UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
- ----- Exchange Act of 1934
- ----- Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For Quarter Ended MARCH 31, 2001 Commission File Number 333-48900
NRG SOUTH CENTRAL GENERATING LLC
(Exact name of registrant as specified in its charter)
DELAWARE 41-1963217
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
901 MARQUETTE AVENUE, SUITE 2300, 55402
MINNEAPOLIS, MINNESOTA
- --------------------------------------------------------------------------------
(Address of principal executive officers) (Zip Code)
Registrant's telephone number, including area code: (612) 373-5300
NONE
- -------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last
report
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 period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
-------- --------
The Registrant meets the conditions set forth in general instruction H
(1) (a) and (b) of Form 10-Q and is therefore filing this form with the reduced
disclosure format.
INDEX PAGE NO.
PART I
Item 1 Consolidated Financial Statements and Notes
Consolidated Statements of Income 1
Consolidated Balance Sheets 2
Consolidated Statements of Stockholder's Equity 4
Consolidated Statements of Cash Flows 5
Notes to Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Item 3 Quantitative and Qualitative Disclosures About Market Risk
(OMITTED PER GENERAL INSTRUCTION H 1 (a) AND (b) OF FORM 10-Q) --
PART II
Item 1 Legal Proceedings 13
Item 6 Exhibits, Financial Statement Schedules, and Reports 14
on Form 8-K
SIGNATURES 15
PART I
ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS AND NOTES
- -------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
NRG SOUTH CENTRAL GENERATING LLC AND SUBSIDIARIES
(PREDECESSOR)
CARVE-OUT FOR THE
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, MARCH 30,
(IN THOUSANDS) 2001 2000
- ----------------------------------------------------------------------------------------------------------
(UNAUDITED)
OPERATING REVENUES |
Revenues $ 97,451 | $ 77,406
OPERATING COSTS AND EXPENSES |
Operating costs 60,115 | 58,628
Depreciation and amortization 7,031 | 9,647
General and administrative expenses 1,814 | 2,423
|
--------------------|---------------------
OPERATING INCOME 28,491 | 6,708
OTHER (INCOME) EXPENSE |
Other income, net (102) | (521)
Interest expense 18,093 | -
|----------------------
EXCESS OF REVENUES OVER COSTS AND EXPENSES | $ 7,229
--------------------|======================
NET INCOME $ 10,500 |
====================|
See accompanying notes to consolidated financial statements.
1
CONSOLIDATED BALANCE SHEETS
NRG SOUTH CENTRAL GENERATING LLC AND SUBSIDIARIES
MARCH 31, DECEMBER 31,
(IN THOUSANDS) 2001 2000
-------------------------------------
(UNAUDITED)
ASSETS
Current Assets:
Cash and cash equivalents $ 5,094 $ 3,146
Accounts receivable 43,799 52,644
Inventory 38,489 24,214
Prepaid expenses 1,346 1,576
Other current assets 747 --
-------------------------------------
Total current assets 89,475 81,580
Investment in projects 31,488 15,344
Property, plant and equipment, net 1,093,034 1,088,908
Decommissioning fund investments 3,937 3,863
Deferred finance costs, net of accumulated amortization of $429 and $324 10,291 10,086
Other non-current assets, net of accumulated amortization of $217 and $163 7,538 7,595
-------------------------------------
TOTAL ASSETS $ 1,235,763 $ 1,207,376
=====================================
See accompanying notes to consolidated financial statements.
2
CONSOLIDATED BALANCE SHEETS
NRG SOUTH CENTRAL GENERATING LLC. AND SUBSIDIARIES
March 31, December 31,
(IN THOUSANDS) 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------
(UNAUDITED)
LIABILITIES AND MEMBERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 25,500 $ 25,250
Revolving line of credit 40,000 -
Accounts payable 1,565 2,807
Accounts payable-affiliates 14,599 40,584
Accrued fuel and purchased power expense 9,977 14,545
Accrued interest 3,124 21,310
Other current liabilities 10,314 7,755
--------------------------------
Total current liabilities 105,079 112,251
Long-term debt 750,750 763,500
Other non-current liabilities 5,237 4,863
--------------------------------
Total liabilities 861,066 880,614
Commitments and contingencies
Members' equity 374,697 326,762
--------------------------------
TOTAL LIABILITIES AND MEMBERS' EQUITY $ 1,235,763 $ 1,207,376
================================
See accompanying notes to consolidated financial statements.
3
CONSOLIDATED STATEMENT OF MEMBERS' EQUITY
NRG SOUTH CENTRAL GENERATING LLC AND SUBSIDIARIES
(UNAUDITED)
ACCUMULATED
MEMBER OTHER TOTAL
CONTRIBUTIONS/ ACCUMULATED COMPREHENSIVE MEMBERS'
(IN THOUSANDS) DISTRIBUTIONS INCOME INCOME EQUITY
- -------------------------------------------------------------------------------------------------------------------------
BALANCES AT JANUARY 1, 2001 300,746 26,016 -- $ 326,762
Cumulative effect upon adoption of SFAS No. 133 500 500
Impact of SFAS No. 133 for the period ending
March 31, 2001 (500) (500)
Net income 10,500 10,500
--------
Comprehensive Income 10,500
Member contributions, net 37,435 37,435
-------------------------------------------------------------------
BALANCES AT MARCH 31, 2001 $ 338,181 $ 36,516 $ -- $ 374,697
-------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
4
CONSOLIDATED STATEMENTS OF CASH FLOWS
NRG SOUTH CENTRAL GENERATING LLC AND SUBSIDIARIES
THREE MONTHS ENDED
(IN THOUSANDS) MARCH 31, 2001
- ----------------------------------------------------------------------------------------------------------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 10,500
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 7,031
Amortization of deferred finance costs 159
Unrealized gains on energy contracts (747)
Changes in assets and liabilities:
Accounts receivable, net 8,845
Inventory (14,275)
Prepaid expenses 230
Accounts payable (41,154)
Accounts payable-affiliates 20,401
Accrued interest (17,812)
Accrued fuel and purchased power expense (4,568)
Other current liabilities 2,559
Cash provided by changes in other assets and liabilities (71)
---------------------
NET CASH USED IN OPERATING ACTIVITIES (28,902)
---------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,370)
---------------------
NET CASH USED BY INVESTING ACTIVITIES (1,370)
---------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Contributions by members 5,051
Net proceeds from revolving line of credit 40,000
Repayment of long-term borrowings (12,500)
Deferred financing costs (331)
---------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 32,220
---------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,948
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 3,146
---------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,094
=====================
See accompanying notes to consolidated financial statements.
5
NRG SOUTH CENTRAL GENERATING LLC
NOTES TO FINANCIAL STATEMENTS
NRG South Central Generating LLC (NRG South Central, or the Company), a
Delaware Limited Liability Company formed in 2000, is an indirect
wholly-owned subsidiary of NRG Energy, Inc. (NRG Energy). NRG South Central
owns 100% of Louisiana Generating LLC (Louisiana Generating), NRG New Roads
Holding LLC (New Roads), NRG Sterlington Power LLC (Sterlington), Big Cajun
I Peaking Power LLC (Big Cajun Peaking), NRG Sabine River Works LP LLC
(Sabine River Works LP) and NRG Sabine River Works GP LLC (Sabine River
Works GP). NRG South Central's members are NRG Central U.S. LLC
(NRG Central) and South Central Generation Holding LLC (South Central
Generation). NRG Central and South Central Generation are wholly owned
subsidiaries of NRG Energy, each of which owns a 50% interest in NRG South
Central.
NRG South Central was formed for the purpose of financing, acquiring,
owning, operating and maintaining through its subsidiaries and affiliates
the facilities owned by Louisiana Generating and any other facilities that
it or its subsidiaries may acquire in the future.
Pursuant to a competitive bidding process, following the Chapter 11
bankruptcy proceeding of Cajun Electric Power Cooperative, Inc. (Cajun
Electric), Louisiana Generating acquired the non-nuclear electric power
generating assets of Cajun Electric (the Cajun Facilities). New Roads was
formed for the purpose of holding assets that Louisiana Generating acquired
from Cajun Electric which are not necessary for the operation of the newly
acquired generating facilities and, with respect to some of these assets,
may not be held by Louisiana Generating under applicable federal
regulations.
The acquisition of the Cajun Electric assets was financed in part through
the issuance by NRG South Central of $800 million aggregate principal amount
of senior secured bonds. Louisiana Generating is a guarantor of the bonds.
NRG New Roads Holdings, NRG Sterlington Power, NRG Sabine River Works LP and
NRG Sabine River Works GP and Big Cajun I Peaking Power have been designated
as "unrestricted subsidiaries" of NRG South Central under the indenture
governing the bonds, and are not guarantors of the bonds.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with SEC regulations for interim financial
information and with the instructions to Form 10-Q. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. The accounting
policies followed by the Company are set forth in Note 1 to the Company's
financial statements in its annual report on Form 10-K for the year ended
December 31, 2000 (Form 10-K). The following notes should be read in
conjunction with such policies and other disclosures in the Form 10-K.
Interim results are not necessarily indicative of results for a full year.
In the opinion of management, the accompanying unaudited interim financial
statements contain all material adjustments necessary to present fairly the
consolidated financial position of the Company as of March 31, 2001 and
December 31, 2000, the results of its operations for the three months ended
March 31, 2001 and 2000, and its cash flows and members' equity for the
three months ended March 31, 2001 and 2000.
1. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
MARCH 31, DECEMBER 31,
2001 2000
--------------- -------------
(IN THOUSANDS)
Land............................ $ 14,309 $ 14,308
Facilities, machinery and equipment 1,043,036 1,044,053
Office furnishings and equipment 3,644 3,630
Construction in progress........ 59,744 47,595
Accumulated depreciation........ (27,699) (20,678)
--------------- -------------
Property, plant and equipment (net) $ 1,093,034 $ 1,088,908
=============== ==============
2. SHORT TERM DEBT
As of March 31, 2001, NRG South Central had outstanding approximately $40
million under its project level revolving credit agreement which matures in
March 2002. At March 31, 2001, the weighted average interest rate of such
outstanding advances was 8.0% per year. No additional amounts are
available under this facility.
3. INVENTORY
Inventory, which is stated at the lower of weighted average cost or market,
consists of:
MARCH 31, DECEMBER 31,
2001 2000
---------- -------------
(IN THOUSANDS)
Coal.................. $ 22,816 $ 8,099
Spare Parts........... 14,806 15,277
Fuel oil.............. 867 838
---------- -------------
Total................. $ 38,489 $ 24,214
========== =============
6
4. PREDECESSOR REVENUES AND EXPENSES
The accompanying Consolidated Statement of Operations contains a statement
of certain revenues and expenses of Cajun Electric, the predecessor of
Louisiana Generating, on a carve-out basis for the three months ended March
31, 2000. These results have been separated from the results for the three
months ended March 31, 2001 by a black line due to the change in basis of
the assets of Cajun Electric on the date of its acquisition. These results
represent certain revenues and expenses of Cajun Electric's non-nuclear
electric generating business, which were acquired on March 31, 2000.
The carve-out revenues and expenses exclude Cajun Electric's investment
earnings, interest expense, bankruptcy reorganization costs and income
taxes.
5. PRO FORMA RESULTS OF OPERATIONS (UNAUDITED)
On March 31. 2000, the acquisition of the Cajun Facilities from Cajun
Electric power Cooperative, Inc. was completed for approximately
$1,055.9 million. The following information summarizes the pro forma
results of operations for the quarter ended March 31, 2000 as if the
acquisition had occurred as of the beginning of the year. The pro forma
information presented is for informational purposes only and is not
necessarily indicative of future earnings or financial position or of what
the earnings and financial position would have been had the acquisition of
the Cajun facilities been consummated at the beginning of the period for
which pro forma financial information is presented.
PRO FORMA
QUARTER ENDED
(IN THOUSANDS) MARCH 31, 2000
----------------------
Revenues $ 77,406
Operating costs 58,628
Depreciation and amortization 7,057
General and administrative expenses 2,423
----------------------
Operating Income 9,298
Other expense (income), net (521)
Interest expense 18,312
----------------------
Net loss $ (8,493)
======================
6. CONDENSED CONSOLIDATING FINANCIAL INFORMATION
The following tables set forth the consolidating financial statements of NRG
South Central Generating LLC (Bond Issuer); Louisiana Generating LLC (Bond
Guarantor); NRG New Roads Holding LLC, NRG Sterlington Power LLC, Big Cajun
I Peaking Power LLC, NRG Sabine River Works GP LLC and NRG Sabine River
Works LP LLC (Unrestricted, Non-guarantor subsidiaries). The condensed
consolidating financial statements present the unrestricted non-guarantor
subsidiaries on a combined basis. The consolidating financial statements as
of and for the quarter ended March 31, 2001 have been derived from the
unaudited historical consolidated financial statements of the Company.
7
NRG SOUTH CENTRAL GENERATING LLC AND SUBSIDIARIES
CONSOLIDATING BALANCE SHEET
MARCH 31, 2001
(UNAUDITED)
LOUISIANA
UNRESTRICTED GENERATING LLC SOUTH CENTRAL
NON-GUARANTOR (BOND GENERATING LLC CONSOLIDATED
SUBSIDIARIES GUARANTOR) (BOND ISSUER) ELIMINATIONS(1) BALANCE
------------- -------------- -------------- --------------- -------------
(IN THOUSANDS)
ASSETS
Current Assets:
Cash and cash equivalents............. $ - $ 5,094 $ - $ - $ 5,094
Accounts receivable................... - 43,799 - - 43,799
Interest receivable................... - - 3,102 (3,102) -
Inventory............................. - 38,489 - - 38,489
Prepaid expenses...................... 25 1,301 20 - 1,346
Other current assets.................. - - 747 - 747
------------- -------------- -------------- --------------- -------------
Total current assets............ 25 88,683 3,869 (3,102) 89,475
Investment in subsidiaries.............. - - 361,493 (361,493) -
Investment in projects.................. 31,488 - - - 31,488
Intercompany note receivable............ - - 776,250 (776,250) -
Property, plant & equipment, net........ 99,208 993,826 - - 1,093,034
Decommissioning fund investments........ - 3,937 - - 3,937
Deferred finance costs, net............. - 10,291 - - 10,291
Other non-current assets, net........... - 2,325 5,213 - 7,538
------------- -------------- -------------- --------------- -------------
TOTAL ASSETS.................... $130,721 $1,099,062 $1,146,825 $(1,140,845) $1,235,763
============= ============== ============== =============== =============
LIABILITIES AND MEMBERS' EQUITY
Current Liabilities:
Current portion of long-term debt..... $ - $ - $ 25,500 $ - $ 25,500
Revolving line of credit.............. - - 40,000 - 40,000
Intercompany note payable............. - 25,500 - (25,500) -
Accounts payable...................... 42 1,523 - - 1,565
Accounts payable-affiliates........... 25,551 36,311 (47,263) - 14,599
Accrued fuel and purchased power expense 489 9,488 - - 9,977
Accrued interest...................... - 3,102 3,124 (3,102) 3,124
Other current liabilities............. 1,615 8,699 - - 10,314
------------- -------------- -------------- --------------- -------------
Total current liabilities....... 27,697 84,623 21,361 (28,602) 105,079
Long-term debt.......................... - - 750,750 - 750,750
Intercompany note payable............... - 750,750 - (750,750) -
Other non-current liabilities........... - 5,237 - - 5,237
------------- -------------- -------------- --------------- -------------
Total liabilities............... 27,697 840,610 772,111 (779,352) 861,066
Commitments and contingencies...........
Members' equity......................... 103,024 258,452 374,714 (361,493) 374,697
------------- -------------- -------------- --------------- -------------
TOTAL LIABILITIES
AND MEMBERS' EQUITY............. $130,721 $1,099,062 $1,146,825 $(1,140,845) $1,235,763
============= ============== ============== =============== =============
- -----------
(1) All significant intercompany transactions have been eliminated in
consolidation.
8
NRG SOUTH CENTRAL GENERATING LLC AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE QUARTER ENDED MARCH 31, 2001
(UNAUDITED)
LOUISIANA
UNRESTRICTED GENERATING LLC SOUTH CENTRAL
NON-GUARANTOR (BOND GENERATING LLC CONSOLIDATED
SUBSIDIARIES GUARANTOR) (BOND ISSUER) ELIMINATIONS(1) BALANCE
------------- -------------- -------------- --------------- -------------
(IN THOUSANDS)
OPERATING REVENUES
Revenues........... $ 905 $ 97,451 $ - $ (905) $ 97,451
OPERATING COSTS AND EXPENSES
Operating costs.... 677 61,090 (747) (905) 60,115
Depreciation and 263 6,768 - - 7,031
amortization..........
General and administrative
expenses...... 119 1,543 152 - 1,814
------------- -------------- -------------- --------------- -------------
OPERATING INCOME...... (154) 28,050 595 - 28,491
OTHER (INCOME) EXPENSE
Other (income) expense, net (17) (85) (17,987) 17,987 (102)
Equity in earnings of - - 9,905 (9,905)
subsidiaries
Interest expense... - 18,093 17,987 (17,987) 18,093
------------- -------------- -------------- --------------- -------------
NET INCOME............ $ (137) $ 10,042 $ 10,500 $ (9,905) $ 10,500
============= ============== ============== =============== =============
(1) All significant intercompany transactions have been eliminated in
consolidation.
9
NRG SOUTH CENTRAL GENERATING LLC AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE QUARTER ENDED MARCH 31, 2001
(UNAUDITED)
SOUTH CENTRAL
UNRESTRICTED LOUISIANA GENERATING
NON-GUARANTOR GENERATING LLC LLC CONSOLIDATED
SUBSIDIARIES (BOND GUARANTOR) (BOND ISSUER) ELIMINATIONS(1) BALANCE
------------- ---------------- ------------- --------------- ------------
(IN THOUSANDS)
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income....................... $ (137) $ 10,042 $ 10,500 $ (9,905) $ 10,500
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization.. 263 6,768 - - 7,031
Amortization of deferred finance - 105 54 - 159
costs..........................
Distributions less than - - (9,905) 9,905 -
equity.........................
Unrealized gains on energy
contracts...................... - - (747) - (747)
Changes in assets and liabilities:
Accounts receivable, net....... - 8,845 - - 8,845
Inventories.................... - (14,275) - - (14,275)
Prepaid expenses............... 21 229 (20) - 230
Accounts payable............... (326) (916) (39,912) (41,154)
Accounts payable - affiliates.. 127 (19,747) 21 40,000 20,401
Accrued interest............... - (17,821) (18,186) 18,195 (17,812)
Interest receivable............ - - 18,195 (18,195) -
Accrued fuel and purchased power
expense...................... 115 (4,683) - - (4,568)
Other current liabilities...... 320 2,239 - - 2,559
Cash provided by changes in other
assets and liabilities... - (71) - - (71)
------------- ---------------- ------------- --------------- ------------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES..... 383 (29,285) (40,000) 40,000 (28,902)
------------- ---------------- ------------- --------------- ------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Payment received on loan to - - 12,500 (12,500) -
affiliate......................
Capital expenditures........... (383) (987) (5,051) 5,051 (1,370)
------------- ---------------- ------------- --------------- ------------
NET CASH (USED IN) PROVIDED BY
INVESTING ACTIVITIES..... (383) (987) 7,449 (7,449) (1,370)
------------- ---------------- ------------- --------------- ------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Repayment of long-term borrowings - (12,500) (12,500) 12,500 (12,500)
Net proceeds from revolving line
of credit..................... - 40,000 40,000 (40,000) 40,000
Contributions by members....... - 5,051 5,051 (5,051) 5,051
Deferred financing costs....... - (331) - - (331)
------------- ---------------- ------------- --------------- ------------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES..... - 32,220 32,551 (32,551) 32,220
------------- ---------------- ------------- --------------- ------------
NET INCREASE IN CASH AND CASH
EQUIVALENTS.............. - 1,948 - - 1,948
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD...... - 3,146 - - 3,146
------------- ---------------- ------------- --------------- ------------
CASH AND CASH EQUIVALENTS, END OF
PERIOD................... $ - $ 5,094 $ - $ - $ 5,094
============= ================ ============= ========= ============
(1) All significant intercompany transactions have been eliminated in
consolidation.
7. SUMMARY OF CAJUN ELECTRIC (PREDECESSOR) CASH FLOWS
Summarized cash flows from operating and investing activities for Cajun
Electric (Predecessor) for the three months ended March 30, 2000 were as
follows:
(IN THOUSANDS)
Cash flows from operating activities:
Excess of revenues over costs and expenses $ 7,229
Adjustments to reconcile net margins to net cash:
Depreciation and amortization 9,647
Asset dispositions 15
Changes in accounts receivable 2,133
Changes in fuel and prepayments (4,153)
Changes in accounts payable and accrued expenses 6,058
-----------------
Net cash provided by operating activities 20,929
Cash flows for investing activities
Capital expenditures $ (1,142)
8. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITY
On January 1, 2001, the Company adopted Statement of Financial Accounting
Standards No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES (SFAS No. 133), as amended by SFAS No. 137 and SFAS No. 138. SFAS
No. 133 requires the Company to record all derivatives on the balance sheet
at fair value. Changes in the fair value of non-hedge derivatives will be
immediately recognized in earnings. Changes in fair values of derivatives
accounted for as hedges will either be recognized in earnings as offsets to
the changes in fair value of related hedged assets, liabilities and firm
commitments or, for forecasted transactions, deferred and recorded as a
component of other accumulated comprehensive income until the hedged
transactions occur and are recognized in earnings. The ineffective portion of
a hedging derivative's change in fair value will be immediately recognized in
earnings. The Company also formally assesses both at inception and at least
quarterly thereafter, whether the derivatives that are used in hedging
transactions are highly effective in offsetting the changes in either the
fair value or cash flows of the hedged item. When it is determined that a
derivative ceases to be a highly effective hedge, the Company discontinues
hedge accounting.
The adoption of SFAS No. 133 on January 1, 2001, resulted in an unrealized
gain of $0.5 million recorded to other accumulated comprehensive income
(OCI). The impact to OCI is related to previously deferred gains on
derivatives designated as cash flow hedges. During the first quarter of 2001,
the Company reclassified from OCI into earnings $0.5 million of accumulated
derivative gains. The balance in OCI relating to SFAS No. 133 as of March 31,
2001 was $0. Unrealized gains and losses on derivatives are recorded in other
current and long-term assets and liabilities.
The Company's earnings for the first quarter of 2001 were increased by an
unrealized gain of $0.7 million relating to derivative instruments not
accounted for as hedges in accordance with SFAS No. 133.
SFAS No. 133 applies to the Company's energy and energy related commodities
financial instruments used to mitigate variability in earnings due to
fluctuations in spot market prices, hedge fuel requirements at generation
facilities and protect investment in fuel inventories.
ENERGY AND ENERGY RELATED COMMODITIES
The Company is exposed to commodity price variability in electricity,
emission allowances and natural gas, oil and coal used to meet fuel
requirements. In order to manage these commodity price risks, the Company
enters into financial instruments, which may take the form of fixed price,
floating price or indexed sales or purchases, and options, such as puts,
calls, basis transactions and swaps. Derivatives designated to be hedges by
the Company are accounted for as cash flow hedges. The effective portion of
the cumulative gain or loss on the derivative instrument is reported as a
component of OCI in shareholders' equity and recognized into earnings in the
same period or periods during which the hedged transaction affects earnings
i.e., when electricity is generated, and fuel is consumed. No ineffectiveness
was recognized on commodity cash flow hedges during the first quarter of
2001. No gains or losses were recognized related to derivative instruments
excluded from the assessment of effectiveness. At March 31, 2001, the Company
had various commodity related contracts extending through March 2002. The
Company does not expect to reclassify into earnings during the next twelve
months any gains or losses from OCI.
The Company generally attempts to balance its fixed-price physical and
financial purchase and sales commitments in terms of contract volumes, and
the timing of performance and delivery obligations. However, within
guidelines established by the board of directors and its Financial Risk
Management Committee, the Company does take certain market positions. These
derivatives do not qualify for hedge accounting and, accordingly, changes in
the fair value are reported in earnings in revenues from majority-owned and
operating costs. Furthermore, for various commodity derivatives considered to
be economic hedges, the Company has elected not to designate them as
accounting hedges due to the burdensome documentation requirements under SFAS
133. The changes in fair value of these derivatives are also reported in
earnings in revenues and operating costs.
10
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and
Results of Operations is omitted per conditions as set forth in General
Instructions H (1) (a) and (b) of Form 10-Q for wholly owned subsidiaries. It
is replaced with management's narrative analysis of the results of operations
set forth in General Instructions H (2) (a) of Form 10-Q for wholly owned
subsidiaries (reduced disclosure format). The Company does not believe the
comparison of its results of operations for the quarter ended March 31, 2001
to the predecessor revenues and expenses on a carve out basis for the period
January 1, 2000 through March 30, 2000 is meaningful, given that Cajun
Electric was operated under a bankruptcy trustee prior to being acquired by
NRG Energy. Therefore, this analysis will primarily discuss the Company's
revenue and expense items for the quarter ended March 31, 2001.
RESULTS OF OPERATIONS
FOR THE QUARTER ENDED MARCH 31, 2001
OPERATING REVENUES
For the quarter ended March 31, 2001, the Company had total revenue
of $97.5 million. This consisted of $76.1 million in sales from long-term
agreements, which represent approximately 78.1% of total revenue. The
remaining revenue of $21.4 million consists primarily of sales from
short-term spot and bilateral agreements.
OPERATING COSTS AND EXPENSES
Operating costs were $60.1 million for the quarter ended March 31,
2001, which equals 61.7% of revenues. Operating costs consist of expenses for
fuel, and plant operations and maintenance, and additionally, $0.8 million of
unrealized gains on energy contracts.
Fuel expense for the quarter ended March 31, 2001 was $49.1 million.
Fuel expense for the quarter ended March 31, 2001 represents 50.4% of
revenues and includes $29.5 million of coal, $1.1 million of natural gas,
$0.2 million of other fuels and $18.3 million of purchased energy and
transmission.
Plant operations and maintenance expense for the quarter ended March
31, 2001, was $11.8 million. Plant operations and maintenance expense for the
quarter ended March 31, 2001, represents 12.1% of revenues, and includes
labor and benefits under operating service agreements of $4.3 million,
maintenance parts, supplies and services of $5.3 million, and property taxes
and other expenses of $2.2 million.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization costs were $7.0 million for the
quarter ended March 31, 2001, which primarily relate to the acquisition costs
of the Cajun facilities, which are being depreciated over twenty-five to
forty years. Depreciation and amortization represent 7.2% of revenues for the
quarter ended March 31, 2001.
GENERAL AND ADMINISTRATIVE EXPENSE
General and administrative expense was $1.8 million for the quarter
ended March 31, 2001, and include 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. General and
administrative expense represents 1.8% of revenues for the quarter ended
March 31, 2001.
INTEREST EXPENSE
11
Interest expense was $18.1 million for the quarter ended March 31,
2001, and relates to amortization of deferred finance costs and interest on
the senior secured bonds issued to finance the acquisition of the Cajun
facilities. Interest expense represents 18.6% of revenues for the quarter
ended March 31, 2001.
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITY
On January 1, 2001, the Company adopted Statement of Financial Accounting
Standards No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES (SFAS No. 133), as amended by SFAS No. 137 and SFAS No. 138. SFAS
No. 133 requires the Company to record all derivatives on the balance sheet
at fair value. Changes in the fair value of non-hedge derivatives will be
immediately recognized in earnings. Changes in fair values of derivatives
accounted for as hedges will either be recognized in earnings as offsets to
the changes in fair value of related hedged assets, liabilities and firm
commitments or, for forecasted transactions, deferred and recorded as a
component of other accumulated comprehensive income until the hedged
transactions occur and are recognized in earnings. The ineffective portion of
a hedging derivatives change in fair value will be immediately recognized in
earnings. The Company also formally assesses both at inception and at least
quarterly thereafter, whether the derivatives that are used in hedging
transactions are highly effective in offsetting the changes in either the
fair value or cash flows of the hedged item. When it is determined that a
derivative ceases to be a highly effective hedge, the Company discontinues
hedge accounting.
The adoption of SFAS No. 133 on January 1, 2001, resulted in an unrealized
gain of $0.5 million recorded to other accumulated comprehensive income
(OCI). The impact to OCI is related to previously deferred gains on
derivatives designated as cash flow hedges. During the first quarter of 2001,
the Company reclassified form OCI into earnings $0.5 million of accumulated
derivative gains. The balance in OCI relating to SFAS No. 133 as of March 31,
2001 was $0. Unrealized gains and losses on derivatives are recorded in other
current and long-term assets and liabilities.
The Company's earnings for the first quarter of 2001 were increased by an
unrealized gain of $0.7 million relating to derivative instruments not
accounted for as hedges in accordance with SFAS No. 133.
SFAS No. 133 applies to the Company's energy and energy related commodities
financial instruments used to mitigate variability in earnings due to
fluctuations in spot market prices, hedge fuel requirements at generation
facilities and protect investment in fuel inventories.
ENERGY AND ENERGY RELATED COMMODITIES
The Company is exposed to commodity price variability in electricity,
emission allowances and natural gas, oil and coal used to meet fuel
requirements. In order to manage these commodity price risks, the Company
enters into financial instruments, which may take the form of fixed price,
floating price or indexed sales or purchases, and options, such as puts,
calls, basis transactions and swaps. Derivatives designated to be hedges by
the Company are accounted for as cash flow hedges. The effective portion of
the cumulative gain or loss on the derivative instrument is reported as a
component of OCI in shareholder's equity and recognized into earnings in the
same period or periods during which the hedged transaction affects earnings
i.e., when electricity is generated and fuel is consumed. No ineffectiveness
was recognized on commodity cash flow hedges during the first quarter of
2001. No gains or losses were recognized related to derivative instruments
excluded from the assessment of effectiveness. At March 31, 2001, the Company
had various commodity related contracts extending through March 2002. The
Company does not expect to reclassify into earnings during the next twelve
months any gains or losses from OCI.
The Company generally attempts to balance its fixed-price physical and
financial purchase and sales commitments in terms of contract volumes, and
the timing of performance and delivery obligations. However, within guidelines
established by the board of directors and its Financial Risk Management
Committee, the Company does not take certain market positions. These
derivatives do not qualify for hedge accounting and, accordingly, changes in
the fair value are reported in earnings in revenues and operating costs.
Furthermore, for various commodity derivatives considered to be economic
hedges, the Company has elected not to designate them as accounting hedges
due to the burdensome documentation requirements under SFAS 133. The changes
in fair value of these derivatives are also reported in earnings in revenues
and operating costs.
FORWARD-LOOKING STATEMENTS
Certain statements included in this report are forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933
and Section 21E of the Securities and Exchange Act of 1934. While NRG South
Central believes that the expectations expressed in such forward-looking
statements are reasonable, we can give no assurances that these expectations
will prove to have been correct. In addition to any assumptions and other
factors referred to specifically in connection with such forward-looking
statements, factors that could cause the actual results to differ materially
from those contemplated in any forward-looking statements include, among
others, the following:
o Economic conditions including inflation rates and monetary exchange rate
fluctuations;
o Trade, monetary, fiscal, taxation, and environmental policies of
governments, agencies and similar organizations in geographic areas where
we have a financial interest;
o Customer business conditions including demand for their products or
services and supply of labor and materials used in creating their products
and services;
o Financial or regulatory accounting principles or policies imposed by the
Financial Accounting Standards Board, the Securities and Exchange
Commission, the Federal Energy Regulatory Commission and similar entities
with regulatory oversight;
o Availability or cost of capital such as changes in: interest rates; market
perceptions of the power generation industry, the Company or any of its
subsidiaries; or security ratings;
o Factors affecting power generation operations such as unusual weather
conditions; catastrophic weather-related damage; unscheduled generation
outages, maintenance or repairs; unanticipated changes to fossil fuel, or
gas supply costs or availability due to higher demand, shortages,
transportation problems or other developments; environmental incidents; or
electric transmission or gas pipeline system constraints;
o Employee workforce factors including loss or retirement of key
executives, collective bargaining agreements with union employees, or work
stoppages;
o Volatility of energy prices in a deregulated market environment;
o Increased competition in the power generation industry;
o Cost and other effects of legal and administrative proceedings,
settlements, investigations and claims;
o Technological developments that result in competitive disadvantages and
create the potential for impairment of existing assets;
o Factors associated with various investments including competition,
operating risks, dependence on certain suppliers and customers, and
environmental and energy regulations;
o Limitations on NRG South Central's ability to control the development or
operation of projects in which the Company has less than 100% interest;
o The lack of operating history at development projects, the lack of NRG
South Central's operating history at the projects not yet owned and the
limited operating history at the remaining projects provide only a limited
basis for management to project the results of future operations;
o Risks associated with timely completion of projects under construction,
including obtaining competitive contract, obtaining regulatory and
permitting approvals, local opposition, construction delays and other
factors beyond NRG South Central's control;
o The failure to timely satisfy the closing conditions contained in the
definitive agreements for the acquisitions of projects subject to
definitive agreements but not yet closed, many of which are beyond NRG
South Central's control;
o Factors challenging the successful integration of projects not previously
owned or operated by NRG South Central, including the ability to obtain
operating synergies;
o Changes in government regulation or the implementation of government
regulations, including pending changes within or outside of California as
a result of the California energy crisis which could adversely affect the
continued deregulation of the electric industry;
o Other business or investment considerations that may be disclosed from time
to time in our Securities and Exchange Commission filings or in other
publicly disseminated written documents.
NRG South Central undertakes no obligation to update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. The foregoing review of factors that could cause NRG
South Central's actual results to differ materially from those contemplated
in any forward-looking statements included in this Form 10-Q should not be
construed as exhaustive.
12
PART II
ITEM 1. LEGAL PROCEEDINGS
There are no material legal proceedings pending, to which NRG South
Central or any of its subsidiaries is a party. There are no material legal
proceedings to which an officer or director is a party or has a material
interest adverse to NRG South Central or its subsidiaries.
There are no material administrative or judicial proceedings arising
under environmental quality or civil rights statutes pending or known to be
contemplated by governmental agencies to which NRG South Central is or would be
a party.
13
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
None
(b) REPORTS ON FORM 8-K:
None
14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NRG South Central Generating LLC.
---------------------------------
(Registrant)
/s/ Craig A. Mataczynski
-----------------------------------
Craig A. Mataczynski, President
/s/ Brian B. Bird
-----------------------------------
Brian B. Bird, Treasurer
(Principal financial officer)
Date: May 14, 2001
-------------------
15