UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ------ to ------
Commission Registrant, State of Incorporation, I.R.S. Employer
File Number Address, and Telephone Number Identification No.
----------- ------------------------------------------ -------------------
333-69228 PSEG POWER LLC 22-3663480
(A Delaware Limited Liability Company)
80 Park Plaza
P.O. Box 570
Newark, New Jersey 07101-0570
973-430-7000
http://www.pseg.com
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes No X
--- --
Registrant is a wholly owned subsidiary of Public Service Enterprise Group
Incorporated. Registrant meets the conditions set forth in General Instruction
H(1) (a) and (b) of Form 10-Q and is filing this Form 10-Q with the reduced
disclosure format authorized by General Instruction H.
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PSEG POWER LLC
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TABLE OF CONTENTS
PAGE
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements 1
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 19
Signature 21
PSEG POWER LLC
CONSOLIDATED STATEMENTS OF INCOME
(Millions of Dollars)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------------ --------------------------------------
2001 2000 2001 2000
----------------- --------------- ------------------ ----------------
OPERATING REVENUES
Generation $ 647 $ 551 $ 1,798 $ 1,622
Trading 674 738 1,843 2,040
----------------- --------------- ------------------ ----------------
Total Operating Revenues 1,321 1,289 3,641 3,662
----------------- --------------- ------------------ ----------------
OPERATING EXPENSES
Energy Costs 313 218 698 559
Trading Costs 636 725 1,719 1,985
Operation and Maintenance 165 156 514 481
Depreciation and Amortization 28 35 83 103
Taxes Other Than Income Taxes 6 12 17 21
----------------- --------------- ------------------ ----------------
Total Operating Expenses 1,148 1,146 3,031 3,149
----------------- --------------- ------------------ ----------------
OPERATING INCOME 173 143 610 513
Other Income and Deductions (1) (1) (4) 6
Interest Expense - Net (26) (55) (115) (98)
----------------- --------------- ------------------ ----------------
INCOME BEFORE INCOME TAXES 146 87 491 421
Income Taxes (59) (36) (199) (172)
----------------- --------------- ------------------ ----------------
EARNINGS AVAILABLE TO PUBLIC SERVICE
ENTERPRISE GROUP INCORPORATED $ 87 $ 51 $ 292 $ 249
================= =============== ================== ================
See Notes to Consolidated Financial Statements.
PSEG POWER LLC
CONSOLIDATED BALANCE SHEETS
ASSETS
(Millions of Dollars)
(Unaudited)
September 30, December 31,
2001 2000
-------------------- ------------------
CURRENT ASSETS
Cash and Cash Equivalents $ 6 $ 20
Accounts Receivable:
Affiliated Companies 159 159
Other 226 272
Fuel 69 58
Materials and Supplies, Net of Valuation
Reserves - 2001, $4 and 2000, $11 110 107
Energy Trading Contracts 579 799
Other 17 12
-------------------- ------------------
Total Current Assets 1,166 1,427
-------------------- ------------------
PROPERTY, PLANT AND EQUIPMENT
Property, Plant and Equipment 3,953 2,684
Less: Accumulated Depreciation and Amortization (1,229) (1,070)
-------------------- ------------------
Net Property, Plant and Equipment 2,724 1,614
-------------------- ------------------
NONCURRENT ASSETS
Deferred Income Taxes 620 676
Nuclear Decommissioning Fund 706 716
Other 184 97
-------------------- ------------------
Total Noncurrent Assets 1,510 1,489
-------------------- ------------------
TOTAL ASSETS $ 5,400 $ 4,530
==================== ==================
See Notes to Consolidated Financial Statements.
PSEG POWER LLC
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND CAPITALIZATION
(Millions of Dollars)
(Unaudited)
September 30, December 31,
2001 2000
-------------------- -----------------------
CURRENT LIABILITIES
Accounts Payable:
Affiliated Companies $ 200 $ 317
Other 329 336
Energy Trading Contracts 518 730
Other 191 87
-------------------- -----------------------
Total Current Liabilities 1,238 1,470
-------------------- -----------------------
NONCURRENT LIABILITIES
Nuclear Decommissioning 706 716
Cost of Removal 156 157
Environmental 53 53
Other 59 80
-------------------- -----------------------
Total Noncurrent Liabilities 974 1,006
-------------------- -----------------------
COMMITMENTS AND CONTINGENT LIABILITIES -- --
-------------------- -----------------------
CAPITALIZATION
LONG-TERM DEBT
Note Payable-Affiliated Company -- 2,786
Notes Payable 2,432 --
-------------------- -----------------------
Total Long-Term Debt 2,432 2,786
-------------------- -----------------------
MEMBER'S EQUITY
Contributed Capital 1,350 150
Basis Adjustment (986) (986)
Retained Earnings 396 104
Accumulated Other Comprehensive Loss (4) --
-------------------- -----------------------
Total Member's Equity 756 (732)
-------------------- -----------------------
Total Capitalization 3,188 2,054
-------------------- -----------------------
TOTAL LIABILITIES AND CAPITALIZATION $ 5,400 $ 4,530
==================== =======================
See Notes to Consolidated Financial Statements.
PSEG POWER LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Millions of Dollars)
(Unaudited)
Nine Months Ended September 30,
2001 2000
---------------------- -------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 292 $ 249
Adjustments to reconcile net income to net cash flows from
Operating activities:
Depreciation and Amortization 83 103
Amortization of Nuclear Fuel 63 47
Provision for Deferred Income Taxes and ITC - net 56 (66)
Net Changes in certain current assets and liabilities:
Accounts Receivable 46 92
Inventory - Fuel and Materials and Supplies (14) (13)
Prepayments (3) 8
Accounts Payable (124) 278
Other Current Assets and Liabilities 110 (40)
Other (104) (161)
---------------------- -------------------
Net Cash Provided By Operating Activities 405 497
---------------------- -------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to Property, Plant and Equipment, excluding Capitalized
Interest (1,207) (279)
Other (58) (22)
---------------------- -------------------
Net Cash Used In Investing Activities (1,265) (301)
---------------------- -------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net Change in Short-Term Debt -- (685)
Issuance of Note-Payable-Due to Affiliated Company -- 2,786
Repayment of Note Payable-Due to Affiliated Company (2,786) --
Issuance of Long-Term Debt 2,432 --
Contributed Capital 1,200 120
Net Change in Capitalization Activity -- (2,486)
---------------------- -------------------
Net Cash Provided By/(Used In) Financing Activities 846 (265)
---------------------- -------------------
Net Change In Cash And Cash Equivalents (14) (69)
Cash And Cash Equivalents At Beginning Of Period 20 77
---------------------- -------------------
Cash And Cash Equivalents At End Of Period $ 6 $ 8
====================== ===================
Income Taxes Paid $ 145 $ 129
Interest Paid $ 119 $ 87
See Notes to Consolidated Financial Statements.
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PSEG POWER LLC
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Organization and Basis of Presentation
Organization
PSEG Power LLC (Power), a wholly-owned subsidiary of Public Service
Enterprise Group Incorporated (PSEG), is a Delaware limited liability company
and was formed in 1999 to acquire, own and operate the electric
generation-related assets of its affiliate, Public Service Electric and Gas
Company (PSE&G), pursuant to a regulatory order issued by the New Jersey Board
of Public Utilities (BPU). Power provides energy and capacity to PSE&G under
certain contracts and markets electricity, natural gas, capacity and ancillary
services throughout the Eastern United States. Power also engages in energy
trading activities related to a broad spectrum of energy and energy-related
products. Power has three principal direct wholly-owned subsidiaries: PSEG
Fossil LLC (Fossil), PSEG Nuclear LLC (Nuclear) and PSEG Energy Resources &
Trade LLC (ER&T). Power also has a finance company subsidiary, PSEG Power
Capital Investment Co. (Power Capital), which provides certain financing for
Power's subsidiaries.
Basis of Presentation
The financial statements included herein have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission (SEC). Certain
information and note disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. However, in the
opinion of management, the disclosures are adequate to make the information
presented not misleading. These consolidated financial statements and Notes to
Consolidated Financial Statements (Notes) should be read in conjunction with the
Notes included in Amendment No. 1 to Power's Registration Statement on Form S-4
filed October 5, 2001. These Notes update and supplement matters discussed in
the Notes included therein.
The unaudited financial information included herein reflects all
adjustments which are, in the opinion of management, necessary to fairly state
the results for the interim periods presented. The year-end consolidated balance
sheet was derived from the audited consolidated financial statements in
Amendment No. 1 to Power's Registration Statement on Form S-4 filed October 5,
2001. Certain reclassifications of prior period data have been made to conform
with the current presentation.
Note 2. Accounting Matters
Issued in July 2000, Emerging Issues Task Force (EITF) consensus 99-19,
"Reporting Revenue Gross as a Principal versus Net as an Agent" (EITF 99-19)
provided guidance on the issue of whether a company should report revenue based
on the gross amount billed to the customer or the net amount retained. Beginning
in the first quarter of 2001, based on an analysis and interpretation of EITF
99-19, Power reported all the revenues and energy costs on a gross basis for the
physical bilateral energy sales and purchases and capacity sales and purchases.
Power continues to report revenues and costs related to swaps, futures, option
premiums, firm transmission rights, transmission congestion credits and
purchases and sales of emission allowances on a net basis. The prior period
financial statements have been reclassified accordingly.
On January 1, 2001, Power adopted Statement of Financial Standards (SFAS)
No. 133, "Accounting for Derivative Instruments and Hedging Activities", as
amended (SFAS 133). Power did not have a transition adjustment upon adoption.
Subsequent to December 31, 2000, Power entered into certain derivative
instruments, which have been designated as cash flow hedges.
The Financial Accounting Standards Board (FASB) Derivative Implementation
Group (DIG) issued guidance, effective January 1, 2002, regarding the normal
purchases and normal sales exception for option-type contracts and forward
contracts in electricity. In addition, the DIG issued amended guidance,
effective April 1, 2002, regarding the normal purchases and normal sales
exception to contracts that combine a forward contract and a purchased option
contract. Power is currently evaluating this guidance in light of its potential
impacts and cannot predict the impact on its financial position or results of
operations; however, such impact could be material. Power has evaluated
additional guidance issued by the DIG which was effective July 1, 2001 which had
no material effect on Power's financial position or results of operations.
In July 2001, the FASB issued SFAS No. 141, "Business Combinations" (SFAS
141). SFAS 141 was effective July 1, 2001 and requires that all business
combinations on or after that date be accounted for under the purchase method.
Upon implementation of this standard, there was no impact on its financial
position or results of operations and Power does not believe it will have a
substantial effect on its growth strategy.
Also in July 2001, the FASB issued SFAS No. 142, "Goodwill and Other
Intangible Assets" (SFAS 142). Under SFAS 142, goodwill is considered a
nonamortizable asset and will be subject to an annual review for impairment and
an interim review when events or circumstances occur. SFAS 142 is effective for
all fiscal years beginning after December 15, 2001. At September 30, 2001, Power
had recorded goodwill of approximately $22 million as a result of its
acquisition of the Albany Steam Station from Niagara Mohawk Power Corporation
(Niagara Mohawk) in 2000. This amount is being amortized over 40 years in
accordance with current accounting guidance yielding approximately $0.5 million
of amortization per year. Power is currently evaluating the effect of this
guidance and does not believe that it will have a material impact on its
financial position or results of operations.
Also in July 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations" (SFAS 143). Upon adoption of SFAS 143, the fair value of
a liability for an asset retirement obligation is required to be recorded. Upon
settlement of the liability, an entity either settles the obligation for its
recorded amount or incurs a gain or loss upon settlement. SFAS 143 is effective
for fiscal years beginning after June 15, 2002. As of September 30, 2001, Power
had recorded $156 million as a cost of removal liability, most of which was
transferred to Power as part of the generation asset transfer from PSE&G. Power
is currently evaluating the effect of this guidance and cannot predict the
impact on its financial position or results of operations; however, such impact
could be material.
In August 2001, FASB issued SFAS No. 144, "Accounting for Impairment or
Disposal of Long-Lived Assets" (SFAS 144). Under SFAS 144 long-lived assets to
be disposed of should be measured at the lower of the carrying amount or fair
value less cost to sell, whether reported in continued operations or in
discontinued operations. Discontinued operations will no longer be measured at
net realizable value or include amounts for operating losses that have not yet
occurred. SFAS 144 also broadens the reporting of discontinued operations. SFAS
144 is effective for fiscal years beginning after December 15, 2001. Power is
currently evaluating this guidance and does not believe that it will have a
material impact on its financial position or results of operations.
Note 3. Regulatory Issues
New Jersey Energy Master Plan Proceedings and Related Orders
In August 1999, following the enactment of the New Jersey Electric Discount
and Energy Competition Act, the BPU rendered its Final Order relating to PSE&G's
rate unbundling, stranded costs and restructuring proceedings providing, among
other things, for the transfer to Power of all of PSE&G's electric generation
facilities, plant and equipment for $2.443 billion and all other related
property, including materials, supplies and fuel at the net book value thereof,
together with associated rights and liabilities. PSE&G transferred its electric
generating business to Power in August 2000 in exchange for a $2.786 billion
promissory note, which was repaid by Power on January 31, 2001.
Also in the Final Order, the BPU concluded that PSE&G should recover up to
$2.94 billion (net of tax) of its generation-related stranded costs through
securitization of $2.4 billion and an opportunity to recover up to $540 million
(net of tax) of its unsecuritized generation-related stranded costs on a net
present value basis. The $540 million is subject to recovery through a market
transition charge (MTC), which is collected over the four year transition period
ending on July 31, 2003 and is remitted to Power along with basic generation
service (BGS) revenues as part of PSE&G's BGS contract with Power.
In October and November 1999, appeals were filed challenging the validity
of the Final Order. In April 2000, the Appellate Division of the New Jersey
Superior Court unanimously rejected the arguments made by the New Jersey
Business User's Coalition, the New Jersey Ratepayer Advocate (RPA) and Co-Steel
Raritan (Co-Steel), an individual PSE&G customer (the appellants), and affirmed
the Final Order. In May 2000, the appellants requested the New Jersey Supreme
Court to review certain aspects of the Appellate Division decision. In July
2000, the New Jersey Supreme Court granted the requests of the appellants. In
December 2000, by a vote of 4 to 1, the New Jersey Supreme Court issued its
order affirming the judgment of the Appellate Division. The New Jersey Supreme
Court's written opinion was issued on May 18, 2001.
On March 6, 2001, Co-Steel filed a Petition of Writ of Certiorari with the
United States Supreme Court seeking limited review of the New Jersey Supreme
Court decision. In October 2001, the Supreme Court denied Co-Steel's petition.
Note 4. Commitments and Contingent Liabilities
Pending Asset Purchases and Development
In 1999, Power entered into agreements with Conectiv, Conectiv's
subsidiaries Delmarva Power and Light Company (DP&L) and Atlantic City Electric
Company (ACE), and Exelon Generation LLC (Exelon) pursuant to which Power would
acquire all of DP&L's and ACE's interests in Salem Nuclear Generating Station
(Salem) and Hope Creek Generating Station (Hope Creek) and half of DP&L's and
ACE's interest in Peach Bottom Atomic Power Station (Peach Bottom) (a total of
544 MW) for a purchase price of $15.4 million plus the net book value of nuclear
fuel at the respective closing dates. In December 2000, the DP&L portion of the
transaction (246 MW) closed. The ACE portion of the transaction (298 MW) closed
in October 2001, yielding the following final ownership shares:
Power Exelon
----- ------
Salem 57.41% 42.59%
Hope Creek 100.00% --
Peach Bottom 50.00% 50.00%
PSEG Power New York Inc., an indirect subsidiary of Power, is in the
process of obtaining permits and approvals to authorize the development of the
Bethlehem Energy Center, a 750 MW combined-cycle power plant that will replace
the 400 MW Albany Steam Station, which was acquired from Niagara Mohawk in May
2000. In September 2001, the New York State Board on Electric Generation Siting
and the Environment determined that the Certificate of Environmental
Compatibility and Public Need (Article X) application is in compliance with
state regulations. This Board expects to reach a final project certification
decision within 12 months. Furthermore, the state Department of Environmental
Conservation has issued draft air and water permits for the project. Under its
Purchase Agreement with Niagara Mohawk, Power will be obligated to pay Niagara
Mohawk up to $9 million if it redevelops the Albany Station, however, Power
expects this payment will be reduced based on conditions related to the service
date and regulatory requirements.
Power is constructing a 500 MW natural gas-fired, combined cycle electric
generation plant at Bergen Generation Station at a cost of approximately $290
million with completion expected in June 2002. Power is also constructing an
1,186 MW combined cycle generation plant at Linden for approximately $590
million expected to be completed in May 2003.
In August 2001, subsidiaries of Power closed with a group of banks on $800
million of non-recourse project financing for projects in Waterford, Ohio and
Lawrenceburg, Indiana. The Waterford project will be completed in two phases and
will increase Power's capacity by 850MW. The first phase and second phase of the
project are expected to achieve commercial operation in June 2002 and May 2003,
respectively. The Lawrenceburg project will increase Power's capacity by 1,150
MW and is expected to achieve commercial operation by May 2003. The total
combined project cost for Waterford and Lawrenceburg is estimated at $1.2
billion. Power's required estimated equity investment in these projects is
approximately $400 million.
In addition, Power also has contracted with a third party to purchase
combustion turbines through 2004. The aggregate amount due under these contracts
is approximately $600 million.
Hazardous Waste
The New Jersey Department of Environmental Protection (NJDEP) regulations
concerning site investigation and remediation require an ecological evaluation
of potential injuries to natural resources in connection with a remedial
investigation of contaminated sites. The NJDEP is presently working with
industry to develop procedures for implementing these regulations. These
regulations may substantially increase the costs of environmental investigations
and remediations, where necessary, particularly at sites situated on surface
water bodies. Power and predecessor companies owned and/or operated certain
facilities situated on surface water bodies, certain of which are currently the
subject of remedial activities. While the financial impact of these regulations
on these projects is not currently estimable, Power does not anticipate that the
compliance with these regulations will have a material adverse effect on its
financial position, results of operations or net cash flows.
Passaic River Site
The United States Environmental Protection Agency (EPA) has determined that
a six mile stretch of the Passaic River in Newark, New Jersey is a "facility"
within the meaning of that term under the Federal Comprehensive Environmental
Response, Compensation and Liability Act of 1980 (CERCLA) and that, to date, at
least thirteen corporations may be potentially liable for performing required
remedial actions to address potential environmental pollution at the Passaic
River "facility." Power and certain of its predecessors operated industrial
facilities at properties within the Passaic River "facility," which include one
operating electric generating station and one former generating station. Power
cannot predict what action, if any, the EPA or any third party may take against
it with respect to these matters, or in such event, what costs it may incur to
address any such claims. However, such costs may be material.
New Source Review
In a response to a demand by the EPA and NJDEP under Section 114 of the
Federal Clean Air Act (CAA) requiring information to assess whether projects
completed since 1978 at the Hudson and Mercer generating stations were
implemented in accordance with applicable New Source Review regulations, Power
provided certain data in November 2000. Based upon the information provided to
the EPA, it is likely that the EPA will seek to enforce the requirements of the
New Source Review program at Hudson 2 and Mercer 1 and 2. Power is currently in
discussions with the EPA and NJDEP to resolve the matter. It is uncertain
whether these discussions will be successful, however, costs of compliance could
be material.
The EPA indicated that it is considering enforcement action against Power
under its Prevention of Significant Deterioration (PSD) rules relating to the
construction that is currently in progress for Bergen 2, scheduled for
operations in 2002. The EPA had maintained that PSD requirements are applicable
to Bergen 2, thereby requiring Power to obtain a permit prior to the
commencement of construction. To obtain such a permit, an applicant must
demonstrate that the additional emission source will not cause significant
deterioration of the air shed in the vicinity of the plant. The time required to
obtain such a permit is estimated at 6-12 months. Power vigorously disputes that
these requirements are applicable to Bergen 2 and is continuing construction.
The NJDEP has informally indicated it agrees with Power's position, but has also
advised that the ultimate authority to decide PSD applicability rests solely
with the EPA. Discussions to resolve this matter are underway with the EPA and
NJDEP. At September 30, 2001, Power had expended approximately $210 million in
the construction of Bergen 2.
Note 5. Financial Instruments and Risk Management
Power's operations give rise to exposure to market risks from changes in
commodity prices. Power's policy is to use derivative financial instruments for
the purpose of managing market risk consistent with its business plans and
prudent business practices.
Energy Trading and Related Contracts
Power routinely enters into exchange traded futures and options
transactions for electricity and natural gas as part of wholesale trading
operations. Generally, exchange-traded futures contracts require deposit of cash
for margins, the amount of which is subject to change based on market movement
and in accordance with exchange rules. The amount of the margin requirements at
September 30, 2001 and December 31, 2000 was approximately $2 million and $1
million, respectively.
Power's energy trading and related contracts have been marked to market and
gains and losses from such contracts were recorded in earnings, including
unrealized losses of $10.6 million and $4.6 million for the quarter and nine
months ended September 30, 2001, respectively and an unrealized loss of $0.2
million and an unrealized gain of $47.6 million for the quarter and nine months
ended September 30, 2000, respectively. The unrealized losses in 2001 are
primarily due to significant drops in natural gas prices in the third quarter of
2001.
The fair values of the energy trading and related contracts that are
marked-to-market are based on management's best estimates using over-the-counter
quotations, exchange prices, volatility factors and other valuation methodology.
The estimates presented herein are not necessarily indicative of the amounts
that Power could realize in a current market exchange. The fair values as of
September 30, 2001 and December 31, 2000 and the average fair values for the
periods then ended of Power's significant financial instruments related to
energy commodities are summarized in the following table:
September 30, 2001 December 31, 2000
----------------------------------------- --------------------------------------------
Notional Notional Fair Average Notional Notional Fair Average
(mWh) (MMBTU) Value Fair Value (mWh) (MMBTU) Value Fair Value
----------------------------------------- --------------------------------------------
(Millions) (Millions)
Futures and Options NYMEX... -- 5.0 $(3.7) $(2.1) 17.0 167.0 $6.0 ($1.0)
Physical forwards........... 43.0 13.0 $10.6 $14.7 50.0 10.0 $13.0 $14.0
Options -- OTC.............. 11.0 568.0 $(50.2) $32.4 12.0 525.0 $184.0 $68.0
Swaps....................... 14.0 785.0 $65.0 $(9.3) -- 218.0 $(138.0) $23.0
Emission Allowances......... -- -- $28.3 $24.5 -- -- $6.0 $9.0
Derivative Instruments and Hedging Activities
Commodity-Related Instruments
Power also holds and issues commodity and financial instruments that reduce
exposure to price fluctuations from factors such as weather, environmental
policies, changes in demand, changes in supply, state and Federal regulatory
policies and other events. These instruments, in conjunction with owned electric
generating capacity contracts, are designed to cover estimated electric supply
commitments and gas requirements for electric generation. Power uses futures,
forwards, swaps and options to manage and hedge price risk related to these
market exposures.
As of September 30, 2001, Power had entered into electric physical forward
contracts and gas futures and swaps to hedge its forecasted BGS requirements and
gas purchases requirements for generation with a maximum term of approximately
one year, which qualified for hedge accounting treatment under SFAS 133. These
commodity and financial instruments are marked-to-market based on management's
best estimates using over-the-counter quotations, exchange prices, volatility
factors and other valuation methodology. For the quarter ended September 30,
2001, the total positive mark to market valuation of $34 million was recorded as
a derivative asset offset by Other Comprehensive Income (OCI) and deferred taxes
of $20 million and $14 million, respectively. The increase in the derivative
asset was primarily due to the dramatic decrease in natural gas prices.
Interest Rate Swaps
In February 2001, Power entered into various forward-interest rate swaps,
with an aggregate notional amount of $400 million, to hedge the interest rate
risk related to the anticipated issuance of debt. On April 11, 2001, Power
issued $1.8 billion in fixed-rate Senior Notes and closed out the forward
starting interest rate swaps. The aggregate loss, net of tax, of $3.2 million
was classified as Accumulated Other Comprehensive Loss and is being amortized
and charged to interest expense over the life of the debt.
In October 2001, Power entered into two interest rate swaps with an
aggregate notional amount of $177.5 million to hedge its variable interest rate
loan related to the construction of its Waterford, Ohio facility. The swap
qualifies for hedge accounting treatment under SFAS 133 and will be recorded on
the balance sheet at fair value with changes in the effective portion of the
swap to be recorded in OCI.
Credit Risk
Credit risk relates to the risk of loss that Power would incur as a result
of non-performance by counterparties, pursuant to the terms of their contractual
obligations. PSEG has established credit policies that it believes significantly
minimize its exposure to credit risk. These policies include an evaluation of
potential counterparties' financial condition (including credit rating),
collateral requirements under certain circumstances and the use of standardized
agreements, which may allow for the netting of positive and negative exposures
associated with a single counterparty.
Two major California utilities, including Pacific Gas & Electric Company
(PG&E), have significantly underrecovered from customers costs paid for power.
As a consequence, these utilities have defaulted under a variety of contractual
obligations. On April 6, 2001, PG&E filed for reorganization under Chapter 11 of
the U.S. Bankruptcy Code. Affiliates of these California utilities have entered
into physical forward and swap contracts with ER&T for delivery in the
Pennsylvania-New Jersey Maryland (PJM) area. These counterparties have met their
obligations to date and are still investment grade entities. ER&T has entered
into a limited number of additional contracts since May 2001 with one of these
counterparties but none with the other since December 2000. ER&T's exposure to
these entities under these contracts is not material and management does not
believe that a reserve is presently necessary.
Note 6. Income Taxes
Power's effective income tax rate is as follows:
Quarter Ended Nine Months Ended
September 30, September 30,
------------------------ -------------------------
2001 2000 2001 2000
---------- ---------- ---------- ----------
Federal tax provision at statutory rate..................... 35.0% 35.0% 35.0% 35.0%
New Jersey Corporate Business Tax, net of Federal benefit... 5.9% 5.9% 5.9% 5.9%
Other -- net................................................ (0.5)% 0.5% (0.4)% --
---------- ---------- ---------- ----------
Effective Income Tax Rate.............................. 40.4% 41.4% 40.5% 40.9%
---------- ---------- ---------- ----------
Note 7. Financial Information by Business Segments
Information related to the segments of Power's business is detailed below.
-----------------------------------------------------------------------------------------------------------------
Consolidated
Generation Trading Total
---------------- ------------------ ------------------
(Millions of Dollars)
For the Quarter Ended September 30, 2001:
Total Operating Revenues........................ $647 $674 $1,321
Segment Operating Income........................ $135 $38 $173
Segment Earnings Available to PSEG.............. $65 $22 $87
================ ================== ==================
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For the Quarter Ended September 30, 2000:
Total Operating Revenues........................ $551 $738 $1,289
Segment Operating Income........................ $130 $13 $143
Segment Earnings Available to PSEG.............. $43 $8 $51
================ ================== ==================
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For the Nine Months Ended September 30, 2001:
Total Operating Revenues........................ $1,798 $1,843 $3,641
Segment Operating Income........................ $486 $124 $610
Segment Earnings Available to PSEG.............. $218 $74 $292
================ ================== ==================
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For the Nine Months Ended September 30, 2000:
Total Operating Revenues........................ $1,622 $2,040 $3,662
Segment Operating Income........................ $458 $55 $513
Segment Earnings Available to PSEG.............. $216 $33 $249
================ ================== ==================
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As of September 30, 2001:
Total Assets.................................... $4,460 $940 $5,400
================ ================== ==================
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As of December 31, 2000:
Total Assets.................................... $3,439 $1,091 $4,530
================ ================== ==================
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Note 8. Comprehensive Income
Comprehensive Income, Net of Tax, is detailed below:
Comprehensive Income/(Loss)
-------------------------------------------------------
Quarter Ended Nine Months Ended
September 30, September 30,
------------------------ --------------------------
2001 2000 2001 2000
--------- ----------- ----------- -----------
(Millions of Dollars)
Net Income............................................ $87 $51 $292 $249
Other Comprehensive Income/(Loss), net of tax (A)..... 19 - (4) -
-------- ----------- ----------- -----------
Comprehensive Income.................................. $106 $51 $288 $249
======== =========== =========== ===========
(A) Net of tax of $(14.0) million and $0.2 million for the quarter and nine
months ended September 30, 2001, respectively. For a further discussion,
see Note 5. Financial Instruments and Risk Management.
Note 9. Related Party Transactions
PSE&G transferred its electric generating assets to Power in exchange for a
$2.786 billion Promissory Note. Interest on the Promissory Note was payable at
an annual rate of 14.23%, which represented PSE&G's weighted average cost of
capital. For the period from January 1, 2001 to January 31, 2001, Power recorded
interest expense of approximately $34 million relating to the Promissory Note.
Power repaid the Promissory Note on January 31, 2001, with funds provided from
PSEG in the form of equity and loans. In addition, on January 31, 2001, PSEG
loaned $1.620 billion to Power at various rates for which Power recorded
interest expense of approximately $40 million for the period from February 2001
to April 2001, when the loan was repaid.
In April 2001, Power, in a private placement, issued $500 million of 6.875%
Senior Notes due 2006, $800 million of 7.75% Senior Notes due 2011 and $500
million 8.625% Senior Notes due 2031. The net proceeds from the sale of the
Senior Notes were used primarily for the repayment of the loans from PSEG. Each
series of the Senior Notes is fully and unconditionally and jointly and
severally guaranteed by Fossil, Nuclear and ER&T. All other direct and indirect
subsidiaries of Power that are not guarantors of the Notes are minor and Power
has no independent assets or operations.
Effective with the asset transfer, Power charges PSE&G for a MTC and the
energy and capacity provided to meet PSE&G's BGS requirements. For the quarter
and nine months ended September 30, 2001, Power has charged PSE&G approximately
$568 million and $1.5 billion, respectively, for MTC and BGS. As of September
30, 2001,
Power's receivable from PSE&G relating to these costs was approximately
$159 million. For the quarter and nine months ended September 30, 2001, Power
purchased energy and capacity from PSE&G at the market price of approximately
$55 million and $135 million, respectively, which PSE&G purchased under various
non-utility generation (NUG) contracts. As of September 30, 2001, Power's
payable to PSE&G relating to these purchases was approximately $10 million.
PSEG Services Corporation provides and bills administrative services to
Power on a monthly basis. Power's costs related to such services amounted to
approximately $51 million and $132 million for the quarter and nine months ended
September 30, 2001. As of September 30, 2001, Power's payable related to these
costs was approximately $15 million.
As of September 30, 2001, Power also had a payable to PSEG of approximately
$171 million for short term funding needs. Power's interest expense related to
these borrowings were $5 million and $21 million for the quarter and nine months
ended September 30, 2001, respectively.
Note 10. Property, Plant and Equipment
Information related to Property, Plant and Equipment is detailed below:
September 30, 2001 December 31, 2000
------------------- -------------------
Electric Plant in Service: (Millions of Dollars)
Fossil Production.................. $1,842 $1,819
Nuclear Production................. 149 130
------------------- -------------------
Total Electric Plant in Service.. 1,991 1,949
------------------- -------------------
Nuclear Fuel in Service.............. 481 417
Construction Work in Progress
Including Nuclear Fuel............... 1,414 311
Other................................ 67 7
------------------- -------------------
Total............................ $3,953 $2,684
=================== ===================
For a discussion of Power's Construction Work in Progress, see Note 4.
Commitments and Contingent Liabilities.
================================================================================
PSEG POWER LLC
================================================================================
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Following are the significant changes in or additions to information
reported in Power's Amendment No. 1 to the Registration Statement on Form S-4
filed October 5, 2001 affecting the consolidated financial condition and the
results of operations of Power and its subsidiaries. This discussion refers to
the Consolidated Financial Statements (Statements) and related Notes to
Consolidated Financial Statements (Notes) of Power and should be read in
conjunction with such Statements and Notes.
Results of Operations
Power's Earnings increased $36 million or 71% and $43 million or 17% for
the quarter and nine months ended September 30, 2001 from the comparable periods
in 2000, respectively. These increases were primarily due to an $88 million
pre-tax charge to income, $52 million after-tax, related to MTC recovery
recorded in the third quarter of 2000 combined with increased margins from
wholesale trading activities. These increases were partially offset by the
effect of customers returning to PSE&G in 2001 from third party suppliers (TPS)
as wholesale market prices for power have typically exceeded fixed BGS rates.
Operating Revenues
Generation
Generation Revenues increased $96 million or 17% and $176 million or 11%
for the quarter and the nine months ended September 30, 2001 from the comparable
periods in 2000, respectively, primarily due to an $88 million pre-tax charge to
income related to MTC recovery recorded in the third quarter of 2000 combined
with the effects of customers returning to PSE&G in 2001 from third party
suppliers (TPS) as wholesale market prices have typically exceeded fixed BGS
rates. As of September 30, 2001, TPS were serving approximately 0.4% of the
customer load traditionally served by PSE&G as compared to the September 30,
2000 level of 7.1%. This resulted in an increase of $33 million in BGS revenue
for the quarter ended September 30, 2001 as compared to the same period in 2000.
However, the increased revenues resulting from this reverse migration were more
than offset by higher energy costs relating to the increased load during the
warmer summer months. Power expects a favorable impact from the increased load
in the fourth quarter of 2001 when energy costs are typically lower. Also
contributing to the increase for the nine months ended September 30, 2001, was
output from new operating generation plants placed in service subsequent to the
first quarter of 2000. These increases were partially offset by two additional
2% rate reductions PSE&G gave to customers as part of its deregulation plan,
effective on February 7, 2001 and August 1, 2001 totaling $37 million and $65
million for the quarter and nine months ended September 30, 2001, respectively,
as compared to the same periods in 2000. As of September 30, 2001, as required
by the Final Order, PSE&G has had rate reductions totaling 9% since August 1,
1999 and will have an additional 4.9% rate reduction effective August 1, 2002,
which will be in effect until July 31,2003. These rate reductions are embedded
in the MTC rate that PSE&G charges to customers and are passed through to Power.
Power has contracted with PSE&G to provide the capacity and electricity
necessary for the BGS obligation through July 31, 2002. On June 29, 2001, PSE&G
and the other three BPU regulated New Jersey electric utility companies
submitted a joint filing to the BPU setting forth an auction proposal for the
provision of BGS supply beginning August 1, 2002. Power will participate in the
BGS auction and will seek commitments on approximately 75% of its capacity but
cannot predict the actual amounts of commitments that will be received.
Trading
Trading revenues decreased by $64 million or 9% and $197 million or 10% for
the quarter and nine months ended September 30, 2001 from the comparable periods
in 2000, respectively, due to lower trading volumes and lower prices as compared
to 2000. However, these decreased revenues were more than offset by decreased
trading costs of $89 million (discussed below in Trading Costs). Trading margins
increased from $13 million to $38 million and from $55 million to $124 million
for the quarter and nine month periods ended September 30, 2001, respectively,
as compared to the same periods in 2000 primarily due to favorable trading
contracts.
Operating Expenses
Energy Costs
Energy Costs increased $95 million or 44% and $139 million or 25% for the
quarter and nine months ended September 30, 2001 from the comparable periods in
2000, respectively, primarily due to increased load served under the BGS
contract which led to increased fuel costs for Generation and increased energy
purchases. In addition to an increase in the volume of fuel, higher fuel costs
of $47 million for fossil generation from higher natural gas prices in the early
part of 2001 contributed to the increase.
Trading Costs
Trading Costs decreased $89 million or 12% and $266 million or 13% for the
quarter and nine months ended September 30, 2001 from the comparable periods in
2000, respectively, primarily due to lower trading volumes and lower prices as
compared to 2000.
Operation and Maintenance
Operation and Maintenance expense increased $9 million or 6% and $33
million or 7% for the quarter and nine months ended September 30, 2001,
respectively primarily due to planned outage work in the third quarter of 2001.
Also contributing to the increase for the nine months ended September 30, 2001
were higher expenses relating to projects going into operation subsequent to the
first quarter of 2000.
Depreciation and Amortization
Depreciation and Amortization expense decreased $7 million or 20% and $20
million or 19% for the quarter and nine months ended September 30, 2001 from the
comparable periods in 2000, respectively. The decrease was primarily due to a
reduction in the accrual for the estimated cost of removal of Power's generating
stations.
Interest Expense
Interest Expense decreased $29 million or 53% for the quarter ended
September 30, 2001 from the comparable period in 2000 primarily due to the
repayment of the $2.786 billion 14.23% promissory note to PSE&G to finance the
acquisition of PSE&G's generation business in August 2000. This loan was repaid
on January 31, 2001 and was replaced on an interim basis by PSEG loans of $1.084
billion at 14.23% and $536 million at 7.11% from January 2001 to April 2001.
These loans were repaid with the proceeds from the issuance of the $1.8 billion
Senior Notes discussed below. For the quarter ended September 30, 2000, Interest
Expense included $44 million related to these promissory notes and $11 million
of interest for the quarter prior to the generation business acquisition. This
expense was calculated based upon an allocation methodology that charged Power
with financing costs from PSE&G in proportion to its share of total net
property, plant and equipment, materials and supplies, and deferred income
taxes. Power's Interest Expense for the quarter ended September 30, 2001
primarily includes interest on the $1.8 billion Senior Notes.
Interest Expense increased $17 million or 17% for the nine months ended
September 30, 2001 from the comparable period in 2000. The increase in Power's
Interest Expense resulted from its promissory note to PSE&G and the interim PSEG
loans to finance the acquisition of PSE&G's generation business. For the nine
months ended September 30, 2000, Interest Expense included $44 million related
to these promissory notes and $54 million of interest prior to the generation
business acquisition which was calculated as discussed above. Power's Interest
Expense for the nine months ended September 30, 2001 includes $66 million
related to the promissory notes and interest on the $1.8 billion Senior Notes.
Liquidity and Capital Resources
In 2000, Power financed the acquisition of the generation business from
PSE&G through the issuance of a $2.786 billion promissory note. On January 31,
2001, through cash contributions of $1.2 billion and demand loans of $1.62
billion from PSEG, Power repaid this note to PSE&G. In April 2001, Power issued
$1.8 billion in a private placement of its Senior Notes, the proceeds of which
were used primarily to replace its interim financing from PSEG. It is expected
that Power's future capital needs will be funded with cash generated from
operations and will be supplemented with external financings, equity infusions
from PSEG and other project financing alternatives as dictated by Power's growth
strategy. Any inability to obtain required additional external capital or to
extend or replace maturing debt and/or existing agreements at current levels and
reasonable interest rates may affect Power's financial condition, results of
operations and net cash flows.
Capital Requirements
Construction expenditures were related to acquisitions and development by
Power and improvements in Power's existing power plants. Power had net plant
additions for the nine months ended September 30, 2001 and 2000, respectively,
of $1.2 billion and $279 million, excluding capitalized interest. The
expenditures in 2001 were for developing the 1,150 MW Lawrenceburg, Indiana site
and the 850 MW Waterford, Ohio site and adding capacity to the Bergen, Linden,
Burlington and Kearny stations in New Jersey. Changes in environmental
regulations and unexpected impacts of existing regulations could impact both
Power's construction and growth strategy as well as the capital expenditure
amounts. For further information, including New Source Review and PSD
requirements under the Federal Clean Air Act (CAA), see Note 4. Commitments and
Contingent Liabilities.
For a discussion of Power's pending asset purchases and developments, see
Note 4. Commitments and Contingent Liabilities.
External Financings
In April 2001, Power, in a private placement, issued $500 million of 6.875%
Senior Notes due 2006, $800 million of 7.75% Senior Notes due 2011 and $500
million of 8.625% Senior Notes due 2031. The net proceeds from the sale of the
Senior Notes were used primarily for the repayment of loans from PSEG, which
were provided to finance Power's purchase of PSE&G's generation business. Power
filed a registration statement with the SEC relating to an exchange offer for,
or the resale of, these Senior Notes on October 5, 2001.
Power obtains any required short term funding through loans from PSEG
through PSEG's credit facilities. As of September 30, 2001, letters of credit
were issued in the amount of approximately $90 million.
Business Environment
Power is currently evaluating the economic consequences of the September
11, 2001 terrorist attacks on the United States and subsequent developments,
particularly their impact on accelerating the continued economic slowdown in the
United States. The consequences of a prolonged recession and market conditions
may include the continued uncertainty of energy prices and the capital and
commodity markets. Power cannot predict the impact of any continued economic
slowdown and fluctuating energy prices. However, such impact could have a
material adverse effect on its financial condition, results of operations and
net cash flows.
Accounting Matters
For a discussion of EITF 99-19, SFAS 133 and related DIG issues, SFAS 141,
SFAS 142, SFAS 143 and SFAS 144, see Note 2. Accounting Matters, and Note 5.
Financial Instruments and Risk Management.
Forward Looking Statements
The information contained herein includes "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. All
statements, other than statements of historical facts, included in this document
that address activities, events or developments that we expect or anticipate
will or may occur in the future, including such things as Power's projections,
future capital expenditures, business strategy, competitive strengths, goals,
expansion and Power's growth and the growth of Power's subsidiaries' businesses
and operations, are forward-looking statements. These statements are based on
assumptions and analyses made by Power in light of its experience and perception
of historical trends, current conditions and expected future developments as
well as other factors Power believes are appropriate in the circumstances.
However, actual results and developments may differ materially from Power's
expectations and predictions due to a number of risks and uncertainties,
including:
o general and local economic, market or business conditions;
o demand for electricity, capacity and ancillary services in the markets
served by Power's generating units;
o increasingly competitive actions by other companies;
o the acquisition and development opportunities (or lack thereof) that
may be presented to and pursued by Power;
o changes in laws or regulations that are applicable to Power;
o environmental constraints on construction and operation;
o the rapidly changing market for energy products;
o other factors, many of which are beyond Power's control;
o nuclear decommissioning and the availability of storage facilities for
spent nuclear fuel;
o licensing approval necessary for nuclear and other operating stations;
o the ability to economically and safely operate generating facilities
in accordance with regulatory requirements; and
o acts of war or terrorism.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Certain information reported under legal proceedings reported in Amendment
No. 1 to Power's Form S-4 Registration Statement filed October 5, 2001.
New Matter. See page 20 for information on proceedings before the U.S.
Court of Federal Claims regarding DOE overcharges. Docket No. 01-592C.
New Matter. See page 20 for information on proceedings before the U.S.
Court of Federal Claims regarding the DOE not taking possession of spent nuclear
fuel in 1988. Docket No. 01-551C.
ITEM 5. OTHER INFORMATION
Certain information reported under Amendment No. 1 to Power's Form S-4
Registration Statement filed October 5, 2001 is updated below. References are to
the related pages on the Amended Form S-4 as printed and distributed.
License Renewals
Form S-4, Page 11. Exelon, co-owner and operator of Peach Bottom, has
informed Nuclear that on July 3, 2001 an application was submitted to the
Nuclear Regulatory Commission to renew the operating licenses for Peach Bottom
Units 2 and 3. If approved, the current licenses would be extended by 20 years,
to 2033 and 2034 for Units 2 and 3 respectively. NRC review of the application
is expected to take approximately two years.
Form S-4, Page 11. The New Jersey Department of Environmental Protection
(NJDEP) issued a final New Jersey Pollutant Discharge Elimination System permit
(Permit) for Salem on June 29, 2001, with an effective date of August 1, 2001,
allowing for the continued operation of Salem with its existing cooling water
system. This Permit renews Salem's variance from applicable thermal water
quality standards under Section 316(a) of the federal Clean Water Act (CWA),
determines that the existing intake structure represents best technology
available under Section 316(b) of the CWA, requires that Nuclear continues to
implement the wetlands restoration and fish ladder programs established under
the 1994 permit, and imposes requirements for additional analyses of data and
studies to determine if other intake technologies are available for application
at Salem that are biologically effective. The Permit also requires Nuclear to
install up to two additional fish ladders in New Jersey and fund an escrow
account in the amount of $500,000 for the construction of artificial reefs by
NJDEP. The permit's expiration date is July 31, 2006.
Nuclear also reached a settlement with the Delaware Department of Natural
Resources and Environmental Control (DNREC) providing that Nuclear will fund
additional habitat restoration and enhancement activities as well as fisheries
monitoring and that PSEG and DNREC will work cooperatively on the finalization
of other regulatory approvals required for implementation of the Permit. As part
of this agreement, PSEG was required to deposit approximately $5.8 million into
an escrow account to be used for future costs related to this settlement.
Form S-4, Page 61. The Delaware River Basin Commission (DRBC) unanimously
approved PSEG's request for revisions to its Docket for Salem at the DRBC's
meeting on September 13, 2001. The Docket, as revised, provides for a heat
dissipation area consistent with the hydrothermal modeling studies conducted in
connection with the renewal application for Salem's NJPDES permit, incorporates
by reference the terms and conditions of the 2001 Permit, rescinds the 1995
Revised Docket and establishes a twenty-five year term for the Docket. The newly
revised Docket again includes a re-opener clause that allows the DRBC to
re-consider the terms and conditions of the Docket, based upon changed
circumstances.
FERC RTO Orders
Form S-4, page 46. The Federal Energy Regulatory Commission (FERC), in a
series of orders issued in July 2001, called for the creation of four large
regional transmission organizations (RTOs) to facilitate competitive regional
markets in the U.S. FERC rejected several smaller RTO proposals and directed
transmission owners and independent system operators (ISOs) to combine into much
larger RTOs, dramatically altering their proposed geographic size and
configuration.
In the Northeast region, FERC conditionally approved the Pennsylvania-New
Jersey Maryland (PJM) RTO proposal (subject to several modifications and
compliance filings) and rejected the New York ISO and ISO-New England RTO
proposals. FERC directed that the three existing ISOs for PJM, New York and New
England, as well as the systems involved in PJM West, form a single Northeast
RTO, based on the "PJM platform" and "best practices" of all three ISO's, FERC
directed that the parties in the region engage in mediation (with FERC
oversight) to prepare a proposal and timetable for the merger of the ISOs into a
single RTO. At the end of the 45-day mediation period, the Administrative Law
Judge assigned to the matter submitted a report to the Commission with an
attached business plan for implementation of the single northeast RTO possibly
as soon as the fourth quarter of 2003. Numerous details must still be
negotiated.
Power believes that lower-cost generation providers should benefit from
having better access to a larger regional market. While the impact on Power is
uncertain because specific rules will not be known for some time, the
elimination of seams issues and the creation of a single wholesale market in the
Northeast is generally expected to have a positive impact on the PSEG companies.
Nuclear Fuel
Form S-4, page 52. Nuclear has several long-term contracts with uranium ore
operators, converters, enrichers and fabricators to meet the currently projected
fuel requirements for Salem and Hope Creek. Nuclear has been advised by Exelon
that it has similar contracts to satisfy the fuel requirements of Peach Bottom.
On October 11, 2001, Nuclear filed a complaint in the U.S. Court of Federal
Claims, along with over 19 other plaintiffs, seeking relief from past
overcharges by the United States Department of Energy (DOE) for enrichment
services. No assurances can be given as to any claimed damage recovery.
Form S-4, page 62. Pursuant to NRC rules, spent nuclear fuel generated in
any reactor can be stored in reactor facility storage pools or in independent
spent fuel storage installations located at or away-from-reactor sites for at
least 30 years beyond the licensed life for reactor operation (which may include
the term of a revised or renewed license). The availability of adequate spent
fuel storage capacity is estimated through 2011 for Salem 1, 2015 for Salem 2
and 2007 for Hope Creek. Nuclear presently expects to construct an on-site
storage facility that would satisfy the spent fuel storage needs of both Salem
and Hope Creek, construction of which will require certain regulatory approvals,
the timely receipt of which cannot be assured. Exelon has advised Nuclear that
it has constructed an on-site dry storage facility at Peach Bottom which is now
operational to provide additional storage capacity through the end of the
current licenses for the two Peach Bottom units.
Under the Nuclear Waste Policy Act of 1982 (NWPA), as amended, the Federal
government has entered into contracts with operators of nuclear power plants for
transportation and ultimate disposal of the spent fuel and mandated that the
nuclear plant operators contribute to a Nuclear Waste Fund at a rate of one mil
per kWh of nuclear generation, subject to such escalation as may be required to
assure full cost recovery by the Federal government. Under the NWPA, DOE was
required to begin taking possession of all spent nuclear fuel generated by
Power's nuclear units for disposal by no later than 1998. DOE construction of a
permanent disposal facility has not begun and the DOE has announced that it does
not expect a facility to be available earlier than 2010. Exelon has advised
Power that it had signed an agreement with the DOE applicable to Peach Bottom
under which Exelon would be reimbursed for costs resulting from the DOE's delay
in accepting spent nuclear fuel. The agreement allows Exelon to reduce the
charges paid to the Nuclear Waste Fund to reflect costs reasonably incurred due
to the DOE's delay. Past and future expenditures associated with Peach Bottom's
recently completed on-site dry storage facility would be eligible for this
reduction in future DOE fees. On November 22, 2000, a group of eight utilities
filed a petition against DOE in the Eleventh Circuit U.S. Court of Appeals
seeking to set aside the receipt of credits out of the Nuclear Waste Fund, as
stipulated in the Peach Bottom agreement. On September 26, 2001 PSEG Nuclear
filed a complaint in the U. S. Court of Federal Claims seeking relief for
damages caused by the DOE not taking possession of spent nuclear fuel in 1998.
No assurances can be given as to any damage recovery or the ultimate
availability of a disposal facility.
Development Projects
New Matter. Power has filed an application with the New York State Public
Service Commission for permission to construct and operate a direct generator
lead (dedicated transmission line) that would deliver up to 500 MW of
electricity to the West Side of Manhattan from the Bergen Generating Station in
Ridgefield, NJ. Applications for necessary New Jersey and Federal approvals are
expected to be filed in the near future. Estimated costs are not expected to
exceed $100 million.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) A listing of exhibits being filed with this document is as follows:
Exhibit Number Document
-------------- --------
12 Computation of Ratios of Earnings to Fixed Charges
(B) Reports on Form 8-K:
None.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PSEG POWER LLC
(Registrant)
By: Patricia A. Rado
------------------------------------------
Patricia A. Rado
Vice President and Controller
(Principal Accounting Officer)
November 1, 2001