricewaterhouseCoopers LLP.*
23.2 Consent of Skadden, Arps, Slate, Meagher & Flom LLP
(included in Exhibit 5.1).*
24.1 Powers of Attorney (included as part of signature page to
this registration statement).+
25.1 Form T-1 Statement of Eligibility of The Chase Manhattan
Bank to act as Trustee under the indenture.*
27.1 Financial Data Schedule for December 31, 1999 Financial
Statements of NRG Northeast Generating LLC (for SEC use
only).*
</TABLE>
II-6
<PAGE> 197
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
27.2 Financial Data Schedule for June 30, 2000 Financial
Statements of NRG Northeast Generating LLC (for SEC use
only).*
27.3 Financial Data Schedule for December 31, 1999 Financial
Statements of Middletown Power LLC (for SEC use only).*
27.4 Financial Data Schedule for June 30, 2000 Financial
Statements of Middletown Power LLC (for SEC use only).*
27.5 Financial Data Schedule for December 31, 1999 Financial
Statements of Huntley Power LLC (for SEC use only).*
27.6 Financial Data Schedule for June 30, 2000 Financial
Statements of Huntley Power LLC (for SEC use only).*
27.7 Financial Data Schedule for December 31, 1999 Financial
Statements of Dunkirk Power LLC (for SEC use only).*
27.8 Financial Data Schedule for June 30, 2000 Financial
Statements of Dunkirk Power LLC (for SEC use only).*
27.9 Financial Data Schedule for December 31, 1999 Financial
Statements of Arthur Kill Power LLC (for SEC use only).*
27.10 Financial Data Schedule for June 30, 2000 Financial
Statements of Arthur Kill Power LLC (for SEC use only).*
99.1 Form of Letter of Transmittal.*
99.2 Form of Notice of Guaranteed Delivery.*
99.3 Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees.*
99.4 Letter to Clients.*
</TABLE>
---------------
+ Previously filed.
* Filed herewith.
ITEM 22. UNDERTAKINGS
The undersigned registrants hereby undertake:
(1) To file during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities would not exceed that which was registered)
and any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than 20 percent change in the maximum
aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan
of distribution previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) That, for the purpose of determining any liabilities under the
Securities Act of 1933, each post-effective amendment will be deemed to be
a new registration statement relating to the securities offered
II-7
<PAGE> 198
therein, and the offering of such securities at that time will be deemed to
be the initial bona fide offering thereof.
(3) To remove from the registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned registrants hereby undertake that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Company pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
The undersigned registrants hereby undertake to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this Form, within one business day of the receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
The undersigned registrants hereby undertake to supply by means of
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 20 above, or otherwise,
the registrants have been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrants will, unless in
the opinion of counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-8
<PAGE> 199
SIGNATURES
Pursuant to the requirements of the Securities Act, NRG Northeast
Generating LLC has duly caused this Amendment No. 1 to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Minneapolis, State of Minnesota, on the 23rd day of
October, 2000.
NRG NORTHEAST GENERATING LLC
By: /s/ BRIAN B. BIRD
------------------------------------
Name: Brian B. Bird
Title: Treasurer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities indicated on the 23rd day of October, 2000:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Representative of Northeast October 23, 2000
--------------------------------------------------- Generation Holding LLC and NRG
David H. Peterson Eastern LLC
* Representative of Northeast October 23, 2000
--------------------------------------------------- Generation Holding LLC and NRG
Leonard A. Bluhm Eastern LLC
* Representative of Northeast October 23, 2000
--------------------------------------------------- Generation Holding LLC and NRG
Craig A. Mataczynski Eastern LLC and President
* Vice President October 23, 2000
---------------------------------------------------
Bryan K. Riley
/s/ BRIAN B. BIRD Treasurer October 23, 2000
---------------------------------------------------
Brian B. Bird
*By: /s/ BRIAN B. BIRD
---------------------------------------------
Brian B. Bird, Attorney-in-Fact
</TABLE>
II-9
<PAGE> 200
SIGNATURES
Pursuant to the requirements of the Securities Act, Arthur Kill Power LLC
has duly caused this Amendment No. 1 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Minneapolis, State of Minnesota, on the 23rd day of October, 2000.
ARTHUR KILL POWER LLC
By: /s/ BRIAN B. BIRD
------------------------------------
Name: Brian B. Bird
Title: Treasurer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities indicated on the 23rd day of October, 2000:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
NRG NORTHEAST GENERATING LLC Sole Member of Arthur Kill October 23, 2000
Power LLC
By: *
--------------------------------------------------
Name: Craig A. Mataczynski
Title: President
* President October 23, 2000
---------------------------------------------------
Craig A. Mataczynski
* Vice President October 23, 2000
---------------------------------------------------
Bryan K. Riley
/s/ BRIAN B. BIRD Treasurer October 23, 2000
---------------------------------------------------
Brian B. Bird
*By: /s/ BRIAN B. BIRD
---------------------------------------------
Brian B. Bird, Attorney-in-Fact
</TABLE>
II-10
<PAGE> 201
SIGNATURES
Pursuant to the requirements of the Securities Act, Astoria Gas Turbine
Power LLC has duly caused this Amendment No. 1 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Minneapolis, State of Minnesota, on the 23rd day of October, 2000.
ASTORIA GAS TURBINE POWER LLC
By: /s/ BRIAN B. BIRD
------------------------------------
Name: Brian B. Bird
Title: Treasurer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities indicated on the 23rd day of October, 2000:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
NRG NORTHEAST GENERATING LLC Sole Member of Astoria Gas October 23, 2000
Turbine Power LLC
By: *
--------------------------------------------------
Name: Craig A. Mataczynski
Title: President
* President October 23, 2000
---------------------------------------------------
Craig A. Mataczynski
* Vice President October 23, 2000
---------------------------------------------------
Bryan K. Riley
/s/ BRIAN B. BIRD Treasurer October 23, 2000
---------------------------------------------------
Brian B. Bird
*By: /s/ BRIAN B. BIRD
---------------------------------------------
Brian B. Bird, Attorney-in-Fact
</TABLE>
II-11
<PAGE> 202
SIGNATURES
Pursuant to the requirements of the Securities Act, Connecticut Jet Power
LLC has duly caused this Amendment No. 1 to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Minneapolis, State of Minnesota, on the 23rd day of October, 2000.
CONNECTICUT JET POWER LLC
By: /s/ BRIAN B. BIRD
------------------------------------
Name: Brian B. Bird
Title: Treasurer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities indicated on the 23rd day of October, 2000:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
NRG NORTHEAST GENERATING LLC Sole Member of Connecticut Jet October 23, 2000
Power LLC
By: *
--------------------------------------------------
Name: Craig A. Mataczynski
Title: President
* President October 23, 2000
---------------------------------------------------
Craig A. Mataczynski
* Vice President October 23, 2000
---------------------------------------------------
Bryan K. Riley
/s/ BRIAN B. BIRD Treasurer October 23, 2000
---------------------------------------------------
Brian B. Bird
*By: /s/ BRIAN B. BIRD
---------------------------------------------
Brian B. Bird, Attorney-in-Fact
</TABLE>
II-12
<PAGE> 203
SIGNATURES
Pursuant to the requirements of the Securities Act, Devon Power LLC has
duly caused this Amendment No. 1 to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Minneapolis, State of Minnesota, on the 23rd day of October, 2000.
DEVON POWER LLC
By: /s/ BRIAN B. BIRD
------------------------------------
Name: Brian B. Bird
Title: Treasurer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities indicated on the 23rd day of October, 2000:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <C> <S>
NRG NORTHEAST GENERATING LLC Sole Member of Devon Power LLC October 23, 2000
By: *
--------------------------------------------------
Name: Craig A. Mataczynski
Title: President
* President October 23, 2000
---------------------------------------------------
Craig A. Mataczynski
* Vice President October 23, 2000
---------------------------------------------------
Bryan K. Riley
/s/ BRIAN B. BIRD Treasurer October 23, 2000
---------------------------------------------------
Brian B. Bird
*By: /s/ BRIAN B. BIRD
---------------------------------------------
Brian B. Bird, Attorney-in-Fact
</TABLE>
II-13
<PAGE> 204
SIGNATURES
Pursuant to the requirements of the Securities Act, Dunkirk Power LLC has
duly caused this Amendment No. 1 to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Minneapolis, State of Minnesota, on the 23rd day of October, 2000.
DUNKIRK POWER LLC
By: /s/ BRIAN B. BIRD
------------------------------------
Name: Brian B. Bird
Title: Treasurer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities indicated on the 23rd day of October, 2000:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <C> <S>
NRG NORTHEAST GENERATING LLC Sole Member of Dunkirk Power October 23, 2000
LLC
By: *
--------------------------------------------------
Name: Craig A. Mataczynski
Title: President
* President October 23, 2000
---------------------------------------------------
Craig A. Mataczynski
* Vice President October 23, 2000
---------------------------------------------------
Bryan K. Riley
/s/ BRIAN B. BIRD Treasurer October 23, 2000
---------------------------------------------------
Brian B. Bird
*By: /s/ BRIAN B. BIRD
---------------------------------------------
Brian B. Bird, Attorney-in-Fact
</TABLE>
II-14
<PAGE> 205
SIGNATURES
Pursuant to the requirements of the Securities Act, Huntley Power LLC has
duly caused this Amendment No. 1 to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Minneapolis, State of Minnesota, on the 23rd day of October, 2000.
HUNTLEY POWER LLC
BY: /s/ BRIAN B. BIRD
------------------------------------
Name: Brian B. Bird
Title: Treasurer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities indicated on the 23rd day of October, 2000:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
NRG NORTHEAST GENERATING LLC Sole Member of Huntley Power LLC October 23, 2000
By: *
--------------------------------------------------
Name: Craig A. Mataczynski
Title: President
* President October 23, 2000
---------------------------------------------------
Craig A. Mataczynski
* Vice President October 23, 2000
---------------------------------------------------
Bryan K. Riley
/s/ BRIAN B. BIRD Treasurer October 23, 2000
---------------------------------------------------
Brian B. Bird
*By: /s/ BRIAN B. BIRD
---------------------------------------------
Brian B. Bird, Attorney-in-Fact
</TABLE>
II-15
<PAGE> 206
SIGNATURES
Pursuant to the requirements of the Securities Act, Middletown Power LLC
has duly caused this Amendment No. 1 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Minneapolis, State of Minnesota, on the 23rd day of October, 2000.
MIDDLETOWN POWER LLC
BY: /s/ BRIAN B. BIRD
------------------------------------
Name: Brian B. Bird
Title: Treasurer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities indicated on the 23rd day of October, 2000:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
NRG NORTHEAST GENERATING LLC Sole Member of Middletown October 23, 2000
Power LLC
By: *
--------------------------------------------------
Name: Craig A. Mataczynski
Title: President
* President October 23, 2000
---------------------------------------------------
Craig A. Mataczynski
* Vice President October 23, 2000
---------------------------------------------------
Bryan K. Riley
/s/ BRIAN B. BIRD Treasurer October 23, 2000
---------------------------------------------------
Brian B. Bird
*By: /s/ BRIAN B. BIRD
---------------------------------------------
Brian B. Bird, Attorney-in-Fact
</TABLE>
II-16
<PAGE> 207
SIGNATURES
Pursuant to the requirements of the Securities Act, Montville Power LLC has
duly caused this Amendment No. 1 to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Minneapolis, State of Minnesota, on the 23rd day of October, 2000.
MONTVILLE POWER LLC
By: /s/ BRIAN B. BIRD
------------------------------------
Name: Brian B. Bird
Title: Treasurer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities indicated on the 23rd day of October, 2000:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
NRG NORTHEAST GENERATING LLC Sole Member of Montville Power October 23, 2000
LLC
By: *
--------------------------------------------------
Name: Craig A. Mataczynski
Title: President
* President October 23, 2000
---------------------------------------------------
Craig A. Mataczynski
* Vice President October 23, 2000
---------------------------------------------------
Bryan K. Riley
/s/ BRIAN B. BIRD Treasurer October 23, 2000
---------------------------------------------------
Brian B. Bird
*By: /s/ BRIAN B. BIRD
---------------------------------------------
Brian B. Bird, Attorney-in-Fact
</TABLE>
II-17
<PAGE> 208
SIGNATURES
Pursuant to the requirements of the Securities Act, Norwalk Power LLC has
duly caused this Amendment No. 1 to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Minneapolis, State of Minnesota, on the 23rd day of October, 2000.
NORWALK POWER LLC
By: /s/ BRIAN B. BIRD
------------------------------------
Name: Brian B. Bird
Title: Treasurer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities indicated on the 23rd day of October, 2000:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
NRG NORTHEAST GENERATING LLC Sole Member of Norwalk Power LLC October 23, 2000
By: *
--------------------------------------------------
Name: Craig A. Mataczynski
Title: President
* President October 23, 2000
---------------------------------------------------
Craig A. Mataczynski
* Vice President October 23, 2000
---------------------------------------------------
Bryan K. Riley
/s/ BRIAN B. BIRD Treasurer October 23, 2000
---------------------------------------------------
Brian B. Bird
*By: /s/ BRIAN B. BIRD
---------------------------------------------
Brian B. Bird, Attorney-in-Fact
</TABLE>
II-18
<PAGE> 209
SIGNATURES
Pursuant to the requirements of the Securities Act, Oswego Harbor Power LLC
has duly caused this Amendment No. 1 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Minneapolis, State of Minnesota, on the 23rd day of October, 2000.
OSWEGO HARBOR POWER LLC
By: /s/ BRIAN B. BIRD
------------------------------------
Name: Brian B. Bird
Title: Treasurer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities indicated on the 23rd day of October, 2000:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
NRG NORTHEAST GENERATING LLC Sole Member of Oswego Harbor October 23, 2000
Power LLC
By: *
--------------------------------------------------
Name: Craig A. Mataczynski
Title: President
* President October 23, 2000
---------------------------------------------------
Craig A. Mataczynski
* Vice President October 23, 2000
---------------------------------------------------
Bryan K. Riley
/s/ BRIAN B. BIRD Treasurer October 23, 2000
---------------------------------------------------
Brian B. Bird
*By: /s/ BRIAN B. BIRD
---------------------------------------------
Brian B. Bird, Attorney-in-Fact
</TABLE>
II-19
<PAGE> 210
SIGNATURES
Pursuant to the requirements of the Securities Act, Somerset Power LLC has
duly caused this Amendment No. 1 to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Minneapolis, State of Minnesota, on the 23rd day of October, 2000.
SOMERSET POWER LLC
By: /s/ BRIAN B. BIRD
------------------------------------
Name: Brian B. Bird
Title: Treasurer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities indicated on the 23rd day of October, 2000:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
NRG NORTHEAST GENERATING LLC Sole Member of Somerset Power October 23, 2000
LLC
By: *
--------------------------------------------------
Name: Craig A. Mataczynski
Title: President
* President October 23, 2000
---------------------------------------------------
Craig A. Mataczynski
* Vice President October 23, 2000
---------------------------------------------------
Bryan K. Riley
/s/ BRIAN B. BIRD Treasurer October 23, 2000
---------------------------------------------------
Brian B. Bird
*By: /s/ BRIAN B. BIRD
---------------------------------------------
Brian B. Bird, Attorney-in-Fact
</TABLE>
II-20
<PAGE> 211
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
1.1 Purchase Agreement, dated as of February 15, 2000, among NRG
Northeast Generating LLC and Chase Securities, Inc. and
Salomon Smith Barney Inc., as representatives of the Initial
Purchasers.+
3.1 Certificate of Formation of NRG Northeast Generating LLC.+
3.2 Limited Liability Company Agreement of NRG Northeast
Generating LLC.+
3.3 Certificate of Formation of Arthur Kill Power LLC.+
3.4 Limited Liability Company Agreement of Arthur Kill Power
LLC.+
3.5 Certificate of Formation of Astoria Gas Turbine Power LLC.+
3.6 Limited Liability Company Agreement of Astoria Gas Turbine
Power LLC.+
3.7 Certificate of Formation of Connecticut Jet Power LLC.+
3.8 Limited Liability Company Agreement of Connecticut Jet Power
LLC.+
3.9 Certificate of Formation of Devon Power LLC.+
3.10 Limited Liability Company Agreement of Devon Power LLC.+
3.11 Certificate of Formation of Dunkirk Power LLC.+
3.12 Limited Liability Company Agreement of Dunkirk Power LLC.+
3.13 Certificate of Formation of Huntley Power LLC.+
3.14 Limited Liability Company Agreement of Huntley Power LLC.+
3.15 Certificate of Formation of Middletown Power LLC.+
3.16 Limited Liability Company Agreement of Middletown Power
LLC.+
3.17 Certificate of Formation of Montville Power LLC.+
3.18 Limited Liability Company Agreement of Montville Power LLC.+
3.19 Certificate of Formation of Norwalk Power LLC.+
3.20 Limited Liability Company Agreement of Norwalk Power LLC.+
3.21 Certificate of Formation of Oswego Harbor Power LLC.+
3.22 Limited Liability Company Agreement of Oswego Harbor Power
LLC.+
3.23 Certificate of Formation of Somerset Power LLC.+
3.24 Limited Liability Company Agreement of Somerset Power LLC.+
4.1 Indenture, dated as of February 22, 2000, among NRG
Northeast Generating LLC, the Guarantors party thereto and
The Chase Manhattan Bank, as Trustee, relating to the Senior
Secured Bonds.+
4.2 First Supplemental Indenture, dated as of February 22, 2000,
among NRG Northeast Generating LLC, the Guarantors party
thereto and The Chase Manhattan Bank, as Trustee, relating
to the 8.065% Series A Senior Secured Bonds due 2004, 8.842
Series B Senior Secured Bonds due 2015 and 9.292% Series C
Senior Secured Bonds due 2024.+
4.3 Form of certificate of 8.065% Series A Senior Secured Bonds
due 2004 (included in Exhibit 4.2).+
4.4 Form of certificate of 8.842% Series B Senior Secured Bonds
due 2015 (included in Exhibit 4.2).+
4.5 Form of certificate of 9.292% Series C Senior Secured Bonds
due 2024 (included in Exhibit 4.2).+
4.6 Form of certificate of 8.065% Series A-1 Senior Secured
Bonds due 2004.+
4.7 Form of certificate of 8.842% Series B-1 Senior Secured
Bonds due 2015.+
</TABLE>
<PAGE> 212
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
4.8 Form of certificate of 9.292% Series C-1 Senior Secured
Bonds due 2024.+
4.9 Exchange and Registration Rights Agreement, dated as of
February 15, 2000, by and among NRG Northeast Generating
LLC, the Guarantors party thereto, Chase Securities Inc. and
Salomon Smith Barney Inc., on behalf of the Initial
Purchasers.+
4.10 Security Agreement, dated as of February 22, 2000, by and
among NRG Northeast Generating LLC, the Guarantors party
thereto and The Chase Manhattan Bank, as Trustee.+
4.11 Security Agreement, dated as of February 22, 2000, between
NRG Power Marketing LLC and The Chase Manhattan Bank, as
Collateral Agent.+
5.1 Opinion and consent of Skadden, Arps, Slate, Meagher & Flom
LLP as to the legality of the bonds to be issued by NRG
Northeast Generating LLC.*
10.1 Collateral Agency and Intercreditor Agreement, dated as of
February 22, 2000, by and among NRG Northeast Generating
LLC, the Guarantors party thereto and The Chase Manhattan
Bank, as Working Capital Agent, Collateral Agent and
Trustee.+
10.2 Working Capital Agreement, dated as of February 22, 2000, by
and among NRG Northeast Generating LLC, the Guarantors party
thereto and Citibank, N.A. and The Chase Manhattan Bank, as
Working Capital Banks.+
10.3 Indemnification Agreement, dated as of December 23, 1999, by
and among NRG Energy, The Chase Manhattan Bank and Citibank,
N.A., as Lender Representatives and the Indemnified
Parties.+
10.4 Indemnification Consent Agreement, dated as of February 22,
2000, by and among NRG Energy, NRG Northeast Generating LLC,
the Initial Purchasers party thereto and The Chase Manhattan
Bank, as Trustee and Collateral Agent.+
10.5 Restated Intercompany Note dated as of February 22, 2000 by
Arthur Kill Power LLC in favor of NRG Northeast Generating
LLC.+
10.6 Restated Intercompany Note dated as of February 22, 2000 by
Astoria Gas Turbine Power LLC in favor of NRG Northeast
Generating LLC.+
10.7 Restated Intercompany Note dated as of February 22, 2000 by
Devon Power LLC in favor of NRG Northeast Generating LLC.+
10.8 Restated Intercompany Note dated as of February 22, 2000 by
Dunkirk Power LLC in favor of NRG Northeast Generating LLC.+
10.9 Restated Intercompany Note dated as of February 22, 2000 by
Huntley Power LLC in favor of NRG Northeast Generating LLC.+
10.10 Restated Intercompany Note dated as of February 22, 2000 by
Middletown Power LLC in favor of NRG Northeast Generating
LLC.+
10.11 Restated Intercompany Note dated as of February 22, 2000 by
Montville Power LLC in favor of NRG Northeast Generating
LLC.+
10.12 Restated Intercompany Note dated as of February 22, 2000 by
Norwalk Power LLC in favor of NRG Northeast Generating LLC.+
10.13 Restated Intercompany Note dated as of February 22, 2000 by
Oswego Harbor Power LLC in favor of NRG Northeast Generating
LLC.+
10.14 Restated Intercompany Note dated as of February 22, 2000 by
Somerset Power LLC in favor of NRG Northeast Generating
LLC.+
10.15 Working Capital Intercompany Note dated as of February 22,
2000 by each of the Guarantors in favor of NRG Northeast
Generating LLC.+
10.16 Funds Administration Agreement, dated as of February 22,
2000, by and among NRG Northeast Generating LLC and the
Guarantors party thereto.+
</TABLE>
<PAGE> 213
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.17 Power Sales and Agency Agreement dated as of June 25, 1999
between NRG Power Marketing, Inc. and Arthur Kill Power
LLC.+
10.18 Power Sales and Agency Agreement dated as of June 25, 1999
between NRG Power Marketing, Inc. and Astoria Gas Turbine
Power LLC.+
10.19 Power Sales and Agency Agreement dated as of December 15,
1999 between NRG Power Marketing, Inc. and Connecticut Jet
Power LLC.+
10.20 Power Sales and Agency Agreement dated as of December 15,
1999 between NRG Power Marketing, Inc. and Devon Power LLC.+
10.21 Power Sales and Agency Agreement dated as of June 11, 1999
between NRG Power Marketing, Inc. and Dunkirk Power LLC.+
10.22 Power Sales and Agency Agreement dated as of June 11, 1999
between NRG Power Marketing, Inc. and Huntley Power LLC.+
10.23 Power Sales and Agency Agreement dated as of December 15,
1999 between NRG Power Marketing, Inc. and Middletown Power
LLC.+
10.24 Power Sales and Agency Agreement dated as of December 15,
1999 between NRG Power Marketing, Inc. and Montville Power
LLC.+
10.25 Power Sales and Agency Agreement dated as of December 15,
1999 between NRG Power Marketing, Inc. and Norwalk Power
LLC.+
10.26 Power Sales and Agency Agreement dated as of October 22,
1999 between NRG Power Marketing, Inc. and Oswego Harbor
Power LLC.+
10.27 Amended and Restated Power Sales and Agency Agreement dated
as of July 15, 1999 between NRG Power Marketing, Inc. and
Somerset Power LLC.+
10.28 Operation and Maintenance Agreement dated as of June 25,
1999 between NRG Arthur Kill Operations, Inc. and Arthur
Kill Power LLC.+
10.29 Operation and Maintenance Agreement dated as of June 25,
1999 between NRG Astoria Gas Turbine Operations, Inc. and
Astoria Gas Turbine Power LLC.+
10.30 Operation and Maintenance Agreement dated as of December 15,
1999 between NRG Middletown Operations, Inc. and Connecticut
Jet Power LLC.+
10.31 Operation and Maintenance Agreement dated as of December 15,
1999 between NRG Devon Operations, Inc. and Devon Power
LLC.+
10.32 Operation and Maintenance Agreement dated as of June 11,
1999 between NRG Dunkirk Operations, Inc. and Dunkirk Power
LLC.+
10.33 Operation and Maintenance Agreement dated as of June 11,
1999 between NRG Huntley Operations, Inc. and Huntley Power
LLC.+
10.34 Operation and Maintenance Agreement dated as of December 15,
1999 between NRG Middletown Operations, Inc. and Middletown
Power LLC.+
10.35 Operation and Maintenance Agreement dated as of December 15,
1999 between NRG Montville Operations, Inc. and Montville
Power LLC.+
10.36 Operation and Maintenance Agreement dated as of December 15,
1999 between NRG Norwalk Harbor Operations, Inc. and Norwalk
Power LLC.+
10.37 Operation and Maintenance Agreement dated as of October 22,
1999 between NRG Oswego Harbor Power Operations, Inc. and
Oswego Harbor Power LLC.+
10.38 Amended and Restated Operation and Maintenance Agreement
dated as of July 15, 1999 between NRG Somerset Operations,
Inc. and Somerset Power LLC.+
</TABLE>
<PAGE> 214
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.39 Corporate Services Agreement between NRG Energy, Inc. and
Arthur Kill Power LLC dated as of June 25, 1999.+
10.40 Corporate Services Agreement between NRG Energy, Inc. and
Astoria Gas Turbine Power LLC dated as of June 25, 1999.+
10.41 Corporate Services Agreement between NRG Energy, Inc. and
Connecticut Jet Power LLC dated as of December 15, 1999.+
10.42 Corporate Services Agreement between NRG Energy, Inc. and
Devon Power LLC dated as of December 15, 1999.+
10.43 Corporate Services Agreement between NRG Energy, Inc. and
Dunkirk Power LLC dated as of June 11, 1999.+
10.44 Corporate Services Agreement between NRG Energy, Inc. and
Huntley Power LLC dated as of June 11, 1999.+
10.45 Corporate Services Agreement between NRG Energy, Inc. and
Middletown Power LLC dated as of December 15, 1999.+
10.46 Corporate Services Agreement between NRG Energy, Inc. and
Montville Power LLC dated as of December 15, 1999.+
10.47 Corporate Services Agreement between NRG Energy, Inc. and
Norwalk Power LLC dated as of December 15, 1999.+
10.48 Corporate Services Agreement between NRG Energy, Inc. and
Oswego Harbor Power LLC dated as of October 22, 1999.+
10.49 Amended and Restated Corporate Services Agreement between
NRG Energy, Inc. and Somerset Power LLC dated as of July 15,
1999.+
10.50 Transition Capacity Agreement between Arthur Kill Power LLC
and Consolidated Edison Company of New York, Inc. dated as
of June 25, 1999, incorporated by reference to Exhibit 10.30
to NRG Energy, Inc.'s Form 10Q for the quarter ended June
30, 1999.
10.51 Transition Capacity Agreement between Astoria Gas Turbine
Power LLC and Consolidated Edison Company of New York, Inc.
dated as of June 25, 1999, incorporated by reference to
Exhibit 10.29 to NRG Energy, Inc.'s Form 10Q for the quarter
ended June 30, 1999.
10.52 [Swap] Master Agreement dated as of June 11, 1999 between
Niagara Mohawk Power Corporation and NRG Power Marketing,
Inc., incorporated by reference to Exhibit 10.34 to NRG
Energy, Inc.'s Form 10Q for the quarter ended September 30,
1999.
10.53 Transition Power Purchase Agreement (Huntley 65 or 66
Secondary Call) between Niagara Mohawk Power Corporation and
Huntley Power LLC dated as of June 11, 1999.+
10.54 Transition Power Purchase Agreement (Huntley Power LLC -
Call) between Niagara Mohawk Power Corporation and Huntley
Power LLC dated as of June 11, 1999, incorporated by
reference to Exhibit 10.24 to NRG Energy, Inc.'s Form 10Q
for the quarter ended June 30, 1999.
10.55 Wholesale Standard Offer Service Agreement among Blackstone
Valley Electric Company, Eastern Edison Company, Newport
Electric Corporation and NRG Power Marketing Inc. dated as
of October 13, 1998 (incorporated by reference to Exhibit
10.18 to NRG Energy, Inc.'s Form 10Q for the quarter ended
June 30, 1999), as amended by First Amendment to Wholesale
Standard Offer Service Agreement dated as of January 15,
1999 (incorporated by reference to Exhibit 10.20 to NRG
Energy, Inc.'s Form 10Q for the quarter ended June 30,
1999).
</TABLE>
<PAGE> 215
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.56 Transition Power Purchase Agreement between Niagara Mohawk
Power Corporation and Oswego Harbor Power LLC dated as of
April 1, 1999, as amended by Transition Power Purchase 1st
Amendment between Niagara Mohawk Power Corporation and
Oswego Harbor Power LLC dated as of July 21, 1999 and 2nd
Amendment between Niagara Mohawk Power Corporation and
Oswego Harbor Power LLC dated as of October 19, 1999.+
10.57 Standard Offer Service Wholesale Sales Agreement between The
Connecticut Light and Power Company and NRG Power Marketing,
Inc. dated as of October 29, 1999, incorporated by reference
to Exhibit 10.35 to NRG Energy, Inc.'s Form 10Q for the
quarter ended September 30, 1999.
10.58 Site Agreement between Niagara Mohawk Power Corporation and
Huntley Power LLC dated as of May 11, 1999.+
10.59 Site Agreement between Niagara Mohawk Power Corporation and
Dunkirk Power LLC dated as of May 11, 1999.+
10.60 Site Agreement between Niagara Mohawk Power Corporation and
Oswego Harbor Power LLC dated as of August 19, 1999.+
10.61 Arthur Kill Continuing Site Agreement between Consolidated
Edison Company of New York, Inc. and NRG Energy, Inc. dated
as of January 27, 1999.+
10.62 Astoria Gas Turbine Continuing Site Agreement between
Consolidated Edison Company of New York, Inc. and NRG
Energy, Inc. dated as of January 27, 1999.+
10.63 Interconnection Agreement between Niagara Mohawk Power
Corporation and Huntley Power LLC dated as of April 14,
1999.+
10.64 Interconnection Agreement between Niagara Mohawk Power
Corporation and Dunkirk Power LLC dated as of April 14,
1999.+
10.65 Interconnection Agreement between Niagara Mohawk Power
Corporation and Oswego Harbor Power LLC dated as of July 30,
1999.+
10.66 Interconnection Agreement between The Connecticut Light and
Power Company and NRG Energy, Inc. dated as of July 1,
1999.+
10.67 Interconnection Agreement between Montaup Electric Company
and NRG Energy, Inc. dated as of October 13, 1998.+
10.68 Generating Plant and Gas Turbine Asset Purchase and Sale
Agreement for Arthur Kill Generating Plants located at
Staten Island, Richmond County, New York and Astoria Gas
Turbines located at Astoria, Queens County, New York between
Consolidated Edison Company of New York, Inc. and NRG
Energy, Inc. dated as of January 27, 1999, incorporated by
reference to Exhibit 10.21 to NRG Energy, Inc.'s Form 10Q
for the quarter ended June 30, 1999.
10.69 Asset Purchase Agreement between Montaup Electric Company
and NRG Energy, Inc. dated as of October 13, 1998.+
10.70 Asset Sales Agreement between Niagara Mohawk Power
Corporation and NRG Energy, Inc. dated as of December 23,
1998 (incorporated by reference to Exhibit 10.19 to NRG
Energy, Inc.'s Form 10Q for the quarter ended June 30,
1999), as amended by Amendment to the Asset Sales Agreement
dated as of June 11, 1999 (incorporated by reference to
Exhibit 10.28 to NRG Energy, Inc.'s Form 10Q for the quarter
ended June 30, 1999).
10.71 Asset Sales Agreement among Niagara Mohawk Power Corporation
, Rochester Gas and Electric Corporation, Oswego Harbor
Power LLC and NRG Energy, Inc. dated as of April 1, 1999.+
</TABLE>
<PAGE> 216
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.72 Asset Demarcation Agreement among The Connecticut Light and
Power Company, Connecticut Jet Power LLC, Devon Power LLC,
Middletown Power LLC, Montville Power LLC, Norwalk Power
LLC, NRG Devon Operations, Inc., NRG Middletown Operations,
Inc., NRG Montville Operations, Inc., NRG Norwark Harbor
Operations, Inc. and NRG Energy, Inc. dated as of December
15, 1999.+
10.73 Purchase and Sale Agreement between NRG Energy, Inc. and The
Connecticut Light and Power Company dated as of July 1,
1999.+
12.1 Statement re: Computation of Ratio of Earnings to Fixed
Charges.*
21.1 Subsidiaries of NRG Northeast Generating LLC.+
23.1 Consent of PricewaterhouseCoopers LLP.*
23.2 Consent of Skadden, Arps, Slate, Meagher & Flom LLP
(included in Exhibit 5.1).*
24.1 Powers of Attorney (included as part of signature page to
this registration statement).+
25.1 Form T-1 Statement of Eligibility of The Chase Manhattan
Bank to act as Trustee under the indenture.*
27.1 Financial Data Schedule for December 31, 1999 Financial
Statements of NRG Northeast Generating LLC (for SEC use
only).*
27.2 Financial Data Schedule for June 30, 2000 Financial
Statements of NRG Northeast Generating LLC (for SEC use
only).*
27.3 Financial Data Schedule for December 31, 1999 Financial
Statements of Middletown Power LLC (for SEC use only).*
27.4 Financial Data Schedule for June 30, 2000 Financial
Statements of Middletown Power LLC (for SEC use only).*
27.5 Financial Data Schedule for December 31, 1999 Financial
Statements of Huntley Power LLC (for SEC use only).*
27.6 Financial Data Schedule for June 30, 2000 Financial
Statements of Huntley Power LLC (for SEC use only).*
27.7 Financial Data Schedule for December 31, 1999 Financial
Statements of Dunkirk Power LLC (for SEC use only).*
27.8 Financial Data Schedule for June 30, 2000 Financial
Statements of Dunkirk Power LLC (for SEC use only).*
27.9 Financial Data Schedule for December 31, 1999 Financial
Statements of Arthur Kill Power LLC (for SEC use only).*
27.10 Financial Data Schedule for June 30, 2000 Financial
Statements of Arthur Kill Power LLC (for SEC use only).*
99.1 Form of Letter of Transmittal.*
99.2 Form of Notice of Guaranteed Delivery.*
99.3 Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees.*
99.4 Letter to Clients.*
</TABLE>
---------------
+ Previously filed.
* Filed herewith.
